VALUE LINE TAX EXEMPT FUND INC, N-30D, 2000-04-19

VALUE LINE TAX EXEMPT FUND INC
N-30D, 2000-04-19

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A N N U A L R E P O R T
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February 29, 2000
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The
Value Line
Tax Exempt
Fund, Inc.

[GRAPHIC OMITTED]
------------------
V A L U E L I N E

No-Load

Mutual

Funds

<PAGE>

The Value Line Tax Exempt Fund, Inc.

To Our Value Line

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To Our Shareholders:

During the year ended February 29, 2000, prices of fixed-income securities
declined as interest rates increased. Long-term, tax-exempt interest rates, as
measured by the Bond Buyer's 40-Bond Index, rose from 5.17% on February 28, 1999
to 6.17% on February 29, 2000. During this same period, long-term taxable rates,
as measured by the 30-year Treasury bond, increased from 5.58% to 6.14%. The
rise in interest rates was the result of strong economic growth, a tighter
monetary policy by the Federal Reserve, low unemployment, and increasing fears
of inflation. Since May 1999, the Federal Reserve has raised the Federal Funds
rate four times from 4.75% to 5.75%. This was a reversal of the reduction in
this rate by 0.75% in 1998 following the Russian financial crisis, a hedge fund
crisis, and fears of an economic slowdown. During this transition from a
declining rate to a rising rate environment, the yield curve in the taxable bond
market has inverted with short maturities providing higher yields than the
30-year Treasury bond. For example, as of February 29, 2000, the 5-year Treasury
bond had a yield of 6.60% compared to 6.17% on the 30-year bond.

During the past year, taxable bonds have outperformed tax-exempt bonds. For the
twelve months ended February 29, 2000, the Lehman Brothers Aggregate Bond Index
was up 1.11% compared to a drop of 2.08% for the Lehman Brothers Municipal Bond
Index. The declining demand for tax-exempt bonds coupled with a heavy supply in
1999, the strong demand for, Treasuries, coupled with a declining supply, and
the strong demand for stocks have contributed to the underperformance of
tax-exempt bonds. 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 5.87%, which is 95.2% of the 6.16% yield of the 30-year Treasury
bond. A 5.87% tax-exempt yield is equivalent to a 9.72% taxable yield for
individuals in the 39.6% tax bracket. At these levels, municipal bonds are very
attractive as an income vehicle for investors.

National Bond Portfolio

The primary objective of the Value Line Tax Exempt National Bond Portfolio is to
provide investors with maximum income exempt from federal income taxes, without
undue risk to principal. During the year ended February 29, 2000, the
Portfolio's total return was down 4.30%. Since its inception in March 1984, the
total return for the National Bond Portfolio, assuming the reinvestment of all
dividends over that period, has been 212.89%. This is equivalent to an average
annual total return of 7.42%.(1)

Your Portfolio's total return for the year ended February 29, 2000 was down
4.30% compared to a drop of 2.08% 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 Portfolio's higher
concentration in insured and long-term bonds which under-performed the Index.
However, the housing-revenue sector, that comprised 19% of the Portfolio, was
one of the Index's best performing sectors.

Your Fund's management continues to emphasize bonds with high quality and with
call protection in order to maintain and maximize shareholder income without
sacrificing safety of principal. Over 87% 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, 29% of the Portfolio is invested
in non-callable bonds, mostly with high coupons. The Portfolio's highest
concentrations of investments are in the insured, housing-revenue,
industrial-revenue, and pre-refunded 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 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 2.86%
as of February 29, 2000, which is equivalent to a 4.74% 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 interest rates rose in the year ended February 29, 2000.
Short-term, tax-exempt rates, as measured by the Bond Buyer's One-year Note
Index, increased from 2.88% on February 25, 1999 to 4.04% on February 29, 2000.
During this same period of time, the yield on one-year taxable Treasury bills
increased from 4.85% to 6.23%.

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 March 20, 2000

(1) Total return includes reinvestment of dividends and any capital gains paid.
Income may be subject to state and local taxes, and some income may be
subject to the Federal Alternative Minimum Tax (AMT) for certain investors.
Capital gains, if any, are fully taxable.

(2) 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 percentage point drop or rise,
respectively, in interest rates. Prices move in the opposite direction of
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 29, 2000 was 7.52%.

- -----------

* Investment-grade bonds are rated Baa or higher by Moody's or BBB or higher by
Standard & Poor's.

Economic Observations

The American economy continues to perform well as we proceed through the first
quarter of 2000. Evidence of this healthy level of business activity can be
found in the strong pace of manufacturing, the continued healthy gains in
personal income, and the comparatively high levels of consumer spending.
Overall, we estimate that Gross Domestic Product growth will exceed 4% in the
opening quarter and average 3.5%-4.0% for the year as a whole. That would make
2000 the tenth year in a row of sustained economic growth in this country.

Inflationary pressures, meanwhile, continue to be held in check for the most
part, in spite of a further recent surge in oil and gasoline prices, with strong
increases in productivity and ongoing technological innovations being at least
partially responsible for this comparative pricing stability. Nevertheless, an
increase in cost pressures does seem likely over the next several quarters. The
Federal Reserve, taking note of this somewhat higher expense structure, is
likely to chart a more restrictive monetary course in the months ahead. As such,
we now expect the lead bank to vote one additional, albeit modest, interest rate
increase before midyear.

