================================================================================
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ANNUAL REPORT
------------------
February 28, 1999
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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, 1999, the 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
5.24% on February 28, 1998 to 5.17% on February 28, 1999. During this same
period, long-term taxable rates, as measured by the 30-year Treasury bond,
declined from 5.92% to 5.58%. Low inflation in spite of continued solid economic
growth is the major factor contributing to this decline in interest rates.
Expectations of slower economic growth, continued low inflation, and a weak
worldwide economy are keeping rates low. During 1998, the Federal Reserve
reduced interest rates, in quick succession, a total of 0.75 percentage points
from 5.50% on September 29, 1998 to 4.75% on November 17, 1998 in response to
the Russian financial crisis, a hedge fund crisis, and fears of a significant
economic slowdown in this country. Subsequently, the Federal Reserve has held
rates constant. While interest rates declined in 1998, there was significant
volatility between the high yield of 6.08% on April 29, 1998 and the low yield
of 4.72% on October 5, 1998 as measured by the 30-year Treasury bond. Currently,
the 30-year Treasury bond is yielding around 5.50% as the market is anticipating
less of an economic slowdown and a lower probability that the Federal Reserve
will reduce rates further.
During the past year, the return before taxes of taxable bonds have outperformed
tax-exempt bonds. For the twelve months ended February 28, 1999, the Lehman
Brothers Aggregate Bond Index increased to 6.27% compared to 6.15% for the
Lehman Brothers Municipal Bond Index. The great demand for U.S. government and
corporate bonds, the near record issuance of tax-exempt bonds in 1998, and the
strong demand for stocks have contributed to the underperformance of tax
exempts. Currently, the ratio of tax-exempt yields to Treasury yields is at the
high end of its historical range. A 30-year triple A rated tax-exempt bond
yields 5.01% which is 88.8% of the 5.64% yield of the 30-year Treasury bond. A
5.01% tax-exempt yield is equivalent to an 8.29% 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 the maximum income exempt from federal income taxes,
while avoiding undue risk to principal. For the year ended February 28, 1999,
the Portfolio's total return was 4.88%. Since its inception in March, 1984, the
total return for the High-Yield Portfolio, assuming the reinvestment of all
dividends over that period, was 226.95%. This is equivalent to an average annual
total return of 8.25%. The Portfolio's SEC yield as of February 28, 1999 was
4.27% and significantly exceeded the average SEC yield of 3.79% for all general
municipal bond funds ranked by Lipper Analytical Services.
Your Portfolio's total return for the year ended February 28, 1999 was 4.88%
compared to 6.15% for the Lehman Brothers Municipal Bond Index during the same
time period. The Portfolio's performance is below the Index because the total
return of the Index does not reflect expenses which are deducted from the
Portfolio's total return and because of the high concentration in
housing-revenue bonds, which under performed the Index. However, the
housing-revenue sector is a major contributor to the Portfolio's above average
SEC yield.
Your Portfolio'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. Over 95% of the Portfolio's
bonds are rated A or better by the major credit agencies, such as Moody's
Investors Service and Standard & Poor's Corporation. In addition, 25% 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
pre-refunded sectors. Management continually monitors the Portfolio's duration*
and expects to maintain the duration within a range that is close to the Lehman
Brothers 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 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 that carry the highest two
ratings of the major credit-rating agencies. The 7-day average yield was 2.09%
as of February 26, 1999, which is equivalent to a 3.46% taxable yield for those
in the 39.6% tax bracket.
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2
<PAGE>
The Value Line Tax Exempt Fund, Inc.
Tax Exempt Fund Shareholders
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All short-term rates declined in the year ended February 28, 1999. Short-term,
tax-exempt rates, as measured by the Bond Buyer's One-Year Note Index, decreased
from 3.56% on February 26, 1998 to 2.88% on February 25, 1999. During this same
period of time, the yield on one-year taxable Treasury bills decreased from
5.40% to 4.85%.
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,
Jean Bernhard Buttner
Chairman and President
March 28, 1999
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*Duration (here referring to the effective 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, 1999 was 7.20.
Economic Observations
Sustained growth and low inflation remain the dominant themes in the U.S.
economy at this time. This enviable showing is underscored by reports indicating
further strength in personal income and consumer spending along with modest
gains in manufacturing. Such trends suggest that the economy will grow by a
solid 2.5%-3.0% in the second quarter of this year. At the same time, inflation
remains low, with producer and consumer price increases averaging 2%, or less,
overall, and with certain industrial sectors finding it difficult to implement
price increases. In selected instances, prices are actually falling.
We believe this altogether favorable economic and inflation pattern will
continue in the second half, with growth averaging 2.0%-2.5% for much of this
time. Our sense, as well, is that the economic crisis now afflicting parts of
Asia and Latin America will recede gradually over the next year. The Federal
Reserve, encouraged by this benign state of affairs, will probably maintain its
current monetary stance over the next few months, at least. Any subsequent
adjustment in interest rates will probably be modest, given the continuing
absence of excesses in growth or inflation.
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3
<PAGE>
The Value Line Tax Exempt Fund, Inc.
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The following graph compares the performance of The Value Line Tax Exempt Fund
High-Yield Portfolio to that of the Lehman Brothers Municipal Bond Index. The
Value Line Tax Exempt Fund High-Yield Portfolio is a professionally managed
mutual fund, while the Index is not available for investment and is unmanaged.
