-------------------------
ANNUAL REPORT
-------------------------
December 31, 1998
-------------------------
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 another very successful year for the Value Line Special
Situations Fund. The Fund's total return in 1998 was 29.88%. This compared with
a loss of 2.77% for the unmanaged Russell 2000 Index, the benchmark for
small-capitalization stocks, and a total return of 28.58% for the unmanaged
Standard & Poor's 500, the large-cap index. The Fund's peer group, as measured
by the Lipper Mid-cap Fund Index, gained 12.16%.
Your Fund finished in the top 10% of its peer group in both 1997 and 1998. It
was in late 1996 that we instituted a new investment process. This process
emphasizes stocks with strong earnings momentum and price momentum. When a
company reports mediocre earnings or when its stock performance reveals that
investors are seeking the exits, we sell at the first good opportunity. This
discipline keeps your Fund invested in winners, and has proved to be a winning
strategy. Our buying and selling activity is greater than that of the average
fund, but the added trading costs are well worth the payoff.
The best-performing sector of the 1998 stock market was technology, and your
Fund remains overweighted in this sector relative to the market indexes. This
includes investment in many diverse technology subsectors, including computer
hardware, specialized software serving a broad array of customers and purposes,
telecommunications equipment, semiconductors, electronics, and the Internet.
Internet stocks provided us with excellent trading opportunities in 1998, and we
expect more in 1999, but their high volatility dictates handling with care. For
that matter, volatility is a characteristic of the entire fast-changing
technology sector. This is the tradeoff for investing in what will remain a
rapidly-growing part of the economy for many years to come.
Volatility introduces the topic of risk control, which is a never-ending concern
that we address on a daily basis. Foremost among our risk control techniques is
an emphasis on diversification. Your Fund holds about 350 different stocks in a
wide variety of industries. Holdings of conservative telephone, electric
utility, defense industry, and grocery store stocks, for example, provide some
counterbalance to the technology shares. In addition, since no single holding
represents as much as even 1% of total assets, an unpleasant surprise by any one
company will cause only a minor hit to the fund's performance.
We will stick to our disciplined investment process, and we thank you for your
continued confidence.
Sincerely,
/s/ Jean Bernhard Buttner
Jean Bernhard Buttner
Chairman and President
February 1, 1999
- --------------------------------------------------------------------------------
2
<PAGE>
The Value Line Special Situations Fund, Inc.
Special Situations Fund Shareholders
- --------------------------------------------------------------------------------
Economic Observations
Steady growth and low inflation continue to be two of the dominant themes in the
domestic economy at this time. This enviable performance is underscored by
reports that show persisting strength in consumer spending, housing
construction, personal income, and employment. Such trends suggest that the
economy will expand by more than 3% during the opening quarter of 1999. At the
same time, inflation remains quiescent, with producer and consumer price
increases still modest, overall, and with selective industrial sectors finding
it difficult to implement price increases. In some instances, prices are
actually falling.
We believe this modest pace of economic activity will continue over the next
several months, with growth averaging 2.5%-3.0% for the year as a whole. Our
sense, as well, is that the economic crisis that is still afflicting much of
Asia and parts of Latin America (especially Brazil) will gradually recede over
the next 12 to 18 months. At the same time, we expect inflation to remain
subdued. The Federal Reserve, encouraged by this benign state of economic
affairs, will probably maintain its current monetary stance over the next
several months, at least. Any subsequent adjustment in rates will probably be
modest given the likely absence of excesses in growth or inflation in the
domestic economy.
*Performance Data:
Growth of
Average an Assumed
Annual Investment of
Total Return $10,000
------------ -------------
1 year ended 12/31/98 ...................... 29.88% $12,988
5 years ended 12/31/98 .................... 19.11% $23,974
10 years ended 12/31/98 .................... 15.33% $41,624
* The performance data quoted represent past performance and are no guarantee
of future performance. The average annual total returns and growth of an
assumed investment of $10,000 include dividends reinvested and capital gains
distributions accepted in shares. The investment return and principal value
of an investment will fluctuate so that an investment, when redeemed, may be
worth more or less than its original cost.
- --------------------------------------------------------------------------------
3
<PAGE>
The Value Line Special Situations Fund, Inc.
- --------------------------------------------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
IN THE VALUE LINE SPECIAL SITUATIONS FUND
AND THE S&P 500 STOCK INDEX*
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Value Line Special Situations Fund S & P 500
---------------------------------- --------------
1/89 $10,000 $10,000
3/89 $11,093 $10,707
6/89 $12,026 $11,651
9/89 $12,897 $12,897
12/89 $12,193 $13,161
3/90 $12,193 $12,767
6/90 $13,078 $13,568
9/90 $10,981 $11,706
12/90 $11,650 $12,760
3/91 $14,306 $14,613
6/91 $13,619 $14,580
9/91 $15,057 $15,360
12/91 $15,915 $16,647
3/92 $15,372 $16,227
6/92 $13,229 $16,535
9/92 $13,151 $17,056
12/92 $15,366 $17,915
3/93 $14,494 $18,697
6/93 $15,493 $18,788
9/93 $17,168 $19,274
12/93 $17,362 $19,721
3/94 $16,552 $18,973
6/94 $14,811 $19,053
9/94 $17,403 $19,985
12/94 $17,541 $19,982
3/95 $18,736 $21,927
6/95 $20,463 $24,020
9/95 $23,341 $25,929
12/95 $22,621 $27,490
3/96 $23,373 $28,965
6/96 $23,666 $30,265
9/96 $23,368 $31,201
12/96 $24,260 $33,802
3/97 $24,260 $34,704
6/97 $24,260 $40,762
9/97 $24,260 $43,819
12/97 $32,048 $45,077
3/98 $32,048 $51,364
6/98 $32,048 $53,060
9/98 $32,048 $47,782
12/98 $41,624 $57,958
(Period covered is 1/1/89 to 12/31/98)
- --------------------------------------------------------------------------------
* The Standard & Poor's 500 Index (S&P 500 Index) is an unmanaged index that is
representative of the larger-capitalization stocks traded in the United States.
