================================================================================
------------------
SEMI-ANNUAL REPORT
------------------
October 31, 1998
------------------
Value Line
Convertible
Fund, Inc.
[LOGO]
----------
VALUE LINE
No-Load
Mutual
Funds
<PAGE>
Value Line Convertible Fund, Inc.
To Our Value Line
- --------------------------------------------------------------------------------
To Our Shareholders:
The Value Line Convertible Fund's net asset value declined 6.17% in the twelve
months ended October 31, 1998. On balance, the fund fared better than the
unmanaged Value Line Convertible Index (-6.60%) -- the most complete indicator
of performance of the domestic convertible market.
Since our last report, the U.S. financial markets have been subject to global
economic turmoil, the effects of trading activities by several hedge funds, and
the slowing of corporate earnings growth. As investors lost confidence in the
troubled foreign markets, a flight to quality ensued that saw US Treasury bond
yields decline to an all-time low of 4.69% on October 5, before settling in at
just above 5% on October 31, 1998. Stocks, meanwhile, plummeted, especially
small caps, while credit risk premiums more than doubled, with high-yield bond
rates jumping by an unprecedented 4.00%. The convertible market suffered under
the dual pressures applied from small stock underperformance and from growing
credit risks.
Total Return
12 Mos
10/31/98
--------
Value Line Convertible Fund ................................ -6.17%
Value Line Convertible Index* .............................. -6.60%
S&P 500* ................................................... 21.99%
Russell 2000* .............................................. -11.84%
Lehman Brothers High Yield Bond* ........................... -0.50%
US Treasury 30 Year Bonds* ................................. 19.62%
* unmanaged
Interest rate cuts domestically and abroad, together with banking reform in
Japan and a more stable political situation at home soothed the markets
sufficiently to enable the convertible market to begin a recovery in October of
1998. The convertible market is still undervalued on a technical and fundamental
basis not withstanding the rebound and we expect the convertible market to
continue to improve during the months ahead.
Our strategy is to stay focused on high-quality convertible securities, which
lowers risk by emphasizing liquid, larger-capitalization and higher credit
quality issues with sound fundamentals and favorable Value Line Timeliness Ranks
on their common stock. We then select those bonds that also rank high in the
Value Line Convertible Survey.
We appreciate your confidence in Value Line, and hope we can continue to serve.
Sincerely,
/s/ JEAN BERNHARD BUTTNER
Jean Bernhard Buttner
Chairman and President
December 7, 1998
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2
<PAGE>
Value Line Convertible Fund, Inc.
Convertible Fund Shareholders
- --------------------------------------------------------------------------------
Economic Observations
Steady growth and low inflation continue to be two of the dominant themes in the
domestic economy as 1998 rapidly draws to a close. This is underscored by
reports that show relative stability in retailing, housing, personal income, and
employment. Such trends suggest that GDP growth, which has generally moderated
over the past six-months, will average 2%, or perhaps a shade more, during the
next two to four quarters. At the same time, inflation remains quiescent, with
producer and consumer price increases still modest overall and key industrial
sectors finding it difficult to implement price increases.
At this point, though, we do not believe that this modest pace of economic
activity is the opening act in a serious domestic business downturn. Our sense
is that the global crisis still afflicting Asia, Russia, and parts of Latin
America will gradually recede over the next 12 to 18 months and that the
continuing subdued level of inflation in this country will encourage the Federal
Reserve Board to pursue a stable or looser monetary policy over the next several
quarters.
Performance Data:*
Average Growth of
Annual an Assumed
Total Investment
Return of $10,000
------ ----------
1 year ended 9/30/98 ....................... -8.07% $ 9,193
5 years ended 9/30/98 ...................... 8.62% 15,118
10 years ended 9/30/98 ...................... 10.63% 27,469
* 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 at October 31, 1998 for the one-year, five-year and 10-year periods
were -6.17%, 8.86%, and 10.56%, respectively.
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3
<PAGE>
Value Line Convertible Fund, Inc.
Schedule of Investments (unaudited)
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Principal
Amount Value
- --------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS & NOTES (46.6%)
ADVERTISING (1.0%)
$1,000,000 Getty Images, Inc.
4 3/4%, 6/1/03*.................................. $ 746,250
AEROSPACE/DEFENSE
(1.1%)
1,000,000 Kellstrom Industries, Inc.
