<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT ADVISER Value Line, Inc.
220 East 42nd Street
New York, NY 10017-5891
DISTRIBUTOR Value Line Securities, Inc.
220 East 42nd Street
New York, NY 10017-5891
CUSTODIAN BANK State Street Bank and Trust
Co.
225 Franklin Street
Boston, MA 02110
SHAREHOLDER State Street Bank and Trust
SERVICING AGENT Co.
c/o NFDS
P.O. Box 419729
Kansas City, MO 64141-6729
INDEPENDENT Price Waterhouse LLP
ACCOUNTANTS 1177 Avenue of the Americas
New York, NY 10036
LEGAL COUNSEL Peter D. Lowenstein, Esq.
Two Greenwich Plaza, Suite
100
Greenwich, CT 06830
DIRECTORS Jean Bernhard Buttner
Francis C. Oakley
Marion N. Ruth
Frances T. Newton
OFFICERS Jean Bernhard Buttner
CHAIRMAN AND PRESIDENT
Steven M. Yeary
VICE PRESIDENT
Jerome Kaplan
VICE PRESIDENT
David T. Henigson
VICE PRESIDENT and
SECRETARY/TREASURER
Jack M. Houston
ASSISTANT SECRETARY/TREASURER
Stephen La Rosa
ASSISTANT SECRETARY/TREASURER
</TABLE>
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).
VLF703072
------------------------------------
ANNUAL REPORT
------------------------------------
MARCH 31, 1997
----------------------------------------
VALUE LINE
SMALL-CAP
GROWTH
FUND, INC.
[LOGO]
<PAGE>
VALUE LINE SMALL-CAP GROWTH FUND, INC.
To Our Value Line
- --------------------------------------------------------------------------------
TO OUR SHAREHOLDERS:
We are pleased to bring you this annual report for the Value Line Small-Cap
Growth Fund (the "Fund"). For the year ended March 31, 1997, the Fund lost 2.07%
on a total return basis, compared with a loss of 5.82% for the Russell 2000
Growth Index, the index to which small-cap stocks are most often compared. The
Russell 2000, an indicator of small-company stocks, posted a gain of 5.11% for
the year ended March 31, 1997. Since its inception on June 23, 1993, the Fund's
total return has been 54.08%, versus 59.23% for the Russell 2000. Your Fund has
achieved an annualized return growth rate of 12.15%, compared to the 13.13%
annual return for the Russell 2000 during the same period.
For the past 12 months, the small-company stock sector has generally
underperformed the market. Indeed, the March quarter may have been the poorest
performing period in the history of the Russell 2000 Index. Also, the Fund has a
heavy concentration in growth stocks (companies with rapidly growing earnings)
and so it tends to outperform the Russell 2000 during periods when such rapidly
growing companies are in favor, and lag this index when they are out of favor.
Unfortunately, growth stocks have mostly underperformed lower price-earnings
ratio value stocks for the past three years. Recent results suggest that this
trend is beginning to reverse, with growth stocks outperforming value stocks.
The case for investing in small-cap stocks remains compelling, as these
companies typically have greater growth potential than larger-capitalization
firms. These smaller and less-seasoned companies usually are able to respond
more quickly to changes in market conditions and to exploit opportunities more
successfully. These stocks often manifest greater price volatility, however.
Yet, in a period of economic expansion, like the present, smaller-cap stocks
have the potential to outperform those of larger companies, as strong economic
fundamentals help to accelerate earnings improvement for these rapidly growing
companies.
Our investment strategy remains as it has been: to invest in small-cap stocks
that are generating exceptionally good earnings, where price momentum outpaces
that of the market in general, and where valuations are attractive. Although
your Fund remains well diversified, we continue to weight the technology,
health-care, and consumer sectors more heavily than others.
We thank you for the confidence you have placed in the Value Line Small-Cap
Growth Fund, and will work hard to continue to justify your trust. We look
forward to serving your investment needs in the future.
Sincerely,
[SIGNATURE]
Jean Bernhard Buttner
CHAIRMAN and PRESIDENT
May 29, 1997
- --------------------------------------------------------------------------------
2
<PAGE>
VALUE LINE SMALL-CAP GROWTH FUND, INC.