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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
National Bond Portfolio to that of the Lehman Brothers Municipal Bond Index. The
Value Line Tax Exempt Fund National Bond 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 NATIONAL BOND PORTFOLIO AND THE
LEHMAN BROTHERS MUNICIPAL BOND INDEX

[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL]

- ------ Value Line Tax Exempt Fund National Board Portfolio

______ Lehman Brothers Municipal Bond Index

(Period covered is from 3/1/90 to 2/29/00)

Performance Data:

<TABLE>
<CAPTION>
Average Annual Total Returns
National Bond Portfolio Money Market Portfolio
12/31/99 2/29/00 12/31/99 2/29/00
------- ------ ------- ------

<S> <C> <C> <C> <C> <C>
1 year ended ...... -4.81% -4.30% 1 year ended ..... 2.27% 2.38%
5 years ended ..... 5.70% 4.63% 5 years ended .... 2.59% 2.58%
10 years ended ..... 5.85% 5.88% 10 years ended .... 2.85% 2.81%
</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 29, 2000
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<TABLE>
<CAPTION>
Principal Rating
Amount National Bond Portfolio (Unaudited) Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>

LONG-TERM MUNICIPAL SECURITIES (96.3%)

Alabama (.9%)
$1,250,000 Colbert County-Northwest, Health Care Authority,
Hospital Revenue Refunding, Helen Keller Hospital, 8.75%, 6/1/09 ... Baa $ 1,292,888

Alaska (6.1%)
2,040,000 Energy Authority,Power Revenue Refunding,
Bradley Lake, Third Ser., 6.00%, 7/1/14 ............................ Aaa 2,093,183
Housing Finance Corp.:
40,000 Collateralized Mortgage Obligation, Veteran's 1st Ser.,
Veteran's Mortgage Program, 7.45%, 12/1/29........................ Aaa 40,233
3,500,000 General Mortgage Revenue, Ser. A, 6.00%, 6/1/49 .................... Aaa 3,321,570
2,025,000 Mortgage Revenue, Refunding, Ser. A-1, 5.50%, 12/1/17............... Aaa 1,881,711
2,020,000 Valdez, Marine Terminal Revenue, Refunding BP Pipeline Inc.
Project, Ser. B, 5.50%, 10/1/28..................................... AA* 1,794,992
-----------
9,131,689

Arizona (7.6%)
4,800,000 Greenlee County, Industrial Development Authority,
Pollution Control Revenue, Refunding,
Phelps Dodge Corp. Project, 5.45%, 6/1/09 .......................... A2 4,609,824
Maricopa County, Industrial Development Authority:
3,355,000 Multi-Family Housing, Multi-Family Housing Revenue,
Ser. A, 5.10%, 1/1/33............................................. Aaa 2,839,605
3,895,000 Single-Family Housing, Single-Family Housing Revenue,
Ser. B, 4.75%, 12/1/30 ........................................... Aaa 3,918,370
-----------
11,367,799

California (3.4%)
1,925,000 Pleasant Hill, Redevelopment Agency, Residential Mortgage Revenue,
Refunding, 5.75%, 8/1/11............................................ AA* 1,888,617
2,000,000 Sacramento County, Certificates of Participation, Crossover Refunding,
Public Facilities Project, Coroner/Crime Lab, 4.75%, 10/1/17........ Aaa 1,730,540
1,500,000 San Bernardino County, Single Family Mortage Revenue,
Home Mortgage, Ser. A, 5.00%, 12/1/31 .............................. Aaa 1,478,190
-----------
5,097,347

Colorado (2.9%)
4,110,000 Denver, City & County, Single Family Mortgage Revenue, 7.00%, 8/1/10+ Aaa 4,441,882

Delaware (.7%)
1,000,000 Economic Development Authority Revenue, Student Housing,
University Courtyard, Ser. A, 5.75%, 8/1/14......................... AA* 983,610
</TABLE>

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5
<PAGE>

The value Line Tax Exempt Fund, Inc.

Schedule of Investments
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District of Columbia (1.9%)
$3,000,000 Water & Sewer Authority, Public Utility Revenue, 5.50%, 10/1/23....... Aaa $ 2,805,720

Florida (1.8%)
1,740,000 Clay County, Housing Finance Authority Revenue, Single Family
Mortgage, Multi-Community, 6.00%, 4/1/29++.......................... Aaa 1,741,844
1,000,000 Miami-Dade County, Housing Finance Authority Revenue,
Home Ownership Mortgage, Ser. A-1, 5.20%, 10/1/31................... Aaa 965,680
-----------
2,707,524

Georgia (.1%)
85,000 Residential Finance Authority, Single Family Insured Mortgage,
Revenue, Subser. C-1, 8.00%, 12/1/16 ............................... Aa 86,171

Hawaii (2.7%)
4,000,000 Department of Budget and Finance, Special Purpose Mortgage
Revenue, Kapiolani Health Care System, 6.40%, 7/1/13................ Aaa 4,086,040

