N-30D 1 value-ssf024038_n30d.txt VALUE LINE SPECIAL SIT FUND, INC. FORM N30-D -------------------------------------------------------------------------------- SEMI-ANNUAL REPORT -------------------------------------------------------------------------------- JUNE 30, 2002 -------------------------------------------------------------------------------- VALUE LINE SPECIAL SITUATIONS FUND, INC. [LOGO] VALUE LINE NO-LOAD MUTUAL FUNDS 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 Stephen E. Grant VICE PRESIDENT Alan N. Hoffman VICE PRESIDENT David T. Henigson VICE PRESIDENT AND SECRETARY/TREASURER Joseph Van Dyke 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). #522853 THE VALUE LINE SPECIAL SITUATIONS FUND, INC. TO OUR VALUE LINE SPECIAL -------------------------------------------------------------------------------- TO OUR SHAREHOLDERS: The Value Line Special Situations Fund lost 3.96% in the six months ending June 30, 2002, compared to a loss of 13.16% for the Standard & Poor's 500 Index(1). Your Fund continues to perform well relative to its peer group of funds. Among the "multi-cap core" funds tracked by Lipper Inc., the Fund finished in the top 20% for the year ended June 30th. For three years, it ranks in the top 11% of its category; for five years, the top 3%; and for ten years, the top 8%. (Lipper's multi-cap core category includes funds that buy companies of all sizes occupying both the "growth" and the "value" ends of the valuation spectrum.)(2) The best strategy during the first half of 2002 proved to be the avoidance of investments in the poorly performing technology and telecommunications sectors, side-stepping disasters such as WorldCom and Lucent, and selling troubled Tyco International at a good price. We concentrated instead on selected parts of the healthcare, financial services, defense, and other relatively stable sectors. Just as important, our individual stock selections, as always, have emphasized issues with recent records of strong earnings and stock price momentum, relative to other stocks. This disciplined strategy has helped us over the years not only to find winners, but to avoid losers. The portfolio currently holds about 350 stocks of companies of all sizes and is diversified across many sectors. The median market capitalization of the holdings is about $2.6 billion, but about one-sixth of assets are in market caps under $1 billion and one-sixth in market caps over $9 billion. We will remain vigilant as to near-term risks as we wait for this storm to pass, while looking forward to better times ahead. Thank you for investing with us. Sincerely, /s/ Jean Bernhard Buttner Jean Bernhard Buttner CHAIRMAN AND PRESIDENT August 5, 2002 -------------------------------------------------------------------------------- (1) THE STANDARD & POOR'S 500 INDEX CONSISTS OF 500 STOCKS WHICH ARE TRADED ON THE NEW YORK STOCK EXCHANGE, AMERICAN STOCK EXCHANGE AND THE NASDAQ NATIONAL MARKET SYSTEM AND IS REPRESENTATIVE OF THE BROAD STOCK MARKET. THIS IS AN UNMANAGED INDEX AND DOES NOT REFLECT CHARGES, EXPENSES OR TAXES. IT IS NOT POSSIBLE TO DIRECTLY INVEST IN THIS INDEX. (2) LIPPER RANKED THE FUND, BASED ON TOTAL RETURN, #75 OUT OF 393, #29 OUT OF 275, #4 OUT OF 161, AND #4 OUT OF 47 MULTI CAP GROWTH FUNDS FOR THE 1, 3, 5, AND 10 YEAR PERIODS ENDED 6/30/02, RESPECTIVELY. -------------------------------------------------------------------------------- 2 THE VALUE LINE SPECIAL SITUATIONS FUND, INC. SITUATIONS FUND SHAREHOLDERS -------------------------------------------------------------------------------- ECONOMIC OBSERVATION: The U.S. economic recovery, which accelerated markedly earlier this year, has now moved back onto a slower, but, we believe, ultimately sustainable upward path. Our cautious optimism on the business outlook reflects the ongoing strength in such key sectors as housing and retailing, and the gradual emergence of the industrial sector from its deep slump. Also contributing to the likely sustained business expansion are continued low interest rates. The Federal Reserve, which put into effect a succession of interest rate cuts last year, now appears in no hurry to lift borrowing costs, even though economic activity is firming up. Overall, we expect the economy to expand by some 3% in the second half of this year and to then proceed at a similar pace in 2003. Our expectations assume that oil supplies will remain high enough, notwithstanding the continuing turmoil in the Middle East, and that equity prices will stabilize sufficiently so that consumers do not rein in their spending to any significant degree. Inflation, meantime, remains muted, thanks, in part, to continued stable labor costs. Adequate supplies of raw materials are also helping to keep the costs of production low. We caution, though, that as the economy moves further along the recovery road over the next year or two, some modest increases in pricing pressures may evolve. Absent a more vigorous business recovery than we now expect, or a prolonged rise in oil prices, inflation should remain on the modest side through 2003, and perhaps beyond. Finally, the Federal Reserve, which, as noted, had been aggressive in reducing interest rates in order to promote stronger economic activity, has completed its extended rate reduction cycle. We believe the Fed will now keep interest rates at current levels until well into 2003. PERFORMANCE DATA:** AVERAGE ANNUAL GROWTH OF AN ASSUMED TOTAL RETURN INVESTMENT OF $10,000 -------------- --------------------- 1 year ended 6/30/02 .......... -11.26% $ 8,874 5 years ended 6/30/02 ......... +12.78% $18,248 10 years ended 6/30/02 ......... +14.13% $37,503 -------------------------------------------------------------------------------- ** THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND ARE NO GUARANTEE OF FUTURE PERFORMANCE. THE AVERAGE ANNUAL TOTAL RETURNS 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. -------------------------------------------------------------------------------- 3 THE VALUE LINE SPECIAL SITUATIONS FUND, INC. PORTFOLIO HIGHLIGHTS AT JUNE 30, 2002 (UNAUDITED) -------------------------------------------------------------------------------- TEN LARGEST HOLDINGS VALUE PERCENTAGE ISSUE SHARES (IN THOUSANDS) OF NET ASSETS -------------------------------------------------------------------------------- Chico's FAS, Inc. .................... 82,500 $2,996 1.1% Varian Medical Systems, Inc. ......... 62,000 2,514 1.0 Alliant Techsystems, Inc. ............ 38,812 2,476 0.9 Wal-Mart Stores, Inc. ................ 44,000 2,420 0.9 Career Education Corp. ............... 50,000 2,250 0.9 Microsoft Corp. ...................... 40,000 2,188 0.8 Tenet Healthcare Corp. ............... 