--------------------------------------------------------------------------------
ANNUAL REPORT
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DECEMBER 31, 2002
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THE VALUE LINE
FUND, INC.
[LOGO] VALUE LINE
NO-LOAD
MUTUAL
FUNDS
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 Sound View Drive, Suite 100
Greenwich, CT 06830
DIRECTORS Jean Bernhard Buttner
John W. Chandler
Frances T. Newton
Francis C. Oakley
David H. Porter
Paul Craig Roberts
Marion N. Ruth
Nancy-Beth Sheerr
OFFICERS Jean Bernhard Buttner
CHAIRMAN AND PRESIDENT
Alan N. Hoffman
VICE PRESIDENT
Philip J. Orlando
VICE PRESIDENT
Stephen E. Grant
VICE PRESIDENT
David T. Henigson
VICE PRESIDENT AND
SECRETARY/TREASURER
Joseph Van Dyke
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).
#524249
THE VALUE LINE FUND, INC.
TO OUR VALUE LINE
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To Our Shareholders:
To anyone with exposure to the U.S. stock market, it will come as no surprise
that we have been through a vicious bear market. Equity returns were negative
in both 2000 and 2001, and the year just ended makes for losses three years in
a row. This contracting cycle is the worst since the bear market of 1973-74,
and it now ranks as one of the four worst markets in the last 75 years,
rivaling the 1939-41 and the 1929-32 downturns.
While we were able to navigate the turbulence of the first half of 2002 pretty
much in line with the broad market, the environment for large-capitalization
growth stocks turned more negative during the July-December period. Annual
performance comparisons for our Fund and the Standard & Poor's Composite
Index(1) (both including reinvested dividends) are as follows; Value Line Fund
-25.35 vs. S&P 500 -22.10 for the full year.
Many factors contributed to our negative relative performance during the second
half. First, the market's focus on small-cap stocks and on "value" issues,
wherein underpriced or beaten-down stocks prosper at the expense of growth
names, continued from prior periods into 2002's third and fourth quarters. This
effect was quite dramatic: even though the market as a whole was down in the
second half, during the few brief recoveries that did occur, the stocks of big,
well-established companies like General Electric, Citigroup, and Microsoft
failed to gain any traction.
We also suffered from the derailing of the economy's consumer sector, where we
have equity concentrations in consumer staples, consumer discretionary and
retail. Part of the problem was a modest advance in the national unemployment
rate; another factor was a disappointing holiday sales season for retail
companies, aggravated by the shorter-than-usual period between Thanksgiving and
Christmas last year. We still think that retailers should command an
overweighted position in a growth-oriented portfolio (since some of the
second-half damage to the stocks was a result of profit-taking in issues that
had done relatively well over many previous quarters), but we were unable to
avoid the damage late in 2002.
Finally, we were unable to participate in a mini-rally that unfolded over the
fourth quarter in the stocks of many technology and telecommunications
companies. Several of these issues, which have posted disappointing sales and
earnings for most of the past three years, are ranked in Groups 4 or 5 of the
Value Line Timeliness Ranking System, and our discipline avoids such low-ranked
stocks.
If there was any good news during last year's second half, it was that there
seems to be an end to the drumbeat of corporate mischief that shrouded the
equity market for most of the past year. The headlines telling the latest
details about Enron, WorldCom, Tyco International, Quest Communications, and
other such firms have finally slowed to a trickle, and we believe that faith in
the integrity of the vast preponderance of Corporate America has largely been
restored.
We are grateful for your continued confidence in Value Line, and we wish you
the best for a happy and prosperous new year.
Sincerely,
/s/ Jean Bernard Buttner
Jean Bernhard Buttner
CHAIRMAN AND PRESIDENT
February 18, 2003
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(1) THE STANDARD & POOR'S 500 INDEX CONSISTS OF 500 STOCKS WHICH ARE TRADED ON
THE NEW YORK STOCK EXCHANGE, AMERICAN STOCK EXCHANGE AND THE NASDAQ
NATIONAL MARKET SYSTEM AND IS REPRESENTATIVE OF THE BROAD STOCK MARKET.
THIS IS AN UNMANAGED INDEX AND DOES NOT REFLECT CHARGES, EXPENSES OR
TAXES, AND IT IS NOT POSSIBLE TO DIRECTLY INVEST IN THIS INDEX.