- --------------------------------------------------------------------------------
4
<PAGE>
The Value Line Special Situations Fund, Inc.
Portfolio Highlights at December 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Ten Largest Holdings
Value Percentage of
Issue Shares (in thousands) Net Assets
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
International Business Machines Corp. ........................ 6,900 $1,275 0.7%
General Electric Co. ......................................... 12,000 1,225 0.6
Amgen Inc. ................................................... 10,500 1,098 0.6
Century Telephone Enterprises, Inc. .......................... 14,750 996 0.5
Time Warner Inc. ............................................. 16,000 993 0.5
Wal-Mart Stores, Inc. ........................................ 12,000 977 0.5
ResMed Inc. .................................................. 20,800 944 0.5
QLogic Corp. ................................................. 7,000 916 0.5
Tarrant Apparel Group ........................................ 23,000 914 0.5
Biogen, Inc. ................................................. 11,000 913 0.5
<CAPTION>
Five Largest Industry Categories
Value Percentage of
Industry (in thousands) Net Assets
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Computer Software & Services ................................. $20,535 10.8%
Retail-Special Lines ......................................... 12,061 6.3
Medical Supplies ............................................. 9,623 5.1
Drug ......................................................... 9,047 4.7
Telecommunication Services ................................... 8,601 4.5
<CAPTION>
Five Largest Net Security Purchases*
Cost
Issue (in thousands)
- -----------------------------------------------------------------------------------------------------------
<S> <C>
General Electric Co. ......................................... $ 1,099
International Business Machines Corp. ........................ 878
Amgen Inc. ................................................... 767
Chase Manhattan Corp. (The)................................... 754
McGraw-Hill Companies, Inc. (The) ............................ 694
Five Largest Net Security Sales*
Proceeds
Issue (in thousands)
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Allegiance Corp. ............................................. $ 742
Cisco Systems, Inc. .......................................... 665
Federal-Mogul Corp. .......................................... 544
UniCapital Corp. ............................................. 539
CMGI, Inc. ................................................... 513
</TABLE>
* For the six month period ended 12/31/98
- --------------------------------------------------------------------------------
5
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
COMMON STOCKS (90.7%)
ADVERTISING (1.7%)
11,000 ADVO, Inc.*............................................ $ 290
9,000 Big Flower Holdings, Inc.*............................. 199
6,000 HA-LO Industries, Inc.*................................ 226
21,000 Harte-Hanks Inc........................................ 598
7,000 Lamar Advertising Co.
Class "A"*......................................... 261
12,000 Omnicom Group, Inc..................................... 696
14,000 TMP Worldwide Inc.*.................................... 588
11,000 Young & Rubicam Inc.*.................................. 356
--------
3,214
AEROSPACE/
DEFENSE (1.3%)
14,400 Engineered Support
Systems, Inc....................................... 214
11,000 General Dynamics Corp.................................. 645
13,000 Gulfstream Aerospace Corp.*............................ 692
3,000 Litton Industries, Inc.*............................... 196
12,000 Orbital Sciences Corp.*................................ 531
4,000 Primex Technologies, Inc............................... 170
--------
2,448
AIR TRANSPORT (0.7%)
12,500 Comair Holdings, Inc................................... 422
18,000 Mesaba Holdings, Inc.*................................. 371
18,000 SkyWest, Inc........................................... 588
--------
1,381
APPAREL (1.1%)
24,000 Chico's FAS, Inc.*..................................... 561
18,000 Quiksilver, Inc.*...................................... 540
23,000 Tarrant Apparel Group*................................. 914
--------
2,015
AUTO PARTS-ORIGINAL
EQUIPMENT (0.3%)
10,000 Arvin Industries, Inc.................................. 417
800 Borg-Warner
Automotive, Inc.................................... 45
6,000 Strattec Security Corp.*............................... 180
--------
642
AUTO PARTS-
REPLACEMENT (0.5%)
14,000 Midas, Inc............................................. 436
12,000 O'Reilly Automotive, Inc.*............................. 567
--------
1,003
BANK (1.0%)
13,500 AmSouth Bancorporation................................. 616
11,000 Chase Manhattan Corp. (The)............................ 749
9,000 First Union Corp....................................... 547
--------
1,912
BANK-MIDWEST (1.3%)
8,000 Comerica Inc........................................... 545
12,000 Fifth Third Bancorp.................................... 856
14,000 First Tennessee
National Corp...................................... 533
12,000 Old Kent Financial Corp................................ 558
--------
2,492
BEVERAGE-
ALCOHOLIC (0.7%)
13,000 Canandaigua Brands, Inc.
Class "A"*......................................... 752
10,000 Coors (Adolph) Co.
Class "B".......................................... 564
--------
1,316
- --------------------------------------------------------------------------------
6
<PAGE>
The Value Line Special Situations Fund, Inc.