Small-Cap Growth Fund Shareholders
- --------------------------------------------------------------------------------
ECONOMIC OBSERVATIONS
The current economic expansion is now in its seventh year. Although this does
not yet qualify as the longest peacetime period of growth in our nation's
history (both the 1960s and the 1980s experienced somewhat longer upcycles), it
is still quite noteworthy, especially since there are as yet few signs that this
lengthy run of uninterrupted prosperity is about to draw to a close. In fact,
recent reports show that there is still a good deal of strength around, with
high doses of consumer confidence, continuing solid job growth, and healthy
levels of retail, housing, and manufacturing activity pointing to relatively
good levels of economic growth over the next few quarters.
Inflation, meanwhile, continues to be reasonably subdued. This healthy pricing
trend, which is remarkable given the longevity of the business expansion, is,
moreover, unlikely to change dramatically in the months ahead. Underscoring our
optimism in this area is the recent hammering out of a presumably workable
budget accord (which should reduce the government's need to borrow to finance
the deficit) and the fact that there is still a lack of serious shortages on
either the labor or the raw materials fronts. On this latter score, though, we
do note that the recent pickup in wage pressures could, if unchecked, pose a
threat later in the year or in 1998.
Interest rates, meantime, reflecting the likely moderate pace of upcoming
economic growth and the fairly subdued pricing structure, are unlikely to
increase all that much over the next year. Nevertheless, we caution that recent
remarks by Federal Reserve Chairman Alan Greenspan, in which he indicated that
the central bank has, in the past, occasionally raised rates before higher
inflation actually took hold, and the one-quarter of a percentage point increase
in short-term interest rates that was tacked on in March, would seem to suggest
that the Fed will not be shy about tightening the credit reins further, if it
sees the need. An additional upward move in rates, if sufficiently pronounced,
would not be good news for either the stock or the bond markets, or ultimately,
for the U.S. economy.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
COMPARISON OF THE CHANGE IN VALUE OF A $10,000
<S> <C> <C>
INVESTMENT IN THE VALUE SMALL-CAP GROWTH FUND AND
THE RUSSELL 2000 STOCK INDEX*
Value Line Russell
6/23/93 $ 10,000 $ 10,000
9/30/93 $ 11,200 $ 11,142
12/31/93 $ 12,106.35 $ 11,431
3/31/94 $ 11,835.54 $ 11,127
6/30/94 $ 11,504.55 $ 10,691
9/30/94 $ 12,086.29 $ 11,434
12/31/94 $ 12,029.04 $ 11,223
3/31/95 $ 12,731.17 $ 11,741
6/30/95 $ 13,639.80 $ 12,841
9/30/95 $ 15,622.27 $ 14,110
12/31/95 $ 14,921.01 $ 14,415
3/31/96 $ 15,733.18 $ 15,151
6/30/96 $ 16,149.68 $ 15,909
9/30/96 $ 16,795.25 $ 15,963
12/31/96 $ 16,465.86 $ 16,793
3/31/97 $ 15,408 $ 15,969
</TABLE>
PERFORMANCE DATA:*
<TABLE>
<CAPTION>
AVERAGE
ANNUAL TOTAL
RETURN
------------------
<S> <C>
1 year ended March 31, 1997............................................................... -2.07%
3 years ended March 31, 1997.............................................................. +9.19%
From June 23, 1993+, to March 31, 1997.................................................... 12.15%
</TABLE>
+ COMMENCEMENT OF OPERATIONS.
* 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 INCLUDE 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.
- --------------------------------------------------------------------------------
3
<PAGE>
VALUE LINE SMALL-CAP GROWTH FUND, INC.
