N-30D 1 d02-36133.txt ANNUAL REPORT -------------------------------------------------------------------------------- ANNUAL REPORT -------------------------------------------------------------------------------- December 31, 2001 -------------------------------------------------------------------------------- The Value Line Special Situations Fund, Inc. [LOGO] ---------- VALUE LINE No-Load Mutual Funds The Value Line Special Situations Fund, Inc. To Our Value Line -------------------------------------------------------------------------------- To Our Shareholders: The Value Line Special Situations Fund lost 17.65% in 2001, compared to a loss of 11.88% for the Standard & Poor's 500 Index(1). It was a difficult year for growth stocks and growth-stock funds. Emblematic was the 21.05% loss of the NASDAQ Composite Index(2), reflecting the weakness in the technology sector in particular. Of some consolation, perhaps, your Fund performed well relative to its peer group of growth funds: Among the "multi-cap growth" funds tracked by Lipper Inc., the Fund finished in the top 27% for the year. In addition, your Fund ranks in the top 15% of its group for three years, the top 6% for five years, and the top 25% for ten years(3). In last year's annual report to shareholders, we wrote, "If the Fed succeeds in keeping the U.S. economy out of a severe recession, it may be the time to move into a less-defensive position in the portfolio. We will continue to follow where the earnings and stock price momentum takes us." As it turned out, we maintained a relatively defensive position in 2001. Having sold down the Fund's technology-sector holdings in 2000 and early 2001 to an underweighted position (relative to the growth indices and our peers), we continued to maintain a below-average weighting in the technology sector through the end of 2001. We have cautiously begun to rebuild the tech holdings in recent months, though, in response to improving stock price momentum, although positive earnings momentum in the sector has not yet returned. Our stock selection process is always to stick with companies showing strong price momentum relative to other stocks, and preferably strong earnings momentum. This disciplined strategy not only helps us find winners, but also allows us to get out of lagging issues in a timely manner. The portfolio currently holds about 300 stocks of all shapes and sizes. The median market capitalization of the Fund holdings is about $3 billion, but the range is very wide, with about one-sixth of the portfolio in market caps under $1 billion and one-sixth in market caps over $15 billion and rising to well over $100 billion. We look forward to better times ahead, but as always we remain vigilant as to near-term risks. Thank you for investing with us. Sincerely, /s/ Jean Bernhard Buttner Jean Bernhard Buttner Chairman and President March 1, 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) The NASDAQ Composite Index consists of all stocks traded on 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, and it is not possible to invest in this index. (3) Lipper ranked the Fund 123 out of 469, 40 out of 275, 10 out of 195, and 13 out of 52 Multi Cap Growth Funds based on its total return for the 1, 3, 5, and 10 year periods ended 12/31/01, respectively. -------------------------------------------------------------------------------- 2 The Value Line Special Situations Fund, Inc. Special Situations Fund Shareholders -------------------------------------------------------------------------------- Economic Observations The recession, which gripped the nation for much of the past year, appears to be ending. This conclusion is based on a succession of reports showing stabilizing manufacturing levels, continued strength in housing, selective improvement in retailing, and steadily declining unemployment claims. Nevertheless, given the absence of growth in the overall job market and continued depressed levels of factory usage, it appears that the economic recovery, which we expect to begin during the current half, will be muted and uneven in its early stages. Inflationary pressures, meantime, are continuing to be kept at bay. This benign pricing environment remains rooted in both sustained increases in productivity (or labor-cost efficiency) and the pronounced slowdown in industrial and labor demand arising from the comparatively low level of U.S. business activity in recent months. To be sure, as the U.S. economy improves, some modest increase in pricing pressures may evolve. Absent a more vigorous business recovery than we now expect, however, inflation should remain muted through at least 2002. Finally, the Federal Reserve, which has been aggressive in reducing interest rates over the past year, in an effort to promote stronger economic activity, now appears to be at the end of its extended monetary easing cycle. We believe the Fed will now keep interest rates at current levels for most of the year, before increased business activity and modestly higher inflation encourage it to raise rates again. -------------------------------------------------------------------------------- 3 The Value Line Special Situations Fund, Inc. -------------------------------------------------------------------------------- COMPARISON OF A CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE VALUE LINE SPECIAL SITUATIONS FUND AND THE S&P 500 STOCK INDEX* [The following table was depicted as a mountain graph in the printed material.] Value Line Special Situations Fund S & P 500 Index ---------------------------------- --------------- 1/1/92 $10,000 $10,000 3/92 $ 9,659 $ 9,747 6/92 $ 8,312 $ 9,933 9/92 $ 8,263 $10,246 12/31/92 $ 9,655 $10,762 3/93 $ 9,107 $11,232 6/93 $ 9,735 $11,286 9/93 $10,787 $11,578 12/31/93 $10,909 $11,846 3/94 $10,400 $11,397 6/94 $ 9,306 $11,445 9/94 $10,934 $12,005 12/31/94 $11,021 $12,003 3/95 $11,772 $13,171 6/95 $12,857 $14,429 9/95 $14,666 $15,575 12/31/95 $14,213 $16,513 3/96 $14,686 $17,399 6/96 $14,870 $18,180 9/96 $14,852 $18,742 12/31/96 $15,243 $20,305 3/97 $14,546 $20,847 6/97 $17,083 $24,486 9/97 $20,831 $26,322 12/31/97 $20,136 $27,078 3/98 $23,696 $30,854 6/98 $24,224 $31,873 9/98 $20,511 $28,703 12/31/98 $26,152 $34,815 3/99 $27,364 $36,550 6/99 $30,422 $39,126 9/99 $30,600 $36,683 12/31/99 $42,278 $42,141 3/00 $47,459 $43,108 6/00 $45,696 $41,962 9/00 $47,803 $41,556 12/31/2000 $39,413 $38,304 3/1/2001 $31,430 $33,763 6/1/2001 $35,128 $35,739 9/1/2001 $29,070 $30,493 12/31/2001 $32,456 $33,752 (From 1/1/92 to 12/31/01) ================================================================================ * The Standard & Poor's 500 Index (S&P 500 Index) is an unmanaged index that is representative of the larger-capitalization stocks traded in the United States. The return for the index does not reflect expenses which are deducted from the Fund's returns. Performance Data:** Average Annual Growth of an Assumed Total Return Investment of $10,000 -------------- --------------------- 1 year ended 12/31/01.............. -17.65% $ 8,235 5 years ended 12/31/01............. +16.32% $21,293 10 years ended 12/31/01............. +12.49% $32,456 ** 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. -------------------------------------------------------------------------------- 4 The Value Line Special Situations Fund, Inc. Portfolio Highlights at December 31, 2001 (Unaudited) -------------------------------------------------------------------------------- Ten Largest Holdings Value Percentage Issue Shares (in thousands) of Net Assets -------------------------------------------------------------------------------- Microsoft Corp. ....................... 