================================================================================
--------------
ANNUAL REPORT
--------------
April 30, 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:
It is with pleasure that we report the following results of your Fund for the
fiscal year ended April 30, 1998. The total return of the Fund (25.04%) exceeded
its peer group average and was, as would be expected, between the stock and bond
market performances, as shown below. Your Fund's expense ratio of 0.98% compares
favorably to the convertible industry average of 1.54%, and moreover, your Fund
does not charge a sales load.
FYE
4/30/98
- ---------------------------------------------------------------------
o Value Line Convertible Fund 25.04%
o Lipper Convertible Peer
Group Average 24.79%
o S&P 500 41.07%
o Lehman Brothers Gov/Corp 11.91%
Since our last report, the financial markets have continued to be rocked by the
situation in Asia. The difficulties in that part of the world, and the potential
economic ramifications in the U.S., have led to an extraordinary increase in
volatility in our financial markets. The convertible market, as well as others,
was also besieged with heavy new security issuance and more marginal issuers.
However, the large appetite for convertible securities of many of our
competitors has caused most of these issues to perform well. Furthermore, the
strength in the equity markets has caused many of our competitors to increase
reliance on stocks to bolster performance.
Our strategy is to maintain our focus on convertible securities because of their
lower risk and potential for excellent returns. We continue to select those
issues with sound fundamentals and higher Value Line Timeliness Rankings. Our
discipline emphasizes traditional convertible securities that offer favorable
leverage. Favorable leverage is essentially a balance between potential equity
appreciation and protection from stock market declines. Ideally, your fund might
achieve 70% of the bull market return, but only 35% of a bear market correction.
We use the Value Line Ranking System for Convertibles to identify attractively
priced convertibles. We expect to continue systematically taking profits in
convertibles that have become equity surrogates, and to reinvest the proceeds
from such sales in attractively leveraged convertibles to hedge against adverse
market volatility. The Fund is well diversified with approximately 60 issues.
We thank you for your confidence in the Value Line Convertible Fund and look
forward to serving your future investment needs.
Sincerely,
/s/ Jean Bernhard Buttner
-------------------------
Jean Bernhard Buttner
Chairman and President
June 8, 1998
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2
<PAGE>
Value Line Convertible Fund ,Inc.
Convertible Fund Shareholders
- --------------------------------------------------------------------------------
Economic Observations
The business expansion continues to proceed at a healthy clip, as we make our
way through the second quarter of the year. True, the uptrend is unlikely to be
as uniformly strong in the current period and during the second half of the year
as it was in the opening quarter, when growth exceeded 4%. But, with most of the
key consumer and industrial indicators still in relatively good shape, and with
inflation continuing to be under control, growth could still average a solid
2.5%, or so, over the balance of the year. What's more, we would expect both
producer (or wholesale) and consumer prices to evidence little upward pressure.
The wild card in this forecast, of course, remains the Pacific Rim, which
continues to face the daunting task of turning itself around economically.
Obviously, the problems afflicting that part of the globe will lead to gradual
reductions in demand for goods and services produced in the United States.
Nonetheless, assuming that the affected nations take corrective actions in a
timely fashion, so that the situation eventually starts to stabilize, little
more than minor dislocations should be apparent here. At this juncture, we feel
that the current long business expansion can go on for several more years.
Performance Data:*
Average Growth of
Annual an Assumed
Total Investment
Return of $10,000
------ -----------
1 year ended 3/31/98.......................... 26.53% $12,653
5 years ended 3/31/98......................... 13.93% 19,196
10 years ended 3/31/98......................... 13.53% 35,558
* 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 April 30, 1998 for the one-year, five-year and 10-year periods
were 25.04%, 14.03%, and 13.18%, respectively.
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3
<PAGE>
Value Line Convertible Fund ,Inc.
Convertible Fund Shareholders
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- --------------------------------------------------------------------------------
Comparison of a change in value of a $10,000 investment in the
Value Line Convertible Fund and the S&P 500 Index+
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART INTHE PRINTED MATERIAL]
Value Line Convertible Fund S&P 500
--------------------------- -------
4/89 $12,282 $11,767
4/90 $13,575 $11,828
4/91 $15,973 $13,008
4/92 $18,214 $15,144
4/93 $19,896 $17,894
4/94 $20,955 $18,879
4/95 $24,615 $20,112
4/96 $32,052 $25,356
4/97 $40,103 $27,586
4/98 $56,576 $34,493
- --------------------------------------------------------------------------------
From 5/1/88 to 4/30/98
+ The Standard & Poor's 500 Index is an unmanaged index that is
representative of the larger-capitalization stocks traded in the United
States. The presentation includes reinvested dividends.
