================================================================================
------------------
SEMI-ANNUAL REPORT
------------------
October 31, 1999
------------------
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:
I am pleased to report that The Value Line Convertible Fund returned 10.26% for
the six months ended October 31, 1999. The fund's performance exceeded by a wide
margin the results of its competitors. As shown below, your Fund more than
tripled the Lipper Convertible Peer Group Average (a collection of convertible
funds) and the unmanaged Value Line Convertible Index, a proxy for the domestic
convertible market with over 600 convertible securities.
6 Mos.
10/31/99
--------
o Value Line Convertible Fund............ 10.26%
o Lipper Convertible Peer Group Avg...... 2.86%
o Value Line Convertible Index .......... 2.99%
o S&P 500................................ 2.74%
o Russell 2000........................... -0.25%
o Lehman Brothers Gov/Corp............... -0.55%
o Lehman High Yield Bond................. -3.60%
Since our last report, the financial markets have weathered two interest rate
hikes by the Federal Reserve Board. Interest rates, represented by the
thirty-year Treasury bond, trended higher from 5.53% to 6.16% and prices
consequently fell, resulting in slightly negative returns for bonds. On the
other hand, equities were mixed, with the S&P 500 index eking out a small gain
of 2.74% while the Russell 500 index slipped 0.25% for the period.
Your Fund benefited from a market weight (previously underweight) in the top
performing telecommunications and technology sectors. Additionally, several new
issues were purchased at favorable prices relative to the general market. As
these issues returned to fair value, returns were enhanced.
The outlook for the markets is mixed. We approach the relatively high equity
valuations with caution, while we anticipate good economic growth, moderate
earnings growth and muted inflation. This will take the pressure off interest
rates, allowing them to drop below 6% next year on the 30-year Treasury bond.
Gently declining interest rates will support higher equity prices well into the
next millennium and, therefore, excellent risk-adjusted performance by
convertible securities. We believe that a sound investment policy includes an
allocation to convertible securities to spread risk and enhance overall results.
Our strategy is to maintain our focus on convertible securities and to lower
risk by continuing to focus on the more liquid, larger capitalization and higher
quality convertibles. The number of positions held by your Fund will likely
increase, as we seek to increase diversification and reduce the significance of
any one position in the portfolio. Our discipline continues to emphasize
convertibles that offer favorable leverage. Favorable leverage is a balance
between potential securities with solid fundamentals and a high rank in the
Value Line Convertible Survey.
As always, your confidence in Value Line is appreciated and we look forward to
serving your future investment needs.
Sincerely,
/s/ Jean Bernhard Buttner
Jean Bernhard Buttner
Chairman and President
December 3, 1999
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2
<PAGE>
Value Line Convertible Fund, Inc.
Convertible Fund Shareholders
- --------------------------------------------------------------------------------
Economic Observations
The American economy continues to perform well as we approach the new year.
Evidence of this healthy level of business activity can be found in the strong
pace of manufacturing, the healthy rate at which new jobs are being created, and
the generally solid performance by the consumer sector. Overall, we estimate
that GDP growth, which probably averaged, or even exceeded, 4% in the final
quarter of 1999, will come in at still-respectable 3%, or so, in 2000. Indeed,
the long-lived expansion, which will soon enter its tenth year, could well start
a second decade in 2001.
Inflationary pressures, meanwhile, continue to be held at bay, in spite of a
tightening labor market, with strong increases in productivity being at least
partially responsible for this pricing stability. Nevertheless, a slight
increase in pricing pressures does seem possible over the next several quarters.
The Federal Reserve, taking note of this possibly somewhat higher expense
structure, is likely to maintain a neutral to at most modestly restrictive
monetary stance in the months ahead.
Performance Data:*
Average Growth of
Annual an Assumed
Total Investment
Return of $10,000
------ ----------
1 year ended 9/30/99......... 16.43% $11,643
5 years ended 9/30/99........ 12.65% 18,140
10 years ended 9/30/99........ 10.65% 27,509
* 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, 1999 for the one-year, five-year and 10-year periods
were 21.84%, 14.01%, and 11.80%, respectively.