5 1/2%, 6/15/03.................................. 877,500
AIR TRANSPORT (0.3%)
600,000 World Airways, Inc.
8%, 8/26/04..................................... 273,750
COAL/ALTERNATE
ENERGY (1.3%)
1,000,000 AES Corp.
4 1/2%, 8/15/05.................................. 982,500
COMPUTER SOFTWARE
& SERVICES (5.3%)
350,000 Aspen Technology, Inc.
5 1/4%, 6/15/05*................................. 176,312
1,500,000 Comverse Technology, Inc.
4 1/2%, 7/1/05*.................................. 1,340,625
1,000,000 Learning Company, Inc.
(The) 5 1/2%, 11/1/00............................ 948,750
1,330,000 MacNeal-Schwendler Corp.
7 7/8%, 8/18/04.................................. 1,243,550
1,000,000 Network Associates, Inc.
zero coupon, 2/13/18............................ 421,250
----------
4,130,487
DIVERSIFIED
COMPANIES (1.8%)
1,000,000 Berkshire Hathaway Inc.
1%, 12/2/01..................................... 1,405,000
DRUG (4.2%)
1,000,000 ALZA Corp. zero coupon,
7/14/14......................................... 636,250
2,000,000 Dura Pharmaceuticals, Inc.
3 1/2%, 7/15/02.................................. 1,417,500
1,000,000 Genzyme Corporation
5 1/4%, 6/1/05*.................................. 1,236,250
----------
3,290,000
ENTERTAINMENT
(2.9%)
1,500,000 Clear Channel
Communications, Inc.
2 5/8%, 4/1/03................................... 1,413,750
2,000,000 Jacor Communications, Inc.
zero coupon, 2/9/18............................. 836,500
----------
2,250,250
ENVIRONMENTAL
(2.3%)
2,000,000 United States Filter Corp.
4 1/2%, 12/15/01................................. 1,842,500
FINANCIAL
SERVICES (4.8%)
3,000,000 Bell Atlantic Financial
Services, Inc.
4 1/4%, 9/15/05*................................. 2,940,000
1,000,000 Loews Corp.
3 1/8%, 9/15/07.................................. 822,500
----------
3,762,500
INDUSTRIAL
SERVICES (1.1%)
1,000,000 Data Processing Resources
Corporation
5 1/4%, 4/1/05................................... 883,750
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4
<PAGE>
Value Line Convertible Fund, Inc.
October 31, 1998
- --------------------------------------------------------------------------------
Principal
Amount Value
- --------------------------------------------------------------------------------
INSURANCE--
PROPERTY/
CASUALTY (3.8%)
$3,000,000 Fremont General Corp.
zero coupon, 10/12/13........................... $ 2,988,750
MEDICAL SERVICES
(1.4%)
1,000,000 Omnicare, Inc.
5%, 12/1/07..................................... 1,077,500
OFFICE EQUIPMENT &
SUPPLIES (1.9%)
1,000,000 Corporate Express, Inc.
4 1/2%, 7/1/00................................... 885,000
2,000,000 Danka Business Systems
PLC 63/4%, 4/1/02............................... 587,500
----------
1,472,500
OILFIELD SERVICES/
EQUIPMENT (1.4%)
1,000,000 Nabors Industries, Inc.
5%, 5/15/06..................................... 1,107,500
PAPER & FOREST
PRODUCTS (1.5%)
1,500,000 Mail-Well, Inc.
5%, 11/1/02..................................... 1,179,375
PETROLEUM--
INTEGRATED (1.3%)
1,000,000 Texaco Capital Inc.
3 1/2%, 8/5/04................................... 1,025,000
PUBLISHING (1.2%)
1,000,000 World Color Press, Inc.
6%, 10/1/07..................................... 961,250
R.E.I.T. (1.2%)
1,000,000 Healthcare Realty
Trust, Inc.
6.55%, 3/14/02.................................. 932,500
RETAIL BUILDING
SUPPLY (2.4%)
1,000,000 Home Depot, Inc. (The)
3.25%, 10/1/01.................................. 1,903,750
RETAIL STORE (1.8%)
2,000,000 Costco Companies, Inc.
zero coupon, 8/19/17............................ 1,392,500
TELECOMMUNICATION
SERVICES (1.5%)
3,000,000 U.S. Cellular Corp.
zero coupon, 6/15/15............................ 1,181,250
THRIFT (0.2%)
200,000 Bay View Capital Corp.
