================================================================================
--------------
ANNUAL REPORT
--------------
April 30, 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:
It is with pleasure that we report the following results of your convertible
fund for the fiscal year ended April 30, 1999. The Value Line Convertible Index,
which is a proxy for the convertible market because it represents the collective
performance of over 600 convertible securities, had a return of -7.60%. Your
Fund's performance of -4.64% clearly outperformed this unmanaged index by 2.96%.
Please note that the index incurs no expenses as do all mutual funds. Your
fund's average expense ratio of 1.00% compares favorably to the convertible
industry average expense of 1.54%.
FYE 4/30/99
---------
Value Line Convertible Index........................... -7.60%
Value Line Convertible Fund............................ -4.64%
Lipper Convertible Peer Group Average.................. 1.56%
S&P 500............................................... 21.82%
Russell 2000........................................... -9.25%
Lehman Brothers Gov/Corp.............................. 6.28%
Since our last report, as of October 31, 1998, the financial markets rebounded
from the effects of a global financial crisis. The Dow Jones Stock Index rallied
from a low of 8,592 on October 30 to 10,789 on April 30, for a gain of more than
twenty-five percent. Prices of Treasury bonds, however, fell precipitously over
the same period with yields jumping from 5.16% to 5.66%, a rise of one-half of
one percentage point. In fact, recently rates have further increased, rising
slightly above 6%.
Your fund's performance fell short of its peer group, as several highly-ranked
convertible issues (namely, Rite Aid, Network Associates and McKesson) reported
negative earnings surprises in 1999, causing the securities' prices to drop
35%-45% in value. This reduced performance by over 3.00% and was the primary
reason the Fund's performance lagged its peers.
Other contributing factors to these lackluster results included: (i) heavy
equity exposure by competitors -- the average convertible fund held 15% of its
assets in common stocks, compared to less than 5% on average for your fund; (ii)
the hedged positions carried by some funds, that your fund does not carry; (iii)
the relative under performance of traditional convertibles (that we favor)
compared to the more volative equity-alternative convertibles; (iv) the
continued under performance of mid and small cap securities and (v) the recent
rotation from growth securities (that Value Line favors) to the value group,
ranked lower by Value Line.
Periodic bouts of market turbulence are rarely a pleasant experience. Occasional
fluctuations in performance are the price investors usually pay to reap
long-term financial rewards. We believe that over the long run it is sensible to
balance the overall level of risk in an investment portfolio with a mix of
stocks & bonds, including convertibles, to achieve the appropriate degree of
risk.
Value Line will continue to strive to deliver competitive returns in convertible
securities by seeking those securities that offer a favorable risk/return
profile and attractive fundamentals.
We thank you for your confidence in the Fund and look forward to serving your
future investment needs.
Sincerely,
/s/ Jean Bernhard Buttner
Jean Bernhard Buttner
Chairman and President
June 25, 1999
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2
<PAGE>
Value Line Convertible Fund, Inc.
Convertible Fund Shareholders
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Economic Observations
For now, at least, our economy continues to move ahead at a brisk pace. Evidence
of this ongoing strength can be found in the first quarter's 4.1% increase in
gross domestic product, as well as in reports showing further gains in
manufacturing and retailing. In fact, the only area of major concern currently
is our widening international trade deficit, as faltering business overseas
continues to limit demand for American exports. Even with this bleak trade
situation, though, it appears unlikely that economic growth will fall short of
3% in the second quarter or 2%-3% in the second half.
Inflation reports take on increasing significance in this setting. That's
because the persistence of solid levels of economic growth, along with the
recent increases in energy prices, has the potential to introduce pricing
pressures for the first time in years. For now, such fears have not been
realized to any sustainable degree. Indeed, many corporations continue to have
limited pricing power. Even so, with the economy still moving ahead solidly,
with oil and gas prices at a much higher level than earlier in the year, and
with the labor markets still tightening, it is realistic to expect at least a
moderately higher rate of inflation in the coming months.