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2
THE VALUE LINE FUND, INC.
FUND SHAREHOLDERS
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ECONOMIC OBSERVATIONS
The U.S. economy is continuing to chart an uneven course. Thus, following a
strong opening quarter in 2002, in which the nation's gross domestic product
surged by 5.0%, a lackluster second quarter that saw the pace of expansion cut
back sharply to 1.3%, and a subsequent stepup in the third quarter, with GDP
growth coming in at a relatively strong 4.0%, the pace of activity has slowed
again, and markedly so. For example, industrial production, factory usage, and
consumer confidence are all contracting at present, while the employment
outlook remains unsettled. The lone uniformly bright spot is the resilient
housing market. Given this weak overall backdrop, however, it wasn't very
surprising that the government reported that GDP growth eased to just 0.7% in
the October-to-December period.
What's more, there appears to be no quick or easy cure for what ails this
economy, with the outcome of both a likely war with Iraq and the President's
fiscal stimulus package still up in the air. Such uncertainty will continue to
have a negative effect on both consumer spending and business capital
investment. All told, we project that GDP will increase by 2%, or less, during
the opening half of 2003, before some expected resolution of the above global
and domestic uncertainties helps to better underpin the economy after midyear.
Inflation, meantime, remainsmuted, thanks, in part, to generally modest labor
cost increases. Adequate supplies of raw materials are also helping to keep the
costs of production low. We caution, though, that as the U.S. economy moves
further along the recovery road over the next several years, some modest
increases in pricing pressures will emerge. Absent a more vigorous long-term
business recovery than we now forecast, or a prolonged rise in oil prices
stemming from a surprisingly long conflict in the Middle East, inflation should
continue to be held in comparative check through the middle years of this
decade. Interest rates, therefore, are likely to remain relatively stable.
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3
THE VALUE LINE FUND, INC.
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COMPARISON OF A CHANGE IN VALUE OF A $10,000 INVESTMENT
IN THE VALUE LINE FUND
AND THE S&P 500 Stock Index*
[PLOT POINTS GRAPH]
(FROM 1/1/93 TO 12/31/02)
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* THE STANDARD AND POOR'S 500 INDEX (S&P 500 INDEX) IS AN UNMANAGED INDEX THAT
IS REPRESENTATIVE OF THE LARGER-CAPITALIZATION STOCKS TRADED IN THE UNITED
STATES.
THE RETURN FOR THE INDEX DOES NOT REFLECT EXPENSES WHICH ARE DEDUCTED FROM THE
FUND'S RETURNS.
PERFORMANCE DATA:**
AVERAGE ANNUAL GROWTH OF AN ASSUMED
TOTAL RETURN INVESTMENT OF $10,000
---------------- ----------------------
1 year ended 12/31/02 .......... -25.35% $ 7,465
5 years ended 12/31/02 ......... -3.44% $ 8,395
10 years ended 12/31/02 ......... +5.36% $16,861
** THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND ARE NO GUARANTEE
OF FUTURE PERFORMANCE. THE AVERAGE ANNUAL TOTAL RETURNS 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. THE PERFORMANCE DATA AND
GRAPH DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON
FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES.
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4
THE VALUE LINE FUND, INC.
