================================================================================
------------------
SEMI-ANNUAL REPORT
------------------
October 31, 2000
------------------
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 your convertible fund returned 17.01% for the twelve
months ended October 31, 2000. The Fund's performance exceeded by a wide margin
the results of its benchmark, the Value Line Convertible Index.
As shown below, your Fund's return was more than four times greater than that of
the unmanaged Value Line Convertible Index, which reflects the performance of
the domestic convertible market, by tracking over 600 convertible securities.
12 Months Ending 10/31/00
o Value Line Convertible Fund......................................... 17.01%
o Value Line Convertible Index* ...................................... 4.03%
o S&P 500*............................................................ 6.78%
o Russell 2000*....................................................... 16.74%
o Lehman Brothers Gov/Credit*......................................... 7.13%
o Lehman High Yield Bond*............................................. -1.61%
The financial markets have experienced a very tumultuous period during which the
stock market has gone through dramatic rallies earlier in the year and
corrections subsequently. The Dow* was up 4.6%; the S&P 500* index gained 6.78%,
while the Russell 2000* index rocketed up 16.7% for the 12 months ended October
31, 2000.
Interest rates were also volatile. As represented by the thirty-year Treasury
bond, interest rates had moved up to 6.75% by January of this year and then
began a steady decline to close the period at 5.77%, resulting in strong returns
for high-grade bonds. High-yield bonds suffered a setback, however, as concerns
about rising default rates, questionable business models, and an inability to
obtain needed financing, doused investor confidence.
Your Fund benefited from a below market weight in the telecommunication 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 current outlook for the markets is mixed, given uncertainties regarding the
slowing domestic economy, the still up-in-the air presidential election, and the
outlook for inflation. The relatively high equity valuations have been sharply
reduced. Indeed, although there may be some further price declines, we believe
that the stock market is near a bottom and setting the stage for a return to
more normal annual returns in the 10-12% range. We anticipate slow, but
sustainable economic growth, moderate earnings growth and muted inflation.
The resolution of the election process should have a calming effect on the stock
market and add a little upward pressure on interest rates until further signs of
a prolonged moderation in economic activity surface. A moderation in economic
growth would take the pressure off long-term interest rates, allowing the
Treasury bond rates to perhaps move gradually toward 5% next year. Gently
declining interest rates would 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, including an allocation
to convertible securities will reduce risk and enhance overall results.
Our strategy is to focus on lower-risk convertibles with good liquidity, strong
capitalization and solid credit worthiness 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
November 22, 2000
*unmanaged
--------------------------------------------------------------------------------
2
<PAGE>
Value Line Convertible Fund, Inc.
Convertible Fund Shareholders
--------------------------------------------------------------------------------
Economic Observations
The U.S. economy is now clearly proceeding along a much slower growth track as
we move through the final weeks of the year. Evidence of this deceleration in
business activity can be found in the most recent figures on manufacturing,
retail spending, and employment. Overall, we estimate that GDP growth will
average 3%, or less, through the early part of 2001. Thereafter, we would expect
the pace of economic activity to hold at a comparatively restrained 3.0%-3.5%
over the balance of the upcoming year, as the succession of interest-rate hikes
voted for by the Federal Reserve Board over the past year and a half continues
to have the hoped-for effect of stabilizing the economy at comfortably modest
growth levels.
Inflationary pressures, meanwhile, continue to be held in check for the most
part, with sustained increases in productivity and ongoing technological
innovations being at least partially responsible for this comparative pricing
stability. Nevertheless, a moderate increase in cost pressures could still
evolve over the next few quarters, particularly if energy prices resume their
uncontrolled ascent and the projected moderation in economic growth fails to
continue, two events that we do not currently expect to take place.
Meanwhile, the Federal Reserve, taking note of the current slower pace of
business activity and the comparatively muted inflation figures, is likely to
maintain a stable-to-lower interest-rate structure over the next several
quarters.
Performance Data:*
Average Value of
Annual an Assumed
Total Investment
Return of $10,000
------ ----------
1 year ended 9/30/00................................ 29.93% $12,993
5 years ended 9/30/00............................... 15.32% 20,396
10 years ended 9/30/00............................... 14.78% 39,672
* 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, 2000 for the one-year, five-year and ten-year
periods were 17.01%, 14.55%, and 14.72%, respectively.