Schedule of Investments
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- -----------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (90.1%)
AEROSPACE/DEFENSE (5.4%)
10,100 AAR Corp................................ $ 303,000
8,000 Precision Castparts Corp................ 408,000
10,000 Wyman-Gordon Co.*....................... 203,750
-------------
914,750
AIR TRANSPORT (2.2%)
12,000 Air Express International Corp.......... 381,000
APPAREL (5.5%)
12,000 Nautica Enterprises, Inc.*.............. 301,500
6,000 St. John Knits, Inc..................... 259,500
7,200 Tommy Hilfiger Corp.*................... 376,200
-------------
937,200
BANK (3.2%)
12,600 City National Corp...................... 277,200
2,300 Zions Bancorporation.................... 273,125
-------------
550,325
COMPUTER & PERIPHERALS (2.9%)
6,400 SCI Systems, Inc.*...................... 324,000
7,000 Tech Data Corp.*........................ 168,875
-------------
492,875
COMPUTER SOFTWARE & SERVICES (7.8%)
8,000 C-Cube Microsystems, Inc.*.............. 204,000
5,000 Fair, Isaac & Co., Inc.................. 180,625
6,400 FIserv, Inc.*........................... 238,400
8,800 National Data Corp...................... 311,300
5,600 Network General Corp.*.................. 120,400
4,000 Rational Software Corp.*................ 82,500
3,200 Sterling Commerce Inc.*................. 92,800
3,300 Sterling Software Inc.*................. 91,162
-------------
1,321,187
<CAPTION>
SHARES VALUE
- -----------------------------------------------------------------------
<C> <S> <C>
DIVERSIFIED COMPANIES (0.7%)
3,200 Valmont Industries, Inc................. $ 124,800
ELECTRONICS (2.5%)
3,000 Benchmark Electronics, Inc.*............ 87,750
5,000 Dynatech Corp.*......................... 150,000
3,900 Pittway Corp. Class "A"................. 189,150
-------------
426,900
ENVIRONMENTAL (2.5%)
5,500 Ionics, Inc.*........................... 255,063
4,700 United Waste Systems, Inc.*............. 175,075
-------------
430,138
FINANCIAL SERVICES (4.2%)
10,350 Aames Financial Corp.................... 209,587
4,200 FINOVA Group, Inc....................... 284,025
10,000 Money Store, Inc. (The)................. 210,000
-------------
703,612
FOOD PROCESSING (1.4%)
4,600 DEKALB Genetics Corp. Class "B"......... 244,950
FOOD WHOLESALERS (0.6%)
5,500 Richfood Holdings, Inc.................. 103,125
FURNITURE/HOME FURNISHINGS (4.1%)
5,000 Bush Industries, Inc. Class "A"......... 100,000
7,000 Ethan Allen Interiors, Inc.............. 304,500
6,200 Furniture Brands International, Inc.*... 93,000
5,200 HON Industries, Inc..................... 193,050
-------------
690,550
GROCERY (1.5%)
6,200 Quality Food Centers, Inc.*............. 260,400
</TABLE>
- --------------------------------------------------------------------------------
4
<PAGE>
VALUE LINE SMALL-CAP GROWTH FUND, INC.
MARCH 31, 1997
- -------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- -----------------------------------------------------------------------
<C> <S> <C>
HOTEL/GAMING (0.7%)
6,000 La Quinta Inns, Inc..................... $ 123,000
HOUSEHOLD PRODUCTS (0.8%)
5,200 Watsco, Inc............................. 132,600
INSURANCE-PROPERTY/ CASUALTY (2.5%)
9,670 Frontier Insurance Group, Inc........... 420,645
MACHINERY (0.4%)
3,600 Lancer Corp.*........................... 70,200
MANUFACTURED HOUSING/ RECREATIONAL
VEHICLES (2.9%)
17,000 Champion Enterprises, Inc.*............. 252,875
14,000 Oakwood Homes Corp...................... 246,750
-------------
499,625
MEDICAL SERVICES (3.7%)
10,800 Omnicare, Inc........................... 253,800
2,500 Rexall Sundown, Inc.*................... 64,063
11,300 Vivra, Inc.*............................ 305,100
-------------
622,963
MEDICAL SUPPLIES (3.8%)
12,900 Invacare Corp........................... 303,150
