================================================================================
SEMI-ANNUAL REPORT
------------------
June 30, 1998
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The Value Line
Special
Situations
Fund, Inc.
[LOGO]
VALUE LINE
No-Load
Mutual
Funds
<PAGE>
The Value Line Special Situations Fund, Inc.
To Our Value Line
- --------------------------------------------------------------------------------
To Our Shareholders:
We're pleased to report continued strong performance by the Value Line Special
Situations Fund in the first half of 1998. For the six months ending June 30th,
total return was 20.30%, compared to total returns of 17.71% for the unmanaged
Standard & Poor's 500 Index (a benchmark of large-capitalization stocks) and
4.93% for the unmanaged Russell 2000 Index (a benchmark of small-capitalization
stocks). Your Fund was named the #1 performer in the small-cap growth category
for the 12 months ending June 30th, in an analysis by the New York Times.
Our highly disciplined stock selection process is key to the Fund's success.
Only stocks with strong earnings momentum and strong price momentum can enter
and remain in the portfolio. Any sign of weakness in a company's operating
performance or business environment will shorten its shares' welcome here. As a
result, the Fund typically holds a stock for only about six months, on average,
although we prefer to hold for several years where possible.
Risk control is also important to our investment process. Our main tool here is
diversification; the Fund holds over 400 different securities spread across many
sectors of the U.S. and world economy. In particular, we do not let the highly
volatile technology sector become too large a portion of the total portfolio,
even though many stocks in this group meet our selection criteria. Stockholdings
include companies of all sizes, but falling mostly into the small- and mid-cap
size categories.
Given this year's laggard peformance by the market's smaller-cap stocks,
relative to large-caps, we are particularly gratified by the Fund's returns.
These results are further confirmation of the soundness of our investment
process. We will maintain the firm disciplines underlying your Fund's success.
Thank you for investing with us.
Sincerely,
/s/ Jean Bernhard Buttner
Jean Bernhard Buttner
Chairman and President
August 10, 1998
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2
<PAGE>
The Value Line Special Situations Fund, Inc.
Special Situations Fund Shareholders
- --------------------------------------------------------------------------------
Economic Observations
The U.S. economy has slowed considerably since the early part of this year,
principally as a result of the fallout from the deepening financial crisis now
gripping much of Asia. Specifically, GDP, which expanded at a frenetic 5.5% pace
during the opening three months of 1998, came in with just a modest 1.4% gain in
the second quarter. Moreover, based on the data released since then, we believe
that the current expansion will not strengthen appreciably over the final six
months of the year.
At this point, though, we do not believe that this slower pace of economic
activity is the forerunner of a recession. Our sense is that the Asian crisis
will gradually recede over the next year and that the continuing low rate of
inflation in this country will encourage the Federal Reserve to keep a steady
hand on the monetary reins. That combination should help to keep this nation's
economy moving forward, albeit slowly.
But even a modest deceleration in U.S. economic activity is likely to mean a
further slowing in overall corporate profit growth. With equity valuations at
elevated levels, such a slowing in profit growth will lead to accentuated
volatility in the financial markets.
*Performance Data:
Growth of
Average an Assumed
Annual Investment of
Total Return $10,000
------------ -------------
1 year ended 6/30/98.................. 41.81% $14,181
5 years ended 6/30/98................. 20.00% $24,884
10 years ended 6/30/98................. 13.58% $35,743
* 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, 1998 (unaudited)
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<TABLE>
<CAPTION>
Ten Largest Holdings
Value Percentage
Issue Shares (in thousands) of Net Assets
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<S> <C> <C> <C>
Chancellor Media Corp. ....................................... 14,544 $722 0.5%
McKesson Corp. ............................................... 8,000 650 0.4
Labor Ready, Inc. ............................................ 21,000 634 0.4
Unisys Corp. ................................................. 21,000 593 0.4
DM Management Company......................................... 16,000 574 0.4
Federal-Mogul Corp. .......................................... 8,500 574 0.4
Costco Companies, Inc. ....................................... 9,000 568 0.4
UniCapital Corp. ............................................. 29,000 555 0.4
Wal-Mart Stores, Inc. ........................................ 9,000 547 0.4
Suiza Foods Corp. ............................................ 9,150 546 0.4
<CAPTION>
Five Largest Industry Categories
Value Percentage
Industry (in thousands) of Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Computer Software & Services ................................. $17,507 12.0%
Retail-Special Lines ......................................... 9,137 6.3
Industrial Services .......................................... 6,955 4.8
Retail Store ................................................. 6,720 4.6
Drug ......................................................... 5,985 4.1
<CAPTION>
Five Largest Net Security Purchases*
Cost
Issue (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
UniCapital Corp. ............................................. $ 704
Ultimate Software Group, Inc. (The) .......................... 464
Pfizer Inc. .................................................. 427
ARCO Chemical Co. ............................................ 416
PPG Industries, Inc. ......................................... 414
<CAPTION>
Five Largest Net Security Sales*
Proceeds
Issue (in thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Jackson Hewitt, Inc. ......................................... $ 680
Superior Energy Services, Inc. ............................... 642
PeopleSoft, Inc. ............................................. 624
AT&T Corp. ................................................... 617
El Paso Natural Gas Co. ...................................... 599
</TABLE>
* For the six month period ended 06/30/98
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4
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments (unaudited) June 30, 1998
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
COMMON STOCKS (95.1%)
ADVERTISING (1.2%)
11,000 ADVO, Inc.*.................................... $ 310
10,000 Big Flower Holdings, Inc.*..................... 300
9,000 Omnicom Group, Inc............................. 449
8,000 Snyder Communications,
Inc.*...................................... 352
11,000 Young & Rubicam Inc.*.......................... 352
--------
1,763
AEROSPACE/
DEFENSE (2.2%)
10,500 AAR Corp....................................... 310
2,500 Aeroflex Inc.*................................. 26
10,000 Cordant Technologies Inc. ..................... 461
10,000 DONCASTERS
PLC (ADR)*................................. 278
14,400 Engineered Support
Systems, Inc............................... 266
7,000 Gulfstream Aerospace
Corp.*..................................... 326
7,000 HEICO Corp..................................... 185
3,500 HEICO Corp. Class "A".......................... 90
15,000 Kellstrom Industries, Inc.*.................... 435
4,500 Litton Industries, Inc.*....................... 266
6,000 Primex Technologies, Inc.*..................... 308
5,000 Sundstrand Corp................................ 286
--------
3,237
AIR TRANSPORT (0.9%)
9,000 Expeditors International
of Washington, Inc......................... 396
18,000 Mesaba Holdings, Inc.*......................... 414
6,000 Midwest Express
Holdings, Inc.*............................ 217
10,000 SkyWest, Inc................................... 280
--------
1,307
APPAREL (1.4%)
9,000 Abercrombie & Fitch Co.
