<PAGE>
This document is a copy of the Annual Report for the year ended
April 30, 1995, filed on July 12, 1995.
INVESTMENT ADVISER
Value Line, Inc.
220 East 42nd Street, New York, NY 10017-5891
DISTRIBUTOR
Value Line Securities, Inc.
220 East 42nd Street, New York, NY 10017-5891
CUSTODIAN BANK
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
State Street Bank and Trust Company c/o NFDS
P.O. Box 419729, Kansas City, MO 64141-6729
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas, New York, NY 10036
LEGAL COUNSEL
Peter D. Lowenstein, Esq.
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
BOARD OF DIRECTORS
Jean Bernhard Buttner Leo R. Futia
Charles E. Reed Paul Craig Roberts
John W. Chandler
OFFICERS
Jean Bernhard Buttner F. Barry Nelson
CHAIRMAN AND PRESIDENT VICE PRESIDENT
David T. Henigson
VICE PRESIDENT/SECRETARY/TREASURER
Richard Cunniffe
VICE PRESIDENT
Jack M. Houston Stephen La Rosa
ASSISTANT ASSISTANT
SECRETARY/TREASURER SECRETARY/TREASURER
This report is issued for the information of shareholders. It is not authorized
for distribution to prospective investors unless preceded or accompanied by a
currently effective prospectus of the Fund (obtainable from the Distributor).
--------------
ANNUAL REPORT
APRIL 30, 1995
--------------
VALUE LINE CONVERTIBLE FUND, INC.
[Logo]
VALUE LINE MUTUAL FUNDS
<PAGE>
[Logo] TO OUR VALUE LINE CONVERTIBLE FUND, INC. SHAREHOLDERS
--------------------------------------------------------------------------------
TO OUR SHAREHOLDERS:
The total return from your Fund for the four months through April 30th was a
rewarding 8.63%, which was the 6th highest return among 32 convertible funds,
according to Lipper Analytical Services. Weakness in stock and bond prices
toward the end of calendar 1994 caused many convertibles to appear attractively
priced, and the Fund began calendar 1995 essentially fully invested, with only
11.0% of assets in cash and equivalents. Your Fund seeks income and
appreciation. The Fund's yield of 6%+ in the last few quarters was one of the
highest among convertible funds. Sensitivity to the bond side of convertible
investing has been rewarded in calendar 1995, as long-term interest rates have
declined, and consequently the market prices of bonds have risen. The rising
stock market has also given the Fund a boost, as has the continued success of
the Value Line Convertibles Ranking System. At present, the only missing
ingredient in the formula for high returns from convertibles is relative
strength in the stocks of the "middle market" companies that issue most
convertibles. The favorable start in calendar 1995 appears to be a logical
sequel to the disappointing returns in calendar 1994--a year that marked a
correction from calendar years 1993 and 1992, when interest rates declined,
middle-market stock prices soared, and convertibles generally provided higher
returns than those from either stocks or bonds. For the fiscal year as a whole,
the Fund's total return was 6.53%, nearly all of which was derived from
interest. This total return was the 9th highest among 26 convertible funds
tracked by Lipper during the 12 months.
Looking ahead, we are less bullish on bonds, but prospects for common stocks
appear favorable. Recent strength in the bond market has provided opportunities
to weed-out at favorable prices the most interest-sensitive issues in the
portfolio. For more than a year, approximately 5% of the Fund's assets had been
invested in a U.S. Treasury zero coupon bond, which had provided an attractive
yield-to-maturity but was extremely price sensitive to interest rate
fluctuations; this bond has been sold. We also reduced our holdings of certain
high-yielding convertibles that were heavily exposed to bond market
fluctuations.
A key attraction of convertibles is favorable upside/downside leverage, i.e.,
the opportunity to construct a portfolio that is likely to participate much more
in potential appreciation of the underlying common stocks than to suffer from
exposure to possible declines in stock prices. As measured by our convertible
evaluation model, we began the new fiscal year with a weighted average
sensitivity of convertibles in the Fund that was 40% of a rise in stock prices
and 36% of a decline.