Illinois (9.1%)
Chicago:
3,000,000 Emergency Telephone System, Refunding, 5.25%, 1/1/20................ Aaa 2,737,560
2,400,000 Metropolitan Housing Development Corp. Mortgage Revenue,
Housing Development, Refunding, Ser. A, 6.85%, 7/1/22............. AA* 2,505,240
1,490,000 Single Family Mortgage Revenue, Collateralized, Ser. C-1,
6.30%, 9/1/29..................................................... Aaa 1,499,283
2,000,000 Development Finance Authority, Solid Waste Disposal Revenue,
Waste Management Inc. Project, 5.05%, 1/1/10........................ Ba1 1,666,760
3,000,000 Metropolitan Pier & Exposition Authority, Hospitality Facilities
Revenue, McCormick Place Convention Center, 7.00%, 7/1/26........... Aaa 3,389,850
2,000,000 University of Illinois, Certificates of Participation, Utility
Infrastructure Projects, 5.25%, 8/15/14............................. Aaa 1,902,640
-----------
13,701,333

Indiana (2.3%)
3,000,000 Office Building Commission, Capital Complex, Revenue,
Ser. B, 7.40%, 7/1/15............................................... Aaa 3,527,430

Iowa (3.1%)
1,015,000 Finance Authority, Single Family Revenue Mortgage,
Ser. B, 7.45%, 7/1/23............................................... Aaa 1,039,735
3,360,000 Muscatine, Electric Revenue, 6.70%, 1/1/13............................ Aaa 3,617,477
-----------
4,657,212
</TABLE>

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6
<PAGE>

The Value Line Tax Exempt Fund, Inc.

February 29, 2000
- --------------------------------------------------------------------------------

Louisiana (.4%)
$ 650,000 Housing Finance Agency, Mortgage Revenue, Single Family,
Ser. B, 5.55%, 6/1/24............................................... Aaa $ 607,152

Maryland (1.2%)
1,720,000 Northeast Waste Disposal Authority, Solid Waste Revenue,
Montgomery County Project A, 6.30%, 7/1/16.......................... A2 1,745,611

Massachusetts (4.7%)
4,500,000 State Devolpment Finance Agency Revenue, Boston University,
Ser. P, 6.00%, 5/15/59.............................................. A3 4,196,025
3,450,000 State Turnpike Authority, Metropolitan Highway Systems Revenue,
Ser. A, 5.00%, 1/1/37............................................... Aaa 2,848,148
-----------
7,044,173

Michigan (2.6%)
2,000,000 Detroit, Water Supply System Revenue, Senior Lien,
Ser. A, 5.50%, 7/1/14............................................... Aaa 1,974,480
2,000,000 Housing Development Authority,Single Family Mortgage Revenue,
Ser. C, 5.95%, 12/1/14.............................................. AA+* 1,982,360
-----------
3,956,840

Nebraska (.8%)
1,200,000 Investment Finance Authority, Single Family Mortgage Revenue,
Ser. A, 5.977%, 11/27/16............................................ Aaa 1,185,888

New Hampshire (.1%)
115,000 Housing Finance Authority, Single Family Residential Mortgage,
Ser. B, 7.75%, 7/1/23............................................... Aa3 118,732

New Jersey (1.3%)
2,000,000 East Orange, Board of Education, Certificates of Participation,
5.50%, 8/1/12....................................................... Aaa 2,005,260

New York (3.1%)
80,000 New York City, General Obligations, Ser. F, 8.20%, 11/15/04........... A3 85,406
New York State:
1,700,000 Dormitory Authority, Hospital, Maimonides Medical Center,
Ser. A, 5.75%, 8/1/14............................................. Aaa 1,690,038
2,760,000 Medical Care Facilities Finance Agency, Hospital and Nursing Home,
Insured Mortgage, Ser. D, 6.35%, 2/15/12 ......................... Aa2 2,917,596
-----------
4,693,040
</TABLE>

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7
<PAGE>
The Value Line Tax Exempt Fund, Inc.

Schedule of Investments
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North Dakota (.8%)
$1,140,000 Housing Finance Agency Revenue, Refunding, Housing
Finance Program, Home Mortgage, Ser. A, 6.20%, 7/1/14++............. Aa3 $ 1,152,711

Oregon (3.6%)
Klamath Falls Electric Revenue, Refunding, Senior Lien, Klamath Cogen:
3,000,000 5.50%,1/1/07........................................................ NR 2,820,420
2,900,000 5.75%,1/1/13 ....................................................... NR 2,623,253
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5,443,673
Rhode Island (.4%)
595,000 Housing and Mortgage Finance Corp., Homeownership Opportunity,
Ser. 3-A, 7.80%, 10/1/10............................................ Aa2 611,255

South Carolina (2.2%)
1,450,000 Piedmont Municipal Power Agency, Electric Revenue,
Refunding, 6.75%, 1/1/19............................................ Aaa 1,602,917
1,995,000 Three Rivers, Solid Waste Authority, Solid Waste Disposal Facilities,
Revenue, 5.30%, 1/1/27.............................................. Aaa 1,758,632
-----------
3,361,549
South Dakota (.7%)
1,065,000 Housing Development Authority, Homeownership Mortgage,
Ser. A, 5.40%, 5/1/14............................................... Aa1 1,063,349