December 31, 1998
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
BUILDING
MATERIALS (1.0%)
14,000 Elcor Corp............................................. $ 452
16,000 Granite Construction Inc............................... 537
14,000 Jacobs Engineering
Group Inc.*...................................... 570
15,000 Johns Manville Corp.................................... 247
6,000 NCI Building Systems, Inc.*............................ 169
--------
1,975
CABLE TV (1.4%)
11,600 Cablevision Systems Corp.
Class "A"*......................................... 582
22,500 Century Communications
Corp. Class "A"*................................... 714
12,000 Comcast Corp. Class "A"................................ 704
15,000 EchoStar Communications
Corp. Class "A"*................................... 726
--------
2,726
CEMENT &
AGGREGATES (0.3%)
4,000 CalMat Co.............................................. 124
13,000 Centex Construction
Products, Inc...................................... 528
--------
652
CHEMICAL--
DIVERSIFIED (0.1%)
7,900 Spartech Corp.......................................... 174
COAL/ALTERNATE
ENERGY (0.2%)
6,800 AES Corp.*............................................. 322
COMPUTER &
PERIPHERALS (3.4%)
9,000 American Power
Conversion Corp.*.................................. 436
17,000 Apple Computer, Inc.*.................................. 696
15,000 Compaq Computer Corp................................... 629
18,000 Cybex Computer
Products Corp.*.................................... 529
7,000 EMC Corp.*............................................. 595
6,900 International Business
Machines Corp...................................... 1,275
11,000 Mercury Computer
Systems, Inc.*..................................... 309
18,000 MIPS Technologies Inc.*................................ 576
12,000 Pinnacle Systems, Inc,*................................ 429
5,000 Sun Microsystems, Inc.*................................ 428
16,000 Unisys Corp.*.......................................... 551
--------
6,453
COMPUTER SOFTWARE
& SERVICES (10.8%)
59,000 Acclaim Entertainment, Inc.*........................... 723
14,000 American Management
Systems, Inc.*..................................... 560
11,000 Analytical Surveys, Inc.*.............................. 339
19,000 Apex PC Solutions Inc.*................................ 549
25,000 Ardent Software Inc.*.................................. 575
6,000 At Home Corp. Series "A"............................... 446
15,000 Best Software, Inc.*................................... 356
9,000 CSG Systems
International, Inc.*............................... 711
6,500 Citrix Systems, Inc.*.................................. 631
4,000 Compuware Corp.*....................................... 312
6,000 Comverse Technology, Inc.*............................. 426
9,000 Concord Communications
Inc.*.............................................. 511
19,000 Dendrite International, Inc.*.......................... 474
7,500 Documentum, Inc.*...................................... 401
17,000 ECsoft Group PLC (ADR)*................................ 599
20,000 Electronics For Imaging Inc.*.......................... 804
16,000 Genesys Telecommunications
Laboratories, Inc.*................................ 356
11,000 Great Plains Software Inc.*............................ 531
10,000 Henry (Jack) &
Associates Inc..................................... 498
14,000 Intelligroup Inc.*..................................... 250
- --------------------------------------------------------------------------------
7
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
COMPUTER SOFTWARE
& SERVICES (Continued)
10,000 International Network
Services*.......................................... $ 665
10,000 Macrovision Corp.*..................................... 423
17,000 MAPICS, Inc.*.......................................... 281
15,000 Mastech Corp.*......................................... 429
7,000 Mercury Interactive Corp.*............................. 443
10,000 META Group Inc.*....................................... 297
4,000 Network Solutions Inc.
Class "A"*......................................... 523
14,000 New Dimension
Software, Ltd.*.................................... 674
16,000 New Era of Networks, Inc.*............................. 704
11,000 Oracle Corp.*.......................................... 474
17,000 Paychex, Inc........................................... 874
9,000 Peregrine Systems, Inc.*............................... 417
9,600 Policy Management
Systems Corp.*..................................... 485
18,400 Progress Software Corp.*............................... 621
16,000 Project Software
Development, Inc.*................................. 536
19,000 Rational Software Corp.*............................... 504
17,000 SPR Inc.*.............................................. 293
15,000 Siebel Systems, Inc.*.................................. 509
7,000 Sykes Enterprises Inc.*................................ 213
14,500 TSI International
Software Ltd.*..................................... 694
16,000 Verity Inc.*........................................... 424
--------
20,535
DIVERSIFIED
COMPANIES (0.3%)
1,300 Sequa Corp. Class "A"*................................. 78
7,000 Tyco International, Ltd................................ 528
--------
606
DRUG (4.7%)
10,500 Amgen Inc.*............................................ 1,098
11,000 Biogen, Inc.*.......................................... 913
11,000 Forest Laboratories, Inc.*............................. 585
6,000 Genentech, Inc.*....................................... 478
13,000 Genzyme Corp.*......................................... 647
4,500 K-V Pharmaceutical Co.