The relatively higher component of income in the total-return equation of
convertibles suggests reduced risk. Volatility is considered by most authorities
to be the primary measure of investment risk. On April 30th the weighted average
volatility of the convertibles in your Fund was 65.6% of the volatility of the
stock market as a whole. Credit risk is an implicit determinant of volatility,
and your Fund takes a conservative stance. The weighted average credit rating of
the rated convertibles held by the Fund was BB, which is close to the minimum
investment grade of BBB. Although the Fund was 10.7% invested in unrated issues,
the portfolio was 23.7% in cash and net receivables. So, the overall credit
profile of the Fund appears superior to that of the convertible market as a
whole. The average convertible is rated below investment quality, since few
convertibles are issued by the largest and strongest companies.
Your Fund lives up to its name by investing almost exclusively in convertibles.
At fiscal year end, cash and equivalents were the only nonconvertible assets.
Management normally anticipates market trends by making buy and sell decisions
that change the projected upside/downside leverage of the portfolio and by
adjusting the cash component of the Fund, rather than by investing in common
stocks.
2
<PAGE>
CONVERTIBLE FUND, INC. SHAREHOLDERS
--------------------------------------------------------------------------------
We remind shareholders of the advantage of automatic dividend reinvestment as a
means to obtain compounded returns. Although market fluctuations dominate
day-to-day returns, over the long term much of the return from common stocks--
and most of the return from convertibles--has come from income rather than
appreciation. Given the unusually low yields on common stocks at the moment, the
future may very well see a resumption of the trend of convertibles providing
higher returns than common stocks. The Fund's ratio of net investment income to
average net assets in the fiscal year ended April 30th was 6.13%. Investors who
are able to compound their income will maximize their returns.
We thank you for your interest in the Value Line Convertible Fund, and we look
forward to serving your investment needs in the future.
Yours truly,
/s/ Jean Bernhard Buttner
Jean Bernhard Buttner
CHAIRMAN AND PRESIDENT
June 23, 1995
--------------------------------------------------------------------------------
ECONOMIC OBSERVATIONS
The odds that a "soft economic landing" will materialize over the next several
months are fairly high. Under this scenario, the economy temporarily moves onto
a slower growth track, but doesn't stop growing altogether; corporate profits
continue to rise, but at a lesser rate; inflation begins to pick up, but does
not veer out of control; and short-term interest rates stabilize and then
decline. To date, such key indicators as the employment level, auto sales,
retail spending, and personal income show an expansion that's slowing, but not
coming apart. At the same time, the latest producer and consumer price data
signal that there has been little overall buildup in pricing pressures, although
rising oil and paper prices suggest that inflation reports later in the year may
make somewhat less hospitable reading.
Meanwhile, there is historical precedent for a "soft landing" as well as for a
lengthy business expansion. The 1960s and the 1980s both witnessed upcycles that
lasted for seven or eight years--or about double the length of the present
upturn--with nothing more serious than a brief interlude or two along the way.
The 1970s, in contrast, brought surging inflation and a pair of recessions.
There are risks in the current situation, however. For example, there is still
the possibility that the aforementioned runup in certain commodity prices is a
harbinger of things to come on the inflation front. There's also the risk that
recent weaker-than-expected employment data signal that the Federal Reserve has
already pushed interest rates too high and that a recession is probably on the
way, perhaps later this year or in 1996.
The stock market, meanwhile, is still accentuating the positive, with most
investors preferring to view the mixed economic and inflation statistics, along
with the very encouraging recent decline in long-term interest rates, as being
consistent with an orderly slowing in growth--rather than as the opening salvos
in a looming recession. We think the market's sentiments are on target and, as
such, believe that positive returns will still be achieved with equities in the
months ahead, although given the strong runup in stocks over the last several
months, we also suspect that the easy money has already been made this year.
--------------------------------------------------------------------------------
3
<PAGE>
VALUE LINE CONVERTIBLE FUND, INC.
--------------------------------------------------------------------------------
Comparision of Change in Value of $10,000 Investment in
the Value Line Covertible Fund and the S&P 500 Index
[Line Graph]
PERFORMANCE DATA:*
<TABLE>
<CAPTION>
1 year ended 5 years ended
3/31/95 3/31/95 6/3/85+ to 3/31/95
------------ ------------- ------------------
<S> <C> <C> <C>
Average Annual Total Return 1.70% 10.36% 9.90%
Growth of an Assumed
Investment of $10,000 $10,170 $16,373 $25,284
<FN>
+ COMMENCEMENT OF OPERATIONS
* THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND ARE NO GUARANTEE
OF FUTURE PERFORMANCE. THE AVERAGE ANNUAL TOTAL RETURN 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. THE AVERAGE ANNUAL TOTAL
RETURNS FOR THE ONE-YEAR AND FIVE-YEAR PERIOD ENDED APRIL 30, 1995, AND
FROM COMMENCEMENT OF OPERATIONS (6/3/85) THROUGH APRIL 30, 1995, WERE
6.53%, 11.20%, AND 10.05%, RESPECTIVELY.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
VALUE LINE CONVERTIBLE FUND, INC.