At this juncture, though, we do not see a compelling reason for the Federal
Reserve to push interest rates materially higher. We note, however, that as the
economic situation starts to improve globally, the temptation for the Fed--which
has already signaled that it is now more likely to raise interest rates than to
lower them in the weeks ahead--to push up interest rates at least modestly,
would increase.
Performance Data:*
Average Value of
Annual an Assumed
Total Investment
Return of $10,000
------ --------
1 year ended 3/31/99.................. -5.18% $ 9,483
5 years ended 3/31/99................. 11.26% 17,046
10 years ended 3/31/99................. 11.18% 28,846
* 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, 1999 for the one-year, five-year and 10-year periods
were -4.64%, 11.74%, and 10.83%, respectively.
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3
<PAGE>
Value Line Convertible Fund, Inc.
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Comparison of a change in value of a $10,000 investment in the
Value Line Convertible Fund, Inc. and the S&P 500 Index+
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Value Line
S&P 500 Index Convertible Fund, Inc.
------------- ----------------------
4/89 10,000.00 10,000.00
10/89 11,199.69 10,099.57
4/90 11,062.62 10,051.38
10/90 10,358.08 9,136.25
4/91 13,005.99 11,054.61
10/91 13,828.27 12,278.38
4/92 14,833.43 12,869.44
10/92 15,201.12 13,642.47
4/93 16,200.47 15,206.55
10/93 17,464.00 16,548.88
4/94 17,063.24 16,043.61
10/94 18,139.84 15,997.58
4/95 20,035.22 17,091.79
10/95 22,921.08 18,283.77
4/96 26,072.75 21,547.41
10/96 28,427.41 22,777.27
4/97 32,619.76 23,442.37
10/97 37,554.04 26,960.21
4/98 45,990.37 29,312.47
10/98 45,807.92 25,296.42
4/99 56,024.22 27,952.52
From 5/1/89 to 4/30/99
+ 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, 1999
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Principal
Amount Value
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CONVERTIBLE CORPORATE BONDS & NOTES (56.7%)
AEROSPACE/
DEFENSE (1.2%)
$1,000,000 Kellstrom Industries, Inc.
5 1/2%, 6/15/03................. $ 830,000
AUTO PARTS (ORIGINAL
EQUIPMENT) (1.5%)
1,000,000 Magna International Inc.
4 7/8%, 2/15/05................. 1,020,000
COMPUTER SOFTWARE
& SERVICES (6.5%)
1,000,000 Affiliated Computer
Services Inc.
4%, 3/15/05..................... 1,107,500
2,000,000 Citrix Systems Inc.
Zero Coupon
Series 144A, 3/22/19*........... 755,000
1,000,000 Comverse Technology, Inc.
4 1/2%, 7/1/05.................. 1,641,250
1,000,000 Softkey International Inc.
5 1/2%, 11/1/00................. 977,500
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4,481,250
DIVERSIFIED
COMPANIES (3.2%)
1,000,000 Berkshire Hathaway Inc.
1%, 12/2/01..................... 2,195,000
DRUG (3.2%)
1,000,000 Athena Neurosciences Inc.
4 3/4%, 11/15/04................ 1,046,250
1,000,000 Genzyme Corporation
5 1/4%, 6/1/05.................. 1,168,750
-----------
2,215,000
DRUGSTORE (1.4%)
1,000,000 Rite Aid Corp.
5 1/4%, 9/15/02................. 1,010,000
ELECTRONICS (3.6%)
$1,000,000 Sanmina Corp. 4 1/4%,
Series 144A, 5/1/04*............ 1,027,500
3,000,000 Solectron Corp.
Zero Coupon,
Series 144A, 1/27/19*........... 1,466,250
-----------
2,493,750
ENTERTAINMENT (5.8%)
1,500,000 Clear Channel
Communications, Inc.
2 5/8%, 4/1/03.................. 1,897,500
2,000,000 Jacor Communications, Inc.
Zero Coupon, 2/9/18............. 1,107,500
1,000,000 Merrill Lynch & Co., Inc.
0.25%, 5/10/06
(exchangable into Time
Warner Inc.).................... 1,000,000
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4,005,000
ENVIRONMENTAL (1.4%)
1,000,000 United States Filter Corp.
