================================================================================
- --------------------------------------------------------------------------------
ANNUAL REPORT
- --------------------------------------------------------------------------------
February 28, 1998
- --------------------------------------------------------------------------------
The
Value Line
Tax Exempt
Fund, Inc.
[LOGO]
----------
VALUE LINE
No-Load
Mutual
Funds
<PAGE>
The Value Line Tax Exempt Fund, Inc.
To Our Value Line
- --------------------------------------------------------------------------------
To Our Shareholders:
During the past year ended February 28, 1998, prices of fixed-income securities
have increased as interest rates have declined. Long-term, tax-exempt interest
rates, as measured by the Bond Buyer's 40-Bond Index, dropped from 5.76% on
February 28, 1997 to 5.24% on February 28, 1998. During this same period,
long-term taxable rates, as measured by the 30-year Treasury bond, declined from
6.80% to 5.92%. Benign inflation in spite of continued economic growth is the
major factor contributing to this decline in interest rates. Expectations of
slower economic growth and continued modest inflation due to the Asian crisis is
keeping rates low. The Federal Reserve has held rates constant since March 25,
1997 when it increased the Federal Funds rate to 5.50%. This has added to the
current stable-rate environment.
During the past year, taxable bonds have outperformed tax-exempt bonds. For the
12 months ended February 28, 1998, the Lehman Brothers Aggregate Bond Index
increased 10.37% compared to 9.14% for the Lehman Brothers Municipal Bond Index.
Contributing to this disparity in performance has been the large worldwide
demand for U.S. government and corporate bonds, the increasing supply of
tax-exempt bonds due to refinancings, and the declining demand for tax-exempt
issues from individuals as yields have declined and as the stock market has
continued to draw investors away from bonds. Currently, the ratio of tax-exempt
yields to Treasury yields is at the high end of its historic range. A 30-year
triple A rated tax-exempt bond yields 5.05%, which is 85.2% of the 5.93% yield
of the 30-year Treasury bond. A 5.05% tax-exempt yield is equivalent to an 8.36%
taxable yield for individuals in the 39.6% tax bracket. At these levels,
municipal bonds are very attractive compared to taxable securities.
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, 1998, the
Portfolio's total return was up 8.56%. Since its inception in March, 1984, the
total return for the high yield portfolio, assuming the reinvestment of all
dividends over that period, was 211.36%. This is equivalent to an average annual
total return of 8.45%. The Portfolio's SEC yield as of February 28, 1998 was
4.38% and exceeded the average SEC yield of 3.95% for all general municipal bond
funds ranked by Lipper Analytical Services.
Your Portfolio's total return for the year ended February 28, 1998 was 8.56%
compared to 9.14% for the Lehman Brothers Municipal Bond Index during the same
time period. The Portfolio's performance is slightly below the Index since the
returns of the Index do not reflect expenses which are deducted from the
Portfolio's returns.
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 98% 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, 26% 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 electric-revenue sectors. Management continually monitors
the portfolio's duration* and expects to maintain the duration within a range
which is close to the Lehman Brothers Municipal 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 that 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 2.69% as
of February 28, 1998, equivalent to a 4.45% taxable yield for those in the 39.6%
tax bracket.
All short-term rates declined slightly in the year ended February 28, 1998.
Short-term, tax-exempt rates, as measured by the Bond Buyer's One-year Note
Index, decreased from 3.61% on February 28, 1997 to 3.56% on February 28, 1998.
During this same period of time, the
- --------------------------------------------------------------------------------
2
<PAGE>
The Value Line Tax Exempt Fund, Inc.
Tax Exempt Fund Shareholders
- --------------------------------------------------------------------------------
yield on one-year taxable Treasury bills decreased from 5.67% to 5.40%.
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,
/s/ JEAN BERNHARD BUTTNER
Jean Bernhard Buttner
Chairman and President
April 2, 1998
- --------------------------------------------------------------------------------
* 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 Fund's returns. The modified duration
of the Lehman Brothers Municipal Bond Index, as of February 28, 1998 was
7.20.
Economic Observations
The economic expansion remains alive and well, as we make our way through the
first few months of 1998. To be sure, the uptrend is not proceeding at 1997's
frenetic pace, when growth averaged better than 3.5% for the full 12 months.
But, with most of the key consumer and industrial markets continuing to show
surprising resiliency, and with jobs still being created at a strong pace, the
economy now looks as though it will expand by 2.5%-3.0% during the opening six
months of the year.
Meanwhile, the difficulties in Asia seem as though they will have only a
moderate effect on this nation's business uptrend going forward. Obviously, the
problems afflicting that part of the globe will lead to selective reductions in
demand for goods and services produced in the United States. Nevertheless,
assuming that the affected nations take the remedial steps recommended by the
leading international monetary authorities and the situation there begins to
stabilize, the likely opening-half rate of growth could well be maintained for
the balance of the year. That's a slightly better showing than we would have
forecast several months earlier.
This suggests that the Federal Reserve will keep interest rates about where they
are for the time being. That, in fact, would seem to be the sensible approach.
The economy is still too strong and the labor markets too tight (thereby keeping
alive the threat of higher inflation) for the Fed to think of relaxing the
credit reins at this point. At the same time, the situation in Asia is still
unresolved. And despite some hopeful signs there, at least a modest threat to
our economic well being is still present. Thus, to raise rates with that
uncertainty still around would likewise probably be counterproductive.
- --------------------------------------------------------------------------------
3
<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
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
[PLOT POINTS TO COME]
(Period covered is 3/1/88 to 2/28/98)
Performance Data:
Average Annual Total return
High-Yield Portfolio
12/31/97 2/28/98
-------- ---------
1 year ended .............................. 8.79% 8.56%
5 years ended ............................. 6.41% 5.55%
10 years ended ............................. 7.78% 7.38%
Money Market Portfolio
12/31/97 2/28/98
----------- ---------
1 year ended .............................. 2.65% 2.65%
5 years ended ............................. 2.36% 2.38%
10 years ended ............................. 3.43% 3.40%
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
<PAGE>
The Value Line Tax Exempt Fund, Inc.