PORTFOLIO HIGHLIGHTS AT DECEMBER 31, 2002 (UNAUDITED)
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TEN LARGEST HOLDINGS
VALUE PERCENTAGE
ISSUE SHARES (IN THOUSANDS) OF NET ASSETS
-------------------------------------------------------------------------------
Bed Bath & Beyond Inc. ......... 250,000 $8,632 4.2%
Amgen Inc. ..................... 164,600 7,957 3.9
Fifth Third Bancorp ............ 135,000 7,904 3.8
HCA, Inc. ...................... 180,000 7,470 3.6
Harley-Davidson, Inc. .......... 150,000 6,930 3.4
Kohl's Corp. ................... 120,000 6,714 3.3
Citigroup, Inc. ................ 150,000 5,278 2.6
Pfizer, Inc. ................... 150,000 4,586 2.2
Medtronic, Inc. ................ 100,000 4,560 2.2
Wal-Mart Stores, Inc. .......... 90,000 4,546 2.2
FIVE LARGEST INDUSTRY CATEGORIES
VALUE PERCENTAGE
INDUSTRY (IN THOUSANDS) OF NET ASSETS
-------------------------------------------------------------------------------
Medical Supplies ............... $15,715 7.6%
Retail - Special Lines ......... 14,784 7.2
Retail Store ................... 14,739 7.1
Medical Services ............... 12,209 5.9
Bank - Midwest ................. 10,450 5.1
FIVE LARGEST NET SECURITY PURCHASES*
COST
ISSUE (IN THOUSANDS)
-------------------------------------------------------------------------------
Coca Cola Co. .......................... $3,466
Anheuser-Busch Companies, Inc. ......... 3,463
Walgreen Co. ........................... 3,399
Procter & Gamble Co. (The) ............. 3,335
Limited Brands, Inc. ................... 2,358
FIVE LARGEST NET SECURITY SALES*
PROCEEDS
ISSUE (IN THOUSANDS)
------------------------------------------------------------------------------
Omnicom Group, Inc. ........... $5,436
State Street Corp. ............ 4,738
Microsoft Corp. ............... 3,168
Safeway Inc. .................. 3,150
QUALCOMM Incorporated ......... 2,766
* FOR THE SIX MONTH PERIOD ENDED 12/31/02
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5
THE VALUE LINE FUND, INC.
SCHEDULE OF INVESTMENTS
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VALUE
SHARES (IN THOUSANDS)
----------------------------------------------------------
COMMON STOCKS (80.6%)
AEROSPACE/DEFENSE (1.3%)
35,000 General Dynamics Corp. ............. $ 2,778
BANK (2.3%)
45,800 BB&T Corp. ......................... 1,694
75,000 Zions Bancorporation ............... 2,951
-------
4,645
BANK -- MIDWEST (5.1%)
135,000 Fifth Third Bancorp ................ 7,904
120,000 U.S. Bancorp ....................... 2,546
-------
10,450
BEVERAGE --
ALCOHOLIC (1.5%)
65,000 Anheuser-Busch Companies, Inc....... 3,146
BEVERAGE --
SOFT DRINK (1.4%)
67,500 Coca-Cola Co. ...................... 2,958
BIOTECHNOLOGY (3.9%)
164,600 Amgen Inc.* ........................ 7,957
CHEMICAL --
SPECIALTY (1.9%)
110,000 International Flavors &
Fragrances, Inc. .................. 3,861
COMPUTER SOFTWARE &
SERVICES (1.9%)
112,500 Fiserv, Inc.* ...................... 3,819
DRUG (2.2%)
150,000 Pfizer, Inc. ....................... 4,586
EDUCATIONAL
SERVICES (1.3%)
73,800 Education Management Corp.* ........ 2,775
ELECTRICAL
EQUIPMENT (1.8%)
150,000 General Electric Co. ............... 3,653
VALUE
SHARES (IN THOUSANDS)
----------------------------------------------------------
ENTERTAINMENT
TECHNOLOGY (1.0%)
40,000 Electronic Arts Inc.* .............. $ 1,991
FINANCIAL SERVICES --
DIVERSIFIED (4.7%)
75,000 American International
Group, Inc. ....................... 4,339
150,000 Citigroup, Inc. .................... 5,278
-------
9,617
FURNITURE/HOME
FURNISHINGS (0.6%)
22,001 Mohawk Industries, Inc.* ........... 1,253
HOME APPLIANCE (1.1%)
45,000 Whirlpool Corp. .................... 2,350
HOMEBUILDING (3.3%)
80,000 KB Home ............................ 3,428
20,000 Lennar Corp. ....................... 1,032
50,000 Pulte Homes, Inc. .................. 2,393
-------
6,853
HOUSEHOLD
PRODUCTS (1.6%)
37,500 Procter & Gamble Co. (The) ......... 3,223
INSURANCE -- LIFE (1.6%)
37,000 AFLAC, Inc. ........................ 1,114
125,000 UnumProvident Corp. ................ 2,193
-------
3,307
INSURANCE -- PROPERTY/
CASUALTY (0.1%)
6,480 Travelers Property Casualty Corp.
Class "A"* ........................ 95
13,314 Travelers Property Casualty Corp.
Class "B"* ........................ 195
-------
290
INTERNET (0.7%)
20,000 eBay, Inc.* ........................ 1,356
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6
THE VALUE LINE FUND, INC.