The comparison is shown for illustrative purposes only.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE
VALUE LINE TAX EXEMPT FUND HIGH-YIELD PORTFOLIO AND THE
LEHMAN BROTHERS MUNICIPAL BOND INDEX
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]
<TABLE>
<CAPTION>
Value Line Tax Exempt
Fund High-Yield Lehman Brothers
Portfolio Municipal Bond Index
--------------------- --------------------
<S> <C> <C>
02/89 10,000 10,000
05/89 10,306 10,425
08/89 10,453 10,606
11/89 10,645 10,891
02/90 10,787 11,026
05/90 10,925 11,188
08/90 10,969 11,286
11/90 11,376 11,729
02/91 11,586 12,042
05/91 11,946 12,315
08/91 12,217 12,617
11/91 12,480 12,933
02/92 12,831 13,245
05/92 13,113 13,524
08/92 13,599 14,026
11/92 13,673 14,229
02/93 14,502 15,068
05/93 14,557 15,143
08/93 15,102 15,737
11/93 15,090 15,807
02/94 15,136 15,902
05/94 14,603 15,517
08/94 14,772 15,759
11/94 13,950 14,976
02/95 15,233 16,202
05/95 15,822 16,931
08/95 15,954 17,156
11/95 16,537 17,807
02/96 16,687 17,991
05/96 16,422 17,704
08/96 16,760 18,055
11/96 17,407 18,854
02/97 17,498 18,982
05/97 17,670 19,170
08/97 18,155 19,724
11/97 18,560 20,205
02/98 19,029 20,717
05/98 19,222 20,969
08/98 19,602 21,430
11/98 19,835 21,773
02/99 19,959 21,991
</TABLE>
(Period covered is from 3/1/89 to 2/28/99)
Performance Data:
Average Annual Total Returns
<TABLE>
<CAPTION>
High-Yield Portfolio Money Market Portfolio
12/31/98 2/28/99 12/31/98 2/28/99
------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
1 year ended................. 5.46% 4.88% 1 year ended................ 2.47% 2.39%
5 years ended................ 5.23% 5.69% 5 years ended............... 2.53% 2.55%
10 years ended................ 7.23% 7.15% 10 years ended............... 3.21% 3.15%
</TABLE>
The performance data quoted represent past performance and are no guarantee of
future performance. The average annual total return and growth of an assumed
investment of $10,000 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.
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4
<PAGE>
The Value Line Tax Exempt Fund, Inc.
Schedule of Investments February 28, 1999
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<TABLE>
<CAPTION>
Principal Rating
Amount High-Yield Portfolio (Unaudited) Value
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<S> <C> <C> <C>
LONG-TERM MUNICIPAL SECURITIES (94.4%)
Alabama (.7%)
$1,250,000 Colbert County-Northwest, Health Care Authority,
Hospital Revenue Refunding, Helen Keller Hospital, 8.75%, 6/1/09. Baa $ 1,334,012
Alaska (.9%)
Housing Finance Corp.:
90,000 Collateral Mortgage Obligation, Veteran's 1st Ser.,
Veteran's Mortgage Program, 7.45%, 12/1/29..................... Aaa 92,710
1,500,000 Mortgage Revenue, Refunding, Ser. A-1, 5.50%, 12/1/17............ Aaa 1,541,595
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1,634,305
Arizona (4.2%)
Maricopa County, Industrial Development Authority:
3,355,000 Multi-Family Housing, Multi-Family Housing Revenue,
Ser. A, 5.10%, 1/1/33.......................................... Aaa 3,403,614
3,895,000 Single-Family Housing, Single Family Housing Revenue,
Ser. B, 4.75%, 12/1/30......................................... Aaa 4,198,732
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7,602,346
California (1.5%)
2,675,000 Pleasant Hill, Redevelopment Agency, Residential Mortgage Revenue,
Refunding, 5.75%, 8/1/11......................................... AA* 2,771,273
Colorado (2.6%)
4,055,000 Denver, City & County, Single Family Mortgage Revenue,
7.00%, 8/1/10.................................................... Aaa 4,713,654
Florida (4.7%)
2,000,000 Duval County, Housing Finance Agency, Single Family Mortgage
Revenue, 5.20%, 10/1/19.......................................... Aaa 1,989,880
6,500,000 Sunrise, Utility System Revenue, Refunding, 5.00%, 10/1/28......... Aaa 6,507,735
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8,497,615
Georgia (.1%)
85,000 Residential Finance Authority, Single Family Insured Mortgage
Revenue, Subser. C-1, 8.00%, 12/1/16............................ Aa2 87,637
Hawaii (4.2%)
4,000,000 Department of Budget and Finance, Special Purpose Mortgage Revenue,
Kapiolani Health Care System, 6.40%, 7/1/13...................... Aaa 4,598,760
2,955,000 Housing Finance & Development Corp.,
Single Family Mortgage Revenue, Ser. A, 5.40%, 7/1/30............ Aa1 2,972,228
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7,570,988
</TABLE>
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5
<PAGE>
The Value Line Tax Exempt Fund, Inc.
