================================================================================
ANNUAL REPORT
-----------------
December 31, 1999
-----------------
The Value Line
Special
Situations
Fund, Inc.
[LOGO]
-----------------
VALUE LINE
No-Load
Mutual
Funds
<PAGE>
The Value Line Special Situations Fund, Inc.
The Value Line
- --------------------------------------------------------------------------------
To Our Shareholders:
We're pleased to report another very successful year for The Value Line Special
Situations Fund. Your Fund's total return in 1999 was 61.66%. This compared with
a total return of 21.19% for the unmanaged Russell 2000 Index, the benchmark for
small-capitalization stocks, and a total return of 21.04% for the unmanaged
Standard & Poor's 500, the large-cap index.
As in 1998, the best-performing sector of the stock market in 1999 was
technology. Your Fund remains overweighted in this sector relative to the market
indexes. This includes investment in many diverse technology subsectors,
including specialty software, telecommunications equipment, semiconductors,
electronics, the internet, and computer hardware. The internet certainly came
into its own in 1999 as a full-fledged subsector, with many new companies
selling stock in initial public offerings. We are able to obtain only nominal
share amounts of these hot new stocks at the offering price. But the Fund
benefited from investment in more "established" internet companies,
concentrating on those that provide the backbone or behind-the-scenes support of
the internet. Perhaps more important to your Fund's performance, the growth of
the internet is giving a boost to every other technology subsector, and even to
some non-technology companies. We take full advantage of this phenomenon.
No matter what the sector, we continue to stick with our investment discipline.
We invest in winners--those companies whose operations are exceeding
expectations and whose stock prices are already on the rise. Portfolio holdings
that no longer meet these standards are targeted for elimination. The Fund
currently holds more than 400 different stocks diversified across many
industries. Our style is to make a big bet on our investment process, but only
small bets on any one stock. In other words, we are interested in hitting
singles and doubles that keep us (and you) in the game.
Mutual Funds magazine (December 1999) named The Value Line Special Situations
Fund as one of the "Top Ten Funds for 2000". We will strive to live up to that
billing.
Thank you for your continued confidence.
Sincerely,
/s/ Jean Bernhard Buttner
Jean Bernhard Buttner
Chairman and President
January 20, 2000
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2
<PAGE>
The Value Line Special Situations Fund, Inc.
Special Situations Fund Shareholders
- --------------------------------------------------------------------------------
Economic Observations
The American economy continues to perform well as we proceed through the first
quarter of 2000. Evidence of this healthy level of business activity can be
found in the strong pace of manufacturing, the acceleration in job growth, and
the generally solid performances by the auto, housing, and retail sectors.
Overall, we estimate that GDP growth will average 3.0%-3.5% for the year as a
whole, making 2000 the tenth year in a row of sustained economic growth in this
country.
Inflationary pressures, meanwhile, continue to be held largely at bay, in spite
of a tightening labor market and a further recent rise in energy prices, with
strong increases in productivity and ongoing technological innovations being at
least partially responsible for this comparative pricing stability.
Nevertheless, a gradual uptrend in cost pressures does seem likely over the next
several quarters. The Federal Reserve, taking note of this somewhat higher
expense structure, is likely to chart a modestly more restrictive monetary
course in the months ahead, with additional, albeit rather modest, interest rate
increases being quite possible.
*Performance Data:
Growth of
Average an Assumed
Annual Investment of
Total Return $10,000
------------ -------------
1 year ended 12/31/99 ...................... 61.66% $16,166
5 years ended 12/31/99 ..................... 30.85% $38,360
10 years ended 12/31/99 ..................... 18.63% $55,188
* 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.
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COMPARISON OF A 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
------------------ -------------------------
1/1/90 10000 10000
3/90 10000 10000
6/90 10000 10000
9/90 10000 10000
12/31/90 9555 9689
3/91 11733 11094
6/91 11170 11068
9/91 12349 11658
12/31/91 13053 12635
3/92 12608 12316
6/92 10850 12550
9/92 10786 12946
12/31/92 12603 13596
3/93 11888 14189
6/93 12707 14257
9/93 14081 14624
12/31/93 14239 14963
3/94 13576 14397
6/94 12148 14457
9/94 14273 15163
12/31/94 14387 15160
3/95 15366 16634
6/95 16783 18220
9/95 19143 19667
12/31/95 18553 20850
3/96 19170 21969
6/96 19410 22954
9/96 19387 23663
12/31/96 19897 25634
3/97 18987 26323
6/97 22299 30915
9/97 27191 33229
12/31/97 26284 34183
3/98 30931 38948
6/98 31621 40234
9/98 26774 36239
12/31/98 34138 43951
3/99 35719 46140
6/99 39711 49392
9/99 39943 46310
12/31/99 55188 53198
(from 1/1/90 to 12/31/99)
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* 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.
The return for the index does not reflect expenses which are deducted from the
Fund's returns.
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4
<PAGE>
The Value Line Special Situation Fund, Inc.
Portfolio Highlights at December 31, 1999 (unaudited)
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<TABLE>
<CAPTION>
Ten Largest Holdings
Value Percentage of
Issue Shares (in thousands) Net Assets
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
General Electric Co. ....................... 40,000 $6,190 1.5%
Microsoft Corp. ............................ 37,000 4,320 1.0
BroadVision, Inc. .......................... 23,000 3,911 0.9
Nortel Networks Corp. ...................... 34,740 3,509 0.8
Exodus Communications, Inc. ................ 36,000 3,197 0.8
Emulex Corp. ............................... 28,000 3,150 0.8
QUALCOMM Inc. .............................. 17,000 2,994 0.7
Optical Coating Laboratory, Inc. ........... 10,000 2,960 0.7
TriQuint Semiconductor, Inc. ............... 25,900 2,881 0.7
QLogic Corp. ............................... 17,000 2,718 0.6
<CAPTION>
Five Largest Industry Categories
Value Percentage of
Industry (in thousands) Net Assets
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Computer Software & Services ................... $69,833 16.6%
Computer & Peripherals ......................... 29,408 7.0
Semiconductor .................................. 27,441 6.5
Drug ........................................... 23,855 5.7
Electronics .................................... 22,992 5.5
<CAPTION>
Five Largest Net Security Purchases*
Cost
Issue (in thousands)
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
General Electric Co. ........................................ $4,683
Microsoft Corp. ............................................. 1,672
Costco Wholesale Corp. ...................................... 1,190
Telefonos de Mexico S.A. (ADR) .............................. 1,183
Citigroup Inc. .............................................. 1,125
<CAPTION>
Five Largest Net Security Sales*
Proceeds
Issue (in thousands)
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Boston Scientific Corp. ...................................... $4,970
JDS Uniphase Corp. ........................................... 2,015
Optical Coating Laboratory, Inc. ............................. 1,882
QUALCOMM Inc. ................................................ 1,511
RF Micro Devices Inc. ........................................ 1,505
</TABLE>
* For the six month period ended 12/31/99
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5
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
COMMON STOCKS (98.0%)
ADVERTISING (1.7%)
17,000 Getty Images, Inc.*................................ $ 831
15,500 Lamar Advertising Co.