DECEMBER 31, 2002
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VALUE
SHARES (IN THOUSANDS)
---------------------------------------------------------------
MEDICAL SERVICES (5.9%)
180,000 HCA, Inc. ................................. $ 7,470
70,600 Laboratory Corp. of America
Holdings* ................................ 1,641
85,000 Oxford Health Plans, Inc.* ................ 3,098
--------
12,209
MEDICAL SUPPLIES (7.6%)
93,000 Biomet, Inc. .............................. 2,665
35,000 Cardinal Health, Inc. ..................... 2,072
70,500 Fisher Scientific International,
Inc.* .................................... 2,121
80,000 Johnson & Johnson ......................... 4,297
100,000 Medtronic, Inc. ........................... 4,560
--------
15,715
OILFIELD SERVICES/
EQUIPMENT (1.4%)
90,000 BJ Services Co.* .......................... 2,908
PHARMACY
SERVICES (2.3%)
40,000 Express Scripts, Inc. Class "A"* .......... 1,921
100,000 Walgreen Co. .............................. 2,919
--------
4,840
RAILROAD (0.7%)
75,000 Norfolk Southern Corp. .................... 1,499
RECREATION (4.3%)
150,000 Harley-Davidson, Inc. ..................... 6,930
100,000 Mattel, Inc. .............................. 1,915
--------
8,845
VALUE
SHARES (IN THOUSANDS)
---------------------------------------------------------------
RESTAURANT (1.3%)
75,000 Cheesecake Factory,
Incorporated (The)* ...................... $ 2,711
RETAIL BUILDING
SUPPLY (2.2%)
120,000 Lowe's Companies, Inc. .................... 4,500
RETAIL -- SPECIAL
LINES (7.2%)
125,000 Abercrombie & Fitch Co.
Class "A"* ............................... 2,558
250,000 Bed Bath & Beyond Inc.* ................... 8,632
135,000 Limited Brands, Inc. ...................... 1,881
100,000 PETsMART, Inc.* ........................... 1,713
--------
14,784
RETAIL STORE (7.1%)
124,000 Costco Wholesale Corp.* ................... 3,479
120,000 Kohl's Corp.* ............................. 6,714
90,000 Wal-Mart Stores, Inc. ..................... 4,546
--------
14,739
THRIFT (1.3%)
75,000 Washington Mutual, Inc. ................... 2,590
TOTAL COMMON STOCKS
AND TOTAL INVESTMENT
SECURITIES (80.6%)
(COST $124,369,000)................................. $166,208
========
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7
THE VALUE LINE FUND, INC.
SCHEDULE OF INVESTMENTS DECEMBER 31, 2002
--------------------------------------------------------------------------------
VALUE
PRINCIPAL (IN THOUSANDS
AMOUNT EXCEPT PER SHARE
(IN THOUSANDS) AMOUNT)
---------------------------------------------------------------
REPURCHASE AGREEMENT (19.7%)
(INCLUDING ACCRUED INTEREST)
$ 14,000 Collateralized by $13,504,000
U.S. Treasury Bonds 5.25%,
due 11/15/28, with a value of
$14,290,000 (with UBS
Warburg LLC, 1.10%, dated
12/31/02, due 1/2/03, delivery
value $14,000,856) ............. $ 14,000
13,000 Collateralized by $12,800,000
U.S. Treasury Notes 5.50%,
due 2/28/03, with a value of
$13,123,000 (with State
Street Bank & Trust
Company, 1.05%, dated
12/31/02, due 1/2/03, delivery
value $13,000,758).............. 13,000
13,700 Collateralized by $9,180,000
U.S. Treasury Bonds 8.875%,
due 2/15/19, with a value of
$13,949,000 (with Morgan
Stanley Dean Witter & Co.,
1.05%, dated 12/31/02, due
1/2/03, delivery value
$13,700,799).................... 13,700
--------
TOTAL REPURCHASE
AGREEMENTS
(COST $40,700,000).............. 40,700
--------
EXCESS OF LIABILITIES OVER
CASH AND OTHER ASSETS (-0.3%) ................. (570)
--------
NET ASSETS (100.0%)............................. $206,338
========
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
OUTSTANDING SHARE
($206,337,743 \D 15,091,143 SHARES OF
CAPITAL STOCK OUTSTANDING)..................... $ 13.67
========
* NON-INCOME PRODUCING.
SEE NOTES TO FINANCIAL STATEMENTS.
