<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 Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
State Street Bank and Trust Company c/o NFDS
P.O. Box 419729, Kansas City, MO 64141-6729
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas, New York, N.Y. 10036
LEGAL COUNSEL
Peter D. Lowenstein, Esq.
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
BOARD OF DIRECTORS
Jean Bernhard Buttner
Charles E. Reed Paul Craig Roberts
Leo R. Futia John W. Chandler
OFFICERS
Jean Bernhard Buttner Peter A. Shraga
CHAIRMAN PRESIDENT
David T. Henigson
VICE PRESIDENT SECRETARY/TREASURER
Scott M. Bruce
VICE PRESIDENT
Jack M. Houston Stephen La Rosa
ASSISTANT ASSISTANT
SECRETARY/TREASURER SECRETARY/TREASURER
This report is issued for the 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).
VLF511206
-------------------------
ANNUAL REPORT
DECEMBER 31, 1995
-------------------------
THE VALUE LINE SPECIAL
SITUATIONS FUND, INC.
[LOGO]
VALUE LINE MUTUAL FUNDS
<PAGE>
[LOGO]
TO OUR VALUE LINE SPECIAL SITUATIONS FUND SHAREHOLDERS
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
The year 1995 saw a very strong performance by The Value Line Special Situations
Fund, Inc, with net asset value increasing by 29.0%. These excellent results
outpaced the 26.2% increase in the Russell 2000, a standard index for
small-capitalization stocks, which are heavily represented in the Fund's
portfolio. We are, therefore, pleased and proud of this impressive gain, even
though it fell short of the 37.4% rise in the Standard & Poor's 500 Index
(reflecting the surge in large-cap stock prices).
Last year's performance was shaped by two strong market crosscurrents: a very
powerful technology sector and investor bias toward large-capitalization issues.
Technology stocks enjoyed one of their best performances in recent memory. An
expanding economy and a seemingly unending series of positive earnings surprises
fueled investors' appetite for these stocks during the year's first half. As the
fast-moving technology sector represents fertile ground for emerging-growth
companies like those the Special Situations Fund has been emphasizing since
October 1992, tech stocks represented a sizable portion of the Fund's portfolio
for much of the year.
Offsetting this very positive factor was the year-long investor bias toward
large-capitalization stocks. Stocks your Fund has been emphasizing tend,
however, to be smaller-capitalization issues that offer potential for
longer-term capital appreciation and that generally carry higher risks than
those of larger, more established companies. Large-cap and small-cap stocks
rarely move in concert, and the large-cap sector clearly outperformed the
smaller-capitalization counterpart throughout 1995.
As we pointed out in our semiannual report to shareholders, we anticipated that
greater caution would be appropriate for the second half of the year. That was
the case. In August, we initiated a program of selling--to lock in gains and
reduce the downside risk of a correction in the technology sector and among
other emerging-growth stocks. As a result of this selling program, the cash
portion of the Fund (as a percent of net assets) rose from 11% at midyear to 29%
by the end of August, 40% by late September, and 47% at year end. Similarly, our
exposure to the technology sector dropped from nearly 50% at midyear to under
29% at year end. These adjustments mitigated the impact on your Fund of the
technology decline and added approximately three percentage points to the Fund's
full-year return.
We have entered 1996 with a cautious outlook and high cash position. We remain
highly selective in making new commitments. We anticipate redeploying our
resources only when the climate for special situations improves and when our
shareholders, therefore, will benefit more from these investments.
We thank you for your confidence in The Value Line Special Situations Fund, and
we look forward to serving your investment needs in the future.
Sincerely,
/s/ Jean Bernhard Buttner
Jean Bernhard Buttner
Chairman
January 23, 1996
2
<PAGE>
ECONOMIC OBSERVATIONS
The economy is continuing to slow. Indeed, whereas until recently it looked as
though the business expansion still had enough strength left in it for growth to
average well above 2% in 1996, the latest statistics paint a somewhat weaker
picture. For example, the nation's manufacturers report a continuing drop in
activity, while employment growth is down from where it was late last year.
Furthermore, American consumers are now less upbeat about the nation's near-term
prospects and their own situation than they were earlier in the expansion cycle.
All of this now suggests that the economy will grow by just over 1% in the
opening quarter of the year and by a bit less than 2% for the full 12 months.