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3
<PAGE>
Value Line Convertible Fund, Inc.
Schedule of Investments (unaudited)
================================================================================
Principal
Amount Value
- --------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS & NOTES (46.8%)
AEROSPACE/DEFENSE
(0.4%)
$ 500,000 Kellstrom Industries, Inc.
5 1/2%, 6/15/03................. $ 328,750
AUTO PARTS--ORIGINAL
EQUIPMENT (1.2%)
1,000,000 Magna International Inc.
4 7/8%, 2/15/05................. 887,500
COMPUTER &
PERIPHERALS (1.9%)
1,000,000 VERITAS Software Corp.
1.856%, 8/13/06................. 1,387,500
COMPUTER SOFTWARE
& SERVICES (3.9%)
500,000 Affiliated Computer
Services Inc. 4%,
3/15/05......................... 543,125
1,000,000 Citrix Systems Inc.
Zero Coupon, Series 144A,
3/22/19* ....................... 508,750
250,000 Comverse Technology, Inc.
4 1/2%, 7/1/05.................. 664,063
500,000 Siebel Systems, Inc. Series
144A, 51/2%, 9/15/06*........... 663,750
500,000 USinternetworking, Inc.
Series 144A,
7%, 11/1/04*.................... 513,125
----------
2,892,813
DRUG (2.0%)
1,000,000 Athena Neurosciences Inc.
4 3/4%, 11/15/04................ 978,750
500,000 Inhale Therapeutic
Systems, Inc. Series 144A,
6 3/4%, 10/13/06* .............. 508,125
----------
1,486,875
ELECTRONICS (3.4%)
$ 500,000 Safeguard Scientifics, Inc.
Series 144A, 5%,
6/15/06*........................ 638,125
500,000 Sanmina Corp. 4 1/4%,
Series 144A, 5/1/04*............ 602,500
2,000,000 Solectron Corp. Zero
Coupon, 1/27/19*................ 1,262,500
----------
2,503,125
ENTERTAINMENT (3.2%)
1,000,000 Clear Channel
Communications, Inc.
2 5/8%, 4/1/03.................. 1,411,250
1,000,000 Merrill Lynch & Co., Inc.
0.25%, 5/10/06
(exchangeable into
Time Warner Inc.)............... 971,250
----------
2,382,500
FOREIGN
TELECOMMUNICATIONS
(2.1%)
500,000 Global Telesystems Group, Inc.
5 3/4%, 7/1/10.................. 523,125
1,000,000 Telefonos de Mexico S.A.
4 1/4%, 6/15/04................. 1,047,500
----------
1,570,625
INSURANCE (PROPERTY/ CASUALTY) (3.3%)
1,000,000 Berkshire Hathaway Inc.
1%, 12/2/01..................... 2,436,250
INTERNET (3.0%)
500,000 DoubleClick Inc. Series 144A,
4 3/4%, 3/15/06*................ 917,500
600,000 MindSpring Enterprises, Inc.
5%, 4/15/06..................... 581,250
500,000 VerticalNet, Inc. Series 144A,
5 1/4%, 9/27/04*................ 757,500
----------
2,256,250
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4
<PAGE>
Value Line Convertible Fund, Inc.
October 31, 1999
================================================================================
Principal
Amount Value
- --------------------------------------------------------------------------------
MEDICAL SERVICES (1.7%)
$1,000,000 Affymetrix, Inc. Series 144A,
5%, 10/1/06*.................... $ 960,000
500,000 WellPoint Health
Networks Inc.
Zero Coupon, 7/2/19 ............ 291,250
----------
1,251,250
OILFIELD SERVICES/
EQUIPMENT (1.4%)
1,000,000 Diamond Offshore Drilling
Inc. 3 3/4%, 2/15/07............ 1,027,500
PETROLEUM--
INTEGRATED (1.3%)
1,000,000 Texaco Capital Inc.