30,000 2,146 0.8 General Dynamics Corp. ............... 20,000 2,127 0.8 Bed Bath & Beyond Inc. ............... 56,000 2,113 0.8 Quest Diagnostics, Inc. .............. 22,000 1,893 0.7 FIVE LARGEST INDUSTRY CATEGORIES VALUE PERCENTAGE ISSUE (IN THOUSANDS) OF NET ASSETS -------------------------------------------------------------------------------- Retail - Special Lines ............................ $20,886 8.0% Medical Supplies .................................. 14,821 5.7 Medical Services .................................. 14,680 5.6 Restaurant ........................................ 14,053 5.4 Financial Services - Diversified .................. 11,619 4.4 FIVE LARGEST NET SECURITY PURCHASES* COST ISSUE (IN THOUSANDS) ------------------------------------------------------------------------------- 3M Company .......................................................... $859 Mid Atlantic Medical Services, Inc. ................................. 607 Brunswick Corp. ..................................................... 605 Accredo Health, Inc. ................................................ 603 Hilton Hotels Corp. ................................................. 593 FIVE LARGEST NET SECURITY SALES* PROCEEDS ISSUE (IN THOUSANDS) -------------------------------------------------------------------------------- International Game Technology ..................................... $2,142 Microsoft Corp. ................................................... 2,101 General Electric Co. .............................................. 2,022 Northrop Grumman Corp. ............................................ 1,783 Polycom, Inc. ..................................................... 1,465 * FOR THE SIX MONTH PERIOD ENDED 6/30/02 -------------------------------------------------------------------------------- 4 THE VALUE LINE SPECIAL SITUATIONS FUND, INC. SCHEDULE OF INVESTMENTS (UNAUDITED) JUNE 30, 2002 -------------------------------------------------------------------------------- VALUE SHARES (IN THOUSANDS) -------------------------------------------------------------------------------- COMMON STOCKS (92.9%) ADVERTISING (0.4%) 28,500 Harte-Hanks, Inc. .................................. $ 586 12,000 Omnicom Group, Inc. ................................ 549 ------- 1,135 AEROSPACE/DEFENSE (2.8%) 38,812 Alliant Techsystems, Inc.* ......................... 2,476 20,000 DRS Technologies, Inc.* ............................ 855 20,000 General Dynamics Corp. ............................. 2,127 28,000 L-3 Communications Holdings, Inc.* ................................... 1,512 12,000 Rockwell Collins, Inc. ............................. 329 ------- 7,299 AIR TRANSPORT (0.1%) 17,000 Airborne, Inc. ..................................... 327 APPAREL (0.2%) 16,000 VF Corp. ........................................... 627 AUTO & TRUCK (0.2%) 21,000 United Auto Group, Inc.* ........................... 439 AUTO PARTS (1.6%) 10,000 Advance Auto Parts, Inc.* .......................... 545 20,000 American Axle & Manufacturing Holdings, Inc.* ................................... 595 21,000 ArvinMeritor, Inc. ................................. 504 5,000 BorgWarner, Inc. ................................... 289 26,000 Dana Corp. ......................................... 482 11,000 Genuine Parts Co. .................................. 383 10,000 Johnson Controls, Inc. ............................. 816 33,750 Tower Automotive, Inc.* ............................ 471 ------- 4,085 VALUE SHARES (IN THOUSANDS) -------------------------------------------------------------------------------- BANK (3.9%) 26,000 BancorpSouth, Inc. ................................. $ 525 25,000 Bank of Hawaii Corp. ............................... 700 25,000 BB&T Corp. ......................................... 965 16,000 City National Corp. ................................ 860 20,000 Commerce Bancorp, Inc. ............................. 884 32,000 Compass Bancshares, Inc. ........................... 1,075 42,000 Hibernia Corp. Class "A" ........................... 831 21,000 National Commerce Financial Corp. ................................... 552 25,000 North Fork Bancorporation, Inc. .................... 995 13,000 Regions Financial Corp. ............................ 457 40,000 SouthTrust Corp. ................................... 1,045 13,000 Wells Fargo & Co. .................................. 651 17,000 Westamerica Bancorporation ......................... 673 ------- 10,213 BANK -- MIDWEST (1.5%) 13,000 Commerce Bancshares, Inc. .......................... 575 18,000 Fifth Third Bancorp ................................ 1,200 18,000 Marshall & Ilsley Corp. ............................ 557 34,000 TCF Financial Corp. ................................ 1,669 ------- 4,001 BEVERAGE -- ALCOHOLIC (1.1%) 11,000 Anheuser-Busch Companies, Inc....................... 550 2,000 Brown-Forman Corp. Class "B" ....................... 138 52,000 Constellation Brands, Inc. Class "A"* ........................................ 1,664 8,000 Coors (Adolph) Co. Class "B" ....................... 498 ------- 2,850 BEVERAGE -- SOFT DRINK (0.8%) 30,000 Pepsi Bottling Group, Inc. (The) ................... 924 25,000 PepsiCo, Inc. ...................................... 1,205 ------- 2,129 -------------------------------------------------------------------------------- 5 THE VALUE LINE SPECIAL SITUATIONS FUND, INC. SCHEDULE OF INVESTMENTS (UNAUDITED) -------------------------------------------------------------------------------- VALUE SHARES (IN THOUSANDS) -------------------------------------------------------------------------------- BUILDING MATERIALS (0.6%) 6,000 American Woodmark Corp. ............................... $337 7,000 Apogee Enterprises, Inc. .............................. 101 5,000 Granite Construction Inc. ............................. 126 28,000 Jacobs Engineering Group, Inc.* ....................... 974 ------ 1,538 CEMENT & AGGREGATES (0.0%) 4,172 Cemex S.A. de C.V. (ADR) .............................. 110 CHEMICAL -- DIVERSIFIED (0.5%) 18,000 Albemarle Corp. ....................................... 554 7,000 3M Company ............................................ 861 ------ 1,415 CHEMICAL -- SPECIALTY (0.6%) 12,000 Ecolab Inc. ........................................... 555 10,600 Minerals Technologies, Inc. ........................... 523 9,000 Praxair, Inc. ......................................... 512 ------ 1,590 COMPUTER & PERIPHERALS (0.3%) 14,000 Inter-Tel Inc. ........................................ 239 16,000 Tech Data Corp.* ...................................... 606 ------ 845 COMPUTER SOFTWARE & SERVICES (3.1%) 34,000 Affiliated Computer Services, Inc. Class "A"* ............................................ 