--------------------------------------------------------------------------------
3
<PAGE>
Value Line Convertible Fund, Inc.
---------------------------------------------------------------------
Schedule of Investments (unaudited)
=====================================================================
Principal
Amount Value
---------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS & NOTES (59.7%)
ADVERTISING (1.5%)
$ 500,000 Getty Images, Inc.
5%, 3/15/07..................... $ 362,500
1,000,000 Young & Rubicam, Inc.
3%, 1/15/05..................... 1,002,500
----------
1,365,000
CABLE TV (1.8%)
500,000 Charter Communications,
Inc. Series 144A,
5 3/4%, 10/15/05*............... 544,375
1,000,000 EchoStar Communications
Corp. 4 7/8%, 1/1/07............ 1,167,500
----------
1,711,875
COMPUTER &
PERIPHERALS (1.9%)
1,000,000 Juniper Networks, Inc.
4 3/4%, 3/15/07................. 1,356,250
500,000 Redback Networks, Inc.
5%, 4/1/07...................... 435,000
----------
1,791,250
COMPUTER SOFTWARE
& SERVICES (6.7%)
500,000 Affiliated Computer Services,
Inc. 4%, 3/15/05................ 701,250
500,000 BEA Systems, Inc. Series
144A, 4%, 12/15/06.............. 1,090,000
500,000 Rational Software Corp.
Series 144A,
5%, 2/1/07*..................... 911,250
500,000 Siebel Systems, Inc.
5 1/2%, 9/15/06................. 2,340,000
500,000 USinternetworking, Inc.
7%, 11/1/04..................... 193,750
250,000 Veritas Software Corp.
1.856%, 8/13/06................. 1,001,562
----------
6,237,812
DRUG (8.3%)
$3,000,000 ALZA Corp. Series 144A,
Zero Coupon, 7/28/20*........... $ 1,995,000
1,000,000 Athena Neurosciences, Inc.
4 3/4%, 11/15/04................ 1,440,000
500,000 Cor Theraputics, Inc.
Series 144A,
5%, 3/1/07*..................... 863,125
500,000 Human Genome Sciences,
Inc. 3 3/4%, 3/15/07............ 485,000
250,000 ImClone Systems, Inc.
Series 144A,
5 1/2%, 3/1/05*................. 287,188
500,000 Invitrogen Corp. Series 144A,
5 1/2%, 3/1/07*................. 563,125
600,000 Millennium Pharmaceuticals,
Inc. 5 1/2%, 1/15/07............ 1,107,750
1,000,000 Teva Pharmaceuticals
Finance LLC Series 144A,
1 1/2%, 10/15/05*............... 993,750
----------
7,734,938
E-COMMERCE (1.2%)
500,000 i2 Technologies, Inc.
5 1/4%, 12/15/06................ 1,161,875
ELECTRICAL
EQUIPMENT (0.5%)
500,000 Semtech Corp. Series 144A,
4 1/2%, 2/1/07*................. 483,750
ELECTRONICS (4.9%)
500,000 ACT Manufacturing, Inc.
7%, 4/15/07..................... 460,625
2,200,000 Sanmina Corp. Series 144A,
Zero Coupon, 9/12/20*........... 1,023,000
1,000,000 SCI Systems, Inc.
3%, 3/15/07..................... 1,036,250
2,000,000 Solectron Corp.
Zero Coupon, 1//27/19........... 1,450,000
900,000 Solectron Corp.
Zero Coupon, 5/08/20............ 604,125
----------
4,574,000
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4
<PAGE>
Value Line Convertible Fund, Inc.
October 31, 2000
=====================================================================
Principal
Amount Value
---------------------------------------------------------------------
ENTERTAINMENT (1.1%)
$2,000,000 Jacor Communications, Inc.
Zero Coupon, 2/9/18............. $ 1,072,500
FINANCIAL SERVICES--
DIVERSIFIED (1.1%)
1,000,000 Loews Corp. 3 1/8%,
9/15/07......................... 827,500
250,000 Providian Financial Corp.
3 1/4%, 8/15/05................. 245,000
----------
1,072,500
FOREIGN
TELECOMMUNICATIONS
(1.3%)
1,000,000 Telefonos de Mexico S.A.
de CV 4 1/4%, 6/15/04........... 1,255,000
INSURANCE--PROPERTY/
CASUALTY (3.4%)
1,000,000 Berkshire Hathaway, Inc.
