- --------------------------------------------------------------------------------
ANNUAL REPORT
- --------------------------------------------------------------------------------
March 31, 1998
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Value Line
Small-Cap
Growth
Fund, Inc.
[LOGO]
-------------------
VALUE LINE
No-Load
Mutual
Funds
<PAGE>
Value Line Small-Cap Growth Fund, Inc.
To Our Value Line
================================================================================
To Our Shareholders:
We are pleased to report that the Value Line Small-Cap Growth Fund posted a gain
of 27.5%, on a total return basis, for the year ended March 31, 1998. This
compares favorably with the Fund's average annual rate of return of 15.6% over
the prior three-year period and 15.2% since its inception in mid-1993. For the
year, though, it lagged the surprisingly strong pace of 42.0% set by the Russell
2000 Stock Index, a widely used benchmark for small-capitalization stocks.
Overall, the small-cap sector was hit especially hard by the extraordinary
confluence of global events in Southeast Asia, the Middle East, and Latin
America during the fourth calendar quarter of 1997, as the Fund lost some of the
ground it had gained during the first-half of the fiscal year. Moreover, while
there was a relatively strong rebound in large-cap blue-chip stocks during the
first calendar quarter of 1998, small-cap issues fared poorly. We believe this
was due, in part, to investors' attraction to more liquid stocks, given the high
level of uncertainty during this period. Also, we focused our emphasis on energy
and technology issues, due to their strong earnings growth rates which are in
excess of the market. Unfortunately, these sectors were pummelled by investor
fears associated with weaker Asian economies. Nevertheless, we believe that we
can benefit from exposure to these groups on a stock-by-stock basis. Many issues
have performed well thus far this calendar year.
We continue to think that the small-cap sector presents an attractive way to
invest in the U.S. equity markets. We expect that these stocks will experience
stronger growth rates than their larger-cap peers, and the issues in our
universe continue to trade at a much lower relative valuation than those in the
Standard & Poor's 500 Index, an index representing the large-cap market.
Consequently, we anticipate that as investors begin to search for higher rates
of growth at a reasonable price, smaller-cap stocks are likely to outperform the
shares of larger companies. Moreover, the record-breaking inflows of investor
funds that have recently driven the more-liquid, large-cap market should have at
least as great an impact on small-cap stocks, once the investor pendulum begins
to shift.
Our investment strategy, which has led to a healthy rate of growth since the
Fund's inception, remains consistent as we continue to invest in small-cap
stocks with relatively strong growth rates, whose price momentum outpaces that
of the overall market, and whose valuations are modest. We believe there are
ample opportunities available to invest in attractive issues in this group.
We appreciate your confidence in Value Line, and we intend to continue to
emphasize high-quality, high-growth small-cap stocks to maximize our
shareholders' returns. Thank you for investing with us.
Sincerely,
/s/ JEAN BERNHARD BUTTNER
Jean Bernhard Buttner
Chairman and President
May 6, 1998
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2
<PAGE>
Value Line Small-Cap Growth Fund, Inc.
Small-Cap Growth Fund Shareholders
================================================================================
Economic Observations
The business expansion continues to proceed at a healthy clip, as we make our
way through the second quarter of the year. True, the uptrend is unlikely to be
as uniformly strong in the current period and during the second half of the year
as it was in the opening quarter, when growth exceeded 4%. But, with most of the
key consumer and industrial indicators still in relatively good shape, and with
inflation continuing to be under control, growth could still average a solid
2.5%, or so, over the balance of the year. What's more, we would expect both
producer (or wholesale) and consumer prices to evidence little upward pressure.
The wild card in this forecast, of course, remains the Pacific Rim, which
continues to face the daunting task of turning itself around economically.
Obviously, the problems afflicting that part of the globe will lead to gradual
reductions in demand for goods and services produced in the United States.
Nonetheless, assuming that the affected nations take corrective actions in a
timely fashion, so that the situation eventually starts to stabilize, little
more than minor dislocations should be apparent here. At this juncture, we feel
that the current long business expansion can go on for several more years.