Texas (20.3%)
2,380,000 Austin, Hotel Occupancy Tax Revenue, Refunding, 5.625%, 11/15/19...... Aaa 2,290,679
4,500,000 Brazos River Authority, Pollution Control Revenue, Refunding,
Utilities Electric Co., Ser. C, 5.55%, 6/1/30....................... Baa1 3,718,890
3,025,000 Brownsville, Utility Systems Revenue, Priority Refunding,
6.25%, 9/1/14....................................................... Aaa 3,209,222
1,915,000 Department of Housing & Community Affairs, Single Family Mortgage
Revenue, Ser. E, 5.00%, 9/1/16...................................... Aaa 1,866,819
5,035,000 Harris County, Hospital District, Mortgage Revenue, 7.40%, 2/15/10 ... Aaa 5,629,130
2,300,000 Houston, Water Conveyance System Contract, Certificates of
Participation, Ser. J, 6.25%, 12/15/15.............................. Aaa 2,418,059
3,000,000 Lubbock, Housing Finance Corp., Single Family Mortgage Revenue,
Refunding, Ser. A, 8.00%, 10/1/21................................... AAA* 3,733,800
3,000,000 Matagorda County, Navigation District No. 1, Revenue Refunding,
Reliant Energy Project, Ser. B, 5.95%, 5/1/30....................... Baa1 2,665,830
700,000 Travis County, Health Facilities Development Corp., Hospital Revenue,
Daughters of Charity, 5.90%, 11/15/07............................... Aa 721,665
5,025,000 Tyler, Health Facilities Development Corp., Hospital Revenue,
East Texas Medical Center, Ser. D, 5.375%, 11/1/27.................. Aaa 4,440,794
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30,694,888

</TABLE>
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8

<PAGE>
The Value Line Tax Exempt Fund, Inc.

February 29, 2000
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Utah (1.3%)
Housing Finance Agency, Single Family Mortgage:
$ 80,000 Ser. C-3, 7.55%, 7/1/23 ............................................ AAA* $ 81,826
275,000 Ser. D-3, 7.55%, 7/1/23 ............................................ AAA* 281,688
1,600,000 Ser. F-2, Class 1, 5.875%, 7/1/29 .................................. Aaa 1,587,904
-----------
1,951,418

Vermont (1.9%)
3,580,000 Educational & Health Buildings, Finance Agency, Revenue, Middlebury
College Project, 5.00%, 11/1/38..................................... Aa3 2,934,383

Virginia (1.2%)
2,000,000 Pocahontas Parkway Association, Route 895, Connector Toll Road
Revenue, Ser. A, 5.25%, 8/15/09 .................................... Baa3 1,831,940

Washington (1.8%)
3,000,000 Central Puget Sound, Regional Transportation Authority,
Sales Tax & Motor Vehicle Excise Tax Revenue, 5.25%, 2/1/21......... Aaa 2,740,380

Wisconsin (5.3%)
Health and Educational Facilities Authority Revenue, Refunding,
Aurora Health Care Inc.:
2,000,000 5.25%, 8/15/17.................................................... Aaa 1,802,960
4,000,000 Ser. A, 5.60%, 2/15/29 ........................................... A-* 3,127,920
3,080,000 Housing and Economic Development Authority, Housing Revenue,
Refunding, Ser. C, 5.80%, 11/1/13................................... Aaa 3,073,655
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8,004,535
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TOTAL LONG-TERM MUNICIPAL SECURITIES
(Cost $151,084,724) ............................................... 145,033,422
-----------
</TABLE>
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9

<PAGE>

The Value Line Tax Exempt Fund, Inc.

Schedule of Investments
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SHORT-TERM MUNICIPAL SECURITIES (4.0%)
$2,000,000 Gulf Coast, Texas, Waste Disposal Authority, Solid Waste
Disposal Revenue, Refunding, Amoco Oil Co. Project,
3.90%, 8/1/23....................................................... VMIG-1(1) $ 2,000,000
2,000,000 Indiana Health Facilities Financing Authority Revenue, Ascention
Health Credit, Ser. B, 3.95%, 11/15/39.............................. Aa2(2) 2,000,000
2,000,000 Lincoln County, Wyoming, Pollution Control Revenue,
Exxon Project, Ser. A, 3.85%, 7/1/27................................ Aaa(1) 2,000,000
-----------

TOTAL SHORT-TERM MUNICIPAL SECURITIES
(Cost $6,000,000) .................................................. 6,000,000
-----------

TOTAL MUNICIPAL SECURITIES (100.3%)
(Cost $157,084,724) ................................................ 151,033,422

LIABILITIES LESS CASH AND OTHER
ASSETS (-.3%) ..................................................... (519,306
-----------

NET ASSETS (100.0%) ................................................. $150,514,116
============

NET ASSET VALUE, OFFERING AND REDEMPTION PRICE,
PER OUTSTANDING SHARE .............................................. $ 9.79
============

</TABLE>

Rated by Moody's Investors Service except for those marked by an asterisk (*)
which are rated by Standard & Poor's.