1%, 12/2/01..................... 3,158,750
INTERNET (1.3%)
2,000,000 America Online, Inc.
Zero Coupon, 12/6/19............ 1,012,500
150,000 VerticalNet, Inc.
5 1/4%, 9/27/04................. 215,437
----------
1,227,937
MEDICAL SERVICES (0.7%)
250,000 Affymetrix, Inc.
5%, 10/1/06..................... 282,813
500,000 Health Management
Associates, Inc.
Series 144A,
0.25%, 8/16/20*................. 355,625
----------
638,438
MEDICAL SUPPLIES (1.3%)
1,000,000 Centocor, Inc.
4 3/4%, 2/15/05................. 1,246,250
OILFIELD SERVICES/
EQUIPMENT (1.7%)
$1,000,000 Diamond Offshore Drilling,
Inc. 3 3/4%, 2/15/07............ $ 1,018,750
900,000 Transocean Sedco Forex Inc.
Zero Coupon, 5/24/20............ 541,125
----------
1,559,875
PETROLEUM--
INTEGRATED (0.7%)
500,000 Kerr-McGee Corp.
5 1/4%, 2/15/10................. 612,500
PETROLEUM--
PRODUCING (0.9%)
1,000,000 Anadarko Petroleum Corp.
Zero Coupon, 3/07/20............ 805,000
PRECISION
INSTRUMENT (1.6%)
2,002,000 PerkinElmer, Inc.
Zero Coupon, 8/07/20............ 1,526,525
R.E.I.T. (2.0%)
2,000,000 Healthcare Realty Trust, Inc.
6.55%, 3/14/02.................. 1,865,000
RETAIL--SPECIAL
LINES (1.0%)
1,000,000 AnnTaylor Stores Corp.
0.55%, 6/18/19.................. 483,750
500,000 Charming Shoppes, Inc.
7 1/2%, 7/15/06................. 463,125
----------
946,875
RETAIL STORE (0.9%)
1,000,000 Costco Companies Inc.
Zero Coupon, 8/19/17............ 877,500
---------------------------------------------------------------------
5
<PAGE>
Value Line Convertible Fund, Inc.
Schedule of Investments (unaudited)
=====================================================================
Principal
Amount Value
---------------------------------------------------------------------
SEMICONDUCTOR (6.1%)
$ 500,000 ASM Lithography Holding
N.V. Series 144A,
4 1/4%, 11/30/04*............... $ 505,000
250,000 Advanced Energy Industries,
Inc. 5 1/4%, 11/15/06........... 181,250
500,000 Analog Devices Inc.
Series 144A,
4 3/4%, 10/01/05*............... 470,000
250,000 Burr-Brown Corp.
Series 144A,
4 1/4%, 2/15/07*................ 349,062
250,000 Conexant Systems, Inc.
4 1/4%, 5/1/06.................. 325,000
500,000 Cypress Semiconductor
Corp. 4%, 2/1/05................ 532,500
500,000 DuPont Photomasks, Inc.
Zero Coupon, 7/24/04............ 460,625
500,000 General Semiconductor,
Inc. 5 3/4%, 12/15/06........... 461,875
250,000 International Rectifier Corp.
Series 144A
4 1/4%, 7/15/07*................ 211,563
500,000 Lattice Semiconductor Corp.
4 3/4%, 11/1/06................. 766,250
500,000 TranSwitch Corp.
Series 144A,
4 1/2%, 9/12/05*................ 573,125
1,000,000 Vitesse Semiconductor
Corp. Series 144A,
4%, 3/15/05*.................... 873,750
----------
5,710,000
SEMICONDUCTOR CAPITAL
EQUIPMENT (0.5%)
500,000 Kulicke & Soffa Industries,
Inc. 4 3/4%, 12/15/06........... 445,000
TELECOMMUNICATIONS
EQUIPMENT (1.3%)
500,000 American Tower Corp.
2 1/4%, 10/15/09................ 643,750
$ 500,000 Gilat Satellite Networks Ltd.
Series 144A,
4 1/4%, 3/15/05 *............... $ 321,250
250,000 ONI Systems Corp.
5%, 10/15/05.................... 256,250
----------
1,221,250
TELECOMMUNICATION
SERVICES (2.9%)
1,000,000 Bell Atlantic Financial
Services Inc. Series 144A,
4 1/4%, 9/15/05*................ 1,113,750
500,000 ITC DeltaCom, Inc.