COMPARISON OF THE CHANGE IN VALUE OF A $10,000
INVESTMENT IN THE VALUE LINE SMALL-CAP GROWTH FUND
AND THE RUSSELL 2000 STOCK INDEX*
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Value Line
Small Cap Growth Fund Russell 2000
--------------------- ------------
6/30/93 $10,000 $10,000
9/30/93 $11,200 $11,142
12/31/93 $12,106 $11,431
3/31/94 $11,835 $11,127
6/30/94 $11,504 $10,691
9/30/94 $12,086 $11,434
12/31/93 $12,029 $11,233
3/31/95 $12,731 $11,741
6/30/95 $13,639 $12,841
9/30/95 $15,622 $14,110
12/31/95 $14,921 $14,415
3/31/96 $15,733 $15,151
6/30/96 $16,149 $15,909
9/30/96 $16,735 $15,963
12/31/96 $16,465 $16,793
3/31/97 $15,408 $15,969
6/30/97 $18,095 $18,558
9/30/97 $21,305 $21,319
12/31/97 $18,365 $20,606
3/31/98 $19,644 $22,678
Performance Data:*
Average
Annual Total
Return
---------
1 year ended March 31, 1998.................................... 27.50%
3 years ended March 31, 1998................................... 15.55%
From June 23, 1993+ to
March 31, 1998............................................... 15.21%
+ 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.
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3
<PAGE>
Value Line Small-Cap Growth Fund, Inc.
Schedule of Investments
================================================================================
Shares Value
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COMMON STOCKS (97.6%)
AEROSPACE/DEFENSE (2.4%)
9,050 AAR Corp. ..................................... $ 246,613
5,500 Moog, Inc. Class "A"* ......................... 231,688
600 Precision Castparts Corp...................... 35,512
-----------
513,813
AIR TRANSPORT (3.5%)
4,750 Air Express International
Corp. ..................................... 126,172
5,900 Alaska Air Group, Inc.* ....................... 319,706
14,400 U.S. Xpress Enterprises, Inc.
Class "A"* ................................ 298,800
-----------
744,678
APPAREL (2.3%)
5,400 Nautica Enterprises, Inc.* .................... 166,050
6,300 Oxford Industries, Inc. ....................... 197,663
2,100 Tommy Hilfiger Corp.* ......................... 126,131
-----------
489,844
AUTO PARTS--ORIGINAL
EQUIPMENT (1.1%)
6,900 Standard Products Co. (The) ................... 227,269
BANK (3.3%)
3,100 Cathay Bancorp, Inc. .......................... 110,825
2,400 City National Corp. ........................... 91,200
600 GBC Bancorp of California ..................... 40,087
6,000 Silicon Valley Bancshares* .................... 366,375
1,800 Zions Bancorporation .......................... 94,725
-----------
703,212
BEVERAGE--
SOFT DRINK (0.5%)
4,200 Triarc Companies, Inc.
Class "A" *................................ 110,250
CHEMICAL--
SPECIALTY (0.4%)
1,700 Alcide Corp.* ................................. 91,800
COMPUTER &
PERIPHERALS (2.1%)
11,900 Identix Inc.* ................................. 101,150
11,600 Inter-Tel Inc. ................................ 312,475
900 SCI Systems, Inc.* ............................ 32,062
-----------
445,687
COMPUTER SOFTWARE
& SERVICES (3.8%)
8,550 Barra, Inc.* .................................. 243,675
800 Fiserv, Inc.* ................................. 50,700
3,200 Manugistics Group, Inc.* ...................... 179,400
4,800 Mercury Interactive Corp.* .................... 175,200
4,200 National Data Corp. ........................... 174,563
-----------
823,538
DIVERSIFIED
COMPANIES (1.0%)
4,700 American Precision
Industries, Inc.* ......................... 89,006
6,200 Park-Ohio Industries, Inc.*.................... 120,125
-----------
209,131
ELECTRICAL
EQUIPMENT (2.0%)
5,400 Kuhlman Corp. ................................. 262,913
9,000 MagneTek, Inc.* ............................... 169,312
-----------
432,225
ELECTRONICS (4.4%)
3,900 Electro Scientific
Industries, Inc.* ......................... 150,638
5,900 General Scanning Inc.* ........................ 126,850
8,200 Herley Industries, Inc.* ...................... 114,287
3,600 Micrel, Inc.* ................................. 136,575
2,300 Pittway Corp. Class "A" ....................... 165,600
9,800 Telxon Corp. .................................. 259,700
-----------
953,650
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4
<PAGE>
Value Line Small-Cap Growth Fund, Inc.
