------------------
SEMI-ANNUAL REPORT
------------------
June 30, 1997
------------------
The Value Line
Special
Situations
Fund, Inc.
[LOGO]
<PAGE>
The Value Line Special Situations Fund, Inc.
To Our Value Line
- --------------------------------------------------------------------------------
To Our Shareholders:
We're pleased to report that our revamping of the Value Line Special Situations
Fund is already showing positive results. In the first half of 1997, your Fund
earned a total return of 12.07%, versus a total return of 10.20% for the Russell
2000, an unmanaged index of smaller-capitalization stocks, and a total return of
20.59% for the Standard & Poor's 500, an unmanaged index of
larger-capitalization stocks. More than half of the Fund's holdings are in
small-cap stocks (with most of the remainder in mid-cap), making the Russell
2000 the more meaningful benchmark. In the current market environment we believe
that small and mid-capitalization stocks offer greater opportunity as their
price/earnings multiples are generally more attractive in comparison to their
earnings growth rates than are larger capitalization stocks.
Reflecting this improved performance, two major publications have raised their
ratings on the Fund this year. Investor's Business Daily upped your Fund's
performance ranking from C- to B+. And the New York Times boosted the Fund's
category rating from a "2" to a "4" on a scale from 1, Lowest, to 5, Highest.
This rating compares the Fund's returns, adjusted for risk, to other funds in
the small-cap growth category. Year to date, your Fund's performance ranks well
up in the top quartile in this category.
As detailed in the Fund's 1996 annual report to shareholders, the Fund installed
a new portfolio management team at the end of last year. This team is
emphasizing stockholdings with strong earnings momentum and strong price
momentum, two characteristics that have been key to the 32-year success record
of the Value Line Timeliness Ranking System. We continue to invest in special
situations, but only those that are already responding positively to favorable
corporate developments. In addition, we have become active participants in the
market for initial public offerings. These relatively young companies added more
than one percentage point to performance in the first half of the year, even
though making up less than 5% of the fund's holdings.
Meanwhile, climbing valuations in the stock market mean that risk control has
assumed heightened importance. We have reduced risk exposure in the portfolio
through wide diversification across many different industry sectors. In
particular, the volatile science and technology sectors now make up less than
25% of the Fund's stockholdings, versus about 75% a year ago. Investment in over
200 different companies limits loss potential from any single holding or sector.
We will maintain our sharpened focus on maximizing reward while minimizing risk.
Thank you for investing with us.
Sincerely,
/s/ Jean Bernhard Buttner
Jean Bernhard Buttner
Chairman and President
August 26, 1997
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2
<PAGE>
The Value Line Special Situations Fund, Inc.
Special Situations Fund Shareholders
- --------------------------------------------------------------------------------
Economic Observations
The economy continues to push ahead, with such important indicators as the level
of manufacturing activity and the rate of employment growth exhibiting a
reasonably good degree of strength. Such trends, and a continuing healthy level
of consumer confidence, suggest that growth will average 2.5%-3.0% during the
closing half of the year. Thereafter, we would expect the expansion pace to
moderate somewhat, with real, inflation-adjusted GDP growth holding in the range
of 2.0%-2.5% in 1998.
Inflation, meanwhile, continues to be remarkably subdued. This healthy pricing
trend, which is all the more impressive given the longevity of the business
upcycle, is, moreover, unlikely to change dramatically in the months ahead.
Underscoring our optimism in this area is the recent hammering out of a budget
package (which should reduce the government's need to borrow to finance the
deficit) and the fact that there is still a lack of serious shortages on either
the labor or the raw-materials fronts.
Interest rates, meantime, reflecting the current, relatively moderate pace of
economic growth and the subdued pricing structure, are unlikely to increase much
over the next few months. Nevertheless, we caution that given the seeming
resiliency of the business expansion, an inflation-wary Federal Reserve will
probably not shy away from tightening the monetary reins if the present pricing
stability gives way. And an upward move in rates, if sufficiently pronounced,
would be poorly received, in our opinion, by both the stock and the bond markets
and, as well, by the U.S. economy down the road. The recent increase in
volatility in the financial markets suggests that many are now questioning
whether the current, benign environment can last much longer. We think a
cautious investment strategy is now in order.
* Performance Data:
Growth
Average an Assumed
Annual Investment of
Total Return $10,000
------------ -------------
1 year ended 6/30/97.................. 14.88% $11,488
5 years ended 6/30/97................. 15.50% $20,552
10 years ended 6/30/97................. 7.85% $21,289
* 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.
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3
<PAGE>
The Value Line Special Situations Fund, Inc.