Variable rate notes are considered short-term obligations. Interest rates change
periodically every (1) 1 day or (2) 7 days. These securities are payable on
demand on interest rate refix dates and are secured by either letters of credit
or other credit support agreements from banks. The rates listed are as of
February 29, 2000.

+ A portion of this security has been segregated as collateral for when issued
securities. This collateral has a market value of $3,134,175.

++ When issued security.

See Notes to Financial Statements.

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10

<PAGE>

The Value Line Tax Exempt Fund, Inc.

February 29, 2000
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Alaska (3.7%)
$ 500,000 Housing Finance Corp., State Capital Project, Ser. B, 4.00%, 12/1/00 .... Aaa $ 500,000

Arizona (3.7%)
500,000 Maricopa County, Pollution Control Revenue, Refunding,
Arizona Public Service Co., Ser B, 3.80%, 5/1/29....................... P-1(1) 500,000

Colorado (3.7%)
500,000 Housing Finance Authority, Refunding, Multifamily, Greenwood Point,
Ser. D, 3.85%, 10/15/16 ............................................... A1+*(2) 500,000

District of Columbia (4.5%)
600,000 General Obligation, Refunding, Ser. A-1, 3.90%, 10/1/07.................. VMIG-1(1) 600,000

Georgia (3.7%)
500,000 Hapeville, Development Authority, Industrial Development Revenue,
Hapeville Hotel Ltd., 3.80%, 11/1/15................................... P-1(1) 500,000

Illinois (5.6%)
250,000 Chicago, Metropolitan Water, Reclamation District, 4.20%, 12/1/00........ Aa1 250,271
500,000 Educational Facilities Authority, Revenue, Northwestern
Project, 3.90%, 12/1/25................................................ VMIG-1(2) 500,000
---------
750,271

Indiana (10.8%)
600,000 Health Facilities Financing Authority Revenue, Ascension Health Credit,
Ser. B, 3.95%, 11/15/39................................................ Aa2(2) 600,000
250,000 Secondary Market for Educational Loans Inc., Educational Loan Revenue,
Revenue, Ser. E, 4.20%, 6/1/00......................................... Aaa 250,000
600,000 University Revenues, Student Fee, Ser. M, 3.90%, 8/1/00 ................. Aa2 599,127
----------
1,449,127

Louisiana (4.5%)
600,000 Saint Charles Parish, Pollution Control Revenue, Shell Oil Co. Project,
Ser. A, 3.90%, 10/1/22................................................. VMIG-1(1) 600,000

Massachusetts (6.8%)
500,000 Consolidated Loan, Ser. C, 6.90%, 6/1/00 ................................ Aaa 503,321
400,000 Port Authority Revenue, Ser. A, 7.50%, 7/1/20 (Pre-refunded 7/1/00) ..... Aaa 417,410
----------
920,731
</TABLE>

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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>
Nebraska (4.5%)
$ 600,000 Omaha-Douglas County, Public Building Commission, 5.40%, 5/1/00.......... Aa3 $ 601,101

New York (15.9%)
500,000 Albany County, Refunding, South Mall Construction, Ser A, 5.00%, 4/1/00 Aaa 500,401
500,000 New York City, Municipal Water Finance Authority,
Water & Sewer System, Revenue, Ser C, 3.80%, 6/15/23................... VMIG-1(1) 500,000
New York State:
Dormitory Authority Revenue, New Island Hospital:
265,000 Ser. A, 4.00%, 7/1/00................................................ Aaa 264,953
275,000 Ser. B, 4.00%, 7/1/00 ............................................... Aaa 274,951
600,000 Power Authority Revenue & General Purpose, 4.00%, 3/1/07
(Putback 9/01/00) ................................................... Aa3 600,000
----------
2,140,305

Pennsylvania (1.9%)
255,000 Fleetwood, Area School District, Refunding, 4.00%, 5/1/00 ............... Aaa 254,784

Rhode Island (4.7%)
635,000 Housing & Mortgage Financing Corp., Homeownership Opportunity,
Ser. 29-B, 3.55%, 4/4/00............................................... Aa2 634,392

South Carolina (4.5%)
600,000 Berkley County, Exempt Facilities, Industrial Revenue,
Amoco Chemical Co. Project, 3.90%, 4/1/27.............................. A1+*(1) 600,000

Tennessee (3.7%)
500,000 Volunteer State Funding Corp., Educational Loan Revenue,
Senior Sub-Ser. B, 4.95%. 6/1/00...................................... Aa2 500,661

Texas (13.3%)
Harris County:
600,000 Health Facilities Development Corp., Revenue, Texas Childrens
Hospital, 3.95%, 10/1/29............................................. VMIG-1(2) 600,000
600,000 Industrial Development Corp., Solid Waste Disposal Revenue,
Exxon Project, 3.85%, 4/1/32......................................... VMIG-1(1) 600,000
600,000 Trinity River Authority, Pollution Control Revenue, Texas Utilities
Electric Co. Project, Ser. A, 3.95%, 3/1/26 ........................... VMIG-1(1) 600,000
----------
1,800,000
</TABLE>

- --------------------------------------------------------------------------------
12
<PAGE>

The Value Line Tax Exempt Fund, Inc.