Class "A"*................................. 396
10,000 Chico's FAS, Inc.*............................. 155
8,000 Fruit of the Loom, Inc.
Class "A"* ................................ 265
10,400 Jones Apparel Group, Inc.*..................... 380
26,000 Tarrant Apparel Group*......................... 491
5,000 V.F. Corp...................................... 258
3,000 Warnaco Group, Inc. (The)...................... 124
--------
2,069
AUTO & TRUCK (0.2%)
12,000 Navistar International Corp.*.................. 346
AUTO PARTS--ORIGINAL
EQUIPMENT (0.7%)
3,000 Hayes Lemmerz
International, Inc.*....................... 119
4,500 Magna International Inc.
Class "A".................................. 309
12,000 Meritor Automotive, Inc........................ 288
9,000 Strattec Security Corp.*....................... 271
--------
987
AUTO PARTS--
REPLACEMENT (0.5%)
8,500 Federal-Mogul Corp............................. 574
10,500 Wynn's International, Inc...................... 202
--------
776
BANK (0.7%)
7,500 AmSouth Bancorporation......................... 295
17,250 North Fork Bancorporation,
Inc........................................ 421
6,000 Zions Bancorporation........................... 319
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1,035
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5
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments (unaudited)
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Value
Shares (in thousands)
- --------------------------------------------------------------------------------
BANK--MIDWEST (0.3%)
5,000 Northern Trust Corp............................ $ 381
BUILDING MATERIALS
(1.0%)
18,000 Johns Manville Corp............................ 271
9,000 Kaynar Technologies Inc.*...................... 212
3,000 Martin Marietta
Materials, Inc............................. 135
3,000 NCI Building Systems, Inc.*.................... 173
12,000 Thomas Industries, Inc......................... 293
6,500 Triangle Pacific Corp.*........................ 358
--------
1,442
CABLE TV (1.3%)
15,000 ANTEC Corp.*................................... 348
4,000 Cablevision Systems Corp.
Class "A"*................................. 334
10,000 Comcast Corp. Class "A"........................ 406
10,500 General Cable Corp............................. 303
11,000 Tele-Communications, Inc. -
TCI Group Series "A"* ..................... 423
--------
1,814
CEMENT & AGGREGATES
(0.2%)
9,000 Centex Construction
Products, Inc.............................. 347
CHEMICAL--BASIC (0.5%)
7,500 ARCO Chemical Co............................... 430
8,000 Millennium Chemicals Inc....................... 271
--------
701
CHEMICAL--
DIVERSIFIED (0.7%)
7,000 Goodrich (B.F.) Co. (The)...................... 347
5,500 PPG Industries, Inc............................ 383
11,000 Spartech Corp.................................. 236
--------
966
CHEMICAL--
SPECIALTY (0.7%)
25,000 Eco Soil Systems, Inc.*........................ 263
10,000 Hexcel Corp.*.................................. 226
6,000 Tredegar Industries, Inc....................... 509
--------
998
COAL/ALTERNATE
ENERGY (0.2%)
6,800 AES Corp.*..................................... 357
COMPUTER &
PERIPHERALS (1.9%)
14,000 Brooktrout Technology, Inc.*................... 194
4,500 Cisco Systems, Inc.*........................... 414
12,000 Cybex Computer Products
Corp.*..................................... 276
13,000 Digi International Inc.*....................... 263
7,000 EMC Corp.*..................................... 314
13,000 FORE Systems, Inc.*............................ 345
12,000 Pinnacle Systems, Inc,*........................ 389
21,000 Unisys Corp.*.................................. 593
--------
2,788
COMPUTER SOFTWARE
& SERVICES (12.0%)
31,000 ATEC Group, Inc.*.............................. 229
8,000 Advent Software, Inc.*......................... 336
11,000 Analytical Surveys, Inc.*...................... 403
3,000 Aspect Development, Inc.*...................... 227
3,000 Aspen Technology, Inc.*........................ 151
5,000 Asymetrix Learning
Systems, Inc.*............................. 45
7,600 BMC Software, Inc.*............................ 395
10,800 BEA Systems, Inc.*............................. 248
5,000 Best Software, Inc.*........................... 106
17,000 Business Objects S.A. (ADR)*................... 287
4,000 CBT Group PLC (ADR)*........................... 214
7,000 Cadence Design Systems,
Inc.*...................................... 219
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6
<PAGE>
The Value Line Special Situations Fund, Inc.