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4
<PAGE>
Value Line Convertible Fund ,Inc.
Schedule of Investments April 30, 1998
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Principal
Amount Value
- --------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS & NOTES (50.5%)
AIR TRANSPORT (1.0%)
$1,200,000 World Airways, Inc.
8%, 8/26/04*................................. $ 930,000
BANK (2.1%)
1,500,000 First State Bancorporation
7 1/2%, 4/30/17.............................. 2,073,750
CABLE TV (2.2%)
2,370,000 Tele-Communications
International, Inc.
4 1/2%, 2/15/06 ............................. 2,130,038
COMPUTER &
PERIPHERALS (1.9%)
1,000,000 Adaptec, Inc.
4 3/4%, 2/1/04............................... 855,000
1,000,000 Quantum Corp.
7%, 8/1/04................................... 992,500
----------
1,847,500
COMPUTER SOFTWARE
& SERVICES (2.1%)
2,000,000 MacNeal-Schwendler Corp.
7 7/8%, 8/18/04.............................. 2,065,000
DIVERSIFIED
COMPANIES (0.5%)
500,000 Thermo Instrument
Systems Inc.
4%, 1/15/05.................................. 513,125
DRUG (2.9%)
$3,000,000 ALZA Corp. zero coupon,
7/14/14...................................... $ 1,923,750
1,000,000 Dura Pharmaceuticals, Inc.
3 1/2%, 7/15/02.............................. 862,500
----------
2,786,250
ENTERTAINMENT (1.5%)
1,500,000 Clear Channel
Communications, Inc.
2 5/8%, 4/1/03............................... 1,494,375
ENVIRONMENTAL
(2.2%)
2,000,000 United States Filter Corp.
4 1/2%, 12/15/01............................. 2,107,500
FINANCIAL SERVICES
(0.5%)
500,000 Loews Corp.
3 1/8%, 9/15/07.............................. 502,500
HOTEL/GAMING (1.0%)
1,000,000 CapStar Hotel Co.
4 3/4%, 10/15/04............................. 941,250
HOUSEHOLD
PRODUCTS (0.8%)
2,500,000 Sunbeam Corp.
zero coupon, 3/25/18*........................ 781,250
INSURANCE--
PROPERTY
CASUALTY (3.3%)
3,000,000 Fremont General Corp.
zero coupon, 10/12/13........................ 3,236,250
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5
<PAGE>
Value Line Convertible Fund ,Inc.
Schedule of Investments April 30, 1998
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Principal
Amount Value
- --------------------------------------------------------------------------------
MEDICAL SERVICES
(3.5%)
$1,000,000 NovaCare, Inc.
5 1/2%, 1/15/00.............................. $ 946,250
1,000,000 Omnicare, Inc.
5%, 12/1/07*................................. 1,106,250
1,000,000 PhyCor, Inc.
4 1/2%, 2/15/03.............................. 901,250
600,000 PhyMatrix Corp.
6 3/4%, 6/15/03.............................. 490,500
----------
3,444,250
NATURAL GAS--
DISTRIBUTION (1.0%)
1,000,000 NorAm Energy Corp.
6%, 3/15/12.................................. 942,500
OFFICE EQUIPMENT
& SUPPLIES (3.1%)
1,000,000 Corporate Express, Inc.
4 1/2%, 7/1/00............................... 908,750
1,000,000 Danka Business
Systems PLC
6 3/4%, 4/1/02............................... 978,750
1,000,000 U.S. Office Products Co.
5 1/2%, 2/1/01............................... 1,107,500
----------
2,995,000
OILFIELD SERVICES
/EQUIPMENT (4.8%)
3,000,000 Key Energy Group, Inc.
5%, 9/15/04*................................. 2,490,000
2,250,000 Parker Drilling Co.
5 1/2%, 8/1/04............................... 2,247,187
----------
4,737,187
PETROLEUM--
INTEGRATED (1.1%)
$1,000,000 Texaco Capital Inc.