<TABLE>
<CAPTION>
Schedule of Investments February 28, 1998
========================================================================================================
Principal Rating
Amount High-Yield Portfolio (Unaudited) Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
LONG-TERM MUNICIPAL SECURITIES (94.8%)
Alabama (.7%)
$1,250,000 Colbert County-Northwest, Health Care Authority,
Hospital Revenue Refunding, Helen Keller Hospital, 8.75%, 6/1/09. Baa $ 1,368,800
Alaska (.9%)
Housing Finance Corp.:
195,000 Collateral Mortgage Obligation, Veteran's 1st Ser.,
Veteran's Mortgage Program, 7.45%, 12/1/29..................... Aaa 201,201
1,500,000 Mortgage Revenue, Refunding, Ser. A-1, 5.50%, 12/1/17............ Aaa 1,527,195
-----------
1,728,396
Arkansas (1.0%)
Development Finance Authority, Single Family Mortgage, Revenue:
1,180,000 Correction Facilities Revenue, 5.40%, 10/1/11.................... Aaa 1,247,295
545,000 Single Family Mortgage Revenue Replacement,
Ser. C, 8.125%, 8/1/14......................................... A+* 556,886
-----------
1,804,181
California (2.4%)
3,670,000 Pleasant Hill, Redevelopment Agency, Residential Mortgage Revenue,
Refunding, 5.75%, 8/1/11......................................... AA* 3,775,880
750,000 Yuba County, Water Agency, Revenue, Yuba River Development,
Pacific Gas & Electric, Ser. A, 4.00%, 3/1/16.................... A 701,408
-----------
4,477,288
Colorado (2.5%)
4,055,000 Denver, City & County, Single Family Mortgage Revenue,
7.00%, 8/1/10.................................................... Aaa 4,675,374
Florida (.8%)
1,500,000 Duval County, Housing Finance Authority, Single Family Mortgage,
Revenue, 4.95%, 10/1/30+......................................... Aaa 1,490,325
Georgia (1.5%)
2,100,000 Municipal Electric Authority, Power Revenue, Refunding,
Ser. Z, 5.50%, 1/1/20............................................ Aaa 2,221,149
545,000 Residential Finance Authority, Single Family Insured Mortgage,
Revenue, Subser. C, 8.00%, 12/1/16.............................. Aa 562,805
-----------
2,783,954
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
The Value Line Tax Exempt Fund, Inc.
<TABLE>
<CAPTION>
Schedule of Investments
========================================================================================================
Principal Rating
Amount High-Yield Portfolio (Unaudited) Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hawaii (2.5%)
$4,000,000 Department of Budget and Finance, Special Purpose Mortgage Revenue,
Kapiolani Health Care System, 6.40%, 7/1/13...................... Aaa $ 4,698,040
Illinois (7.2%)
Housing Development Authority:
4,500,000 Multi Family, Ser. 91-A, 8.25%, 7/1/16........................... A1 4,830,660
1,500,000 Residential Mortgage Revenue, Ser. A, 7.00%, 8/1/17.............. Aa2 1,548,105
2,000,000 Municipal Electric Agency, Power Supply System, Revenue,
Refunding, 5.00%, 2/1/12......................................... Aaa 2,011,640
1,500,000 Regional Transportation Authority, Ser. A, 8.00%, 6/1/17........... Aaa 2,045,310
2,650,000 Sales Tax Revenue, Ser. P, 6.50%, 6/15/22.......................... Aa3 3,175,760
-----------
13,611,475
Indiana (6.0%)
4,000,000 Marion County, Convention & Recreational Facilities Authority,
Excise Tax Revenue, Lease Rental, Ser. A, 5.00%, 6/1/27.......... Aaa 3,845,240
Office Building Commission, Capital Complex, Revenue:
2,875,000 Ser. D, 6.90%, 7/1/11............................................ Aaa 3,486,282
3,000,000 Ser. B, 7.40%, 7/1/15............................................ Aaa 3,865,170
-----------
11,196,692
Iowa (2.4%)
1,565,000 Finance Authority, Single Family, Revenue Mortgage,
Ser. B, 7.45%, 7/1/23............................................ Aaa 1,655,911
2,500,000 Muscatine, Electric Revenue, 6.70%, 1/1/13......................... Aaa 2,887,200
-----------
4,543,111
Kentucky (.9%)
1,715,000 Warren County, Hospital Facilities Revenue, Refunding,
Bowling Green Hospital, 4.625%, 4/1/12........................... Aaa 1,652,111
Maine (2.4%)
Housing Authority, Mortgage Purchase Program:
1,000,000 Ser. D-3, 8.15%, 11/15/11........................................ Aa2 1,021,680
2,800,000 Ser. D-4, 7.55%, 11/15/19........................................ Aa2 2,964,416
500,000 State Street Housing Preservation Corp., Multifamily Housing Revenue,
100 State Street Project, Ser. A, 7.50%, 1/1/19.................. A* 540,955
-----------
4,527,051
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
The Value Line Tax Exempt Fund, Inc.