Class "A"*....................................... 939
11,000 Modem Media.Poppe
Tyson, Inc. Class "A"*........................... 774
12,000 Omnicom Group, Inc. ......... ..................... 1,200
10,500 TMP Worldwide Inc.*................................ 1,491
21,000 True North Communications
Inc. ............................................ 938
14,000 Young & Rubicam Inc. .............................. 991
--------
7,164
AEROSPACE/DEFENSE
(0.4%)
8,500 Alliant Techsystems Inc.*.......................... 530
20,000 General Dynamics Corp. ............................ 1,055
--------
1,585
AIR TRANSPORT (0.2%)
23,000 Eagle USA Airfreight, Inc.*........................ 992
APPAREL (0.1%)
24,000 Tommy Hilfiger Corp.*.............................. 559
BANK (0.2%)
22,000 Wells Fargo Company................................ 890
BANK--MIDWEST (0.4%)
12,000 Fifth Third Bancorp................................ 880
18,000 First Tennessee
National Corp. .................................. 513
12,600 Old Kent Financial Corp. .......................... 446
--------
1,839
BEVERAGE--
ALCOHOLIC (0.3%)
13,000 Canandaigua Brands, Inc.
Class "A"*....................................... 663
9,000 Coors (Adolph) Co. Class "B"....................... 472
--------
1,135
BUILDING MATERIALS (0.6%)
21,000 Elcor Corp......................................... 633
26,000 Insituform Technologies, Inc.
Class "A"*....................................... 735
27,000 Masco Corp......................................... 685
11,000 USG Corp. ......................................... 518
--------
2,571
CABLE TV (1.7%)
15,024 Adelphia Communications
Corp. Class "A"*................................. 986
11,600 Cablevision Systems Corp.
Class "A"*....................................... 876
400 Classic Communications,
Inc. Class "A"*.................................. 15
24,000 Comcast Corp. Class "A"*.......................... 1,213
26,000 EchoStar Communications
Corp. Class "A"*................................ 2,535
8,000 Network Event Theater, Inc.*. 238
14,000 Pegasus Communications
Corp. Class "A"*................................ 1,368
--------
7,231
CEMENT &
AGGREGATES (0.1%)
13,000 Centex Construction
Products, Inc. .................................. 507
CHEMICAL--
DIVERSIFIED (0.2%)
8,000 Brady Corp. Class "A".............................. 271
20,900 Spartech Corp. .................................... 674
--------
945
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6
<PAGE>
The Value Line Special Situations Fund, Inc.
December 31, 1999
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
CHEMICAL--
SPECIALTY (0.3%)
8,000 Avery Dennison Corp................................ $ 583
12,000 Celgene Corp.*..................................... 840
--------
1,423
COMPUTER &
PERIPHERALS (7.0%)
19,000 Adaptec, Inc.*..................................... 948
22,607 Cisco Systems, Inc.*............................... 2,422
25,000 Cybex Computer Products
Corp.*........................................... 1,013
22,000 Dell Computer Corp.*............................... 1,122
28,000 Emulex Corp.*...................................... 3,150
12,000 Gateway Inc.*...................................... 865
10,000 Hewlett-Packard Co. ............................... 1,139
40,000 In Focus Systems, Inc.*............................ 927
7,000 International Business
Machines Corp. .................................. 756
29,500 Interphase Corp.*.................................. 623
8,000 ION Networks, Inc.*................................ 179
15,000 MRV Communications, Inc.*.......................... 943
44,000 Mercury Computer
Systems, Inc.*................................... 1,540
5,300 Micros Systems Inc.*............................... 392
22,000 Network Appliance, Inc.*........................... 1,827
16,000 Network Peripherals Inc.*.......................... 756
24,000 Pinnacle Systems, Inc,*............................ 977
20,000 Puma Technology, Inc.*............................. 2,613
16,500 RadiSys Corp.*..................................... 842
18,000 Silicon Storage
Technology, Inc.*................................ 742
28,400 Sun Microsystems, Inc.*............................ 2,199
13,000 Visual Networks, Inc.*............................. 1,030
18,000 Xircom, Inc.*...................................... 1,350
18,000 Zebra Technologies Corp.
Class "A"*....................................... 1,053
--------
29,408
COMPUTER SOFTWARE
& SERVICES (16.6%)
50,000 Actuate Corp.*..................................... 2,144
20,000 Adobe Systems Inc.................................. 1,345
21,000 Advanced Digital
Information Corp.*............................... 1,021
21,000 Ancor Communications, Inc.*........................ 1,425
6,000 AremisSoft Corporation*............................ 195
13,000 BEA Systems, Inc.*................................. 909
16,000 Brio Technology, Inc.*............................. 672
23,000 BroadVision, Inc.*................................. 3,911
14,000 Business Objects S.A. (ADR)*. 1,871
10,000 Check Point Software
Technologies Ltd.*............................... 1,988
14,000 Citrix Systems, Inc.*.............................. 1,722
19,000 Clarus Corporation*................................ 1,254
17,000 Cognos, Inc.*...................................... 784
15,000 Cognizant Technology
Solutions Corp. Class "A"*....................... 1,640
11,000 Computer Associates
International, Inc. ............................. 769
12,000 Computer Sciences Corp.*........................... 1,135
12,000 Comverse Technology, Inc.*......................... 1,737
10,500 DST Systems, Inc.*................................. 801
31,500 Dendrite International, Inc.* 1,067
31,000 DSET Corp.*........................................ 1,159
17,000 Eidos PLC (ADR)*................................... 1,411
20,000 Electronics For Imaging Inc.* 1,163
10,000 FactSet Research Systems Inc. 796
16,000 Great Plains Software Inc.*........................ 1,196
27,000 Harbinger Corp.*................................... 859
12,000 Henry (Jack) & Associates Inc. 644
15,000 ISS Group, Inc.*................................... 1,067
6,000 InfoCure Corp.*.................................... 187
30,000 Intuit Inc.* ...................................... 1,798
4,000 i2 Technologies, Inc.* ............................ 780
13,000 Legato Systems, Inc.*.............................. 895
19,000 Macrovision Corp.*................................. 1,406
20,000 Magic Software
Enterprises Ltd.*................................ 1,240
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7
<PAGE>
The Value Line Special Situations Fund, Inc.