June 30, 1998
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
COMPUTER SOFTWARE
& SERVICES (12.0%)
(Continued)
20,000 Caere Corp.*................................... $ 262
16,000 Catalyst International, Inc.*.................. 196
11,000 CIBER, Inc.*................................... 418
5,500 Citrix Systems, Inc.*.......................... 376
7,000 Compuware Corp.*............................... 358
6,000 Comverse Technology, Inc.*..................... 311
15,000 Concentric Network Corp.*...................... 455
5,000 Dassault Systemes S.A. (ADR)................... 238
11,000 Dendrite International, Inc.*.................. 414
6,500 Documentum, Inc.*.............................. 312
14,000 ECsoft Group PLC (ADR)*........................ 453
15,000 Equinox Systems, Inc.*......................... 125
14,000 FileNet Corp.*................................. 404
2,000 ISS Group, Inc.*............................... 75
7,500 Information Management
Resources, Inc.*........................... 254
9,000 International Network
Services*.................................. 369
6,000 JDA Software Group, Inc.*...................... 262
4,500 Keane, Inc.*................................... 252
10,500 Learning Company, Inc. (The)*.................. 311
12,800 Legato Systems, Inc.*.......................... 499
6,000 Lernout & Hauspie Speech
Products N.V.*............................. 358
16,000 MAPICS, Inc.*.................................. 315
12,000 Mastech Corp.*................................. 337
10,000 Metro Information
Services, Inc.*............................ 391
2,000 Micro Focus Group PLC
(ADR)*..................................... 67
12,000 New Era of Networks, Inc.*..................... 366
12,000 New Dimension
Software, Ltd.*............................ 403
11,250 Paychex, Inc................................... 458
8,000 Peregrine Systems, Inc.*....................... 228
13,000 Platinum Software Corp.*....................... 317
9,600 Policy Management
Systems Corp.*............................. 377
9,600 Progress Software Corp.*....................... 394
15,000 QuadraMed Corp.*............................... 410
10,000 SPR Inc.*...................................... 311
21,000 SS & C Technologies, Inc.*..................... 478
18,000 Software AG Systems, Inc.*..................... 526
17,200 Sterling Software, Inc.*....................... 508
11,400 Systems & Computer
Technology Corp.*.......................... 308
12,000 3Dfx Interactive, Inc.*........................ 206
17,000 Timberline Software Corp....................... 401
45,000 Ultimate Software Group,
Inc. (The)*................................ 419
9,450 Veritas Software Corp.*........................ 391
7,000 Visio Corp.*................................... 334
--------
17,507
DIVERSIFIED
COMPANIES (1.8%)
16,000 Barringer Technologies, Inc.*.................. 151
6,000 Crane Co....................................... 291
14,000 Danaher Corp................................... 514
2,000 NACCO Industries, Inc.
Class "A".................................. 258
3,000 Ogden Corp..................................... 83
1,300 Sequa Corp. Class "A"*......................... 87
4,000 Smith (A.O.) Corp.............................. 207
7,000 Tyco International, Ltd........................ 441
3,000 United Technologies Corp....................... 278
10,500 Varlen Corp.................................... 362
--------
2,672
DRUG (4.1%)
7,000 ALZA Corp.*.................................... 303
6,500 Biovail Corporation
International*............................. 208
8,000 Forest Laboratories Inc.*...................... 286
6,000 Genentech, Inc.*............................... 407
10,500 ICN Pharmaceuticals, Inc....................... 480
4,000 Immunex Corp.*................................. 265
7,500 K-V Pharmaceutical Co.
Class "A"*................................. 170
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7
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments (unaudited)
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
DRUG (4.1%)(Continued)
18,000 Medco Research, Inc.*.......................... $ 459
7,500 MedImmune, Inc.*............................... 468
10,000 Mylan Laboratories, Inc........................ 300
4,000 Pfizer Inc..................................... 435
5,800 Quintiles Transnational Corp.*................. 285
22,000 Roberts Pharmaceutical Corp.*.................. 506
5,000 Schering-Plough Corp........................... 458
5,100 Warner-Lambert Co.............................. 354
7,000 Watson Pharmaceuticals, Inc.*.................. 327
8,800 USANA, Inc.*................................... 274
--------
5,985
DRUGSTORE (0.4%)
13,000 D & K Healthcare
Resources, Inc.*........................... 280
12,000 Natural Alternatives
International, Inc.*....................... 240
--------
520
ELECTRICAL
EQUIPMENT (1.0%)
6,000 Aavid Thermal Technologies,
Inc.*...................................... 175
6,500 C & D Technologies, Inc........................ 377
3,000 Honeywell Inc.................................. 251
7,000 Kuhlman Corp................................... 277
7,600 Technitrol, Inc................................ 304
--------
1,384
ELECTRONICS (1.2%)
6,000 Alpine Group, Inc. (The)*...................... 125
8,000 Galileo International, Inc.*................... 360
6,000 Harmon Industries, Inc......................... 143
7,000 Lexmark International Group,
Inc. Class "A"*............................ 427
8,250 Symbol Technologies Inc........................ 311
10,000 Telxon Corp.................................... 324
--------
1,690
ENTERTAINMENT (2.5%)
3,000 Boston Acoustics, Inc.......................... 110
10,000 CBS Corp.*..................................... 318
13,000 Capstar Broadcasting Corp.
Class "A"*................................. 327
14,544 Chancellor Media Corp.*........................ 722
3,000 Clear Channel
Communications, Inc..*..................... 327
9,500 Dover Downs Entertainment,
Inc........................................ 295
5,000 Jacor Communications, Inc.*.................... 295
8,000 SFX Entertainment, Inc.
Class "A"*................................. 367
16,000 Sinclair Broadcast Group, Inc.
Class "A"*................................. 460
5,000 Time Warner Inc................................ 427
--------
3,648
ENVIRONMENTAL (0.3%)
7,000 Allied Waste Industries, Inc.*................. 168
6,000 USA Waste Services, Inc.*...................... 296
--------
464
FINANCIAL SERVICES
(2.7%)
6,600 Administaff, Inc.*............................. 304
7,000 AmeriCredit Corp.*............................. 250
9,000 AMRESCO, Inc.*................................. 262
17,000 Doral Financial Corp........................... 298
8,000 HealthCare Financial
Partners, Inc.*............................ 490
5,000 Metris Companies, Inc.*........................ 319
6,500 Nationwide Financial
Services, Inc.............................. 331
5,000 Providian Financial Corp....................... 393
12,000 Resource America, Inc.......................... 355
5,600 SEI Investments Company........................ 347
29,000 UniCapital Corp.*.............................. 555
--------
3,904
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8
<PAGE>
The Value Line Special Situations Fund, Inc.