Portfolio Highlights at June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
Ten Largest Holdings
<TABLE>
<CAPTION>
Value Percentage of
Issue Shares (in thousands) Net Assets
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Genentech, Inc. ................................ 35,000 $ 2,063 2.2%
Paul Harris Stores, Inc. ....................... 78,300 1,312 1.4
AES Corp. (The) ................................ 14,000 990 1.0
International Business Machines Corp. .......... 10,000 902 0.9
Tyco International, Ltd. ....................... 12,000 835 0.9
United Technologies Corp. ...................... 10,000 830 0.9
Compuware Corp. ................................ 17,000 812 0.8
Ross Stores, Inc. .............................. 22,000 719 0.8
TJX Companies, Inc. ............................ 26,000 686 0.7
Ethan Allen Interiors, Inc. .................... 12,000 684 0.7
<CAPTION>
Five Largest Industry Categories
Value Percentage of
Industry (in thousands) Net Assets
- ---------------------------------------------------------------------------------------------------------------------
Computer Software & Services ................... $ 6,869 7.2%
Retail-Special Lines ........................... 5,749 6.0
Diversified Companies .......................... 5,088 5.3
Retail Store ................................... 4,913 5.1
Machinery ...................................... 4,277 4.5
<CAPTION>
Five Largest Net Security Purchases*
Cost
Issue (in thousands)
- ---------------------------------------------------------------------------------------------------------------------
Paul Harris Stores, Inc. ....................... $ 974
International Business Machines Corp. .......... 772
Shopko Stores, Inc. ............................ 625
Vistana, Inc. .................................. 516
Marsh & McLennan Companies, Inc. ............... 497
<CAPTION>
Five Largest Net Security Sales*
Proceeds
Issue (in thousands)
- ---------------------------------------------------------------------------------------------------------------------
Firearms Training Systems Inc. Class "A" ....... $ 1,124
AlliedSignal, Inc. ............................. 914
Larscom Inc. Class "A" ......................... 906
Steris Corp. ................................... 857
BMC Software, Inc. ............................. 792
</TABLE>
* For the six month period ended 06/30/97
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4
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments June 30, 1977 (unaudited)
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
COMMON STOCKS (93.2%)
ADVERTISING (0.5%)
8,000 Omnicom Group, Inc. ........................... $ 493
AEROSPACE/DEFENSE (2.7%)
17,000 Aviall, Inc. .................................. 238
7,000 BE Aerospace, Inc.* ........................... 221
9,000 Coltec Industries, Inc.* ...................... 175
6,000 Ducommun Inc.* ................................ 177
16,000 Kellstrom Industries, Inc.* ................... 252
8,000 Precision Castparts Corp. ..................... 477
7,000 Sundstrand Corp. .............................. 391
5,000 Thiokol Corp. ................................. 350
10,000 Wyman-Gordon Co.* ............................. 270
--------
2,551
AIR TRANSPORT (1.4%)
10,000 Airborne Freight Corp. ........................ 419
22,000 Expeditors International
of Washington, Inc. ....................... 624
9,000 U.S. Airways Group Inc.* ...................... 315
--------
1,358
APPAREL (1.9%)
12,000 Farah Inc.* ................................... 77
21,000 Hartmarx Corp.* ............................... 173
8,000 Jones Apparel Group, Inc.* .................... 382
5,000 Oxford Industries, Inc. ....................... 142
6,300 Polo Ralph Lauren
Corp. Class "A"* .......................... 172
10,000 Quaker Fabric Corp.* .......................... 165
18,000 Sport-Haley Inc.* ............................. 302
7,000 Tarrant Apparel Group * ....................... 109
4,000 V.F. Corp. .................................... 339
--------
1,861
AUTO & TRUCK (0.8%)
20,000 Navistar International Corp.* ................. 345
8,000 PACCAR, Inc. .................................. 372
--------
717
AUTO PARTS-ORIGINAL
EQUIPMENT (0.3%)
5,000 Keystone Automotive
Industries, Inc.* ......................... 85
5,000 Tower Automotive, Inc.* ....................... 215
--------
300
AUTO PARTS-
REPLACEMENT (1.0%)
6,000 Federal Mogul Corp. ........................... 210
8,000 SPX Corp. ..................................... 518
7,000 Wynns International, Inc. ..................... 199
--------
927
BEVERAGE-SOFT DRINK
(0.3%)
5,000 Coca-Cola FEMSA S.A.
