<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT ADVISER Value Line, Inc.
220 East 42nd Street
New York, NY 10017-5891
DISTRIBUTOR Value Line Securities, Inc.
220 East 42nd Street
New York, NY 10017-5891
CUSTODIAN BANK State Street Bank and Trust
Co.
225 Franklin Street
Boston, MA 02110
SHAREHOLDER State Street Bank and Trust
SERVICING AGENT Co.
c/o NFDS
P.O. Box 419729
Kansas City, MO 64141-6729
INDEPENDENT Price Waterhouse LLP
ACCOUNTANTS 1177 Avenue of the Americas
New York, NY 10036
LEGAL COUNSEL Peter D. Lowenstein, Esq.
Two Greenwich Plaza, Suite
100
Greenwich, CT 06830
BOARD OF DIRECTORS Jean Bernhard Buttner
John W. Chandler
Leo R. Futia
Charles E. Reed
Paul Craig Roberts
Nancy-Beth Scheerr
OFFICERS Jean Bernhard Buttner
CHAIRMAN AND PRESIDENT
Charles Heebner
VICE PRESIDENT
David T. Henigson
VICE PRESIDENT AND
SECRETARY/TREASURER
Jack M. Houston
ASSISTANT SECRETARY/TREASURER
Stephen La Rosa
ASSISTANT SECRETARY/TREASURER
</TABLE>
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 702102
------------------------------------
ANNUAL REPORT
------------------------------------
FEBRUARY 28, 1997
----------------------------------------
THE
VALUE LINE
TAX EXEMPT
FUND, INC.
[LOGO]
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
To Our Value Line
- -------------------------------------------
TO OUR SHAREHOLDERS:
During the year ended February 28, 1997, prices of fixed-income securities
generally declined as interest rates rose. Long-term, tax-exempt interest rates,
as measured by the Bond Buyer's 40-Bond Index, rose slightly from 5.71% on
February 29, 1996 to 5.76% on February 28, 1997. During this same period,
long-term taxable rates, as measured by the 30-year Treasury bond, increased
from 6.47% to 6.80%. A large jump in interest rates occurred in the first half
of 1996 as the yield on the 30-year Treasury bond reached a high of 7.19% on
July 5, 1997. Stronger economic statistics, such as large increases in
employment, awakened fears of a stronger economy and higher inflation. As the
year progressed, these fears subsided as inflation remained moderate. The third
quarter growth rate of GDP returned to the gradual level of 2.1%. Subsequently,
the yield on the 30-year Treasury bond declined to 6.35% at the end of November.
However, this decline was shortlived. The bond market reacted negatively to
Federal Reserve Chairman Greenspan's warnings of "irrational exuberance" and
"pre-emptive tightening" in mid-December. In addition, the fourth quarter growth
rate of GDP was stronger at 3.9%. The yield of the 30-year Treasury bond rose to
6.99% on March 19th and the yield of the Bond Buyer's 40-Bond Index rose to
5.88% on January 27, 1997. On March 25, 1997, the Fed increased the Federal
Funds rate from 5.25% to 5.50% which appears to be the first step in the Fed's
pre-emptive move to keep inflation contained. The future direction of interest
rates will be influenced by the strength of the economy and the actions taken by
the Federal Reserve.
During the past year, tax-exempt bonds have outperformed government bonds. For
the twelve months ended February 28, 1997, the Lehman Municipal Bond Index
increased 5.51% compared to 4.53% for the Lehman Government Index. The low
supply of new issues and the continuing demand from investors for tax-exempt
income contributed to this superior performance. This relative showing is more
significant after taxes since the income on most tax-exempt bonds is free of
Federal income taxes whereas the return on government bonds is taxable. The most
volatile time of the year for tax-exempt bonds, when yields rose, came during
the 1996 election campaign. Uncertainties concerning tax proposals, specifically
the flat tax and tax cuts, temporarily reduced the attractiveness of tax-exempt
securities. These concerns subsided after the elections.
HIGH-YIELD PORTFOLIO
The primary objective of the Value Line Tax Exempt High-Yield Portfolio is to
provide investors with maximum income exempt from federal income taxes, without
undue risk to principal. During the year ended February 28, 1997, the
Portfolio's total return was up 4.86%. Since its inception in March, 1984, the
total return for the High Yield Portfolio, assuming the reinvestment of all
dividends over that period, was 186.64%. This is equivalent to an average annual
total return of 8.47%. The Portfolio's SEC yield as of February 28, 1997 was
4.97% and exceeded the average SEC yield of 4.54% for all general municipal bond
funds ranked by Lipper Analytical Services. Your Portfolio's total return for
the year ended February 28, 1997 was 4.86% compared to 5.51% for Lehman
Municipal Bond Index during the same time period.
Your Fund's management continues to emphasize bonds with high credit ratings and
with call protection in order to maintain and maximize shareholder income
without sacrificing safety of principal. The differential, or spread, between
the yields of high-grade and low-grade securities is small and does not warrant
the increased credit and market risk associated with the lower grade credits.
Over 97% of the Portfolio's bonds are rated A or better by the major credit
agencies, such as Moody's Investors Service and Standard and Poor's Corporation.
In addition, 28% of the Portfolio is invested in high-coupon, non-callable
bonds. The Portfolio's highest concentrations of investments are in the insured,
housing-revenue, and hospital-revenue sectors. Management continually monitors
the
- --------------------------------------------------------------------------------
2
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
TAX EXEMPT FUND SHAREHOLDERS
- -------------------------------------------
Portfolio's duration* and expects to maintain the duration within a range which
is close to the Lehman Municipal Bond Index.