December 31, 1999
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
COMPUTER SOFTWARE
& SERVICES (Continued)
1,800 McAfee.com Corporation
Class "A"*....................................... $ 81
14,000 Mercury Interactive Corp.*......................... 1,511
37,000 Microsoft Corp.*................................... 4,320
9,000 MicroStrategy Inc. Class "A"* 1,890
7,000 Micromuse Inc.*.................................... 1,190
30,000 Midway Games Inc.*................................. 718
6,000 Netegrity, Inc.*................................... 342
12,000 Netopia, Inc.*..................................... 652
20,000 NVIDIA Corp.*...................................... 939
25,500 Paychex, Inc. ..................................... 1,020
22,000 Peregrine Systems, Inc.*........................... 1,852
15,400 Progress Software Corp.*........................... 874
7,000 RSA Security Inc.*................................. 542
2,000 RAVISENT Technologies Inc.*........................ 77
19,000 Remedy Corp.*...................................... 900
18,000 Sagent Technology, Inc.*........................... 539
6,000 Santa Cruz Operation,
Inc. (The)*...................................... 182
24,000 ScanSource, Inc.*.................................. 973
28,000 SERENA Software, Inc.*............................. 866
22,000 Siebel Systems, Inc.*.............................. 1,848
19,000 Symantec Corp.*.................................... 1,114
60,000 Unify Corp.*....................................... 1,643
15,500 USinternetworking, Inc.*........................... 1,083
200 VA Linux Systems, Inc.*............................ 41
16,000 Verio Inc.*........................................ 739
10,500 VERITAS Software Corp.*............................ 1,503
31,000 Zomax Inc.*........................................ 1,403
--------
69,833
DIVERSIFIED
COMPANIES (0.7%)
11,000 American Standard
Companies Inc.*.................................. 505
13,000 Textron, Inc. ..................................... 997
24,000 Tyco International, Ltd. .......................... 933
7,000 United Technologies Corp. ......................... 455
--------
2,890
DRUG (5.7%)
26,000 Amgen Inc.*........................................ 1,562
15,000 Andrx Corp.*....................................... 635
22,000 Biogen, Inc.*...................................... 1,859
11,900 Biovail Corporation
International*................................... 1,116
11,000 Bristol-Myers Squibb Co. .......................... 706
10,000 CuraGen Corp.*..................................... 698
27,000 DUSA Pharmaceuticals,
Inc.*............................................ 769
24,000 Enzon, Inc.*....................................... 1,041
11,000 Forest Laboratories, Inc.*......................... 676
9,000 Genetech, Inc.*.................................... 1,210
18,000 IDEC Pharmaceuticals
Corp.*........................................... 1,768
3,000 Immunex Corp.*..................................... 329
40,000 IVAX Corp.*........................................ 1,030
24,500 Jones Pharma Inc. ................................. 1,064
39,000 King Pharmaceuticals, Inc.*........................ 2,186
900 Maxygen Inc.*...................................... 64
13,000 MedImmune, Inc.*................................... 2,156
20,000 Millennium Pharmaceuticals,
Inc.*............................................ 2,440
26,000 QLT PhotoTherapeutics,
Inc.*............................................ 1,528
16,682 Shire Pharmaceuticals
Group PLC (ADR)*................................. 486
28,000 Titan Pharmaceuticals, Inc.*. 532
--------
23,855
EDUCATIONAL
SERVICES (0.2%)
19,000 National Computer
Systems, Inc. ................................... 715
ELECTRIC UTILITY--
CENTRAL (0.4%)
19,800 AES Corp.*......................................... 1,480
ELECTRIC UTILITY--
WEST (0.6%)
39,000 Calpine Corp.*..................................... 2,496
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8
<PAGE>
The Value Line Special Situations Fund, Inc.
December 31, 1999
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
ELECTRICAL
EQUIPMENT (2.7%)
40,000 General Electric Co. .............................. $ 6,190
38,000 Power Integrations, Inc.*.......................... 1,822
25,000 Power-One, Inc.*................................... 1,145
25,000 Semtech Corp.*..................................... 1,303
22,000 Vicor Corp.*....................................... 891
--------
11,351
ELECTRONICS (5.5%)
25,000 ACT Manufacturing, Inc.*........................... 937
17,000 Adaptive Broadband Corp.*.......................... 1,255
12,000 Alpha Industries, Inc.*............................ 688
15,000 ANADIGICS, Inc.*................................... 708
24,000 CTS Corp. ......................................... 1,809
22,000 Cree, Inc.*........................................ 1,878
12,000 DII Group, Inc.*................................... 852
18,000 Flextronics International
Ltd.*............................................ 828
28,000 Gemstar International
Group, Ltd.*..................................... 1,995
11,000 Gilat Satellite Networks
Ltd.*............................................ 1,306
24,000 Imation Corp.*..................................... 805
13,000 Micrel, Inc.*...................................... 740
20,000 Sawtek Inc.*....................................... 1,331
24,000 Spectrian Corp.*................................... 678
27,875 Symbol Technologies, Inc. ......................... 1,772
26,666 Three-Five Systems, Inc.*.......................... 1,093
48,000 Titan Corp. (The)*................................. 2,262
23,000 Universal Electronics Inc.*........................ 1,058
6,000 Vari-L Company, Inc.*.............................. 206
25,000 Vishay Intertechnology, Inc.* 791
--------
` 22,992
ENTERTAINMENT (2.9%)
17,985 AMFM Inc.* ........................................ 1,407
19,000 CBS Corp.*......................................... 1,215
9,629 Clear Channel
Communications, Inc.*............................ 859
13,000 Cox Radio, Inc. Class "A"*......................... 1,297
23,000 Cumulus Media Inc.