Schedule of Investments
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<TABLE>
<CAPTION>
Principal Rating
Amount High-Yield Portfolio (Unaudited) Value
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<S> <C> <C> <C>
Illinois (1.7%)
Chicago, Single Family Mortgage Revenue, Collateralized, Ser. C-1:
$1,500,000 4.85%, 3/1/15.................................................... Aaa $ 1,498,335
1,500,000 6.30%, 9/1/29.................................................... Aaa 1,640,805
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3,139,140
Indiana (2.1%)
3,000,000 Office Building Commission, Capital Complex, Revenue,
Ser. B, 7.40%, 7/1/15............................................ Aaa 3,882,780
Iowa (2.9%)
1,320,000 Finance Authority, Single Family, Revenue Mortgage,
Ser. B, 7.45%, 7/1/23............................................ Aaa 1,388,020
3,305,000 Muscatine, Electric Revenue, 6.70%, 1/1/13......................... Aaa 3,872,964
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5,260,984
Louisiana (3.0%)
3,210,000 Public Facilities Authority, Hospital Revenue, Refunding,
Franciscan Missionaries, Ser. A, 5.50%, 7/1/12................... Aaa 3,449,049
2,000,000 East Baton Rouge, Mortgage Finance Authority, Single Family,
Revenue Refunding, Ser. B-2, 5.00%, 4/1/21....................... Aaa 2,022,040
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5,471,089
Maine (2.3%)
3,635,000 Health & Higher Educational Facilities Authority, Revenue,
Ser. B, 4.875%, 7/1/23........................................... AAA* 3,472,661
110,000 Housing Authority, Mortgage Purchase Program,
Ser. D-4, 7.55%, 11/15/19........................................ Aa2 112,763
500,000 State Street Housing Preservation Corp., Multi Family
Housing Revenue, 100 State Street Project,
Ser. A, 7.50%, 1/1/19............................................ A* 536,320
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4,121,744
Massachusetts (2.4%)
1,000,000 Health & Educational Facilities Authority, Revenue,
Caritas Christi Ogligated Group, Ser. A, 5.70%, 7/1/15........... Baa2 996,760
3,300,000 Housing Finance Agency, Housing Revenue, Single Family,
Ser. 63, 5.15%, 12/1/12.......................................... Aaa 3,339,105
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4,335,865
</TABLE>
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6
<PAGE>
The Value Line Tax Exempt Fund, Inc.
February 28, 1999
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<TABLE>
<CAPTION>
Principal Rating
Amount High-Yield Portfolio (Unaudited) Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Michigan (2.8%)
Housing Development Authority:
$1,960,000 Rental Housing Revenue, Ser. B, 4.15%, 10/1/07................... Aaa $ 1,954,316
Single Family Mortgage Revenue:
1,000,000 Ser. D, 5.55%, 12/1/12......................................... Aaa 1,036,000
2,000,000 Ser. C, 5.95%, 12/1/14......................................... AA+* 2,102,880
-----------
5,093,196
Minnesota (1.5%)
2,535,000 Housing Finance Agency, Refunding, Rental Housing,
Ser. D, 5.80%, 8/1/11............................................ Aaa 2,666,338
Missouri (2.6%)
2,250,000 Housing Development Commission, Single Family Mortgage
Revenue, Ser. E-1, 6.45%, 9/1/29................................. AAA* 2,460,082
2,100,000 St. Louis County, Refunding & Improvements,
Ser. B, 5.30%, 2/1/08............................................ Aaa 2,206,050
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4,666,132
Nebraska (1.2%)
2,145,000 Investment Finance Authority, Single Family Mortgage Revenue,
Ser. A, 5.977%, 9/1/16........................................... Aaa 2,256,411
New Hampshire (.1%)
135,000 Housing Finance Authority, Single Family Residential Mortgage,
Ser.B, 7.75%, 7/1/23............................................. Aa3 142,923
New York (6.5%)
New York City:
175,000 General Obligations, Ser. F, 8.20%, 11/15/04..................... A3 197,264
1,750,000 Transitional Finance Authority, Revenue, Future Tax Secured,
Ser. B, 5.125%, 11/1/11+....................................... Aa3 1,846,757
New York State:
2,950,000 Long Island Power Authority, Electric System Revenue,
Subser. 8F, 5.00%, 4/1/11..................................... Aaa 3,078,708
Medical Care Facilities Finance Agency:
3,250,000 Hospital and Nursing Home, Mortgage Revenue,
Ser. D, 6.35%, 2/15/12....................................... Aa2 3,622,678
2,000,000 Presbyterian Hospital, Revenue, Ser. A, 5.375%, 2/15/25........ Aaa 2,041,280
1,050,000 Mortgage Agency, Revenue, Homeowner Mortgage,
Ser. HH-3, 7.95%, 4/1/22....................................... Aa2 1,094,068
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11,880,755
</TABLE>
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7
<PAGE>
The Value Line Tax Exempt Fund, Inc.
Schedule of Investments
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<TABLE>
<CAPTION>
Principal Rating
Amount High-Yield Portfolio (Unaudited) Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
North Carolina (1.0%)
$ 805,000 Housing Finance Agency, Ser. U, 6.375%, 9/1/22..................... Aa2 $ 830,358
1,000,000 New Hanover County, Hospital Revenue, New Hanover Regional
Medical Center Project, 5.00%, 10/1/28........................... Aaa 974,330
-----------
1,804,688
Ohio (1.7%)
3,100,000 Housing Finance Agency, Residential Mortgage Revenue,
Ser. A-1, 4.35%, 9/1/07.......................................... AAA* 3,093,428
Oregon (2.3%)
1,500,000 Department of Administrative Services, Lottery Revenue,
Educational Projects, Ser. A, 4.00%, 4/1/03...................... Aaa 1,514,640
2,695,000 Eugene, Trojan Nuclear Project, Revenue, 5.90%, 9/1/09............. Aa1 2,775,850
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4,290,490
Rhode Island (2.0%)
Housing and Mortgage Finance Corp., Homeownership Opportunity:
1,000,000 Ser. 3-A, 7.80%, 10/1/10......................................... Aa2 1,052,970
2,500,000 Ser. 21-C, 5.65%, 10/1/20........................................ Aa2 2,569,550
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3,622,520
South Carolina (1.9%)
2,000,000 Charleston County, Revenue, Care Alliance Health Services,
Ser. A, 5.125%, 8/15/16.......................................... Aaa 2,040,580
1,450,000 Three Rivers, Solid Waste Authority, Solid Waste Disposal Facilities,
Revenue, 5.30%, 1/1/27........................................... Aaa 1,475,506
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3,516,086
South Dakota (2.2%)
Housing Development Authority, Homeownership Mortgage:
1,405,000 Ser. A, 5.40%, 5/1/14............................................ Aa1 1,449,834
2,425,000 Ser. J, 5.50%, 5/1/10............................................ Aa1 2,489,456
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3,939,290
Tennessee (1.9%)
3,270,000 Johnson City, Health & Educational Facilities Board, Medical Center,
Revenue, Refunding, Ser. C, 5.50%, 7/1/13........................ AAA* 3,533,464
</TABLE>
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8
<PAGE>
The Value Line Tax Exempt Fund, Inc.