March 31, 1998
================================================================================
Shares Value
- --------------------------------------------------------------------------------
FINANCIAL
SERVICES (1.8%)
1,700 FINOVA Group, Inc. ............................ $ 100,088
6,200 Investment Technology
Group, Inc. * ............................. 203,050
2,700 Money Store, Inc. (The) ....................... 86,231
-----------
389,369
FOOD PROCESSING
(2.6%)
5,100 International Multifoods
Corp. ..................................... 152,681
10,900 Michael Foods, Inc. ........................... 291,575
2,000 Suiza Foods Corp.* ............................ 123,000
-----------
567,256
FOOD WHOLESALERS
(0.6%)
4,500 Richfood Holdings, Inc. ....................... 144,000
FURNITURE/HOME
FURNISHINGS (4.1%)
2,700 Cort Business Services
Corp.* .................................... 128,250
5,100 Ethan Allen Interiors, Inc. ................... 304,725
3,200 Furniture Brands
International, Inc.* ...................... 103,000
2,000 HON Industries, Inc. .......................... 73,500
11,400 LADD Furniture Inc.* .......................... 273,600
-----------
883,075
HEALTHCARE
INFORMATION
SYSTEM (0.6%)
3,600 Access Health Inc.* ........................... 132,300
HOMEBUILDING (0.5%)
6,400 Standard Pacific Corp. ........................ 97,200
INDUSTRIAL SERVICES
(5.4%)
4,900 Caribiner International, Inc.* ................ 188,650
5,600 G & K Services, Inc. Class "A" ................ 245,700
5,000 Interim Services, Inc.* ....................... 168,750
3,200 Metamor Worldwide Inc.* ....................... 120,200
5,800 Personnel Group of
America, Inc.* ............................ 131,950
2,800 Pre-Paid Legal Services, Inc.* ................ 99,400
7,500 UniFirst Corp. ................................ 210,000
-----------
1,164,650
INSURANCE-PROPERTY/
CASUALTY (3.6%)
3,300 Executive Risk, Inc. .......................... 235,125
6,400 NAC Re Corp. .................................. 335,600
3,700 Vesta Insurance Group, Inc. ................... 198,412
-----------
769,137
MACHINERY (6.9%)
6,800 Applied Power Inc. Class "A" .................. 261,800
3,300 DT Industries, Inc. ........................... 126,638
4,100 Gleason Corp. ................................. 143,756
8,800 ITEQ, Inc.* ................................... 125,400
5,100 Manitowoc Co., Inc. ........................... 196,988
4,000 MotivePower Industries, Inc.* ................. 110,500
11,400 PRI Automation, Inc.* ......................... 298,537
8,000 Terex Corp.* .................................. 216,500
-----------
1,480,119
MEDICAL SERVICES (2.7%)
8,100 American Oncology
Resources, Inc.* .......................... 123,525
2,000 Omnicare, Inc. ................................ 79,250
6,600 PAREXEL International
Corp.* .................................... 206,250
4,600 Renal Care Group, Inc.* ....................... 174,800
-----------
583,825
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5
<PAGE>
Value Line Small-Cap Growth Fund, Inc.