<TABLE>
<CAPTION>
February 28, 1998
========================================================================================================
Principal Rating
Amount High-Yield Portfolio (Unaudited) Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Massachusetts (4.5%)
$1,500,000 Bay Transportation Authority, General Transportation System,
Ser. A, 4.75%, 3/1/21+........................................... Aaa $ 1,413,855
2,500,000 Health and Educational Facilities Authority, Revenue, Refunding,
Caregroup Issue, Ser. A, 4.75%, 7/1/20........................... Aaa 2,342,775
1,750,000 Housing Finance Agency, Residential Development,
Ser. H, 4.85%, 12/1/20........................................... Aaa 1,742,475
2,710,000 Residential Development, Ser H, 6.75%, 5/15/15..................... Aaa 2,923,385
-----------
8,422,490
Michigan (2.4%)
1,355,000 Hancock, Hospital Finance Authority, Revenue, 4.375%, 8/1/08+...... Aaa 1,331,586
Housing Development Authority, Single Family Mortgage, Revenue:
1,000,000 Ser. D, 5.55%, 12/1/12........................................... Aaa 1,024,220
2,000,000 Ser. C, 5.95%, 12/1/14........................................... AA+* 2,087,040
-----------
4,442,846
Minnesota (1.5%)
2,690,000 Housing Finance Agency, Refunding, Rental Housing,
Ser. D, 5.80%, 8/1/11............................................ Aaa 2,800,102
Nebraska (2.0%)
3,615,000 Investment Finance Authority, Single Family Mortgage, Revenue,
Ser. A, 5.977%, 9/30/16.......................................... Aaa 3,798,859
New Hampshire (.1%)
185,000 Housing Finance Authority, Single Family Residential Mortgage,
Ser.B, 7.75%, 7/1/23............................................. Aa 197,693
New York (12.9%)
New York City:
General Obligations:
630,000 Ser. F, 8.20%, 11/15/04.......................................... A3 717,601
1,000,000 Ser. A, 5.25%, 8/1/10............................................ Aaa 1,044,560
1,000,000 Industrial Development Agency, Revenue, Brooklyn Navy Yard,
Cogen Partners, 5.65%, 10/1/28................................... Baa3 1,026,260
5,070,000 Municipal Water Finance Authority, Water & Sewer System, Revenue,
Refunding, Ser. A, 5.125%, 6/15/22............................... Aaa 5,010,580
2,805,000 Transitional Finance Authority, Revenue, Future Tax Secured Bonds,
Ser. B, 4.60%, 11/15/11.......................................... Aa3 2,734,342
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
The Value Line Tax Exempt Fund, Inc.
<TABLE>
<CAPTION>
Schedule of Investments
========================================================================================================
Principal Rating
Amount High-Yield Portfolio (Unaudited) Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New York State:
Dormitory Authority, Revenue:
$2,000,000 Bishop Henry B. Hucles Nursing Home, 5.625%, 7/1/18.............. Aa2 $ 2,063,320
1,000,000 Good Samaritan Hospital, Suffern, 5.50%, 7/1/10+................. Baa1 1,049,340
1,500,000 Long Island University, Asset Guaranty, FSA Insured, 5.50%, 9/1/20 Aaa 1,550,805
1,000,000 New York & Presbyterian Hospital, 4.40%, 8/1/13.................. Aaa 993,990
Medical Care Facilities Finance Agency:
3,705,000 Hospital and Nursing Home, Mortgage Revenue,
Ser. D, 6.35%, 2/15/12......................................... Aa2 4,138,448
3,000,000 Presbyterian Hospital, Revenue Ser. A, 5.375%, 2/15/25........... Aaa 3,035,790
855,000 Mortgage Agency Revenue, Homeowner Mortgage,
Ser. 30-A, 4.375%, 10/1/23....................................... Aa2 831,975
-----------
24,197,011
North Carolina (.7%)
1,255,000 Housing Finance Agency, Ser U, 6.375%, 9/1/22...................... Aa 1,299,703
Ohio (.3%)
550,000 Capital Corp. for Housing Mortgage Revenue, Refunding,
Ser. A, 4.75%, 1/1/08............................................ Aaa 550,160
Oklahoma (3.5%)
40,000 Housing Finance Agency, Single Family Mortgage, Revenue,
Class A, 7.99675%, 8/1/18........................................ AAA* 41,542
5,745,000 McGee Creek Authority, Water Revenue, 6.00%, 1/1/23................ Aaa 6,503,397
-----------
6,544,939
Oregon (3.8%)
500,000 Department of Administrative Services, Lottery Revenue,
State Park Projects, Ser. A, 4.75%, 4/1/12+...................... Aaa 494,915
6,695,000 Eugene, Trojan Nuclear Project, Revenue, 5.90%, 9/1/09............. Aa1 6,704,306
-----------
7,199,221
Pennsylvania (1.3%)
2,500,000 Lancaster County, Solid Waste Management Authority,
Resource Recovery System, Revenue, Ser. A, 5.00%, 12/15/14+...... Aaa 2,466,275
Rhode Island (2.1%)
3,010,000 Health & Educational Building Corp., Revenue Refunding,
Hospital Financing, Lifespan Obligation Group, 5.25%, 5/15/26.... Aaa 2,996,575
1,000,000 Housing and Mortgage Finance Corp., Homeownership Opportunity,
Ser. 3A, 7.80%, 10/1/10.......................................... Aa2 1,068,190
-----------
4,064,765
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE>
The Value Line Tax Exempt Fund, Inc.