Class "A"*......................................... 93
7,000 Medco Research, Inc.*.................................. 182
8,500 MedImmune, Inc.*....................................... 845
18,000 Mylan Laboratories, Inc................................ 567
6,000 Pfizer Inc............................................. 753
16,000 Roberts Pharmaceutical
Corp.*............................................. 348
11,000 Schering-Plough Corp................................... 608
8,000 Sepracor, Inc.*........................................ 705
7,100 Warner-Lambert Co...................................... 534
11,000 Watson Pharmaceuticals,
Inc.*.............................................. 691
--------
9,047
DRUGSTORE (0.6%)
9,000 CVS Corp............................................... 495
13,000 Rite Aid Corp.......................................... 644
--------
1,139
EDUCATIONAL
SERVICES (0.6%)
8,000 Advantage Learning
Systems, Inc.*..................................... 526
26,400 Education Management
Corp.*............................................. 624
--------
1,150
ELECTRIC UTILITY-
EAST (0.7%)
8,000 CMP Group Inc.......................................... 151
11,000 Florida Progress Corp.................................. 493
16,000 PECO Energy Co......................................... 666
--------
1,310
- --------------------------------------------------------------------------------
8
<PAGE>
The Value Line Special Situations Fund, Inc.
December 31, 1998
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
ELECTRICAL
EQUIPMENT (1.6%)
13,000 Corning Inc............................................ $ 585
12,000 General Electric Co.................................... 1,225
21,000 Power Integrations, Inc.*.............................. 526
19,000 Semtech Corp.*......................................... 682
--------
3,018
ELECTRONICS (2.5%)
14,000 Gemstar International
Group, Ltd.*....................................... 802
10,000 Gilat Satellite Networks
Ltd.*.............................................. 551
9,000 Flextronics International
Ltd.*.............................................. 771
7,000 Lexmark International
Group, Inc. Class "A"*............................. 703
7,000 Plantronics Inc.*...................................... 602
16,000 Plexus Corp.*.......................................... 542
11,250 Symbol Technologies, Inc............................... 719
--------
4,690
ENTERTAINMENT (2.0%)
17,000 CBS Corp.*............................................. 557
13,000 Capstar Broadcasting Corp.
Class "A"*......................................... 297
11,544 Chancellor Media Corp.*................................ 553
7,000 Clear Channel
Communications, Inc..*............................. 382
4,000 Jacor Communications, Inc.*............................ 257
8,000 SFX Entertainment, Inc.
Class "A"*......................................... 439
16,000 Time Warner Inc........................................ 993
12,000 USA Networks Inc.*..................................... 397
--------
3,875
ENVIRONMENTAL (0.1%)
7,000 Allied Waste Industries, Inc.*......................... 165
FINANCIAL
SERVICES (1.1%)
23,000 Doral Financial Corp................................... 509
11,000 HealthCare Financial
Partners, Inc.*.................................... 439
7,500 Providian Financial Corp............................... 563
5,600 SEI Investments Company................................ 556
--------
2,067
FOOD PROCESSING (0.3%)
16,800 Earthgrains Co. (The).................................. 520
FURNITURE/HOME
FURNISHINGS (1.1%)
16,000 Department 56, Inc.*................................... 601
4,500 Furniture Brands
International, Inc.*............................... 122
13,000 Juno Lighting, Inc..................................... 304
11,500 Mohawk Industries, Inc.*............................... 484
27,000 Shaw Industries, Inc.*................................. 655
--------
2,166
GROCERY (1.1%)
12,000 Albertson's Inc........................................ 764
12,000 Kroger Co.*............................................ 726
11,000 Safeway, Inc.*......................................... 670
--------
2,160
HEALTHCARE
INFORMATION
SYSTEMS (0.1%)
6,000 HBO & Co............................................... 172
HOME APPLIANCE (0.5%)
11,000 Maytag Corp............................................ 685
11,000 Rent-Way, Inc.*........................................ 267
--------
952
HOMEBUILDING (0.1%)
7,000 Lennar Corp............................................ 177
- --------------------------------------------------------------------------------
9
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
HOUSEHOLD
PRODUCTS (0.7%)
4,000 Clorox Company (The)................................... $ 467
15,000 Ralston-Purina Group................................... 486
4,000 Rent-A-Center, Inc.*................................... 127
7,000 Scotts Company (The)
Class "A"*......................................... 269
--------
1,349
INDUSTRIAL
SERVICES (3.0%)
23,000 ACNielson Corp.*....................................... 650
2,000 ChoicePoint Inc.*...................................... 129
10,000 Lason Inc.*............................................ 582
14,000 Matthews International Corp.
Class "A".......................................... 441
14,700 Metzler Group Inc.*.................................... 716
16,200 National Computer
Systems, Inc....................................... 599
12,000 Profit Recovery Group
International, Inc. (The)*......................... 449
9,000 QRS Corp.*............................................. 432
12,000 RCM Technologies, Inc.*................................ 318
17,431 Romac International, Inc.*............................. 388
4,100 Sabre Group Holdings Inc.