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8
THE VALUE LINE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
AT DECEMBER 31, 2002
--------------------------------------------------------------------------------
(IN THOUSANDS
EXCEPT PER
SHARE AMOUNT)
--------------
ASSETS:
Investment securities, at value
(Cost - $124,369) ........................... $166,208
Repurchase agreements
(Cost - $40,700) ............................ 40,700
Cash ........................................... 55
Dividends and interest receivable .............. 121
Receivable for capital shares sold ............. 23
Prepaid insurance expense ...................... 3
--------
TOTAL ASSETS ................................. 207,110
--------
LIABILITIES:
Payable for capital shares repurchased ......... 562
Accrued expenses: ..............................
Advisory fee ................................ 121
Service and distribution plan fees
payable .................................. 45
Other ....................................... 44
--------
TOTAL LIABILITIES ............................ 772
--------
NET ASSETS ..................................... $206,338
========
NET ASSETS CONSIST OF:
Capital stock, at $1.00 par value
(authorized 50,000,000, outstanding
15,091,143 shares) .......................... $ 15,091
Additional paid-in capital ..................... 154,054
Accumulated net realized loss on
investments ................................. (4,646)
Net unrealized appreciation of
investments ................................. 41,839
--------
NET ASSETS ..................................... $206,338
========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER OUTSTANDING
SHARE ($206,337,743 -15,091,143
SHARES OUTSTANDING) ......................... $ 13.67
========
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2002
--------------------------------------------------------------------------------
(IN THOUSANDS)
---------------
INVESTMENT INCOME:
Dividends .................................. $ 1,680
Interest ................................... 348
-------
Total Income ............................. 2,028
-------
EXPENSES:
Advisory fee ............................... 1,703
Service and distribution plan fees ......... 636
Transfer agent fees ........................ 152
Trading service expense .................... 67
Auditing and legal fees .................... 55
Postage .................................... 42
Printing ................................... 41
Custodian fees ............................. 40
Registration and filing fees ............... 22
Insurance, dues and other .................. 22
Directors' fees and expenses ............... 21
Telephone .................................. 19
-------
Total Expenses before Custody Credits 2,820
Less: Custody Credits ................... (2)
-------
Net Expenses ............................ 2,818
-------
NET INVESTMENT LOSS ........................ (790)
-------
NET REALIZED AND UNREALIZED LOSS
ON INVESTMENTS:
Net Realized Loss ..................... (4,404)
Change in Net Unrealized
Appreciation ....................... (68,950)
--------
NET REALIZED LOSS AND CHANGE IN NET
UNREALIZED APPRECIATION ON
INVESTMENTS ............................. (73,354)
--------
NET DECREASE IN NET ASSETS FROM
OPERATIONS .............................. $(74,144)
========
SEE NOTES TO FINANCIAL STATEMENTS.
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9
THE VALUE LINE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
--------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2002 2001
-------------- -------------
(IN THOUSANDS)
OPERATIONS:
Net investment loss .............................................. $ (790) $ (610)
Net realized (loss) gain on investments .......................... (4,404) 3,884
Change in net unrealized appreciation ............................ (68,950) (53,876)
---------- ----------
Net decrease in net assets from operations ....................... (74,144) (50,602)
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net realized gain from investment transactions ................... (2,007) (2,268)
---------- ----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ..................................... 87,992 228,089
Proceeds from reinvestment of distributions to shareholders ...... 1,895 2,141
Cost of shares repurchased ....................................... (110,432) (260,732)
---------- ----------
Decrease from capital share transactions ......................... (20,545) (30,502)
---------- ----------
TOTAL DECREASE IN NET ASSETS ...................................... (96,696) (83,372)
NET ASSETS:
Beginning of year ................................................ 303,034 386,406
---------- ----------
End of year ...................................................... $ 206,338 $ 303,034
========== ==========
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
10
THE VALUE LINE FUND, INC.
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
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 preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
(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 prices 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 that 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. Short-term
instruments with maturities greater than 60 days at the date of purchase are
valued at the midpoint between the latest available and representative asked
and bid prices, and commencing 60 days prior to maturity such securities are
valued at amortized cost.
(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. Interest income
is accrued as earned. Realized gains and losses on sales of securities are
calculated for financial accounting 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.