June 30, 1998
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
FOOD PROCESSING (0.8%)
4,800 Earthgrains Co. (The).......................... $ 268
5,000 Michael Foods, Inc............................. 147
14,000 Ralcorp Holdings, Inc.*........................ 264
9,150 Suiza Foods Corp.*............................. 546
--------
1,225
FOREIGN
TELECOMMUNICATION
(0.7%)
8,000 Alcatel Alsthom (ADR).......................... 326
6,000 Nokia Corp. (ADR)
Class "A".................................. 435
12,000 Telesystem International
Wireless Inc.*............................. 230
--------
991
FURNITURE/HOME
FURNISHINGS (1.8%)
9,500 Department 56, Inc.*........................... 337
11,500 Furniture Brands
International, Inc.*....................... 323
4,000 HON INDUSTRIES, Inc............................ 136
5,000 La-Z-Boy, Inc.................................. 282
9,000 LADD Furniture Inc.*........................... 270
12,000 Miller (Herman), Inc........................... 292
10,500 Mohawk Industries, Inc.*....................... 333
19,000 Shaw Industries, Inc.*......................... 335
14,000 Winsloew Furniture, Inc.*...................... 378
--------
2,686
GROCERY (0.7%)
7,210 Meyer (Fred), Inc.*............................ 306
9,000 Safeway, Inc.*................................. 366
5,800 Whole Foods Market, Inc,*...................... 351
--------
1,023
HEALTHCARE
INFORMATION
SYSTEMS (0.9%)
6,200 Cognizant Corp................................. 390
15,000 HBO & Co....................................... 529
15,200 MedQuist Inc.*................................. 439
--------
1,358
HOME APPLIANCE (1.2%)
6,000 Black & Decker Corp............................ 366
7,500 Maytag Corp.................................... 370
10,000 Recoton Corp.*................................. 335
10,000 Rent-Way, Inc.*................................ 305
9,000 Windmere-Durable
Holdings, Inc.*............................ 322
--------
1,698
HOMEBUILDING (0.7%)
8,000 Fairfield Communities, Inc.*................... 153
9,000 Kaufman & Broad Home
Corp....................................... 286
10,000 Lennar Corp.................................... 295
8,000 Webb (Del) Corp................................ 208
--------
942
HOTEL/GAMING (0.3%)
14,500 Servico, Inc.*................................. 217
30,000 U.S. Franchise Systems, Inc.
Class "A"*................................. 244
--------
461
HOUSEHOLD PRODUCTS
(0.5%)
4,000 Colgate-Palmolive Co........................... 352
8,000 Scotts Company (The)
Class "A"*................................. 298
--------
650
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9
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments (unaudited)
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
INDUSTRIAL SERVICES (4.8%)
8,000 Abacus Direct Corp.*........................... $ 415
9,000 AccuStaff Inc.*................................ 281
9,000 Apollo Group, Inc. Class "A"*.................. 298
16,000 Automobile Protection Corp.*................... 159
9,000 Coinmach Laundry Corp.*........................ 213
9,000 Education Management Corp.*.................... 296
10,000 Hagler Bailly, Inc.*........................... 259
10,000 Interim Services, Inc.*........................ 321
21,000 Labor Ready, Inc.*............................. 634
14,000 Matthews International Corp.
Class "A".................................. 344
4,000 Metamor Worldwide Inc.*........................ 141
8,700 Metzler Group Inc.*............................ 319
9,200 National Computer
Systems, Inc............................... 221
10,000 Personnel Group of
America, Inc.*............................. 200
10,000 Profit Recovery Group
International, Inc. (The)*................. 279
18,000 RCM Technologies, Inc.*........................ 366
10,000 RemedyTemp, Inc. Class "A"*.................... 291
7,500 Robert Half International, Inc.*............... 419
16,431 Romac International, Inc.*..................... 499
13,000 Select Appointments
Holdings PLC (ADR)......................... 383
11,000 Staff Leasing, Inc.*........................... 324
8,000 StaffMark, Inc.*............................... 293
--------
6,955
INSURANCE--
DIVERSIFIED (1.7%)
6,000 Ambac Financial Group, Inc..................... 351
4,000 American General Corp.......................... 285
4,000 CMAC Investment Corp........................... 246
13,500 Fidelity National Financial, Inc............... 537
4,000 First American Financial
Corp. (The)................................ 360
7,000 LandAmerica Financial
Group, Inc................................. 401
3,800 Lincoln National Corp.......................... 347
--------
2,527
INSURANCE--LIFE (0.7%)
5,000 Equitable Companies,
Inc. (The)................................. 375
4,000 Life Re Corp................................... 328
5,600 Reinsurance Group of
America, Inc............................... 331
--------
1,034
INSURANCE--PROPERTY/
CASUALTY (1.0%)
4,000 EXEL Ltd....................................... 311
5,000 Fremont General Corp........................... 271
35,000 Headway Corporate
Resources, Inc.*........................... 416
5,400 Mercury General Corp........................... 348
3,750 RLI Corp....................................... 152
--------
1,498
INTERNET (0.7%)
13,000 IDT Corp.*..................................... 391
5,000 Inktomi Corp.*................................. 199
2,700 Yahoo! Inc.*................................... 425
--------
1,015
MACHINERY (2.2%)
10,000 Applied Power, Inc.
Class "A".................................. 344
9,000 Astec Industries, Inc.*........................ 310
10,000 Commercial Intertech Corp...................... 181
17,000 Gardner Denver
Machinery Inc.*............................ 470
4,000 Gencor Industries, Inc.*....................... 81
12,000 Graco Inc...................................... 418
18,000 JLG Industries, Inc............................ 365
7,000 Manitowoc Co., Inc............................. 282
11,000 MotivePower Industries,
Inc.*...................................... 269
8,500 Roper Industries, Inc.......................... 222
10,000 Terex Corp.*................................... 285
--------
3,227
- --------------------------------------------------------------------------------
10
<PAGE>
The Value Line Special Situations Fund, Inc.