3 1/2%, 8/5/04.................. 990,000
R.E.I.T. (1.2%)
1,000,000 Healthcare Realty Trust, Inc.
6.55%, 3/14/02.................. 915,000
RETAIL--
SPECIAL LINES (0.8%)
1,000,000 AnnTaylor Stores Corp.
Series 144A, .55%,
6/18/19*........................ 583,750
RETAIL STORE (1.3%)
1,000,000 Costco Companies, Inc.
Zero Coupon, 8/19/17............ 951,250
SEMICONDUCTOR (3.9%)
500,000 Conexant Systems, Inc.
4 1/4%, 5/1/06.................. 1,045,625
500,000 Lattice Semiconductor Corp.
Series 144A, 43/4%,
11/1/06* ....................... 541,875
500,000 Level One Communications,
Inc. 4%, 9/1/04................. 1.285,625
----------
2,873,125
TELECOMMUNICATION
SERVICES (10.8%)
$1,500,000 American Tower Corp.
Series 144A, 2 1/4%,
10/15/09*....................... 1,010,625
2,000,000 Bell Atlantic Financial
Services Inc. Series 144A,
4 1/4%, 9/15/05*................ 2,110,000
700,000 Comcast Corp. 2%, 10/15/29
(exchangeable into Sprint
Corp.--PCS Group)............... 579,250
200,000 CoreComm Limited Series
144A, 6%, 10/1/06*.............. 223,750
1,000,000 Gilat Satellite
Networks Ltd. 6 1/2%,
6/3/04.......................... 1,303,750
500,000 ITC Deltacom, Inc.
Series 144A,
4 1/2%, 5/15/06*................ 548,750
1,000,000 Level 3 Communications,
Inc. 6%, 9/15/09................ 1,228,750
500,000 Nextel Communications, Inc.
Series 144A, 43/4%,
7/1/07*......................... 966,875
----------
7,971,750
----------
TOTAL CONVERTIBLE
CORPORATE BONDS
& NOTES
(Cost $29,840,648) ................ $34,695,813
-----------
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5
<PAGE>
Value Line Convertible Fund, Inc.
Schedule of Investments (unaudited)
================================================================================
Shares Value
- --------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS (20.7%)
BANK (3.3%)
10,000 BCP International Bank Ltd.
$4.00 exchangeable
Series "A"...................... $1,040,000
50,000 National Australia Bank,
Ltd. Cap Units 7 7/8%,
exchangeable Pfd. .............. 1,409,375
----------
2,449,375
CABLE TV (1.1%)
5,000 Adelphia Communications
Corp. 5 1/2%,
Series "D" Pfd. ................ 856,562
COMPUTER SOFTWARE
& SERVICES (0.3%)
5,000 Verio Inc. 6 3/4%,
Series 144A Pfd.*............... 237,500
ELECTRIC UTILITY--
CENTRAL (0.7%)
10,000 AES Corporation (The)
Trust III 63/4%, Pfd. ......... 504,375
ELECTRIC UTILITY--
WEST (0.7%)
10,000 Calpine Corp. Capital Trust
53/4%, Pfd...................... 540,625
ENTERTAINMENT (2.6%)
4,000 EMMIS Communications
Corp. 6 1/4%,
Series "A" Pfd. ................ 224,000
10,000 Entercom Communications
Corp. Capital Trust
6 1/4%, Pfd. ................... 646,250
15,000 Reliant Energy, Inc.
Variable Rate
Pfd. (exchangeable into
Time Warner Inc.)............... 1,053,750
----------
1,924,000
INTERNET (1.1%)
20,000 PSINet Inc. 6 3/4%,
Series "C" Pfd.................. 795,000
PACKAGING &
CONTAINER (2.2%)
30,000 Sealed Air Corp.