de CV (ADR). .............................. 258
BUILDING MATERIALS
(0.7%)
9,000 Chicago Bridge &
Iron Co., N.V. ............................ 199
8,000 Martin Marietta
Materials, Inc. ........................... 259
6,000 Thomas Industries, Inc. ....................... 173
--------
631
CEMENT & AGGREGATES
(0.9%)
6,000 Lone Star Industries, Inc. .................... 272
5,000 Medusa Corp. .................................. 192
5,000 Vulcan Materials Co. .......................... 392
--------
856
CHEMICAL-SPECIALTY
(1.8%)
8,000 Avery Dennison Corp. .......................... 321
6,000 Ecolab Inc. ................................... 286
8,000 Ferro Corp. ................................... 297
10,000 Lubrizol Corp. ................................ 419
8,000 Tredegar Industries, Inc. ..................... 444
--------
1,767
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5
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
COAL/ALTERNATE
ENERGY (1.0%)
14,000 AES Corp. (The)* .............................. $ 990
COMPUTER &
PERIPHERALS (2.7%)
3,000 Compaq Computer Corp.* ........................ 298
10,000 Data General Corp.* ........................... 260
5,000 Documentum, Inc.* ............................. 124
20,000 Funco, Inc.* .................................. 370
10,000 International Business
Machines Corp. ............................ 902
9,000 STB Systems, Inc.* ............................ 295
9,000 SMART Modular
Technologies, Inc.* ....................... 304
--------
2,553
COMPUTER SOFTWARE
& SERVICES (7.2%)
12,000 Apex PC Solutions, Inc.* ...................... 237
5,000 Baan Company N.V.* ............................ 344
8,000 Banctec, Inc.* ................................ 208
12,000 Computer Task Group, Inc. ..................... 447
17,000 Compuware Corp.* .............................. 812
7,000 Comverse Technology, Inc.* .................... 364
11,000 Credit Management
Solutions, Inc.* .......................... 146
4,000 Dassault Systems S.A. (ADR)* .................. 285
8,000 Data Dimensions, Inc.* ........................ 176
16,000 Discreet Logic, Inc.* ......................... 264
10,000 Electronics For Imaging, Inc.* ................ 472
12,000 Fiserv Inc.* .................................. 536
4,000 Larscom Inc. Class "A"* ....................... 43
9,000 National Data Corp. ........................... 390
3,000 Peapod Inc.* .................................. 34
7,000 Peoplesoft, Inc.* ............................. 369
13,000 R.F. Monolithics, Inc.* ....................... 263
4,000 Saville Systems, PLC (ADR)* ................... 208
6,000 Systems & Computer
Technology Corp.* ......................... 160
8,000 Technomatix Technologies Ltd.* ................ 260
12,000 USCS International, Inc.* ..................... 393
3,500 Visio Corp.* .................................. 247
8,000 Wall Data, Inc.* .............................. 211
--------
6,869
DIVERSIFIED COMPANIES
(5.3%)
6,000 Barnes Group, Inc. ............................ 178
18,000 Barringer Technologies, Inc.* ................. 270
8,000 Crane Co. ..................................... 334
10,000 Danaher Corp. ................................. 508
10,000 Deswell Industries, Inc. ...................... 217
16,000 Griffon Corp.* ................................ 219
3,000 Hillenbrand Industries, Inc. .................. 142
10,000 National Service
Industries, Inc. .......................... 487
5,000 Premark International, Inc. ................... 134
4,500 Sequa Corp. Class "A"* ........................ 254
7,000 Textron, Inc. ................................. 465
12,000 Tyco International, Ltd. ...................... 835
10,000 United Technologies Corp. ..................... 830
8,000 Varlen Corp. .................................. 215
--------
5,088
DRUG (3.4%)
7,000 Bio-Technology
General Corp.* ............................ 94
3,200 Bristol-Myers Squibb Co. ...................... 259
35,000 Genentech, Inc.* .............................. 2,063
7,000 Immunex Corp.* ................................ 254
12,000 NBTY, Inc.* ................................... 336
4,000 Teva Pharmaceutical
Industries, Ltd. (ADR) .................... 259
--------
3,265
DRUGSTORE (0.4%)
8,000 CVS Corp.* .................................... 410
ELECTRICAL EQUIPMENT
(2.0%)
5,000 Cooper Industries, Inc. ....................... 249
8,000 Corning, Inc. ................................. 445
7,000 Jabil Circuit, Inc.* .......................... 587
18,000 MagneTek, Inc.* ............................... 299
8,000 Semtech Corp.* ................................ 292
--------
1,872
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6
<PAGE>
The Value Line Special Situations Fund, Inc.
June 30, 1977 (unaudited)
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
ELECTRONICS (2.4%)
6,000 Applied Signal
Technology Inc.* .......................... $ 50
15,000 Creative Technology, Ltd.* .................... 255
7,000 Electro Scientific
Industries, Inc.* ......................... 293
3,000 Fluke Corp. ................................... 178
4,000 Hadco Corp.* .................................. 262
9,000 ITI Technologies, Inc.* ....................... 206
16,000 Micro Linear Corp.* ........................... 168
6,000 Plexus Corp.* ................................. 335
8,000 Reliability Inc.* ............................. 124
8,000 Rogers Corp.* ................................. 282
2,000 Solectron Corp.* .............................. 140
--------
2,293
ENTERTAINMENT (1.8%)
8,500 Carmike Cinemas, Inc.