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------------------------
<C> <S> <C>
CONVERTIBLE CORPORATE BONDS & NOTES (59.0%)
AIR TRANSPORT (7.5%)
$ 800,000 AMR Corp. 6 1/8%, 11/1/24 . . . . . . . . . . $ 776,000
1,500,000 Air Express International Corp.
6%, 1/15/03 . . . . . . . . . . . . . . . . 1,710,000
1,500,000 Delta Air Lines Inc. 3.23%,
6/15/03 . . . . . . . . . . . . . . . . . . 1,297,500
------------
3,783,500
BANK (3.7%)
500,000 Banco De Galicia Y Buenos Aires
S.A. 7%, 8/1/02 . . . . . . . . . . . . . . 371,135
500,000 Midlantic Banks Inc. 8 1/4%,
7/01/10 . . . . . . . . . . . . . . . . . . 514,375
1,000,000 Fifth Third Bancorp 4 1/4%,
1/15/98 . . . . . . . . . . . . . . . . . . 960,000
------------
1,845,510
COMPUTER SOFTWARE
& SERVICES (3.0%)
3,500,000 Automatic Data Processing, Inc.
zero coupon, 2/20/12. . . . . . . . . . . . 1,535,625
COMPUTER AND PERIPHERALS
(0.5%)
250,000 Quantum Corp. 6 3/8%, 4/1/02. . . . . . . . . 271,250
CONSTRUCTION (0.9%)
1,000,000 Empresas ICA Sociedad Controladora,
S.A. de CV 5%, 3/15/04. . . . . . . . . . . 452,500
DIVERSIFIED COMPANIES (1.2%)
500,000 Thermo Electron Corp. 5%,
4/15/01 . . . . . . . . . . . . . . . . . . 619,375
DRUG (2.6%)
$ 2,000,000 Elan International Finance LTD.
zero coupon, 10/16/12 . . . . . . . . . . . $ 827,500
500,000 ICN Pharmaceuticals, Inc.
8 1/2%, 11/15/99. . . . . . . . . . . . . . 497,500
------------
1,325,000
ENVIRONMENTAL (0.8%)
493,000 WMX Technologies, Inc. 2%,
1/24/05 . . . . . . . . . . . . . . . . . . 401,179
EUROPEAN DIVERSIFIED (0.6%)
400,000 *Hanson America Inc. 2.39%,
3/1/01. . . . . . . . . . . . . . . . . . . 306,000
HOMEBUILDING (0.4%)
250,000 Toll Corp. 4 3/4%, 1/15/04. . . . . . . . . . 191,875
HOTEL/GAMING (1.0%)
500,000 Prime Hospitality Corp. 7%,
4/15/02 . . . . . . . . . . . . . . . . . . 513,125
INDUSTRIAL SERVICES (1.1%)
500,000 Olsten Corp. 4 7/8%, 5/15/03. . . . . . . . . 545,000
INSURANCE-DIVERSIFIED (3.4%)
1,100,000 AEGON N.V. 4 3/4%, 11/1/04. . . . . . . . . . 1,271,187
400,000 Pioneer Financial Services, Inc.
8%, 7/15/00 . . . . . . . . . . . . . . . . 436,000
------------
1,707,187
MACHINERY (3.6%)
1,000,000 Albany International Corp. 5 1/4%,
3/15/02 . . . . . . . . . . . . . . . . . . 935,000
750,000 Raymond Corp. 6 1/2%, 12/15/03. . . . . . . . 894,375
------------
1,829,375
5
<PAGE>
<CAPTION>
VALUE LINE CONVERTIBLE FUND, INC.
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
--------------------------------------------------------------------------------
<C> <S> <C>
MEDICAL SERVICES (1.9%)
$ 1,000,000 Beverly Enterprises, Inc. 7 5/8%,
3/15/03 . . . . . . . . . . . . . . . . . . $ 952,500
MEDICAL SUPPLIES (0.8%)
400,000 Bindley Western Industries, Inc.