3.50%, 8/5/04................................ $ 1,037,500
PUBLISHING (2.1%)
2,000,000 World Color Press, Inc.
6%, 10/1/07.................................. 2,092,500
R.E.I.T. (2.2%)
1,000,000 Capstone Capital Corp.
6.55%, 3/14/02............................... 990,000
1,000,000 Developers Diversified
Realty Corp.
7%, 8/15/99.................................. 1,207,500
----------
2,197,500
RETAIL--SPECIAL
LINES (2.3%)
500,000 Inacom Corp.
4 1/2%, 11/1/04.............................. 536,875
500,000 Men's Wearhouse, Inc. (The)
5 1/4%, 3/1/03............................... 659,375
1,000,000 Michaels Stores, Inc.
6 3/4%, 1/15/03.............................. 1,010,000
----------
2,206,250
TELECOMMUNICATION
SERVICES (2.2%)
1,000,000 SmarTalk Teleservices, Inc.
5 3/4%, 9/15/04*............................. 1,011,250
3,000,000 U.S. Cellular Corp.
zero coupon, 6/15/15......................... 1,143,750
----------
2,155,000
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6
<PAGE>
Value Line Convertible Fund ,Inc.
Schedule of Investments April 30, 1998
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Principal Amount
or Shares Value
- --------------------------------------------------------------------------------
THRIFT (2.6%)
1,000,000 BankAtlantic Bancorp, Inc.
6 3/4%, 7/1/06............................... $2,040,000
500,000 BayView Capital Corp.
9 1/8%, 8/15/07.............................. 515,000
----------
2,555,000
TOBACCO (0.9%)
$1,000,000 Standard Commercial Corp.
7 1/4%, 3/31/07.............................. 897,500
OTHER (2.7%)
500,000 Assisted Living Concepts, Inc.
6%, 11/1/02.................................. 522,500
1,250,000 Republic of Italy-Istituto
Nazionale delle
Assicurazioni Sp.A,
5%, 6/28/01 ................................. 2,150,000
----------
2,672,500
----------
TOTAL CONVERTIBLE
CORPORATE BONDS
& NOTES
(Cost $46,527,240) ............................. 49,341,475
----------
CONVERTIBLE PREFERRED STOCKS (28.2%)
BANK (6.0%)
20,000 BCP International Bank Ltd.
$4.00 exchangeable
Series "A" ..................................... 2,600,000
16,000 Matewan Bancshares, Inc.
7.50% Series "A"................................ 472,000
70,000 National Australia
Bank, Ltd. Cap Units 77/8%
exchangeable Pfd. .............................. 2,060,625
8,900 Union Planters Corp.
$2.00 Series "E"................................ 671,950
----------
5,804,575
Shares Value
- --------------------------------------------------------------------------------
ELECTRONICS (2.1%)
40,000 Pioneer-Standard
Electronics, Inc.
6 3/4%, Series "144A"* ......................... 2,085,000
ENTERTAINMENT (2.0%)
20,000 Chancellor Media Corp.
$3.00 Series "144A"*............................ 1,955,000
HOTEL/GAMING (0.6%)
20,000 FelCor Suite Hotels Inc.
$1.95 Series "A" ............................... 572,500
INSURANCE--
DIVERSIFIED (1.2%)
20,000 PennCorp Financial
Group, Inc. $3.375 Pfd.......................... 1,205,000
MANUFACTURED HOUSING/
RECREATIONAL
VEHICLE (1.2%)
20,000 Fleetwood Capital Trust
6%, Series "144A"*.............................. 1,175,000
NATURAL GAS--
DIVERSIFIED (1.5%)
10,000 Williams Companies, Inc.
(The) $3.50 Pfd................................. 1,466,250
R.E.I.T. (3.6%)
40,000 Camden Property Trust
$2.25, Series "A"............................... 1,105,000
10,000 Dynex Capital Inc.
9.73% Series "C"................................ 307,500
15,000 Glenborough Realty Trust, Inc.
7 3/4%, Series "A".............................. 382,500
40,000 Thornburg Mortgage
Asset Corp.