June 30, 1998
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
MANUFACTURED HOUSING/
RECREATIONAL
VEHICLES (0.7%)
10,000 Champion Enterprises, Inc.*.................... $ 294
10,000 Monaco Coach Corp.*............................ 293
11,000 National R.V. Holdings, Inc.*.................. 496
--------
1,083
MEDICAL SERVICES (2.8%)
20,000 Hanger Orthopedic
Group, Inc.*............................... 407
12,000 Hooper Holmes, Inc............................. 252
9,000 Integrated Health Services, Inc................ 338
8,000 Lincare Holdings, Inc.*........................ 336
13,000 Osteotech, Inc.*............................... 231
13,250 PSS World Medical Inc.*........................ 194
4,000 PacifiCare Health Systems,
Inc. Class "B"*............................ 353
8,000 Renal Care Group, Inc.*........................ 353
18,000 Res-Care, Inc.*................................ 332
8,000 Rexall Sundown, Inc.*.......................... 282
8,000 Total Renal Care
Holdings, Inc.*............................ 276
8,000 Universal Health Services,
Inc. Class "B"*............................ 467
10,000 Wesley Jessen VisionCare,
Inc.*...................................... 231
--------
4,052
MEDICAL SUPPLIES (3.4%)
9,000 Allegiance Corp................................ 461
7,700 Arterial Vascular
Engineering, Inc.*......................... 275
4,000 Becton, Dickinson & Co......................... 311
13,333 Bindley Western
Industries, Inc............................ 440
5,000 Bio-Rad Laboratories, Inc.
Class "A"*................................. 153
3,200 Cardinal Health, Inc........................... 300
10,000 Cholestech Corp.*.............................. 68
12,000 Cooper Companies, Inc. (The)*.................. 437
8,000 McKesson Corp.................................. 650
13,000 Physio-Control
International Corp.*....................... 342
8,000 Safeskin Corp.*................................ 329
3,700 Sofamor Danek Group, Inc.*..................... 320
7,000 STERIS Corp.*.................................. 445
7,000 VISX, Inc.*.................................... 417
--------
4,948
METAL FABRICATING
(0.7%)
13,000 Coastcast Corp.*............................... 234
4,000 Illinois Tool Works, Inc....................... 267
5,000 Maverick Tube Corp............................. 58
20,000 Mobile Mini, Inc.*............................. 200
8,400 Mueller Industries, Inc.*...................... 312
--------
1,071
METALS & MINING--
DIVERSIFIED (0.1%)
10,000 Niagara Corp.*................................. 89
NEWSPAPER (0.5%)
4,500 Gannett Co., Inc............................... 320
5,500 New York Times Co. (The)
Class "A" ................................. 436
--------
756
OFFICE EQUIPMENT
& SUPPLIES (1.5%)
16,000 Day Runner, Inc.*.............................. 403
9,000 Knoll, Inc.*................................... 265
13,000 Office Depot, Inc.*............................ 410
11,000 Staples, Inc.*................................. 318
7,500 United Stationers, Inc.*....................... 486
3,500 Xerox Corp..................................... 356
--------
2,238
OILFIELD SERVICES/
EQUIPMENT (0.2%)
6,000 Veritas DGC Inc.*.............................. 299
- --------------------------------------------------------------------------------
11
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments (unaudited)
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
PACKAGING &
CONTAINER (0.2%)
8,000 Owens-Illinois, Inc.*.......................... $ 358
PAPER & FOREST
PRODUCTS (0.5%)
5,000 Bowater, Inc................................... 236
24,000 Mail-Well, Inc.*............................... 521
--------
757
PETROLEUM--
INTEGRATED (0.2%)
10,000 Core Laboratories N.V.*........................ 216
PRECISION
INSTRUMENTS (1.2%)
10,000 EG & G, Inc.................................... 300
10,000 Optek Technology, Inc.*........................ 191
17,000 Optical Coating
Laboratory, Inc............................ 325
1,960 Thermo Vision Corp.*........................... 14
10,000 Triumph Group, Inc.*........................... 420
8,000 Waters Corp.*.................................. 472
--------
1,722
PUBLISHING (1.4%)
7,000 Bowne & Co., Inc............................... 315
6,000 CMG Information
Services, Inc.*............................ 424
5,700 Consolidated Graphics, Inc.*................... 336
18,000 Hollinger International, Inc.
Class "A".................................. 306
7,000 Meredith Corp.................................. 329
7,000 Valassis Communications,
Inc.*...................................... 270
--------
1,980
RAILROAD (0.2%)
19,000 Johnstown America
Industries, Inc.*.......................... 330
RECREATION (2.3%)
8,000 Bally Total Fitness
Holding Corp.*............................. 288
6,000 CPI Corp....................................... 143
12,000 Carnival Corp.................................. 475
16,000 First Years, Inc. (The)........................ 304
11,000 Harley-Davidson, Inc........................... 426
8,500 International Speedway Corp.
Class "A".................................. 242
5,700 Premier Parks Inc.*............................ 380
4,500 Royal Caribbean Cruises Ltd.................... 358
12,000 Steiner Leisure Ltd.*.......................... 363
10,000 Steinway Musical
Instruments Inc.*.......................... 322
--------
3,301
RESTAURANT (0.9%)
13,000 Brinker International, Inc.*................... 250
17,000 Buffets, Inc.*................................. 267
6,530 CKE Restaurants, Inc........................... 269
18,000 Fresh Foods Inc.*.............................. 270
20,400 Ruby Tuesday, Inc.............................. 316
--------
1,372
RETAIL BUILDING
SUPPLY (0.3%)
10,000 Lowe's Companies, Inc.......................... 405
RETAIL--SPECIAL
LINES (6.3%)
7,400 American Eagle
Outfitters, Inc.*.......................... 285
18,500 Ashworth Inc.*................................. 257
12,000 Best, Buy Co., Inc.*........................... 433
19,000 Brauns Fashions Corp.*......................... 211
16,000 CATO Corp. Class "A"........................... 278
6,000 Circuit City Stores --
Circuit City Group......................... 281
16,000 DM Management Company*......................... 574
9,750 Dollar Tree Stores, Inc.*...................... 396
15,000 Fingerhut Companies, Inc....................... 495
- --------------------------------------------------------------------------------
12
<PAGE>
The Value Line Special Situations Fund, Inc.