9 1/8%, 8/15/07.................................. 180,000
TOBACCO (0.9%)
1,000,000 Standard Commercial Corp.
7 1/4%, 3/31/07.................................. 695,000
----------
TOTAL CONVERTIBLE
CORPORATE BONDS
& NOTES
(Cost $39,397,534) ................................. 36,541,362
----------
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5
<PAGE>
Value Line Convertible Fund, Inc.
Schedule of Investments (unaudited)
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Shares Value
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS (23.8%)
BANK (3.8%)
10,000 BCP International Bank Ltd.
$4.00, exchangeable
Series "A"...................................... $ 1,170,000
16,000 Matewan Bancshares, Inc.
7.50%, Series "A"............................... 480,000
50,000 National Australia Bank,
Ltd. Cap Units 7 7/8%,
exchangeable Pfd................................ 1,321,875
----------
2,971,875
CEMENT &
AGGREGATES (1.6%)
35,300 TXI Capital Trust I
5 1/2%, Pfd...................................... 1,222,263
COMPUTER SOFTWARE
& SERVICES (1.4%)
20,000 L & H Capital Trust I
4 3/4%, Pfd...................................... 715,000
15,000 Tribune Company
6 1/4%, exchangeable
Notes Series "TLC".............................. 371,250
----------
1,086,250
ENTERTAINMENT
(1.9%)
20,000 Chancellor Media Corp.
$3.00, Pfd...................................... 1,517,500
FOOD PROCESSING
(1.3%)
20,000 Ralston-Ralston Purina
Group 7%, Stock
Appreciation Income
Linked Securities............................... 991,250
MEDICAL SUPPLIES
(2.5%)
10,000 McKesson Corporation
Financing Trust
5%, Pfd......................................... 1,052,500
20,000 Owens & Minor, Inc. Trust 1
5 3/8%, Pfd...................................... 940,000
----------
1,992,500
PACKAGING &
CONTAINER (2.5%)
30,000 Owens-Illinois, Inc.
4 3/4%, Pfd...................................... 1,203,750
20,000 Sealed Air Corp.
$2.00 exchangeable
Series "A"...................................... 797,500
----------
2,001,250
R.E.I.T. (1.8%)
20,000 Camden Property Trust
$2.25, Series "A"............................... 495,000
15,000 Glenborough Realty Trust,
Inc. 7 3/4%, Series "A"......................... 287,812
25,000 U.S. Restaurant Properties,
Inc. 7.72%, Series "A".......................... 590,625
----------
1,373,437
RAILROAD (0.8%)
14,500 Union Pacific Capital Trust
6 1/4%, Pfd...................................... 670,625
STEEL (1.1%)
20,000 USX Capital Trust I
6 3/4%, Pfd...................................... 860,000
TELECOMMUNICATIONS
EQUIPMENT (0.5%)
20,000 Omnipoint Corp. 7%,
Series "144A"*.................................. 392,500
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6
<PAGE>
Value Line Convertible Fund, Inc.
October 31, 1998
- --------------------------------------------------------------------------------
Shares Value
- --------------------------------------------------------------------------------
TELECOMMUNICATION
SERVICES (4.6%)
10,000 AirTouch Communications,
Inc. 4 1/4%, Series "C"........................ $ 800,625
20,000 ICG Communications, Inc.
6 3/4%, Pfd.................................... 1,012,500
20,000 IXC Communications, Inc.
6 3/4%, Pfd.
Series "144A"*................................ 728,750
10,000 MediaOne Group, Inc.