Class "A"*......................................... 182
20,000 Select Appointments Holdings
PLC (ADR).......................................... 430
21,000 URS Corp.*............................................. 491
--------
5,807
INSURANCE-
DIVERSIFIED (1.2%)
13,000 American Bankers
Insurance Group, Inc............................... 629
5,600 American General Corp.................................. 437
9,000 Blanch (E.W.) Holdings Inc............................. 427
14,850 Fidelity National
Financial, Inc..................................... 453
8,000 First American Financial
Corp. (The)........................................ 257
--------
2,203
INSURANCE--LIFE (1.2%)
15,000 AFLAC, Inc............................................. 660
8,700 Jefferson-Pilot Corp................................... 652
7,000 Reinsurance Group
of America Inc..................................... 490
7,000 SunAmerica Inc......................................... 568
--------
2,370
INSURANCE--PROPERTY/
CASUALTY (0.6%)
35,000 Headway Corporate
Resources, Inc.*................................... 214
5,000 Progressive Corp....................................... 847
--------
1,061
INTERNET (1.3%)
10,000 DoubleClick Inc.*...................................... 456
4,000 Inktomi Corp.*......................................... 517
19,000 Macromedia Inc.*....................................... 640
14,000 Network Appliance Inc.*................................ 630
4,500 Ticketmaster Online--
Citysearch, Inc. Class "B"*........................ 252
--------
2,495
MACHINERY (1.5%)
11,000 Astec Industries, Inc.*................................ 612
12,000 Briggs & Stratton Corp................................. 599
14,000 Commercial Intertech Corp.............................. 181
12,000 Ingersoll-Rand Co...................................... 563
10,500 Manitowoc Co., Inc..................................... 466
16,000 Terex Corp.*........................................... 457
--------
2,878
MANUFACTURED
HOUSING/
RECREATIONAL
VEHICLES (0.4%)
15,000 Monaco Coach Corp.*.................................... 397
16,500 National R.V. Holdings, Inc.*.......................... 425
--------
822
- --------------------------------------------------------------------------------
10
<PAGE>
The Value Line Special Situations Fund, Inc.
December 31, 1998
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
MEDICAL SERVICES (2.9%)
7,000 CIGNA Corp............................................. $ 541
16,000 CareMatrix Corp.*...................................... 490
22,000 Hanger Orthopedic
Group, Inc.*....................................... 495
21,000 Hooper Holmes, Inc..................................... 609
15,000 Integrated Health
Services, Inc...................................... 212
13,000 Osteotech, Inc.*....................................... 605
4,000 PacifiCare Health Systems,
Inc. Class "B"*.................................... 318
24,000 Res-Care, Inc.*........................................ 592
12,000 Sunrise Assisted Living Inc.*.......................... 622
19,000 Veterinary Centers
of America Inc.*................................... 379
8,000 WellPoint Health
Networks Inc.*..................................... 696
--------
5,559
MEDICAL SUPPLIES (5.1%)
12,500 Allergan, Inc.......................................... 809
20,000 Alpharma Inc........................................... 706
7,700 Arterial Vascular
Engineering, Inc.*................................. 404
21,000 Bergen Brunswig Corp.
Class "A".......................................... 732
15,333 Bindley Western
Industries, Inc.................................... 755
12,000 Biomatrix Inc.*........................................ 699
11,000 Centocor, Inc.*........................................ 496
10,000 Conmed Corp.*.......................................... 330
18,000 D&K Healthcare
Resources, Inc.*................................... 491
8,000 McKesson Corp.......................................... 633
10,245 Medtronic, Inc......................................... 761
2,000 Ocular Sciences Inc.*.................................. 54
20,800 ResMed Inc.*........................................... 944
4,000 Schein (Henry) Inc.*................................... 179
3,700 Sofamor Danek Group, Inc.*............................. 450
8,000 VISX, Inc.*............................................ 700
15,000 Xomed Surgical Products Inc.*.......................... 480
--------
9,623
METAL FABRICATING
(0.1%)
4,000 SPS Technologies Inc.*................................. 227
NATURAL GAS-
DIVERSIFIED (0.5%)
10,000 El Paso Energy Corp.................................... 348
11,000 Enron Corp............................................. 628
--------
976
OFFICE EQUIPMENT &
SUPPLIES (1.2%)
13,000 Knoll, Inc.*........................................... 385
16,000 Office Depot, Inc.*.................................... 591
8,000 Pitney Bowes, Inc...................................... 529
18,000 Staples, Inc.*......................................... 786
--------
2,291
OILFIELD SERVICES/
EQUIPMENT (0.2%)
15,000 Core Laboratories N.V.*................................ 287
OTHER (0.2%)
22,000 America Bank Note
Holographics, Inc.*................................ 385
3,000 Celestica Inc.*........................................ 74
--------
459
PRECISION
INSTRUMENT (1.4%)
16,000 Hutchinson Technology Inc.*............................ 570
19,000 Optical Coating
Laboratory, Inc.................................... 494
14,000 Orbotech Ltd.*......................................... 663
1,960 Thermo Vision Corp.*................................... 6
10,400 Waters Corp.*.......................................... 907
--------
2,640
- --------------------------------------------------------------------------------
11
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
PUBLISHING (1.9%)
7,700 Consolidated Graphics, Inc.*........................... $ 520
13,000 Houghton Mifflin Co.................................... 614
8,500 McGraw-Hill
Companies, Inc. (The).............................. 866
7,000 Meredith Corp.......................................... 265
13,000 Valassis Communications,
Inc.*.............................................. 671
12,000 Wiley (John) & Sons, Inc.
Class "A".......................................... 580
--------
3,516
RAILROAD (0.2%)
22,000 Johnstown America
Industries, Inc.*.................................. 289
RECREATION (1.6%)
16,000 First Years, Inc. (The)................................ 253
12,000 Harley-Davidson, Inc................................... 569
10,000 International Speedway Corp.