June 30, 1998
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
RETAIL--SPECIAL
LINES (6.3%)(Continued)
13,000 Finish Line, Inc. (The)*....................... $ 366
12,000 Fossil Inc.*................................... 299
6,000 Gap, Inc....................................... 370
14,000 Garden Ridge Corp.*............................ 271
6,500 Goody's Family Clothing, Inc.*................. 357
8,000 Just for Feet, Inc.*........................... 228
11,000 Linens `N' Things, Inc.*....................... 336
15,000 Maxim Group Inc.*.............................. 298
10,500 Men's Wearhouse, Inc.
(The)*..................................... 347
9,000 Michaels Stores, Inc.*......................... 318
22,000 Musicland Stores Corp.*........................ 308
5,000 Payless ShoeSource, Inc.*...................... 368
25,000 Sunglass Hut International,
Inc.*...................................... 277
19,000 TJX Companies, Inc............................. 458
7,000 Tandy Corp..................................... 371
20,000 United Retail Group, Inc.*..................... 318
3,000 Wet Seal, Inc.*................................ 96
8,000 Williams-Sonoma, Inc.*......................... 255
9,000 Zale Corp.*.................................... 286
--------
9,137
RETAIL STORE (4.6%)
14,000 Ames Department Stores, Inc.*.................. 368
7,500 BJ's Wholesale Club, Inc.*..................... 305
8,000 Bon-Ton Stores, Inc.*.......................... 129
10,500 Buckle, Inc. (The)*............................ 310
9,000 Costco Companies, Inc.*........................ 568
7,000 Dayton Hudson Corp............................. 339
8,000 Dollar General Corp............................ 317
17,000 Family Dollar Stores, Inc...................... 314
5,500 Federated Department
Stores, Inc.*.............................. 296
16,000 Group 1 Automotive, Inc.*...................... 256
18,000 Kmart Corp.*................................... 346
6,000 Kohl's Corp.*.................................. 311
8,750 99 Cents Only Stores *......................... 363
12,000 Pacific Sunwear of
California, Inc.*.......................... 420
15,000 Party City Corp.*.............................. 441
10,000 ShopKo Stores, Inc.*........................... 340
8,000 Stage Stores, Inc.*............................ 362
9,000 Trans World Entertainment
Corp.*..................................... 388
9,000 Wal-Mart Stores, Inc........................... 547
--------
6,720
SEMICONDUCTOR (1.1%)
8,000 Applied Micro Circuits Corp.*.................. 207
10,000 Elantec Semiconductor, Inc.*................... 56
8,000 PMC-Sierra, Inc.*.............................. 375
7,000 QLogic Corp.*.................................. 250
3,000 Siliconix, Inc.*............................... 74
21,000 TranSwitch Corp.*.............................. 289
13,000 Vitesse Semiconductor Corp.*................... 401
--------
1,652
SHOE (0.5%)
26,000 Madden (Steven), Ltd.*......................... 301
16,000 Shoe Carnival, Inc.*........................... 222
9,000 Wolverine World Wide, Inc...................... 195
--------
718
STEEL (0.1%)
11,000 ISPAT International N.V.
(NY Shares) Class "A"* .................... 206
TELECOMMUNICATIONS
EQUIPMENT (2.9%)
10,000 AFC Cable Systems, Inc.*....................... 355
12,000 Able Telcom Holding Corp.*..................... 216
15,200 Applied Voice Technology, Inc.*............. .. 350
8,000 ECI Telecom Ltd................................ 303
19,000 General Instrument Corp.*...................... 517
3,500 International Telecommunication
Data Systems, Inc.* ....................... 102
23,000 InterVoice, Inc.*.............................. 408
- --------------------------------------------------------------------------------
13
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments (unaudited) June 30, 1998
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
TELECOMMUNICATIONS
EQUIPMENT (2.9%) (Continued)
8,000 L-3 Communications
Holdings, Inc.*............................ $ 261
3,000 Lucent Technologies Inc........................ 250
18,000 Polycom, Inc.*................................. 271
11,625 Superior TeleCom Inc.*......................... 484
8,000 Tekelec*....................................... 358
4,000 Tellabs, Inc.*................................. 286
--------
4,161
TELECOMMUNICATION
SERVICES (2.0%)
7,000 AirTouch Communications,
Inc.*...................................... 409
6,750 Century Telephone
Enterprises, Inc........................... 310
11,000 GeoTel Communications
Corp.*..................................... 448
5,600 Intermedia Communications,
Inc.*...................................... 235
10,000 MediaOne Group Inc.*........................... 439
17,000 SkyTel Communications Inc.*.................... 398
10,000 STAR Telecommunications,
Inc.*...................................... 224
273 U.S. West, Inc................................. 13
9,500 United Video Satellite
Group, Inc. Class "A"* .................... 376
--------
2,852
TEXTILE (0.2%)
7,000 Pillowtex Corp................................. 281
THRIFT (0.4%)
8,000 Downey Financial Corp.......................... 262
16,000 Ocean Financial Corp........................... 306
--------
568
TOBACCO (0.2%)
7,500 Universal Corp................................. 280
Shares or Value
Principal (in thousands)
Amounts except per share
(in thousands) amount
- --------------------------------------------------------------------------------
TRUCKING/TRANSPORTATION
LEASING (0.4%)
5,600 MS Carriers Inc.*.............................. $ 152
10,000 United Rentals, Inc.*.......................... 420
--------
572
--------
TOTAL COMMON STOCKS
AND TOTAL
INVESTMENT
SECURITIES (95.1%)
(Cost $110,789,000) ....................... 138,502
--------
REPURCHASE AGREEMENT (5.1%)
(including accrued interest)
$ 7,400 Collateralized by $5,676,000
U.S. Treasury Notes 8 1/8%,
due 8/15/21, with a value
of $7,543,690 (with Warburg
Dillon Read, LLC 5.75%,
dated 6/30/98, due 7/1/98,
delivery value of $7,401,182).............. $ 7,401
EXCESS OF LIABILITIES OVER
CASH AND RECEIVABLES (-0.2%) .................................. (345)
--------
NET ASSETS (100%) ........................................... $145,558
========
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
OUTSTANDING SHARE
($145,557,551 / 8,356,885 shares
outstanding) ............................................... $ 17.42
========
* Non-income producing
(ADR) American Depositary Receipts.