4 1/2%, 12/15/01................ 988,750
INTERNET (6.4%)
1,000,000 Amazon.com, Inc.
Series 144A,
4 3/4%, 2/1/09*................. 1,278,750
500,000 At Home Corp. Series 144A,
.5246%, 12/28/18*............... 492,500
500,000 CNET, Inc. Series 144A,
5%, 3/1/06*..................... 910,625
500,000 DoubleClick Inc.
Series 144A,
4 3/4%, 3/15/06*................ 886,875
600,000 MindSpring Enterprises, Inc.
5%, 4/15/06..................... 638,250
250,000 SportsLine USA Inc.
Series 144A,
5%, 4/1/06*..................... 211,250
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4,418,250
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5
<PAGE>
Value Line Convertible Fund, Inc.
Schedule of Investments
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Principal
Amount Value
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MEDICAL SERVICES (1.8%)
$1,000,000 Sunrise Assisted Living, Inc.
5 1/2%, 6/15/02................. $ 1,221,250
MEDICAL SUPPLIES (1.5%)
1,000,000 Centocor Inc.
4 3/4%, 2/15/05................. 1,063,750
OFFICE EQUIPMENT
& SUPPLIES (2.4%)
2,000,000 Office Depot Inc.
Zero Coupon, 11/1/08............ 1,667,500
OILFIELD SERVICES/
EQUIPMENT (1.5%)
1,000,000 Diamond Offshore
Drilling Inc.
3 3/4%, 2/15/07................. 1,075,000
PETROLEUM--
INTEGRATED (1.5%)
1,000,000 Texaco Capital Inc.
3 1/2%, 8/5/04.................. 1,040,000
PUBLISHING (1.4%)
1,000,000 World Color Press, Inc.
6%, 10/1/07..................... 962,500
R.E.I.T. (1.3%)
1,000,000 Healthcare Realty Trust,
Inc. 6.55%, 3/14/02............. 905,000
RETAIL BUILDING
SUPPLY (3.6%)
$1,000,000 Home Depot, Inc. (The)
3 1/4%, 10/1/01................. $ 2,523,750
RETAIL STORE (1.4%)
1,000,000 Costco Companies, Inc.
zero coupon, 8/19/17............ 962,500
TELECOMMUNICATIONS
EQUIPMENT (2.9%)
1,000,000 Level One Communications,
Inc. 4%, 9/1/04................. 2,001,250
TELECOMMUNICATION
SERVICES (3.2%)
2,000,000 Bell Atlantic Financial
Services Inc. Series 144A,
4 1/4%, 9/15/05*................ 2,207,500
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TOTAL CONVERTIBLE CORPORATE BONDS
& NOTES
(Cost $35,723,087) ................ $39,287,000
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6
<PAGE>
Value Line Convertible Fund, Inc.
April 30, 1999
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Shares Value
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CONVERTIBLE PREFERRED STOCKS (28.9%)
BANK (5.9%)
10,000 BCP International Bank Ltd.
$4.00, exchangeable
Series "A"...................... $ 1,050,000
16,000 Matewan Bancshares, Inc.
7.50%, Series "A"............... 502,000
75,000 National Australia Bank,
Ltd. Cap Units 7 7/8%,
exchangeable Pfd................ 2,554,687
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4,106,687
CABLE TV (0.7%)
2,500 Adelphi Communications
Corp. 5 1/2%,
Series "D" Pfd. ................ 510,625
CEMENT &
AGGREGATES (1.8%)
35,300 TXI Capital Trust I
5 1/2%, Pfd..................... 1,261,975
COMPUTER SOFTWARE
& SERVICES (0.4%)
9,200 Tribune Co. 61/4%
exchangeable Notes.............. 262,200
ENTERTAINMENT (3.1%)
20,000 Chancellor Media Corp.
$3.00, exchangeable Pfd......... 2,140,000
FOOD PROCESSING
(1.3%)
20,000 Ralston Purina Co.