6 1/4%, Premium Income
Exchange Securities........................... 538,750
10,000 Salomon Smith Barney
Holdings, Inc. 6 1/4%,
exchangeable Notes
Series "CSN".................................. 493,750
-----------
3,574,375
-----------
TOTAL CONVERTIBLE
PREFERRED STOCKS
(Cost $20,235,260) ............................... 18,653,825
-----------
COMMON STOCKS (4.9%)
TELECOMMUNICATION
SERVICES (4.9%)
68,854 MCI WorldCom, Inc................................. 3,804,184
-----------
TOTAL COMMON
STOCKS
(Cost $1,192,580) ................................ 3,804,184
-----------
TOTAL INVESTMENT
SECURITIES (75.3%)
(Cost $60,825,374) ............................... 58,999,371
-----------
REPURCHASE AGREEMENTS (24.9%)
(including accrued interest)
$11,200,000 Collateralized by $11,185,000
U.S. Treasury Notes 5 7/8%,
due 8/31/99, with a value
of $11,424,989 (with
First Chicago Capital
Markets, Inc., 5.27%,
dated 10/30/98,
due 11/2/98, delivery
value $11,204,919).............................. $11,203,279
8,300,000 Collateralized by $5,760,000
U.S. Treasury Bonds 12%,
due 5/15/05, with a value
of $8,478,548 (with
Morgan Stanley & Co.,
Incorporated, 5.33%,
dated 10/30/98,
due 11/2/98, delivery
value $8,303,687).............................. 8,302,458
-----------
19,505,737
-----------
EXCESS OF LIABILITIES
OVER CASH AND
RECEIVABLES (-0.2%) ........................................... (107,721)
-----------
NET ASSETS (100.0%) ........................................... $78,397,387
===========
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
OUTSTANDING SHARE
($78,397,387 / 6,284,254
shares outstanding) ........................................... $ 12.48
===========
* 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.
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7
<PAGE>
Value Line Convertible Fund, Inc.
Statement of Assets and Liabilities
at October 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
Assets:
Investment securities, at value
(Cost--$60,825,374)........................................... $58,999,371
Repurchase agreements
(Cost--$19,505,737)........................................... 19,505,737
Cash ........................................................... 44,245
Interest and dividends receivable .............................. 479,868
Receivable for capital shares sold ............................. 331,540
-----------
Total Assets ............................................... 79,360,761
-----------
Liabilities:
Payable for securities purchased................................ 836,500
Payable for capital shares
repurchased .................................................. 39,096
Accrued expenses:
Advisory fee ................................................. 46,488
Other ........................................................ 41,290
-----------
Total Liabilities .......................................... 963,374
-----------
Net Assets ..................................................... $78,397,387
===========
Net assets consist of:
Capital stock, at $1.00 par value
(authorized 50,000,000,
outstanding 6,284,254 shares)................................. $ 6,284,254
Additional paid-in capital ..................................... 72,624,582
Undistributed net investment income ............................ 434,137
Accumulated net realized gain
on investments................................................ 880,417
Net unrealized depreciation of
investments .................................................. (1,826,003)
-----------
Net Assets ..................................................... $78,397,387
===========
Net Asset Value, Offering and
Redemption Price per
Outstanding Share
($78,397,387 / 6,284,254
shares outstanding) .......................................... $ 12.48
===========
Statement of Operations
for the six months ended October 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
Investment Income:
Interest ....................................................... $ 1,569,912
Dividends ...................................................... 753,545
-----------
Total Income ............................................... 2,323,457
-----------
Expenses:
Advisory fee ................................................... 318,273
Transfer agent ................................................. 22,190
Auditing and legal fees ........................................ 19,378
Registration and filing fees ................................... 11,983
Custodian fees ................................................. 11,348
Printing and stationery ........................................ 9,599
Postage ........................................................ 9,138
Directors' fees and expenses ................................... 7,862
Telephone ...................................................... 4,324
Insurance, dues and other ...................................... 3,055
-----------
Total Expenses Before
Custody Credits .......................................... 417,150
Less: Custody Credits ...................................... (2,311)
-----------
Net Expenses ............................................... 414,839
-----------
Net Investment Income .......................................... 1,908,618
-----------
Net Realized and Unrealized Loss
on Investments:
Net Realized Loss .......................................... (2,832,872)
Change in Net Unrealized
Appreciation (Depreciation) .............................. (10,912,924)
-----------
Net Realized Loss and Change in
Net Unrealized Appreciation
(Depreciation) on Investments ................................ (13,745,796)
-----------
Net Decrease in Net Assets
from Operations .............................................. $(11,837,178)
============
See Notes to Financial Statements.
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8
<PAGE>
Value Line Convertible Fund, Inc.