6 1/2%, 10/1/02 . . . . . . . . . . . . . . 388,500
PAPER & FOREST PRODUCTS
(0.9%)
500,000 Boise Cascade Corp. 7%, 5/1/16. . . . . . . . 476,250
PRECISION INSTRUMENTS
(1.1%)
500,000 Thermo Instrument Systems, Inc.
3 3/4%, 9/15/00 . . . . . . . . . . . . . . 558,750
PUBLISHING (2.2%)
1,950,000 National Education Corp. 6 1/2%,
5/15/11 . . . . . . . . . . . . . . . . . . 1,094,438
REIT (6.8%)
500,000 Camden Property Trust 7.33%,
4/1/01. . . . . . . . . . . . . . . . . . . 454,375
500,000 Capstone Capital Corp. 10 1/2%,
4/1/02. . . . . . . . . . . . . . . . . . . 498,750
2,000,000 Haagan (Alexander) Properties
Inc. 7 1/2%, 1/15/01. . . . . . . . . . . . 1,610,000
1,000,000 Malan Realty Investors, Inc.
9 1/2%, 7/15/04 . . . . . . . . . . . . . . 882,500
------------
3,445,625
RECREATION (5.3%)
1,500,000 Coleman Worldwide Corp. zero
coupon, 5/27/13 . . . . . . . . . . . . . . 431,250
2,250,000 Time Warner, Inc. 8 3/4%,
1/10/15 . . . . . . . . . . . . . . . . . . 2,258,437
------------
2,689,687
RETAIL-SPECIAL LINES (5.7%)
$ 1,300,000 Lechters, Inc. 5%, 9/27/01. . . . . . . . . . $ 1,002,625
700,000 Pier 1 Imports, Inc. 6 7/8%,
4/1/02. . . . . . . . . . . . . . . . . . . 698,250
1,250,000 Waban, Inc. 6 1/2%, 7/1/02 . . . . . . . . . 1,159,375
------------
2,860,250
SECURITIES BROKERAGE (2.2%)
1,450,000 Waterhouse Investor Services, Inc.
6%, 12/15/03. . . . . . . . . . . . . . . . 1,120,125
SEMICONDUCTOR (1.8%)
1,250,000 Motorola, Inc. zero coupon 9/27/13. . . . . . 903,125
------------
TOTAL CONVERTIBLE CORPORATE
BONDS & NOTES
(Cost $29,963,327) . . . . . . . . . . . . . 29,815,751
------------
CONVERTIBLE PREFERRED STOCKS (17.3%)
AIR TRANSPORT (0.5%)
5,000 Delta Air Lines Inc. Series "C"
$3.50 Pfd.. . . . . . . . . . . . . . . . . 273,750
BANK (1.0%)
10,000 Republic New York Corp.
$3.375 Pfd. . . . . . . . . . . . . . . . . 525,000
COMPUTER SOFTWARE
& SERVICES (4.3%)
35,000 General Motors Corp. Series "C"
$3.25 Pfd.. . . . . . . . . . . . . . . . . 2,191,875
6
<PAGE>
<CAPTION>
VALUE LINE CONVERTIBLE FUND, INC.
SCHEDULE OF INVESTMENTS
--------------------------------------------------------------------------------
SHARES VALUE
--------------------------------------------------------------------------------
<C> <S> <C>
FOREIGN TELECOMMUNICATIONS
(2.4%)
20,000 Philippine Long Distance Telephone
Co. $3.50 Sponsored Depositary
Shares. . . . . . . . . . . . . . . . . . . $1,190,000
PAPER & FOREST PRODUCTS (2.6%)
30,000 James River Corp. of Virginia Series
"K" exchangeable $3.375 Pfd.. . . . . . . . 1,297,500
PETROLEUM-INTEGRATED (4.0%)
35,000 Occidental Petroleum Corp.
$3.00 Pfd.. . . . . . . . . . . . . . . . . 1,995,000
STEEL-INTEGRATED (2.5%)
15,000 WHX Corporation Series "A"
$3.25 Pfd.. . . . . . . . . . . . . . . . . 637,500
15,000 WHX Corporation Series "B"
$3.75 Pfd.. . . . . . . . . . . . . . . . . 630,000
------------
1,267,500
------------
TOTAL CONVERTIBLE PREFERRED
STOCKS (COST $7,949,468). . . . . . . . . . . 8,740,625
------------
TOTAL INVESTMENT SECURITIES
(76.3%) (COST $37,912,795). . . . . . . . . . 38,556,376
------------
<CAPTION>
PRINCIPAL
AMOUNT VALUE
-------------------------------------------------------------------------------
<S> <C>
REPURCHASE AGREEMENT (23.4%)
(including accrued interest)
$11,800,000 Collateralized by $8,880,000 U.S.