$2.00 exchangeable
Series "A" ..................... 1,620,000
PETROLEUM--
PRODUCING (1.0%)
20,000 Apache Corp. 6 1/2%,
Series "C" Pfd.................. 716,000
RAILROAD (0.9%)
14,500 Union Pacific Capital
Trust 6 1/4%, Pfd............... 701,438
TELECOMMUNICATION
SERVICES (6.8%)
10,000 Broadwing Inc.
6 3/4%, Pfd..................... 420,625
10,000 Global Crossing Ltd. 6 3/8%,
Series 144A Pfd.*............... 1,000,000
10,000 ICG Communications, Inc.
6 3/4%, Pfd..................... 426,250
3,000 McLeodUSA, Inc.
6 3/4%, Series "A" Pfd.......... 1,237,125
10,000 MediaOne Group, Inc.
6 1/4%, Pfd..................... 1,040,000
20,000 MediaOne Group, Inc.
7%, Pfd......................... 912,500
----------
5,036,500
----------
TOTAL CONVERTIBLE
PREFERRED STOCKS
(Cost $13,955,455) ................ $15,381,375
-----------
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6
<PAGE>
Value Line Convertible Fund, Inc.
October 31, 1999
================================================================================
Shares Value
- --------------------------------------------------------------------------------
COMMON STOCKS (4.2%)
COMPUTER &
PERIPHERALS (2.0%)
10,000 Cisco Systems, Inc.**.............. $ 740,000
10,000 EMC Corp.**........................ 730,000
----------
1,470,000
RETAIL BUILDING
SUPPLY (1.0%)
10,000 Home Depot, Inc. (The)............. 755,000
TELECOMMUNICATION
SERVICES (1.2%)
10,000 MCI WorldCom, Inc.**............... 858,125
----------
TOTAL COMMON
STOCKS
(Cost $1,579,379) ................. 3,083,125
----------
TOTAL INVESTMENT
SECURITIES (71.7%)
(Cost $45,375,482) ................ 53,160,313
----------
Principal
Amount Value
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (29.0%)
(including accrued interest)
$5,400,000 Collateralized by $4,299,000
U.S. Treasury Bonds 8 3/4%,
due 5/15/20, with a value
of $5,533,708 (with Warburg
Dillon Read LLC, 5.22%,
dated 10/29/99, due 11/1/99,
delivery value
$5,402,349)..................... $5,402,349
$5,400,000 Collateralized by $5,520,000
U.S. Treasury Notes 5%,
due 2/28/01, with a value
of $5,513,235 (with State
Street Bank & Trust
Company 5.18%, dated
10/29/99, due 11/1/99,
delivery value
$5,402,331) .................... $5,402,331
5,400,000 Collateralized by $4,780,000
U.S. Treasury Bonds 9 1/8%,
due 5/15/09, with a value
of $5,526,146 (with Morgan
Stanley & Co., Incorporated,
5.16%, dated 10/29/99,
due 11/1/99, delivery value
$5,402,322) .................... 5,402,322
5,300,000 Collateralized by $5,356,000
U.S. Treasury Notes 5 5/8%,
due 12/31/02, with a value
of $5,411,544 (with Banc
One Capital Markets, Inc.,
5.18%, dated 10/29/99,
due 11/1/99, delivery
value $5,302,288) .............. 5,302,288
----------
Total Repurchase Agreements
(Cost $21,509,290) ................ 21,509,290
----------
EXCESS OF LIABILITIES
OVER CASH AND
RECEIVABLES (-0.7%) ................................ (541,335)
----------
NET ASSETS (100.0%) ................................ $74,128,268
===========
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE PER
OUTSTANDING SHARE
($74,128,268 / 5,343,744
shares outstanding) ................................ $13.87
===========
* Pursuant to Rule 144A under the Securities Act of 1933, this
security can only be sold to qualified institutional investors.
** Non-income producing.
See Notes to Financial Statements.
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7
<PAGE>
Value Line Convertible Fund, Inc.