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 which have a high
degree of liquidity so as to ensure a constant net asset value of $1.00 per
share. The portfolio consists only of securities which carry the highest two
ratings of the major credit-rating agencies. The annualized yield was 2.74% as
of February 28, 1997, equivalent to a 4.54% taxable yield for those in the 39.6%
tax bracket.
All short-term rates rose in the year ended February 28, 1997. Short-term,
tax-exempt rates, as measured by the Bond Buyer's One-year Note Index, increased
from 3.30% on February 29, 1996 to 3.61% on February 28, 1997. During this same
period of time, the yield on one-year taxable Treasury bills increased from
5.03% to 5.22%.
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 additional 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,
[SIGNATURE]
JEAN BERNHARD BUTTNER
CHAIRMAN AND PRESIDENT
APRIL 28, 1997
- ---------------------------------------------------
*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 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 Fund's
returns. The modified duration of the Lehman Municipal Bond Index, as of
February 28, 1997 was 7.59.
- --------------------------------------------------------------------------------
3
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
- -------------------------------------------
ECONOMIC OBSERVATIONS
The current economic expansion is now entering its seventh year. Although this
does not yet qualify as the longest peacetime period of growth on record (both
the 1960's and the 1980's experienced somewhat longer upcycles), it is still
quite noteworthy, especially since there are as yet few signs that this lengthy
run of uninterrupted prosperity is about to draw to a close. In fact, recent
reports show that there is still a good deal of strength around, with high doses
of consumer confidence, continuing solid job growth, and healthy levels of
retail, housing, and manufacturing activity pointing to economic growth that
will likely stay above 2% for most, if not all, of 1997.
Inflation, meanwhile, continues to be under control, with prices at both the
producer (or wholesale) and consumer levels either falling or going up only
modestly. This healthy inflation trend, which is remarkable given the longevity
of the business expansion, is, moreover, showing few signs of running its
course. Underscoring our optimism in this area is the fact that there is still a
lack of serious shortages on either the labor or the raw materials fronts,
although we do note that the recent pickup in wage pressures could, if
unchecked, pose some threat down the road.
Interest rates, meanwhile, reflecting the likely moderate pace of upcoming
economic growth and the benign nature of inflation, are unlikely to change all
that much over the next year. Nevertheless, we caution that recent remarks by
Federal Reserve Chairman Alan Greenspan, in which he indicated that the Fed has,
in the past, occasionally raised rates before higher inflation actually took
hold, and the subsequent one-quarter of a percentage point increase in
short-term interest rates, would seem to suggest that the central bank will not
be shy about tightening the credit reins further this year, if it sees the need.
An additional upward move in rates, if sufficiently pronounced, would not be
good news for either the stock or the bond markets, or, ultimately, for the U.S.
economy.
- --------------------------------------------------------------------------------
4
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
- -------------------------------------------
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
VALUE LINE TAX EXEMPT HIGH-YIELD PORTFOLIO AND THE
LEHMAN BROAD BASED MUNI INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
LEHMAN BROAD BASED VALUE LINE TAX EXEMPT
MUNI INDEX HIGH YIELD PORTFOLIO
<S> <C> <C>
Feb. 1987 $10,000.00 $10,000.00
1988 10,262.00 10,191.00
1989 10,900.00 10,937.00
1990 12,018.00 11,797.00
1991 13,126.00 12,671.00
1992 14,437.00 14,033.00
1993 16,424.00 15,861.00
1994 17,333.00 16,553.00
1995 17,660.00 16,660.00
1996 19,611.00 18,250.00
1997 20,691.00 19,138.00
</TABLE>
(Period covered is 3/1/87 to 2/28/97)
PERFORMANCE DATA
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
<S> <C> <C> <C> <C> <C>
HIGH-YIELD PORTFOLIO MONEY MARKET PORTFOLIO
12/31/96 2/28/97 12/31/96 2/28/97
----------- ----------- ----------- -----------
1 year ended................. 3.55% 4.86% 1 year ended.................. 2.65% 2.56%
5 years ended................ 6.22% 6.40% 5 years ended................. 2.34% 2.32%
10 years ended................ 6.94% 6.71% 10 years ended................ 3.58% 3.55%
</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.
- --------------------------------------------------------------------------------
5
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
Schedule of Investments
- -------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATING
AMOUNT HIGH-YIELD PORTFOLIO (UNAUDITED) VALUE
<C> <S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
LONG-TERM MUNICIPAL SECURITIES (93.5%)
ALABAMA (.7%)
$1,250,000 Colbert County-Northwest, Health Care Authority, Hospital Revenue
Refunding, Helen Keller Hospital, 8.75%, 6/1/09.................... NR $ 1,378,875
ALASKA (4.1%)
250,000 Housing Finance Corp., Collateral Mortgage Obligation, Veteran's 1st
Ser., Veteran's Mortgage Program, 7.45%, 12/1/29................... Aaa 257,468
8,000,000 Valdez, Marine Terminal, Revenue, Refunding, BP Pipeline Inc.