<TABLE>
<CAPTION>
February 28, 1998
========================================================================================================
Principal Rating
Amount High-Yield Portfolio (Unaudited) Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
South Carolina (1.4%)
$1,210,000 Piedmont, Municipal Power Agency, Electric Power Agency,
Refunding, 5.375%, 1/1/25........................................ Aaa $ 1,261,897
1,450,000 Three Rivers, Solid Waste Authority, Solid Waste Disposal Facilities,
Revenue, 5.30%, 1/1/27........................................... Aaa 1,466,588
-----------
2,728,485
South Dakota (4.2%)
3,000,000 Heartland Consumers Power District, Electric Revenue,
Refunding, 6.00%, 1/1/17......................................... Aaa 3,335,850
Housing Development Authority, Homeownership Mortgage:
610,000 Ser. B, 4.95%, 5/1/10+........................................... Aa1 610,567
1,405,000 Ser. A, 5.40%, 5/1/14............................................ Aa1 1,437,357
2,425,000 Ser. J, 5.50%, 5/1/10............................................ Aa1 2,463,266
-----------
7,847,040
Texas (8.1%)
3,000,000 Harris County, Hospital District, Mortgage Revenue, 7.40%, 2/15/10. Aaa 3,668,970
5,415,000 Houston, Housing Finance Corp., Single Family Mortgage Revenue,
Refunding, Ser. A, 5.95%, 12/1/10................................ Aaa 5,640,914
3,000,000 Lubbock, Housing Finance Corp., Single Family Mortgage Revenue,
Refunding, Ser. 1989A, 8.00%, 10/1/21............................ AAA* 4,196,783
900,000 Travis County, Health Facilities Development Corp., Hospital Revenue,
Daughters of Charity, 5.90%, 11/15/07............................ Aa 972,657
730,000 Veterans Housing Assistance, Ser. B-4, 6.20%, 12/1/14.............. Aa2 755,017
-----------
15,234,341
Utah (1.2%)
Housing Finance Agency, Single Family Mortgage:
335,000 Ser. C-3, 7.55%, 7/1/23.......................................... AAA* 354,417
825,000 Ser. D-3, 7.55%, 7/1/23.......................................... AAA* 874,096
1,000,000 Ser. B-2, CL-I, 5.30%, 7/1/27.................................... Aaa 1,027,760
-----------
2,256,273
Virginia (1.7%)
3,000,000 Housing Development Authority, Commonwealth Mortgage,
Subser. H-2, 6.85%, 7/1/14...................................... Aa1 3,232,050
Washington (2.6%)
5,000,000 Public Power Supply System, Nuclear Project No. 2,
Revenue Refunding, Ser. A, 5.00%, 7/1/11......................... Aa1 5,004,250
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
The Value Line Tax Exempt Fund, Inc.
<TABLE>
<CAPTION>
Schedule of Investments
========================================================================================================
Principal Rating
Amount High-Yield Portfolio (Unaudited) Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
West Virginia (1.1%)
$2,000,000 Pleasants County, Pollution Control Revenue, Refunding,
County Commission, West Penn Power, Ser. D, 4.70%, 11/1/07....... A2 $ 2,013,800
Wisconsin (6.7%)
2,000,000 Health and Educational Facilities Authority, Revenue Refunding,
Aurora Health Care Inc., 5.25%, 8/15/17.......................... Aaa 2,010,240
Housing and Economic Development Authority:
1,785,000 Home Ownership Revenue, Refunding, Ser. A, 6.00%, 3/1/17......... Aa2 1,870,002
Housing Revenue, Refunding:
7,595,000 Ser C, 5.80%, 11/1/13.......................................... Aaa 7,823,610
1,000,000 Ser B, 5.30%, 11/1/18.......................................... Aaa 997,430
-----------
12,701,282
Wyoming (1.5%)
2,750,000 Community Development Authority, Housing Revenue,
Ser. 4, 5.70%, 6/1/17............................................ Aa2 2,824,278
-----------
TOTAL LONG-TERM MUNICIPAL SECURITIES .............................. 178,382,661
-----------
SHORT-TERM MUNICIPAL SECURITIES (7.5%)
320,000 Greenville, South Carolina, Hospital Facilities, Revenue,
(Prerefunded 5/1/98) 7.80%, 5/1/15+.............................. Aaa 328,723
500,000 Gulf Coast Industrial Development Authority, Texas, Solid Waste Disposal,
Revenue, Citgo Petroleum Corp. Project, 3.75%, 5/1/25........... VMIG1(1) 500,000
600,000 Jackson County, Mississippi, Port Facility Revenue, Refunding,
Chevron USA, Inc. Project, 3.65%, 6/1/23......................... P1(2) 600,000
Lincoln County, Wyoming, Pollution Control Revenue, Exxon Project:
600,000 3.60%, 8/1/15.................................................... P1(1) 600,000
1,200,000 Ser. C, 3.70%, 7/1/17............................................ Aaa(1) 1,200,000
2,400,000 Maricopa County, Arizona, Pollution Control Revenue, Refunding,
Arizona Public Service Co., Ser. B, 3.60%, 5/1/29................ P1(1) 2,400,000
700,000 Monroe County, Georgia, Development Authority, Pollution Control
Revenue, Gulf Power Co. Plant, 2nd Ser., 3.90%, 9/1/24........... P1(1) 700,000
New York City:
General Obligations:
550,000 Subser. B-2, 3.70%, 8/15/03.................................... VMIG1(1) 550,000
1,000,000 Subser. A-8, 3.70%, 8/1/17..................................... VMIG1(1) 1,000,000
Municipal Water Finance Authority, Water & Sewer System Revenue:
1,200,000 Ser. C, 3.00%, 6/15/22......................................... VMIG1(1) 1,200,000
1,700,000 Ser. C, 3.25%, 6/15/23......................................... VMIG1(1) 1,700,000
</TABLE>
- --------------------------------------------------------------------------------
10
<PAGE>
The Value Line Tax Exempt Fund, Inc.
<TABLE>
<CAPTION>
February 28, 1998
========================================================================================================
Principal Rating
Amount High-Yield Portfolio (Unaudited) Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$1,900,000 Stevenson, Alabama, Industrial Development Board, Environmental
Improvement, Revenue, Mead Corp. Project, 3.70%, 6/1/32......... AAA*(1) $ 1,900,000
West Baton Rouge Parish, Louisiana, Industrial District No. 3,
Revenue Refunding, Dow Chemical Co. Project:
600,000 Ser. B, 3.70%, 12/1/16......................................... P1(1) 600,000
800,000 3.75%, 11/1/25................................................. A1*(1) 800,000
------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES ....................................... 14,078,723
------------
TOTAL MUNICIPAL SECURITIES (102.3%) (Cost $185,488,070) ..................... 192,461,384
EXCESS OF LIABILITIES OVER CASH AND OTHER ASSETS (-2.3%) .................... (4,352,268)
-----------
NET ASSETS (100.0%) ......................................................... $188,109,116
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE,
PER SHARE OUTSTANDING ..................................................... $11.04
============
</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, 1998.