Treasury Notes, 11 7/8%, due
11/15/03 with a value of
$12,052,442 (With Morgan
Stanley & Co. Incorporated,
5.85%, dated 4/28/95,
due 5/1/95, delivery value
$11,805,752). . . . . . . . . . . . . . . . $ 11,805,752
EXCESS OF CASH AND RECEIVABLES OVER
LIABILITIES (0.3%) . . . . . . . . . . . . . . . . . . . . . 161,240
------------
NET ASSETS (100.0%). . . . . . . . . . . . . . . . . . . . . $ 50,523,368
------------
------------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER OUTSTANDING SHARE ($50,523,368 DIVIDED BY 4,283,570
SHARES OUTSTANDING). . . . . . . . . . . . . . . . . . . . . $11.79
------------
------------
</TABLE>
* Pursuant to Rule 144A under the Securities Act of 1933, this security can only
be sold to qualified institutional investors.
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
VALUE LINE CONVERTIBLE FUND, INC.
STATEMENT OF ASSETS
AND LIABILITIES
AT APRIL 30, 1995
---------------------------------------------------------------------------
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investment securities, at value
(Cost-$37,912,795) . . . . . . . . . . . . . . . . . . . . $ 38,556,376
Repurchase agreements
(Cost-$11,805,752) . . . . . . . . . . . . . . . . . . . . 11,805,752
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,211
Interest and dividends receivable. . . . . . . . . . . . . . 543,008
Receivable for capital shares sold . . . . . . . . . . . . . 4,038
------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . 50,942,385
------------
LIABILITIES:
Payable for securities purchased . . . . . . . . . . . . . . 335,600
Payable for capital shares repurchased . . . . . . . . . . . 31,656
Accrued expenses:
Advisory fee . . . . . . . . . . . . . . . . . . . . . . . 30,841
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . 20,920
------------
TOTAL LIABILITIES. . . . . . . . . . . . . . . . . . . . . 419,017
------------
NET ASSETS:
Capital stock, at $1.00 par value
(authorized 50,000,000, outstanding
4,283,570 shares) . . . . . . . . . . . . . . . . . . . . 4,283,570
Additional paid-in capital . . . . . . . . . . . . . . . . . 48,433,857
Undistributed investment income-net. . . . . . . . . . . . . 248,026
Accumulated net realized loss on investments . . . . . . . . (3,085,666)
Unrealized net appreciation of investments . . . . . . . . . 643,581
------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . . $ 50,523,368
------------
------------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER
OUTSTANDING SHARE ($50,523,368 DIVIDED BY
4,283,570 SHARES OUTSTANDING). . . . . . . . . . . . . . . $11.79
------------
------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED
APRIL 30, 1995
---------------------------------------------------------------------------
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,026,199
Dividends (Net of foreign withholding
taxes of $3,584) . . . . . . . . . . . . . . . . . . . . 430,814
------------
TOTAL INCOME . . . . . . . . . . . . . . . . . . . . 3,457,013
------------
EXPENSES:
Advisory fee . . . . . . . . . . . . . . . . . . . . . . . 357,683
Auditing and legal fees. . . . . . . . . . . . . . . . . . 39,601
Transfer agent . . . . . . . . . . . . . . . . . . . . . . 37,223
Registration and filing fees . . . . . . . . . . . . . . . 23,403
Printing . . . . . . . . . . . . . . . . . . . . . . . . . 18,577
Directors' fees and expenses . . . . . . . . . . . . . . . 11,214
Postage. . . . . . . . . . . . . . . . . . . . . . . . . . 9,962
Telephone . . . . . . . . . . . . . . . . . . . . . . . . 8,957
Custodian fees . . . . . . . . . . . . . . . . . . . . . . 8,099
Taxes and other. . . . . . . . . . . . . . . . . . . . . . 2,300
------------
TOTAL EXPENSES . . . . . . . . . . . . . . . . . . . 517,019
------------
INVESTMENT INCOME-NET. . . . . . . . . . . . . . . . . . . . 2,939,994
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS-NET:
Realized Loss-Net. . . . . . . . . . . . . . . . . . (3,085,606)
Change in Unrealized
Depreciation . . . . . . . . . . . . . . . . . . . 3,169,098
------------
NET REALIZED LOSS AND CHANGE IN
UNREALIZED DEPRECIATION ON
INVESTMENTS. . . . . . . . . . . . . . . . . . . . . . . . 83,492
------------
NET INCREASE IN NET ASSETS FROM
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . $ 3,023,486