Statement of Changes in Net Assets for the six months ended October 31, 1998
(unaudited) and for the year ended April 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
October 31, 1998 April 30,
(unaudited) 1998
------------------------------
<S> <C> <C>
Operations:
Net investment income ..................................... $ 1,908,618 $ 3,933,911
Net realized (loss) gain on investments ................... (2,832,872) 6,520,865
Change in net unrealized (depreciation) appreciation ...... (10,912,924) 7,785,510
----------------------------
Net (decrease) increase in net assets from operations ..... (11,837,178) 18,240,286
----------------------------
Distributions to Shareholders:
Net investment income ..................................... (1,881,435) (3,967,522)
Net realized gain from investment transactions ............ -- (4,337,642)
----------------------------
Total distributions ......................................... (1,881,435) (8,305,164)
----------------------------
Capital Share Transactions:
Proceeds from sale of shares .............................. 88,971,110 85,988,521
Proceeds from reinvestment of distributions to shareholders 1,500,932 6,626,383
Cost of shares repurchased ................................ (96,035,261) (73,554,612)
----------------------------
(Decrease) Increase from capital share transactions ....... (5,563,219) 19,060,292
----------------------------
Total (Decrease) Increase ................................... (19,281,832) 28,995,414
Net Assets:
Beginning of period ....................................... 97,679,219 68,683,805
----------------------------
End of period ............................................. $ 78,397,387 $ 97,679,219
============================
Undistributed Net Investment Income, at end of period ....... $ 434,137 $ 406,954
============================
</TABLE>
See Notes to Financial Statements.
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9
<PAGE>
Value Line Convertible Fund, Inc.
Notes to Financial Statements (unaudited) October 31, 1998
- --------------------------------------------------------------------------------
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 whose investment objective is to seek high current
income together with capital appreciation.
The Fund seeks to accomplish its objective by investing primarily in convertible
securities.
The following significant accounting policies are in conformity with generally
accepted accounting principles for investment companies. Such policies are
consistently followed by the Fund in the preparation of its financial
statements. Generally accepted accounting principles may require management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results may differ from those estimates.
(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 investments that mature in less than 60 days are valued
at amortized cost if their original maturity was 60 days or less, or by
amoritzing their value on the 61st day prior to maturity, if their original term
exceeds 60 days.
(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. 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. The amount of dividends and distributions from net investment
income and net realized capital gains are determined in accordance with federal
income tax regulations, which may differ from generally accepted accounting
principles. These "book/tax" differences are either considered temporary or
permanent in nature. To the extent these differences are permanent in nature,
such amounts are reclassified within the capital accounts based on their federal
tax basis treatment. Temporary differences do not require reclassification.
(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.
- --------------------------------------------------------------------------------
10
<PAGE>
Value Line Convertible Fund, Inc.
Notes to Financial Statements (unaudited) October 31, 1998
- --------------------------------------------------------------------------------
2. Capital Share Transactions.
Transactions in capital stock were as follows:
Six Months
Ended Year
October 31, Ended
1998 April 30,
(unaudited) 1998
-------------------------------
Shares sold ............................... 6,695,644 5,969,380
Shares issued to shareholders
in reinvestment
of dividends ............................ 112,446 475,431
-------------------------------
6,808,090 6,444,811
Shares repurchased ........................ 7,121,678 5,102,466
-------------------------------
Net (decrease) increase ................... (313,588) 1,342,345
===============================
3. Purchases and Sales of Securities
Purchases and sales of investment securities, excluding short-term securities,
were as follows:
Six Months
Ended
October 31, 1998
(unaudited)
--------------
PURCHASES:
Investment Securities ................................ $39,270,053
===========
SALES OR REDEMPTIONS:
Investment Securities ................................ $43,674,013
===========
At October 31, 1998, the aggregate cost of investment securities and repurchase
agreements for federal income tax purposes was $80,331,111. The aggregate
appreciation and depreciation of investments at October 31, 1998, based on a
comparison of investment values and their costs for federal income tax purposes,
was $5,679,247 and $7,505,250 respectively, resulting in a net depreciation of
$1,826,003.