9.68%, Series "A" .............................. 1,047,500
25,000 U.S. Restaurant
Properties, Inc.,
7.72%, Series "A" .............................. 681,250
----------
3,523,750
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7
<PAGE>
Value Line Convertible Fund ,Inc.
Schedule of Investments April 30, 1998
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Shares Value
- --------------------------------------------------------------------------------
RAILROAD (0.8%)
14,500 Union Pacific Capital Trust
6 1/4%, Series "144A"* ......................... $ 790,250
STEEL (2.1%)
40,000 USX Capital Trust I,
6 3/4% Pfd...................................... 2,042,500
TELECOMMUNICATION
SERVICES (7.1%)
10,000 AirTouch Communications, Inc.
4 1/4%, Series "C".............................. 768,125
20,000 ICG Communications, Inc.
6 3/4%, Series "144A"* ......................... 1,507,500
20,000 IXC Communications, Inc.
6 3/4%, Pfd.
Series "144A"*................................. 995,000
10,000 Salomon Smith Barney
Holdings, Inc. 61/4%,
exchangeable Notes
Series "CSN" ................................... 686,250
20,000 WorldCom Inc. 8%,
Depositary shares (1)........................... 2,963,750
----------
6,920,625
TOTAL CONVERTIBLE
PREFERRED STOCKS
(Cost $21,267,764) ................................. 27,540,450
----------
TOTAL INVESTMENT
SECURITIES (78.7%)
(Cost $67,795,004) ................................. 76,881,925
----------
Principal
Amount Value
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (18.4%)
(including accrued interest)
$18,000,000 Collateralized by $17,605,000
U.S. Treasury Note 63/8%,
due 5/15/00 with a value
of $18,367,225 (with
Morgan Stanley Dean Witter
Discover & Co.,
Inc. 5.50%,
dated 4/30/98, due
5/1/98, delivery value
$18,002,750).................................... $18,002,750
CASH AND RECEIVABLES
LESS LIABILITIES (2.9%) ....................................... 2,794,544
-----------
NET ASSETS (100.0%) ........................................... $97,679,219
-----------
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
OUTSTANDING SHARE
($97,679,219 / 6,597,842
shares outstanding) ........................................... $ 14.80
===========
* Pursuant to Rule 144A under the Securities Act of 1933, this security can
only be sold to qualified institutional investors.
(1) Represents 1/100th of a share of Conv. Pfd.
See Notes to Financial Statements
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8
<PAGE>
Value Line Convertible Fund ,Inc.
Statement of Assets and Liabilities
at April 30, 1998
================================================================================
Assets:
Investment securities, at value
(Cost--$67,795,004) ..................................... $76,881,925
Repurchase agreement
(Cost--$18,002,750) ..................................... 18,002,750
Cash ...................................................... 684,938
Receivable for capital shares sold ........................ 1,719,997
Interest and dividends receivable ......................... 527,804
-----------
Total Assets .......................................... 97,817,414
-----------
Liabilities:
Payable for capital shares
repurchased ............................................. 30,678
Accrued expenses:
Advisory fee ............................................ 60,481
Other ................................................... 47,036
-----------
Total Liabilities ..................................... 138,195
-----------
Net Assets ................................................ $97,679,219
===========
Net assets consist of:
Capital stock, at $1.00 par value
(authorized 50,000,000,
outstanding 6,597,842 shares) ........................... $ 6,597,842
Additional paid-in capital ................................ 77,874,213
Undistributed net investment income ....................... 406,954
Accumulated net realized gain
on investments .......................................... 3,713,289
Net unrealized appreciation of
investments ............................................. 9,086,921
-----------
Net Assets ................................................ $97,679,219
===========
Net Asset Value, Offering and
Redemption Price per
Outstanding Share
($97,679,219 / 6,597,842
shares outstanding) ..................................... $ 14.80
===========
Statement of Operations
for the year ended April 30, 1998
- --------------------------------------------------------------------------------
Investment Income:
Interest ............................................... $ 3,531,278
Dividends (Net of foreign
withholding tax of $15,583) .......................... 1,225,033
------------
Total Income ....................................... 4,756,311
------------
Expenses:
Advisory fee ........................................... 638,379
Transfer agent fee ..................................... 40,990
Auditing and legal fees ................................ 35,041
Registration and filing fees ........................... 29,954
Custodian fees ......................................... 23,256
Printing and stationery ................................ 20,009
Directors' fees and expenses ........................... 15,228
Postage ................................................ 10,339
Insurance and other .................................... 16,432
------------
Total Expenses Before
Custody Credits .................................. 829,628
Less: Custody Credits .............................. (7,228)
------------
Total Expenses ..................................... 822,400
------------
Net Investment Income .................................. 3,933,911
------------
Net Realized and Unrealized
Gain (Loss) on Investments:
Net Realized Gain .................................. 6,520,865
Change in Net Unrealized
Appreciation ..................................... 7,785,510
------------
Net Realized Gain and Change
in Net Unrealized Appreciation
on Investments ....................................... 14,306,375
------------
Net Increase in Net Assets
from Operations ...................................... $ 18,240,286
============
See Notes to Financial Statements.