Project, Ser. C, 5.65%, 12/1/28.................................... Aa2 7,632,160
------------
7,889,628
ARKANSAS (1.0%)
Development Finance Authority, Single Family Mortgage, Revenue:
1,180,000 Correction Facilities Revenue, 5.40%, 10/1/11...................... Aaa 1,181,215
655,000 Single Family Mortgage Revenue Replacement, Ser. C, 8.125%,
8/1/14............................................................. A+* 680,362
------------
1,861,577
CALIFORNIA (2.8%)
1,000,000 Anaheim, Public Financing Authority, Lease Revenue, Public
Improvements Project, Ser. A, 6.00%, 9/1/24........................ Aaa 1,058,700
3,800,000 Pleasant Hill, Redevelopment Agency, Residential Mortgage Revenue,
Refunding, 5.75%, 8/1/11........................................... AA* 3,802,546
695,000 Yuba County, Water Agency, Revenue, Yuba River Development, Pacific
Gas and Electric Co., Ser. A, 4.00%, 3/1/16........................ A 615,840
------------
5,477,086
COLORADO (2.6%)
4,055,000 Denver, City & County Single Family Mortgage Revenue, 7.00%,
8/1/10............................................................. Aaa 4,677,118
345,000 Housing Finance Authority, Single Family, Revenue, Residential, Ser.
C, 8.75%, 9/1/17................................................... Aa1 358,838
------------
5,035,956
GEORGIA (.5%)
1,000,000 Residential Finance Authority, Single Family Insured Mortgage,
Revenue, Subser. C, 8.00%, 12/1/16................................. Aa 1,049,850
HAWAII (2.4%)
4,000,000 Department of Budget and Finance, Special Purpose Mortgage Revenue,
Kapiolani Health Care System, 6.40%, 7/1/13........................ Aaa 4,574,800
</TABLE>
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6
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
FEBRUARY 28, 1997
- -------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATING
AMOUNT HIGH-YIELD PORTFOLIO (UNAUDITED) VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
IDAHO (.4%)
$ 700,000 Housing and Finance Association, Single Family Mortgage Revenue, Ser.
B, 5.10%, 7/1/27+.................................................. Aaa $ 695,674
ILLINOIS (11.9%)
Chicago:
6,200,000 O'Hare International Airport, Revenue Refunding, 2nd Lien, Ser.
C-1, 5.00%, 1/1/18............................................... Aaa 5,624,950
3,000,000 Skyway Toll Bridge Revenue, Refunding, 5.50%, 1/1/23............... Aaa 2,868,390
2,500,000 General Obligations, Refunding, 5.125%, 12/1/17...................... Aaa 2,352,175
Housing Development Authority:
4,500,000 Multi Family, Ser. 91-A, 8.25%, 7/1/16............................. A1 4,850,685
2,415,000 Residential Mortgage Revenue, Ser. A, 7.00%, 8/1/17................ Aa 2,509,837
1,500,000 Regional Transportation Authority, Ser. A, 8.00%, 6/1/17............. Aaa 1,939,170
2,650,000 Sales Tax Revenue, Ser. P, 6.50%, 6/15/22............................ Aa3 2,993,678
------------
23,138,885
INDIANA (2.1%)
3,000,000 Office Building Commission, Capital Complex, Revenue, Ser. B, 7.40%,
7/1/15............................................................. Aaa 3,655,290
500,000 South Newton, School Building Corp., Refunding, First Mortgage,
5.60%, 1/15/17..................................................... Aaa 500,560
------------
4,155,850
IOWA (2.4%)
1,780,000 Finance Authority: Single Family, Revenue Mortgage, Ser. B, 7.45%,
7/1/23............................................................. Aaa 1,876,618
2,500,000 Muscatine, Electric Revenue, 6.70%, 1/1/13........................... Aaa 2,808,625
------------
4,685,243
MAINE (1.8%)
2,800,000 Housing Authority, Mortgage Purchase Program, Ser. D-4, 7.55%,
11/15/19........................................................... Aa2 2,952,936
500,000 State Street Housing Preservation Corp., Multifamily Housing Revenue,
100 State Street Project, Ser. A, 7.50%, 1/1/19.................... A* 527,480
------------
3,480,416
MARYLAND (1.6%)
3,000,000 Northeast, Waste Disposal Authority, Solid Waste Revenue, Montgomery
County Project, Ser. A, 6.20%, 7/1/10.............................. A 3,072,210
</TABLE>
+ WHEN ISSUED SECURITY.
- --------------------------------------------------------------------------------
7
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
SCHEDULE OF INVESTMENTS
- -------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATING
AMOUNT HIGH-YIELD PORTFOLIO (UNAUDITED) VALUE
<C> <S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
MASSACHUSETTS (2.6%)
$2,625,000 Health & Educational Facilities Authority, Revenue, New England
Memorial Hospital, Ser. B, 6.00%, 7/1/08........................... B $ 2,190,011
2,710,000 Housing Finance Agency, Residential Development,
Ser H, 6.75%, 5/15/15.............................................. Aaa 2,857,316
------------
5,047,327
MICHIGAN (1.0%)
2,000,000 Housing Development Authority, Single Family Mortgage, Revenue, Ser.
C, 5.95%, 12/1/14.................................................. AA+* 2,023,560
MINNESOTA (1.5%)
2,900,000 Housing Finance Agency, Rental Housing, Ser. D, 5.80%, 8/1/11........ Aaa 2,936,946
NEBRASKA (2.2%)
4,130,000 Investment Finance Authority, Single Family Mortgage, Revenue, Ser.
A, 5.977%, 9/30/16................................................. Aaa 4,256,213
NEW HAMPSHIRE (.1%)
195,000 Housing Finance Authority, Single Family Residential Mortgage, Ser.