4 1/2%, 5/15/06................. 253,750
500,000 Level 3 Communications,
Inc. 6%, 9/15/09................ 464,375
1,000,000 Nextel Communications,
Inc. 5 1/4%, 1/15/10............ 827,500
----------
2,659,375
TOILETRIES/
COSMETICS (1.1%)
2,000,000 Avon Products, Inc.
Series 144A,
Zero Coupon, 7/12/20 *.......... 1,025,000
TRUCKING/
TRANSPORTATION
LEASING (1.2%)
1,000,000 United Parcel Service, Inc.
1 3/4%, 9/27/07................. 1,091,250
WIRELESS
NETWORKING (0.8%)
1,000,000 RF Micro Devices, Inc.
Series 144A,
3 3/4%, 8/15/05*................ 725,000
----------
TOTAL CONVERTIBLE
CORPORATE BONDS
& NOTES
(Cost $46,182,756) ................ $55,802,025
----------
---------------------------------------------------------------------
6
<PAGE>
Value Line Convertible Fund, Inc.
---------------------------------------------------------------------
October 31, 2000
=====================================================================
Shares Value
---------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS (18.9%)
BANK (2.4%)
10,000 Banco Commercial Portugues
S.A. $4.00 exchangeable
Series "A"...................... $ 970,000
50,000 National Australia Bank
Ltd. Cap Units 7 7/8%,
exchangeable Pfd................ 1,259,375
----------
2,229,375
CABLE TV (0.6%)
7,000 Comcast Corp. 2%, exchangeable
Pfd (into Sprint Corporation
PCS Group)...................... 520,625
ELECTRIC UTILITY--
CENTRAL (1.7%)
10,000 AES Trust III 6 3/4%,
Pfd............................. 890,000
10,000 AES Trust VII 6%,
Series 144A, Pfd.*.............. 709,375
----------
1,599,375
ELECTRIC UTILITY--
EAST (1.0%)
5,000 Dominion Resources, Inc.
9 1/2%, Unit (consisting of 1
stock purchase contract and
50,000 par amount of senior
notes having a combined
rate of 9 1/2%, per year,
payable quarterly).............. 290,625
10,000 SEI Trust I 6.25%,
"A", Pfd........................ 604,375
----------
895,000
ELECTRIC UTILITY--
WEST (1.5%)
25,000 Calpine Capital Trust III
5%, Series 144A,Pfd.*........... 1,368,750
ELECTRONICS (0.6%)
20,000 Titan Capital Trust 5 3/4%,
Series 144A Pfd................. $ 570,000
ENTERTAINMENT (0.2%)
4,000 Emmis Communications
Corp. 6 1/4%,
Series "A" Pfd.................. 172,000
INSURANCE--
LIFE (2.8%)
30,000 MetLife Capital Trust I
8%, Pfd......................... 2,628,750
INTERNET (0.4%)
20,000 PSINet, Inc. 6 3/4%,
Series "C" Pfd.................. 398,750
PACKAGING &
CONTAINER (1.5%)
30,000 Sealed Air Corp.
$2.00 exchangeable
Series "A" Pfd.................. 1,413,750
PETROLEUM--
PRODUCING (1.0%)
20,000 Apache Corp. 6 1/2%,
Series "C" Pfd.................. 952,500
RAILROAD (0.7%)
14,500 Union Pacific Capital Trust
6 1/4%, Pfd..................... 652,500
TELECOMMUNICATION
SERVICES (2.9%)
10,000 BroadWing Inc.
6 3/4%, Pfd..................... 488,125
10,000 Crown Castle International
Corp. 6 1/4%, Pfd.............. 491,875
15,000 DECS Trust VI 6 1/4%,
exchangeable Pfd.
(exchangeable into
Metromedia Fiber
Network, Inc.).................. 552,188
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7
<PAGE>
Value Line Convertible Fund, Inc.
Schedule of Investments (unaudited) October 31, 2000
=====================================================================
Shares Value
---------------------------------------------------------------------
TELECOMMUNICATION
SERVICES (2.9%)
(Continued)
5,000 Global Crossing Ltd. 6 3/8%,
Pfd............................. $ 358,125
20,000 MediaOne Group, Inc.
7%, exchangeable Pfd............ 835,000
----------
2,725,313
THRIFT (1.6%)
15,000 Bank United Corp.