+ When issued security
See Notes to Financial Statements
- --------------------------------------------------------------------------------
11
<PAGE>
The Value Line Tax Exempt Fund, Inc.
<TABLE>
<CAPTION>
Schedule of Investments
========================================================================================================
Principal Rating
Amount High-Yield Portfolio (Unaudited) Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES (106.1%)
Alabama (6.0%)
$ 500,000 General Obligations, Refunding, 5.70%, 9/1/98...................... Aa $ 504,524
500,000 Stevenson, Industrial Development Board, Enviormental Improvement
Revenue, Mead Corp. Project, 3.70%, 6/1/32...................... AAA*(1) 500,000
----------
1,004,524
Alaska (3.2%)
540,000 Housing Finance Corporation, Refunding, Ser. A-1, 3.90%, 12/1/98... Aaa 540,000
Arizona (6.0%)
1,000,000 Maricopa County, Pollution Control Revenue, Refunding,
Arizona Public Service Co., Ser B, 3.60%, 5/1/29................. P1(1) 1,000,000
Arkansas (3.0%)
500,000 Drivers License Revenue, State Police Headquarters &
Wireless Data Equipment, 3.80%, 6/1/98........................... Aaa 500,000
Florida (3.6%)
600,000 Tampa, Sports Authority, Revenue, Stadium Project, 4.50%, 1/1/99... Aaa 603,324
Georgia (1.8%)
300,000 Hapeville, Development Authority, Industrial Development Revenue,
Hapeville Hotel Ltd., 3.65%, 11/1/15............................. P1(1) 300,000
Iowa (3.0%)
500,000 School Cash Anticipation Program, School Corporations,
Warrant Certificates, Ser. A, 4.50%, 6/26/98..................... MIG1 501,080
Louisiana (11.3%)
1,000,000 Lake Charles Parish, Harbor and Terminal District,
Port Facilities Revenue, Refunding, 3.65%, 11/1/11............... Aa3(1) 1,000,000
900,000 Saint Charles Parish, Pollution Control Revenue,
Shell Oil Co. Project, Ser. A, 3.70%, 10/1/22.................... VMIG1(1) 900,000
----------
1,900,000
Massachusetts (3.0%)
500,000 General Obligations, Refunding, Ser. B, 6.00%, 8/1/98.............. Aaa 504,332
Michigan (6.0%)
1,000,000 Strategic Fund, Pollution Control Revenue, Refunding,
Consumers Power Project, Ser. A, 3.65%, 4/15/18.................. P1(1) 1,000,000
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE>
The Value Line Tax Exempt Fund, Inc.
<TABLE>
<CAPTION>
February 28, 1998
========================================================================================================
Principal Rating
Amount Money Market Portfolio (Unaudited) Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minnesota (3.0%)
$ 500,000 School Districts, Tax and Aid Anticipation Borrowing Project,
Certificates of Participation, Ser. B, 3.65%, 3/10/98............ MIG1 $ 500,000
Mississipi (4.1%)
700,000 Jackson County, Port Facility Revenue, Refunding,
Chevron USA, Inc. Project, 3.65%, 6/1/13......................... P1(2) 700,000
New York (3.0%)
New York City:
500,000 Municipal Assistance Corp., Ser. G, (Prerefunded 7/1/93),
4.50%, 7/1/98.................................................. Aa2 500,969
South Carolina (10.0%)
500,000 Educational Assistance Authority, Revenue, 6.10%, 9/1/98........... AA* 504,761
800,000 Greenville, Hospital System, Hospital Facilities, Revenue,
(Prerefunded 5/1/98) 7.80%, 5/1/15+.............................. Aaa 820,976
350,000 North Charleston, Certificates of Participation, Refunding,
Coliseum & Convention, 3.90%, 9/1/98............................. Aaa 350,000
----------
1,675,737
South Dakota (3.0%)
500,000 Housing Development Authority, Homeownership Mortgage,
Ser. B, 3.75%, 5/1/17 (Mandatory Put Back 3/26/98)............... VMIG1 500,000
Texas (14.9%)
900,000 Brazos River Authority, Pollution Control Revenue, Refunding,
Ser. A, 3.70%, 3/1/26............................................ VMIG1(1) 900,000
500,000 General Obligations, Refunding, Ser. A, 4.90%, 10/1/98............. Aa2 502,979
600,000 Harris County, Health Facilities Development Corp., Special
Facilities Revenue, Texas Medical Center Project,
3.90%, 2/15/22................................................... VMIG1(1) 600,000
500,000 Irving, General Obligation, Refunding, 4.10%, 3/15/98.............. Aaa 500,076
----------
2,503,055
Utah (6.0%)
1,000,000 Emery County, Pollution Control Revenue, Refunding,
Pacificorp Project, 3.65%, 11/1/24............................... VMIG1(1) 1,000,000
Virginia (3.0%)
500,000 General Obligations, Construction, Ser. A, 4.00%, 6/1/98........... Aaa 500,141
Wisconsin (1.5%)
250,000 Delavan-Darien School District, Bond Anticipation Notes,
4.15%, 4/15/98................................................... MIG1 250,072
</TABLE>
- --------------------------------------------------------------------------------
13
<PAGE>
The Value Line Tax Exempt Fund, Inc.
<TABLE>
<CAPTION>
Schedule of Investments February 28, 1998
========================================================================================================
Principal Rating
Amount Money Market Portfolio (Unaudited) Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wyoming (10.7%)
Lincoln County, Pollution Control Revenue, Exxon Project:
$ 200,000 Ser. B, 3.65%, 11/1/14........................................... Aaa(1) $ 200,000
700,000 Ser. D, 3.65%, 11/1/14........................................... Aaa(1) 700,000
900,000 Ser. C, 3.70%, 7/1/17............................................ Aaa(1) 900,000
-----------
1,800,000
-----------
TOTAL SHORT-TERM MUNICIPAL SECURITIES (106.1%)
(Cost $17,783,234) ........................................................ 17,783,234
EXCESS OF LIABILITIES OVER CASH AND OTHER ASSETS (-6.1%) .................... (1,025,290)
-----------
NET ASSETS (100.0%) ........................................................ $16,757,944
-----------
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, 1998.