There are good and bad sides to the current economic story. On the plus side is
the fact that slow growth will keep labor and materials shortages--which can
often lead to higher inflation--at bay. A slowing economy might also nudge the
Federal Reserve, which has already lowered interest rates three times since last
July, toward a still easier monetary stance in the months ahead, although this
scenario is by no means assured. The flip side of the equation is that a
softening economy is often a harbinger of a pending deceleration on the
corporate earnings front. The first indications of this profit slowdown, in
fact, may already be at hand.
For now, at least, our sense is that the current weakening in business will not
prove to be the opening act in a recession. Instead, we see several quarters of
weak growth followed by a modestly healthier pace of activity in 1997 and 1998.
At the same time, we do not envision a protracted drop in corporate profits, but
rather a several-quarter-long slowdown followed by a modest recovery later this
year or in 1997. All of this assumes, of course, that a workable budget
agreement will ultimately come out of Washington.
FUND PERFORMANCE DATA:
AVERAGE ANNUAL GROWTH OF AN ASSUMED
TOTAL RETURN INVESTMENT OF $10,000
-------------- ---------------------
1 year ended 12/31/95...... 28.96% $12,896
5 years ended 12/31/95..... 14.19% $19,417
10 years ended 12/31/95.... 8.35% $22,300
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.
3
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT
IN THE VALUE LINE SPECIAL SITUATIONS FUND AND THE S&P 500 INDEX
[GRAPH]
(PERIOD COVERED IS 1/1/86 TO 12/31/95)
- --------------------------------------------------------------------------------
THE STANDARD & POOR'S INDEX (S&P 500 INDEX) IS AN UNMANAGED INDEX THAT IS
REPRESENTATIVE OF THE LARGER- CAPITALIZATION STOCKS TRADED IN THE UNITED
STATES.
4
<PAGE>
PORTFOLIO HIGHLIGHTS
AT DECEMBER 31, 1995 (UNAUDITED)
- --------------------------------------------------------------------------------
TEN LARGEST HOLDINGS*
- --------------------------------------------------------------------------------
DOLLARS PERCENTAGE
ISSUE SHARES (IN THOUSANDS) OF NET ASSETS
- --------------------------------------------------------------------------------
Genentech, Inc. 35,000 $1,855 1.9%
Progress Software Corp. 46,000 1,725 1.8
Vencor, Inc. 46,000 1,495 1.5
Elan Corporation, Plc (ADR) 30,500 1,483 1.5
Columbia/HCA Healthcare Corp. 29,000 1,472 1.5
Paging Network, Inc. 60,000 1,463 1.5
Casino Data Systems 58,500 1,462 1.5
Orthodontic Centers of America, Inc. 29,000 1,399 1.4
BMC Software, Inc. 32,000 1,368 1.4
Caremark International, Inc. 75,000 1,359 1.4
- --------------------------------------------------------------------------------
FIVE LARGEST INDUSTRY CATEGORIES*
DOLLARS PERCENTAGE
INDUSTRY (IN THOUSANDS) OF NET ASSETS
- --------------------------------------------------------------------------------
Computer Software & Services $9,781 10.0%
Drug 6,924 7.0
Medical Services 6,230 6.3
Computer & Peripherals 5,379 5.5
Semiconductor 4,961 5.0
- --------------------------------------------------------------------------------
LARGEST SECURITY PURCHASES* +
COST
ISSUE (IN THOUSANDS)
- --------------------------------------------------------------------------------
Wonderware Corp. $540
- --------------------------------------------------------------------------------
FIVE LARGEST SECURITY SALES* +
PROCEEDS
ISSUE (IN THOUSANDS)
- --------------------------------------------------------------------------------
Cordis Corp. $3,061
Komag, Inc. 2,581
U.S. Robotics Corp. 2,392
Xilinx, Inc. 2,225
LSI Logic Corp. 2,172
- --------------------------------------------------------------------------------
* EXCLUSIVE OF FIXED-INCOME SECURITIES.
+ FOR THE SIX-MONTH PERIOD ENDED 12/31/95.