8%, Pfd......................... 1,016,250
10,000 Sovereign Capital Trust II
7 1/2%, Unit (consisting
of 1 share 7 1/2%, preferred
stock and 1 warrant to
purchase 5.3355 shares
of common stock)................ 528,750
----------
1,545,000
----------
TOTAL CONVERTIBLE
PREFERRED STOCKS
(Cost $16,655,805) ................ 17,671,688
----------
COMMON STOCKS (0.0%)
TELECOMMUNICATION
SERVICES (0.0%)
615 Mpower Communications
Corp.**......................... 3,997
1,473 Network Plus Corp.**............... 11,600
----------
15,597
----------
TOTAL COMMON
STOCKS
(Cost $31,723) .................... 15,597
----------
TOTAL INVESTMENT
SECURITIES (78.6%)
(Cost $62,870,284) ................ 73,489,310
----------
Principal
Amount Value
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (8.6%)
(including accrued interest)
$4,000,000 Collateralized by $4,035,000
U.S. Treasury Notes 5 5/8%,
due 12/31/02, with a value
of $4,084,382 (with State
Street Bank & Trust Co.,
6.44%, dated 10/31/00,
due 11/1/00, delivery
value $4,000,715)............... $ 4,000,715
4,000,000 Collateralized by $4,000,000
U.S. Treasury Notes 5 3/4%,
due 11/30/02, with a value
of $4,078,648 (with
Warburg Dillon Read LLC,
6.45%, dated 10/31/00,
due 11/1/00, delivery
value $4,000,717)............... 4,000,717
----------
TOTAL REPURCHASE
AGREEMENTS (Cost $8,001,432) ....................... 8,001,432
----------
CASH AND OTHER ASSETS IN
EXCESS OF LIABILITIES (12.8%) ...................... 11,938,445
----------
NET ASSETS (100.0%) ............................... $93,429,187
----------
NET ASSET VALUE, OFFERING
AND REDEMPTION PRICE
PER OUTSTANDING SHARE
($93,429,187 / 5,920,750
shares outstanding) ................................ $ 15.78
----------
* 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.
---------------------------------------------------------------------
8
<PAGE>
Value Line Convertible Fund, Inc.
---------------------------------------------------------------------
Statement of Assets and Liabilities
at October 31, 2000 (unaudited)
================================================================================
Assets:
Investment securities, at value
(Cost--$62,870,284).............................. $73,489,310
Repurchase agreements
(Cost--$8,001,432)............................... 8,001,432
Cash ............................................. 93,523
Receivable for capital shares sold ............... 11,517,404
Receivable for securities sold ................... 1,364,190
Interest and dividends receivable ................ 404,864
----------
Total Assets ................................. 94,870,723
----------
Liabilities:
Payable for securities sold ...................... 1,300,000
Payable for capital shares repurchased ........... 4,955
Accrued expenses:
Advisory fee ................................... 55,603
Service and distribution plan
fees payable.................................. 18,534
Other .......................................... 62,444
----------
Total Liabilities ............................ 1,441,536
----------
Net Assets ....................................... $93,429,187
----------
Net assets consist of:
Capital stock, at $1.00 par value
(authorized 50,000,000,
outstanding 5,920,750 shares)................... $ 5,920,750
Additional paid-in capital ....................... 66,535,291
Undistributed net investment income .............. 335,881
Undistributed net realized gain
on investments.................................. 10,018,239
Net unrealized appreciation
of investments ................................. 10,619,026
----------
Net Assets ....................................... $93,429,187
----------
Net Asset Value, Offering and
Redemption Price per
Outstanding Share
($93,429,187 / 5,920,750
shares outstanding) ............................ $ 15.78
----------
Statement of Operations
for the six months ended October 31, 2000 (unaudited)
================================================================================
Investment Income:
Interest ....................................... $ 1,459,540
Dividends ...................................... 602,452
-----------
Total Income ............................... 2,061,992
-----------
Expenses:
Advisory fee ................................... 352,489
Service and distribution plan fee .............. 78,643
Auditing and legal fees ........................ 23,190
Transfer agent ................................. 20,240
Insurance, dues and other ...................... 18,361
Custodian fees ................................. 13,064
Printing ....................................... 11,960
Directors' fees and expenses ................... 10,261
Registration and filing fees ................... 10,120
Quote charge ................................... 7,570
Postage ........................................ 7,360
Telephone ...................................... 4,048
-----------
Total Expenses before
custody credits .......................... 557,306
Less: custody credits ...................... (3,221)
-----------
Net Expenses ............................... 554,085
-----------
Net Investment Income .......................... 1,507,907
-----------
Net Realized and Unrealized Gain
(Loss) on Investments:
Net Realized Gain .......................... 641,052
Change in Net Unrealized
Appreciation.............................. (3,286,449)
-----------
Net Realized Gain and Change in
Net Unrealized Appreciation
on Investments ............................... (2,645,397)
-----------
Net Decrease in Net Assets
from Operations .............................. $ (1,137,490)
-----------
See Notes to Financial Statements.