Class "A"*....................................... 1,167
10,000 Emmis Communications
Corp. Class "A"*................................. 1,246
16,800 Entercom Communications
Corp.*........................................... 1,109
8,000 Hispanic Broadcasting
Corp.*........................................... 738
4,000 TCI Satellite Entertainment,
Inc. Class "A"*.................................. 64
14,000 Time Warner, Inc. ................................. 1,014
16,000 USA Networks, Inc.*................................ 884
11,000 Univision Communications
Inc. Class "A"*.................................. 1,124
--------
12,124
FINANCIAL SERVICES
(1.4%)
4,000 American General Corp.............................. 303
13,000 American International
Group, Inc. ..................................... 1,406
11,000 Blanch (E.W.) Holdings,
Inc. ............................................ 674
16,000 Capital One Financial Corp......................... 771
21,000 Citigroup Inc. .................................... 1,167
14,000 Metris Companies, Inc. ............................ 500
18,000 NCO Group, Inc.* .................................. 542
7,500 Providian Financial Corp. ........................ 683
--------
6,046
FOOD PROCESSING (0.6%)
17,000 Dean Foods Co. .................................... 676
15,000 Keebler Foods Co.*................................. 422
22,000 McCormick & Company,
Inc. ............................................ 655
12,000 Quaker Oats Co. (The) ............................. 787
--------
2,540
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9
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
FOOD WHOLESALERS
(0.2%)
20,000 Sysco Corp. ....................................... $ 791
FOREIGN ELECTRONICS/
ENTERTAINMENT (0.5%)
12,000 ARM Holdings PLC (ADR)* ........................... 2,298
FOREIGN
TELECOMMUNICATIONS
(2.6%)
20,000 AT & T Canada Inc.
Class "B" (ADR)* ................................ 805
16,000 Ericsson (L.M.) Telephone
Co. (ADR) ....................................... 1,051
19,000 Euro909.com A/S (ADR)*............................. 523
900 Jazztel PLC (ADR)*................................. 59
900 Korea Thrunet Co., Ltd.
Class "A"*....................................... 61
14,000 Nokia Corp. (ADR).................................. 2,660
34,740 Nortel Networks Corp. ............................. 3,509
12,000 Telefonos de Mexico S.A.
(ADR) ........................................... 1,350
15,000 Vodafone Airtouch PLC
(ADR) ........................................... 742
--------
10,760
FURNITURE/HOME
FURNISHINGS (0.1%)
19,500 Ethan Allen Interiors, Inc. ....................... 625
GROCERY (0.1%)
18,000 Kroger Co.* ....................................... 340
HEALTHCARE
INFORMATION
SYSTEMS (0.1%)
900 Healthcentral.com*................................. 7
14,000 MedQuist, Inc.* ................................... 361
--------
368
HOME APPLIANCE (0.1%)
10,000 Whirlpool Corp. ................................... 651
HOTEL/GAMING (0.7%)
55,000 Argosy Gaming Company*............................. 856
23,000 Crestline Capital Corp.*........................... 474
5,000 Isle of Capri Casinos, Inc.* ...................... 66
55,000 Park Place Entertainment
Corp.*........................................... 688
30,000 Station Casinos, Inc.* ............................ 673
--------
2,757
HOUSEHOLD
PRODUCTS (0.5%)
28,000 Church & Dwight Co., Inc. ......................... 747
13,000 Kimberly-Clark Corp. .............................. 848
6,000 Salton, Inc.* ..................................... 201
10,000 Scotts Company (The)
Class "A"*....................................... 403
--------
2,199
INDUSTRIAL SERVICES
(1.5%)
15,000 CSG Systems International,
Inc.* ........................................... 598
13,000 Career Education Corp. ............................ 499
6,000 Catalina Marketing Corp.*.......................... 695
28,000 Celestica Inc.*.................................... 1,554
400 Knot, Inc. (The)* ................................. 3
11,500 Profit Recovery Group
International, Inc. (The)*....................... 305
15,000 Quanta Services, Inc.* ............................ 424
9,100 Sabre Holdings Corp. .............................. 466
23,000 StarTek, Inc.*..................................... 834
14,000 TeleTech Holdings, Inc.* .......................... 472
21,000 URS Corp.*......................................... 455
--------
6,305
- --------------------------------------------------------------------------------
10
<PAGE>
The Value Line Special Situations Fund, Inc.
December 31, 1999
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
INTERNET (3.2%)
300 Agency.com Ltd.*................................... $ 15
1,400 Akamai Technologies Inc. .......................... 459
11,000 America Online, Inc.*.............................. 830
10,000 At Home Corp.*..................................... 429
900 Be Free, Inc.* .................................... 65
400 CacheFlow Inc.*.................................... 52
400 Egreetings Network, Inc.* ......................... 4
400 El Sitio, Inc.* ................................... 15
36,000 Exodus Communications,
Inc.* ........................................... 3,197
6,000 F5 Networks, Inc.*................................. 684
400 FreeMarkets, Inc.*................................. 137
2,700 Harris Interactive Inc.*........................... 35
29,000 IntraNet Solutions, Inc.* ......................... 1,073
3,000 Liberate Technologies, Inc.*....................... 771
3,000 Luminant Worldwide Corp.*.......................... 137
17,000 Macromedia Inc.* .................................. 1,243
2,300 MedicaLogic, Inc.*................................. 48
900 NetRatings, Inc.*.................................. 43
7,000 Portal Software, Inc.* ............................ 720
400 Retek Inc.*........................................ 30
15,000 S1 Corporation*.................................... 1,172
10,000 Sapient Corp.* .................................... 1,409
5,500 Ticketmaster Online--
Citysearch, Inc. Class "B"* 211
5,000 Viant Corp.*....................................... 495
900 Xpedior Inc.* ..................................... 26
--------
13,300
MACHINERY (0.9%)
14,000 Astec Industries, Inc.* ........................... 263
10,000 Briggs & Stratton Corp. ........................... 536
26,000 Donaldson Company, Inc. ........................... 626
24,000 Dover Corp. ....................................... 1,089
18,000 Graco Inc.......................................... 646
18,000 Helix Technology Corp. ............................ 807
--------
3,967
MANUFACTURED HOUSING/
RECREATIONAL
VEHICLES (0.3%)
22,500 Monaco Coach Corp.*................................ 575
16,500 National R.V. Holdings, Inc.* 317
15,000 Oshkosh Truck Corp................................. 440
--------
1,332
MEDICAL SERVICES (1.1%)
22,000 Advance Paradigm, Inc.*............................ 474
7,000 Affymetrix, Inc.*.................................. 1,188
11,000 Express Scripts, Inc.