5
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS DECEMBER 31, 1995
- --------------------------------------------------------------------------------
Value
Shares (IN THOUSANDS)
- --------------------------------------------------------------------------------
<CAPTION>
COMMON STOCKS (53.4%)
<C> <S> <C>
AUTO PARTS-
ORIGINAL EQUIPMENT (0.8%)
22,000 *Varity Corp. . . . . . . . . . . . . . $ 817
COMPUTER &
PERIPHERALS (5.5%)
20,000 *Digital Equipment Corp.. . . . . . . . . . . 1,283
35,000 *In Focus Systems, Inc. . . . . . . . . . . . 1,264
22,000 *Komag, Inc. . . . . . . . . . . . . . 1,015
53,250 *Pinnacle Micro, Inc. . . . . . . . . . . . . 772
38,000 *Silicon Graphics, Inc. . . . . . . . . . . . 1.045
--------
5,379
COMPUTER SOFTWARE &
SERVICES (10.0%)
32,000 *BMC Software, Inc. . . . . . . . . . . . . . 1,368
89,000 *Caere Corp. . . . . . . . . . . . . . 634
21,000 *Catalina Marketing Corp. . . . . . . . . . . 1,318
31,000 *Cerner Corp. . . . . . . . . . . . . . 635
38,000 *FTP Software, Inc. . . . . . . . . . . . . . 1,102
13,000 *Integrated Systems, Inc. Class "A" . . . . . 507
46,000 *Progress Software Corp.. . . . . . . . . . . 1,725
25,000 *Softdesk, Inc. . . . . . . . . . . . . . 494
21,000 *Softkey International, Inc.. . . . . . . . . 486
19,000 *Wind River Systems, Inc. . . . . . . . . . . 553
56,000 *Wonderware Corp . . . . . . . . . . . . . 959
--------
9,781
DRUG (7.0%)
32,000 *Dura Pharmaceuticals, Inc. . . . . . . . . . 1,112
30,500 *Elan Corporation, Plc (ADR). . . . . . . . . 1,483
35,000 *Genentech, Inc. . . . . . . . . . . . . . 1,855
24,000 *Genetics Institute, Inc. . . . . . . . . . . 1,284
70,000 *Mycogen Corp. . . . . . . . . . . . . . 1,190
--------
6,924
ELECTRICAL EQUIPMENT (1.2%)
50,000 *Ultralife Batteries, Inc.. . . . . . . . . . 1,200
ELECTRONICS (0.8%)
80,000 *Quickturn Design Systems, Inc. . . . . . . . 800
FINANCIAL SERVICES (0.7%)
44,000 *Olympic Financial Ltd. . . . . . . . . . . . 715
HOME APPLIANCE (0.5%)
24,000 *Recoton Corp . . . . . . . . . . . . . 450
HOTEL/GAMING (1.5%)
58,500 *Casino Data Systems. . . . . . . . . . . . . 1,462
INDUSTRIAL SERVICES (0.5%)
25,000 *ClinTrials Research, Inc.. . . . . . . . . . 506
INSURANCE-LIFE (1.3%)
75,000 *Penn Treaty American Corp. . . . . . . . . . 1,238
MEDICAL SERVICES (6.3%)
75,000 Caremark International, Inc.. . . . . . . . . 1,359
29,000 Columbia/HCA Healthcare Corp. . . . . . . . . 1,472
20,000 *Horizon/CMS Healthcare Corp. . . . . . . . . 505
29,000 *Orthodontic Centers of America, Inc. . . . . 1,399
46,000 *Vencor, Inc. . . . . . . . . . . . . . 1,495
--------
6,230
MEDICAL SUPPLIES (2.5%)
30,000 *I-Stat Corp. . . . . . . . . . . . . . 975
50,000 *Isolyser Co., Inc. . . . . . . . . . . . . . 700
25,000 *Steris Corp. . . . . . . . . . . . . . 806
--------
2,481
OFFICE EQUIPMENT
& SUPPLIES (1.0%)
22,000 *Viking Office Products, Inc. . . . . . . . . 1,023
RESTAURANT (2.0%)
43,000 Applebee's International, Inc.. . . . . . . . 978
45,500 *Cheesecake Factory, Inc. . . . . . . . . . . 978
--------
1,956
6
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------
Value
Shares (IN THOUSANDS)
- --------------------------------------------------------------------------------
<C> <S> <C>
RETAIL-SPECIAL LINES (0.8%)
52,500 *Leslie's Poolmart . . . . . . . . . . . . . $ 735
SEMICONDUCTOR (5.0%)
34,000 *Cyrix Corp. . . . . . . . . . . . . . 782
64,000 *Integrated Circuit Systems, Inc. . . . . . . 792
22,000 *LSI Logic Corp. . . . . . . . . . . . . . 720
23,000 Linear Technology Corp. . . . . . . . . . . . 903
26,000 *Maxim Integrated Products, Inc.. . . . . . . 1,001
25,000 *Xilinx, Inc. . . . . . . . . . . . . . 763
--------
4,961
TELECOMMUNICATIONS
EQUIPMENT (2.2%)
44,000 *VeriFone, Inc. . . . . . . . . . . . . . 1,260
10,000 *U.S. Robotics Corp.. . . . . . . . . . . . . 877
--------
2,137
TELECOMMUNICATIONS
SERVICE (3.8%)
75,000 *Nextel Communications, Inc. Class "A". . . . 1,106
60,000 *Paging Network, Inc. . . . . . . . . . . . . 1,463
55,500 *Vanguard Cellular Systems, Inc.