1,614 23,000 ANSYS, Inc.* .......................................... 462 14,000 Certegy, Inc.* ........................................ 520 12,000 Cognizant Technology Solutions Corp.* ..................................... 645 24,000 Fair, Issac & Co., Inc. ............................... 789 31,500 Fiserv, Inc.* ......................................... 1,156 23,000 JDA Software Group, Inc.* ............................. 650 40,000 Microsoft Corp.* ...................................... 2,188 ------ 8,024 VALUE SHARES (IN THOUSANDS) -------------------------------------------------------------------------------- DIVERSIFIED COMPANY (2.8%) 10,000 American Standard Companies, Inc.* ..................................... $ 751 15,000 Ametek, Inc. .......................................... 559 7,900 Danaher Corp. ......................................... 524 11,000 Fortune Brands, Inc. .................................. 616 19,000 Hillenbrand Industries, Inc. .......................... 1,067 21,000 ITT Industries, Inc. .................................. 1,483 30,000 Oakley, Inc.* ......................................... 522 13,000 Pentair, Inc. ......................................... 625 4,000 Pittston Brink's Group ................................ 96 17,000 Teleflex, Inc. ........................................ 971 ------ 7,214 DRUG (1.8%) 27,000 First Horizon Pharmaceutical Corp.* ................................. 559 22,000 Forest Laboratories, Inc.* ............................ 1,557 24,000 Gilead Sciences, Inc.* ................................ 789 34,000 NBTY, Inc.* ........................................... 526 18,000 Scios Inc.* ........................................... 551 10,000 Teva Pharmaceutical Industries Ltd. (ADR) ................................ 668 ------ 4,650 E-COMMERCE (0.2) 21,000 Websense, Inc.* ....................................... 537 EDUCATIONAL SERVICES (2.9%) 42,750 Apollo Group, Inc. Class "A"* ......................... 1,685 50,000 Career Education Corp.* ............................... 2,250 47,000 Corinthian Colleges, Inc.* ............................ 1,593 25,000 Education Management Corp.* ........................... 1,018 24,000 ITT Educational Services, Inc.* ....................... 523 8,500 Strayer Education, Inc. ............................... 541 ------ 7,610 -------------------------------------------------------------------------------- 6 THE VALUE LINE SPECIAL SITUATIONS FUND, INC. JUNE 30, 2002 -------------------------------------------------------------------------------- VALUE SHARES (IN THOUSANDS) -------------------------------------------------------------------------------- ELECTRIC UTILITY -- CENTRAL (0.2%) 4,000 Cleco Corp. ........................................... $ 88 12,000 Entergy Corp. ......................................... 509 ------ 597 ELECTRICAL EQUIPMENT (0.2%) 21,000 Zoran Corp.* .......................................... 481 ELECTRONICS (0.4%) 12,000 FEI Company* .......................................... 294 17,000 Harman International Industries, Inc. ..................................... 837 ------ 1,131 ENTERTAINMENT (1.1%) 24,000 Belo Corp. Series "A" ................................. 543 8,000 Cox Radio, Inc. Class "A"* ............................ 193 30,000 Cumulus Media, Inc. Class "A"* ........................ 413 10,000 Entercom Communications Corp.* ............................................... 459 24,000 Radio One, Inc. Class "A"* ............................ 357 8,000 Sinclair Broadcast Group, Inc. Class "A"* ........................................... 115 14,000 Univision Communications, Inc. Class "A"* ........................................... 439 17,000 USA Interactive* ...................................... 399 ------ 2,918 ENTERTAINMENT TECHNOLOGY (1.5%) 45,000 Activision, Inc.* ..................................... 1,308 16,000 Electronic Arts Inc.* ................................. 1,057 9,000 Electronics Boutique Holdings Corp.* ............................................... 264 53,000 Pinnacle Systems, Inc.* ............................... 582 24,000 THQ, Inc.* ............................................ 715 ------ 3,926 VALUE SHARES (IN THOUSANDS) -------------------------------------------------------------------------------- ENVIRONMENTAL (0.7%) 37,000 Headwaters, Inc.* ..................................... $ 583 34,000 Stericycle, Inc.* ..................................... 1,204 ------- 1,787 FINANCIAL SERVICES -- DIVERSIFIED (4.4%) 40,000 Bisys Group, Inc. (The)* .............................. 1,332 28,000 Block (H. & R.), Inc. ................................. 1,292 16,000 Brown & Brown, Inc. ................................... 504 45,000 Cendant Corp.* ........................................ 715 28,000 Citigroup, Inc. ....................................... 1,085 26,000 Concord EFS, Inc.* .................................... 784 16,000 Doral Financial Corp. ................................. 534 26,400 Fidelity National Financial, Inc. ..................... 834 4,000 Gallagher (Arthur J.) & Co. ........................... 139 20,000 Global Payments, Inc. ................................. 595 15,000 Hilb, Rogal & Hamilton Co. ............................ 679 8,000 MGIC Investment Corp. ................................. 542 17,000 New Century Financial Corp.* .......................... 594 17,000 Radian Group, Inc. .................................... 831 14,000 Unitrin, Inc. ......................................... 501 20,000 Willis Group Holdings Ltd.* ........................... 658 ------- 11,619 FOOD PROCESSING (1.7%) 11,000 American Italian Pasta Co. Class "A"* ........................................... 561 16,000 Dean Foods Co.* ....................................... 597 17,000 Dole Food Co., Inc. ................................... 491 12,000 Dreyer's Grand Ice Cream, Inc. ........................ 823 30,000 Fresh Del Monte Produce, Inc. ......................... 750 22,500 Kraft Foods, Inc. ..................................... 921 8,000 Ralcorp Holdings, Inc.* ............................... 250 200 Smucker (J.M.) Co. .................................... 7 -------- 4,400 -------------------------------------------------------------------------------- 7 THE VALUE LINE SPECIAL SITUATIONS FUND, INC. SCHEDULE OF INVESTMENTS (UNAUDITED) -------------------------------------------------------------------------------- VALUE SHARES (IN THOUSANDS) -------------------------------------------------------------------------------- FOOD WHOLESALERS (0.8%) 20,000 Fleming Companies, Inc. ............................... $363 21,000 Performance Food Group Co.