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Rating
Amount High-Yield Portfolio (Unaudited) Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Texas (16.2%)
$2,395,000 Austin, Higher Education Authority Inc., Revenue,
Saint Edwards University Project, 5.25%, 8/1/23.................. Baa3 $ 2,308,732
5,965,000 Brazos River Authority, Pollution Control Revenue, Refunding,
Houston Lighting & Power Co. Project, 5.05%, 11/1/18............. Aaa 5,957,186
3,000,000 Brownsville, Utility System, Revenue, 6.25%, 9/1/14................ Aaa 3,493,620
1,000,000 Department of Housing & Community Affairs,
Residential Mortgage Revenue, Ser. A, 5.25%, 7/1/18.............. Aaa 1,001,680
5,035,000 Harris County, Hospital District, Mortgage Revenue, 7.40%, 2/15/10. Aaa 6,083,690
5,980,000 Houston, Independant School District, Capital Appreciation,
Ser. A, zero coupon, 2/15/14..................................... Aaa 2,792,002
3,000,000 Lubbock, Housing Finance Corp., Single Family Mortgage Revenue,
Refunding, Ser. A, 8.00%, 10/1/21................................ AAA* 4,154,070
800,000 Travis County, Health Facilities Development Corp.,
Hospital Revenue, Daughters of Charity, 5.90%, 11/15/07.......... Aa2 866,584
Veterans Housing Assistance:
460,000 Ser. B-4, 6.20%, 12/1/14......................................... Aa2 477,544
2,230,000 Ser. II-D, 5.65%, 12/1/14 ....................................... Aa2 2,306,846
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29,441,954
Utah (2.2%)
1,000,000 Associated Municipal Power System, Revenue Refunding,
San Juan Project, 5.00%, 6/1/22.................................. Aaa 975,750
Housing Finance Agency, Single Family Mortgage:
195,000 Ser. C-3, 7.55%, 7/1/23.......................................... AAA* 204,943
460,000 Ser. D-3, 7.55%, 7/1/23.......................................... AAA* 483,971
2,250,000 Ser. E-1, 5.45%, 7/1/20.......................................... Aa2 2,268,788
-----------
3,933,452
Virginia (3.2%)
2,000,000 Hanover County, Industrial Development Authority,
Memorial Regional Medical Center Project, 6.375%, 8/15/18........ Aaa 2,361,820
3,500,000 Pocahontas Parkway Association, Route 895,
Connector Toll Road Revenue, Ser. A, 5.50%, 8/15/28.............. Baa3 3,464,650
-----------
5,826,470
Washington (1.7%)
3,090,000 Chelan County, Public Utilities District No. 001, Consolidated
Revenue, Chelan Hydro Division I, Ser. B, 5.00%, 7/1/33.......... Aa3 3,137,431
</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
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wisconsin (7.0%)
Health and Educational Facilities Authority, Revenue:
$2,000,000 Aurora Health Care Inc., 5.25%, 8/15/17.......................... Aaa $ 2,030,560
3,100,000 United Health Group Inc, 5.25%, 12/15/27......................... Aaa 3,081,524
Housing and Economic Development Authority:
4,490,000 Home Ownership Revenue, Ser. D, 5.45%, 9/1/27.................... Aa2 4,531,308
3,000,000 Housing Revenue, Refunding, Ser. C, 5.80%, 11/1/13............... Aaa 3,128,880
------------
12,772,272
Wyoming (3.1%)
Community Development Authority, Housing Revenue:
2,750,000 Ser. 4, 5.70%, 6/1/17............................................ Aa2 2,855,022
2,800,000 Ser. 7, 4.90%, 12/1/17........................................... Aa2 2,840,544
------------
5,695,566
------------
TOTAL LONG-TERM MUNICIPAL SECURITIES
(Cost $167,264,206) ............................................ 171,736,298
------------
SHORT-TERM MUNICIPAL SECURITIES (5.8%)
2,500,000 Brazos River Authority, Texas, Pollution Control Revenue,
Refunding, Ser. A, 3.35%, 3/1/26................................. VMIG-1(1) 2,500,000
4,500,000 Gulf Coast Waste Disposal Authority, Texas, Environmental
Facilities Revenue, Amoco Oil Co. Project, 3.35%, 1/1/26......... A-1+*(1) 4,500,000
New York City, General Obligations:
800,000 Subser. B-4, 3.30%, 8/15/22...................................... VMIG-1(1) 800,000
2,900,000 Subser. B-10, 2.70%, 8/15/24..................................... VMIG-1(2) 2,900,000
------------
TOTAL SHORT-TERM MUNICIPAL SECURITIES
(Cost $10,700,000) ............................................. 10,700,000
------------
TOTAL MUNICIPAL SECURITIES (100.2%)
(Cost $177,964,206) ............................................. 182,436,298
EXCESS OF LIABILITIES OVER CASH AND
OTHER ASSETS (-.2%) ............................................. (419,012)
------------
NET ASSETS (100.0%) ............................................... $182,017,286
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE,
PER OUTSTANDING SHARE .......................................... $10.80
============
</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, 1999.