Class "A".......................................... 405
11,000 Polaris Industries, Inc................................ 431
14,000 Royal Caribbean
Cruises, Ltd....................................... 518
15,000 Steiner Leisure Ltd.*.................................. 480
16,000 THQ, Inc.*............................................. 448
--------
3,104
RESTAURANT (2.1%)
22,000 Bob Evans Farms, Inc................................... 573
22,000 Brinker International, Inc.*........................... 635
30,000 Foodmaker Inc.*........................................ 662
1,400 P.F. Chang's China
Bistro Inc.*....................................... 32
14,000 Papa John's International,
Inc.*.............................................. 618
28,400 Ruby Tuesday, Inc...................................... 604
19,000 Ryan's Family Steak
Houses Inc.*....................................... 235
12,000 Tricon Global
Restaurants Inc.*.................................. 601
--------
3,960
RETAIL BUILDING
SUPPLY (0.6%)
15,000 Eagle Hardware &
Garden, Inc.*...................................... 487
10,000 Home Depot Inc. (The).................................. 612
--------
1,099
RETAIL-
SPECIAL LINES (6.3%)
9,000 Abercrombie & Fitch Co.
Class "A"*......................................... 637
8,400 American Eagle
Outfitters, Inc.*.................................. 560
16,000 AnnTaylor Stores Corp.*................................ 631
17,000 Bed Bath & Beyond Inc.*................................ 580
12,000 Best Buy Co., Inc.*.................................... 736
10,500 Buckle Inc.* (The)..................................... 252
7,200 Circuit City Stores --
Circuit City Group ................................ 359
30,000 DM Management Company*................................. 570
7,750 Dollar Tree Stores, Inc.*.............................. 339
15,000 Fingerhut Companies, Inc............................... 232
14,000 Fossil Inc.*........................................... 402
9,000 Gap, Inc............................................... 506
19,000 Group 1 Automotive Inc.*............................... 494
15,000 Hollywood
Entertainment Corp.*............................... 409
8,500 Insight Enterprises, Inc.*............................. 432
17,000 Linens `N' Things, Inc.*............................... 674
21,000 Maxim Group Inc.* (The)................................ 504
26,000 Media Arts Group Inc.*................................. 366
10,500 Men's Wearhouse, Inc. (The)*........................... 333
11,000 Micro Warehouse, Inc.*................................. 372
36,000 Musicland Stores Corp.*................................ 538
6,000 Sonic Automotive, Inc.*................................ 207
19,000 TJX Companies, Inc..................................... 551
16,000 Trans World
Entertainment Corp.*............................... 305
21,000 United Retail Group, Inc.*............................. 226
13,000 Williams-Sonoma, Inc.*................................. 524
10,000 Zale Corp.*............................................ 322
--------
12,061
- --------------------------------------------------------------------------------
12
<PAGE>
The Value Line Special Situations Fund, Inc.
December 31, 1998
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
RETAIL STORE (1.8%)
14,000 Ames Department
Stores, Inc.*...................................... $ 378
8,000 Dayton Hudson Corp..................................... 434
24,000 Kmart Corp.*........................................... 368
6,600 Kohl's Corp.*.......................................... 405
9,687 99 Cents Only Stores *................................. 476
6,000 Pacific Sunwear of
California, Inc.*.................................. 98
10,000 ShopKo Stores, Inc.*................................... 333
12,000 Wal-Mart Stores, Inc................................... 977
--------
3,469
SEMICONDUCTOR (2.5%)
10,000 Applied Micro
Circuits Corp.*.................................... 340
8,500 Micron Technology, Inc.*............................... 430
2,000 Motorola, Inc.......................................... 122
8,000 PMC-Sierra, Inc.*...................................... 505
7,000 QLogic Corp.*.......................................... 916
19,000 RF Micro Devices Inc.*................................. 881
5,000 Rambus Inc.*........................................... 481
18,000 TranSwitch Corp.*...................................... 701
8,000 Vitesse Semiconductor
Corp.*............................................. 365
--------
4,741
SEMICONDUCTOR-
CAPITAL EQUIPMENT
(0.6%)
10,000 Altera Corp.*.......................................... 609
10,000 Electro Scientific
Industries, Inc.*.................................. 453
--------
1,062
TELECOMMUNICATIONS EQUIPMENT (2.3%)
17,200 AVT Corp.*............................................. 499
14,000 General Instrument Corp.*.............................. 475
25,000 InterVoice, Inc.*...................................... 862
10,000 L-3 Communications
Holdings, Inc.*.................................... 466
33,000 Polycom, Inc.*......................................... 734
12,625 Superior TeleCom Inc.*................................. 597
17,000 Tekelec*............................................... 282
21,000 Viatel Inc.*........................................... 480
--------
4,395
TELECOMMUNICATION
SERVICES (4.5%)
9,000 AT & T Corp............................................ 677
7,000 AirTouch
Communications, Inc.*.............................. 505
10,000 BellSouth Corp......................................... 499
14,750 Century Telephone
Enterprises, Inc................................... 996
12,000 DyCom Industries, Inc.*................................ 685
22,000 GeoTel Communications
Corp.*............................................. 819
8,000 MCI WorldCom Inc.*..................................... 574
12,000 MediaOne Group Inc.*................................... 564
24,000 Metromedia Fiber
Network Inc. Class "A"*............................ 804
12,000 Pacific Gateway
Exchange, Inc.*.................................... 577
14,000 SBC Communications Inc................................. 751
14,000 Teleglobe Inc.......................................... 504
10,000 U.S. West, Inc......................................... 646
--------
8,601
- --------------------------------------------------------------------------------
13
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments December 31, 1998
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
THRIFT (0.5%)
19,000 Dime Bancorp, Inc...................................... $ 502
8,000 Downey Financial Corp.................................. 204
8,000 GreenPoint Financial Corp.............................. 281
--------
987
TOILETRIES/
COSMETICS (0.6%)
13,000 Chattem Inc.*.......................................... 622
6,000 Estee Lauder (The)
Companies, Inc. Class "A".......................... 513