Class "A" . . . . . . . . . . . . . 1,124
--------
3,693
--------
TOTAL COMMON STOCKS
(Cost $29,705) . . . . . . . . . . . . . 52,488
--------
WARRANTS (0%)
40,515 *Westwood One, Inc.
(expires September 4, 1997) . . . . . . . . . 71
--------
TOTAL WARRANTS (COST $5). . . . . . . . . . . 71
--------
TOTAL INVESTMENT
SECURITIES (53.4%)
(COST $29,710) . . . . . . . . . . . . . 52,559
--------
<CAPTION>
Value
Principal Amount (IN THOUSANDS
(IN THOUSANDS) EXCEPT PER-SHARE
AMOUNT)
SHORT-TERM INVESTMENTS (46.6%)
<C> <S> <C>
U.S. GOVERNMENT
AGENCY OBLIGATIONS (40.5%)
$25,000 Federal National Mortgage
Association Discount Notes
5.47%, 1/17/96 . . . . . . . . . . . . . 24,939
15,000 Federal National Mortgage
Association Discount Notes
5.67%, 1/17/96 . . . . . . . . . . . . . 14,962
--------
39,901
--------
REPURCHASE AGREEMENT (6.1%)
(INCLUDES ACCRUED INTEREST)
6,000 Collateralized by $4,295,000 U.S.
Treasury Bonds 13 3/8%, due 8/15/01,
with a value of $6,132,688 (with
Morgan Stanley & Co., Inc., 5.87%,
dated 12/29/95, due 1/2/96, delivery
value of $6,003,913). . . . . . . . . . . . 6,003
--------
TOTAL SHORT-TERM
INVESTMENTS (Cost $45,904). . . . . . . . . . 45,904
--------
EXCESS OF LIABILITIES OVER CASH
AND RECEIVABLES (0%) . . . . . . . . . . . . . (55)
--------
NET ASSETS (100%) . . . . . . . . . . . . . $ 98,408
--------
--------
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
OUTSTANDING SHARE
($98,408,000 DIVIDED BY 6,059,954
SHARES OUTSTANDING) . . . . . . . . . . . . . $16.24
--------
--------
</TABLE>
* Non-income producing
7
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES AT
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
Dollars
(IN THOUSANDS
EXCEPT PER-
SHARE AMOUNT)
-------------
<S> <C>
ASSETS:
Investment securities, at value
(cost--$29,710) . . . . . . . . . . . . . $ 52,559
Short-term investments (cost--$45,904) . . . . . . . . . . 45,904
Cash . . . . . . . . . . . . . 87
Receivable for capital shares sold . . . . . . . . . . . . . 19
Dividends receivable . . . . . . . . . . . . . 3
--------
TOTAL ASSETS . . . . . . . . . . . . . 98,572
--------
LIABILITIES:
Payable for capital shares repurchased . . . . . . . . . . . 8
Accrued expenses:
Advisory fee . . . . . . . . . . . . . 64
Other . . . . . . . . . . . . . 92
--------
TOTAL LIABILITIES . . . . . . . . . . . . . 164
--------
NET ASSETS . . . . . . . . . . . . . $ 98,408
--------
--------
NET ASSETS CONSIST OF:
Capital stock, at $1.00 par value
(authorized 100,000,000, outstanding
6,059,954 shares) . . . . . . . . . . . . . $ 6,060
Additional paid-in capital . . . . . . . . . . . . . 65,917
Undistributed investment income--net . . . . . . . . . . . . 1
Undistributed net realized gain on
investments . . . . . . . . . . . . . 3,581
Unrealized net appreciation of investments . . . . . . . . . 22,849
--------
NET ASSETS . . . . . . . . . . . . . $ 98,408
--------
--------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
OUTSTANDING SHARE ($98,408,000
DIVIDED BY 6,059,954 SHARES OUTSTANDING). . . . . . . . $ 16.24