+ When issued security.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10
<PAGE>
The Value Line Tax Exempt Fund, Inc.
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Rating
Amount Money Market Portfolio (Unaudited) Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SHORT-TERM MUNICIPAL SECURITIES (98.8%)
Arizona (3.3%)
$ 500,000 Maricopa County, Pollution Control Revenue, Refunding,
Arizona Public Service Co., Ser. B, 3.25%, 5/1/29................ P-1(1) $ 500,000
District of Columbia (4.6%)
700,000 General Obligation, Refunding, Ser. A-1, 3.35%, 10/1/07............ VMIG-1(1) 700,000
Georgia (2.3%)
350,000 General Obligation, Ser. B, 6.30%, 3/1/99.......................... Aaa 350,000
Illinois (6.6%)
600,000 Southwestern Development Authority, Solid Waste Disposal Revenue,
Shell Oil Co., Wood River Project, 3.30%, 8/1/21................. VMIG-1(1) 600,000
405,000 Wabash County, Community United School
District No. 348, 4.25%, 12/1/99................................. Aaa 407,982
-----------
1,007,982
Indiana (4.2%)
645,000 Munster, School Building Corp.,
First Mortgage Refunding, 3.65%, 7/5/99.......................... AAA* 645,000
Louisiana (11.8%)
500,000 General Obligation, Ser. A, 6.25%, 8/1/99.......................... Aaa 505,009
700,000 Lake Charles Parish, Harbor and Terminal District,
Port Facilities Revenue, Refunding, 3.30%, 11/1/11............... Aa1(1) 700,000
600,000 Saint Charles Parish, Pollution Control Revenue,
Shell Oil Co. Project, Ser. A, 3.30%, 10/1/22.................... VMIG-1(1) 600,000
-----------
1,805,009
Michigan (13.0%)
500,000 Delta County, Economic Development Corp.,
Environmental Improvement Revenue, Refunding,
Mead Escanabia Paper, Ser. C, 3.10%, 12/1/23................... P-1(1) 500,000
775,000 Detroit, Building Authority Revenue, Parking & Arena System,
Ser. A, 4.50%, 7/1/99............................................ Aaa 776,883
700,000 Strategic Fund, Pollution Control Revenue, Refunding,
Consumers Power Project, Ser. A, 3.25%, 4/15/18.................. P-1(1) 700,000
-----------
1,976,883
Mississippi (4.6%)
700,000 Jackson County, Port Facility Revenue, Refunding,
Chevron USA, Inc. Project, 3.25%, 6/1/23......................... P-1(1) 700,000
</TABLE>
- --------------------------------------------------------------------------------
11
<PAGE>
The Value Line Tax Exempt Fund, Inc.
Schedule of Investments
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Rating
Amount Money Market Portfolio (Unaudited) Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
New York (6.1%)
$ 500,000 Dormitory Authority, Revenue, Terence Cardinal Cooke
Health Care Center, 4.00%, 7/1/99................................ Aa3 $ 501,400
330,000 Franklin County, Industrial Development Agency,
Civic Facility Revenue, Alice Hyde Hospital Association Project,
4.00%, 10/1/99................................................. AA* 330,938
100,000 New York City, General Obligations, Subser. A-8, 3.15%, 8/1/18..... VMIG-1(1) 100,000
-----------
932,338
Ohio (4.6%)
700,000 Franklin County, Hospital Revenue,
Holy Cross Health System Corp., 4.25%, 6/1/99.................... Aaa 700,768
Oregon (4.6%)
700,000 Housing and Community Services Department, Mortgage Revenue,
Single Family Mortgage Program, Ser. F, 3.65%, 8/31/99........... MIG-1 700,000
Pennsylvania (2.0%)
300,000 Chester County, General Obligation, 4.95%, 12/15/99................ Aa2 300,382
South Carolina (2.6%)
400,000 Florence County, Solid Waste Disposal & Wastewater Treatment
Facilities, Revenue, Roche Carolina Inc. Project, 3.35%, 4/1/28.. A-1+*(1) 400,000
Texas (14.3%)
400,000 Austin, Public Property Finance Contractual Obligation,
4.30%, 5/1/99.................................................... Aa2 400,304
300,000 Brazos River Authority, Pollution Control Revenue, Refunding,
Ser. A, 3.35%, 3/1/26............................................ VMIG-1(1) 300,000
290,000 Coastal Bend, Health Facilities Development Corp.,
Incarnate World Health System, Revenue, Ser. A, 3.25%, 11/15/99.. Aaa 290,000
600,000 Harris County, Health Facilities Development Corp.,
Special Facilities Revenue, Texas Medical Center Project,
3.60%, 2/15/22................................................. VMIG-1(1) 600,000
600,000 Trinity River Authority, Pollution Control Revenue,
Texas Utilities Electric Co. Project, Ser. A, 3.35%, 3/1/26...... VMIG-1(1) 600,000
-----------
2,190,304
Utah (3.3%)
500,000 Emery County, Pollution Control Revenue, Refunding,
Pacificorp Project, 3.30%, 11/1/24............................... VMIG-1(1) 500,000
</TABLE>
- --------------------------------------------------------------------------------
12
<PAGE>
The Value Line Tax Exempt Fund, Inc.