See Notes to Financial Statements
- --------------------------------------------------------------------------------
14
<PAGE>
The Value Line Special Situations Fund, Inc.
Statement of Assets
and Liabilities at June 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
Dollars
(in thousands
except per share
amount)
-------------
Assets:
Investment securities, at value
(Cost--$110,789) ..................................... $ 138,502
Repurchase agreement (Cost--$7,401) .................... 7,401
Cash ................................................... 6
Receivable for securities sold ......................... 1,742
Receivable for capital shares sold ..................... 76
Dividends receivable ................................... 35
---------
Total Assets ..................................... 147,762
---------
Liabilities:
Payable for securities purchased ....................... 1,523
Payable for capital shares repurchased ................. 526
Accrued expenses:
Advisory fee ......................................... 85
Other ................................................ 70
---------
Total Liabilities ................................ 2,204
---------
Net Assets ............................................. $ 145,558
=========
Net Assets consist of:
Capital stock, at $1.00 par value
(authorized 100,000,000,
outstanding 8,356,885 shares) ........................ $ 8,357
Additional paid-in capital ............................. 93,592
Accumulated net investment loss ........................ (349)
Undistributed net realized gain
on investments ....................................... 16,245
Net unrealized appreciation
of investments ....................................... 27,713
---------
Net Assets ............................................. $ 145,558
=========
Net Asset Value, Offering and
Redemption Price per Outstanding
Share ($145,557,551 / 8,356,885
shares outstanding) .................................. $ 17.42
=========
Statement of Operations
for the six months ended June 30, 1998 (unaudited)
- --------------------------------------------------------------------------------
Dollars
(in thousands)
------------
Investment Income:
Dividends (Net of foreign
withholding taxes of $1) .............................. $ 214
Interest ................................................ 122
--------
Total Income ...................................... 336
--------
Expenses:
Advisory fee ............................................ 493
Transfer agent .......................................... 57
Custodian fees .......................................... 47
Postage ................................................. 23
Auditing and legal fees ................................. 21
Telephone and wire charges .............................. 14
Printing and stationery ................................. 12
Registration fees ....................................... 12
Directors' fees and expenses ............................ 8
Insurance, dues and other ............................... 3
--------
Total Expenses Before
Custody Credits ................................. 690
Less: Custody Credits ............................. (5)
--------
Net Expenses ...................................... 685
--------
Net Investment Loss ..................................... (349)
--------
Net Realized and Unrealized Gain
on Investments:
Net Realized Gain ................................... 14,208
Change in Net Unrealized
Appreciation ...................................... 10,091
--------
Net Realized Gain and Change in
Net Unrealized Appreciation
on Investments ........................................ 24,299
--------
Net Increase in Net Assets
from Operations ....................................... $ 23,950
========
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
15
<PAGE>
The Value Line Special Situations Fund, Inc.
Statement of Changes in Net Assets for the six months ended June 30, 1998
(unaudited) and for the year ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended
June 30, 1998 December 31,
(unaudited) 1997
----------------------------------
(Dollars in thousands)
<S> <C> <C>
Operations:
Net investment loss ....................................... $ (349) $ (142)
Net realized gain on investments .......................... 14,208 18,163
Change in net unrealized appreciation ..................... 10,091 9,607
-----------------------------
Net increase in net assets from operations ................ 23,950 27,628
-----------------------------
Distributions to Shareholders:
Net investment income ..................................... -- (4)
Net realized gain from investment transactions ............ -- (19,857)
-----------------------------
Total distributions ....................................... -- (19,861)
-----------------------------
Capital Share Transactions:
Proceeds from sale of shares .............................. 53,722 50,634
Proceeds from reinvestment of distributions to shareholders -- 17,814
Cost of shares repurchased ................................ (48,154) (49,769)
-----------------------------
Increase from capital share transactions .................. 5,568 18,679
-----------------------------
Total Increase .............................................. 29,518 26,446
Net Assets:
Beginning of period ....................................... 116,040 89,594
-----------------------------
End of period ............................................. $ 145,558 $ 116,040
=============================
Accumulated Net Investment (Loss) Income, at end of period .. $ (349) $ --
=============================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
16
<PAGE>
The Value Line Special Situations Fund, Inc.
Notes to Financial Statements (unaudited) June 30, 1998
- --------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
17
<PAGE>
The Value Line Special Situations Fund, Inc.
Notes to Financial Statements (unaudited) June 30, 1998
- --------------------------------------------------------------------------------
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
June 30, Year Ended
1998 December 31,
(unaudited) 1997
-----------------------------
Shares sold.............................. 3,260 3,023
Shares issued to shareholders
in reinvestment of dividends
and distributions...................... -- 1,293
-----------------------------
3,260 4,316
Shares repurchased ...................... 2,916 3,018
-----------------------------
Net increase ............................ 344 1,298
=============================
Dividends per share...................... $ -- $ .00061
=============================
Distributions per share from
net realized gains..................... $ -- $2.98500
=============================
3. Purchases and Sales of Securities
Purchases and sales of investment securities, excluding short-term securities,
were as follows:
Six Months
Ended
June 30, 1998
(unaudited)
--------------
(in thousands)
Purchases:
Investment Securities ...................................... $132,898
========
Sales:
Investment Securities ...................................... $126,708
========
At June 30, 1998, the aggregate cost of investment securities and repurchase
agreements for federal income tax purposes was $118,190,000. The aggregate
appreciation and depreciation of investments at June 30, 1998, based on a
comparison of investment values and their costs for federal income tax purposes,
was $30,522,000 and $2,809,000 respectively, resulting in a net appreciation of
$27,713,000.