---------------------------------------------------------------------
9
<PAGE>
Value Line Convertible Fund, Inc.
Statement of Changes in Net Assets
for the six months ended October 31, 2000 (unaudited) and for the year ended
April 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year Ended
October 31, 2000 April 30,
(unaudited) 2000
----------------------------------
<S> <C> <C>
Operations:
Net investment income .............................................. $ 1,507,907 $ 2,409,761
Net realized gain on investments ................................... 641,052 15,545,541
Change in net unrealized appreciation (depreciation) ............... (3,286,449) 5,770,571
------------- -------------
Net (decrease) increase in net assets from operations .............. (1,137,490) 23,725,873
------------- -------------
Distributions to Shareholders:
Net investment income .............................................. (1,551,281) (2,174,561)
Net realized gain from investment transactions ..................... -- --
------------- -------------
Total distributions ................................................ (1,551,281) (2,174,561)
------------- -------------
Capital Share Transactions:
Proceeds from sale of shares ....................................... 373,297,621 342,538,029
Proceeds from reinvestment of distributions to shareholders ........ 1,222,163 1,781,292
Cost of shares repurchased ......................................... (382,160,494) (331,389,237)
------------- -------------
Net (decrease) increase from capital share transactions ............ (7,640,710) 12,930,084
------------- -------------
Total (Decrease) Increase in Net Assets ................................ (10,329,481) 34,481,396
Net Assets:
Beginning of period ................................................ 103,758,668 69,277,272
------------- -------------
End of period ...................................................... $ 93,429,187 $ 103,758,668
------------- -------------
Undistributed net investment income, at end of period .................. $ 335,881 $ 379,255
------------- -------------
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
10
<PAGE>
Value Line Convertible Fund, Inc.
Notes to Financial Statements (unaudited) October 31, 2000
--------------------------------------------------------------------------------
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 (unaudited) October 31, 2000
--------------------------------------------------------------------------------
2. Capital Share Transactions.
Transactions in capital stock were as follows:
Six Months
Ended Year
October 31, Ended
2000 April 30,
(unaudited) 2000
--------------------------
Shares sold ................. 23,055,855 22,847,309
Shares issued to shareholders
in reinvestment
of dividends .............. 73,699 119,957
--------------------------
23,129,554 22,967,266
Shares repurchased .......... 23,476,796 22,123,684
--------------------------
Net (decrease) increase ..... (347,242) 843,582
==========================
3. Purchases and Sales of Securities
Purchases and sales of investment securities, excluding short-term securities,
were as follows:
Six Months
Ended
October 31, 2000
(unaudited)
--------------
PURCHASES:
Investment Securities .......................... $20,725,106
----------
SALES OR REDEMPTIONS:
Investment Securities .......................... $25,284,081
----------
At October 31, 2000 the aggregate cost of investment securities and repurchase
agreements for federal income tax purposes was $70,871,716. The aggregate
appreciation and depreciation of investments at October 31, 2000, based on a
comparison of investment values and their costs for federal income tax purposes,
was $14,269,226 and $3,650,200 respectively, resulting in a net appreciation of
$10,619,026.
4. Investment Advisory Contract, Management Fees, and Transactions With
Affiliates
An advisory fee of $352,489 was paid or payable to Value Line, Inc. (the
Adviser), for the six months ended October 31, 2000. This was computed at the
annual 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.