Class "A"* ...................................... 704
42,000 Hooper Holmes, Inc. ............................... 1,082
5,000 PacifiCare Health Systems,
Inc. Class "B"* ................................. 265
21,000 Quest Diagnostics Inc.*............................ 642
8,000 Syncor International Corp.*........................ 233
--------
4,588
MEDICAL SUPPLIES (3.1%)
23,400 Allergan, Inc. .................................... 1,164
20,000 Alpharma Inc. Class "A"* .......................... 615
13,000 ArthroCare Corp.*.................................. 793
32,444 Bindley Western Industries,
Inc. ............................................ 489
16,000 Cytyc Corporation*................................. 977
24,000 Datascope Corp.* .................................. 960
21,800 INAMED Corp.*...................................... 956
20,000 Johnson & Johnson ................................. 1,863
29,702 Medtronic, Inc. ................................... 1,082
17,000 Patterson Dental Co.*.............................. 725
15,300 ResMed Inc.*....................................... 639
32,000 SonoSite, Inc.*.................................... 1,012
16,000 Techne Corp.* ..................................... 881
9,000 Ventana Medical Systems,
Inc.* ........................................... 224
15,000 VISX, Inc.*........................................ 776
--------
13,156
- --------------------------------------------------------------------------------
11
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
NATURAL GAS--
DIVERSIFIED (0.2%)
22,000 Enron Corp......................................... $ 976
NEWSPAPER (1.3%)
19,000 Central Newspapers, Inc.
Class "A" ....................................... 748
18,000 Dow Jones & Company, Inc. ......................... 1,224
12,000 Gannett Co., Inc. ................................. 979
7,000 Knight-Ridder, Inc. ............................... 417
10,000 McClatchy Company (The)
Class "A" ....................................... 432
5,000 Times Mirror Company (The)
Class "A" ....................................... 335
21,000 Tribune Co. ....................................... 1,156
--------
5,291
OFFICE EQUIPMENT
& SUPPLIES (0.2%)
9,000 Pitney Bowes, Inc. ................................ 435
27,000 Staples, Inc.* .................................... 560
--------
995
PACKAGING &
CONTAINER (0.0%)
5,000 Ball Corp.......................................... 197
PRECISION INSTRUMENT
(2.3%)
8,000 Kronos Inc.*....................................... 480
27,000 Mettler-Toledo
International Inc.* ............................. 1,031
19,000 Newport Corp. ..................................... 869
10,000 Optical Coating Laboratory,
Inc. ............................................ 2,960
21,000 Orbotech, Ltd.*.................................... 1,627
27,000 PerkinElmer, Inc. ................................. 1,126
34,000 Varian Inc......................................... 765
14,000 Waters Corp.* ..................................... 742
--------
9,600
PUBLISHING (0.6%)
13,000 McGraw-Hill Companies,
Inc. (The) ...................................... 801
27,000 Reader's Digest Association,
Inc. Class "A" .................................. 790
19,500 Valassis Communications,
Inc.* ........................................... 824
--------
2,415
RECREATION (1.0%)
8,000 Electronic Arts Inc.*.............................. 672
12,000 Harley-Davidson, Inc. ............................. 769
12,000 International Speedway Corp.
Class "A" ....................................... 605
33,000 JAKKS Pacific, Inc.* .............................. 617
17,000 Royal Caribbean Cruises,
Ltd. ............................................ 838
24,000 THQ, Inc.*......................................... 556
--------
4,057
RESTAURANT (1.1%)
21,000 Applebee's International, Inc. .................... 619
26,000 Brinker International, Inc.*....................... 624
24,000 Cheesecake Factory, Inc.
(The)*........................................... 840
32,000 Darden Restaurants, Inc. .......................... 580
30,000 Jack In The Box Inc.* ............................. 621
28,400 Ruby Tuesday, Inc. ................................ 517
25,000 Sonic Corp.* ...................................... 712
--------
4,513
RETAIL BUILDING
SUPPLY (0.6%)
22,500 Home Depot, Inc. (The)............................. 1,543
15,600 Lowe's Companies, Inc. ............................ 932
--------
2,475
- --------------------------------------------------------------------------------
12
<PAGE>
The Value Line Special Situations Fund, Inc.
December 31, 1999
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
RETAIL--
SPECIAL LINES (4.8%)
18,000 Abercrombie & Fitch Co.
Class "A"* ...................................... $ 480
16,800 American Eagle Outfitters,
Inc.* ........................................... 756
16,000 AnnTaylor Stores Corp.* ........................... 551
37,000 Audiovox Corp. Class "A".......................... 1,124
12,200 bebe stores, inc.*................................. 329
21,000 Bed Bath & Beyond Inc.* ........................... 730
14,000 CDW Computer Centers,
Inc.*............................................ 1,101
24,000 Chico's FAS, Inc.* ................................ 903
16,400 Circuit City Stores--
Circuit City Group .............................. 739
25,000 Copart, Inc.*...................................... 1,087
25,500 Cost Plus, Inc.* .................................. 908
7,750 Dollar Tree Stores, Inc.* ......................... 375
400 Fogdog, Inc.*...................................... 4
21,000 Fossil Inc.*....................................... 486
12,000 Gap, Inc. (The) ................................... 552
16,000 Group 1 Automotive Inc.*........................... 223
12,000 Haverty Furniture
Companies, Inc. ................................. 151
12,000 Insight Enterprises, Inc.* ........................ 488
38,000 InterTAN, Inc.*.................................... 993
18,900 Intimate Brands, Inc. ............................. 815
19,000 Linens `N' Things, Inc.* .......................... 563
27,000 Quiksilver, Inc.* ................................. 419
21,000 REX Stores Corp.* ................................. 735
22,000 Ross Stores, Inc. ................................. 395
12,000 Sonic Automotive, Inc.* ........................... 117
19,000 TJX Companies, Inc. ............................... 388
17,000 Talbots, Inc. (The) ............................... 759
16,000 Tandy Corp......................................... 787
16,000 Tiffany & Co. ..................................... 1,428
14,000 ValueVision International, Inc.