15,000 Safeskin Corp.*......................... 271,875
2,000 Sofamor Danek Group, Inc.*.............. 72,250
-------------
647,275
METAL FABRICATING (1.2%)
11,300 Oregon Metallurgical Corp.*............. 203,400
OFFICE EQUIPMENT & SUPPLIES (1.1%)
7,900 Reynolds & Reynolds Co. Class "A"....... 188,612
<CAPTION>
SHARES VALUE
- -----------------------------------------------------------------------
<C> <S> <C>
OILFIELD SERVICES/ EQUIPMENT (5.5%)
1,500 Cliffs Drilling Co.*.................... $ 89,063
9,300 Helmerich & Payne, Inc.................. 430,125
3,100 Seacor Holdings, Inc.*.................. 166,237
10,200 Varco International, Inc.*.............. 255,000
-------------
940,425
PACKAGING & CONTAINER (1.9%)
8,000 Sealed Air Corp.*....................... 329,000
PETROLEUM-PRODUCING (0.6%)
4,600 Global Industries, Ltd.*................ 98,325
PRECISION INSTRUMENTS (3.3%)
3,800 Coherent, Inc.*......................... 181,688
13,500 Sybron International Corp.*............. 374,625
-------------
556,313
RESTAURANT (1.4%)
9,500 Applebee's International, Inc........... 229,187
</TABLE>
<TABLE>
<C> <S> <C>
RETAIL-SPECIAL LINES (2.4%)
4,900 Fabri-Centers of America, Inc. Class
"B"*.................................. 88,813
8,500 Tiffany & Co............................ 323,000
-------------
411,813
RETAIL-BUILDING SUPPLY (0.3%)
2,600 Eagle Hardware & Garden, Inc.*.......... 46,800
RETAIL STORE (0.8%)
3,600 Consolidated Stores Corp.*.............. 126,900
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
VALUE LINE SMALL-CAP GROWTH FUND, INC.
SCHEDULE OF INVESTMENTS MARCH 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- -----------------------------------------------------------------------
<C> <S> <C>
SEMICONDUCTOR (2.5%)
7,900 Unitrode Corp.*......................... $ 256,750
6,000 Vitesse Semiconductor Corp.*............ 165,750
-------------
422,500
TELECOMMUNICATIONS EQUIPMENT (1.0%)
6,000 Black Box Corp.*........................ 161,250
TELECOMMUNICATION SERVICES (3.1%)
4,800 ACC Corp. Class "A"*.................... 106,800
11,800 Billing Info Concepts Corp.*............ 283,200
11,800 U.S. Long Distance Corp.*............... 137,175
-------------
527,175
TEXTILE (2.3%)
11,500 Culp, Inc............................... 198,375
7,600 Interface Inc. Class "A"................ 190,475
-------------
388,850
THRIFT (2.2%)
5,900 Astoria Financial Corp.................. 212,400
7,000 Glendale Federal Bank, Federal Savings
Bank*................................. 161,000
-------------
373,400
TIRE & RUBBER (0.5%)
2,800 Carlisle Companies, Inc................. 81,900
TOILETRIES/COSMETICS (0.2%)
1,400 Helen of Troy Ltd.*..................... 33,250
SHARES OR
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
TRUCKING/ TRANSPORTATION LEASING (0.5%)
4,000 Heartland Express, Inc.*................ $ 76,000
-------------
TOTAL COMMON STOCKS AND TOTAL INVESTMENT
SECURITIES (90.1%)
(COST $14,519,235).................... 15,293,220
-------------
REPURCHASE AGREEMENT (10.0%)
(INCLUDING ACCRUED INTEREST)
$ 1,700,000 Collateralized by $1,665,000 U.S.
Treasury Notes 7%, due 4/15/99, with a
value of $1,738,244 (with First
Chicago Capital Markets, Inc. 5.90%,
dated 3/31/97, due 4/1/97, delivery
value $1,700,279)..................... 1,700,279
EXCESS OF LIABILITIES OVER CASH AND OTHER ASSETS
(-0.1%)................................................. (19,057)
-------------
NET ASSETS (100%)....................................... $ 16,974,442
-------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE, PER
OUTSTANDING SHARE ($16,974,442 DIVIDED BY 1,340,010
SHARES OUTSTANDING).....................................
$ 12.67
-------------
</TABLE>
* NON-INCOME PRODUCING
SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
6
<PAGE>
VALUE LINE SMALL-CAP GROWTH FUND, INC.