--------
1,135
TRUCKING/
TRANSPORTATION
LEASING (0.5%)
7,000 Hertz Corp. (The) Class "A"............................ 319
6,000 Landstar System Inc.*.................................. 245
2,600 M.S. Carriers, Inc.*................................... 86
12,000 MotivePower
Industries, Inc.*.................................. 386
--------
1,036
--------
TOTAL COMMON
STOCKS AND
TOTAL INVESTMENT
SECURITIES (90.7%)
(Cost $126,908,000)................................ 172,976
--------
- --------------------------------------------------------------------------------
Value
Principal (in thousands)
Amounts except per share
(in thousands) amount)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (10.0%)
(including accrued interest)
$19,100 Collateralized by $18,605,000
U.S. Treasury Notes 6 5/8%,
due 6/30/01, with a value
of $19,457,000 (with
Morgan Stanley & Co., Inc.,
4.62%, dated 12/31/98,
due 1/3/99, delivery value
of $19,110,000).................................... $ 19,102
EXCESS OF LIABILITIES
OVER CASH AND
RECEIVABLES (-0.7%) ............................................... (1,444)
--------
NET ASSETS (100.0%) ............................................... $190,634
========
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
OUTSTANDING SHARE
($190,633,703 / 10,767,225 shares
outstanding) ...................................................... $ 17.70
========
* 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 December 31, 1998
Dollars
(in thousands
except per share
amount)
----------------
Assets:
Investment securities, at value
(Cost-$126,908) ............................................ $172,976
Repurchase agreement (Cost--$19,102) ......................... 19,102
Cash ......................................................... 675
Receivable for capital shares sold ........................... 2,334
Receivable for securities sold ............................... 968
Dividends receivable ......................................... 46
--------
Total Assets ........................................... 196,101
--------
Liabilities:
Payable for securities purchased ............................. 4,831
Payable for capital shares repurchased ....................... 440
Accrued expenses:
Advisory fee ............................................... 109
Other ...................................................... 87
--------
Total Liabilities ...................................... 5,467
--------
Net Assets ................................................... $190,634
========
Net Assets consist of:
Capital stock, at $1.00 par value
(authorized 100,000,000,
outstanding 10,767,225 shares) ............................. $ 10,767
Additional paid-in capital ................................... 128,715
Undistributed net realized gain
on investments ............................................. 5,084
Net unrealized appreciation
of investments ............................................. 46,068
--------
Net Assets ................................................... $190,634
========
Net Asset Value, Offering and
Redemption Price per
Outstanding Share
($190,633,703 / 10,767,225
shares outstanding) ........................................ $ 17.70
========
Statement of Operations
for the Year Ended December 31, 1998
Dollars
(in thousands)
--------------
Investment Income:
Dividends (Net of foreign
withholding taxes of $3) ................................ $ 537
Interest .................................................. 400
--------
Total Income ........................................ 937
--------
Expenses:
Advisory fee .............................................. 1,035
Transfer agent ............................................ 117
Custodian fees ............................................ 81
Postage ................................................... 41
Auditing and legal fees ................................... 36
Printing and stationery ................................... 34
Registration fees ......................................... 33
Telephone and wire charges ................................ 25
Directors' fees and expenses .............................. 15
Insurance, dues and other ................................. 8
--------
Total Expenses Before
Custody Credits ................................... 1,425
Less: Custody Credits ............................... (10)
--------
Net Expenses ........................................ 1,415
--------
Net Investment Loss ....................................... (478)
--------
Net Realized and Unrealized Gain
on Investments:
Net Realized Gain ..................................... 13,927
Change in Net Unrealized
Appreciation ........................................ 28,446
--------
Net Realized Gain and Change in
Net Unrealized Appreciation
on Investments .......................................... 42,373
--------
Net Increase in Net Assets from
Operations .............................................. $ 41,895
========
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
15
<PAGE>
The Value Line Special Situations Fund, Inc.
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
for the Years Ended December 31, 1998 and 1997
- -----------------------------------------------------------------------------------------------------
1998 1997
-------------------------
(Dollars in thousands)
<S> <C> <C>
Operations:
Net investment loss ................................................. $ (478) $ (142)
Net realized gain on investments .................................... 13,927 18,163
Change in net unrealized appreciation ............................... 28,446 9,607
-------------------------
Net increase in net assets from operations........................... 41,895 27,628
-------------------------
Distributions to Shareholders:
Net investment income ............................................... -- (4)
Net realized gain from investment transactions....................... (10,402) (19,857)
-------------------------
Total distributions ................................................. (10,402) (19,861)
-------------------------
Capital Share Transactions:
Proceeds from sale of shares ........................................ 151,465 50,634
Proceeds from reinvestment of distributions to shareholders.......... 8,828 17,814
Cost of shares repurchased .......................................... (117,192) (49,769)
-------------------------
Increase from capital share transactions ............................ 43,101 18,679
-------------------------
Total Increase ........................................................ 74,594 26,446
Net Assets:
Beginning of year ................................................... 116,040 89,594
-------------------------
End of year ......................................................... $190,634 $116,040
=========================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
16
<PAGE>
The Value Line Special Situations Fund, Inc.