7%, Pfd......................... 930,000
MEDICAL SUPPLIES
(0.8%)
10,000 McKesson Corporation
Financing Trust
5%, Pfd......................... 532,500
PACKAGING &
CONTAINER (2.6%)
30,000 Sealed Air Corp.
$2.00 exchangeable
Series "A"...................... $ 1,762,500
RAILROAD (1.1%)
14,500 Union Pacific Capital
Trust 6 1/4%, Pfd............... 784,813
RETAIL--SPECIAL
LINES (1.7%)
10,000 AnnTaylor Financial Trust
8 1/2%, Pfd..................... 1,203,750
TELECOMMUNICATION
SERVICES (9.5%)
10,000 AirTouch Communications,
Inc. 4 1/4%, Series "C"......... 1,300,000
25,000 Comcast Corp. 3.35%
exchangeable Pfd................ 1,890,625
20,000 ICG Communications, Inc.
6 3/4%, Pfd..................... 1,072,500
20,000 IXC Communications, Inc.
6 3/4%, Pfd.*................... 792,500
10,000 MediaOne Group, Inc.
6 1/4%, Pfd..................... 801,250
10,000 Salomon Smith Barney
Holdings, Inc. 6 1/4%,
exchangeable Notes
Series "CSN".................... 700,000
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6,556,875
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TOTAL CONVERTIBLE
PREFERRED STOCKS
(Cost $17,462,109) ................ 20,051,925
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7
<PAGE>
Value Line Convertible Fund, Inc.
Schedule of Investments April 30, 1999
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Shares Value
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COMMON STOCKS (6.1%)
COMPUTER &
PERIPHERALS (1.6%)
5,000 Cisco Systems, Inc.**.............. $ 570,313
5,000 EMC Corp.**........................ 544,687
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1,115,000
INTERNET (1.0%)
5,000 America Online, Inc.**............. 713,750
TELECOMMUNICATION
SERVICES (3.5%)
28,854 MCI WorldCom, Inc.**............... 2,371,438
-----------
TOTAL COMMON
STOCKS
(Cost $2,219,013) ................. 4,200,188
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TOTAL INVESTMENT
SECURITIES (91.7%)
(Cost $55,404,209) ................ 63,539,113
-----------
REPURCHASE AGREEMENTS (15.0%)
(including accrued interest)
$5,200,000 Collateralized by $4,948,000
U.S. Treasury Notes 6 1/2%,
due 10/15/06, with a value
of $5,304,449 (with Banc
One Capital Markets, Inc.,
4.84%, dated 4/30/99, due
5/3/99, delivery value
$5,202,097)..................... $ 5,200,699
5,200,000 Collateralized by $4,965,000
U.S. Treasury Bonds
7 5/8%, due 2/15/07, with
a value of $5,324,774
(with Morgan Stanley &
Co., Incorporated,
4.84%, dated 4/30/99,
due 5/3/99,
delivery value
$5,202,097)..................... 5,200,699
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10,401,398
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EXCESS OF LIABILITIES OVER
CASH AND RECEIVABLES (-6.7%)........................ (4,663,239)
-----------
NET ASSETS (100.0%) ................................ $69,277,272
===========
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE, PER
OUTSTANDING SHARE
($69,277,272 / 5,424,410
shares outstanding)................................. $ 12.77
===========
* 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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8
<PAGE>
Value Line Convertible Fund, Inc.