February 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Rating
Amount Money Market Portfolio (Unaudited) Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Washington (7.6%)
$ 250,000 Aberdeen, Special Revenue, Stafford Creek Correction Center Project,
4.00%, 11/1/99................................................... Aaa $ 251,307
500,000 Health Care Facilities Authority, Revenue, Empire Health Services,
Spokane, 5.00%, 11.0/1/99........................................ Aaa 505,821
400,000 Higher Education Facilities Authority, Revenue, Refunding,
Whitworth College Project, 3.25%, 10/1/99........................ Aaa 400,000
-----------
1,157,128
Wyoming (3.3%)
500,000 Lincoln County, Pollution Control Revenue, Exxon Project,
Ser. C, 3.15%, 7/1/17............................................ Aaa(1) 500,000
-----------
TOTAL SHORT-TERM MUNICIPAL SECURITIES (98.8%)
(Cost $15,065,794) .............................................. 15,065,794
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES (1.2%) .............................................. 190,288
-----------
NET ASSETS (100.0%) ............................................... $15,256,082
===========
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. 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, 1999.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
13
<PAGE>
The Value Line Tax Exempt Fund, Inc.
Statement of Assets and Liabilities
at February 28, 1999
- --------------------------------------------------------------------------------
Portfolio
-----------------------
High- Money
Yield Market
-----------------------
(Dollars in thousands
except per share
amount)
Assets:
Investment securities at value
(Cost $177,964 and
amortized cost $15,066) ....................... $182,436 $ 15,066
Cash ............................................ -- 187
Receivable for securities sold .................. 5,218 --
Interest receivable ............................. 1,989 89
Receivable for capital shares sold .............. 16 28
-------- --------
Total Assets .............................. 189,659 15,370
-------- --------
Liabilities:
Payable for securities purchased ................ 6,315 --
Payable for bank overdraft ...................... 909 --
Dividends payable to shareholders ............... 229 --
Payable for capital shares
repurchased ................................... 5 51
Accrued expenses:
Advisory fee .................................. 70 6
Other ......................................... 114 57
-------- --------
Total Liabilities ......................... 7,642 114
-------- --------
Net Assets ...................................... $182,017 $ 15,256
======== ========
Net Assets:
Capital stock at $.01 par value
(Authorized 65,000,000 shares
and 125,000,000 shares
respectively; outstanding
16,851,419 shares and
15,292,218 shares,
respectively) ................................. $ 169 $ 153
Additional paid-in capital ...................... 176,409 15,140
Undistributed net investment
income ........................................ 48 1
Accumulated net realized gain
(loss) on investments ......................... 918 (38)
Unrealized net appreciation of
investments ................................... 4,473 --
-------- --------
Net Assets ...................................... $182,017 $ 15,256
======== ========
Net Asset Value, Offering and
Redemption Price, per
Outstanding Share ............................. $ 10.80 $ 1.00
======== ========
Statement of Operations
for the Year Ended February 28, 1999
- --------------------------------------------------------------------------------
Portfolio
-----------------------
High- Money
Yield Market
-----------------------
(Dollars in thousands)
Investment Income:
Interest ..................................... $ 9,864 $ 572
------- -------
Expenses:
Advisory fee ................................. 926 81
Auditing and legal fees ...................... 59 35
Transfer agent fees .......................... 48 20
Custodian fees ............................... 41 4
Printing and stationery ...................... 28 7
Postage ...................................... 24 6
Registration and filing fees ................. 17 19
Directors' fees and expenses ................. 8 8
Other ........................................ 15 11
------- -------
Total expenses before
custody credits ...................... 1,166 191
Less: custody credits .................. (20) (3)
------- -------
Net Expenses ........................... 1,146 188
------- -------
Net Investment Income ........................ 8,718 384
------- -------
Net Realized and Unrealized
Gain (Loss) on Investments:
Net Realized Gain (Loss) ................. 3,136 (6)
Change in Unrealized
Appreciation ........................... (2,615) --
------- -------
Net Realized Gain (Loss) and
Change in Unrealized
Appreciation on
Investments ................................ 521 (6)
------- -------
Net Increase in Net Assets from
Operations ................................. $ 9,239 $ 378
======= =======
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14
<PAGE>
The Value Line Tax Exempt Fund, Inc.
Statement of Changes in Net Assets
for the Years Ended February 28, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
High-Yield Money Market
Portfolio Portfolio
----------------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
Operations:
Net investment income ............................................ $ 8,718 $ 9,430 $ 384 $ 494
Net realized gain (loss) on investments .......................... 3,136 3,346 (6) (1)
Change in unrealized appreciation ................................ (2,615) 2,806 -- --
----------------------------------------------------------
Net increase in net assets from operations ....................... 9,239 15,582 378 493
----------------------------------------------------------
Distributions to Shareholders:
Net investment income ............................................ (8,669) (9,430) (384) (493)
Net realized gains ............................................... (4,526) (1,654) -- --
----------------------------------------------------------
Net decrease in net assets from distributions .................... (13,195) (11,084) (384) (493)
----------------------------------------------------------
Capital Share Transactions:
Net proceeds from sale of shares ................................. 12,460 28,198 8,084 8,000
Net proceeds from reinvestment of
distributions to shareholders .................................. 8,910 7,231 384 493
Cost of shares repurchased ....................................... (23,506) (45,459) (9,964) (11,403)
----------------------------------------------------------
Net decrease in net assets from capital share transactions ....... (2,136) (10,030) (1,496) (2,910)
----------------------------------------------------------
Total Decrease in Net Assets ....................................... (6,092) (5,532) (1,502) (2,910)
Net Assets:
Beginning of year ................................................ 188,109 193,641 16,758 19,668
----------------------------------------------------------
End of year ...................................................... $ 182,017 $ 188,109 $ 15,256 $ 16,758
==========================================================
Undistributed Net Investment Income
at end of year ................................................... $ 48 $ -- $ 1 $ 1
==========================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
15
<PAGE>
The Value Line Tax Exempt Fund, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
1 Significant Accounting Policies
The Value Line Tax Exempt Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company, comprised of the High-Yield and Money Market
Portfolios. The primary investment objective of the High-Yield Portfolio is to
provide investors with the maximum income exempt from federal income taxes while
avoiding undue risk to principal by investing primarily in investment-grade
municipal securities. The primary objective of the Money Market Portfolio is to
preserve principal and provide income by investing in high-quality, tax-exempt
money market instruments. The ability of the issuers of the securities held by
the Fund to meet their obligations may be affected by economic or political
developments in a specific state or region. The following significant accounting
policies are in conformity with generally accepted accounting principles for
investment companies. Such policies are consistently followed by the Fund in the
preparation of its financial statements. Generally accepted accounting
principles may require management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual results
may differ from those estimates.