80,000 $5,300 2.0% International Game Technology ......... 46,000 3,142 1.2 Wal-Mart Stores, Inc. ................. 44,000 2,532 1.0 General Electric Co. .................. 60,000 2,405 0.9 Varian Medical Systems, Inc. .......... 31,000 2,209 0.8 Chico's FAS, Inc. ..................... 55,000 2,183 0.8 Alliant Techsystems, Inc. ............. 25,875 1,998 0.8 Tenet Healthcare Corp. ................ 34,000 1,996 0.8 Bed Bath & Beyond Inc. ................ 56,000 1,898 0.7 PerkinElmer, Inc. ..................... 54,000 1,891 0.7 Five Largest Industry Categories Value Percentage Industry (in thousands) of Net Assets -------------------------------------------------------------------------------- Computer Software & Services .......... $24,400 9.3% Drug .................................. 20,979 8.0 Medical Supplies ...................... 18,396 7.0 Retail--Special Lines ................. 17,007 6.5 Medical Services ...................... 12,979 5.0 Five Largest Net Security Purchases* Cost Issue (in thousands) -------------------------------------------------------------------------------- DJ Orthopedics Inc. ................... $1,416 Stericycle, Inc. ...................... 876 Johnson & Johnson ..................... 865 Abbott Laboratories ................... 811 HCA, Inc. ............................. 742 Five Largest Net Security Sales* Proceeds Issue (in thousands) -------------------------------------------------------------------------------- Elan Corp. plc (ADR) .................. $2,257 IndyMac Bancorp, Inc. ................. 1,521 Southwest Airlines Co. ................ 1,407 PartnerRe Ltd. ........................ 1,407 ACE Ltd. .............................. 1,368 * For the six month period ended 12/31/01. ------------------------------------------------------------------------------- 5 The Value Line Special Situations Fund, Inc. Schedule of Investments -------------------------------------------------------------------------------- Value Shares (in thousands) -------------------------------------------------------------------------------- COMMON STOCKS (97.5%) ADVERTISING (1.3%) 45,000 Direct Focus, Inc.* .................................. $ 1,404 12,000 Omnicom Group, Inc. .................................. 1,072 21,000 TMP Worldwide, Inc.* ................................. 901 ------- 3,377 AEROSPACE/DEFENSE (3.0%) 25,875 Alliant Techsystems, Inc.* ........................... 1,998 20,000 DRS Technologies, Inc.* .............................. 713 23,750 Engineered Support Systems, Inc. ..................... 812 20,000 General Dynamics Corp. ............................... 1,593 14,000 L-3 Communications Holdings, Inc.* .................................... 1,260 22,000 Newport News Shipbuilding, Inc. ................................. 1,568 ------- 7,944 AIR TRANSPORT (0.2%) 10,000 FedEx Corp.* ......................................... 519 APPAREL (0.3%) 3,000 Coach, Inc.* ......................................... 117 16,000 VF Corp. ............................................. 624 ------- 741 AUTO & TRUCK (0.2%) 10,000 Navistar International Corp.* ....................... 395 AUTO PARTS (1.0%) 30,000 ArvinMeritor, Inc. ................................... 589 11,000 Genuine Parts Co. .................................... 404 10,000 Johnson Controls, Inc. ............................... 807 12,000 Magna International Inc. Class "A" .......................................... 762 ------- 2,562 BANK (3.3%) 25,000 BB&T Corp. ........................................... 903 16,000 City National Corp. .................................. 750 20,000 Commerce Bancorp, Inc. ............................... 787 26,000 Compass Bancshares, Inc. ............................. 736 42,000 Hibernia Corp. Class "A" ............................. 747 21,000 National Commerce Financial Corp. .................................... 531 25,000 North Fork Bancorporation, Inc. ...................... 800 25,000 Pacific Century Financial Corp. ...................... 647 13,000 Regions Financial Corp. .............................. 389 40,000 SouthTrust Corp. ..................................... 987 31,000 Synovus Financial Corp. .............................. 776 17,000 Westamerica Bancorporation ........................... 673 ------- 8,726 BANK--MIDWEST (1.5%) 18,000 Fifth Third Bancorp .................................. 1,104 9,000 Marshall & Ilsley Corp. .............................. 570 9,000 Northern Trust Corp. ................................. 542 34,000 TCF Financial Corp. .................................. 1,631 ------- 3,847 BEVERAGE--ALCOHOLIC (0.6%) 26,000 Constellation Brands, Inc. Class "A"* ......................................... 1,114 8,000 Coors (Adolph) Co. Class "B" ......................... 427 ------- 1,541 BEVERAGE--SOFT DRINK (0.7%) 30,000 Pepsi Bottling Group, Inc. (The) ..................... 705 25,000 PepsiCo, Inc. ........................................ 1,217 ------- 1,922 BIOTECHNOLOGY (0.2%) 25,000 Isis Pharmaceuticals, Inc.* .......................... 555 BUILDING MATERIALS (0.7%) 32,000 Apogee Enterprises, Inc. ............................. 506 16,500 Dal-Tile International Inc.* ......................... 384 5,000 Granite Construction Inc. ............................ 120 14,000 Jacobs Engineering Group, Inc.* ...................... 924 ------- 1,934 CHEMICAL--SPECIALTY (0.2%) 35,000 Airgas, Inc.* ........................................ 529 COAL (0.3%) 15,000 CONSOL Energy, Inc. .................................. 373 15,000 Massey Energy Corp. .................................. 311 ------- 684 COMPUTER & PERIPHERALS (1.2%) 30,000 Inter-Tel Inc. ....................................... 577 10,000 International Business Machines Corp. ..................................... 1,210 14,000 Mercury Computer Systems, Inc.* ...................... 547 3,000 Storage Technology Corp.* ............................ 62 16,000 Tech Data Corp.* ..................................... 