--------
--------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED
DECEMBER 31, 1995
- --------------------------------------------------------------------------------
Dollars
(IN THOUSANDS)
---------------
<S> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . $ 1,310
Dividends . . . . . . . . . . . . . 25
--------
TOTAL INCOME . . . . . . . . . . . . . 1,335
--------
EXPENSES:
Advisory fee . . . . . . . . . . . . . 721
Transfer agent . . . . . . . . . . . . . 126
Auditing and legal fees . . . . . . . . . . . . . 45
Telephone and wire charges . . . . . . . . . . . . . 28
Registration fees . . . . . . . . . . . . . 25
Postage . . . . . . . . . . . . . 23
Custodian fees . . . . . . . . . . . . . 20
Printing and stationery . . . . . . . . . . . . . 19
Directors' fees and expenses . . . . . . . . . . . . . 12
Insurance, dues, and other . . . . . . . . . . . . . 7
--------
TOTAL EXPENSES . . . . . . . . . . . . . 1,026
--------
INVESTMENT INCOME--NET . . . . . . . . . . . . . 309
--------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS--NET:
Realized Gain--Net . . . . . . . . . . . . . 25,437
Change in Unrealized Appreciation . . . . . . . . . . . (1,797)
--------
NET REALIZED GAIN AND CHANGE IN UNREALIZED
APPRECIATION ON INVESTMENTS . . . . . . . . . . . . . 23,640
--------
NET INCREASE IN NET ASSETS FROM
OPERATIONS . . . . . . . . . . . . . $ 23,949
--------
--------
</TABLE>
8
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995, AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATIONS:
Investment income (loss)--net . . . . . . . . . . . $ 309 $ ($397)
Realized gain on investments--net . . . . . . . . . 25,437 1,856
Change in unrealized appreciation . . . . . . . . . (1,797) (460)
--------- --------
Net increase in net assets from operations. . . . . 23,949 999
--------- --------
DISTRIBUTIONS TO SHAREHOLDERS:
Investment income--net . . . . . . . . . . . (308) --
Realized gain from investment transactions--net . . (21,803) (5,095)
--------- --------
Total distributions . . . . . . . . . . . (22,111) (5,095)
--------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares . . . . . . . . . . . 20,359 29,681
Proceeds from reinvestment of distributions
to shareholders . . . . . . . . . . . 19,378 4,534
Cost of shares repurchased . . . . . . . . . . . (33,347) (31,327)
--------- --------
Increase from capital share transactions. . . . . . 6,390 2,888
--------- --------
TOTAL INCREASE (DECREASE) . . . . . . . . . . . 8,228 (1,208)
NET ASSETS:
Beginning of year . . . . . . . . . . . 90,180 91,388
--------- --------
End of year . . . . . . . . . . . $ 98,408 $ 90,180
--------- --------
--------- --------
Undistributed investment income--net, at end
of year . . . . . . . . . . . $ 1 $ --
--------- --------
--------- --------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Value Line Special Situations 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 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. 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.