--------------------------------------------------------------------------------
11
THE VALUE LINE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
2. CAPITAL SHARE TRANSACTIONS, DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Transactions in capital stock were as follows (IN THOUSANDS EXCEPT PER SHARE
AMOUNTS):
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
2002 2001
-------------- -------------
Shares sold ................ 4,997 12,093
Shares issued to
shareholders in
reinvestment of
dividends and
distributions ........... 138 117
-------- --------
5,135 12,210
Shares repurchased ......... 6,434 13,898
-------- --------
Net decrease ............... (1,299) (1,688)
======== ========
Distributions per
share from net
realized gains .......... $ .1335 $ .1387
======== ========
3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities, excluding short- term securities,
were as follows:
YEAR ENDED
DECEMBER 31,
2002
---------------
(IN THOUSANDS)
PURCHASES:
Investment Securities ......... $ 76,162
==========
SALES:
Investment Securities ......... $ 131,637
==========
4. INCOME TAXES
At December 31, 2002, information on the tax components of capital is as
follows:
(IN THOUSANDS)
Cost of investments for tax purposes ......... $ 165,311
=========
Gross tax unrealized appreciation ............ $ 45,473
Gross tax unrealized depreciation ............ (3,876)
---------
Net tax unrealized appreciation on
investments ............................... $ 41,597
=========
Capital loss carryforward expires
December 31, 2010 ......................... $ 3,006
=========
During the year ended December 31, 2002, as permitted under federal income tax
regulations, the Fund elected to defer $1,398,000 of post-October net capital
losses to the next taxable year. Net realized gains/losses differ for financial
statement and tax purposes primarily due to differing treatments of wash sales.
To the extent future capital gains are offset by capital losses, the Fund does
not anticipate distributing any such gains to the shareholders.
The tax composition of distributions to shareholders for the years ended
December 31, 2002 and 2001 were all from net long-term capital gains.
Permanent book-tax differences relating to current year net operating loss are
reclassified within the composition of the net asset accounts. In the current
year the Fund reclassified $790,000 from accumulated net investment loss to
additional paid-in-capital. Net assets were not affected by this
reclassification.
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12
THE VALUE LINE FUND, INC.
DECEMBER 31, 2002
--------------------------------------------------------------------------------
5. INVESTMENT ADVISORY CONTRACT, MANAGEMENT FEES AND TRANSACTIONS WITH
AFFILIATES
An advisory fee of $1,703,000 was paid or payable to Value Line, Inc., the
Fund's investment adviser (the "Adviser"), for the year ended December 31,
2002. This was computed at the rate of .70% of the first $100 million of the
Fund's average daily net assets plus .65% on the excess thereof, and paid
monthly. The Adviser provides research, investment programs, 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 and employees of the Fund and pays their salaries and wages. The Fund
bears all other costs and expenses.
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. For the year ended
December 31, 2002, fees amounting to $636,000 were paid or payable to the
Distributor under this Plan. In the nine-month period ended September 30, 2002,
the Fund reimbursed the Distributor $67,000 for trading services it performed
on behalf of the Fund. During the three-month period ended December 31, 2002,
the Fund paid brokerage commissions totaling $25,449 to the Distributor which
clears its transactions through unaffiliated brokers.
Certain officers and directors of the Adviser and its wholly owned subsidiary,
Value Line Securities, Inc. (the Fund's distributor and a registered
broker/dealer), are also officers and directors of the Fund.
For the year ended December 31, 2002, the Fund's expenses were reduced by
$1,555 under a custody credit arrangement with the Custodian.
The Adviser and/or affiliated companies and the Value Line, Inc. Profit Sharing
and Savings Plan owned 510,425 shares of the Fund's capital stock, representing
3.4% of the outstanding shares at December 31, 2002. In addition, certain
officers and directors of the Fund owned 55,711 shares of the Fund,
representing 0.4% of the outstanding shares.