Class "A"* ...................................... 802
18,000 Zale Corp.* ....................................... 871
--------
20,059
RETAIL STORE (2.0%)
27,000 Ames Department Stores,
Inc.*............................................ 778
25,000 BJ's Wholesale Club, Inc.* ........................ 912
15,000 Costco Wholesale Corp.*............................ 1,369
12,000 Dayton Hudson Corp................................. 881
28,000 Family Dollar Stores, Inc. ........................ 457
11,500 Federated Department
Stores, Inc.*.................................... 581
9,600 Kohl's Corp.* ..................................... 693
9,687 99 Cents Only Stores *............................. 371
34,000 Wal-Mart Stores, Inc. ............................. 2,350
--------
8,392
SECURITIES
BROKERAGE (0.3%)
8,000 Morgan Stanley Dean Witter
& Co. ........................................... 1,142
SEMICONDUCTOR (6.5%)
16,000 ASM International N.V.* ........................... 368
11,000 Analog Devices, Inc.* ............................. 1,023
20,000 Applied Micro Circuits Corp.* ..................... 2,545
26,000 Applied Science &
Technology, Inc.* ............................... 864
400 Caliper Technologies Corp.*........................ 27
24,000 Conexant Systems, Inc.* ........................... 1,593
18,000 Cymer, Inc.*....................................... 828
27,000 Cypress Semiconductor Corp.*....................... 874
12,000 Dallas Semiconductor Corp. ........................ 773
5,000 Ditech Communications Corp.*....................... 468
21,000 Ibis Technology Corp.*............................. 1,042
10,000 Linear Technology Corp. ........................... 716
17,000 Maxim Integrated
Products, Inc.*.................................. 802
14,000 Microchip Technology Inc.*......................... 958
13,000 PMC-Sierra, Inc.* ................................. 2,084
16,000 Pericom Semiconductor Corp.*....................... 421
17,000 QLogic Corp.*...................................... 2,718
- --------------------------------------------------------------------------------
13
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
SEMICONDUCTOR
(Continued)
28,000 RF Micro Devices Inc.* ............................ $ 1,916
10,000 SDL, Inc.*......................................... 2,180
4,000 Telecom Semiconductor,
Inc.*............................................ 84
22,000 TranSwitch Corp.* ................................. 1,596
25,900 TriQuint Semiconductor,
Inc.* ........................................... 2,881
20,000 Varian Semiconductor
Equipment Associates,
Inc.* ........................................... 680
--------
27,441
SEMICONDUCTOR
CAPITAL
EQUIPMENT (0.7%)
15,000 Electro Scientific
Industries, Inc.*................................ 1,095
19,000 Kulicke & Soffa
Industries, Inc.* ............................... 809
8,000 Novellus Systems, Inc.* ........................... 980
--------
2,884
SHOE (0.3%)
12,000 Cole (Kenneth) Productions,
Inc. Class "A"*.................................. 549
16,000 Timberland Co. (The)
Class "A"* ...................................... 846
--------
1,395
TELECOMMUNICATIONS
EQUIPMENT (5.0%)
12,000 ADC Telecommunications,
Inc.* ........................................... 871
17,200 AVT Corp.*......................................... 808
15,000 Black Box Corporation*............................. 1,005
32,000 California Amplifier, Inc.*........................ 842
25,000 CommScope, Inc.* .................................. 1,008
15,000 DSP Group, Inc.* .................................. 1,395
11,000 E-Tek Dynamics, Inc.* ............................. 1,481
12,000 General Motors Corp.
Class "H"* ...................................... 1,152
18,000 Harmonic Inc.* .................................... 1,709
3,000 InterVoice-Brite, Inc.*............................ 70
5,000 L-3 Communications
Holdings, Inc.* ................................. 208
42,000 NETRIX Corp.*...................................... 627
8,000 NICE Systems Ltd. (ADR)* .......................... 393
1,000 Ortel Corp.*....................................... 120
33,000 Polycom, Inc.* .................................... 2,102
19,000 Powerwave Technologies,
Inc.* ........................................... 1,109
11,000 Proxim, Inc.* ..................................... 1,210
17,000 QUALCOMM Inc.* .................................... 2,994
17,000 Scientific-Atlanta, Inc. .......................... 946
16,000 Tellabs, Inc.* .................................... 1,027
--------
21,077
TELECOMMUNICATION
SERVICES (5.0%)
27,000 ACTV, Inc.*........................................ 1,234
10,000 Allegiance Telecom, Inc.* ......................... 922
16,000 ALLTEL Corp. ...................................... 1,323
12,000 Amdocs Ltd.*....................................... 414
5,000 Broadcom Corp. Class "A"*......................... 1,362
32,000 Broadwing Inc. .................................... 1,180
12,125 CenturyTel, Inc. .................................. 574
18,000 DyCom Industries, Inc.* ........................... 793
55,000 FirstCom Corporation*.............................. 2,021
16,000 Global Crossing Ltd.*.............................. 800
17,000 Leap Wireless International,
Inc.* ........................................... 1,334
9,000 Level 3 Communications,
Inc.*............................................ 737
12,000 MediaOne Group Inc.* .............................. 922
27,000 Metromedia Fiber Network,
Inc. Class "A"* ................................. 1,294
23,000 Network Access Solutions
Corp.* .......................................... 759
11,000 NEXTLINK Communications,
Inc. Class "A"* ................................. 914
- --------------------------------------------------------------------------------
14
<PAGE>
The Value Line Special Situations Fund, Inc.
Schedule of Investments
- --------------------------------------------------------------------------------
Value
Shares (in thousands)
- --------------------------------------------------------------------------------
TELECOMMUNICATION
SERVICES (Continued)
400 Pac-West Telecomm, Inc.* .......................... $ 11
16,000 Powertel, Inc.* ................................... 1,606
16,000 Qwest Communications
International Inc.* ............................. 688
5,800 RCN Corp.*......................................... 281
14,000 SBC Communications Inc. ........................... 682
8,000 TV Guide, Inc. Class "A"* ......................... 344
400 Tritel, Inc. * .................................... 13
19,000 Viatel, Inc.* ..................................... 1,019
--------
21,227
THRIFT (0.3%)
24,000 Golden West Financial Corp. ....................... 804
16,500 Queens County Bancorp Inc. ........................ 448
--------
1,252
TOILETRIES/
COSMETICS (0.2%)
13,200 Estee Lauder Companies Inc.