692 ------- 3,088 -------------------------------------------------------------------------------- 6 The Value Line Special Situations Fund, Inc. December 31, 2001 -------------------------------------------------------------------------------- Value Shares (in thousands) -------------------------------------------------------------------------------- COMPUTER SOFTWARE & SERVICES (9.3%) 45,000 Activision, Inc.* ............................... $ 1,171 15,000 Advent Software, Inc.* .......................... 749 17,000 Affiliated Computer Services, Inc. Class "A"* .................................... 1,804 21,000 ANSYS, Inc.* .................................... 518 20,000 ATI Technologies, Inc.* ......................... 254 52,000 Borland Software Corp.* ......................... 814 11,000 Cognos Inc.* .................................... 275 33,000 Digital River, Inc.* ............................ 525 20,000 Electronic Data Systems Corp. ................... 1,371 16,000 Fair, Issac & Co., Inc. ......................... 1,008 15,000 First Data Corp. ................................ 1,177 31,500 Fiserv, Inc.* ................................... 1,333 80,000 Inktomi Corp.* .................................. 537 16,000 Intuit Inc.* .................................... 685 23,000 Itron, Inc.* .................................... 697 25,000 JDA Software Group, Inc.* ....................... 559 80,000 Microsoft Corp.* ................................ 5,300 35,000 Midway Games, Inc.* ............................. 525 16,000 MSC.Software Corp.* ............................. 250 52,000 Networks Associates, Inc.* ...................... 1,344 12,000 Numerical Technologies, Inc.* .................. 422 27,000 Perot Systems Corp. Class "A"* .................. 551 26,000 Precise Software Solutions Ltd.* ................ 537 46,000 SunGard Data Systems Inc.* ...................... 1,331 10,000 Symantec Corp.* ................................. 663 ------- 24,400 DIVERSIFIED COMPANY (2.1%) 18,000 American Standard Companies, Inc.* .............................. 1,228 800 ARAMARK Corp. Class "B"* ........................ 22 19,000 Hillenbrand Industries, Inc. .................... 1,050 21,000 ITT Industries, Inc. ............................ 1,061 17,000 Teleflex, Inc. .................................. 804 21,000 Tyco International Ltd. ......................... 1,237 ------- 5,402 DRUG (8.0%) 4,100 American Pharmaceutical Partners, Inc.* ............................... 85 25,000 Andrx Group* .................................... 1,760 17,000 ArQule, Inc.* ................................... 289 6,562 Barr Laboratories, Inc.* ........................ 521 11,900 Biovail Corp.* .................................. 669 27,000 Cell Genesys, Inc.* ............................. 627 8,500 Cephalon, Inc.* ................................. 643 29,000 Covance Inc.* ................................... 658 10,000 CV Therapeutics, Inc.* .......................... 520 16,000 Dr. Reddy's Laboratories Limited (ADR)* ................................ 303 27,000 First Horizon Pharmaceutical Corp.* ......................... 794 22,000 Forest Laboratories, Inc.* ...................... 1,803 10,766 Genzyme Corp.-General Division* ................. 644 12,000 Gilead Sciences, Inc.* .......................... 789 11,000 ICOS Corp.* ..................................... 632 6,285 ImClone Systems Inc.* ........................... 292 11,000 InterMune, Inc.* ................................ 542 30,000 Interneuron Pharmaceuticals, Inc.* .............. 333 41,124 King Pharmaceuticals, Inc.* ..................... 1,733 9,000 Medicis Pharmaceutical Corp. Class "A"* .................................... 581 11,000 Neurocrine Biosciences, Inc.* .................. 564 55,000 Perrigo Co.* .................................... 650 42,000 Pharmaceutical Product Development, Inc.* ............................ 1,357 20,000 Pharmaceutical Resources, Inc.* ................. 676 29,000 Serologicals Corp.* ............................. 624 39,000 SICOR, Inc.* .................................... 612 20,000 Taro Pharmaceutical Industries, Ltd.* ............................. 799 24,000 Teva Pharmaceutical Industries Ltd. (ADR) ......................... 1,479 ------- 20,979 E-COMMERCE (0.4%) 36,000 Entrust, Inc.* .................................. 367 21,000 Websense, Inc.* ................................. 673 ------- 1,040 EDUCATIONAL SERVICES (2.0%) 28,500 Apollo Group, Inc. Class "A"* .................. 1,283 50,000 Career Education Corp.* ......................... 1,714 27,000 Corinthian Colleges, Inc.* ...................... 1,104 25,000 Education Management Corp.* ..................... 906 13,000 Sylvan Learning Systems, Inc.* .................. 287 ------- 5,294 ELECTRIC UTILITY--WEST (0.2%) 23,000 Xcel Energy, Inc. ............................... 638 -------------------------------------------------------------------------------- 7 The Value Line Special Situations Fund, Inc. Schedule of Investments -------------------------------------------------------------------------------- Value Shares (in thousands) -------------------------------------------------------------------------------- ELECTRICAL EQUIPMENT (1.4%) 60,000 General Electric Co. ................................ $ 2,405 22,200 Intermagnetics General Corp.* ...................... 575 22,000 Zoran Corp.* ........................................ 718 ------- 3,698 ELECTRONICS (1.1%) 12,000 FEI Company* ........................................ 378 22,000 Flextronics International Ltd.* ..................... 528 19,000 Genesis Microchip, Inc.* ............................ 1,256 17,000 Harman International Industries, Inc. .................................. 767 ------- 2,929 ENTERTAINMENT TECHNOLOGY (1.1%) 16,000 Electronic Arts Inc.* ............................... 959 31,258 Gemstar-TV Guide International, Inc.* .............................. 866 20,000 THQ, Inc.* .......................................... 969 ------- 2,794 ENVIRONMENTAL (0.8%) 17,000 Stericycle, Inc.* ................................... 1,035 33,000 Waste Management, Inc. .............................. 1,053 ------- 2,088 FINANCIAL SERVICES-- DIVERSIFIED (4.6%) 9,000 American International Group, Inc. ....................................... 715 20,000 Bisys Group, Inc. (The)* ............................ 1,280 28,000 Block (H. & R.), Inc. ............................... 1,252 16,000 Capital One Financial Corp. ......................... 863 45,000 Cendant Corp.* ...................................... 883 28,000 Citigroup, Inc. ..................................... 1,413 26,000 Concord EFS, Inc.* .................................. 852 14,000 Federal National Mortgage Association .............................. 1,113 33,000 Fidelity National Financial, Inc. ................... 818 4,000 Gallagher (Arthur J.) & Co. ......................... 138 20,000 Global Payments, Inc. ............................... 688 22,500 Investment Technology Group, Inc.* ...................................... 