* ........................... 711 36,000 Supervalu, Inc. ....................................... 883 ----- 1,957 FURNITURE/HOME FURNISHINGS (1.0%) 14,000 Furniture Brands International, Inc.* ................................. 424 20,000 La-Z-Boy, Inc. ........................................ 504 21,651 Mohawk Industries, Inc.* .............................. 1,332 21,900 Tuesday Morning Corp.* ................................ 406 ----- 2,666 GROCERY (0.4%) 21,000 Whole Foods Market, Inc.* ............................. 1,013 HEALTHCARE INFORMATION SYSTEMS (0.7%) 28,000 Cerner Corp.* ......................................... 1,339 15,000 NDCHealth Corp. ....................................... 419 ----- 1,758 HOME APPLIANCE (0.4%) 12,000 Maytag Corp. .......................................... 512 10,000 Toro Company (The) .................................... 568 ----- 1,080 HOTEL/GAMING (1.9%) 15,100 Ameristar Casinos, Inc.* .............................. 439 43,000 Argosy Gaming Company* ................................ 1,221 25,000 Aztar Corp.* .......................................... 520 5,000 GTECH Holdings Corp.* ................................. 128 35,000 Hilton Hotels Corp. ................................... 487 12,000 International Game Technology* ........................ 680 27,000 Isle of Capris Casinos, Inc.* ......................... 547 14,000 MGM Mirage, Inc.* ..................................... 472 28,000 Penn National Gaming, Inc.* ........................... 508 ----- 5,002 VALUE SHARES (IN THOUSANDS) -------------------------------------------------------------------------------- HOUSEHOLD PRODUCTS (1.5%) 26,000 Dial Corp. (The) ...................................... $ 521 22,000 Energizer Holdings, Inc.* ............................. 603 16,000 Newell Rubbermaid, Inc. ............................... 561 10,000 Procter & Gamble Co. (The) ............................ 893 14,000 Rent-A-Center, Inc.* .................................. 812 22,000 Yankee Candle Co., Inc.* .............................. 596 ------ 3,986 HUMAN RESOURCES (0.5%) 17,000 AMN Healthcare Services, Inc.* ........................ 595 5,000 Manpower, Inc. ........................................ 184 20,000 Right Management Consultants, Inc.* ................................... 526 ------ 1,305 INDUSTRIAL SERVICES (1.0%) 11,000 Cintas Corp. .......................................... 544 14,000 Coinstar, Inc.* ....................................... 342 16,000 Emcor Group, Inc.* .................................... 939 9,000 FTI Consulting, Inc.* ................................. 315 16,000 URS Corp.* ............................................ 448 ------ 2,588 INFORMATION SERVICES (0.7%) 14,000 ChoicePoint, Inc.* .................................... 637 23,000 Equifax, Inc. ......................................... 621 20,000 Getty Images, Inc.* ................................... 435 ------ 1,693 INSURANCE -- LIFE (0.1%) 8,000 Prudential Financial, Inc.* ........................... 267 -------------------------------------------------------------------------------- 8 THE VALUE LINE SPECIAL SITUATIONS FUND, INC. JUNE 30, 2002 -------------------------------------------------------------------------------- VALUE SHARES (IN THOUSANDS) -------------------------------------------------------------------------------- INSURANCE -- PROPERTY/ CASUALTY (2.5%) 11,000 Berkley (W.R.) Corp. .................................. $605 11,000 Mercury General Corp. ................................. 534 50,000 Ohio Casualty Corp.* .................................. 1,045 45,000 Old Republic International Corp. ...................... 1,418 14,000 PMI Group, Inc. ....................................... 535 18,000 Progressive Corp. ..................................... 1,041 17,400 RenaissanceRe Holdings Ltd. ........................... 637 9,000 XL Capital Ltd. Class "A" ............................. 762 ------ 6,577 INTERNET (0.2%) 23,000 Ticketmaster Class "B"* ............................... 430 MACHINERY (1.0%) 35,000 AGCO Corp.* ........................................... 682 13,000 Donaldson Co., Inc. ................................... 456 16,900 Flowserve Corp.* ...................................... 504 18,750 Graco Inc. ............................................ 471 14,000 Manitowoc Co., Inc. (The) ............................. 497 ------ 2,610 MANUFACTURED HOUSING/ RECREATIONAL VEHICLE (0.8%) 30,000 Clayton Homes, Inc. ................................... 474 19,000 Monaco Coach Corp.* ................................... 405 9,500 Oshkosh Truck Corp. ................................... 562 13,600 Winnebago Industries, Inc. ............................ 598 ------ 2,039 VALUE SHARES (IN THOUSANDS) -------------------------------------------------------------------------------- MEDICAL SERVICES (5.6%) 14,000 American Medical Systems Holdings, Inc.* ....................................... $ 281 10,000 Anthem, Inc.* ......................................... 675 16,000 Community Health Systems, Inc.* ....................................... 429 7,000 Coventry Health Care, Inc.* ........................... 199 17,000 Cross Country, Inc.* .................................. 643 4,718 DaVita, Inc.* ......................................... 112 10,000 DIANON Systems, Inc.* ................................. 534 19,500 First Health Group Corp.* ............................. 547 22,000 Gentiva Health Services Inc.* ......................... 198 16,000 HCA, Inc. ............................................. 760 10,000 Health Net, Inc.* ..................................... 268 14,000 IGEN International, Inc.* ............................. 441 18,000 Laboratory Corp. of America Holdings* .................................... 822 34,000 Lincare Holdings, Inc.* ............................... 1,098 17,000 Mid Atlantic Medical Services, Inc.* ...................................... 533 22,000 Quest Diagnostics, Inc.* .............................. 1,893 30,000 Tenet Healthcare Corp.* ............................... 2,146 20,000 Triad Hospitals, Inc.* ................................ 847 8,000 UnitedHealth Group, Inc. .............................. 732 12,000 Universal Health Services, Inc. Class "B"* ........................................... 588 12,000 Wellpoint Health Networks, Inc.*....................... 934 ------- 14,680 -------------------------------------------------------------------------------- 9 THE VALUE LINE SPECIAL SITUATIONS FUND, INC. SCHEDULE OF INVESTMENTS (UNAUDITED) -------------------------------------------------------------------------------- VALUE SHARES (IN THOUSANDS) -------------------------------------------------------------------------------- MEDICAL SUPPLIES (5.7%) 9,000 AmerisourceBergen Corp. ............................... $684 6,000 Beckman Coulter, Inc. ................................. 