4. Investment Advisory Contract, Management Fees, and Transactions with
Affiliates
An advisory fee of $318,273 was paid or payable to Value Line, Inc. (the
Adviser), for the six months ended October 31, 1998. This was computed at the
rate of 3/4 of 1% of average daily net assets during the period and paid
monthly. The Adviser provides research, investment programs, supervision of the
investment portfolio and pays costs of administrative services, office space,
equipment and compensation of administrative, bookkeeping, and clerical
personnel necessary for managing the affairs of the Fund. The Adviser also
provides persons, satisfactory to the Fund's Board of Directors, to act as
officers and employees of the Fund and pays their salaries and wages. The Fund
bears all other costs and expenses.
Certain officers and directors of the Adviser and its subsidiary, Value Line
Securities, Inc. (the Fund's distributor and a registered broker/dealer), are
also officers and a director of the Fund.
The Advisor and/or affiliated companies owned 209,974 shares of the Fund's
capital stock, representing 3.3% of the outstanding shares and an officer and
Directors owned 82,055 shares representing 1.3% at October 31, 1998.
- --------------------------------------------------------------------------------
11
<PAGE>
Financial Highlights
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Six Months Ended Years Ended April 30,
Oct. 31, 1998 ------------------------------------------------------------------------
(unaudited) 1998 1997 1996 1995 1994
---------- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period ........................ $ 14.80 $ 13.07 $ 14.10 $ 11.79 $ 12.26 $ 13.80
-------------------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income ............ .32 .65 .70 .66 .74 .71
Net gains or losses on
securities (both realized
and unrealized)................ (2.33) 2.50 .50 2.33 (.02) .11
-------------------------------------------------------------------------------------------
Total from investment operations (2.01) 3.15 1.20 2.99 .72 .82
-------------------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income ............ (.31) (.67) (.65) (.68) (.76) (.69)
Distributions from realized
capital gains ................ -- (.75) (1.58) -- (.43) (1.67)
-------------------------------------------------------------------------------------------
Total distributions ............ (.31) (1.42) (2.23) (.68) (1.19) (2.36)
-------------------------------------------------------------------------------------------
Net asset value, end of period ..... $ 12.48 $ 14.80 $ 13.07 $ 14.10 $ 11.79 $ 12.26
===========================================================================================
Total return ....................... -13.70%+ 25.04% 8.80% 26.07% 6.53% 5.50%
===========================================================================================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $ 78,397 $ 97,679 $ 68,684 $ 72,620 $ 50,523 $ 49,823
Ratio of expenses to
average net assets ............... .97%*(1) .98%(1) 1.01%(1) 1.08% 1.08% 1.07%
Ratio of net investment income
to average net assets ............ 4.42%* 4.63% 4.94% 5.14% 6.13% 5.32%
Portfolio turnover rate ............ 56%+ 111% 164% 129% 87% 142%
</TABLE>
(1) Before custody credits.
+ Not annualized.
* Annualized.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12
<PAGE>
================================================================================
INVESTMENT ADVISER Value Line, Inc.
220 East 42nd Street
New York, NY 10017-5891
DISTRIBUTOR Value Line Securities, Inc.
220 East 42nd Street
New York, NY 10017-5891
CUSTODIAN BANK State Street Bank and Trust Co.
225 Franklin Street
Boston, MA 02110
SHAREHOLDER State Street Bank and Trust Co.
SERVICING AGENT c/o NFDS
P.O. Box 419729
Kansas City, MO 64141-6729
INDEPENDENT PricewaterhouseCoopers LLP
ACCOUNTANTS 1177 Avenue of the Americas
New York, NY 10036
LEGAL COUNSEL Peter D. Lowenstein, Esq.
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
DIRECTORS Jean Bernhard Buttner
John W. Chandler
Leo R. Futia
David H. Porter
Paul Craig Roberts
Nancy-Beth Sheerr
OFFICERS Jean Bernhard Buttner
Chairman and President
Bruce H. Alston
Vice President
David T. Henigson
Vice President and
Secretary/Treasurer
Jack M. Houston
Assistant Secretary/Treasurer
Stephen La Rosa
Assistant Secretary/Treasurer
The financial statements included herein have been taken from the records of the
Fund without examination by the independent accountants and, accordingly, they
do not express an opinion thereon.
This unaudited report is issued for information of shareholders. It is not
authorized for distribution to prospective investors unless preceded or
accompanied by a currently effective prospectus of the Fund (obtainable from the
Distributor).
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