879 17,000 Radian Group, Inc. .................................. 730 15,000 Willis Group Holdings Ltd.* ......................... 353 ------- 11,977 FOOD PROCESSING (0.6%) 4,000 Dean Foods Co.* ..................................... 273 13,000 Flowers Foods, Inc.* ................................ 519 22,500 Kraft Foods Inc. Class "A"* ......................... 766 ------- 1,558 FOOD WHOLESALERS (0.7%) 20,000 Fleming Companies, Inc. ............................. 370 21,000 Performance Food Group Co.* ......................... 739 36,000 Supervalu, Inc. ..................................... 796 ------- 1,905 FURNITURE/HOME FURNISHINGS (0.4%) 18,000 Mohawk Industries, Inc.* ............................ 988 GROCERY (0.4%) 21,000 Whole Foods Market, Inc.* ........................... 915 HEALTHCARE INFORMATION SYSTEMS (0.8%) 28,000 Cerner Corp.* ....................................... 1,398 29,000 Incyte Genomics, Inc.* .............................. 567 ------- 1,965 HOME APPLIANCE (0.3%) 10,000 Whirlpool Corp. ..................................... 733 HOTEL/GAMING (2.0%) 26,100 Ameristar Casinos, Inc.* ............................ 654 43,000 Argosy Gaming Company* .............................. 1,398 46,000 International Game Technology* ...................... 3,142 4,000 Penn National Gaming, Inc.* ......................... 121 ------- 5,315 HOUSEHOLD PRODUCTS (0.4%) 23,000 Dial Corp. (The) .................................... 394 7,000 Procter & Gamble Co. (The) .......................... 554 ------- 948 INDUSTRIAL SERVICES (0.6%) 3,000 Administaff, Inc.* .................................. 82 10,000 Copart, Inc.* ....................................... 364 16,000 Emcor Group, Inc.* .................................. 726 3,000 Expeditors International of Washington, Inc. .................................. 171 10,000 URS Corp.* .......................................... 274 ------- 1,617 -------------------------------------------------------------------------------- 8 The Value Line Special Situations Fund, Inc. December 31, 2001 -------------------------------------------------------------------------------- Value Shares (in thousands) -------------------------------------------------------------------------------- INFORMATION SERVICES (0.3%) 9,000 ChoicePoint, Inc.* .................................... $ 456 18,000 Equifax, Inc. ......................................... 435 ------- 891 INSURANCE--LIFE (0.1%) 8,000 Prudential Financial, Inc.* ........................... 266 INSURANCE--PROPERTY/ CASUALTY (1.8%) 11,000 Berkley (W.R.) Corp. .................................. 591 10,000 HCC Insurance Holdings, Inc. .......................... 276 3,000 Mercury General Corp. ................................. 131 50,000 Ohio Casualty Corp.* .................................. 802 45,000 Old Republic International Corp. ...................... 1,260 6,000 Progressive Corp. ..................................... 896 9,000 XL Capital Ltd. Class "A" ............................. 822 ------- 4,778 INTERNET (0.9%) 51,000 E*Trade Group, Inc.* .................................. 523 21,000 FreeMarkets, Inc.* .................................... 503 21,000 Overture Services, Inc.* .............................. 744 34,000 S1 Corp.* ............................................. 550 ------- 2,320 MACHINERY (1.0%) 35,000 AGCO Corp. ............................................ 552 13,000 Donaldson Co., Inc. ................................... 505 28,000 Stanley Works ......................................... 1,304 7,000 York International Corp. .............................. 267 ------- 2,628 MEDICAL SERVICES (5.0%) 15,000 American Healthways, Inc.* ............................ 479 24,000 AmeriPath, Inc.* ...................................... 768 58,000 Beverly Enterprises, Inc.* ............................ 499 35,000 DaVita, Inc.* ......................................... 856 10,000 DIANON Systems, Inc.* ................................. 608 16,000 HCA, Inc. ............................................. 617 9,000 Laboratory Corp. of America Holdings* ................................... 728 34,000 Lincare Holdings, Inc.* ............................... 974 22,000 Lumenis Ltd.* ......................................... 433 21,000 Manor Care, Inc.* ..................................... 498 37,000 MIM Corp.* ............................................ 659 19,000 Pediatrix Medical Group, Inc.* ........................ 644 22,000 Quest Diagnostics, Inc.* .............................. 1,578 34,000 Tenet Healthcare Corp.* ............................... 1,996 20,000 Triad Hospitals, Inc.* ................................ 587 5,000 UnitedHealth Group, Inc. .............................. 354 6,000 Wellpoint Health Networks, Inc.* ...................... 701 ------- 12,979 MEDICAL SUPPLIES (7.0%) 15,000 Abbott Laboratories ................................... 836 9,000 AmerisourceBergen Corp. ............................... 572 27,750 Biomet, Inc. .......................................... 857 18,000 Cooper Companies, Inc. ................................ 900 56,000 Cytyc Corp.* .......................................... 1,462 23,000 DENTSPLY International, Inc. .......................... 1,155 83,300 DJ Orthopedics Inc.* .................................. 1,108 21,000 Inamed Corp.* ......................................... 631 24,000 Integra LifeSciences Holdings Corp.* ..................................... 632 15,000 Johnson & Johnson ..................................... 886 18,000 McKesson Corp. ........................................ 673 22,702 Medtronic, Inc. ....................................... 1,163 34,000 Patterson Dental Co.* ................................. 1,392 13,000 ResMed Inc.* .......................................... 701 33,000 Respironics, Inc.* .................................... 1,143 34,000 Henry Schein, Inc.* ................................... 1,259 14,000 Stryker Corp. ......................................... 817 31,000 Varian Medical Systems, Inc.* ........................ 2,209 ------- 18,396 METAL FABRICATING (0.4%) 24,000 Harsco Corp. .......................................... 823 6,000 Shaw Group, Inc.* ..................................... 141 ------- 964 OFFICE EQUIPMENT & SUPPLIES (0.9%) 62,000 Moore Corporation Ltd.* ............................... 589 54,000 Office Depot, Inc.* ................................... 1,001 70,000 Xerox Corp. ........................................... 730 ------- 2,320 PACKAGING & CONTAINER (0.3%) 40,000 Packaging Corp. of America* ........................... 726 PHARMACY SERVICES (0.9%) 7,000 AdvancePCS* ........................................... 205 46,000 Caremark Rx, Inc.* .................................... 750 18,000 Express Scripts, Inc. Class "A"* ...................... 842 25,000 Omnicare, Inc. ........................................ 