299 27,750 Biomet, Inc. .......................................... 753 16,000 Charles River Laboratories International, Inc.* ................................. 561 19,900 CONMED Corp.* ......................................... 444 18,000 Cooper Companies, Inc. ................................ 848 34,500 DENTSPLY International, Inc. .......................... 1,273 4,000 Fisher Scientific International, Inc.* ................................. 112 34,000 Henry Schein, Inc.* ................................... 1,513 21,000 Inamed Corp.* ......................................... 561 15,000 Johnson & Johnson ..................................... 784 8,000 McKesson Corp. ........................................ 262 22,702 Medtronic, Inc. ....................................... 973 14,000 Mentor Corp. .......................................... 514 24,250 Merit Medical Systems, Inc.* .......................... 498 34,000 Patterson Dental Co.* ................................. 1,711 7,000 St. Jude Medical, Inc.* ............................... 517 62,000 Varian Medical Systems, Inc.* ......................... 2,514 ------ 14,821 METAL FABRICATING (0.3%) 24,000 Harsco Corp. .......................................... 900 NEWSPAPER (0.9%) 4,000 Knight-Ridder, Inc. ................................... 252 14,500 Lee Enterprises, Inc. ................................. 508 9,000 McClatchy Co. (The) Class "A" ......................... 578 8,000 Media General, Inc. Class "A" ......................... 480 7,000 Scripps (E.W.) Co. Class "A" .......................... 539 ------ 2,357 OFFICE EQUIPMENT & SUPPLIES (0.7%) 30,000 Global Imaging Systems, Inc.* ......................... 570 62,000 Moore Corporation Ltd.* ............................... 712 80,000 OfficeMax, Inc.* ...................................... 471 ------ 1,753 VALUE SHARES (IN THOUSANDS) -------------------------------------------------------------------------------- PACKAGING & CONTAINER (0.9%) 12,000 Ball Corp. ............................................ $ 498 10,000 Bemis Co., Inc. ....................................... 475 40,000 Packaging Corp. of America* ........................... 796 29,000 Pactiv Corp.* ......................................... 690 ------ 2,459 PHARMACY SERVICES (1.2%) 14,236 Accredo Health, Inc.* ................................. 657 46,000 Caremark Rx, Inc.* .................................... 759 16,500 D&K Healthcare Resources, Inc. ........................ 582 18,000 Express Scripts, Inc. Class "A"* ...................... 902 13,000 Omnicare, Inc. ........................................ 341 ------ 3,241 PRECISION INSTRUMENT (0.4%) 15,000 FLIR Systems, Inc.* ................................... 630 24,000 Garmin Ltd.* .......................................... 529 ------ 1,159 PUBLISHING (0.2%) 14,000 Deluxe Corp. .......................................... 544 R.E.I.T. (1.0%) 10,000 Anworth Mortgage Asset Corp. .......................... 140 24,000 Capital Automotive REIT ............................... 573 32,000 Chelsea Property Group, Inc. .......................... 1,070 15,000 Public Storage, Inc. .................................. 557 15,000 Thornburg Mortgage, Inc. .............................. 295 ------ 2,635 RAILROAD (0.3%) 18,000 CP Holders, Inc. ...................................... 811 -------------------------------------------------------------------------------- 10 THE VALUE LINE SPECIAL SITUATIONS FUND, INC. JUNE 30, 2002 -------------------------------------------------------------------------------- VALUE SHARES (IN THOUSANDS) -------------------------------------------------------------------------------- RECREATION (2.0%) 13,000 Action Performance Companies, Inc.* ...................................... $411 21,000 Brunswick Corp. ....................................... 588 7,000 Expedia, Inc. Class "A"* .............................. 415 24,000 Harley-Davidson, Inc. ................................. 1,231 56,000 Mattel, Inc. .......................................... 1,180 13,000 Polaris Industries, Inc. .............................. 845 20,000 SCP Pool Corp.* ....................................... 555 ------ 5,225 RESTAURANT (5.4%) 22,500 Applebee's International, Inc. ........................ 516 20,000 Bob Evans Farms, Inc. ................................. 630 39,000 Brinker International, Inc.* .......................... 1,238 22,000 CBRL Group, Inc. ...................................... 671 12,000 CEC Entertainment, Inc.* .............................. 496 43,500 Cheesecake Factory Incorporated (The)* .................................. 1,543 51,000 CKE Restaurants, Inc.* ................................ 580 64,500 Darden Restaurants, Inc. .............................. 1,593 18,000 Jack in the Box, Inc.* ................................ 572 5,000 Landry's Restaurants, Inc. ............................ 128 18,000 Panera Bread Co. - Class "A"* ......................... 626 19,000 RARE Hospitality International, Inc.* ................................. 511 60,800 Ruby Tuesday, Inc. .................................... 1,180 15,000 Ryan's Family Steak Houses, Inc.* ........................................ 198 56,250 Sonic Corp.* .......................................... 1,767 25,000 Starbucks Corp.* ...................................... 621 15,000 Wendy's International, Inc. ........................... 598 20,000 Yum! Brands, Inc.* .................................... 585 ------ 14,053 VALUE SHARES (IN THOUSANDS) -------------------------------------------------------------------------------- RETAIL BUILDING SUPPLY (1.1%) 14,000 Fastenal Co. .......................................... $ 539 21,000 Hughes Supply, Inc. ................................... 943 28,000 Lowe's Companies, Inc. ................................ 1,271 ------ 2,753 RETAIL STORE (3.6%) 31,000 Big Lots, Inc.* ....................................... 610 12,000 BJ's Wholesale Club Inc.* ............................. 462 40,700 Circuit City Stores, Inc. - CarMax Group* ........................................ 881 51,000 Family Dollar Stores, Inc. ............................ 1,798 19,200 Kohl's Corp.* ......................................... 1,346 11,000 Sears, Roebuck & Co. .................................. 597 19,000 ShopKo Stores, Inc.* .................................. 384 26,000 Target Corp. .......................................... 991 44,000 Wal-Mart Stores, Inc. ................................. 