Statement of Assets and Liabilities
at April 30, 1999
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Assets:
Investment securities, at value
(Cost--$55,404,209)............................ $63,539,113
Repurchase agreements
(Cost--$10,401,398)............................ 10,401,398
Cash ........................................... 686,764
Receivable for securities sold ................. 2,199,861
Interest and dividends receivable .............. 326,103
Receivable for capital shares sold ............. 6,955
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Total Assets ............................... 77,160,194
----------
Liabilities:
Payable for securities
purchased..................................... 7,782,319
Payable for capital shares
repurchased .................................. 11,475
Accrued expenses:
Advisory fee ................................. 44,419
Other ........................................ 44,709
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Total Liabilities .......................... 7,882,922
----------
Net Assets ..................................... $69,277,272
==========
Net assets consist of:
Capital stock, at $1.00 par value
(authorized 50,000,000,
outstanding 5,424,410 shares)................. $ 5,424,410
Additional paid-in capital ..................... 61,742,257
Undistributed net investment income ............ 144,055
Accumulated net realized loss
on investments................................ (6,168,354)
Net unrealized appreciation
of investments ............................... 8,134,904
----------
Net Assets ..................................... $69,277,272
==========
Net Asset Value, Offering and
Redemption Price, per
Outstanding Share
($69,277,272 / 5,424,410
shares outstanding) .......................... $ 12.77
==========
Statement of Operations
for the year ended April 30, 1999
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Investment Income:
Interest ....................................... $ 2,621,176
Dividends ...................................... 1,339,016
------------
Total Income ............................... 3,960,192
------------
Expenses:
Advisory fee ................................... 592,362
Auditing and legal fees ........................ 44,977
Transfer agent ................................. 42,383
Registration and filing fees ................... 24,685
Custodian fees ................................. 22,324
Printing and stationery ........................ 21,289
Postage ........................................ 19,061
Directors' fees and expenses ................... 15,811
Telephone ...................................... 8,690
Insurance, dues and other ...................... 5,818
------------
Total Expenses Before
Custody Credits .......................... 797,400
Less: custody credits ...................... (5,799)
------------
Net Expenses ............................... 791,601
------------
Net Investment Income .......................... 3,168,591
------------
Net Realized and Unrealized
Loss on Investments:
Net Realized Loss .......................... (6,168,354)
Change in Net Unrealized
Appreciation.............................. (952,017)
------------
Net Realized Loss and Change
in Net Unrealized Appreciation
(Depreciation) on Investments ................ (7,120,371)
------------
Net Decrease in Net Assets
from Operations .............................. $ (3,951,780)
============
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, 1999 and 1998
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<TABLE>
<CAPTION>
Year Ended Year Ended
April 30, 1999 April 30, 1998
--------------------------------
<S> <C> <C>
Operations:
Net investment income ..................................... $ 3,168,591 $ 3,933,911
Net realized (loss) gain on investments ................... (6,168,354) 6,520,865
Change in net unrealized (depreciation) appreciation ...... (952,017) 7,785,510
------------------------------
Net (decrease) increase in net assets from operations ..... (3,951,780) 18,240,286
------------------------------
Distributions to Shareholders:
Net investment income ..................................... (3,431,409) (3,967,522)
Net realized gain from investment transactions ............ (3,713,370) (4,337,642)
------------------------------
Total distributions ....................................... (7,144,779) (8,305,164)
------------------------------
Capital Share Transactions:
Proceeds from sale of shares .............................. 176,887,275 85,988,521
Proceeds from reinvestment of distributions to shareholders 5,916,259 6,626,383
Cost of shares repurchased ................................ (200,108,922) (73,554,612)
------------------------------
Net (decrease) increase from capital share transactions ... (17,305,388) 19,060,292
------------------------------
Total (Decrease) Increase in Net Assets ..................... (28,401,947) 28,995,414
Net Assets:
Beginning of year ......................................... 97,679,219 68,683,805
------------------------------
End of year ............................................... $ 69,277,272 $ 97,679,219
------------------------------
Undistributed net investment income at end of year .......... $ 144,136 $ 406,954
==============================
</TABLE>
See Notes to Financial Statements.
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10
<PAGE>
Value Line Convertible Fund, Inc.
Notes to Financial Statements April 30, 1999
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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
amortizing 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.
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11
<PAGE>
Value Line Convertible Fund, Inc.