622 ------- 2,419 -------------------------------------------------------------------------------- 9 The Value Line Special Situations Fund, Inc. Schedule of Investments -------------------------------------------------------------------------------- Value Shares (in thousands) -------------------------------------------------------------------------------- PRECISION INSTRUMENT (2.4%) 15,000 FLIR Systems, Inc.* ................................... $ 569 11,000 Kronos Inc.* .......................................... 532 27,000 Mettler Toledo International, Inc.* ................... 1,400 54,000 PerkinElmer, Inc. ..................................... 1,891 38,000 Thermo Electron Corp.* ................................ 907 22,000 Waters Corp.* ......................................... 852 ------- 6,151 PUBLISHING (0.2%) 11,000 Scholastic Corp.* ..................................... 554 R.E.I.T. (0.4%) 16,000 Chelsea Property Group, Inc. .......................... 786 15,000 Thornburg Mortgage, Inc. .............................. 295 ------- 1,081 RAILROAD (1.1%) 16,000 Canadian National Railway Company ..................................... 773 18,000 CP Holders Inc. ....................................... 706 22,000 CSX Corp. ............................................. 771 33,000 Norfolk Southern Corp. ................................ 605 ------- 2,855 RECREATION (1.5%) 9,000 Electronics Boutique Holdings Corp.* ..................................... 360 24,000 Harley-Davidson, Inc. ................................. 1,303 12,000 JAKKS Pacific, Inc.* .................................. 227 56,000 Mattel, Inc. .......................................... 963 13,000 Polaris Industries, Inc. .............................. 751 15,000 SCP Pool Corp.* ....................................... 412 ------- 4,016 RESTAURANT (3.4%) 39,000 Brinker International, Inc.* .......................... 1,161 22,000 CBRL Group, Inc. ...................................... 648 43,500 Cheesecake Factory, Inc. (The)* ....................... 1,512 30,000 CKE Restaurants, Inc.* ................................ 272 43,000 Darden Restaurants, Inc. .............................. 1,522 18,000 Jack in the Box, Inc.* ................................ 496 11,000 Panera Bread Co.--Class "A"* .......................... 572 60,800 Ruby Tuesday, Inc. .................................... 1,254 37,500 Sonic Corp.* .......................................... 1,350 ------- 8,787 RETAIL BUILDING SUPPLY (0.7%) 21,000 Hughes Supply, Inc. ................................... 648 28,000 Lowe's Companies, Inc. ................................ 1,300 ------- 1,948 RETAIL STORE (4.1%) 12,000 BJ's Wholesale Club Inc.* ............................. 529 42,700 Circuit City Stores, Inc.-- CarMax Group* ....................................... 971 30,000 Costco Wholesale Corp.* ............................... 1,331 51,000 Family Dollar Stores, Inc. ............................ 1,529 19,200 Kohl's Corp.* ......................................... 1,353 21,100 MCSi, Inc.* ........................................... 495 36,000 Penney (J.C.) Co., Inc. ............................... 969 26,000 Target Corp. .......................................... 1,067 44,000 Wal-Mart Stores, Inc. ................................. 2,532 ------- 10,776 RETAIL--SPECIAL LINES (6.5%) 25,000 Abercrombie & Fitch Co. Class "A"* .......................................... 663 17,500 American Eagle Outfitters, Inc.* ...................... 458 16,000 AutoZone, Inc.* ....................................... 1,149 56,000 Bed Bath & Beyond Inc.* ............................... 1,898 22,000 Blockbuster, Inc. Class "A" ........................... 554 24,000 Borders Group, Inc.* .................................. 476 55,000 Chico' s FAS, Inc.* ................................... 2,183 24,000 Christopher & Banks Corp.* ............................ 822 22,000 Circuit City Stores, Inc.-- Circuit City Group .................................. 571 43,000 Foot Locker, Inc.* .................................... 673 18,000 Lands' End, Inc.* ..................................... 903 23,000 99 Cents Only Stores* ................................. 876 31,500 O'Reilly Automotive, Inc.* ............................ 1,149 60,000 Pep Boys--Manny Moe & Jack ............................ 1,029 19,000 Ross Stores, Inc. ..................................... 610 11,000 Sonic Automotive, Inc. Class "A"* .......................................... 258 34,000 Talbots, Inc. (The) ................................... 1,233 32,000 Too, Inc.* ............................................ 880 30,000 Toys 'R' Us, Inc.* .................................... 622 ------- 17,007 -------------------------------------------------------------------------------- 10 The Value Line Special Situations Fund, Inc. December 31, 2001 -------------------------------------------------------------------------------- Value Shares (in thousands) -------------------------------------------------------------------------------- SEMICONDUCTOR (1.1%) 41,000 Axcelis Technologies, Inc.* .......................... $ 528 35,000 Conexant Systems, Inc.* .............................. 503 10,000 Marvell Technology Group Ltd.* ....................... 358 17,000 Microchip Technology Inc.* ........................... 659 23,000 Microtune, Inc.* ..................................... 540 40,000 United Microelectronics Corp. (ADR)* ....................................... 384 -------- 2,972 SHOE (0.6%) 10,000 Nike, Inc. Class "B" ................................. 562 38,000 Reebok International Ltd.* ........................... 1,007 -------- 1,569 TELECOMMUNICATION SERVICES (0.3%) 16,000 Intrado, Inc.* ....................................... 429 7,000 Mobile TeleSystem OJSC (ADR)* ........................................ 249 -------- 678 TELECOMMUNICATIONS EQUIPMENT (0.9%) 54,000 Polycom, Inc.* ....................................... 1,857 22,000 UTStarcom, Inc.* ..................................... 627 -------- 2,484 THRIFT (2.5%) 30,450 Charter One Financial, Inc. .......................... 827 34,000 Dime Bancorp, Inc. ................................... 1,227 32,000 Golden State Bancorp, Inc. ........................... 837 32,000 New York Community Bancorp, Inc. ...................................... 732 63,000 Sovereign Bancorp, Inc. .............................. 771 50,000 Staten Island Bancorp, Inc. .......................... 815 27,200 Washington Federal, Inc. ............................. 701 6,000 Washington Mutual, Inc. .............................. 196 17,000 Webster Financial Corp. .............................. 536 -------- 6,642 TOBACCO (0.1%) 8,000 Vector Group Ltd. .................................... 263 TRUCKING/TRANSPORTATION LEASING (0.4%) 11,000 Landstar System, Inc.* ............................... 798 10,000 Roadway Corp. ........................................ 