(A) Security Valuation: High-Yield Portfolio -- The investments are valued each
business day by an independent pricing service (the "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
- --------------------------------------------------------------------------------
16
<PAGE>
The Value Line Tax Exempt Fund, Inc.
February 28, 1999
- --------------------------------------------------------------------------------
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.
(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, in accordance with federal income-tax
regulations, is earned from settlement date and recognized on the accrual basis.
Additionally, 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
-----------------------
1999 1998
-----------------------
(in thousands)
Shares sold .................................... 1,137 2,576
Shares issued to shareholders in
reinvestment of distributions ................ 815 663
-----------------------
1,952 3,239
Shares repurchased ............................. (2,142) (4,160)
-----------------------
Net decrease ................................... (190) (921)
=======================
Money Market
Portfolio
-----------------------
1999 1998
-----------------------
(in thousands)
Shares sold .................................... 8,084 8,000
Shares issued to shareholders in
reinvestment of distributions ................ 384 493
-----------------------
8,468 8,493
Shares repurchased ............................. (9,964) (11,403)
-----------------------
Net decrease ................................... (1,496) (2,910)
=======================
3. Purchases and Sales of Securities
Purchases and sales of municipal securities were as follows:
High-Yield
Portfolio
-------------
1999
-------------
(in thousands)
PURCHASES:
Long-term obligations ........................................... $333,042
Short-term obligations .......................................... 58,296
--------
$391,338
========
MATURITIES OR SALES:
Long-term obligations ........................................... $339,992
Short-term obligations .......................................... 61,673
--------
$401,665
========
Money Market
Portfolio
-------------
1999
-------------
(in thousands)
PURCHASES:
Municipal short-term obligations ................................ $ 20,526
========
MATURITIES OR SALES:
Municipal short-term obligations ................................ $ 23,170
========
At February 28, 1999, the aggregate cost of investments for federal income-tax
purposes was $177,987,344 for the High-Yield Portfolio and $15,065,794 for the
Money Market Portfolio.
- --------------------------------------------------------------------------------
17
<PAGE>
The Value Line Tax Exempt Fund, Inc.
Notes to Financial Statements February 28, 1999
- --------------------------------------------------------------------------------
The aggregate appreciation and depreciation of investments in the High-Yield
Portfolio at February 28, 1999, based on a comparison of investment values and
their costs for federal income-tax purposes, was $4,723,017 and $274,063,
respectively, resulting in a net unrealized appreciation of $4,448,954. 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, 1999, of $37,266, of which $27,649 will expire in
2000, $998 in 2004, $1,285 in 2005, $2,067 in 2006 and $5,267 in 2007. 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 $925,639 and $80,660 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, 1999. This was computed at the annual
rate of .50 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, 1999, the Adviser and/or affiliated companies owned 120,333
shares of the High-Yield Portfolio common shares, representing .71% of the
outstanding shares. In addition, certain officers and directors of the Fund
owned 168,105 shares of the High-Yield Portfolio, representing 1.00% of the
outstanding shares and 2,575 shares of the Money Market Portfolio, representing
.02% of the outstanding shares.
- --------------------------------------------------------------------------------
18
<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,
-----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ........ $ 11.04 $ 10.78 $ 10.82 $ 10.40 $ 10.97
---------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income ................. .52 .54 .55 .55 .57
Net gains or losses on securities
(both realized and unrealized) ...... .03 .36 (.04) .42 (.53)
---------------------------------------------------------------------------------
Total from investment operations .... .55 .90 .51 .97 .04
---------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income .. (.52) (.54) (.55) (.55) (.57)
Distributions from capital gains ...... (.27) (.10) -- -- (.04)
---------------------------------------------------------------------------------
Total distributions ................. (.79) (.64) (.55) (.55) (.61)
---------------------------------------------------------------------------------
Net asset value, end of year .............. $ 10.80 $ 11.04 $ 10.78 $ 10.82 $ 10.40
=================================================================================
Total return .............................. 4.88% 8.56% 4.86% 9.55% .64%
=================================================================================
Ratios/Supplemental Data:
Net assets, end of year (in thousands) .... $182,017 $188,109 $193,641 $222,760 $241,467
Ratio of expenses to average net assets ... .63%(2) .63%(1) .60%(1) .62% .61%
Ratio of net investment income
to average net assets ................... 4.71% 4.98% 5.13% 5.22% 5.54%
Portfolio turnover rate ................... 192% 119% 73% 95% 60%
</TABLE>
(1) Before offset of custody credits.