B, 7.75%, 7/1/23................................................... Aa 206,187
NEW JERSEY (.3%)
570,000 Housing and Mortgage Finance Agency, Home Buyer, Revenue, Ser. H,
4.625%, 10/1/18.................................................... Aaa 560,948
NEW MEXICO (1.1%)
2,000,000 Santa Fe County, Correctional System, Revenue, 6.00%, 2/1/27......... Aaa 2,118,400
NEW YORK (13.2%)
New York City:
630,000 General Obligations, Ser. F, 8.20%, 11/15/04....................... Baa1 719,151
750,000 Housing Development Corp., Mortgage Revenue, Multi-Family, F.H.A.
Insured, Ser. 1995A, 9.625%, 1/1/19.............................. Aa 774,097
New York State:
Dormitory Authority, Revenue:
240,000 Court Facilities Lease, Ser. A, 5.625%, 5/15/13.................. Baa1 234,862
2,500,000 Long Island University, Asset Guaranty, FSA Insured, 5.50%,
9/1/20......................................................... Aaa 2,395,125
2,000,000 Refunding, City University System, 3rd General Resolution, 5.50%,
7/1/24......................................................... Aaa 1,944,760
1,000,000 State University Educational Facilities, Ser. C, 5.40%,
5/15/23........................................................ Baa1 917,440
Medical Care Facilities Finance Agency:
Hospital and Nursing Home, Mortgage Revenue:
6,110,000 Ser. D, 6.35%, 2/15/12......................................... Aa 6,417,027
</TABLE>
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8
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
FEBRUARY 28, 1997
- -------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATING
AMOUNT HIGH-YIELD PORTFOLIO (UNAUDITED) VALUE
<C> <S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
$1,890,000 Ser. B, 5.50%, 2/15/22......................................... AAA* $ 1,832,601
4,100,000 Presbyterian Hospital, Ser. A, Revenue Refunding, 5.50%,
8/15/24........................................................ Aa 3,899,551
1,570,000 St. Luke's-Roosevelt Hospital, Ser. A, Refunding, 5.60%,
8/15/13........................................................ Aa 1,561,616
Mortgage Agency Revenue, Homeowner Mortgage:
965,000 Ser. 30-A, 4.375%, 10/1/23....................................... Aa2 931,128
1,000,000 Ser. 61, 5.90%, 4/1/27........................................... Aa2 1,009,240
3,000,000 Urban Development Corp., Refunding, Corporate Purpose, Senior Lien,
5.50%, 7/1/26.................................................... Aaa 2,889,930
------------
25,526,528
NORTH CAROLINA (2.9%)
Housing Finance Agency:
2,390,000 Single Family, Revenue, Ser. BB, 6.05%, 3/1/21..................... Aa 2,427,619
3,105,000 Ser U, 6.375%, 9/1/22.............................................. Aa 3,176,415
------------
5,604,034
OKLAHOMA (3.5%)
585,000 Housing Finance Agency, Single Family Mortgage, Revenue, Class A,
7.99675%, 8/1/18................................................... AAA* 616,210
5,745,000 McGee Creek Authority, Water Revenue, 6.00%, 1/1/23.................. Aaa 6,146,518
------------
6,762,728
OREGON (4.5%)
8,695,000 Eugene, Trojan Nuclear Project, Revenue, 5.90%, 9/1/09............... Aa1 8,740,562
RHODE ISLAND (1.4%)
1,750,000 Health & Educational Bulding Corp. Revenue, Refunding, Roger Williams
University, 5.25%, 11/15/16........................................ AAA* 1,635,708
1,000,000 Housing and Mortgage Finance Corp., Homeownership Opportunity, Ser.
3A, 7.80%, 10/1/10................................................. Aa2 1,074,020
------------
2,709,728
SOUTH CAROLINA (.7%)
1,225,000 Piedmont, Municipal Power Agency, Electric Power Agency, Refunding,
6.75%, 1/1/19...................................................... Aaa 1,407,917
SOUTH DAKOTA (5.7%)
9,000,000 Heartland Consumers Power District, Electric Revenue, Refunding,
6.00%, 1/1/17...................................................... Aaa 9,538,560
1,500,000 Housing Development Authority, Homeownership Mortgage, Ser. A, 5.40%,
5/1/14............................................................. Aa1 1,509,135
------------
11,047,695
</TABLE>
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9
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
SCHEDULE OF INVESTMENTS
- -------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATING
AMOUNT HIGH-YIELD PORTFOLIO (UNAUDITED) VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
TEXAS (9.0%)
$3,000,000 Harris County, Hospital District, Mortgage Revenue, 7.40%, 2/15/10... Aaa $ 3,589,320
8,600,000 Houston, Housing Finance Corp., Single Family Mortgage Revenue,
Refunding, Ser. A, 5.95%, 12/1/10.................................. Aaa 8,742,588
3,000,000 Lubbock, Housing Finance Corp., Single Family Mortgage Revenue,
Refunding, Ser. 1989A, 8.00%, 10/1/21.............................. AAA* 3,980,040
1,000,000 Travis County, Health Facilities Development Corp., Hospital Revenue,
Daughters of Charity, 5.90%, 11/15/07.............................. Aa 1,047,580
------------
17,359,528
UTAH (.8%)
Housing Finance Agency, Single Family Mortgage:
430,000 Ser. C-3, 7.55%, 7/1/23............................................ AA* 454,153
1,065,000 Ser. D-3, 7.55%, 7/1/23............................................ AA* 1,122,286
------------
1,576,439
VIRGINIA (1.6%)
3,000,000 Housing Development Authority, Commonwealth Mortgage, Subser. H-2,
6.85%, 7/1/14...................................................... Aa1 3,173,430
WASHINGTON (1.3%)
2,500,000 Grant County, Public Utility District No. 2, Priest Rapids Hydro