February 29, 2000
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Principal Rating
Amount Money Market Portfolio (Unaudited) Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Utah (3.7%)
$ 500,000 Emery County, Pollution Control Revenue, Refunding, Pacificorp Project,
3.80%, 11/1/24...................................................... VMIG-1(1) $ 500,000
-----------

TOTAL SHORT-TERM MUNICIPAL SECURITIES (99.2%)
(Cost $13,351,372) ................................................. 13,351,372

CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES (.8%) .................................................. 105,031
-----------

NET ASSETS (100.0%) .................................................. $13,456,403
===========

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
29, 2000.

See Notes to Financial Statements.

- --------------------------------------------------------------------------------
13

<PAGE>

The Value Line Tax Exempt Fund, Inc.

Statement of Assets and Liabilities
at February 29, 2000

- --------------------------------------------------------------------------------

Portfolio
--------------------
National Money
Bond Market
--------------------
(In thousands
except per share
amount)
Assets:
Investment securities at value
(Cost $157,085 and
amortized cost $13,351)....................... $151,033 $13,351
Cash ........................................... 955 110
Receivable for securities sold -- 700
Interest receivable ............................ 1,940 97
Receivable for capital shares sold -- 9
-------- -------
Total Assets ............................. 153,928 14,267
-------- -------
Liabilities:
Payable for securities
purchased..................................... 2,913 600
Dividends payable to
shareholders.................................. 221 --
Payable for capital shares
repurchased .................................. 106 156
Accrued expenses:
Advisory fee ................................. 60 5
Other ........................................ 114 50
-------- -------
Total Liabilities ........................ 3,414 811
-------- -------
Net Assets ..................................... $150,514 $13,456
======== =======
Net Assets:
Capital stock at $.01 par value
(Authorized 65,000,000 shares and
125,000,000 shares respectively; outstanding
15,374,594 shares and 13,494,292 shares,
respectively)................................. $ 154 $ 135
Additional paid-in capital ..................... 161,440 13,331
Accumulated net realized loss
on investments................................ (5,028) (10)
Unrealized net depreciation of
investments .................................. (6,052) --
-------- -------
Net Assets ..................................... $150,514 $13,456
======== =======
Net Asset Value, Offering and
Redemption Price, per
Outstanding Share ........................... $ 9.79 $ 1.00
======== =======

Statement of Operations
for the Year Ended February 29, 2000
- --------------------------------------------------------------------------------

Portfolio
---------------------
National Money
Bond Market
---------------------
(In thousands)
Investment Income:
Interest ....................................... $ 9,015 $506
-------- ----
Expenses:
Advisory fee ................................... 834 73
Transfer agent fees ............................ 55 19
Auditing and legal fees ........................ 47 36
Printing and stationery ........................ 42 11
Custodian fees ................................. 35 3
Registration and filing fees.................... 18 12
Postage....................... ................. 14 3
Directors' fees and expenses.................... 7 7
Other........................................... 23 4
-------- ----
Total expenses before
custody credits ........................ 1,075 168
Less: custody credits .................... (20) (2)
-------- ----
Net Expenses ............................. 1,055 166
-------- ----
Net Investment Income .......................... 7,960 340
-------- ----
Net Realized and Unrealized
Loss on Investments:
Net Realized Loss............................. (5,005) --
Change in Unrealized
Appreciation
(Depreciation).............................. (10,525) --
-------- ----
Net Realized Loss and Change
in Unrealized Appreciation
(Depreciation) on
Investments .................................. (15,530) --
-------- ----
Net (Decrease) Increase in Net
Assets from Operations ....................... $ (7,570) $340
======== ====

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 29, 2000 and February 28, 1999
- --------------------------------------------------------------------------------

National Bond Money Market
Portfolio Portfolio
----------------------------------------
2000 1999 2000 1999
----------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Operations:
Net investment income ................................. $ 7,960 $ 8,718 $ 340 $ 384
Net realized (loss) gain on investments ............... (5,005) 3,136 -- (6)
Change in unrealized appreciation (depreciation) ...... (10,525) (2,615) -- --
------------------------------------------
Net (decrease) increse in net assets from operations .. (7,570) 9,239 340 378
------------------------------------------

Distributions to Shareholders:
Net investment income .................................. (8,009) (8,669) (341) (384)
Net realized gains .................................... (941) (4,526) -- --
------------------------------------------
Net decrease in net assets from distributions ......... (8,950) (13,195) (341) (384)
------------------------------------------

Capital Share Transactions:
Net proceeds from sale of shares ...................... 13,685 12,460 7,406 8,084
Net proceeds from reinvestment of
distributions to shareholders......................... 5,923 8,910 341 384
Cost of shares repurchased ............................ (34,591) (23,506) (9,546) (9,964)
------------------------------------------
Net decrease in net assets from capital share
transactions ......................................... (14,983) (2,136) (1,799) (1,496)
------------------------------------------
Total Decrease in Net Assets ............................ (31,503) (6,092) (1,800) (1,502)

Net Assets:
Beginning of year ..................................... 182,017 188,109 15,256 16,758
------------------------------------------
End of year ........................................... $150,514 $182,017 $13,456 $15,256
==========================================

Undistributed Net Investment Income
at end of year ......................................... $ -- $ 48 $ -- $ 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 National Bond (formerly the
High-Yield Portfolio) and Money Market Portfolios. The primary investment
objective of the National Bond 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: National Bond 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 market 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 National Bond Portfolio are paid 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

- --------------------------------------------------------------------------------
16
<PAGE>

The value Line Tax Exempt Fund, Inc.