Class "A"* ................................ 278
8,000 Chancellor Broadcasting Co.
Class "A"* ................................ 320
9,000 Clear Channel
Communications, Inc.* ..................... 554
15,000 Colonial Downs Holdings, Inc.
Class "A"* ................................ 98
10,000 Racing Champions Corp.* ....................... 155
9,000 Westwood One, Inc.* ........................... 290
--------
1,695
ENVIRONMENTAL (0.9%)
16,000 Allied Waste Industries, Inc.* ................ 278
3,000 Culligan Water
Technologies, Inc.* ....................... 134
14,000 Eastern Environmental
Services, Inc.* ........................... 224
10,000 U.S. Filter Corp.* ............................ 273
--------
909
FINANCIAL SERVICES
(0.9%)
10,000 ARM Financial Group, Inc.
Class "A"* ............................... 200
13,000 Imperial Credit
Industries, Inc.* ......................... 267
25,000 New Century
Financial Corp.* .......................... 363
--------
830
FOOD PROCESSING (2.2%)
22,000 Chiquita Brands
International, Inc. ....................... 302
11,000 Dean Foods Co. ................................ 444
5,000 Interstate Bakeries Corp. ..................... 297
19,000 Morningstar Group, Inc. (The)* ................ 558
2,800 Pioneer Hi-Bred
International, Inc. ....................... 224
4,500 Smithfield Foods, Inc.* ....................... 277
--------
2,102
FOREIGN ELECTRONICS/ ENTERTAINMENT (0.2%)
5,000 ASE Test Ltd.* ................................ 211
FOREIGN
TELECOMMUNICATIONS
(0.6%)
6,000 Northern Telecom Ltd. ......................... 546
FURNITURE/HOME
FURNISHINGS (2.4%)
12,000 Ethan Allen Interiors, Inc. ................... 684
17,000 Furniture Brands
International, Inc.* ...................... 329
7,000 La-Z-Boy, Inc. ................................ 252
12,000 Miller (Herman), Inc. ......................... 432
6,000 Mohawk Industries, Inc.* ...................... 136
29,500 O'Sullivan Industries
Holdings, Inc.* ........................... 489
--------
2,322
- --------------------------------------------------------------------------------
7
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
GROCERY (0.3%)
5,000 American Stores Co. ........................... $ 247
HEALTHCARE
INFORMATION
SYSTEMS (0.1%)
4,000 MedQuist Inc.* ................................ 121
HOMEBUILDING (0.3%)
18,000 Host Marriott Corp.* .......................... 321
HOTEL/GAMING (1.2%)
11,000 Promus Hotel Corp.* ........................... 426
5,000 Silverleaf Resorts Inc.* ...................... 77
43,000 Vistana, Inc.* ................................ 667
--------
1,170
HOUSEHOLD PRODUCTS
(1.6%)
13,000 Libbey, Inc. .................................. 455
3,800 Procter & Gamble Co. .......................... 537
10,000 Scotts Co. (The) Class "A"* ................... 290
6,000 Sunbeam Corporation ........................... 226
--------
1,508
INDUSTRIAL SERVICES
(2.6%)
5,000 CDI Corp.* .................................... 208
20,000 Caribiner International Inc.* ................. 653
8,000 Computer Learning
Centers, Inc.* ............................ 336
6,500 Fine Host Corp.* .............................. 205
10,000 Pameco Corp.* ................................. 178
5,000 Robert Half International, Inc.* .............. 235
4,000 Service Experts, Inc.* ........................ 98
12,000 Source Services Corp.* ........................ 322
5,000 Staff Leasing Inc.* ........................... 94
7,000 U.S. Rentals, Inc.* ........................... 177
--------
2,506
INSURANCE-DIVERSIFIED
(1.2%)
5,000 American Bankers Insurance
Group, Inc. ............................... 316
2,000 American International
Group, Inc. ............................... 299
8,000 Marsh & McLennan
Companies, Inc. ........................... 571
--------
1,186
INSURANCE-LIFE (1.8%)
12,000 Conseco, Inc. ................................. 444
12,000 Hartford Life Inc. Class "A" .................. 450
3,000 ReliaStar Financial Corp. ..................... 219
4,000 SunAmerica Inc. ............................... 195
6,000 Torchmark Corp. ............................... 428
--------
1,736
INSURANCE-PROPERTY/
CASUALTY (0.2%)
5,000 Vesta Insurance Group, Inc. ................... 216
MACHINERY (4.5%)
5,000 Applied Power, Inc. Class "A" ................. 258
10,000 Chart Industries, Inc. ........................ 274
3,000 DT Industries, Inc. ........................... 107
8,000 Deere & Co. ................................... 439
9,000 Dreco Energy Services, Ltd.