Electric Revenue, Second Series, Ser. A, 5.50%, 1/1/16............. Aaa 2,431,250
WISCONSIN (5.8%)
3,000,000 Clean Water Revenue, Ser. 1, 6.875%, 6/1/11.......................... Aa2 3,481,440
7,595,000 Housing and Economic Development Authority, Housing Revenue,
Refunding, Ser C, 5.80%, 11/1/13................................... Aaa 7,656,444
------------
11,137,884
------------
TOTAL LONG-TERM MUNICIPAL SECURITIES............................................... 181,123,354
------------
SHORT-TERM MUNICIPAL SECURITIES (7.3%)
1,250,000 Delta County, Michigan, Economic Development Corp., Environmental
Improvement Revenue, Refunding, Mead Escambia Paper Co., 3.45%,
12/1/23............................................................ P1(1) 1,250,000
3,500,000 Jackson County, Mississippi, Port Facility Revenue, Refunding,
Chevron USA, Inc. Project, 3.45%, 6/1/23........................... P1(2) 3,500,000
</TABLE>
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10
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
FEBRUARY 28, 1997
- -------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATING
AMOUNT HIGH-YIELD PORTFOLIO (UNAUDITED) VALUE
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
Lincoln County, Wyoming, Pollution Control Revenue, Exxon Project:
$ 300,000 Ser. D, 3.45%, 11/1/14............................................. P1(1) $ 300,000
2,600,000 Ser. 1985, 3.40%, 8/1/15........................................... P1(1) 2,600,000
500,000 Louisiana Public Facilities Authority, Revenue, Kenner Hotel Ltd.,
3.50%, 12/1/15..................................................... Aa1(2) 500,000
Maricopa County, Arizona, Pollution Control Revenue, Refunding,
Arizona Public Service Co.:
1,300,000 Ser. B, 3.45%, 5/1/29............................................ P1(1) 1,300,000
1,000,000 Ser. E, 3.45%, 5/1/29............................................ P1(1) 1,000,000
3,000,000 New Jersey State Turnpike Authority, Revenue Refunding, Ser. D,
3.15%, 1/1/18...................................................... VMIG1(1) 3,000,000
New York City:
General Obligations, Subser. B-2:
100,000 3.45%, 8/15/03................................................... VMIG1(1) 100,000
600,000 3.55%, 8/15/20................................................... VMIG1(1) 600,000
------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES.............................................. 14,150,000
------------
TOTAL MUNICIPAL SECURITIES (100.8%) (COST $191,106,211)............................ 195,273,354
EXCESS OF LIABILITIES OVER CASH AND OTHER ASSETS (-.8%)............................ (1,632,030)
------------
NET ASSETS (100.0%)................................................................ $193,641,324
------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE, PER SHARE OUTSTANDING.............. $ 10.78
------------
</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 28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
11
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
Schedule of Investments
- -------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATING
AMOUNT MONEY MARKET PORTFOLIO (UNAUDITED) VALUE
<C> <S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
SHORT-TERM MUNICIPAL SECURITIES (104.0%)
ARIZONA (11.5%)
$1,000,000 Maricopa County, Pollution Control Revenue, Refunding, Arizona Public
Service Co., Ser B, 3.45%, 5/1/29................................... P1(1) $ 1,000,000
500,000 Northern Arizona University, Revenue, Refunding, 5.20%, 6/1/97........ Aaa 501,769
760,000 Pima County, General Obligations, 5.60%, 7/1/97....................... Aa 764,871
-----------
2,266,640
ARKANSAS (2.5%)
500,000 Development Finance Authority, Correctional Facilities Revenue,
Refunding, 3.60%, 11/15/97+......................................... Aaa 500,000
CALIFORNIA (2.6%)
500,000 Los Angeles County, Tax and Revenue Anticipation Notes, Ser. A, dated
7/1/96, 4.50%, 6/30/97.............................................. MIG1 502,795
FLORIDA (2.5%)
500,000 Dade County, Health Facilities Authority, Hospital Revenue, Miami
Childrens Hospital Project, 3.50%, 9/1/20........................... VMIG1(1) 500,000
GEORGIA (13.8%)
500,000 Clarke County, Hospital Authority Revenue Certificates, Refunding,
Athens Regional Medical Project, 3.90%, 1/1/98...................... Aaa 500,807
220,000 General Obligations, Refunding, Ser. E, 3.75%, 7/1/97................. Aaa 220,119
1,000,000 Hapeville, Development Authority, Industrial Development Revenue,
Hapeville Hotel Ltd., 3.50%, 11/1/15................................ P1(1) 1,000,000
1,000,000 Monroe County, Development Authority, Pollution Control Revenue,
Georgia Power Company, 2nd Ser., 3.55%, 7/1/25...................... VMIG1(1) 1,000,000
-----------
2,720,926
IOWA (4.6%)
400,000 School Cash Anticipation Program, School Corporations, Warrant
Certificates, Ser. B, 4.25%, 1/30/98................................ MIG1 402,123
500,000 School Corporations, Warrant Certificates, Ser. A, 4.75%, 6/27/97..... MIG1 501,243
-----------
903,366
LOUISIANA (8.9%)
1,000,000 Lake Charles Parish, Harbor and Terminal District, Port Facilities
Revenue, Refunding, 3.45%, 11/1/11.................................. Aa1(1) 1,000,000
Public Facilities Authority:
250,000 Special Assessment Revenue, Refunding, 3.90%, 4/1/97................ Aaa 250,062
500,000 School Board Advance Funding Program, Ser. A, 4.50%, 9/24/97........ SP1+* 501,637
-----------
1,751,699
</TABLE>
+ WHEN ISSUED SECURITY.