------------
------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
VALUE LINE CONVERTIBLE FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED APRIL 30, 1995, AND 1994
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
OPERATIONS:
Investment income-net . . . . . . . . . . . . . . . . . . . . $ 2,939,994 $ 2,709,901
Realized (loss) gain on investments-net . . . . . . . . . . . (3,085,606) 4,751,095
Change in unrealized appreciation (depreciation). . . . . . . 3,169,098 (5,038,814)
------------ ------------
Net increase in net assets from operations. . . . . . . . . . 3,023,486 2,422,182
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Investment income-net . . . . . . . . . . . . . . . . . . . . (3,046,333) (2,598,934)
Realized gains on investments . . . . . . . . . . . . . . . . (1,656,367) (5,850,598)
------------ ------------
(4,702,700) (8,449,532)
------------ ------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares. . . . . . . . . . . . . . . . . 9,276,461 32,614,366
Proceeds from reinvestment of distributions to shareholders . 3,984,512 6,940,201
Cost of shares repurchased. . . . . . . . . . . . . . . . . . (10,881,849) (27,639,881)
------------ ------------
Increase from capital share transactions. . . . . . . . . . . 2,379,124 11,914,686
------------ ------------
TOTAL INCREASE. . . . . . . . . . . . . . . . . . . . . . . . 699,910 5,887,336
NET ASSETS:
Beginning of year . . . . . . . . . . . . . . . . . . . . . . 49,823,458 43,936,122
------------ ------------
End of year . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,523,368 $ 49,823,458
------------ ------------
------------ ------------
UNDISTRIBUTED INVESTMENT INCOME-NET, AT END OF YEAR. . . . . . . $ 248,026 $ 354,365
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
VALUE LINE CONVERTIBLE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Value Line Convertible Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of its
financial statements.
(A) SECURITY VALUATION. The Fund's securities are valued by an independent
pricing service approved by the Fund's Board of Directors. Securities for which
quotations are not available from the pricing service are valued at the mean
between the latest available and representative asked and bid prices provided by
dealers in such securities. Securities for which market quotations are not
readily available or which are not readily marketable and all other assets of
the Fund, are valued at fair value as the Board of Directors may determine in
good faith. Short-term instruments with maturities of 60 days or less at the
date of purchase are valued at amortized cost, which approximates market value.
(B) REPURCHASE AGREEMENTS. In connection with transactions in repurchase
agreements, the Fund's custodian takes possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. In
the event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral or proceeds may be subject to legal proceedings.
(C) FEDERAL INCOME TAXES. It is the Fund's policy to comply with the
requirements of the Internal Revenue Code of 1986, as amended, applicable to
regulated investment companies 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. Realized gains
and losses on sales of securities are calculated for financial accounting and
Federal income tax purposes on the identified cost basis. Interest income is
accrued as earned. Dividend income and distributions to shareholders are
recorded on the ex-dividend date. Distributions are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles.
(E) AMORTIZATION. Discounts on debt securities are amortized to interest income
over the life of the security with a corresponding increase to the security's
cost basis; premiums on debt securities are not amortized.
2. CAPITAL SHARE TRANSACTIONS.
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Shares sold. . . . . . . . . . . . . . . . . . . . 793,187 2,274,495
Shares issued to shareholders in
reinvestment of dividends . . . . . . . . . . . 351,729 536,116
--------- ---------
1,144,916 2,810,611
Shares repurchased . . . . . . . . . . . . . . . . 924,107 1,930,779
--------- ---------
Net increase . . . . . . . . . . . . . . . . . . . 220,809 879,832
--------- ---------
--------- ---------
</TABLE>
10
<PAGE>
VALUE LINE CONVERTIBLE FUND, INC.