2,420 ------ 9,489 -------------------------------------------------------------------------------- 11 THE VALUE LINE SPECIAL SITUATIONS FUND, INC. SCHEDULE OF INVESTMENTS (UNAUDITED) -------------------------------------------------------------------------------- VALUE SHARES (IN THOUSANDS) -------------------------------------------------------------------------------- RETAIL -- SPECIAL LINES (8.0%) 25,000 Abercrombie & Fitch Co. Class "A"* ............................................ $603 15,000 AutoNation, Inc.* ..................................... 217 16,000 AutoZone, Inc.* ....................................... 1,237 56,000 Bed Bath & Beyond Inc.* ............................... 2,113 12,000 Best Buy Co., Inc.* ................................... 436 22,000 Blockbuster, Inc. Class "A" ........................... 592 900 Charlotte Russe Holding, Inc.* ........................ 20 82,500 Chico' s FAS, Inc.* ................................... 2,996 24,000 Christopher & Banks Corp.* ............................ 1,015 12,000 Coach, Inc.* .......................................... 659 17,000 Dollar Tree Stores, Inc.* ............................. 670 29,000 Gymboree Corp.* ....................................... 464 21,000 Insight Enterprises, Inc.* ............................ 529 29,000 Luxottica Group, S.P.A. (ADR) ......................... 551 14,000 Michaels Stores, Inc.* ................................ 546 27,500 Movie Gallery, Inc.* .................................. 581 21,000 Nautilus Group, Inc. (The)* ........................... 643 30,666 99 Cents Only Stores* ................................. 787 31,500 O'Reilly Automotive, Inc.* ............................ 868 31,000 Pier 1 Imports, Inc. .................................. 651 19,000 Ross Stores, Inc. ..................................... 774 19,000 Sonic Automotive, Inc. Class A* ............................................. 489 16,000 Stage Stores, Inc.* ................................... 556 14,000 Tiffany & Co. ......................................... 493 28,000 TJX Companies, Inc. (The) ............................. 549 32,000 Too, Inc.* ............................................ 986 17,000 Weight Watchers International, Inc.* ................................. 738 4,000 Williams-Sonoma, Inc.* ................................ 123 ------ 20,886 VALUE SHARES (IN THOUSANDS) -------------------------------------------------------------------------------- SECURITIES BROKERAGE (0.2%) 31,000 Annaly Mortgage Management, Inc. ...................................... $ 601 SEMICONDUCTOR (1.1%) 28,000 Asyst Technologies, Inc.* ............................. 570 14,000 ChipPac, Inc. Class "A"* .............................. 87 13,000 Cymer, Inc.* .......................................... 456 10,000 Marvell Technology Group Ltd.* ........................ 199 25,500 Microchip Technology Inc.* ............................ 699 54,000 Silicon Image, Inc.* .................................. 330 60,000 United Microelectronics Corp. (ADR)* ............................................... 441 ------ 2,782 SEMICONDUCTOR CAPITAL EQUIPMENT (0.1%) 16,000 MKS Instruments, Inc.* ................................ 321 SHOE (1.1%) 2,000 Brown Shoe Company, Inc. .............................. 56 21,000 Kenneth Cole Productions, Inc. Class "A"* ........................................... 595 10,000 Nike, Inc. Class "B" .................................. 537 38,000 Reebok International Ltd.* ............................ 1,121 26,000 Skechers U.S.A. Inc. Class "A"* ....................... 562 ------ 2,871 -------------------------------------------------------------------------------- 12 THE VALUE LINE SPECIAL SITUATIONS FUND, INC. JUNE 30, 2002 -------------------------------------------------------------------------------- VALUE SHARES (IN THOUSANDS) -------------------------------------------------------------------------------- THRIFT (3.2%) 37,000 BankAtlantic Bancorp, Inc. Class "A" ............................................ $ 459 30,450 Charter One Financial, Inc. ........................... 1,047 32,000 Golden State Bancorp, Inc. ............................ 1,160 13,000 GreenPoint Financial Corp. ............................ 638 17,000 Independence Community Bank Corp. ........................................... 488 31,000 Net.B@nk, Inc.* ....................................... 361 32,000 New York Community Bancorp, Inc. ........................................ 867 63,000 Sovereign Bancorp, Inc. ............................... 942 50,000 Staten Island Bancorp, Inc. ........................... 960 29,920 Washington Federal, Inc. .............................. 756 17,000 Webster Financial Corp. ............................... 650 -------- 8,328 TOILETRIES/ COSMETICS (0.4%) 10,000 Avon Products, Inc. ................................... 523 19,000 Regis Corp. ........................................... 513 -------- 1,036 TRUCKING/ TRANSPORTATION LEASING (0.4%) 9,500 Landstar System, Inc.* ................................ 1,015 -------- TOTAL COMMON STOCKS AND TOTAL INVESTMENT SECURITIES (92.9%) (COST $195,050,000)................................... $243,188 -------- VALUE PRINCIPAL (IN THOUSANDS AMOUNT EXCEPT PER SHARE (IN THOUSANDS) AMOUNT) -------------------------------------------------------------------------------- REPURCHASE AGREEMENT (6.0%) (INCLUDING ACCRUED INTEREST) $ 15,600 Collateralized by $ 12,323,000 U.S. Treasury Bonds 8.00%, due 11/15/21, with a value of $ 15,853,000 (with UBS Warburg LLC, 1.82%, dated 6/28/02, due 7/1/02, delivery value $15,202,366)................. $ 15,602 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES (1.1%) .................................... 2,907 -------- NET ASSETS (100.0%) ............................................. $261,697 -------- NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER OUTSTANDING SHARE ($261,696,998 \D 14,375,246 SHARES OUTSTANDING) ............................................. $ 18.20 -------- * NON-INCOME PRODUCING. (ADR) AMERICAN DEPOSITORY RECEIPTS. SEE NOTES TO FINANCIAL STATEMENTS. -------------------------------------------------------------------------------- 13 THE VALUE LINE SPECIAL SITUATIONS FUND, INC. STATEMENT OF ASSETS AND LIABILITIES AT JUNE 30, 2002 (UNAUDITED) -------------------------------------------------------------------------------- (IN THOUSANDS EXCEPT PER SHARE AMOUNT) ------------- ASSETS: Investment securities, at value (Cost - $195,050) ........................................ $243,188 Repurchase agreement (Cost - $15,602) ......................................... 15,602 Cash ........................................................ 53 Receivable for capital shares sold .......................... 6,101 Receivable for securities sold .............................. 