STATEMENT OF ASSETS AND
LIABILITIES
STATEMENT OF OPERATIONS
AT MARCH 31, 1997
FOR THE YEAR ENDED
MARCH 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment securities, at value
(Cost--$14,519,235).................. $15,293,220
Repurchase agreement
(Cost--$1,700,279)................... 1,700,279
Cash................................... 36,600
Receivable for investments sold........ 81,485
Deferred organization costs (note 2)... 16,271
Receivable for capital shares sold..... 6,200
Dividends receivable................... 5,132
-----------
TOTAL ASSETS....................... 17,139,187
-----------
LIABILITIES:
Payable for capital shares
repurchased.......................... 71,606
Payable for securities purchased....... 45,400
Accrued expenses:
Advisory fee payable................. 11,469
Distribution plan fee payable........ 3,776
Other................................ 32,494
-----------
TOTAL LIABILITIES.................. 164,745
-----------
NET ASSETS:............................ $16,974,442
-----------
NET ASSETS CONSIST OF:
Capital stock, at $.001 par value
(authorized 300,000,000, outstanding
1,340,010 shares).................... $ 1,340
Additional paid-in capital............. 14,515,546
Accumulated net realized gain on
investments.......................... 1,683,571
Unrealized net appreciation of
investments.......................... 773,985
-----------
NET ASSETS............................. $16,974,442
-----------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER OUTSTANDING
SHARE ($16,974,442 DIVIDED BY
1,340,010 SHARES OUTSTANDING)........ $ 12.67
-----------
</TABLE>
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income....................... $ 83,863
Dividend income....................... 59,165
------------
TOTAL INCOME...................... 143,028
------------
EXPENSES:
Advisory fee.......................... 141,377
Service and distribution plan fee..... 47,125
Auditing and legal fees............... 33,157
Accounting and bookkeeping expense.... 32,400
Custodian fees........................ 28,701
Registration and filing fees.......... 17,622
Directors' fees and expenses.......... 16,471
Amortization of deferred organization
costs (note 2)...................... 13,257
Printing.............................. 12,309
Transfer agent fees................... 4,168
Other................................. 3,691
------------
Total Expenses Before Custody
Credits.......................... 350,278
Less: Custody Credits............. (6,779)
------------
Net Expenses...................... 343,499
------------
INVESTMENT LOSS-NET................... (200,471)
------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Realized Gain--Net.................. 3,214,307
Change in Unrealized Appreciation
(Depreciation)..................... (3,396,195)
------------
NET REALIZED GAIN AND NET UNREALIZED
APPRECIATION (DEPRECIATION) OF
INVESTMENTS......................... (181,888)
------------
NET DECREASE IN NET ASSETS FROM
OPERATIONS.......................... $ (382,359)
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
7
<PAGE>
VALUE LINE SMALL-CAP GROWTH FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED MARCH 31, 1997 AND 1996
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MARCH 31, 1997 MARCH 31, 1996
<S> <C> <C>
--------------------------------
OPERATIONS:
Investment loss--net..................................................... $ (200,471) $ (194,061)
Realized gain on investments--net........................................ 3,214,307 1,669,533
Net change in unrealized (depreciation) appreciation..................... (3,396,195) 1,607,589
--------------------------------
Net (decrease) increase in net assets from operations.................... (382,359 ) 3,083,061
--------------------------------
DISTRIBUTIONS TO SHAREHOLDERS:
Realized gains--net...................................................... (2,545,782 ) (132,864 )
--------------------------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from sale of shares......................................... 1,638,024 5,517,098
Net proceeds from reinvestment of distributions to shareholders.......... 2,535,169 130,221
Cost of shares repurchased............................................... (3,376,267 ) (1,984,247 )
--------------------------------
Increase from capital share transactions................................. 796,926 3,663,072
--------------------------------
TOTAL (DECREASE) INCREASE.................................................. (2,131,215 ) 6,613,269
NET ASSETS:
Beginning of year........................................................ 19,105,657 12,492,388
--------------------------------
End of year.............................................................. $ 16,974,442 $ 19,105,657
--------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
8
<PAGE>
VALUE LINE SMALL-CAP GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997
- -------------------------------------------
1.SIGNIFICANT ACCOUNTING POLICIES
Value Line Small-Cap Growth Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company whose primary investment objective is long-term
growth of capital. The Fund invests primarily in "small-cap" common stocks.