February 29, 2000
- --------------------------------------------------------------------------------

amounts are reclassified within the capital accounts based on their federal
tax-basis treatment. Temporary differences do not require reclassification.

(C) Federal Income Taxes: It is the policy of the Fund to qualify as a regulated
investment company, which can distribute tax-exempt dividends, by complying with
the provisions available to certain investment companies, as defined in
applicable sections of the Internal Revenue Code, and to distribute all of its
investment income and capital gains to its shareholders. Therefore, no provision
for federal income tax or excise tax is required.

(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:

National Bond
Portfolio
--------------
2000 1999
--------------
(in thousands)
Shares sold .................................... 1,344 1,137
Shares issued to shareholders in
reinvestment of distributions................. 582 815
-----------------
1,926 1,952
Shares repurchased ............................. (3,403) (2,142)
-----------------
Net decrease.................................... (1,477) (190)
=================

Money Market
Portfolio
---------------
2000 1999
---------------
(in thousands)
Shares sold .................................... 7,406 8,084
Shares issued to shareholders in
reinvestment of distributions................. 341 384
-----------------
7,747 8,468
Shares repurchased ............................. (9,546) (9,964)
-----------------
Net decrease.................................... (1,799) (1,496)
=================

3. Purchases and Sales of Securities
Purchases and sales of municipal securities were as follows:

National Bond
Portfolio
-------------
2000
-------------
(in thousands)
Purchases:
Long-term obligations .......................... $257,898
Short-term obligations.......................... 43,500
---------
$301,398
=========
maturities or Sales:
Long-term obligations .......................... $268,787
Short-term obligations.......................... 48,200
---------
$316,987
=========

Money Market
Portfolio
-------------
2000
-------------
(in thousands)
Purchases:
Municipal short-term obligations................ $ 24,559
========
maturities or Sales:
Municipal short-term obligations................ $ 26,225
========

At February 29, 2000, the aggregate cost of investments for federal income-tax
purposes was $157,086,952 for the National Bond Portfolio and $13,351,372 for
the Money Market Portfolio.

- --------------------------------------------------------------------------------
17
<PAGE>

The Value Line Tax Exempt Fund, Inc.

Notes to Financial Statements February 29, 2000
- --------------------------------------------------------------------------------

The aggregate appreciation and depreciation of investments in the National Bond
Portfolio at February 29, 2000, based on a comparison of investment values and
their costs for federal income-tax purposes, was $758,414 and $6,811,944,
respectively, resulting in a net unrealized depreciation of $6,053,530. There
was no unrealized appreciation or depreciation in the Money Market Portfolio.

At February 29, 2000, for federal income-tax purposes the National Bond
Portfolio had a capital-loss carryover of approximately $4,285,227 which will
expire in 2008, and the Money Market Portfolio had a capital-loss carryover of
$10, 140 of which $998 will expire in 2004, $1,285 in 2005, $2,067 in 2006 and
$5,267 in 2007 and $523 in 2008. To the extent future capital gains are offset
by such capital losses, the Portfolios do not anticipate distributing any such
gains to shareholders.

For the year ended February 29, 2000 permanent book tax differences due to the
expiration of capital-loss carryovers of $27,649 in the Money Market Portfolio
were reclassified from accumulated net realized loss on investments to
additional paid-in-capital.

The National Bond Portfolio elected to defer post October capital losses of
$470,486.

4. Investment Advisory Contract and Transactions With Affiliates

An advisory fee of $833,658 and $72,788 was paid or payable by the National Bond
Portfolio and the Money Market Portfolio, respectively, to Value Line, Inc. (the
"Adviser") for the year ended February 29, 2000. This was computed at an annual
rate of .50% of the average daily net assets of the portfolios of the Fund. 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.

For the year ended February 29, 2000, the Fund's expenses were reduced by
$19,566 and $2,174 for the National Bond Portfolio and Money Market Portfolio,
respectively, under a custody credit arrangement with the custodian.

Certain officers and directors of the Adviser and its subsidiary, Value Line
Securities, Inc. (the Fund's distributor and a registered broker/dealer), are
also officers and a Director of the Fund.