367 -------- 1,165 WIRELESS NETWORKING (0.6%) 37,000 Handspring, Inc.* .................................... 249 9,500 Metro One Telecommunications, Inc.* .......................... 288 16,000 Proxim, Inc.* ........................................ 159 44,000 RF Micro Devices Inc.* ............................... 846 -------- 1,542 OTHER (0.2%) 17,000 Weight Watchers International, Inc.* ............................... 575 -------- TOTAL COMMON STOCKS AND TOTAL INVESTMENT SECURITIES (97.5%) (Cost $197,114,000) ................................ 255,299 -------- Value Principal (in thousands Amount except per share (in thousands) amount) -------------------------------------------------------------------------------- REPURCHASE AGREEMENT (2.4%) (including accrued interest) $6,400 Collateralized by $5,065,000 U.S. Treasury Bonds 8.125%, due 8/15/19, with a value of $6,548,000 (with Morgan Stanley Dean Witter & Co., 1.60%, dated 12/31/01, due 1/2/02, delivery value $6,400,569)................................... 6,400 CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES (0.1%) .......................... 130 -------- NET ASSETS (100.0%) ...................................... $261,829 ======== NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER OUTSTANDING SHARE ($261,829,211 / 13,814,935 shares outstanding) ................................... $ 18.95 ======== * Non-income producing. (ADR) American Depository Receipts. See Notes to Financial Statements. -------------------------------------------------------------------------------- 11 The Value Line Special Situations Fund, Inc. Statement of Assets and Liabilities at December 31, 2001 -------------------------------------------------------------------------------- (In thousands except per share amount) ------------- Assets: Investment securities, at value (Cost--$197,114) ....................................... $ 255,299 Repurchase agreement (Cost--$6,400) ......................................... 6,400 Cash ...................................................... 55 Receivable for securities sold ............................ 4,455 Receivable for capital shares sold ........................ 222 Dividends receivable ...................................... 106 --------- Total Assets .......................................... 266,537 --------- Liabilities: Payable for securities purchased .......................... 2,641 Payable for capital shares repurchased .................... 1,786 Accrued expenses: Advisory fee ........................................... 167 Service and distribution plan fees payable ..................................... 56 Other .................................................. 58 --------- Total Liabilities ..................................... 4,708 --------- Net Assets ................................................ $ 261,829 ========= Net Assets consist of: Capital stock, at $1.00 par value (authorized 100,000,000, outstanding 13,814,935 shares) ..................................... $ 13,815 Additional paid-in capital ................................ 199,793 Accumulated net realized loss on investments ............................................ (9,964) Net unrealized appreciation of investments ............................................ 58,185 --------- Net Assets ................................................ $ 261,829 ========= Net Asset Value, Offering and Redemption Price per Outstanding Share ($261,829,211 / 13,814,935 shares outstanding) .................................... $ 18.95 ========= Statement of Operations for the Year Ended December 31, 2001 -------------------------------------------------------------------------------- (In thousands) -------------- Investment Income: Dividends (Net of foreign withholding taxes of $9) ............................... $ 1,544 Interest .................................................. 750 -------- Total Income .......................................... 2,294 -------- Expenses: Advisory fee .............................................. 2,314 Service and distribution plan fees ........................ 771 Transfer agent ............................................ 139 Custodian fees ............................................ 82 Auditing and legal fees ................................... 52 Postage ................................................... 43 Printing .................................................. 34 Registration fees ......................................... 29 Directors' fees and expenses .............................. 22 Telephone ................................................. 21 Insurance, dues and other ................................. 11 -------- Total Expenses Before Custody Credits ............................................. 3,518 Less: Custody Credits ................................. (8) -------- Net Expenses .......................................... 3,510 -------- Net Investment Loss ....................................... (1,216) -------- Net Realized and Unrealized Loss on Investments: Net Realized Loss ..................................... (9,710) Change in Net Unrealized Appreciation ........................................ (59,848) -------- Net Realized Loss and Change in Net Unrealized Appreciation on Investments ......................................... (69,558) -------- Net Decrease in Net Assets from Operations ............................................. $(70,774) ======== See Notes to Financial Statements. -------------------------------------------------------------------------------- 12 The Value Line Special Situations Fund, Inc. Statement of Changes in Net Assets for the Years Ended December 31, 2001 and 2000 --------------------------------------------------------------------------------
Year Ended Year Ended December 31, December 31, 2001 2000 --------------------------- (In thousands) Operations: Net investment loss ....................................... $ (1,216) $ (3,084) Net realized (loss) gain on investments ................... (9,710) 21,781 Change in net unrealized appreciation ..................... (59,848) (48,769) ------------------------ Net decrease in net assets from operations ................ (70,774) (30,072) ------------------------ Distributions to Shareholders: Net realized gain from investment transactions ............ (6,030) (27,045) ------------------------ Capital Share Transactions: Proceeds from sale of shares .............................. 575,420 866,937 Proceeds from reinvestment of distributions to shareholders 5,714 25,327 Cost of shares repurchased ................................ (630,765) (867,914) ------------------------ Net (decrease) increase from capital share transactions ... (49,631) 24,350 ------------------------ Total Decrease in Net Assets ................................. (126,435) (32,767) Net Assets: Beginning of year ......................................... 388,264 421,031 ------------------------ End of year ............................................... $ 261,829 $ 388,264 ========================