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. Securities listed on a securities exchange and
over-the-counter securities traded on the NASDAQ national market are valued at
the closing sales price on the date as of which the net asset value is being
determined. In the absence of closing sales prices for such securities and for
securities traded in the over-the-counter market, the security is valued at the
midpoint between the latest available and representative asked and bid prices.
Securities for which market quotations are not readily available or which are
not readily marketable and all other assets of the Fund are valued at fair value
as the Board of Directors may determine in good faith. Short-term instruments
with maturities of 60 days or less at the date of purchase are valued at
amortized cost, which approximates market value.
(B) REPURCHASE AGREEMENTS. In connection with transactions in repurchase
agreements, the Fund's custodian takes possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. In
the event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral or proceeds may be subject to legal proceedings.
(C) FEDERAL INCOME TAXES. It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies, including the distribution requirements of the Tax Reform Act of
1986, and to distribute all of its taxable income to its shareholders.
Therefore, no federal income tax or excise tax provision is required.
(D) SECURITY TRANSACTIONS AND DISTRIBUTIONS. Security transactions are accounted
for on the date the securities are purchased or sold. Realized gains and losses
on sales of securities are calculated for financial accounting purposes and
federal income tax purposes on the identified cost basis. Dividend income and
distributions to shareholders are determined in accordance with income tax
regulations, which may differ from generally accepted accounting principles.
Permanent book-tax differences relating to shareholder distributions have been
reclassified. Net investment loss, net realized gain (loss), and net assets are
not affected. In the current year the net investment loss of $200,471 was
reclassified within the composition of net assets to additional paid in capital.
(E) AMORTIZATION. Discounts on debt securities are amortized to interest income
over the life of the security with a corresponding increase to the security's
cost basis; premiums on debt securities are not amortized.
2.ORGANIZATION COST
Costs of $66,890 incurred in connection with the Fund's organization and initial
registration have been deferred and are being amortized over sixty months
beginning at the commencement of operations of the Fund. In the
- --------------------------------------------------------------------------------
9
<PAGE>
VALUE LINE SMALL-CAP GROWTH FUND, INC.
NOTES TO FINANCIAL STATEMENTS MARCH 31, 1997
- -------------------------------------------
event any of the initial shares of the Fund are redeemed by the holder thereof
during the five-year amortization period, the redemption proceeds will be
reduced by a pro rata portion of any unamortized deferred organizational
expenses in the same proportion as the number of initial shares being redeemed
bears to the number of initial shares outstanding at the time of redemption.
3.CAPITAL SHARE TRANSACTIONS
Transactions in capital stock, were as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1997 1996
<S> <C> <C>
------------------------
Shares sold................. 111,384 382,670
Shares issued to
shareholders in
reinvestment of dividends
and distributions......... 190,901 9,151
------------------------
302,285 391,821
Shares repurchased.......... 227,083 140,214
------------------------
Net increase................ 75,202 251,607
------------------------
</TABLE>
4.PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities, excluding short-term investments, were as
follows:
<TABLE>
<CAPTION>
MARCH 31,
1997
<S> <C>
-----------
PURCHASES:
Investment Securities.................. $17,075,744
-----------
SALES:
Investment Securities.................. $20,003,360
-----------
</TABLE>
At March 31, 1997, the aggregate cost of investment securities and repurchase
agreement for federal income tax purposes was $16,219,514. The aggregate
appreciation and depreciation of investments at March 31, 1997, based on a
comparison of investment values and their costs for federal income tax purposes
were $1,892,842 and $1,118,857, respectively, resulting in a net appreciation of
$773,985.
5.ADVISORY FEES, SERVICE AND DISTRIBUTION PLAN FEES AND
TRANSACTIONS WITH AFFILIATES
An advisory fee of $141,377 was paid or payable to Value Line, Inc. the Fund's
investment adviser (the Adviser), for the year ended March 31, 1997. The fee was
computed at the annual rate of .75 of 1% of the daily net assets during the year
and paid monthly. The Adviser provides research, investment programs and
supervision of the investment portfolio and pays costs of certain administrative
services and office space. 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 in its
organization and operation.
A fee of $2,880 for printing services was paid to the Adviser for the year ended
March 31, 1997.