- --------------------------------------------------------------------------------
12
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
FEBRUARY 28, 1997
- -------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATING
AMOUNT MONEY MARKET PORTFOLIO (UNAUDITED) VALUE
<C> <S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
MARYLAND (3.6%)
$ 700,000 Community Development Administration, Single Family Program, 1st Ser.,
6.00%, 4/1/97....................................................... Aa $ 701,399
MICHIGAN (10.7%)
100,000 Delta County, Economic Development Corp., Environmental Improvement
Revenue, Refunding, Mead Escambia Paper, Ser. C, 3.45%, 12/1/23..... P1(1) 100,000
1,000,000 Detroit, City School District, School Aid Notes, 4.50%, 5/1/97........ SP1+* 1,000,890
1,000,000 Strategic Fund, Pollution Control Revenue, Refunding, Consumers Power
Project, Ser. A, 3.45%, 4/15/18..................................... P1(1) 1,000,000
-----------
2,100,890
MINNESOTA (2.5%)
500,000 School Districts, Tax and Aid Anticipation Borrowing Project,
Certificates of Participation, Ser. B, 3.65%, 3/10/98+.............. MIG1 500,000
MISSISSIPI (3.1%)
600,000 Jackson County, Port Facility Revenue, Refunding, Chevron USA, Inc.
Project, Chevron USA, Inc. Project, 3.45%, 6/1/23................... P1(2) 600,000
NEVADA (2.5%)
500,000 Las Vegas, General Obligation, Recreation Bonds, 3.65%, 2/1/98........ Aaa 500,000
NEW JERSEY (1.0%)
Economic Development Authority:
100,000 Economic Development Revenue, Dow Chemical, Ser. A, 3.30%, 5/1/01... P1(1) 100,000
100,000 Water Facilities Revenue, Refunding, United Water NJ Project, Ser.
A, 3.10%, 11/1/23................................................. Aaa(1) 100,000
-----------
200,000
NEW YORK (8.9%)
New York City:
200,000 General Obligations, Subser B-2, 3.45%, 8/15/03..................... VMIG1(1) 200,000
500,000 Housing Development Corp., Multi-Family Housing Revenue, Ser A,
3.60%, 5/1/97..................................................... Aa 500,000
100,000 Municipal Water Finance Authority, Water and Sewer System Revenue,
Ser C, 3.45%, 6/15/23............................................. VMIG1(1) 100,000
New York State:
950,000 Monroe County, Public Improvement, 3.80%, 6/1/97.................... Aaa 950,114
-----------
1,750,114
TENNESSEE (1.3%)
250,000 Dyer County, Capital Outlay Notes, 3.90%, 7/15/97..................... Aaa 250,275
</TABLE>
+ WHEN ISSUED SECURITY.
- --------------------------------------------------------------------------------
13
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
SCHEDULE OF INVESTMENTS FEBRUARY 28, 1997
- -------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATING
AMOUNT MONEY MARKET PORTFOLIO (UNAUDITED) VALUE
<C> <S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
TEXAS (9.2%)
$ 335,000 Austin, Utilities System, Revenue Refunding, Ser. A, 6.70%, 5/15/97... Aaa $ 337,089
200,000 Denton County, General Obligations, 4.00%, 6/1/97..................... Aaa 200,194
670,000 Department of Housing & Community Affairs, Single Family Mortgage
Revenue, Ser. E, 3.90%, 3/1/97...................................... Aaa 670,000
600,000 Harris County, Health Facilities Development Corp., Special Facilities
Revenue, Texas Medical Center Project, 3.55%, 2/15/22............... VMIG1(1) 600,000
-----------
1,807,283
UTAH (9.2%)
1,000,000 Emery County, Pollution Control Revenue, Refunding, Pacificorp
Project, 3.45%, 11/1/24............................................. VMIG1(1) 1,000,000
Intermountain Power Agency, Utah Power Supply Revenue, Refunding:
500,000 Ser. B, 5.00%, 7/1/97............................................... Aa 505,010
300,000 Ser. C, 8.50%, 7/1/07 (Prerefunded 7/1/97).......................... Aaa 306,923
-----------
1,811,933
WEST VIRGINIA (2.0%)
380,000 University Revenues, State University System, Marshall University
Library, 3.60%, 4/1/97.............................................. Aaa 380,000
WYOMING (3.6%)
700,000 Lincoln County, Pollution Control Revenue, Exxon Project, Ser D,
3.45%, 11/1/14...................................................... P1(1) 700,000
TOTAL SHORT-TERM MUNICIPAL SECURITIES (104.0%) (COST $20,447,320)................... 20,447,320
EXCESS OF LIABILITIES OVER CASH AND OTHER ASSETS (-4.0%)............................ (779,296)
-----------
NET ASSETS (100.0%)................................................................. $19,668,024
-----------
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 (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
28, 1997.
SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
14
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
AT FEBRUARY 28, 1997
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
PORTFOLIO
--------------------
HIGH- MONEY
YIELD MARKET
<S> <C> <C>
--------------------
(DOLLARS IN
THOUSANDS
EXCEPT PER SHARE
AMOUNTS)
ASSETS:
Investment securities at value
(Cost $191,106 and amortized
cost $20,447)................. $ 195,273 $ 20,447
Cash............................ 14 87
Interest receivable............. 2,326 181
Receivable for securities
sold.......................... 545 --
Receivable for capital shares
sold.......................... 13 13
--------- ---------
TOTAL ASSETS................ 198,171 20,728
--------- ---------
LIABILITIES:
Payable for securities
purchased..................... 3,676 1,001
Payable for capital shares
repurchased................... 389 11
Dividends payable to
shareholders.................. 294 --
Accrued expenses:
Advisory fee.................. 75 7
Other......................... 96 41
--------- ---------
TOTAL LIABILITIES........... 4,530 1,060
--------- ---------
NET ASSETS...................... $ 193,641 $ 19,668
--------- ---------
NET ASSETS:
Capital Stock at $.01 par value
(Authorized 65,000,000 shares
and 125,000,000 shares
respectively; outstanding
17,962,915 shares and
19,699,375 shares,
respectively)................. $ 180 $ 197
Additional paid-in capital...... 188,592 19,502
Distribution in excess of net
investment income............. (28) --
Accumulated net realized gain
(loss) on investments......... 730 (31)
Unrealized net appreciation of
investments................... 4,167 --
--------- ---------
NET ASSETS...................... $ 193,641 $ 19,668
--------- ---------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
OUTSTANDING SHARE............. $ 10.78 $ 1.00
--------- ---------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1997
<TABLE>
<CAPTION>
PORTFOLIO
----------------------
HIGH- MONEY
YIELD MARKET
<S> <C> <C>
----------------------
(DOLLARS
IN THOUSANDS)
INVESTMENT INCOME:
Interest.......................... $ 11,930 $ 739
--------- -----
EXPENSES:
Advisory fee...................... 1,041 105
Transfer agent fees............... 61 24
Auditing and legal fees........... 37 31
Custodian fees.................... 34 5
Printing and stationery........... 20 5
Postage........................... 17 5
Registration and filing fees...... 9 16
Directors' fees and expenses...... 7 7
Other............................. 26 12
--------- -----
Total expenses before custody
credits...................... 1,252 210
Less: custody credits......... (12) (2 )
--------- -----
NET EXPENSES.................. 1,240 208
--------- -----
NET INVESTMENT INCOME............. 10,690 531
--------- -----
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS:
Net Realized Gain (Loss)........ 755 (1 )
Change in Unrealized
Appreciation................... (1,721) --
--------- -----
NET REALIZED GAIN (LOSS) AND
CHANGE IN UNREALIZED
APPRECIATION ON INVESTMENTS..... (966) (1 )
--------- -----
NET INCREASE IN NET ASSETS FROM
OPERATIONS....................... $ 9,724 $ 530
--------- -----
</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 28, 1997 AND FEBRUARY 29, 1996
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
HIGH-YIELD MONEY MARKET
PORTFOLIO PORTFOLIO
------------------------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
------------------------------------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income......................................... $ 10,690 $ 11,887 $ 531 $ 652
Net realized gain (loss) on investments....................... 755 5,658 (1) (2)
Change in net unrealized appreciation......................... (1,721) 4,069 -- --
------------------------------------------
Net increase in net assets from operations.................... 9,724 21,614 530 650
------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income......................................... (10,690) (11,887) (531) (652)
------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares.............................. 146,110 104,935 14,044 12,117
Net proceeds from reinvestment of distributions to
shareholders.................................................. 6,978 7,845 531 652
Cost of shares repurchased.................................... (181,241) (141,214) (16,683) (16,671)
------------------------------------------
Net decrease in net assets from capital share transactions.... (28,153) (28,434) (2,108) (3,902)
------------------------------------------
TOTAL DECREASE IN NET ASSETS.................................... (29,119) (18,707) (2,109) (3,904)
NET ASSETS:
Beginning of year............................................. 222,760 241,467 21,777 25,681
------------------------------------------
End of year................................................... $ 193,641 $ 222,760 $ 19,668 $ 21,777
------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
16
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1997
- -------------------------------------------
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 valued 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 Portfolio 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 re-invested 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
- --------------------------------------------------------------------------------
17
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------
are reclassified within the capital accounts based on their federal tax-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. Securities purchased or sold on
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
--------------------
1997 1996
<S> <C> <C>
--------------------
(IN THOUSANDS)
Shares sold...................... 13,694 9,853
Shares issued to shareholders in
reinvestment of dividends...... 654 736
--------------------
14,348 10,589
Shares repurchased............... (16,971) (13,230)
--------------------
Net decrease..................... (2,623) (2,641)
--------------------
<CAPTION>
MONEY MARKET
PORTFOLIO
--------------------
1997 1996
<S> <C> <C>
--------------------
(IN THOUSANDS)
Shares sold...................... 14,044 12,117
Shares issued to shareholders in
reinvestment of dividends...... 531 652
--------------------
14,575 12,769
Shares repurchased............... (16,683) (16,671)
--------------------
Net decrease..................... (2,108) (3,902)
--------------------
</TABLE>
- --------------------------------------------------------------------------------
18
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
FEBRUARY 28, 1997
- -------------------------------------------
3.PURCHASES AND SALES OF SECURITIES
Purchases and sales of municipal securities were as follows:
<TABLE>
<CAPTION>
HIGH-YIELD
PORTFOLIO
--------------
<S> <C>
1997
--------------
(IN THOUSANDS)
PURCHASES:
Long-term obligations............... $ 140,571
Short-term obligations.............. 261,285
--------------
$ 401,856
--------------
MATURITIES OR SALES:
Long-term obligations............... $ 165,236
Short-term obligations.............. 260,789
--------------
$ 426,025
--------------
<CAPTION>
MONEY MARKET
PORTFOLIO
--------------
1997
<S> <C>
--------------
(IN THOUSANDS)
PURCHASES:
Municipal short-term obligations.... $ 41,440
--------------
MATURITIES OR SALES:
Municipal short-term obligations.... $ 42,710
--------------
</TABLE>
At February 28, 1997, the aggregate cost of investments for federal income-tax
purposes was $191,106,211 for the High-Yield Portfolio and $20,447,320 for the
Money Market Portfolio.