Schedule of Investments
================================================================================
Shares Value
- --------------------------------------------------------------------------------
MEDICAL SUPPLIES
(3.3%)
5,000 Conmed Corp.* ................................. $ 119,375
3,100 Cooper Companies, Inc.* ....................... 131,556
2,900 Invacare Corp. ................................ 75,400
6,700 ResMed Inc.* .................................. 237,850
1,900 Safeskin Corp.* ............................... 140,363
-----------
704,544
METAL FABRICATING
(2.5%)
3,900 Lone Star Technologies, Inc.* ................. 92,625
6,900 Maverick Tube Corp.* .......................... 122,044
3,700 SPS Technologies, Inc.* ....................... 199,569
5,000 Shaw Group Inc.* .............................. 124,687
-----------
538,925
NATURAL GAS--
DIVERSIFIED (0.2%)
1,600 Vintage Petroleum, Inc. ....................... 33,600
OFFICE EQUIPMENT
& SUPPLIES (1.8%)
4,000 New England Business
Service, Inc............................... 137,000
4,000 United Stationers Inc.* ....................... 247,250
-----------
384,250
OILFIELD SERVICES/
EQUIPMENT (4.1%)
4,100 Atwood Oceanics, Inc.* ........................ 221,656
1,500 Cliffs Drilling Co.* .......................... 61,969
5,400 Daniel Industries, Inc. ....................... 108,337
1,600 Helmerich & Payne, Inc. ....................... 50,000
4,500 Key Energy Group, Inc.* ....................... 73,406
27,400 Parker Drilling Co.* .......................... 287,700
1,200 Pool Energy Services Co.* ..................... 28,050
1,900 Varco International, Inc.* .................... 48,925
-----------
880,043
PACKAGING &
CONTAINER (1.3%)
3,500 AptarGroup, Inc. .............................. 210,219
1,200 Sealed Air Corp.* ............................. 78,600
-----------
288,819
PAPER & FOREST
PRODUCTS (0.6%)
6,200 Buckeye Technologies, Inc.* ................... 131,750
PRECISION
INSTRUMENTS (5.0%)
6,100 Dionex Corp.* ................................. 340,075
7,500 Instron Corp. ................................. 142,500
3,400 Kronos Inc.* .................................. 119,425
13,300 Newport Corp. ................................. 262,675
3,700 Sybron International Corp.* ................... 96,663
500 Tokheim Corp.* ................................ 9,125
1,900 Waters Corp.* ................................. 94,881
-----------
1,065,344
RECREATION (1.5%)
9,000 Action Performance
Companies, Inc.* .......................... 316,687
RESTAURANT (0.5%)
3,400 Cheesecake Factory,
Inc. (The)* ............................... 113,263
RETAIL--SPECIAL
LINES (4.3%)
14,100 Brightpoint Inc.* ............................. 242,344
12,300 Daisytek International Corp.* ................. 299,812
8,200 Gymboree Corp.* ............................... 212,175
3,300 Tiffany & Co. ................................. 160,669
-----------
915,000
RETAIL BUILDING
SUPPLY (1.0%)
5,400 Eagle Hardware &
Garden, Inc.* ............................. 95,175
3,500 Hughes Supply Inc. ............................ 126,656
-----------
221,831
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6
<PAGE>
Value Line Small-Cap Growth Fund, Inc.
March 31, 1998
================================================================================
Shares Value
- --------------------------------------------------------------------------------
RETAIL STORE (1.0%)
2,100 Buckle Inc.* .................................. $ 105,262
2,600 Pacific Sunwear of
California, Inc.* ......................... 107,900
-----------
213,162
SEMICONDUCTOR (2.9%)
6,700 PMC-Sierra Inc.* .............................. 254,600
10,200 Photronics, Inc.* ............................. 285,600
1,700 Vitesse Semiconductor
Corp.* .................................... 80,166
-----------
620,366
STEEL--GENERAL (0.6%)
8,400 NS Group, Inc.* ............................... 122,850
TELECOMMUNICATIONS
EQUIPMENT (0.9%)
8,100 Level One Communications
Inc.* ..................................... 190,350
TELECOMMUNICATION
SERVICES (2.9%)
9,100 Billing Concepts Corp.* ....................... 236,031
7,500 Mobile Telecommunication
Technologies Corp.* ....................... 167,813
11,200 P-COM, Inc.* .................................. 224,000
-----------
627,844
TEXTILE (1.8%)
4,900 Interface Inc. Class "A" ...................... 203,656
3,600 Pillowtex Corp. ............................... 174,375
-----------
378,031
THRIFT (0.6%)
2,200 Astoria Financial Corp. ....................... 135,988
TIRE & RUBBER (0.5%)
2,200 Carlisle Companies, Inc. ...................... 108,075
TOILETRIES/
COSMETICS (1.6%)
19,000 Helen of Troy Ltd.* ........................... 352,688
TRUCKING/
TRANSPORTATION
LEASING (3.1%)
3,000 Heartland Express, Inc.* ...................... 83,250
2,000 Knight Transportation, Inc.* .................. 64,000
2,600 M.S. Carriers, Inc.* .......................... 88,075
4,350 Swift Transportation, Inc.* ................... 104,400
5,900 USFreightways Corp. ........................... 212,400
4,400 Werner Enterprises, Inc. ...................... 112,200
-----------
664,325
-----------
TOTAL COMMON STOCKS
AND TOTAL INVESTMENT
SECURITIES (97.6%)
(Cost $17,765,639) ............................ 20,963,763
EXCESS OF CASH AND
OTHER ASSETS
OVER LIABILITIES (2.4%) ...................................... 525,894
-----------
NET ASSETS (100%) ............................................. $21,489,657
===========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE, PER
OUTSTANDING SHARE
($21,489,657 / 1,607,223
shares outstanding) ........................................... $ 13.37
===========
* Non-income producing.