Class "A"* ................................ 472
5,000 GATX Corp. .................................... 289
14,000 Gardner Denver Machinery Inc.* ................ 417
6,000 Gehl Co.* ..................................... 101
25,000 Iteq Inc.* .................................... 238
30,000 International Comfort
Products Corp.* ........................... 163
6,000 Lincoln Electric Co. .......................... 210
5,000 Manitowoc Co., Inc. ........................... 234
6,000 Parker-Hannifin Corp. ......................... 364
8,000 Regal-Beloit Corp. ............................ 210
6,000 Robbins & Myers, Inc. ......................... 195
8,000 Zoltek Companies, Inc.* ....................... 306
--------
4,277
- --------------------------------------------------------------------------------
8
<PAGE>
The Value Line Special Situations Fund, Inc.
June 30, 1977 (unaudited)
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
MEDICAL SERVICES (1.9%)
3,000 Aetna Inc. .................................... $ 307
13,000 Premier Laser Systems, Inc.
Class "A"* ................................ 145
10,000 Rehabcare Group, Inc.* ........................ 370
10,000 Universal Health Services, Inc.
Class "B"* ................................ 385
19,000 Veterinary Centers of
America, Inc.* ........................... 232
9,000 Wellpoint Health Networks, Inc.* .............. 413
--------
1,852
MEDICAL SUPPLIES (2.2%)
12,000 Cooper Companies, Inc.* ....................... 279
19,000 Graham-Field Health
Products Inc.* ............................ 259
6,000 Guidant Corp. ................................. 510
17,000 International Murex
Technologies Corp.* ...................... 146
9,000 Kinetic Concepts, Inc. ........................ 162
6,000 McKesson Corp. ................................ 465
10,000 Safeskin Corp.* ............................... 294
--------
2,115
METAL FABRICATING
(0.7%)
11,000 Maverick Tube Corp* ........................... 413
6,000 Timken Co. .................................... 213
--------
626
NATURAL GAS-
DIVERSIFIED (0.5%)
9,000 El Paso Natural Gas Co. ....................... 495
NEWSPAPER (1.3%) 6,000 Central Newspapers Inc.
Class "A" ................................. 430
2,200 Gannett Co., Inc. ............................. 217
12,000 Harte-Hanks
Communications, Inc. ..................... 354
4,000 Times Mirror Co. Series "A" ................... 221
--------
1,222
OILFIELD SERVICES/
EQUIPMENT (1.4%)
6,000 Aztec Manufacturing Co. ....................... 95
8,000 Camco International, Inc. ..................... 438
5,000 Core Laboratories N.V.* ....................... 130
9,900 Global Industries, Ltd.* ...................... 231
500 Hanover Compressor Co.* ....................... 10
7,000 Mitcham Industries, Inc.* ..................... 86
12,000 Santa Fe International Corp. .................. 408
-------
1,398
PACKAGING &
CONTAINER (0.4%)
8,000 Gibson Greetings, Inc.* ....................... 180
8,000 Owens-Illinois, Inc.* ......................... 248
-------
428
PAPER & FOREST
PRODUCTS (1.4%)
5,000 Bowater, Inc. ................................. 231
12,000 Fibreboard Corp.* ............................. 250
24,000 Mail-Well, Inc.* .............................. 684
7,500 Mosinee Paper Corp. ........................... 184
-------
1,349
PRECISION INSTRUMENTS
(0.8%)
4,000 Dionex Corp.* ................................. 205
30,000 Meade Instruments Corp.* ...................... 212
10,000 Orbotech, Ltd.* ............................... 319
--------
736
PUBLISHING (0.9%)
9,000 Consolidated Graphics, Inc.* .................. 376
3,000 Splash Technology Holdings Inc.* .............. 108
14,000 Valassis Communications Inc.* ................. 336
--------
820
- --------------------------------------------------------------------------------
9
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
RECREATION (0.8%)
8,000 Action Performance
Companies, Inc.* .......................... $ 194
13,000 Fountain Powerboat
Industries, Inc.* ......................... 192
25,000 Handleman Co.* ................................ 159
5,000 Harley-Davidson, Inc. ......................... 240
--------
785
RESTAURANT (1.4%)
15,000 CKE Restaurants, Inc. ......................... 474
12,000 Foodmaker, Inc.* .............................. 197
5,000 O'Charley's, Inc.* ............................ 85
12,000 Planet Hollywood International,
Inc. Class "A"* ........................... 276
20,000 WSMP, Inc.* ................................... 272
--------
1,304
RETAIL-SPECIAL LINES
(6.0%)
3,000 Amway Asia Pacific, Ltd. ...................... 131
12,000 AnnTaylor Stores Corp.* ....................... 234
5,000 Barnes & Noble, Inc.* ......................... 215