See Notes to Financial Statements. -------------------------------------------------------------------------------- 13 The Value Line Special Situations Fund, Inc. Notes to Financial Statements -------------------------------------------------------------------------------- 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. 2. Capital Share Transactions, Dividends and Distributions to Shareholders Transactions in capital stock were as follows (in thousands except per share amounts): Year Year Ended Ended December 31, December 31, 2001 2000 ---------------------------- Shares sold .................................. 28,406 30,371 Shares issued to shareholders in reinvestment of dividends and distributions ......................... 305 1,071 ----------------------- 28,711 31,442 Shares repurchased ........................... (31,384) 30,497 ----------------------- Net (decrease) increase ...................... (2,673) 945 ======================= Distributions per share from net realized gains ........................ $ .4385 $ 1.71 ======================= -------------------------------------------------------------------------------- 14 The Value Line Special Situations Fund, Inc. December 31, 2001 -------------------------------------------------------------------------------- 3. Purchases and Sales of Securities Purchases and sales of investment securities, excluding short-term securities, were as follows: Year Ended December 31, 2001 -------------- (in thousands) Purchases: Investment Securities .................................. $257,112 ======== Sales: Investment Securities .................................. $318,000 ======== 4. Income Taxes At December 31, 2001, information on the tax components of capital is as follows: (in thousands) Cost of investments for tax purposes ..................... $ 203,716 ========= Gross tax unrealized appreciation ........................ $ 62,484 Gross tax unrealized depreciation ........................ (4,501) --------- Net tax unrealized appreciation on investments ........................................ $ 57,983 ========= Capital loss carryforward, expires December 31, 2009 ..................................... $ 9,758 ========= The tax composition of dividends was all from ordinary income. Permanent book-tax differences relating to current year net operating loss are reclassified within the composition of net asset accounts. During 2001, the Fund reclassified $1,216,000 from accumulated net investment loss to additional paid-in-capital. Net investment loss, net realized gains, and net assets were not affected by this reclassification. Net realized gain (loss) differ for financial statements and tax purposes primarily due to differing treatments of wash sales. To the extent future capital gains are offset by capital losses, the Fund does not anticipate distributing any such gains to the shareholders. 5. Investment Advisory Contract, Management Fees, and Transactions With Affiliates An advisory fee of $2,314,000 was paid or payable to Value Line, Inc., the Fund's investment adviser (the "Adviser"), for the year ended December 31, 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 year ended December 31, 2001, fees amounting to $771,000 were paid or payable to the Distributor under this Plan. 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. During the year ended December 31, 2001, the Fund paid brokerage commissions totaling $301,000 to the distributor, which clears its transactions through unaffiliated brokers. For the year ended December 31, 2001, the Fund's expenses were reduced by $8,319 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 December 31, 2001, owned 94,997 shares of the Fund's capital stock, representing 0.7% of the outstanding shares. In addition, certain officers and directors of the Fund owned 132,897 shares of the Fund, representing 0.9% of the shares outstanding. -------------------------------------------------------------------------------- 15 The Value Line Special Situations Fund, Inc. Financial Highlights -------------------------------------------------------------------------------- Selected data for a share of capital stock outstanding throughout each year:
Years ended December 31, --------------------------------------------------------------------- 2001 2000 1999 1998 1997 --------------------------------------------------------------------- Net asset value, beginning of year ............ $ 23.55 $ 27.09 $ 17.70 $ 14.48 $ 13.34 --------------------------------------------------------------------- Income (loss) from investment operations: Net investment loss ...................... (.09) (.19) (.04) (.04) (.02) Net gains or losses on securities (both realized and unrealized) ......... (4.07) (1.64) 10.83 4.30 4.15 --------------------------------------------------------------------- Total from investment operations ......... (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 year .................. $ 18.95 $ 23.55 $ 27.09 $ 17.70 $ 14.48 ===================================================================== Total return .................................. -17.65% -6.78% 61.66% 29.88% 32.10% ===================================================================== Ratios/Supplemental Data: Net assets, end of year (in thousands) ....... $261,829 $388,264 $421,031 $190,634 $116,040 Ratio of expenses to average net assets ....... 1.14%(1) 1.01%(1) .89%(1) 1.02% 1.08% Ratio of net investment loss to average net assets ...................... (.39)% (.68)% (.22)% (.34)% (.14)% Portfolio turnover rate ....................... 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. See Notes to Financial Statements. -------------------------------------------------------------------------------- 16 The Value Line Special Situations Fund, Inc. Report of Independent Accountants -------------------------------------------------------------------------------- To the Board of Directors and Shareholders of The Value Line Special Situations Fund, Inc. In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of The Value Line Special Situations Fund, Inc. (the "Fund") at December 31, 2001, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2001 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York February 14, 2002 -------------------------------------------------------------------------------- 17 The Value Line Special Situations Fund, Inc. -------------------------------------------------------------------------------- MANAGEMENT INFORMATION The following table sets forth information on each Director and officer of the Fund. Each Director serves as a director or trustee of each of the 15 Value Line Funds and oversees a total of 16 portfolios. Each Director serves until his or her successor is elected and qualified.