Notes to Financial Statements April 30, 1999
- --------------------------------------------------------------------------------
2. Capital Share Transactions Transactions in capital stock were as follows:
Year Ended Year Ended
April 30, April 30,
1999 1998
-------------------------
Shares sold ........................... 13,575,401 5,969,380
Shares issued to shareholders
in reinvestment of
dividends and distributions.......... 477,763 475,431
-------------------------
14,053,164 6,444,811
Shares repurchased .................... 15,226,596 5,102,467
-------------------------
Net (decrease) increase ............... (1,173,432) 1,342,344
=========================
3. Purchases and Sales of Securities
Purchases and sales of investment securities, excluding short-term securities,
were as follows:
Year Ended
April 30, 1999
--------------
PURCHASES:
Investment Securities .......................... $83,276,990
===========
SALES OR REDEMPTIONS:
Investment Securities .......................... $89,960,969
===========
At April 30, 1999, the aggregate cost of investment securities and repurchase
agreements for federal income tax purposes was $66,219,057. The aggregate
appreciation and depreciation of investments at April 30, 1999, based on a
comparison of investment values and their costs for federal income tax purposes,
was $10,172,678 and $2,451,224 respectively, resulting in a net depreciation of
$7,721,454.
During the year ended April 30, 1999, as permitted under federal income tax
regulations, the Fund has elected to defer $2,922,032 of Post-October net
capital losses to the next taxable year.
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 $592,362 was paid or payable to Value Line, Inc.
(the Adviser), for the year ended April 30, 1999. 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 Adviser and/or affiliated companies owned 226,754 shares of the Fund's
capital stock, representing 4.2% of the outstanding shares at April 30, 1999.
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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,
------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ............ $ 14.80 $ 13.07 $ 14.10 $ 11.79 $ 12.26
------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income ...................... .57 .65 .70 .66 .74
Net gains or losses on securities
(both realized and unrealized) ........... (1.33) 2.50 .50 2.33 (.02)
------------------------------------------------------------------------------
Total from investment operations ........... (.76) 3.15 1.20 2.99 .72
------------------------------------------------------------------------------
Less distributions:
Dividends from net investment
income ................................... (.60) (.67) (.65) (.68) (.76)
Distributions from
realized capital gains ................... (.67) (.75) (1.58) -- (.43)
------------------------------------------------------------------------------
Total distributions ........................ (1.27) (1.42) (2.23) (.68) (1.19)
------------------------------------------------------------------------------
Net asset value, end of year ................... $ 12.77 $ 14.80 $ 13.07 $ 14.10 $ 11.79
==============================================================================
Total return ................................... -4.64% 25.04% 8.80% 26.07% 6.53%
==============================================================================
Ratios/Supplemental Data:
Net assets, end of year (in thousands) ......... $ 69,277 $ 97,679 $ 68,684 $ 72,620 $ 50,523
Ratio of expenses to average net assets ........ 1.00%(1) .98%(1) 1.01%(1) 1.08% 1.08%
Ratio of net investment income
to average net assets ........................ 3.98% 4.63% 4.94% 5.14% 6.13%
Portfolio turnover rate ........................ 123% 111% 164% 129% 87%
</TABLE>
(1) Before offset of custody credits. The ratio of expenses to average net
assets would not have changed net of custody credits.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
13
<PAGE>
Value Line Convertible Fund, Inc.
Report of Independent Accountants
- --------------------------------------------------------------------------------
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, 1999, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the five years in the period
then ended, in conformity with generally accepted accounting principles. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at April
30, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
June 18, 1999
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.
- --------------------------------------------------------------------------------
Federal Tax Status of Distributions (unaudited)
For corporate taxpayers 23.91% of the ordinary income distributions paid during
the calendar year 1998 qualify for the corporate dividends received deductions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
14
<PAGE>
Value Line Convertible Fund, Inc.
- --------------------------------------------------------------------------------
(This page has been left blank intentionally)
- --------------------------------------------------------------------------------
15
<PAGE>
The Value Line Family of Funds
1950--The Value Line Fund seeks long-term growth of capital. Current income is a
secondary objective.
1952--The 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 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.
1987--Value Line New York Tax Exempt Trust seeks to provide New York taxpayers
with the maximum income exempt from New York State, New York City and federal
income taxes while avoiding undue risk to principal.
1987--Value Line Strategic Asset Management Trust* seeks to achive a high total
investment return consistent with reasonable risk.
1993--Value Line 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 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
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
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).
507457