6,000 Brightpoint, Inc.* ............................ 195
8,000 Cole National Corp. Class "A"* ................ 352
4,000 Cutter & Buck Inc.* ........................... 65
15,000 Damark International,
Inc. Class "A"* ........................... 233
17,000 Dress Barn, Inc.* ............................. 332
17,000 Goody's Family Clothing, Inc.* ................ 465
8,000 Herbalife International, Inc. ................. 130
12,000 Lands' End, Inc.* ............................. 356
7,000 Payless ShoeSource, Inc.* ..................... 383
12,000 Pier 1 Imports, Inc. .......................... 318
14,000 Rent-Way, Inc.* ............................... 206
22,000 Ross Stores, Inc. ............................. 719
4,000 Russ Berrie & Co., Inc. ....................... 88
26,000 TJX Companies, Inc. ........................... 686
8,000 Tiffany & Co. ................................. 369
13,500 Tuesday Morning Corp.* ........................ 272
--------
5,749
RETAIL BUILDING SUPPLY
(0.5%)
20,000 Eagle Hardware & Garden, Inc.* ................ 457
RETAIL STORE (5.1%)
5,000 Carson Pirie Scott & Co.* ..................... 159
15,000 Costco Companies, Inc.* ....................... 493
9,000 Dayton-Hudson Corp. ........................... 479
12,000 Family Dollar Stores, Inc. .................... 327
10,000 Mac Frugal's Bargains
Closeouts* ................................ 272
5,000 Meyer (Fred), Inc.* ........................... 258
8,000 99 Cents Only Stores * ........................ 241
7,000 Pacific Sunwear of
California, Inc.* ......................... 226
78,300 Paul Harris Stores, Inc.* ..................... 1,312
25,000 Shopko Stores, Inc. ........................... 637
8,000 Stage Stores, Inc.* ........................... 209
10,000 Stein Mart, Inc.* ............................. 300
--------
4,913
SEMICONDUCTOR (1.2%)
4,000 Advanced Technology
Materials, Inc.* .......................... 114
4,000 Burr-Brown Corp.* ............................. 138
7,900 Dallas Semiconductor Corp. .................... 310
10,000 RF Micro Devices Inc.* ........................ 191
16,000 Tower Semiconductor Ltd.* ..................... 192
4,000 Unitrode Corp.* ............................... 202
--------
1,147
SHOE (0.8%)
20,000 Genesco, Inc.* ................................ 284
16,500 Wolverine World Wide, Inc. .................... 501
--------
785
- --------------------------------------------------------------------------------
10
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments June 30, 1977 (unaudited)
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS
EQUIPMENT (1.0%)
6,000 Boston Technology, Inc.* ...................... $ 177
5,000 Cellstar Corp.* ............................... 153
5,000 DSP Group, Inc.* .............................. 74
4,000 Datum, Inc.* .................................. 124
9,000 Digital Microwave Corp.* ...................... 270
4,000 Newbridge Networks Corp.* ..................... 174
--------
972
TELECOMMUNICATION
SERVICES (2.3%)
10,000 Cincinnati Bell, Inc. ......................... 315
40,000 Melita International Corp.* ................... 500
4,000 Superior TeleCom Inc.* ........................ 126
13,000 Tel-Save Holdings, Inc.* ...................... 198
9,000 Teledata Communications,
Ltd.* ..................................... 309
21,000 U.S. Long Distance Corp.* ..................... 362
17,000 World Access, Inc.* ........................... 349
--------
2,159
TEXTILE (1.2%)
16,500 Guilford Mills Inc. ........................... 344
11,000 Interface Inc. Class "A" ...................... 243
3,500 Linens'N Things, Inc.* ........................ 104
11,000 Westpoint Stevens, Inc.
Class "A"* ................................ 430
--------
1,121
TOBACCO (0.7%)
20,000 800 Jr. Cigar Inc.* ........................... 415
8,000 Universal Corp. ............................... 254
--------
669
TOILETRIES/COSMETICS
(0.3%)
4,000 American Safety Razor
Company * ................................. 72
8,000 Helen of Troy Ltd.* ........................... 205
--------
277
Shares or Value
Principal (in thousands
Amount except per
(in thousands) share amount)
- --------------------------------------------------------------------------------
TRUCKING/TRANSPORTATION
LEASING (0.9%)
14,000 Budget Group, Inc. Class "A"* ................. $ 483
8,000 CNF Transportation Inc. ....................... 258
6,000 Yellow Corporation* ........................... 134
--------
875
--------
TOTAL COMMON STOCKS
AND TOTAL INVESTMENT SECURITIES (93.2%)
(Cost $72,484,000) .......................... 89,216
--------
REPURCHASE AGREEMENT (9.7%)
(including accrued interest)
$ 9,300 Collateralized by
$7,335,000 U.S.