At a special meeting of shareholders held on June 15, 2000, the shareholders
approved the adoption of a Service and Distribution Plan (the "Plan") effective
July 1, 2000. The Plan, adopted pursuant to Rule 12b-1 under the Investment
Company Act of 1940, provides for the payment of certain expenses incurred by
Value Line Securities, Inc. (the "Distributor"), a wholly-owned subsidiary of
the Adviser, in advertising, marketing and distributing the Fund's shares and
for servicing the Fund's shareholders at an annual rate of 0.25% of the Fund's
average daily net assets. Fees amounting to $78,643 were paid or payable to the
Distributor under this Plan for the period from July 1 to October 31, 2000.
For the six months ended October 31, 2000, the Fund's expenses were reduced by
$3,221 under a custody credit arrangement with the Custodian.
Certain officers and directors of the Adviser and the Distributor, are also
officers and a director of the Fund.
The Adviser and/or affiliated companies owned 176,922 shares of the Fund's
capital stock, representing 3.0% of the outstanding shares at October 31, 2000.
--------------------------------------------------------------------------------
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,
October 31, 2000 -----------------------------------------------------------------
(unaudited) 2000 1999 1998 1997 1996
---------- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period ................................... $16.55 $12.77 $14.80 $13.07 $14.10 $11.79
----------------------------------------------------------------------------------
Income (loss) from investment
operations:
Net investment income ....................... .26 .43 .57 .65 .70 .66
Net gains or losses on securities
(both realized and unrealized)............. (.77) 3.75 (1.33) 2.50 .50 2.33
----------------------------------------------------------------------------------
Total from investment operations .......... (.51) 4.18 (.76) 3.15 1.20 2.99
----------------------------------------------------------------------------------
Less distributions:
Dividends from net
investment income........................ (.26) (.40) (.60) (.67) (.65) (.68)
Distributions from net
realized gains .......................... -- -- (.67) (.75) (1.58) --
----------------------------------------------------------------------------------
Total distributions ....................... (.26) (.40) (1.27) (1.42) (2.23) (.68)
----------------------------------------------------------------------------------
Net asset value, end of period ................ $15.78 $16.55 $12.77 $14.80 $13.07 $14.10
----------------------------------------------------------------------------------
Total return .................................. -3.15%+ 33.21% -4.64% 25.04% 8.80% 26.07%
----------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net assets, end of period
(in thousands) .............................. $93,429 $103,759 $69,277 $97,679 $68,684 $72,620
Ratio of expenses to
average net assets........................... 1.16%*(2) 1.00%(2) 1.00%(1) .98%(1) 1.01%(1) 1.08%
Ratio of net investment income
to average net assets........................ 3.14%* 3.03% 3.98% 4.63% 4.94% 5.14%
Portfolio turnover rate ....................... 26%+ 127% 123% 111% 164% 129%
</TABLE>
(1) Before offset of custody credits.
(2) Ratio reflects expenses grossed up for custody credit arrangement. The
ratio of expenses net of custody credits would have been 0.99% for the year
ended April 30, 2000 and 1.15%* (unaudited) for the six months ended
October 31, 2000.
+ Not annualized.
* Annualized.
See Notes to Financial Statements.
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13
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Value Line Convertible Fund, Inc.
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Value Line Convertible Fund, Inc.
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15
<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 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--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. An investment in the Fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
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 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: a Money Market Portfolio
and the National Bond Portfolio. The fund may be subject to state and local
taxes and the Alternative Minimum Tax (if applicable).
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 maximum income exempt from New York State, New York City and federal income
taxes while avoiding undue risk to principal. The Trust may be subject to state
and local taxes and the Alternative Minimum Tax (if applicable).
1987--Value Line Strategic Asset Management Trust* seeks to achieve a high total
investment return consistent with reasonable risk.
1993--Value Line Emerging Opportunities 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 Sound View Drive, Suite 100
Greenwich, CT 06830
DIRECTORS Jean Bernhard Buttner
John W. Chandler
Frances T. Newton
Francis C. Oakley
David H. Porter
Paul Craig Roberts
Marion N. Ruth
Nancy-Beth Sheerr
OFFICERS Jean Bernhard Buttner
Chairman and President
Bruce H. Alston
Vice President
David T. Henigson
Vice President and
Secretary/Treasurer
Stephen La Rosa
Assistant Secretary/Treasurer
The financial statements included herein have been taken from the records of the
Fund without examination by the independent accountants, and, accordingly, they
do not express an opinion thereon.
This unaudited report is issued for information of shareholders. It is not
authorized for distribution to prospective investors unless preceded or
accompanied by a currently effective prospectus of the Fund (obtainable from the
Distributor).
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