The Fund has a Service and Distribution Plan (the "Plan"), adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940, for the payment of certain
expenses incurred by Value Line Securities, Inc. (the "Distributor") a
wholly-owned subsidiary of the Adviser, in advertising, marketing and
distributing the Fund's shares and for servicing the Fund's shareholders at an
annual rate of 0.25% of the Fund's average daily net assets. In the year ended
March 31, 1997, fees amounting to $47,125 were paid or payable under this Plan.
Certain officers and directors of the Adviser and the Distributor are also
officers and a director of the Fund.
At March 31, 1997, the Adviser and/or affiliated companies owned 1,110,740
shares of the Fund's capital stock, representing 83% of the outstanding shares.
- --------------------------------------------------------------------------------
10
<PAGE>
VALUE LINE SMALL-CAP GROWTH FUND, INC.
FINANCIAL HIGHLIGHTS
- -------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
<TABLE>
<CAPTION>
JUNE 23, 1993
YEARS ENDED MARCH 31, (COMMENCEMENT OF
---------------------------------------- OPERATIONS) TO
1997 1996 1995 MARCH 31, 1994
<S> <C> <C> <C> <C>
-----------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD.................. $15.11 $12.33 $11.80 $10.00
-----------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment (loss) income.................... (.13) (.18) (.19)(2) .02(1)
Net gains or losses on securities
(both realized and unrealized)................ (.08) 3.08 1.05 1.81
-----------------------------------------------------------
Total from investment operations................ (.21) 2.90 .86 1.83
-----------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment income............ -- -- -- (.02)
Distributions from capital gains................ (2.23) (.12) (.33) (.01)
-----------------------------------------------------------
Total distributions............................. (2.23) (.12) (.33) (.03)
-----------------------------------------------------------
NET ASSET VALUE, END OF PERIOD........................ $ 12.67 $ 15.11 $ 12.33 $ 11.80
-----------------------------------------------------------
TOTAL RETURN.......................................... (2.07)% 23.58% 7.57% 18.36%+
-----------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Net assets end of period (in thousands)............... $16,974 $19,106 $12,492 $ 9,823
Ratio of operating expenses to average net assets..... 1.87%(3) 2.15%(3) 2.48%(2) 0.61%*(1)
Ratio of net investment (loss) income to average net
assets.............................................. (1.07)% (1.27)% (1.63%)(2) 0.26%*(1)
Portfolio turnover rate............................... 100% 57% 30% 74%+
Average commission rate paid per share of common stock
investments purchased/sold.......................... $ .0500 -- -- --
</TABLE>
(1)NET OF EXPENSE REIMBURSEMENT AND FEES WAIVED BY THE ADVISER. HAD THESE
EXPENSES BEEN FULLY PAID BY THE FUND, INVESTMENT LOSS-NET PER SHARE WOULD
HAVE BEEN $( .12), THE RATIO OF OPERATING EXPENSES TO AVERAGE NET ASSETS
WOULD HAVE BEEN 2.45%*, AND THE RATIO OF NET INVESTMENT LOSS TO AVERAGE NET
ASSETS WOULD HAVE BEEN (1.57%)*.
(2)NET OF EXPENSE REIMBURSEMENT BY THE ADVISER. HAD THESE EXPENSES BEEN FULLY
PAID BY THE FUND, INVESTMENT LOSS-NET PER SHARE WOULD HAVE BEEN $(.20), THE
RATIO OF EXPENSE TO AVERAGE NET ASSETS WOULD HAVE BEEN 2.52%, AND THE RATIO
OF NET INVESTMENT LOSS TO AVERAGE NET ASSETS WOULD HAVE BEEN (1.67%).
(3)BEFORE CUSTODY CREDITS.
(4)DISCLOSURE EFFECTIVE FOR FISCAL YEARS BEGINNING ON OR AFTER SEPTEMBER 1,
1995.
* ANNUALIZED.
+ NOT ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
11
<PAGE>
VALUE LINE SMALL-CAP GROWTH FUND, INC.
Report of Independent Accountants
- -------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS
OF VALUE LINE SMALL-CAP GROWTH FUND, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Value Line Small-Cap Growth Fund,
Inc. (the "Fund") at March 31, 1997, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the three years in
the period then ended and for the period June 23, 1993 (commencement of
operations) through March 31, 1994, 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 March 31, 1997 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
May 14, 1997
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12