Treasury Notes 11 7/8%,
due 11/15/03 with a value
of $9,502,000 (with
Morgan Stanley & Co., Inc.,
5.70%, dated 6/30/97,
due 7/1/97, delivery value
of $9,301,000) .............................. $ 9,301
EXCESS OF LIABILITIES OVER
CASH AND RECEIVABLES (-2.9%) .................................. (2,743)
--------
NET ASSETS (100%) ........................................... $ 95,774
========
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
OUTSTANDING SHARE
($95,774,000/6,405,994
shares outstanding) ........................................... $ 14.95
========
* Non-income producing
(ADR)-American Depositary Receipts
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
11
<PAGE>
The Value Line Special Situations Fund, Inc.
Statement of Assets
and Liabilities at June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
Dollars
(in thousands
except per
share amount)
-------------
Assets:
Investment securities, at value
(Cost-$72,484) ........................................... $ 89,216
Repurchase agreement (Cost-$9,301) ......................... 9,301
Cash ....................................................... 62
Receivable for securities sold ............................. 1,139
Dividends receivable ....................................... 32
Receivable for capital shares sold ......................... 1
--------
Total Assets ........................................... 99,751
--------
Liabilities:
Payable for securities purchased ........................... 3,808
Payable for capital shares repurchased ..................... 31
Accrued expenses:
Advisory fee ............................................. 57
Other .................................................... 81
--------
Total Liabilities ...................................... 3,977
--------
Net Assets ................................................. $ 95,774
--------
Net Assets consist of:
Capital stock, at $1.00 par value
(authorized 100,000,000, outstanding
6,405,994 shares) ........................................ $ 6,406
Additional paid-in capital ................................. 67,142
Undistributed investment income-net ........................ 61
Undistributed net realized gain on
investments .............................................. 5,433
Unrealized net appreciation of
investments............................................... 16,732
--------
Net Assets ................................................. $ 95,774
========
Net Asset Value, Offering and
Redemption Price per
Outstanding Share
($95,774,000/6,405,994 shares
outstanding) ............................................. $ 14.95
========
Statement of Operations
for the six months ended June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
Dollars
(in thousands)
-----------
Investment Income:
Interest ................................................... $ 379
Dividends (Net of foreign withholding
taxes of $1) ............................................. 179
-------
Total Income ........................................... 558
-------
Expenses:
Advisory fee ............................................... 330
Transfer agent ............................................. 57
Custodian fees ............................................. 28
Auditing and legal fees .................................... 21
Telephone and wire charges ................................. 16
Printing and stationery .................................... 15
Postage .................................................... 13
Registration fees .......................................... 12
Directors' fees and expenses ............................... 8
Insurance, dues and other .................................. 3
-------
Total Expenses Before Custody
Credits .............................................. 503
Less: Custody Credits .................................. (3)
-------
Net Expenses ........................................... 500
-------
Investment Income-- Net .................................... 58
-------
Realized and Unrealized Gain on
Investments-Net:
Realized Gain-Net ........................................ 1,560
Change in Unrealized Appreciation ........................ 8,717
-------
Net Realized Gain and Change in
Unrealized Appreciation
on Investments ........................................... 10,277
-------
Net Increase in Net Assets
from Operations .......................................... $ 10,335
========
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12
<PAGE>
The Value Line Special Situations Fund, Inc.
Statement of Changes in Net Assets
for the six months ended June 30, 1997 (unaudited)
and for the year ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1997 December 31,
(unaudited) 1996
-------------------------------------
(Dollars in thousands)
<S> <C> <C>
Operations:
Investment income--net ..................................................... $ 58 $ 1,391
Realized gain on investments--net .......................................... 1,560 20,138
Change in unrealized appreciation .......................................... 8,717 (14,834)
-------------------------------------
Net increase in net assets from operations ................................. 10,335 6,695
-------------------------------------
Distributions to Shareholders:
Investment income--net ..................................................... -- (1,389)
Realized gain from investment transactions--net ............................ -- (19,846)
-------------------------------------
Total distributions ........................................................ -- (21,235)
-------------------------------------
Capital Share Transactions:
Proceeds from sale of shares ............................................... 3,081 17,465
Proceeds from reinvestment of distributions to shareholders ................ -- 18,857
Cost of shares repurchased ................................................. (7,236) (30,596)
-------------------------------------
(Decrease) Increase from capital share transactions ........................ (4,155) 5,726
-------------------------------------
Total Increase (Decrease) .................................................... 6,180 (8,814)
Net Assets:
Beginning of period ........................................................ 89,594 98,408
-------------------------------------
End of period .............................................................. $95,774 $ 89,594
=====================================
Undistributed Investment Income--net, at end of period ....................... $ 61 $ 3
=====================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
13
<PAGE>
The Value Line Special Situations Fund, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 Fund invests primarily in a broadly diversified list of
"special situations."
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 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 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.