(The) Class "A" ................................. 666
--------
TRUCKING/
TRANSPORTATION
LEASING (0.1%)
9,000 Landstar System, Inc.* ............................ 385
--------
TOTAL COMMON
STOCKS AND
TOTAL INVESTMENT
SECURITIES (98.0%)
(Cost $245,645,000) ............................. 412,447
--------
Value
Principal (in thousands
Amounts except per share
(in thousands) amount)
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENT (1.7%)
(including accrued interest)
$ 7,400 Collateralized by $7,450,000
U.S. Treasury Notes 6 3/4%,
due 4/30/2000, with a value
of $7,555,000 (with State
Street Bank & Trust
Company, 3.75%, dated
12/31/99, due 1/3/00, delivery
value of $7,402,312)............................. $ 7,401
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES (0.3%) ................................ 1,183
--------
NET ASSETS (100%) ........................................... $421,031
==== ========
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
OUTSTANDING SHARE
($421,031,303 / 15,542,783
shares of capital stock outstanding) ........................ $ 27.09
========
* Non-income producing.
(ADR) American Depositary Receipts.
See Notes to Financial Statements
- --------------------------------------------------------------------------------
15
<PAGE>
The Value Line Special Situations Fund, Inc.
Statement of Assets
and Liabilities at December 31, 1999
- --------------------------------------------------------------------------------
(In thousands
except per share
amount)
----------------
Assets:
Investment securities, at value
(Cost--$245,645)........................................... $412,447
Repurchase agreement
(Cost--$7,401) ............................................ 7,401
Cash ........................................................ 41
Receivable for capital shares sold .......................... 2,229
Receivable for securities sold .............................. 2,074
Dividends receivable ........................................ 80
Prepaid insurance expense ................................... 4
--------
Total Assets .......................................... 424,276
--------
Liabilities:
Payable for securities purchased ............................ 2,856
Payable for capital shares repurchased ...................... 85
Accrued expenses:
Advisory fee .............................................. 241
Other ..................................................... 63
--------
Total Liabilities ..................................... 3,245
--------
Net Assets .................................................. $421,031
========
Net Assets consist of:
Capital stock, at $1.00 par value
(authorized 100,000,000,
outstanding 15,542,783 shares)............................. $ 15,543
Additional paid-in capital .................................. 227,646
Undistributed net realized gain
on investments............................................. 11,040
Net unrealized appreciation
of investments............................................. 166,802
--------
Net Assets .................................................. $421,031
========
Net Asset Value, Offering and
Redemption Price per
Outstanding Share
($421,031,303 / 15,542,783
shares outstanding) ....................................... $ 27.09
========
Statement of Operations
for the Year Ended December 31, 1999
- --------------------------------------------------------------------------------
(In thousands)
-------------
Investment Income:
Interest .................................................... $ 1,067
Dividends (Net of foreign
withholding tax of $2) .................................... 626
--------
Total Income .......................................... 1,693
--------
Expenses:
Advisory fee ................................................ 1,870
Transfer agent .............................................. 119
Custodian fees .............................................. 79
Printing ................................................... 43
Auditing and legal fees ..................................... 39
Postage ..................................................... 32
Registration fees ........................................... 25
Telephone and filing fees.................................... 23
Directors' fees and expenses ................................ 14
Insurance, dues and other ................................... 3
--------
Total Expenses Before
Custody Credits ..................................... 2,247
Less: Custody Credits ................................. (8)
--------
Net Expenses .......................................... 2,239
--------
Net Investment Loss ......................................... (546)
--------
Net Realized and Unrealized Gain
on Investments:
Net Realized Gain ....................................... 26,531
Change in Net Unrealized
Appreciation .......................................... 120,734
--------
Net Realized Gain and Change in
Net Unrealized Appreciation
on Investments ............................................ 147,265
--------
Net Increase in Net Assets from
Operations ................................................ $146,719
========
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
16
<PAGE>
The Value Line Special Situations Fund, Inc.
Statement of Changes in Net Assets
for the Years Ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
--------------------------------
(In thousands)
<S> <C> <C>
Operations:
Net investment loss ............................................ $ (546) $ (478)
Net realized gain on investments ............................... 26,531 13,927
Change in net unrealized appreciation .......................... 120,734 28,446
--------------------------------
Net increase in net assets from operations ..................... 146,719 41,895
--------------------------------
Distributions to Shareholders:
Net realized gain from investment transactions ................. (20,029) (10,402)
--------------------------------
Capital Share Transactions:
Proceeds from sale of shares ................................... 382,615 151,465
Proceeds from reinvestment of distributions to shareholders .... 19,484 8,828
Cost of shares repurchased ..................................... (298,392) (117,192)
--------------------------------
Net increase from capital share transactions ................... 103,707 43,101
--------------------------------
Total Increase in Net Assets ..................................... 230,397 74,594
Net Assets:
Beginning of year .............................................. 190,634 116,040
--------------------------------
End of year .................................................... $ 421,031 $ 190,634
================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
17
<PAGE>
The Value Line Special Situations Fund, Inc.
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
The Value Line Special Situations Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company whose primary investment objective is long-term
growth of capital. The Fund invests primarily in a broadly diversified list of
"special situations."
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
(A) Security Valuation. Securities listed on a securities exchange and
over-the-counter securities traded on the NASDAQ national market are valued at
the closing sales prices on the date as of which the net asset value is being
determined. In the absence of closing sales prices for such securities and for
securities traded in the over-the-counter market, the security is valued at the
midpoint between the latest available and representative asked and bid prices.
Securities for which market quotations are not readily available or 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.
- --------------------------------------------------------------------------------
18
<PAGE>
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,
1999 1998
-------------------
Shares sold ...................................... 18,731 9,467
Shares issued to shareholders
in reinvestment of dividends
and distributions .............................. 801 530
---------------------
19,532 9,997
Shares repurchased ............................... 14,757 7,242
---------------------
Net increase ..................................... 4,775 2,755
=====================
Distributions per share from
net realized gains ............................. $1.395 $1.0435
=====================
3. Purchases and Sales of Securities
Purchases and sales of investment securities, excluding short-term securities,
were as follows:
Year Ended
December 31,
1999
--------------
(in thousands)
PURCHASES:
Investment Securities ................................... $290,173
========
SALES:
Investment Securities ................................... $197,769
========
At December 31, 1999, the aggregate cost of investment securities and repurchase
agreement for federal income tax purposes was $253,142,000. The aggregate
appreciation and depreciation of investments at December 31, 1999, based on a
comparison of investment values and their costs for federal income tax purposes,
was $171,730,000 and $5,024,000 respectively, resulting in a net appreciation of
$166,706,000.
Permanent book-tax differences relating to shareholder distributions are
reclassified within the compositon of net asset accounts. In the current year
the Fund reclassified $546,000 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 $1,870,000 was paid or payable to Value Line, Inc., the
Fund's investment adviser (the "Adviser"), for the year ended December 31, 1999.