APRIL 30, 1995
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities, excluding repurchase agreements,
for the year ended April 30, 1995, were as follows:
<TABLE>
<CAPTION>
<S> <C>
PURCHASES:
Investment Securities. . . . . . . . . . $37,224,000
-----------
-----------
SALES OR REDEMPTIONS:
U.S. Treasury Obligations. . . . . . . . $ 2,626,500
Investment Securities . . . . . . . . . 44,643,382
-----------
$47,269,882
-----------
-----------
</TABLE>
At April 30, 1995, the aggregate cost of investment securities and repurchase
agreement for Federal income tax purposes is $49,718,547. The aggregate
appreciation and depreciation of investments at April 30, 1995, based on a
comparison of investment values and their costs for Federal income tax purposes,
was $2,028,171 and $1,384,590, respectively, resulting in a net appreciation of
$643,581.
For Federal income tax purposes, the Fund had a net capital loss carryover at
April 30, 1995, of $1,277,569 which will expire in the year 2003. Realized
losses incurred after October 31, if so elected by the Fund, are deemed to arise
on the first day of the following fiscal year. The Fund incurred and elected to
defer losses of approximately $1,808,097. To the extent future capital gains are
offset by such capital losses, the Fund does not anticipate distributing any
such gains to the shareholders.
4. INVESTMENT ADVISORY CONTRACT,
MANAGEMENT FEES, AND TRANSACTIONS
WITH AFFILIATES
An advisory fee of $357,683 was paid or payable to Value Line, Inc. (the
Adviser), for the year ended April 30, 1995. This was computed at the rate of
3/4 of 1% of average daily net assets during the year and paid monthly. The
Adviser provides research, investment programs, and supervision of the
investment portfolio and pays costs of administrative services, office space,
equipment, and compensation of administrative, bookkeeping, and clerical
personnel necessary for managing the affairs of the Fund. The Adviser also
provides persons, satisfactory to the Fund's Board of Directors, to act as
officers and employees of the Fund and pays their salaries and wages. The Fund
bears all other costs and expenses. If the aggregate expenses of the Fund, other
than taxes, interest, brokerage commissions, and extraordinary expenses, exceed
the expense limitation imposed by any state in which the Fund's shares are sold,
the advisory fee will be reduced by the amount of such excess, or the amount of
such excess will be refunded. No reimbursement was required for the year ended
April 30, 1995.
A fee of $3,780 for printing services was paid or payable to the Adviser for the
year ended April 30, 1995.
Certain officers and directors of the Adviser and its subsidiary, Value Line
Securities, Inc. (the Fund's distributor and a registered broker/dealer), are
also officers and a director of the Fund.
The Adviser owned 481,178 shares of the Fund's capital stock, representing 11.2%
of the outstanding shares at April 30, 1995. In addition, certain officers and
directors of the Fund owned 4,669 shares of the Fund, representing .1% of the
outstanding shares.
11
<PAGE>
VALUE LINE CONVERTIBLE FUND, INC.
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK
OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
------------------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR . . . . . . . . $12.26 $13.80 $12.24 $11.07 $10.90
------ ------ ------ ------ ------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . .74 .71 .62 .65 .62
Net gains or losses on securities
(both realized and unrealized) . . . . . . . (.02) .11 1.54 1.13 .38
------ ------ ------ ------ ------
Total from investment operations . . . . . . . . .72 .82 2.16 1.78 1.00
------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from investment income-net . . . . . . (.76) (.69) (.60) (.61) (.83)
Distributions from capital gains . . . . . . . . (.43) (1.67) - - -
------ ------ ------ ------ ------
Total distributions. . . . . . . . . . . . . . . (1.19) (2.36) (.60) (.61) (.83)
------ ------ ------ ------ ------
NET ASSET VALUE, END OF YEAR . . . . . . . . . . . $11.79 $12.26 $13.80 $12.24 $11.07
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN . . . . . . . . . . . . . . . . . . . 6.53% 5.50% 18.16% 16.42% 9.98%
------ ------ ------ ------ ------
------ ------ ------ ------ ------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in thousands) . . . . . . $50,523 $49,823 $43,936 $37,177 $36,553
Ratio of expenses to average net assets. . . . . . 1.08% 1.07% 1.10% 1.14% 1.19%
Ratio of net investment income to
average net assets . . . . . . . . . . . . . . . 6.13% 5.32% 4.80% 5.45% 5.50%
Portfolio turnover rate. . . . . . . . . . . . . . 87% 142% 146% 140% 216%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS
AND BOARD OF DIRECTORS
OF VALUE LINE CONVERTIBLE 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 Value Line Convertible Fund, Inc.