Statement of Assets and Liabilities
at October 31, 1999 (unaudited)
================================================================================
Assets:
Investment securities, at value
(Cost--$45,375,482) ..................................... $53,160,313
Repurchase agreements
(Cost--$21,509,290) ..................................... 21,509,290
Cash ...................................................... 56,703
Receivable for securities sold ............................ 4,506,915
Receivable for capital shares sold ........................ 394,685
Interest and dividends receivable ......................... 269,003
-----------
Total Assets .......................................... 79,896,909
-----------
Liabilities:
Payable for securities purchased .......................... 5,586,070
Payable for capital shares repurchased .................... 71,874
Accrued expenses:
Advisory fee ............................................ 66,795
Other ................................................... 43,902
-----------
Total Liabilities ..................................... 5,768,641
-----------
Net Assets ................................................ $74,128,268
===========
Net assets consist of:
Capital stock, at $1.00 par value
(authorized 50,000,000,
outstanding 5,343,744 shares) ........................... $ 5,343,744
Additional paid-in capital ................................ 60,564,856
Undistributed net investment income ....................... 168,933
Undistributed net realized gain
on investments .......................................... 265,904
Net unrealized appreciation of
investments ............................................. 7,784,831
-----------
Net Assets ................................................ $74,128,268
===========
Net Asset Value, Offering and
Redemption Price per
Outstanding Share
($74,128,268 / 5,343,744
shares outstanding) ..................................... $ 13.87
===========
Statement of Operations
for the six months ended October 31, 1999 (unaudited)
================================================================================
Investment Income:
Interest ................................................ $ 983,003
Dividends ............................................... 370,238
-----------
Total Income ........................................ 1,353,241
-----------
Expenses:
Advisory fee ............................................ 256,183
Auditing and legal fees ................................. 21,160
Transfer agent .......................................... 21,160
Registration and filing fees ............................ 11,960
Printing and stationery ................................. 11,040
Custodian fees .......................................... 10,280
Postage ................................................. 10,120
Directors' fees and expenses ............................ 8,280
Telephone ............................................... 4,600
Insurance, dues and other ............................... 2,173
-----------
Total Expenses before
custody credits ................................... 356,956
Less: custody credits ............................... (2,552)
-----------
Net Expenses ........................................ 354,404
-----------
Net Investment Income ................................... 998,837
-----------
Net Realized and Unrealized Gain
(Loss) on Investments:
Net Realized Gain ................................... 6,434,339
Change in Net Unrealized
Appreciation ...................................... (350,073)
-----------
Net Realized Gain and Change in
Net Unrealized Appreciation
on Investments ........................................ 6,084,266
-----------
Net Increase in Net Assets
from Operations ....................................... $ 7,083,103
===========
See Notes to Financial Statements.
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8
<PAGE>
Value Line Convertible Fund, Inc.
<TABLE>
Statement of Changes in Net Assets
for the six months ended October 31, 1999 (unaudited) and for the year ended April 30, 1999
====================================================================================================
<CAPTION>
Six Months Ended Year Ended
October 31, 1999 April 30,
(unaudited) 1999
-------------------------------
<S> <C> <C>
Operations:
Net investment income ..................................... $ 998,837 $ 3,168,591
Net realized gain (loss) on investments ................... 6,434,339 (6,168,354)
Change in net unrealized appreciation ..................... (350,073) (952,017)
------------------------------
Net increase (decrease) in net assets from operations ..... 7,083,103 (3,951,780)
------------------------------
Distributions to Shareholders:
Net investment income ..................................... (974,040) (3,431,409)
Net realized gain from investment transactions ............ -- (3,713,370)
------------------------------
Total distributions ....................................... (974,040) (7,144,779)
------------------------------
Capital Share Transactions:
Proceeds from sale of shares .............................. 135,732,486 176,887,275
Proceeds from reinvestment of distributions to shareholders 809,274 5,916,259
Cost of shares repurchased ................................ (137,799,827) (200,108,922)
------------------------------
Net decrease from capital share transactions .............. (1,258,067) (17,305,388)
------------------------------
Total Increase (Decrease) in Net Assets ..................... 4,850,996 (28,401,947)
Net Assets:
Beginning of period ....................................... 69,277,272 97,679,219
------------------------------
End of period ............................................. $ 74,128,268 $ 69,277,272
==============================
Undistributed net investment income, at end of period ....... $ 168,933 $ 144,136
==============================
</TABLE>
See Notes to Financial Statements.