See Notes to Financial Statements.
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7
<PAGE>
Value Line Small-Cap Growth Fund, Inc.
Statement of Assets and Liabilities
at March 31, 1998
================================================================================
Assets:
Investment securities, at value
(Cost-$17,765,639) ...................................... $20,963,763
Cash ...................................................... 200,794
Receivable for securities sold ............................ 387,842
Receivable for capital shares sold ........................ 16,075
Dividends receivable ...................................... 5,357
Deferred organization costs (note 2) ...................... 3,014
-----------
Total Assets .......................................... 21,576,845
-----------
Liabilities:
Payable for securities purchased .......................... 44,825
Payable for capital shares repurchased .................... 2,153
Accrued expenses:
Advisory fee payable .................................... 14,001
Service and distribution plan
fee payable ........................................... 4,620
Other ................................................... 21,589
-----------
Total Liabilities ..................................... 87,188
-----------
Net Assets ................................................ $21,489,657
===========
Net Assets consist of:
Capital stock, at $.001 par value
(authorized 300,000,000,
outstanding 1,607,223 shares) ........................... $ 1,608
Additional paid-in capital ................................ 17,931,201
Accumulated net realized gain
on investments .......................................... 358,724
Unrealized net appreciation of
investments ............................................. 3,198,124
-----------
Net Assets ................................................ $21,489,657
===========
Net Asset Value, Offering and
Redemption Price, per
Outstanding Share
($21,489,657 / 1,607,223
shares outstanding) ................................. $ 13.37
===========
Statement of Operations
for the year ended March 31, 1998
================================================================================
Investment Income:
Interest income .......................................... $ 84,864
Dividend income .......................................... 63,470
-----------
Total Income ......................................... 148,334
-----------
Expenses:
Advisory fee ............................................. 163,905
Service and distribution plan fee ........................ 54,635
Auditing and legal fees .................................. 33,707
Custodian fees ........................................... 32,814
Accounting and bookkeeping
expense ................................................ 32,400
Directors' fees and expenses ............................. 20,424
Registration and filing fees ............................. 17,004
Printing ................................................. 14,581
Amortization of deferred organization
costs (note 2) ......................................... 13,257
Transfer agent fees ...................................... 5,433
Other .................................................... 4,570
-----------
Total Expenses before Custody
Credits ............................................ 392,730
Less: Custody Credits ................................ (5,457)
-----------
Net Expenses ......................................... 387,273
-----------
Investment Loss--Net ..................................... (238,939)
-----------
Realized and Unrealized Gain on
Investments--Net:
Realized Gain--Net ................................... 2,251,939
Change in Unrealized
Appreciation ....................................... 2,424,139
-----------
Net Realized Gain and Net
Unrealized Appreciation of
Investments ............................................ 4,676,078
-----------
Net Increase in Net Assets
from Operations ........................................ $ 4,437,139
===========
See Notes to Financial Statements.
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8
<PAGE>
Value Line Small-Cap Growth Fund, Inc.