(the "Fund") at April 30, 1995, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at April
30, 1995 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
June 5, 1995
--------------------------------------------------------------------------------
FEDERAL TAX STATUS OF DISTRIBUTIONS (UNAUDITED)
For corporate taxpayers 14% of the ordinary income distributions paid during the
year 1994 qualify for the corporate dividends received deductions
--------------------------------------------------------------------------------
13
<PAGE>
THE VALUE LINE FAMILY OF FUNDS
--------------------------------------------------------------------------------
1950 -- THE VALUE LINE FUND seeks long-term growth of capital along with
modest current income by investing substantially all of its assets in
common stocks or securities convertible into common stock.
1952 -- THE VALUE LINE INCOME FUND'S primary investment objective is income,
as high and dependable as is consistent with reasonable growth.
Capital growth to increase total return is a secondary objective.
1956 -- THE VALUE LINE SPECIAL SITUATIONS FUND seeks to obtain long-term
growth of capital by investing not less than 80% of its assets in
"special situations." No consideration is given to achieving current
income.
1972 -- VALUE LINE LEVERAGED GROWTH INVESTORS'S sole investment objective is
to realize capital growth by investing substantially all of its assets
in common stocks. The Fund may borrow up to 50% of its net assets to
increase its purchasing power.
1979 -- THE VALUE LINE CASH FUND, a money market fund, seeks high current
income consistent with liquidity and preservation of capital.
1981 -- VALUE LINE U.S. GOVERNMENT SECURITIES FUND seeks maximum income
without undue risk to principal. Under normal conditions, at least 80%
of the value of its assets will be invested in issues of the U.S.
government and its agencies and instrumentalities.
1983 -- VALUE LINE CENTURION FUND seeks long-term growth of capital as its
sole objective by investing primarily in stocks ranked 1 or 2 by Value
Line for year-ahead relative performance. The Fund is available to
investors only through the purchase of the Guardian Investor, a
tax-deferred variable annuity, or Value Plus, a variable-life
insurance policy.
1984 -- THE VALUE LINE TAX EXEMPT FUND seeks to provide investors with maximum
income exempt from federal income taxes while avoiding undue risk to
principal. The Fund offers investors a choice of two portfolios: a
Money Market Portfolio and a High-Yield Portfolio.
1985 -- VALUE LINE CONVERTIBLE FUND seeks high current income together with
capital appreciation primarily from convertible securities ranked 1 or
2 for year-ahead performance by the Value Line Convertible Ranking
System.
1986 -- VALUE LINE AGGRESSIVE INCOME TRUST seeks to maximize current income by
investing in high-yielding, lower-rated, fixed-income securities.
1987 -- VALUE LINE NEW YORK TAX EXEMPT TRUST seeks to provide New York
taxpayers with maximum income exempt from New York State, New York
City, and federal income taxes while avoiding undue risk to principal.
1987 -- VALUE LINE STRATEGIC ASSET MANAGEMENT TRUST invests in stocks, bonds,
and cash equivalents according to computer trend models developed by
Value Line. The objective is to professionally manage the optimal
allocation of these investments at all times. The Fund is available to
investors only through the purchase of the Guardian Investor, a
tax-deferred variable annuity, or Value Plus, a variable-life
insurance policy.
1992 -- THE VALUE LINE ADJUSTABLE RATE U.S. GOVERNMENT SECURITIES FUND seeks
high current income consistent with low volatility of principal by
investing primarily in adjustable rate U.S. government securities.
1993 -- VALUE LINE SMALL-CAP GROWTH FUND invests primarily in common stocks or
securities convertible into common stock, with its primary objective
being long-term growth of capital.
1993 -- VALUE LINE ASSET ALLOCATION FUND seeks high total investment return,
consistent with reasonable risk. The Fund invests in stocks, bonds,
and money market instruments utilizing quantitative modeling to
determine the correct asset mix.
--------------------------------------------------------------------------------
FOR MORE COMPLETE INFORMATION ABOUT ANY OF THE VALUE LINE FUNDS, INCLUDING
CHARGES AND EXPENSES, SEND FOR A PROSPECTUS FROM VALUE LINE SECURITIES, INC.,
220 EAST 42ND STREET, NEW YORK, NEW YORK 10017-5891 OR CALL
1-800-223-0818, 24 HOURS A DAY, 7 DAYS A WEEK. READ THE PROSPECTUS CAREFULLY
BEFORE YOU INVEST OR SEND MONEY.