At February 29, 2000, the Adviser and/or affiliated companies owned 127,034
shares of the National Bond Portfolio common shares, representing .83% of the
outstanding shares. In addition, certain officers and directors of the Fund
owned 1,301 shares of the National Bond Portfolio, representing .01% of the
outstanding shares and 2,636 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:

National Bond Portfolio(3)
Years Ended on Last Day of February,
----------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ........ $ 10.80 $ 11.04 $ 10.78 $ 10.82 $ 10.40
-----------------------------------------------------------

Income (loss) from investment operations:
Net investment income.................. .49 .52 .54 .55 .55
Net gains or losses on securities
(both realized and unrealized)....... (.95) .03 .36 (.04) .42
-----------------------------------------------------------
Total from investment operations .... (.46) .55 .90 .51 .97
-----------------------------------------------------------

Less distributions:
Dividends from net investment income .. (.49) (.52) (.54) (.55) (.55)
Distributions from capital gains ...... (.06) (.27) (.10) -- --
-----------------------------------------------------------
Total distributions ................. (.55) (.79) (.64) (.55) (.55)
-----------------------------------------------------------
Net asset value, end of year .............. $ 9.79 $ 10.80 $ 11.04 $ 10.78 $ 10.82
===========================================================
Total return .............................. (4.30)% 4.88% 8.56% 4.86% 9.55%
===========================================================

Ratios/Supplemental Data:
Net assets, end of year (in thousands) .... $150,514 $182,017 $188,109 $193,641 $222,760
Ratio of expenses to average net assets.... .64%(2) .63%(2) .63%(1) .60%(1) .62%
Ratio of net investment income
to average net assets.................... 4.77% 4.71% 4.98% 5.13% 5.22%
Portfolio turnover rate ................... 163% 192% 119% 73% 95%
</TABLE>

(1) Before offset of custody credits.

(2) Ratio reflects expenses grossed up for custody credit arrangement. The ratio
of expenses to average net assets net of custody credits would have been .62%
and .63% for the year ended February 28, 1999 and February 29, 2000,
respectively.

(3) Formerly the High-Yield Portfolio.

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:

Money Market Portfolio
Years Ended on Last Day of February,
----------------------------------------------------
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
<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 .02 .03 .03 .03
----------------------------------------------------------

Less distributions:
Dividends from net investment income .. (.02) (.02) (.03) (.03) (.03)
----------------------------------------------------------
Net asset value, end of year .............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
==========================================================
Total return .............................. 2.38% 2.39% 2.65% 2.56% 2.92%
==========================================================

Ratios/Supplemental Data:
Net assets, end of year (in thousands) .... $13,456 $15,256 $16,758 $19,668 $21,777
Ratio of expenses to average net assets.... 1.15%(2) 1.18%(2) 1.03%(1) 1.00%(1) 1.01%
Ratio of net investment income
to average net assets.................... 2.33% 2.38% 2.63% 2.54% 2.89%
</TABLE>

(1) Before offset of custody credits.

(2) Ratio reflects expenses grossed up for custody credit arrangement. The ratio
of expenses to average net assets net of custody credits would have been 1.16%
and 1.14% for the year ended February 28, 1999 and February 29, 2000,
respectively.

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 National Bond Portfolio
(formerly the High-Yield Portfolio) and the Money Market Portfolio (constituting
The Value Line Tax Exempt Fund, Inc. hereafter referred to as the "Fund") at
February 29, 2000, 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 accounting principles generally accepted
in the United States. 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 auditing standards generally accepted in
the United States which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at February 29, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.

PricewaterhouseCoopers LLP
New York, New York
April 17, 2000

- --------------------------------------------------------------------------------
FEDERAL TAX NOTICE (unaudited)

During the year ended February 29, 2000, the Fund paid to shareholders of the
National Bond Portfolio $0.493 and the Money Market Portfolio $.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 29, 2000, the Fund paid to shareholders of the
National Bond Portfolio $0.058 per share of Long Term Capital Gains and
$0.002 of Short Term Capital Gains.

- --------------------------------------------------------------------------------
21
<PAGE>

The Value Line Tax Exempt Fund, Inc.

- --------------------------------------------------------------------------------

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- --------------------------------------------------------------------------------
22
<PAGE>

The Value Line Tax Exempt Fund, Inc.

- --------------------------------------------------------------------------------

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- --------------------------------------------------------------------------------
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. Current income is a
secondary objective.

1952--Value Line Income and Growth 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 National Bond 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.

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 Emerging Opportunities 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 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 availble through the purchase of Guardian Investor, a tax deferred
variable annuity, or Value Plus, a variable life insurance policy.

For more complete information about any of the Value Line Funds, including
charges and expenses, send for a prospectus from Value Line Securities, Inc.,
220 East 42nd Street, New York, New York 10017-5891 or call 1-800-223-0818, 24
hours a day, 7 days a week, or visit us at 222.valueline.com. 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 219729
Kansas City, MO 64121-9729

INDEPENDENT PricewaterhouseCoopers LLP
ACCOUNTANTS 1177 Avenue of the Americas
New York, NY 10036

LEGAL COUNSEL Peter D. Lowenstein, Esq.
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830

Directors Jean Bernhard Buttner
John W. Chandler
David H. Porter
Paul Craig Roberts
Nancy-Beth Sheerr

OFFICERS Jean Bernhard Buttner
Chairman and President
Bruce H. Alston
Vice President
Charles Heebner
Vice President
David T. Henigson
Vice President,
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).