(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. CAPITAL SHARE TRANSACTIONS, DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Transactions in capital stock were as follows (in thousands except per-share
amounts):
10
<PAGE>
- --------------------------------------------------------------------------------
1995 1994
----- -----
Shares sold........................ 1,081 1,798
Shares issued to shareholders
in reinvestment of dividends
and distributions............. 1,202 284
-------- -------
2,283 2,082
Shares repurchased................. 1,805 1,892
-------- -------
Net increase....................... 478 190
-------- -------
-------- -------
Dividends per share................ $.0633 $ --
-------- -------
-------- -------
Distributions per share from
net realized gains............ $ 4.4900 $ .962
-------- -------
-------- -------
3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities, excluding short-term securities,
were as follows:
1995
-------------
(IN THOUSANDS)
PURCHASES:
Investment securities...... $ 7,431
-------------
-------------
SALES:
Investment securities...... $ 55,862
-------------
-------------
At December 31, 1995, the aggregate cost of investment securities and short-term
investments for federal income-tax purposes was $75,614,000. The aggregate
appreciation and depreciation of investments at December 31, 1995, based on a
comparison of investment values and their costs for federal income-tax purposes,
was $23,137,000 and $288,000, respectively, resulting in a net appreciation of
$22,849,000.
4. INVESTMENT ADVISORY CONTRACT, MANAGEMENT FEES, AND TRANSACTIONS
WITH AFFILIATES
An advisory fee of $721,000 was paid or payable to Value Line, Inc., the Fund's
investment adviser (Adviser), for the year ended December 31, 1995. This was
computed at the rate of 3/4 of 1% of the average 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 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. If the aggregate
expenses of the Fund, other than taxes, interest, brokerage commissions, and
extraordinary expenses, exceed the expense limitation imposed by any state in
which the Fund's shares are sold, the advisory fee will be reduced by the amount
of such excess, or the amount of such excess will be refunded. No such
reimbursement was required for the year ended December 31, 1995.
A fee of $5,760 for printing services was paid or payable to the Adviser for the
year ended December 31, 1995.
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 a director of the Fund. During the year
ended December 31, 1995, the Fund paid brokerage commissions totalling $22,000
to the distributor, which clears its transactions through unaffiliated brokers.
The Adviser and/or affiliated companies owned 393,000 shares of the Fund's
capital stock, representing 6.5% of the outstanding shares at December 31, 1995.
In addition, certain officers and directors of the Fund owned 7,644 shares of
the Fund, representing 0.1% of the outstanding shares.
11
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1995 1994 1993 1992 1991
-------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR... $16.15 $16.95 $15.69 $16.41 $12.72
-------- ------ ------- ------- --------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS
Net investment income (loss)....... .06 (.07) (.13) ( .05) .04
Net gains or losses on securities
(both realized and unrealized)... 4.58 .23 2.14 (.52) 4.56
-------- ------ ------- ------- --------
Total from investment operations... 4.64 .16 2.01 (.57) 4.60
-------- ------ ------- ------- --------
LESS DISTRIBUTIONS
Dividends from net investment
income............................. ( .06) - - # (.05)
Distributions from capital gains... (4.49) (.96) (.75) (.15) (.86)
-------- ------ ------- ------- --------
Total distributions................ (4.55) (.96) (.75) (.15) (.91)
-------- ------ ------- ------- --------
NET ASSET VALUE, END OF YEAR......... $16.24 $16.15 $16.95 $15.69 $16.41
-------- ------ ------- ------- --------
TOTAL RETURN......................... 28.96% 1.03% 12.99% -3.45% 36.61%
-------- ------ ------- ------- --------
-------- ------ ------- ------- --------
Ratios/Supplemental Data:
Net assets, end of year
(in thousands)..................... $98,408 $90,180 $91,388 $101,094 $129,044
Ratio of expenses to average
net assets......................... 1.06% 1.10% 1.06% 1.09% 1.04%
Ratio of net investment (loss)
income to average net assets....... 0.32% (0.46)% (.79)% (.33)% .24%
Portfolio turnover rate............ 10% 37% 39% 43% 37%
</TABLE>
(#) Dividend paid was less than one cent per share
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND
BOARD OF DIRECTORS OF THE
VALUE LINE SPECIAL SITUATIONS 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 Special Situations
Fund, Inc. (the "Fund") at December 31, 1995, 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 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 December 31, 1995 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK
February 16, 1996
13
<PAGE>
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14
<PAGE>
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15
<PAGE>
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 of
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 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 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.
1992 -- VALUE LINE INTERMEDIATE BOND FUND seeks high current income consistent
with low volatility of principal by investing primarily in a diversified
portfolio of investment-grade debt securities.
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 THE 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. READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST
OR SEND MONEY.