The aggregate appreciation and depreciation of investments in the High-Yield
Portfolio at February 28, 1997, based on a comparison of investment values and
their cost for federal income-tax purposes, is $5,039,413 and $872,270,
respectively, resulting in a net unrealized appreciation of $4,167,143. There
was no unrealized appreciation or depreciation in the Money Market Portfolio.
For federal income-tax purposes the High-Yield Portfolio had a net realized
gain, after utilizing prior year's carry forward losses of $23,412, which it
intends to distribute to its shareholders, and the Money Market Portfolio had a
capital-loss carryover at February 28, 1997, of $29,932, of which $27,649 will
expire in 2000, $998 in 2004 and $1,285 in 2005. 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 $1,415 of net
capital losses incurred after October 31, 1996. 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 $1,041,043 and $104,694 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 28, 1997. 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.
During the year ended February 28, 1997, $2,880 was paid 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.
- --------------------------------------------------------------------------------
19
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1997
- -------------------------------------------
At February 28, 1997, the Adviser and/or affiliated companies owned 227,757
shares of the High-Yield Portfolio common shares, representing 1.27% of the
outstanding shares. In addition, certain officers and directors of the Fund
owned 105,695 shares of the High-Yield Portfolio, representing .59% of the
outstanding shares and 2,450 shares of the Money Market Portfolio, representing
.01% of the outstanding shares.
- --------------------------------------------------------------------------------
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>
HIGH-YIELD PORTFOLIO
YEARS ENDED ON LAST DAY OF FEBRUARY,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------------
Net asset value, beginning of year........... $10.82 $10.40 $10.97 $11.29 $10.59
-------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. .547 .552 .568 .598 .635
Net gains or losses on securities
(both realized and unrealized)....... (.040) .420 (.528) (.112) .698
-------------------------------------------------------------------
Total from investment operations....... .507 .972 .040 .486 1.333
-------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income.............................. (.547) (.552) (.568) (.602) (.633)
Distributions from capital gains....... -- -- (.042) (.204) --
-------------------------------------------------------------------
Total distributions.................... (.547) (.552) (.610) (.806) (.633)
-------------------------------------------------------------------
Net asset value, end of year................. $10.78 $10.82 $10.40 $10.97 $11.29
-------------------------------------------------------------------
Total return................................. 4.86% 9.55% .64% 4.37% 13.03%
-------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands)..... $193,641 $222,760 $241,467 $237,888 $301,514
Ratio of expenses to average net assets...... .60%(1) .62% .61% .58% .60%
Ratio of net investment income
to average net assets...................... 5.13% 5.22% 5.54% 5.30% 5.89%
Portfolio turnover rate...................... 73% 95% 60% 55% 101%
</TABLE>
(1) BEFORE OFFSET FOR CUSTODY CREDITS.
SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
21
<PAGE>
THE VALUE LINE TAX EXEMPT FUND, INC.
FINANCIAL HIGHLIGHTS
- -------------------------------------------
SELECTED DATE FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
MONEY MARKET PORTFOLIO
<S> <C> <C> <C> <C> <C>
YEARS ENDED ON LAST DAY OF FEBRUARY,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------------------------------
Net asset value, beginning of year........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income.................. .025 .029 .022 .016 .023
-------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income.............................. (.025) (.029) (.022) (.016) (.023)
-------------------------------------------------------------------
Net asset value, end of year................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------------------------------------------------------------------
Total return................................. 2.56% 2.92% 2.22% 1.58% 2.34%
-------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in thousands)..... $ 19,668 $ 21,777 $ 25,681 $ 31,707 $ 36,309
Ratio of expenses to average net assets...... 1.00%(1) 1.01% .89% .86% .80%
Ratio of net investment income
to average net assets...................... 2.54% 2.89% 2.17% 1.56% 2.38%
</TABLE>
(1) BEFORE OFFSET FOR CUSTODY CREDITS.
SEE NOTES TO FINANCIAL STATEMENTS.
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THE VALUE LINE TAX EXEMPT FUND, INC.
Report of Independent Accountants
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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 28, 1997, 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 28, 1997 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provide
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
April 21, 1997
FEDERAL TAX NOTICE (UNAUDITED)
DURING THE YEAR ENDED FEBRUARY 28, 1997, THE FUND PAID TO SHAREHOLDERS OF THE
HIGH-YIELD PORTFOLIO $0.547 AND THE MONEY MARKET PORTFOLIO $0.025 PER SHARE,
RESPECTIVELY, FROM NET INVESTMENT INCOME. SUBSTANTIALLY ALL OF THE FUND'S
DIVIDENDS FROM NET INVESTMENT INCOME WERE EXEMPT-INTEREST DIVIDENDS, EXCLUDABLE
FROM GROSS INCOME FOR REGULAR FEDERAL INCOME-TAX PURPOSES.
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