2,235 Dividends receivable ........................................ 316 Prepaid insurance expense ................................... 10 -------- TOTAL ASSETS ............................................ 267,505 -------- LIABILITIES: Payable for capital shares repurchased ...................... 5,421 Payable for securities purchased ............................ 116 Accrued expenses: Advisory fee .............................................. 159 Service and distribution plan fees payable ................................................ 53 Other ..................................................... 59 -------- TOTAL LIABILITIES ....................................... 5,808 -------- NET ASSETS .................................................. $261,697 ======== NET ASSETS CONSIST OF: Capital stock, at $1.00 par value (authorized 100,000,000, outstanding 14,375,246 shares) ....................................... $ 14,375 Additional paid-in capital .................................. 209,719 Accumulated net investment loss ............................. (381) Accumulated net realized loss on investments .............................................. (10,154) Net unrealized appreciation of investments .............................................. 48,138 -------- NET ASSETS .................................................. $261,697 ======== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER OUTSTANDING SHARE ($261,696,998 - 14,375,246 SHARES OUTSTANDING) ...................................... $ 18.20 ======== STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED) (IN THOUSANDS) -------------- INVESTMENT INCOME: Dividends (Net of foreign withholding taxes of $2) ............................................. $ 1,104 Interest .................................................... 76 -------- Total Income ............................................ 1,180 -------- EXPENSES: Advisory fee ................................................ 981 Service and distribution plan fees .......................... 327 Transfer agent .............................................. 70 Trading service expense ..................................... 42 Custodian fees .............................................. 41 Auditing and legal fees ..................................... 26 Postage ..................................................... 19 Registration fees ........................................... 15 Printing .................................................... 14 Directors' fees and expenses ................................ 11 Telephone ................................................... 10 Insurance, dues and other ................................... 7 -------- Total Expenses Before Custody Credits ............................................ 1,563 Less: Custody Credits ................................. (2) -------- Net Expenses .......................................... 1,561 -------- NET INVESTMENT LOSS ........................................ (381) -------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS: Net Realized Loss ..................................... (190) Change in Net Unrealized Appreciation ....................................... (10,047) -------- NET REALIZED LOSS AND CHANGE IN NET UNREALIZED APPRECIATION ON INVESTMENTS ............................................. (10,237) -------- NET DECREASE IN NET ASSETS FROM OPERATIONS .............................................. $(10,618) ======== SEE NOTES TO FINANCIAL STATEMENTS. -------------------------------------------------------------------------------- 14 THE VALUE LINE SPECIAL SITUATIONS FUND, INC. STATEMENT OF CHANGES IN NET ASSETS FOR THE SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED) AND FOR THE YEAR ENDED DECEMBER 31, 2001 --------------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED JUNE 30, 2002 DECEMBER 31, (UNAUDITED) 2001 --------------- ------------- (IN THOUSANDS) OPERATIONS: Net investment loss ............................................. $ (381) $ (1,216) Net realized loss on investments ................................ (190) (9,710) Change in net unrealized appreciation ........................... (10,047) (59,848) --------------------------- Net decrease in net assets from operations ...................... (10,618) (70,774) --------------------------- DISTRIBUTIONS TO SHAREHOLDERS: Net realized gain from investment transactions .................. -- (6,030) --------------------------- CAPITAL SHARE TRANSACTIONS: Proceeds from sale of shares .................................... 254,756 575,420 Proceeds from reinvestment of distributions to shareholders ..... -- 5,714 Cost of shares repurchased ...................................... (244,270) (630,765) --------------------------- Net increase (decrease) from capital share transactions ......... 10,486 (49,631) --------------------------- TOTAL DECREASE IN NET ASSETS ..................................... (132) (126,435) NET ASSETS: Beginning of period ............................................. 261,829 388,264 --------------------------- End of period ................................................... $ 261,697 $ 261,829 =========================== ACCUMULATED NET INVESTMENT LOSS, END OF PERIOD ................... $ (381) $ -- ===========================
SEE NOTES TO FINANCIAL STATEMENTS. -------------------------------------------------------------------------------- 15 THE VALUE LINE SPECIAL SITUATIONS FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -------------------------------------------------------------------------------- 1. SIGNIFICANT ACCOUNTING POLICIES The Value Line Special Situations Fund, Inc. (the "Fund") is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company whose primary investment objective is long-term growth of capital. The Fund invests primarily in a broadly diversified list of "special situations." The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. (A) SECURITY VALUATION. Securities listed on a securities exchange and over-the-counter securities traded on the NASDAQ national market are valued at the closing sales prices on the date as of which the net asset value is being determined. In the absence of closing sales prices for such securities and for securities traded in the over-the-counter market, the security is valued at the midpoint between the latest available and representative asked and bid prices. 