Statement of Changes in Net Assets
for the years ended March 31, 1998 and 1997
================================================================================
<TABLE>
<CAPTION>
Year Ended Year Ended
March 31, 1998 March 31, 1997
-----------------------------------
<S> <C> <C>
Operations:
Investment loss--net .............................................. $ (238,939) $ (200,471)
Realized gain on investments--net ................................. 2,251,939 3,214,307
Net change in unrealized appreciation (depreciation) on investments 2,424,139 (3,396,195)
-----------------------------------
Net increase (decrease) in net assets from operations ............. 4,437,139 (382,359)
-----------------------------------
Distributions to Shareholders:
Realized gains--net ............................................... (3,576,786) (2,545,782)
-----------------------------------
Capital Share Transactions:
Net proceeds from sale of shares .................................. 5,385,378 1,638,024
Net proceeds from reinvestment of distributions to shareholders ... 3,548,688 2,535,169
Cost of shares repurchased ........................................ (5,279,204) (3,376,267)
-----------------------------------
Increase from capital share transactions .......................... 3,654,862 796,926
-----------------------------------
Total Increase (Decrease) ........................................... 4,515,215 (2,131,215)
Net Assets:
Beginning of year ................................................. 16,974,442 19,105,657
-----------------------------------
End of year ....................................................... $ 21,489,657 $ 16,974,442
===================================
</TABLE>
See Notes to Financial Statements.
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9
<PAGE>
Value Line Small-Cap Growth Fund, Inc.
Notes to Financial Statements
================================================================================
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 recorded on the ex-dividend date.
Distributions 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 $238,939 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.
- --------------------------------------------------------------------------------
10
<PAGE>
Value Line Small-Cap Growth Fund, Inc.
March 31, 1998
================================================================================
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 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:
Year Ended Year Ended
March 31, March 31,
1998 1997
-----------------------------
Shares sold .................................. 344,231 111,384
Shares issued to shareholders
in reinvestment of dividends
and distributions .......................... 296,713 190,901
-----------------------------
640,944 302,285
Shares repurchased ........................... 373,731 227,083
-----------------------------
Net increase ................................. 267,213 75,202
=============================
4. Purchases and Sales of Securities
Purchases and sales of securities, excluding short-term investments, were as
follows:
Year Ended
March 31, 1998
--------------
PURCHASES:
Investment Securities ................................. $30,552,107
===========
SALES:
Investment Securities ................................. $29,557,642
===========
At March 31, 1998, the aggregate cost of investment securities for federal
income tax purposes was $17,781,291. The aggregate appreciation and depreciation
of investments at March 31, 1998, based on a comparison of investment values and
their costs for federal income tax purposes was $3,863,109 and $680,637,
respectively, resulting in a net appreciation of $3,182,472.
5. Advisory Fees, Service and Distribution Plan Fees and Transactions With
Affiliates
An advisory fee of $163,905 was paid or payable to Value Line, Inc. the Fund's
investment adviser (the Adviser), for the year ended March 31, 1998. The fee was
computed at the 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.
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, 1998, fees amounting to $54,635 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, 1998, the Adviser and/or affiliated companies owned 1,312,563
shares of the Fund's capital stock, representing 82% of the outstanding shares.
- --------------------------------------------------------------------------------
11
<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
1998 1997 1996 1995 March 31, 1994
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ... $12.67 $15.11 $12.33 $11.80 $10.00
-------------------------------------------------------------------------------------
Income from investment operations:
Net investment (loss) income ......... (.15) (.13) (.18) (.19)(2) .02(1)
Net gains or losses on securities
(both realized and unrealized) ..... 3.34 (.08) 3.08 1.05 1.81
-------------------------------------------------------------------------------------
Total from investment operations ..... 3.19 (.21) 2.90 .86 1.83
-------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income . -- -- -- -- (.02)
Distributions from capital gains ..... (2.49) (2.23) (.12) (.33) (.01)
-------------------------------------------------------------------------------------
Total distributions .................. (2.49) (2.23) (.12) (.33) (.03)
-------------------------------------------------------------------------------------
Net asset value, end of period ......... $13.37 $12.67 $15.11 $12.33 $11.80
=====================================================================================
Total return ........................... 27.50% (2.07)% 23.58% 7.57% 18.36%+
=====================================================================================
Ratios/Supplemental Data:
Net assets end of period (in thousands) $21,490 $16,974 $19,106 $12,492 $9,823
Ratio of operating expenses to
average net assets ................... 1.81%(3) 1.87%(3) 2.15%(3) 2.48%(2) 0.61%*(1)
Ratio of net investment (loss) income to
average net assets ................... (1.10)% (1.07)% (1.27)% (1.63)%(2) 0.26%*(1)
Portfolio turnover rate ................ 149% 100% 57% 30% 74%+
Average commission rate paid per share
of common stock investments
purchased/sold ....................... $.0499 $.0500(4) -- -- --
</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 offering expenses 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 offset of custody credits.