+ When issued security
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14
<PAGE>
The Value Line Tax Exempt Fund, Inc.
Statement of Assets and Liabilities
at February 28, 1998
- --------------------------------------------------------------------------------
Portfolio
-----------------------
High- Money
Yield Market
-----------------------
(Dollars in thousands
except per share
amount)
Assets:
Investment securities at value
(Cost $185,488 and
amortized cost $17,783) ....................... $192,461 $ 17,783
Cash ............................................ 78 60
Receivable for securities sold .................. 3,224257
Interest receivable ............................. 2,036 171
Receivable for capital shares sold .............. 32 5
-------- --------
Total Assets .............................. 197,831 18,276
-------- --------
Liabilities:
Payable for securities purchased ................ 9,271 1,451
Dividends payable to shareholders ............... 274 --
Payable for capital shares
repurchased ................................... 2 25
Accrued expenses:
Advisory fee .................................. 72 7
Other ......................................... 103 35
-------- --------
Total Liabilities ......................... 9,722 1,518
-------- --------
Net Assets ...................................... $188,109 $ 16,758
-------- --------
Net Assets:
Capital stock at $.01 par value
(Authorized 65,000,000 shares
and 125,000,000 shares
respectively; outstanding
17,041,448 shares and
16,788,707 shares,
respectively) ................................. $ 170 $ 168
Additional paid-in capital ...................... 178,547 16,621
Undistributed net investment
income ........................................ -- 1
Accumulated net realized gain
(loss) on investments ......................... 2,419 (32)
Unrealized net appreciation of
investments ................................... 6,973 --
-------- --------
Net Assets ...................................... $188,109 $ 16,758
-------- --------
Net Asset Value, Offering and
Redemption Price, per
Outstanding Share ............................. $ 11.04 $ 1.00
-------- --------
Statement of Operations
for the Year Ended February 28, 1998
- --------------------------------------------------------------------------------
Portfolio
-----------------------
High- Money
Yield Market
-----------------------
(Dollars in thousands
except per share
amount)
Investment Income:
Interest ..................................... $ 10,618 $ 686
-------- --------
Expenses:
Advisory fee ................................. 950 94
Transfer agent fees .......................... 57 21
Custodian fees ............................... 41 5
Auditing and legal fees ...................... 35 32
Printing and stationery ...................... 32 8
Registration and filing fees ................. 21 16
Postage ...................................... 20 5
Directors' fees and expenses ................. 8 8
Other ........................................ 33 5
-------- --------
Total expenses before
custody credits ...................... 1,197 194
Less: custody credits .................. (9) (2)
-------- --------
Net Expenses ........................... 1,188 192
-------- --------
Net Investment Income ........................ 9,430 494
-------- --------
Net Realized and Unrealized
Gain (Loss) on Investments:
Net Realized Gain (Loss) ................. 3,346 (1)
Change in Unrealized
Appreciation ........................... 2,806 --
-------- --------
Net Realized Gain (Loss) and
Change in Unrealized
Appreciation on
Investments ................................ 6,152 (1)
-------- --------
Net Increase in Net Assets from
Operations ................................. $ 15,582 $ 493
-------- --------
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, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High-Yield Money Market
Portfolio Portfolio
------------------------------------------------
1998 1997 1998 1997
------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Operations:
Net investment income .................................... $ 9,430 $ 10,690 $ 494 $ 531
Net Realized gain (loss) on investments .................. 3,346 755 (1) (1)
Change in unrealized appreciation ........................ 2,806 (1,721) -- --
------------------------------------------------
Net increase in net assets from operations ............... 15,582 9,724 493 530
------------------------------------------------
Distributions to Shareholders:
Net investment income .................................... (9,430) (10,690) (493) (531)
Net realized gains ....................................... (1,654) -- -- --
------------------------------------------------
Net decrease in net assets from distributions ............ (11,084) (10,690) (493) (531)
------------------------------------------------
Capital Share Transactions:
Net proceeds from sale of shares ......................... 28,198 146,110 8,000 14,044
Net proceeds from reinvestment of
distributions to shareholders .......................... 7,231 6,978 493 531
Cost of shares repurchased ............................... (45,459) (181,241) (11,403) (16,683)
------------------------------------------------
Net decrease in net assets from capital share transactions (10,030) (28,153) (2,910) (2,108)
------------------------------------------------
Total Decrease in Net Assets ............................... (5,532) (29,119) (2,910) (2,109)
Net Assets:
Beginning of year ........................................ 193,641 222,760 19,668 21,777
------------------------------------------------
End of year .............................................. $ 188,109 $ 193,641 $ 16,758 $ 19,668
================================================
Undistributed Net Investment Income
at end of year ........................................... $ -- $ -- $ 1 $ --
================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
16
<PAGE>
The Value Line Tax Exempt Fund, Inc.