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 instruments with maturities of 60 days or less are valued at amortized cost, which approximates market value. (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 applicable to regulated investment companies, including the distribution requirements of the Tax Reform Act of 1986, 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. Distributions are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. -------------------------------------------------------------------------------- 16 THE VALUE LINE SPECIAL SITUATIONS FUND, INC. JUNE 30, 2002 -------------------------------------------------------------------------------- 2. CAPITAL SHARE TRANSACTIONS, DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS Transactions in capital stock were as follows (IN THOUSANDS EXCEPT PER SHARE AMOUNTS): SIX MONTHS ENDED YEAR ENDED JUNE 30, 2002 DECEMBER 31, (UNAUDITED) 2001 --------------- ------------- Shares sold ........................ 13,519 28,406 Shares issued to shareholders in reinvestment of distributions ................... -- 305 ------------------------ 13,519 28,711 Shares repurchased ................. 12,959 31,384 ------------------------ Net increase (decrease) ............ 560 (2,673) ======================== Distributions per share from net realized gains ......... $ -- $ .4385 ======================== 3. PURCHASES AND SALES OF SECURITIES Purchases and sales of investment securities, excluding short-term securities, were as follows: SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED) -------------- (IN THOUSANDS) PURCHASES: Investment Securities ........................ $97,955 ======= SALES: Investment Securities ........................ $99,857 ======= 4. INCOME TAXES At June 30, 2002, information on the tax components of capital is as follows: (UNAUDITED) (IN THOUSANDS) --------------- Cost of investments for tax purposes ......... $210,684 ======== Gross tax unrealized appreciation ............ $ 56,380 Gross tax unrealized depreciation ............ 8,274 -------- Net tax unrealized appreciation on investments ............................ $ 48,106 ======== Capital loss carryforward, expires December 31, 2009 ......................... $ 9,758 ======== To the extent future capital gains are offset by capital losses, the Fund does not anticipate distributing any such gains to the shareholders. -------------------------------------------------------------------------------- 17 THE VALUE LINE SPECIAL SITUATIONS FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2002 -------------------------------------------------------------------------------- 5. INVESTMENT ADVISORY CONTRACT, MANAGEMENT FEES AND TRANSACTIONS WITH AFFILIATES An advisory fee of $981,000 was paid or payable to Value Line, Inc., the Fund's investment adviser (the "Adviser"), for the six months ended June 30, 2001. This was computed at the rate of 3/4 of 1% of the 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. The Fund has a Service and Distribution Plan (the "Plan"), adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940, 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. For the six months ended June 30, 2002, fees amounting to $327,000 were paid or payable to the Distributor under this Plan. In the six months ended June 30, 2002, the Fund reimbursed the Distributor $42,000 for trading services it performed on behalf of the Fund. Certain officers and directors of the Adviser and its wholly owned subsidiary, Value Line Securities, Inc. (the Fund's distributor and a registered broker/dealer), are also officers and directors of the Fund. For the six months ended June 30, 2002, the Fund's expenses were reduced by $1,873 under a custody credit agreement with the Custodian. The Adviser and/or affiliated companies and the Value Line, Inc. Profit Sharing and Savings Plan at June 30, 2002, owned 282,355 shares of the Fund's capital stock, representing 2.0% of the outstanding shares. In addition, certain officers and directors of the Fund owned 132,829 shares of the Fund, representing 0.9% of the shares outstanding. -------------------------------------------------------------------------------- 18 THE VALUE LINE SPECIAL SITUATIONS FUND, INC. FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
SIX MONTHS ENDED YEARS ENDED DECEMBER 31, JUNE 30, 2002 ----------------------------------------------------------------- (UNAUDITED) 2001 2000 1999 1998 1997 -------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD ............................. $ 18.95 $ 23.55 $ 27.09 $ 17.70 $ 14.48 $ 13.34 --------- ---------- --------- --------- --------- --------- INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment loss .................. (.03) (.09) (.19) (.04) (.04) (.02) Net gains or losses on securities (both realized and unrealized ..................... (.72) (4.07) (1.64) 10.83 4.30 4.15 --------- ---------- --------- --------- --------- --------- Total from investment operations ......................... (.75) (4.16) (1.83) 10.79 4.26 4.13 --------- ---------- --------- --------- --------- --------- LESS DISTRIBUTIONS: Dividends from net investment income ................. -- -- -- -- -- # Distributions from capital gains .............................. -- (.44) (1.71) (1.40) (1.04) (2.99) ---------- --------- --------- --------- --------- --------- Total distributions .................. -- (.44) (1.71) (1.40) (1.04) (2.99) ---------- --------- --------- --------- --------- --------- NET ASSET VALUE, END OF PERIOD ......... $ 18.20 $ 18.95 $ 23.55 $ 27.09 $ 17.70 $ 14.48 ========== ========= ========= ========= ========= ========= TOTAL RETURN ........................... -3.96%+ -17.65% -6.78% 61.66% 29.88% 32.10% ========== ========= ========= ========= ========= ========= RATIOS/SUPPLEMENTAL DATA: Net assets, end of period (in thousands) ............................ $ 261,697 $ 261,829 $388,264 $ 421,031 $ 190,634 $ 116,040 Ratio of expenses to average net assets ............................ 1.20%*(1) 1.14%(1) 1.01%(1) .89%(1) 1.02% 1.08% Ratio of net investment loss to average net assets .................... (.29)%* (.39)% (.68)% (.22)% (.34)% (.14)% Portfolio turnover rate ................ 38%+ 88% 78% 85% 183% 240%
# DIVIDEND PAID WAS LESS THAN ONE CENT PER SHARE (1) RATIOS REFLECT EXPENSES GROSSED UP FOR CUSTODY CREDIT ARRANGEMENT. THE RATIOS OF EXPENSES TO AVERAGE NET ASSETS NET OF CUSTODY CREDITS WOULD NOT HAVE CHANGED. * ANNUALIZED + NOT ANNUALIZED. SEE NOTES TO FINANCIAL STATEMENTS. -------------------------------------------------------------------------------- 19 THE VALUE LINE SPECIAL SITUATIONS 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. 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 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. 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 the 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. -------------------------------------------------------------------------------- 20