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9
<PAGE>
Value Line Convertible Fund, Inc.
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
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. Permanent differences 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.
October 31, 1999
- --------------------------------------------------------------------------------
2. Capital Share Transactions.
Transactions in capital stock were as follows:
Six Months
Ended Year
October 31, Ended
1999 April 30,
(unaudited) 1999
-----------------------------
Shares sold .............................. 10,391,188 13,575,401
Shares issued to shareholders
in reinvestment
of dividends ........................... 62,718 477,763
-----------------------------
10,453,906 14,053,164
Shares repurchased ....................... 10,534,572 15,226,596
-----------------------------
Net decrease ............................. (80,666) (1,173,432)
=============================
3. Purchases and Sales of Securities
Purchases and sales of investment securities, excluding short-term securities,
were as follows:
Six Months
Ended
October 31, 1999
(unaudited)
--------------
PURCHASES:
Investment Securities ................................ $34,290,811
===========
SALES OR REDEMPTIONS:
Investment Securities ................................ $50,780,290
===========
At October 31, 1999, the aggregate cost of investment securities and repurchase
agreements for federal income tax purposes was $66,884,772. The aggregate
appreciation and depreciation of investments at October 31, 1999, based on a
comparison of investment values and their costs for federal income tax purposes,
was $8,903,533 and $1,118,702 respectively, resulting in a net depreciation of
$7,784,831.
For federal income tax purposes the Fund had a net capital loss carryover at
April 30, 1999 of $2,832,872 which will expire in the year 2007. To the extent
future capital gains are offset by such capital losses, the Fund does not
anticipate distributing any such gains to its shareholders.
4. Investment Advisory Contract, Management Fees, and Transactions with
Affiliates
An advisory fee of $256,183 was paid or payable to Value Line, Inc. (the
Adviser), for the six months ended October 31, 1999. 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 210,406 shares of the Fund's
capital stock, representing 3.9% of the outstanding shares at October 31, 1999.
- --------------------------------------------------------------------------------
11
<PAGE>
Value Line Convertible Fund, Inc.
Other Information (unaudited)
================================================================================
Year 2000. Like other mutual funds, the Fund could be adversely affected if the
computer systems used by the Adviser and other service providers do not properly
process and calculate date-related information and data from and after January
1, 2000. This is commonly known as the "Year 2000 Problem." The Adviser is
taking steps that it believes are reasonably designed to address the Year 2000
Problem with respect to the computer systems that it uses and to obtain
satisfactory assurances that comparable steps are being taken by the Fund's
other major service providers. At this time, however, there can be no assurance
that these steps will be sufficient to avoid any adverse impact to the Fund.
The Year 2000 Problem is expected to impact corporations, which may include
issuers of portfolio securities held by the Fund, to varying degrees based upon
various factors, including, but not limited to, the corporation's industry
sector and degree of technological sophistication. The Fund is unable to predict
what impact, if any, the Year 2000 Problem will have on issuers of the portfolio
securities held by the Fund.
- --------------------------------------------------------------------------------
12
<PAGE>
Value Line Convertible Fund, Inc.