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9
<PAGE>
Value Line Convertible Fund ,Inc.
Statement of Changes in Net Assets
for the years ended April 30, 1998 and 1997
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<TABLE>
<CAPTION>
Year Ended Year Ended
April 30, 1998 April 30, 1997
---------------------------------
<S> <C> <C>
Operations:
Net investment income ......................................... $ 3,933,911 $ 3,416,967
Net realized gain on investments .............................. 6,520,865 7,919,219
Change in net unrealized appreciation ......................... 7,785,510 (5,752,019)
------------------------------
Net increase in net assets from operations .................... 18,240,286 5,584,167
------------------------------
Distributions to Shareholders:
Net investment income ......................................... (3,967,522) (3,158,289)
Realized gains ................................................ (4,337,642) (7,350,053)
------------------------------
Total distributions ........................................... (8,305,164) (10,508,342)
------------------------------
Capital Share Transactions:
Net proceeds from sale of shares .............................. 85,988,521 95,369,317
Net proceeds from reinvestment of distributions to shareholders 6,626,383 8,470,140
Cost of shares repurchased .................................... (73,554,612) (102,851,591)
---------------------------
Increase from capital share transactions ...................... 19,060,292 987,866
------------------------------
Total Increase (Decrease) ....................................... 28,995,414 (3,936,309)
Net Assets:
Beginning of year ............................................. 68,683,805 72,620,114
------------------------------
End of year ................................................... $ 97,679,219 $ 68,683,805
------------------------------
Undistributed Net Investment Income, at end of year ............. $ 406,954 $ 440,565
==============================
</TABLE>
See Notes to Financial Statements.
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10
<PAGE>
Value Line Convertible Fund ,Inc.
Notes to Financial Statements April 30, 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.
- --------------------------------------------------------------------------------
11
<PAGE>
Value Line Convertible Fund ,Inc.
Notes to Financial Statements April 30, 1998
- --------------------------------------------------------------------------------
2. Capital Share Transactions Transactions in capital stock were as follows:
Year Ended Year Ended
April 30, April 30,
1998 1997
-------------------------
Shares sold .................................... 5,969,380 6,848,012
Shares issued to shareholders
in reinvestment
of dividends ................................. 475,431 640,516
-------------------------
6,444,811 7,488,528
Shares repurchased ............................. 5,102,466 7,382,823
-------------------------
Net increase ................................... 1,342,345 105,705
=========================
3. Purchases and Sales of Securities
Purchases and sales of investment securities, excluding short-term securities,
were as follows:
Year Ended
April 30, 1998
--------------
PURCHASES:
Investment Securities ................................ $98,897,602
===========
SALES OR REDEMPTIONS:
Investment Securities ................................ $79,168,635
===========
At April 30, 1998, the aggregate cost of investment securities and repurchase
agreements for federal income tax purposes was $85,797,754. The aggregate
appreciation and depreciation of investments at April 30, 1998, based on a
comparison of investment values and their costs for federal income tax purposes,
was $11,484,868 and $2,397,947 respectively, resulting in a net appreciation of
$9,086,921.
4. Investment Advisory Contract, Management Fees, and Transactions with
Affiliates
An advisory fee of $638,379 was paid or payable to Value Line, Inc. (the
Adviser), for the year ended April 30, 1998. 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, 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 205,171 shares of the Fund's
capital stock, representing 3.1% of the outstanding shares and an officer and
Director owned 80,178 shares representing 1.2% at April 30, 1998.