Length of Other Directorships Name, Address, and Age Position Time Served Held by Director --------------------------------------------------------------------------------------------------- Interested Directors* Jean Bernhard Buttner Chairman of the 18 years Value Line, Inc. Age 67 Board of Directors and President Principal Occupation During the Past 5 Years: Chairman, President and Chief Executive Officer of Value Line, Inc. (the "Adviser") and Value Line Publishing, Inc. Chairman and President of each of the( 15 Value Line Funds and Value Line Securities, Inc. (the "Distributor") --------------------------------------------------------------------------------------------------- Marion N. Ruth Director 2 years Value Line, Inc. 5 Outrider Road Rolling Hills, CA 90274 Age 66 Principal Occupation During the Past 5 Years: Real Estate Executive: President. Ruth Realty (real estate broker); Director of the Adviser since October 2000. --------------------------------------------------------------------------------------------------- Non-Interested Directors John W. Chandler Director 11 years None 1611 Cold Spring Rd Williamstown, MA 01267 Age 78 Principal Occupation During the Past 5 Years: Consultant, Academic Search Consultation Service, Inc. Trustee Emeritus and Chairman (1993 - 1994) of the Board of Trustees of Duke University; President Emeritus, Williams College. --------------------------------------------------------------------------------------------------- Frances T. Newton Director 2 years None 4921 Buckingham Drive Charlotte, NC 28209 Age 60 Principal Occupation During the Past 5 Years: Customer Support Analyst, Duke Power Company ---------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 18 The Value Line Special Situations Fund, Inc.
Length of Other Directorships Name, Address, and Age Position Time Served Held by Director ------------------------------------------------------------------------------------------------------------- Francis C. Oakley Director 2 years Berkshire Life Insurance 54 Scott Hill Road Company. Williamstown, MA 01267 Age 70 Principal Occupation During the Past 5 Years: Professor of History, Williams College, 1961 to present. President Emeritus since 1994 and President, 1985 - 1994; Chairman (1993 - 1997) of the American Council of Learned Societies; President of the Board of Trustees of the Sterling and Francene Clark Art Institute since 1998. ------------------------------------------------------------------------------------------------------------- David H. Porter Director 5 years None 5 Birch Run Drive Saratoga Springs, NY 12866 Age 66 Principal Occupation During the Past 5 Years: Visiting Professor of Classics, Williams College, since 1999; President Emeritus, Skidmore College since 1999 and President, 1987 - 1998. ------------------------------------------------------------------------------------------------------------- Paul Craig Roberts Director 18 years A. Schulman Inc. (plastics). 169 Pompano St. Panama City Beach, FL 32413 Age 62 Principal Occupation During the Past 5 Years: Chairman, Institute for Political Economy. ------------------------------------------------------------------------------------------------------------- Nancy-Beth Sheerr Director 6 years None 1409 Beaumont Drive Gladwyne, PA 19035 Age 52 Principal Occupation During the Past 5 Years: Senior Financial Advisor, Hawthorne, since January 2001; Chairman, Radcliffe College Board of Trustees, 1990 - 1999. -------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------- 19 The Value Line Special Situations Fund, Inc.
Length of Other Directorships Name, Address, and Age Position Time Served Held by Director --------------------------------------------------------------------------------------------------- Officers Stephen Grant Vice President 4 years -- Age 48 Principal Occupation During the Past 5 Years: Portfolio Manager with the Adviser. --------------------------------------------------------------------------------------------------- Alan Hoffman Vice President 1 year -- Age 48 Principal Occupation During the Past 5 Years: Portfolio Manager with the Adviser. --------------------------------------------------------------------------------------------------- Bradley Brooks Vice President 1 year -- Age 39 Principal Occupation During the Past 5 Years: Portfolio Manager with the Adviser since 1999; Securities Analyst with the Adviser 1997 - 1999; Fixed-Income Trader, HSBC Securities, Inc. 1989 - 1994. --------------------------------------------------------------------------------------------------- David T. Henigson Vice President, 7 years -- Age 44 Secretary and Treasurer Principal Occupation During the Past 5 Years: Director, Vice President and Compliance Officer of the Adviser. Director and Vice President of the Distributor. Vice President, Secretary and Treasurer of each of the 15 Value Line Funds. ---------------------------------------------------------------------------------------------------
* Mrs. Buttner is an "interested person" as defined in the Investment Company Act of 1940 by virtue of her positions with the Adviser and her indirect ownership of a controlling interest in the Adviser; Mrs. Ruth is an interested person by virtue of being a director of the Adviser. Unless otherwise indicated, the address for each of the above is 220 East 42nd Street, New York, NY 10017. -------------------------------------------------------------------------------- The Fund's Statement of Additional Information (SAI) includes additional information about the Fund's directors and is available, without charge, upon request, by calling 1-800-243-2729. -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- 20 The Value Line Special Situations Fund, Inc. -------------------------------------------------------------------------------- (This page intentionally left blank.) -------------------------------------------------------------------------------- 21 The Value Line Special Situations Fund, Inc. -------------------------------------------------------------------------------- (This page intentionally left blank.) -------------------------------------------------------------------------------- 22 The Value Line Special Situations Fund, Inc. -------------------------------------------------------------------------------- (This page intentionally left blank.) -------------------------------------------------------------------------------- 23 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. -------------------------------------------------------------------------------- 24 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 Bradley T. Brooks Vice President David T. Henigson Vice President and Secretary/Treasurer Joseph Van Dyke Assistant Secretary/Treasurer Stephen La Rosa Assistant Secretary/Treasurer This report is issued for information of shareholders. It is not authorized for distribution to prospective investors unless preceded or accompanied by a currently effective prospectus of the Fund (obtainable from the Distributor). #520523