(4) Disclosure effective for fiscal years beginning on or after September 1,
1995.
+ Not annualized.
* Annualized.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12
<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, 1998, 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 four 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, 1998 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036
May 15, 1998
- --------------------------------------------------------------------------------
13
<PAGE>
Value Line Small-Cap Growth Fund, Inc.
The Value Line Family of Funds
================================================================================
1950--The Value Line Fund seeks long-term growth of capital along with modest
current income by investing substantially all of its assets in common stocks or
securities convertible into common stock.
1952--The Value Line Income Fund's primary investment objective is income, as
high and dependable as is consistent with reasonable growth. Capital growth to
increase total return is a secondary objective.
1956--The Value Line Special Situations Fund seeks to obtain long-term growth of
capital by investing not less than 80% of its assets in "special situations". No
consideration is given to achieving current income.
1972--Value Line Leveraged Growth Investors' sole investment objective is to
realize capital growth by investing substantially all of its assets in common
stocks. The Fund may borrow up to 50% of its net assets to increase its
purchasing power.
1979--The Value Line Cash Fund, a money market fund, seeks high current income
consistent with preservation of capital and liquidity.
1981--Value Line U.S. Government Securities Fund seeks maximum income without
undue risk to principal. Under normal conditions, at least 80% of the value to
its assets will be invested in issues of the U.S. Government and its agencies
and instrumentalities.
1983--Value Line Centurion Fund* seeks long-term growth of capital as its sole
objective by investing primarily in stocks ranked 1 or 2 by Value Line for
year-ahead relative performance.
1984--The Value Line Tax Exempt Fund seeks to provide investors with maximum
income exempt from federal income taxes while avoiding undue risk to principal.
The Fund offers investors a choice of two portfolios: a Money Market Portfolio
and a High-Yield Portfolio.
1985--Value Line Convertible Fund seeks high current income together with
capital appreciation primarily from convertible securities ranked 1 or 2 for
year-ahead performance by the Value Line Convertible Ranking System.
1986--Value Line Aggressive Income Trust seeks to maximize current income by
investing in high-yielding, lower-rated, fixed-income corporate securities.
1987--Value Line New York Tax Exempt Trust seeks to provide New York taxpayers
with maximum income exempt from New York State, New York City and federal
individual income taxes while avoiding undue risk to principal.
1987--Value Line Strategic Asset Management Trust* invests in stocks, bonds and
cash equivalents according to computer trend models developed by Value Line. The
objective is to professionally manage the optimal allocation of these
investments at all times.
1993--Value Line Small-Cap Growth Fund invests primarily in common stocks or
securities convertible into common stock, with its primary objective being
long-term growth of capital.
1993--Value Line Asset Allocation Fund seeks high total investment return,
consistent with reasonable risk. The Fund invests in stocks, bonds and money
market instruments utilizing quantitative modeling to determine the correct
asset mix.
1995--Value Line U.S. Multinational Company Fund's investment objective is
maximum total return. It invests primarily in securities of U.S. companies that
have significant sales from international operations.
* Only available through the purchase of Guardian Investor, a tax deferred,
variable annuity, or 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. Read the prospectus carefully before you invest or
send money.
- --------------------------------------------------------------------------------
14
<PAGE>
INVESTMENT ADVISER Value Line, Inc.
220 East 42nd Street
New York, NY 10017-5891
DISTRIBUTOR Value Line Securities, Inc.
220 East 42nd Street
New York, NY 10017-5891
CUSTODIAN BANK State Street Bank and Trust Co.
225 Franklin Street
Boston, MA 02110
SHAREHOLDER State Street Bank and Trust Co.
SERVICING AGENT c/o NFDS
P.O. Box 419729
Kansas City, MO 64141-6729
INDEPENDENT Price Waterhouse LLP
ACCOUNTANTS 1177 Avenue of the Americas
New York, NY 10036
LEGAL COUNSEL Peter D. Lowenstein, Esq.
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
DIRECTORS Jean Bernhard Buttner
Francis C. Oakley
Marion N. Ruth
Francis 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
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).
VLF16A398