4. Investment Advisory Contract, Management Fees, and Transactions With
Affiliates
An advisory fee of $493,000 was paid or payable to Value Line, Inc., the Fund's
investment adviser (the "Adviser"), for the six months ended June 30, 1998. 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, 1998, the Fund paid brokerage commissions totalling
$98,000 to the distributor, which clears its transactions through unaffiliated
brokers.
The Adviser and/or affiliated companies owned 708,478 shares of the Fund's
capital stock, representing 8.5% of the outstanding shares at June 30, 1998. In
addition, certain officers and directors of the Fund owned 119,449 shares of the
Fund, representing 1.4% of the shares outstanding.
- --------------------------------------------------------------------------------
18
<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, 1998 --------------------------------------------------------------------
(unaudited) 1997 1996 1995 1994 1993
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period ............... $ 14.48 $ 13.34 $ 16.24 $ 16.15 $ 16.95 $ 15.69
--------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income (loss) ...... (.04) (.02) .26 .06 (.07) (.13)
Net gains or losses on securities
(both realized and unrealized) .. 2.98 4.15 .85 4.58 .23 2.14
--------------------------------------------------------------------------------------
Total from investment operations .. 2.94 4.13 1.11 4.64 .16 2.01
--------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income ............. -- # (.26) (.06) -- --
Distributions from capital gains -- (2.99) (3.75) (4.49) (.96) (.75)
--------------------------------------------------------------------------------------
Total distributions ............. -- (2.99) (4.01) (4.55) (.96) (.75)
--------------------------------------------------------------------------------------
Net asset value, end of period ...... $ 17.42 $ 14.48 $ 13.34 $ 16.24 $ 16.15 $ 16.95
======================================================================================
Total return ........................ 20.30%+ 32.10% 7.24% 28.96% 1.03% 12.99%
======================================================================================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) .................... $ 145,558 $ 116,040 $ 89,594 $ 98,408 $ 90,180 $ 91,388
Ratio of expenses to
average net assets ................ 1.05%*(1) 1.08%(1) 1.08%(1) 1.06% 1.10% 1.06%
Ratio of net investment (loss) income
to average net assets ............. (.53)%* (.14)% 1.44% 0.32% (0.46)% (.79)%
Portfolio turnover rate ............. 99%+ 240% 146% 10% 37% 39%
</TABLE>
# Dividend paid was less than one cent per share
(1) Before offset of custody credits.
+ Not annualized
* Annualized.
See Notes to Financial Statements
19
<PAGE>
The Value Line Special Situations Fund, Inc.
The Value Line Family of Funds
- --------------------------------------------------------------------------------
1950-- The Value Line Fund seeks long-term growth of capital along with modest
current income by investing substantially all of its assets in common stocks or
securities convertible into common stock.
1952-- The Value Kine Income Fund's primary investment objective is income, as
high and dependable as is consistent with reasonable growth. Capital growth to
increase total return is a secondary objective.
1956-- The Value Line Special Situations Fund, seeks to obtain long-term growth
of capital by investing not less than 80% of its assets in "special situations".
No consideration is given to achieving current income.
1972 -- Value Line Leveraged Growth Investors' sole investment objective is to
realize capital growth by investing substantially all of its assets in common
stocks. The Fund may borrow up to 50% of its net assets to increase its
purchasing power.
1979 -- The Value Line Cash Fund, a money market fund, seeks high current income
consistent with preservation of capital and liquidity.
1981-- Value Line U.S. Government Securities Fund seeks maximum income without
undue risk to principal. Under normal conditions, at least 80% of the value to
its assets will be invested in issues of the U.S. Government and its agencies
and instrumentalities.
1983-- Value Line Centurion Fund* seeks long-term growth of capital as its sole
objective by investing primarily in stocks ranked 1 or 2 by Value Line for
year-ahead relative performance.
1984-- The Value Line Tax Exempt Fund seeks to provide investors with maximum
income exempt from federal income taxes while avoiding undue risk to principal.
The Fund offers investors a choice of two portfolios: a Money Market Portfolio
and a High-Yield Portfolio.
1985-- Value Line Convertible Fund seeks high current income together with
capital appreciation primarily from convertible securities ranked 1 or 2 for
year-ahead performance by the Value Line Convetible Ranking System.
1986-- Value Line Aggressive Income Trust seeks to maximize current income by
investing in high-yielding, lower-rated, fixed-income corporate securities.
1987-- Value Line New York Tax Exempt Trust seeks to provide New York taxpayers
with maximum income exempt from New York State, New York City and federal
individual income taxes while avoiding undue risk to principal.
1987-- Value Line Strategic Asset management Trust* invests in stocks, bonds and
cash equivalents according to computer trend models developed by Value Line. The
objective is to professionally manage the optimal allocation of these
investments at all times.
1993-- Value Line Small-Cap Growth Fund invests primarily in common stocks or
securities convertible into common stock, with its primary objective being
long-term growth of capital.
1993-- Value Line Asset Allocation Fund seeks high total investment return,
consistent with reasonable risk. The Fund invests in stocks, bonds and money
market instruments utilizing quantitative modeling to detemine 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, 7days a week. Read the prospectus carefully before you invest or
send money.
- --------------------------------------------------------------------------------
20
<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 PricewaterhouseCoopers 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
David H. Porter
Paul Craig Roberts
Nancy-Beth Sheerr
OFFICERS Jean Bernhard Buttner
Chairman and President
Stephen 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).
501003