Notes to Financial Statements February 28, 1998
- --------------------------------------------------------------------------------
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 Valuation: 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 values 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 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
- --------------------------------------------------------------------------------
17
<PAGE>
The Value Line Tax Exempt Fund, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 discounts, 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 the 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:
High-Yield
Portfolio
----------------------
1998 1997
----------------------
(in thousands)
Shares sold .................................... 2,576 13,694
Shares issued to shareholders in
reinvestment of distributions ................ 663 654
----------------------
3,239 14,348
Shares repurchased ............................. (4,160) (16,971)
----------------------
Net decrease ................................... (921) (2,623)
======================
Money Market
Portfolio
----------------------
1998 1997
----------------------
(in thousands)
----------------------
Shares sold .................................... 8,000 14,044
Shares issued to shareholders in
reinvestment of distributions ................ 493 531
----------------------
8,493 14,575
Shares repurchased ............................. (11,403) (16,683)
----------------------
Net decrease ................................... (2,910) (2,108)
======================
3. Purchases and Sales of Securities
Purchases and sales of municipal securities were as follows:
High-Yield
Portfolio
--------------
1998
--------------
(in thousands)
PURCHASES:
Long-term obligations .................................... $213,207
Short-term obligations ................................... 96,986
--------
$310,193
--------
MATURITIES OR SALES:
Long-term obligations .................................... $221,949
Short-term obligations ................................... 97,056
--------
$319,005
========
Money Market
Portfolio
--------------
1998
--------------
(in thousands)
PURCHASES:
Municipal short-term obligations ............................ $24,255
========
MATURITIES OR SALES:
Municipal short-term obligations ............................ $26,870
========
At February 28, 1998, the aggregate cost of investments for federal income-tax
purposes was $185,488,070 for the High-Yield Portfolio and $17,783,234 for the
Money Market Portfolio.
- --------------------------------------------------------------------------------
18
<PAGE>
The Value Line Tax Exempt Fund, Inc.
February 28, 1998
- --------------------------------------------------------------------------------
The aggregate appreciation and depreciation of investments in the
High-Yield Portfolio at February 28, 1998, based on a comparison of investment
values and their costs for federal income-tax purposes, was $7,574,267 and
$600,953, respectively, resulting in a net unrealized appreciation of
$6,973,314. There was no unrealized appreciation or depreciation in the Money
Market Portfolio.
For federal income-tax purposes the Money Market Portfolio had a capital-loss
carryover at February 28, 1998, of $31,999, of which $27,649 will expire in
2000, $998 in 2004, $1,285 in 2005 and $2,067 in 2006. 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 $950,238 and $93,941 was paid or payable by the High-Yield
Portfolio and the Money Market Portfolio, respectively, to Value Line, Inc. (the
Adviser) for the year ended February 28, 1998. 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.
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 28, 1998, the Adviser and/or affiliated companies owned 112,033
shares of the High-Yield Portfolio common shares, representing .66% of the
outstanding shares. In addition, certain officers and directors of the Fund
owned 156,559 shares of the High-Yield Portfolio, representing .92% of the
outstanding shares and 2,515 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
Years Ended on Last Day of February,
----------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ........ $ 10.78 $ 10.82 $ 10.40 $ 10.97 $ 11.29
----------------------------------------------------------
Income from investment operations:
Net investment income.................. .543 .547 .552 .568 .598
Net gains or losses on securities
(both realized and unrealized)....... .354 (.040) .420 (.528) (.112)
----------------------------------------------------------
Total from investment operations .... .897 .507 .972 .040 .486
----------------------------------------------------------
Less distributions:
Dividends from net investment income .. (.541) (.547) (.552) (.568) (.602)
Distributions from capital gains ...... (.096) -- -- (.042) (.204)
----------------------------------------------------------
Total distributions ................. (.637) (.547) (.552) (.610) (.806)
----------------------------------------------------------
Net asset value, end of year .............. $ 11.04 $ 10.78 $ 10.82 $ 10.40 $ 10.97
==========================================================
Total return .............................. 8.56% 4.86% 9.55% .64% 4.37%
==========================================================
Ratios/Supplemental Data:
Net assets, end of period (in thousands) .. $188,109 $193,641 $222,760 $241,467 $237,888
Ratio of expenses to average net assets.... .63%(1) .60%(1) .62% .61% .58%
Ratio of net investment income
to average net assets.................... 4.98% 5.13% 5.22% 5.54% 5.30%
Portfolio turnover rate ................... 119% 73% 95% 60% 55%
</TABLE>
(1) Before offset for custody credits.
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
Years Ended on Last Day of February,
---------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<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 ................. .026 .025 .029 .022 .016
---------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income .. (.026) (.025) (.029) (.022) (.016)
---------------------------------------------------------------------------------
Net asset value, end of year .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
=================================================================================
Total return .............................. 2.65% 2.56% 2.92% 2.22% 1.58%
=================================================================================
Ratios/Supplemental Data:
Net assets, end of period (in thousands) .. $ 16,758 $ 19,668 $ 21,777 $ 25,681 $ 31,707
Ratio of expenses to average net assets ... 1.03%(1) 1.00%(1) 1.01% .89% .86%
Ratio of net investment income
to average net assets ................... 2.63% 2.54% 2.89% 2.17% 1.56%
</TABLE>
(1) Before offset for custody credits.
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 schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the 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, 1998, 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, 1998 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, 1998
- --------------------------------------------------------------------------------
FEDERAL TAX NOTICE (unaudited)
During the year ended February 28, 1998, the Fund paid to shareholders of the
High-Yield Portfolio $0.541 and the Money Market Portfolio $0.026 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. During the year ended
February 28, 1998, the Fund paid to shareholders of the High-Yield Portfolio
$0.039 per share of Long Term Capital Gains.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
22
<PAGE>
The Value Line Tax Exempt Fund, Inc.
Shareholders Meeting Results (unaudited)
- --------------------------------------------------------------------------------
A special meeting of shareholders of The Value Line Tax Exempt Fund, Inc. was
held on October 30, 1997. The matters voted upon by the shareholders and the
resulting votes for each matter are presented below.
1. The election of six Directors to serve until their successors are duly
elected and qualified.