--------------------------------------------------------------------------------
13
THE VALUE LINE FUND, INC.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------------------
2002 2001 2000 1999 1998
================ ================ ================ ================ ===========
NET ASSET VALUE, BEGINNING OF YEAR ......... $ 18.49 $ 21.37 $ 26.25 $ 22.65 $ 19.29
--------------------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment (loss) income .............. ( .05) ( 0.04) ( .07) ( .02) .03
Net gains or losses on securities
(both realized and unrealized) ........... ( 4.64) ( 2.70) ( 3.95) 5.98 3.85
--------------------------------------------------------------------------
Total from investment operations .......... ( 4.69) ( 2.74) ( 4.02) 5.96 3.88
--------------------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income ................................... -- -- -- -- ( .03)
Distributions from net realized
gains .................................... ( .13) ( .14) ( .86) ( 2.36) ( .49)
--------------------------------------------------------------------------
Total distributions ....................... ( .13) ( .14) ( .86) ( 2.36) ( .52)
--------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR ............... $ 13.67 $ 18.49 $ 21.37 $ 26.25 $ 22.65
==========================================================================
TOTAL RETURN ............................... -25.35% -12.82% -15.35% 26.74% 20.25%
==========================================================================
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(in thousands) ............................ $206,338 $303,034 $386,406 $495,465 $418,439
Ratio of expenses to average
net assets ................................ 1.11%(1) 1.04%(1) .89%(1) .76%(1) .77%
Ratio of net investment (loss) income
to average net assets ..................... ( 0.31)% ( .18)% ( .27)% ( .09)% .16%
Portfolio turnover rate .................... 33% 45% 17% 36% 98%
(1) RATIOS REFLECT EXPENSES GROSSED UP FOR CUSTODY CREDIT ARRANGEMENT. THE
RATIO OF EXPENSES TO AVERAGE NET ASSETS NET OF CUSTODY CREDITS WOULD HAVE
BEEN 1.03% FOR THE YEAR ENDED DECEMBER 31, 2001 AND UNCHANGED FOR THE
YEARS ENDED DECEMBER 31, 2002, 2000, AND 1999.
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
14
THE VALUE LINE FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF THE VALUE LINE FUND, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Value Line Fund, Inc. (the
"Fund") at December 31, 2002, 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 five years in the
period then ended, in conformity with accounting principles generally accepted
in the United States of America. 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 of America, 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 December 31, 2002 by correspondence with the custodian,
provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 14, 2003
--------------------------------------------------------------------------------
15
THE VALUE LINE FUND, INC.
MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------
MANAGEMENT INFORMATION
The following table sets forth information on each Director and officer of the
Fund. Each Director serves as a director or trustee of each of the 15 Value
Line Funds and oversees a total of 16 portfolios. Each Director serves until
his or her successor is elected and qualified.
PRINCIPAL
OCCUPATION
LENGTH OF DURING THE OTHER DIRECTORSHIPS
NAME, ADDRESS, AND AGE POSITION TIME SERVED PAST 5 YEARS HELD BY DIRECTOR
=======================================================================================================================
INTERESTED DIRECTORS*
---------------------
Jean Bernhard Buttner Chairman of the Since 1985 Chairman, President and Value Line, Inc.
Age 68 Board of Directors Chief Executive Officer of
and President Value Line, Inc. (the
"Adviser") and Value Line
Publishing, Inc.; Chairman
and President of each of the
15 Value Line Funds and
Value Line Securities, Inc.
(the "Distributor").
------------------------------------------------------------------------------------------------------------------------
Marion N. Ruth Director Since 2000 Real Estate Executive: Value Line, Inc.
5 Outrider Road President, Ruth Realty (real
Rolling Hills, CA 90274 estate broker); Director of the
Age 67 Adviser since 2000.
------------------------------------------------------------------------------------------------------------------------
NON-INTERESTED DIRECTORS
------------------------
John W. Chandler Director Since 1991 Consultant, Academic Search None
1611 Cold Spring Rd. Consultation Service, Inc.;
Williamstown, MA 01267 Trustee Emeritus and
Age 79 Chairman (1993-1994) of the
Board of Trustees of Duke
University; President
Emeritus, Williams College.
------------------------------------------------------------------------------------------------------------------------
Frances T. Newton Director Since 2000 Customer Support Analyst, None
4921 Buckingham Drive Duke Power Company.
Charlotte, NC 28209
Age 61
------------------------------------------------------------------------------------------------------------------------
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16
THE VALUE LINE FUND, INC.
MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------
PRINCIPAL
OCCUPATION
LENGTH OF DURING THE OTHER DIRECTORSHIPS
NAME, ADDRESS, AND AGE POSITION TIME SERVED PAST 5 YEARS HELD BY DIRECTOR
===========================================================================================================
Francis C. Oakley Director Since 2000 Professor of History, Berkshire Life
54 Scott Hill Road Williams College, 1961 to Insurance Company
Williamstown, MA 01267 2002; President Emeritus
Age 71 since 1994 and President,
1985-1994; Chairman
(1993-1997) and Interim
President (2002) of the
American Council of
Learned Societies.