(2) Ratio reflects expenses grossed up for custody credit arrangement. The
ratio of expenses net of custody credits would have been .62%.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
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>
Money Market Portfolio
Years Ended on Last Day of February,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<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 ................. .02 .03 .03 .03 .02
----------------------------------------------------------------------------
Less distributions:
Dividends from net investment income .. (.02) (.03) (.03) (.03) (.02)
----------------------------------------------------------------------------
Net asset value, end of year .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============================================================================
Total return .............................. 2.39% 2.65% 2.56% 2.92% 2.22%
============================================================================
Ratios/Supplemental Data:
Net assets, end of year (in thousands) .... $15,256 $16,758 $19,668 $21,777 $25,681
Ratio of expenses to average net assets ... 1.18%(2) 1.03%(1) 1.00%(1) 1.01% .89%
Ratio of net investment income
to average net assets ................... 2.38% 2.63% 2.54% 2.89% 2.17%
</TABLE>
(1) Before offset of custody credits.
(2) Ratio reflects expenses grossed up for custody credit arrangement.The ratio
of expenses net of custody credits would have been 1.16%.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
20
<PAGE>
The Value Line Tax Exempt Fund, Inc.
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
of The Value Line Tax Exempt Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedules of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the High-Yield Portfolio and the
Money Market Portfolio (constituting The Value Line Tax Exempt Fund, Inc.
hereafter referred to as the "Fund") at February 28, 1999, 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, 1999 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York
April 23, 1999
- --------------------------------------------------------------------------------
Other Information (unaudited)
Year 2000. Like other mutual funds, the Fund could be adversely affected if the
computer systems used by the Adviser and other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem." The Adviser is
taking steps that it believes are reasonably designed to address the Year 2000
Problem with respect to the computer systems that it uses and to obtain
satisfactory assurances that comparable steps are being taken by the Fund's
other major service providers. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact to the Fund.
The Year 2000 Problem is expected to impact corporations, which may include
issuers of portfolio securities held by the Fund, to varying degrees based upon
various factors, including, but not limited to, the corporation's industry
sector and degree of technological sophistication. The Fund is unable to predict
what impact, if any, the Year 2000 Problem will have on issuers of the portfolio
securities held by the Fund.
- --------------------------------------------------------------------------------
FEDERAL TAX NOTICE (unaudited)
During the year ended February 28, 1999, the Fund paid to shareholders
of the High-Yield Portfolio $0.515 and the Money Market Portfolio
$0.024 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, 1999, the Fund paid to shareholders of the High-Yield Portfolio
$0.160 per share of Long Term Capital Gains and $0.112 of Short Term
Capital Gains.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
21
<PAGE>
The Value Line Family of Funds
1950--The Value Line Fund seeks long-term growth of capital. Current income is a
secondary objective.
1952--The Value Line Income Fund's primary investment objective is income, as
high and dependable as is consistent with reasonable risk. Capital growth to
increase total return is a secondary objective.
1956--The Value Line Special Situations Fund seeks long-term growth of capital.
No consideration is given to current income in the choice of investments.
1972--Value Line Leveraged Growth Investors' sole investment objective is to
realize capital growth.
1979--The Value Line Cash Fund, a money market fund, seeks to secure as high a
level of current income as is consistent with maintaining liquidity and
preserving capital.
1981--Value Line U.S. Government Securities Fund seeks maximum income without
undue risk to capital. Under normal conditions, at least 80% of the value of its
net assets will be invested in securities issued or guaranteed by the U.S.
Government and its agencies and instrumentalities.
1983--Value Line Centurion Fund* seeks long-term growth of capital.
1984--The Value Line Tax Exempt Fund seeks to provide investors with the maximum
income exempt from federal income taxes while avoiding undue risk to principal.
The Fund offers investors a choice of two portfolios: The Money Market Portfolio
and The 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.
Capital appreciation is a secondary objective.
1987--Value Line New York Tax Exempt Trust seeks to provide New York taxpayers
with the maximum income exempt from New York State, New York City and federal
income taxes while avoiding undue risk to principal.
1987--Value Line Strategic Asset Management Trust* seeks to achive a high total
investment return consistent with reasonable risk.
1993--Value Line Small-Cap Growth Fund invests primarily in common stocks or
securities convertible into common stock, with its primary objective being
long-term growth of capital.
1993--Value Line Asset Allocation Fund seeks high total investment return,
consistent with reasonable risk. The Fund invests in stocks, bonds and money
market instruments utilizing quantitative modeling to determine the correct
asset mix.
1995--Value Line U.S. Multinational Company Fund's investment objective is
maximum total return. It invests primarily in securities of U.S. companies that
have significant sales from international operations.
* Only available through the purchase of Guardian Investor, a tax deferred
variable annuity, or ValuePlus, a variable life insurance policy.
For more complete information about any of the Value Line Funds, including
charges and expenses, send for a prospectus from Value Line Securities, Inc.,
220 East 42nd Street, New York, New York 10017-5891 or call 1-800-223-0818, 24
hours a day, 7 days a week, or visit us at www.valueline.com. Read the
prospectus carefully before you invest or send money.
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<PAGE>
INVESTMENT ADVISER Value Line, Inc.
220 East 42nd Street
New York, NY 10017-5891
DISTRIBUTOR Value Line Securities, Inc.
220 East 42nd Street
New York, NY 10017-5891
CUSTODIAN BANK State Street Bank and Trust Co.
225 Franklin Street
Boston, MA 02110
SHAREHOLDER State Street Bank and Trust Co.
SERVICING AGENT c/o NFDS
P.O. Box 419729
Kansas City, MO 64141-6729
INDEPENDENT PricewaterhouseCoopers LLP
ACCOUNTANTS 1177 Avenue of the Americas
New York, NY 10036-2798
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
David H. Porter
Paul Craig Roberts
Nancy-Beth Sheerr
OFFICERS Jean Bernhard Buttner
Chairman and President
Charles Heebner
Vice President
Raymond S. Cowen
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 Fund (obtainable from the Distributor).
505995