<TABLE>
<CAPTION>
High-Yield Portfolio:
Directors For Withheld Broker Non-Votes*
-------- ---------- -------- ----------------
<S> <C> <C> <C>
Jean Bernhard Buttner 11,098,925 247,148 0
John W. Chandler 11,057,879 288,194 0
Leo R. Futia 11,026,871 319,202 0
David H. Porter 11,050,228 295,845 0
Paul Craig Roberts 11,089,961 256,112 0
Nancy-Beth Sheerr 11,087,689 258,385 0
<CAPTION>
Money Market Portfolio:
Directors For Withheld Broker Non-Votes*
-------- ---------- -------- ----------------
<S> <C> <C> <C>
Jean Bernhard Buttner 9,992,658 181,964 0
John W. Chandler 9,936,191 172,358 0
Leo R. Futia 9,990,735 202,814 0
David H. Porter 9,868,041 240,507 0
Paul Craig Roberts 9,962,392 146,157 0
Nancy-Beth Sheerr 9,876,011 232,537 0
</TABLE>
2. Ratification of the selection of Price Waterhouse LLP as independent
accountants for the fiscal year ending February 28, 1998.
<TABLE>
<CAPTION>
High-Yield Portfolio:
For Against Abstain Broker Non-Votes*
-------- ------- ------- ----------------
<S> <C> <C> <C>
11,099,599 98,767 147,706 0
<CAPTION>
Money Market Portfolio:
For Against Abstain Broker Non-Votes*
-------- ------- ------- ----------------
<S> <C> <C> <C>
9,459,524 366,177 282,848 0
</TABLE>
* Broker non-votes are proxies received by the Fund from brokers or nominees
when the broker or nominee neither has received instructions from the
beneficial owner or other persons entitled to vote nor has discretionary
power to vote on a particular matter.
- --------------------------------------------------------------------------------
23
<PAGE>
The Value Line Tax Exempt Fund, Inc.
- --------------------------------------------------------------------------------
The Value Line Family of Funds
1950--The Value Line Fund seeks long-term growth of capital along with modest
current income by investing substantially all of its assets in common stocks or
securities convertible into common stock.
1952--The Value Line Income Fund's primary investment objective is income, as
high and dependable as is consistent with reasonable growth. Capital growth to
increase total return is a secondary objective.
1956--The Value Line Special Situations Fund seeks to obtain long-term growth of
capital by investing not less than 80% of its assets in "special situations". No
consideration is given to achieving current income.
1972--Value Line Leveraged Growth Investors' sole investment objective is to
realize capital growth by investing substantially all of its assets in common
stocks. The Fund may borrow up to 50% of its net assets to increase its
purchasing power.
1979--The Value Line Cash Fund, a money market fund, seeks high current income
consistent with preservation of capital and liquidity.
1981--Value Line U.S. Government Securities Fund seeks maximum income without
undue risk to principal. Under normal conditions, at least 80% of the value to
its assets will be invested in issues of the U.S. Government and its agencies
and instrumentalities.
1983--Value Line Centurion Fund* seeks long-term growth of capital as its sole
objective by investing primarily in stocks ranked 1 or 2 by Value Line for
year-ahead relative performance.
1984--The Value Line Tax Exempt Fund seeks to provide investors with maximum
income exempt from federal income taxes while avoiding undue risk to principal.
The Fund offers investors a choice of two portfolios: a Money Market Portfolio
and a High-Yield Portfolio.
1985--Value Line Convertible Fund seeks high current income together with
capital appreciation primarily from convertible securities ranked 1 or 2 for
year-ahead performance by the Value Line Convertible Ranking System.
1986--Value Line Aggressive Income Trust seeks to maximize current income by
investing in high-yielding, lower-rated, fixed-income corporate securities.
1987--Value Line New York Tax Exempt Trust seeks to provide New York taxpayers
with maximum income exempt from New York State, New York City and federal
individual income taxes while avoiding undue risk to principal.
1987--Value Line Strategic Asset Management Trust* invests in stocks, bonds and
cash equivalents according to computer trend models developed by Value Line. The
objective is to professionally manage the optimal allocation of these
investments at all times.
1993--Value Line Small-Cap Growth Fund invests primarily in common stocks or
securities convertible into common stock, with its primary objective being
long-term growth of capital.
1993--Value Line Asset Allocation Fund seeks high total investment return,
consistent with reasonable risk. The Fund invests in stocks, bonds and money
market instruments utilizing quantitative modeling to determine the correct
asset mix.
1995--Value Line U.S. Multinational Company Fund's investment objective is
maximum total return. It invests primarily in securities of U.S. companies that
have significant sales from international operations.
* Only available through the purchase of Guardian Investor, a tax deferred
variable annuity, or ValuePlus, a variable life insurance policy.
For more complete information about any of the Value Line Funds, including
charges and expenses, send for a prospectus from Value Line Securities, Inc.,
220 East 42nd Street, New York, New York 10017-5891 or call 1-800-223-0818, 24
hours a day, 7 days a week. Read the prospectus carefully before you invest or
send money.
- --------------------------------------------------------------------------------
24
<PAGE>
================================================================================
INVESTMENT ADVISER Value Line, Inc.
220 East 42nd Street
New York, NY 10017-5891
DISTRIBUTOR Value Line Securities, Inc.
220 East 42nd Street
New York, NY 10017-5891
CUSTODIAN BANK State Street Bank and Trust Co.
225 Franklin Street
Boston, MA 02110
SHAREHOLDER State Street Bank and Trust Co.
SERVICING AGENT c/o NFDS
P.O. Box 419729
Kansas City, MO 64141-6729
INDEPENDENT Price Waterhouse LLP
ACCOUNTANTS 1177 Avenue of the Americas
New York, NY 10036
LEGAL COUNSEL Peter D. Lowenstein, Esq.
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
BOARD OF Jean Bernhard Buttner
DIRECTORS John W. Chandler
Leo R. Futia
David H. Porter
Paul Craig Roberts
Nancy-Beth Sheerr
OFFICERS Jean Bernhard Buttner
Chairman and President
Raymond S. Cowen
Vice 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
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 information of shareholders. It is not authorized for
distribution to prospective investors unless preceded or accompanied by a
currently effective prospectus of the Trust (obtainable from the Distributor).
VLF803014