This was computed at the annual rate of 3/4 of 1% of the average daily net
assets of the Fund 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, 1999, the Fund paid brokerage commissions totaling $149,004
to the distributor, which clears its transactions through unaffiliated brokers.
The Adviser and/or affiliated companies and the Value Line, Inc. Profit Sharing
and Savings Plan at December 31, 1999 owned 1,022,801 shares of the Fund's
capital stock, representing 6.6% of the outstanding shares. In addition, certain
officers and directors of the Fund owned 204,156 shares of the Fund,
representing 1.3% of the shares outstanding.
- --------------------------------------------------------------------------------
19
<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,
-------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ........ $ 17.70 $ 14.48 $ 13.34 $ 16.24 $ 16.15
-------------------------------------------------------------------------------------
Income (loss) from investment operations:
Net investment (loss) income .......... (.04) (.04) (.02) .26 .06
Net gains or losses on securities
(both realized and unrealized) ...... 10.83 4.30 4.15 .85 4.58
-------------------------------------------------------------------------------------
Total from investment operations ...... 10.79 4.26 4.13 1.11 4.64
-------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income .. -- -- # (.26) (.06)
Distributions from net realized gains . (1.40) (1.04) (2.99) (3.75) (4.49)
-------------------------------------------------------------------------------------
Total distributions ................... (1.40) (1.04) (2.99) (4.01) (4.55)
-------------------------------------------------------------------------------------
Net asset value, end of year .............. $ 27.09 $ 17.70 $ 14.48 $ 13.34 $ 16.24
=====================================================================================
Total return .............................. 61.66% 29.88% 32.10% 7.24% 28.96%
=====================================================================================
Ratios/Supplemental Data:
Net assets, end of year (in thousands) .... $ 421,031 $ 190,634 $ 116,040 $ 89,594 $ 98,408
Ratio of expenses to average net assets ... .89%(2) 1.02%(1) 1.08%(1) 1.08%(1) 1.06%
Ratio of net investment (loss) income
to average net assets ................... (.22)% (.34)% (.14)% 1.44% 0.32%
Portfolio turnover rate ................... 85% 183% 240% 146% 10%
</TABLE>
# Dividend paid was less than one cent per share
(1) Before offset of custody credits.
(2) Ratio reflects expenses grossed up for custody credit arrangement. The ratio
of expenses to average net assets net of custody credits would not have changed.
See Notes to Financial Statements
- --------------------------------------------------------------------------------
20
<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, 1999, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended and the financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, 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, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 11, 2000
- --------------------------------------------------------------------------------
21
<PAGE>
The Value Line Special Situations Fund, Inc.
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
22
<PAGE>
The Value Line Special Situations Fund, Inc.
- --------------------------------------------------------------------------------
This page intentionally left blank.
- --------------------------------------------------------------------------------
23
<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. Current income is a
secondary objective.
1952--Value Line Income and Growth Fund's primary investment objective is
income, as high and dependable as is consistent with reasonable risk. Capital
growth to increase total return is a secondary objective.
1956--The Value Line Special Situations Fund seeks long-term growth of capital.
No consideration is given to current income in the choice of investments.
1972--Value Line Leveraged Growth Investors' sole investment objective is to
realize capital growth.
1979--The Value Line Cash Fund, a money market fund, seeks to secure as high a
level of current income as is consistent with maintaining liquidity and
preserving capital.
1981--Value Line U.S. Government Securities Fund seeks maximum income without
undue risk to capital. Under normal conditions, at least 80% of the value of its
net assets will be invested in securities issued or guaranteed by the U.S.
Government and its agencies and instrumentalities.
1983--Value Line Centurion Fund* seeks long-term growth of capital.
1984--The Value Line Tax Exempt Fund seeks to provide investors with the maximum
income exempt from federal income taxes while avoiding undue risk to principal.
The Fund offers investors a choice of two portfolios: The Money Market Portfolio
and The National Bond Portfolio.
1985--Value Line Convertible Fund seeks high current income together with
capital appreciation primarily from convertible securities ranked 1 or 2 for
year-ahead performance by the Value Line Convertible Ranking System.
1986--Value Line Aggressive Income Trust seeks to maximize current income.
1987--Value Line New York Tax Exempt Trust seeks to provide New York taxpayers
with the maximum income exempt from New York State, New York City and federal
income taxes while avoiding undue risk to principal.
1987--Value Line Strategic Asset Management Trust* seeks to achive a high total
investment return consistent with reasonable risk.
1993--Value Line Emerging Opportunities Fund invests primarily in common stocks
or securities convertible into common stock, with its primary objective being
long-term growth of capital.
1993--Value Line Asset Allocation Fund seeks high total investment return,
consistent with reasonable risk. The Fund invests in stocks, bonds and money
market instruments utilizing quantitative modeling to determine the asset mix.
1995--Value Line U.S. Multinational Company Fund's investment objective is
maximum total return. It invests primarily in securities of U.S. companies that
have significant sales from international operations.
* Only available through the purchase of Guardian Investor, a tax deferred
variable annuity, or ValuePlus, a variable life insurance policy.
For more complete information about any of the Value Line Funds, including
charges and expenses, send for a prospectus from Value Line Securities, Inc.,
220 East 42nd Street, New York, New York 10017-5891 or call 1-800-223-0818, 24
hours a day, 7 days a week, or visit us at www.valueline.com. Read the
prospectus carefully before you invest or send money.
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INVESTMENT ADVISER Value Line, Inc.
220 East 42nd Street
New York, NY 10017-5891
DISTRIBUTOR Value Line Securities, Inc.
220 East 42nd Street
New York, NY 10017-5891
CUSTODIAN BANK State Street Bank and Trust Co.
225 Franklin Street
Boston, MA 02110
SHAREHOLDER State Street Bank and Trust Co.
SERVICING AGENT c/o NFDS
P.O. Box 219729
Kansas City, MO 64121-9729
INDEPENDENT PricewaterhouseCoopers LLP
ACCOUNTANTS 1177 Avenue of the Americas
New York, NY 10036
LEGAL COUNSEL Peter D. Lowenstein, Esq.
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
Directors Jean Bernhard Buttner
John W. Chandler
David H. Porter
Paul Craig Roberts
Nancy-Beth Sheerr
OFFICERS Jean Bernhard Buttner
Chairman and President
Stephen E. Grant
Vice President
Philip J. 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).
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