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, 1999 ------------------------------------------------------------------
(unaudited) 1999 1998 1997 1996 1995
---------------- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period ........................ $ 12.77 $ 14.80 $ 13.07 $ 14.10 $ 11.79 $ 12.26
---------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income ............ .20 .57 .65 .70 .66 .74
Net gains or losses on securities
(both realized and unrealized) . 1.09 (1.33) 2.50 .50 2.33 (.02)
---------------------------------------------------------------------------------
Total from investment operations 1.29 (.76) 3.15 1.20 2.99 .72
---------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income ............ (.19) (.60) (.67) (.65) (.68) (.76)
Distributions from realized
capital gains ................ -- (.67) (.75) (1.58) -- (.43)
---------------------------------------------------------------------------------
Total distributions ............ (.19) (1.27) (1.42) (2.23) (.68) (1.19)
---------------------------------------------------------------------------------
Net asset value, end of period ..... $ 13.87 $ 12.77 $ 14.80 $ 13.07 $ 14.10 $ 11.79
=================================================================================
Total return ....................... 10.26%+ -4.64% 25.04% 8.80% 26.07% 6.53%
=================================================================================
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) ................... $74,128 $69,277 $97,679 $68,684 $72,620 $50,523
Ratio of expenses to
average net assets ............... 1.05%*(1) 1.00%*(1) .98%(1) 1.01%(1) 1.08% 1.08%
Ratio of net investment income
to average net assets ............ 2.93%* 3.98%* 4.63% 4.94% 5.14% 6.13%
Portfolio turnover rate ............ 61%+ 123% 111% 164% 129% 87%
</TABLE>
(1) Before custody credits.
+ Not annualized.
* Annualized.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
13
<PAGE>
Value Line Convertible Fund, Inc.
The Value Line Family of Funds
================================================================================
1950--The Value Line Fund seeks long-term growth of capital. Current income is a
secondary objective.
1952--Value Line Income and Growth Fund's primary investment objective is
income, as high and dependable as is consistent with reasonable risk. Capital
growth to increase total return is a secondary objective.
1956--The Value Line Special Situations Fund seeks long-term growth of capital.
No consideration is given to current income in the choice of investments.
1972--Value Line Leveraged Growth Investors' sole investment objective is to
realize capital growth.
1979--The Value Line Cash Fund, a money market fund, seeks to secure as high a
level of current income as is consistent with maintaining liquidity and
preserving capital.
1981--Value Line U.S. Government Securities Fund seeks maximum income without
undue risk to capital. Under normal conditions, at least 80% of the value of its
net assets will be invested in securities issued or guaranteed by the U.S.
Government and its agencies and instrumentalities.
1983--Value Line Centurion Fund* seeks long-term growth of capital.
1984--The Value Line Tax Exempt Fund seeks to provide investors with the maximum
income exempt from federal income taxes while avoiding undue risk to principal.
The Fund offers investors a choice of two portfolios: The Money Market Portfolio
and The National Bond Portfolio.
1985--Value Line Convertible Fund seeks high current income together with
capital appreciation primarily from convertible securities ranked 1 or 2 for
year-ahead performance by the Value Line Convertible Ranking System.
1986--Value Line Aggressive Income Trust seeks to maximize current income.
1987--Value Line New York Tax Exempt Trust seeks to provide New York taxpayers
with the maximum income exempt from New York State, New York City and federal
income taxes while avoiding undue risk to principal.
1987--Value Line Strategic Asset Management Trust* seeks to achieve a high total
investment return consistent with reasonable risk.
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 ValuePlus, a variable life insurance policy.
For more complete information about any of the Value Line Funds, including
charges and expenses, send for a prospectus from Value Line Securities, Inc.,
220 East 42nd Street, New York, New York 10017-5891 or call 1-800-223-0818, 24
hours a day, 7 days a week, or visit us at www.valueline.com. Read the
prospectus carefully before you invest or send money.
- --------------------------------------------------------------------------------
16
<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 219729
Kansas City, MO 64121-9729
INDEPENDENT PricewaterhouseCoopers LLP
ACCOUNTANTS 1177 Avenue of the Americas
New York, NY 10036
LEGAL COUNSEL Peter D. Lowenstein, Esq.
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
DIRECTORS Jean Bernhard Buttner
John W. Chandler
David H. Porter
Paul Craig Roberts
Nancy-Beth Sheerr
OFFICERS Jean Bernhard Buttner
Chairman and President
Bruce H. Alston
Vice President
Nathan N. J. Grant
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).
#501786