- --------------------------------------------------------------------------------
12
<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,
-----------------------------------------------------------------------------
1998 1997 1996 1995 1994
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................ $ 13.07 $ 14.10 $ 11.79 $ 12.26 $ 13.80
-----------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income ......................... .65 .70 .66 .74 .71
Net gains or losses on securities
(both realized and unrealized) .............. 2.50 .50 2.33 (.02) .11
-----------------------------------------------------------------------------
Total from investment operations .............. 3.15 1.20 2.99 .72 .82
-----------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income ...................................... (.67) (.65) (.68) (.76) (.69)
Distributions from
realized capital gains ...................... (.75) (1.58) -- (.43) (1.67)
-----------------------------------------------------------------------------
Total distributions ........................... (1.42) (2.23) (.68) (1.19) (2.36)
-----------------------------------------------------------------------------
Net asset value, end of year ...................... $ 14.80 $ 13.07 $ 14.10 $ 11.79 $ 12.26
=============================================================================
Total return ...................................... 25.04% 8.80% 26.07% 6.53% 5.50%
=============================================================================
Ratios/Supplemental Data:
Net assets, end of year (in thousands) ............ $ 97,679 $ 68,684 $ 72,620 $ 50,523 $ 49,823
Ratio of expenses to average net assets ........... .98%(1) 1.01%(1) 1.08% 1.08% 1.07%
Ratio of net investment income
to average net assets ........................... 4.63% 4.94% 5.14% 6.13% 5.32%
Portfolio turnover rate ........................... 111% 164% 129% 87% 142%
</TABLE>
(1) Before custody credits.
See Notes to Financial Statements.
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Value Line Convertible Fund ,Inc.
Report of Independent Accountants
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To the Board of Directors and Shareholders
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, 1998, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted 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, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, NY 10036
June 19, 1998
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Federal Tax Status of Distributions (unaudited)
For corporate taxpayers 11.33% of the ordinary income
distributions paid during the calendar year 1997 qualify
for the corporate dividends received deductions.
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14
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Value Line Convertible Fund ,Inc.
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15
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Value Line Convertible Fund ,Inc.
The Value Line Family of Funds
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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' sole investment objective is to
realize capital growth by investing substantially all of its assets in common
stocks. The Fund may borrow up to 50% of its net assets to increase its
purchasing power.
1979--The Value Line Cash Fund, a money market fund, seeks high current income
consistent with preservation of capital and liquidity.
1981--Value Line U.S. Government Securities Fund seeks maximum income without
undue risk to principal. Under normal conditions, at least 80% of the value to
its assets will be invested in issues of the U.S. Government and its agencies
and instrumentalities.
1983--Value Line Centurion Fund* seeks long-term growth of capital as its sole
objective by investing primarily in stocks ranked 1 or 2 by Value Line for
year-ahead relative performance.
1984--The Value Line Tax Exempt Fund seeks to provide investors with maximum
income exempt from federal income taxes while avoiding undue risk to principal.
The Fund offers investors a choice of two portfolios: a Money Market Portfolio
and a High-Yield Portfolio.
1985--Value Line Convertible Fund seeks high current income together with
capital appreciation primarily from convertible securities ranked 1 or 2 for
year-ahead performance by the Value Line Convertible Ranking System.
1986--Value Line Aggressive Income Trust seeks to maximize current income by
investing in high-yielding, lower-rated, fixed-income corporate securities.
1987--Value Line New York Tax Exempt Trust seeks to provide New York taxpayers
with maximum income exempt from New York State, New York City and federal
individual income taxes while avoiding undue risk to principal.
1987--Value Line Strategic Asset Management Trust* invests in stocks, bonds and
cash equivalents according to computer trend models developed by Value Line. The
objective is to professionally manage the optimal allocation of these
investments at all times.
1993--Value Line Small-Cap Growth Fund invests primarily in common stocks or
securities convertible into common stock, with its primary objective being
long-term growth of capital.
1993--Value Line Asset Allocation Fund seeks high total investment return,
consistent with reasonable risk. The Fund invests in stocks, bonds and money
market instruments utilizing quantitative modeling to 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 Value Plus, 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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16
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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 419729
Kansas City, MO 64141-6729
INDEPENDENT Price Waterhouse 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
Anthony Cichocki
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).
VLF805010