-----------------------------------------------------------------------------------------------------------
David H. Porter Director Since 1997 Visiting Professor of None
5 Birch Run Drive Classics, Williams College,
Saratoga Springs, NY 12866 since 1999; President
Age 67 Emeritus, Skidmore College
since 1999 and President,
1987-1998.
-----------------------------------------------------------------------------------------------------------
Paul Craig Roberts Director Since 1985 Chairman, Institute for A. Schulman Inc.
169 Pompano St. Political Economy. (plastics)
Panama City Beach, FL 32413
Age 63
-----------------------------------------------------------------------------------------------------------
Nancy-Beth Sheerr Director Since 1996 Senior Financial Advisor, None
1409 Beaumont Drive Hawthorne, since January
Gladwyne, PA 19035 2001; Chairman, Radcliffe
Age 53 College Board of Trustees,
1990-1999.
-----------------------------------------------------------------------------------------------------------
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17
THE VALUE LINE FUND, INC.
MANAGEMENT OF THE FUND
--------------------------------------------------------------------------------
PRINCIPAL
OCCUPATION
LENGTH OF DURING THE OTHER DIRECTORSHIPS
NAME, ADDRESS, AND AGE POSITION TIME SERVED PAST 5 YEARS HELD BY DIRECTOR
================================================================================================================
OFFICERS
--------
Alan Hoffman Vice President Since 1997 Portfolio Manager with the --
Age 49 Adviser.
----------------------------------------------------------------------------------------------------------------
Philip Orlando Vice President Since 1997 Chief Investment Officer --
Age 44 with the Adviser.
----------------------------------------------------------------------------------------------------------------
Stephen Grant Vice President Since 2001 Portfolio Manager with the --
----------------------------------------------------------------------------------------------------------------
David T. Henigson Vice President, Since 1994 Director, Vice President and --
Age 45 Secretary and Compliance Officer of the
Treasurer Adviser; Director and
Vice President of the
Distributor; Vice President,
Secretary and Treasurer of
each of the 15 Value Line
Funds.
----------------------------------------------------------------------------------------------------------------
* MRS. BUTTNER IS AN "INTERESTED PERSON" AS DEFINED IN THE INVESTMENT COMPANY
ACT OF 1940 BY VIRTUE OF HER POSITIONS WITH THE ADVISER AND HER INDIRECT
OWNERSHIP OF A CONTROLLING INTEREST IN THE ADVISER; MRS. RUTH IS AN
INTERESTED PERSON BY VIRTUE OF BEING A DIRECTOR OF THE ADVISER.
UNLESS OTHERWISE INDICATED, THE ADDRESS FOR EACH OF THE ABOVE IS 220 EAST
42ND STREET, NEW YORK, NY 10017.
--------------------------------------------------------------------------------
The Fund's Statement of Additional Information (SAI) includes additional
information about the Fund's directors and is available without charge, upon
request, by calling 1-800-243-2729.
--------------------------------------------------------------------------------
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18
THE VALUE LINE FUND, INC.
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THE VALUE LINE 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. An investment in the Fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
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. The fund may be subject to
state and local taxes and the Alternative Minimum Tax (if applicable).
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. The fund may be
subject to state and local taxes and the Alternative Minimum Tax (if
applicable).
1987 -- VALUE LINE STRATEGIC ASSET MANAGEMENT TRUST* seeks to achieve 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 AVAILABLE THROUGH THE PURCHASE OF GUARDIAN INVESTOR, A TAX DEFERRED
VARIABLE ANNUITY, OR VALUEPLUS, A VARIABLE LIFE INSURANCE POLICY.
FOR MORE COMPLETE INFORMATION ABOUT ANY OF THE VALUE LINE FUNDS, INCLUDING
CHARGES AND EXPENSES, SEND FOR A PROSPECTUS FROM VALUE LINE SECURITIES, INC.,
220 EAST 42ND STREET, NEW YORK, NEW YORK 10017-5891 OR CALL 1-800-223- 0818, 24
HOURS A DAY, 7 DAYS A WEEK, OR VISIT US AT WWW.VALUELINE.COM. READ THE
PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
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20