Notes to Financial Statements December 31, 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 December 31, 1998
- --------------------------------------------------------------------------------
2. Capital Share Transactions, Dividends and Distributions to Shareholders
Transactions in capital stock were as follows (in thousands except per share
amounts):
Year Ended Year Ended
December 31, December 31,
1998 1997
---------------------------
Shares sold ...................................... 9,467 3,023
Shares issued to shareholders
in reinvestment of dividends
and distributions .............................. 530 1,293
---------------------------
9,997 4,316
Shares repurchased ............................... 7,242 3,018
---------------------------
Net increase ..................................... 2,755 1,298
===========================
Dividends per share from net
investment income .............................. $ -- $ .00061
===========================
Distributions per share from
net realized gains ............................. $1.0435 $2.98500
===========================
3. Purchases and Sales of Securities
Purchases and sales of investment securities, excluding short-term securities,
were as follows:
Year Ended
December 31,
1998
(in thousands)
--------------
PURCHASES:
Investment Securities ................................... $261,190
========
SALES:
Investment Securities ................................... $238,602
========
At December 31, 1998, the aggregate cost of investment securities and repurchase
agreement for federal income tax purposes was $146,192,000. The aggregate
appreciation and depreciation of investments at December 31, 1998, based on a
comparison of investment values and their costs for federal income tax purposes,
was $47,065,000 and $1,179,000 respectively, resulting in a net appreciation of
$45,886,000.
Permanent book-tax differences relating to shareholder distributions are
reclassified within the composition of net asset accounts. In the current year
the Fund reclassified $478,000 from accumulated net investment loss to
undistributed net realized gain on investments. Net investment loss, net
realized gain, and net assets were not affected by this reclassification.
4. Investment Advisory Contract, Management Fees, and Transactions With
Affiliates
An advisory fee of $1,035,000 was paid or payable to Value Line, Inc., the
Fund's investment adviser (the "Adviser"), for the year ended December 31, 1998.
This was computed at an annual rate of 3/4 of 1% of the average daily net assets
during the year 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 year
ended December 31, 1998, the Fund paid brokerage commissions totalling $190,755
to the distributor, which clears its transactions through unaffiliated brokers.
The Adviser and/or affiliated companies owned 1,035,992 shares of the Fund's
capital stock, representing 9.6% of the outstanding shares at December 31, 1998.
In addition, certain officers and directors of the Fund owned 142,108 shares of
the Fund, representing 1.3% 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 year:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ........... $ 14.48 $ 13.34 $ 16.24 $ 16.15 $ 16.95
----------------------------------------------------------------
Income (loss) from investment operations:
Net investment income (loss) ............. (.04) (.02) .26 .06 (.07)
Net gains or losses on securities
(both realized and unrealized) ......... 4.30 4.15 .85 4.58 .23
----------------------------------------------------------------
Total from investment operations ......... 4.26 4.13 1.11 4.64 .16
----------------------------------------------------------------
Less distributions:
Dividends from net investment income ..... -- # (.26) (.06) --
Distributions from capital gains ......... (1.04) (2.99) (3.75) (4.49) (.96)
----------------------------------------------------------------
Total distributions ...................... (1.04) (2.99) (4.01) (4.55) (.96)
----------------------------------------------------------------
Net asset value, end of year ................. $ 17.70 $ 14.48 $ 13.34 $ 16.24 $ 16.15
================================================================
Total return ................................. 29.88% 32.10% 7.24% 28.96% 1.03%
================================================================
Ratios/Supplemental Data:
Net assets, end of year (in thousands) ....... $190,634 $116,040 $89,594 $98,408 $90,180
Ratio of expenses to average net assets ...... 1.02%(1) 1.08%(1) 1.08%(1) 1.06% 1.10%
Ratio of net investment (loss) income
to average net assets ...................... (.34)% (.14)% 1.44% 0.32% (0.46)%
Portfolio turnover rate ...................... 183% 240% 146% 10% 37%
</TABLE>
# Dividend paid was less than one cent per share
(1) After offset of custody credits. Excluding the custody credits would not
have changed the expense ratio.
See Notes to Financial Statements
- --------------------------------------------------------------------------------
19
<PAGE>
The Value Line Special Situations Fund, Inc.
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Shareholders and Board of Directors
of The Value Line Special Situations Fund, Inc.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of The Value Line Special Situations
Fund, Inc. (the "Fund") at December 31, 1998, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
February 12, 1999
- --------------------------------------------------------------------------------
Other Information (unaudited)
Year 2000. Like other mutual funds, the Fund could be adversely affected if the
computer systems used by the Adviser and other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem." The Adviser is
taking steps that it believes are reasonably designed to address the Year 2000
Problem with respect to the computer systems that it uses and to obtain
satisfactory assurances that comparable steps are being taken by the Fund's
other major service providers. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact to the Fund.
The Year 2000 Problem is expected to impact corporations, which may include
issuers of portfolio securities held by the Fund, to varying degrees based upon
various factors, including, but not limited to, the corporation's industry
sector and degree of technological sophistication. The Fund is unable to predict
what impact, if any, the Year 2000 Problem will have on issuers of the portfolio
securities held by the Fund.
- --------------------------------------------------------------------------------
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
This report is issued for information of shareholders. It is not authorized for
distribution to prospective investors unless preceded or accompanied by a
currently effective prospectus of the Fund (obtainable from the Distributor).
#504799