- --------------------------------------------------------------------------------
14
<PAGE>
The Value Line Special Situations Fund, Inc.
June 30, 1997 (unaudited)
- --------------------------------------------------------------------------------
2. Capital Share Transactions, Dividends and
Distributions to Shareholders
Transactions in capital stock were as follows (in thousands except per share
amounts):
Six Months
Ended Year
June 30, Ended
1997 December 31,
(unaudited) 1996
-----------------------------
Shares sold .................................. 231 1,039
Shares issued to shareholders
in reinvestment of dividends
and distributions........................... -- 1,436
-----------------------------
231 2,475
Shares repurchased ........................... 540 1,820
-----------------------------
Net (decrease) increase ...................... (309) 655
=============================
Dividends per share .......................... $ -- $.2625
=============================
Distributions per share from
net realized gains ......................... $ -- $3.7500
=============================
3. Purchases and Sales of Securities
Purchases and sales of investment securities, excluding short-term securities,
were as follows:
Six Months Ended
June 30, 1997
(unaudited)
----------------
(in thousands)
PURCHASES:
Investment Securities ...................................... $82,625
========
SALES:
Investment Securities ...................................... $78,882
========
At June 30, 1997, the aggregate cost of investment securities and repurchase
agreements for federal income tax purposes was $81,785,000. The aggregate
appreciation and depreciation of investments at June 30, 1997, based on a
comparison of investment values and their costs for federal income tax purposes,
was $17,576,000 and $844,000 respectively, resulting in a net appreciation of
$16,732,000.
4. Investment Advisory Contract, Management Fees, and Transactions With
Affiliates
An advisory fee of $330,000 was paid or payable to Value Line, Inc., the Fund's
investment adviser (the "Adviser"), for the period ended June 30, 1997. This was
computed at the rate of 3/4 of 1% of the average daily net assets during the
period 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.
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 six
months ended June 30, 1997, the Fund paid brokerage commissions totalling
$60,887 to the distributor, which clears its transactions through unaffiliated
brokers.
The Adviser and/or affiliated companies owned 254,000 shares of the Fund's
capital stock, representing 4.0% of the outstanding shares at June 30, 1997.
- --------------------------------------------------------------------------------
15
<PAGE>
The Value Line Special Situations Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Six Months
Ended Years Ended December 31,
June 30, 1997 --------------------------------------------------------------------------
(unaudited) 1996 1995 1994 1993 1992
-------------- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ............... $ 13.34 $ 16.24 $ 16.15 $ 16.95 $ 15.69 $ 16.41
--------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income (loss) .... .01 .26 .06 (.07) (.13) (.05)
Net gains or losses on securities
(both realized and unrealized) 1.60 .85 4.58 .23 2.14 (.52)
--------------------------------------------------------------------------------------------
Total from investment operations 1.61 1.11 4.64 .16 2.01 (.57)
--------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income .......................... -- (.26) (.06) -- -- #
Distributions from capital gains .. -- (3.75) (4.49) (.96) (.75) (.15)
--------------------------------------------------------------------------------------------
Total distributions ............... -- (4.01) (4.55) (.96) (.75) (.15)
--------------------------------------------------------------------------------------------
Net asset value, end of period ...... $ 14.95 $ 13.34 $ 16.24 $ 16.15 $ 16.95 $ 15.69
============================================================================================
Total return ........................ 12.07%+ 7.24% 28.96% 1.03% 12.99% -3.45%
============================================================================================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) .................... $ 95,774 $ 89,594 $ 98,408 $ 90,180 $ 91,388 $ 101,094
Ratio of expenses to average
net assets ........................ 1.14%*(1) 1.08%(1) 1.06% 1.10% 1.06% 1.09%
Ratio of net investment income (loss)
to average net assets ............. .13%* 1.44% 0.32% (0.46)% (.79)% (.33)%
Portfolio turnover rate ............. 104%+ 146% 10% 37% 39% 43%
Average commissions paid per
share of common stock
investment puchased/sold........... $ .0493(2) $ .0490(2)
</TABLE>
# Dividend paid was less than one cent per share
(1) Before offset of custody credits.
(2) Disclosure effective for fiscal years beginning on or after 9/1/95.
* Annualized
+ Not annualized.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
16
<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
John W. Chandler
Leo R. Futia
Charles E. Reed
Paul Craig Roberts
Nancy-Beth Sheerr
OFFICERS Jean Bernhard Buttner
Chairman and President
Steven E. Grant
Vice President
Philip Orlando
Vice President
David T. Henigson
Vice President and
Secretary/Treasurer
Jack M. Houston
Assistant Secretary/Treasurer
Stephen La Rosa
Assistant Secretary/Treasurer
The financial statements included herein have been taken from the records of the
Fund without examination by the independent accountants and, accordingly, they
do not express an opinion thereon.
This unaudited 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).
VLF706139
