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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1995
FILE NO. 2-71928
FILE NO. 811-03171
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 19 /X/
and
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 19 /X/
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VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
220 East 42nd Street
New York, New York 10017-5891
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's Telephone number, including Area Code: (212) 907-1500
David T. Henigson
Value Line, Inc.
220 East 42nd Street
New York, New York 10017-5891
(NAME AND ADDRESS OF AGENT FOR SERVICE)
Copy to:
Peter D. Lowenstein
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
It is proposed that this filing will become effective (check
appropriate box)
/ / immediately upon filing pursuant to paragraph (b)
/X/ on January 2, 1996 pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)
/ / on (date) pursuant to paragraph (a) of Rule 485
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PURSUANT TO THE PROVISIONS OF RULE 24F-2(A)(1) UNDER THE INVESTMENT COMPANY ACT
OF 1940, REGISTRANT HAS REGISTERED AN INDEFINITE NUMBER OF SHARES OF CAPITAL
STOCK UNDER THE SECURITIES ACT OF 1933. REGISTRANT FILED ITS RULE 24F-2 NOTICE
FOR THE YEAR ENDED AUGUST 31, 1995 ON OR ABOUT OCTOBER 3, 1995.
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<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY RULE 495)
<TABLE>
<CAPTION>
N-1A ITEM NO. LOCATION
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<C> <S> <C>
PART A
Item 1. Cover Page....................................... Cover Page
Item 2. Synopsis......................................... Not Applicable
Item 3. Condensed Financial Information.................. Summary of Fund Expenses; Financial Highlights
Item 4. General Description of Registrant................ Cover Page; The Fund; Investment Objectives and
Policies; Investment Restrictions; Additional
Information
Item 5. Management of the Fund........................... Management of the Fund; Additional Information
Item 6. Capital Stock and Other Securities............... Dividends, Distributions and Taxes; Additional
Information
Item 7. Purchase of Securities Being Offered............. How to Purchase Shares; Calculation of Net Asset
Value; Investor Services
Item 8. Redemption or Repurchase......................... How to Redeem Shares
Item 9. Pending Legal Proceedings........................ Not Applicable
PART B
Item 10. Cover Page....................................... Cover Page
Item 11. Table of Contents................................ Table of Contents
Item 12. General Information and History.................. Additional Information (Part A)
Item 13. Investment Objectives and Policies............... Investment Objectives and Policies; Investment
Restrictions
Item 14. Management of the Fund........................... Directors and Officers
Item 15. Control Persons and Principal Holders of
Securities..................................... Management of the Fund (Part A); Directors and
Officers
Item 16. Investment Advisory and Other Services........... Management of the Fund (Part A); The Adviser
Item 17. Brokerage Allocation............................. Brokerage Arrangements
Item 18. Capital Stock and Other Securities............... Additional Information (Part A)
Item 19. Purchase Redemption and Pricing of Securities
Being Offered.................................. How to Purchase Shares; How to Redeem Shares
Item 20. Tax Status....................................... Taxes
Item 21. Underwriters..................................... Not Applicable
Item 22. Calculations of Performance Data................. Performance Information (Part A); Performance
Data
Item 23. Financial Statements............................. Financial Statements
PART C
</TABLE>
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
<PAGE>
<TABLE>
<S> <C>
VALUE LINE
U.S. GOVERNMENT PROSPECTUS
SECURITIES FUND, INC. January 2, 1996
</TABLE>
220 East 42nd Street, New York, New York 10017-5891
1-800-223-0818 or 1-800-243-2729
Value Line U.S. Government Securities Fund, Inc.
(the "Fund") is a no-load investment company whose
primary investment objective is to obtain maximum
income without undue risk to principal. Capital
preservation and possible capital appreciation are
secondary objectives. The Fund's investment adviser
is Value Line, Inc. (the "Adviser"). Shares of the
Fund are offered at net asset value. There are no
sales charges or redemption fees.
To attain its primary objective, the Fund has a
fundamental policy that under normal conditions at
least 80% of the value of its net assets will be
invested in issues of the U.S. Government and its
agencies and instrumentalities.
This Prospectus sets forth concise information about the Fund that a
prospective investor ought to know before investing. This Prospectus
should be retained for future reference. Additional information about
the Fund is contained in a Statement of Additional Information, dated
January 2, 1996, which has been filed with the Securities and Exchange
Commission and is incorporated into this Prospectus by reference. A copy
of the Statement of Additional Information may be obtained at no charge
by writing or telephoning the Fund at the address or telephone numbers
listed above.
DISTRIBUTOR
Value Line Securities, Inc.
220 East 42nd Street
New York, NY 10017-5891
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE>
SUMMARY OF FUND EXPENSES
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Sales Load on Purchases..................................................... None
Sales Load on Reinvested Dividends.......................................... None
Deferred Sales Load......................................................... None
Redemption Fees............................................................. None
Exchange Fee................................................................ None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees............................................................. 0.50%
12b-1 Fees.................................................................. None
Other Expenses.............................................................. 0.16%
Total Fund Operating Expenses............................................... 0.66%
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return and (2)
redemption at the end of each time period:....... $ 7 $ 21 $ 37 $ 82
</TABLE>
The foregoing is based upon the expenses for the year ended August 31, 1995,
and is designed to assist investors in understanding the various costs and
expenses that an investor in the Fund will bear directly or indirectly. Actual
expenses in the future may be greater or less than these shown.
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR)
The following information on selected per share data and ratios with respect
to each of the five years in the period ended August 31, 1995, and the related
financial statements have been audited by Price Waterhouse LLP, independent
accountants, whose unqualified report thereon appears in the Fund's Annual
Report to Shareholders, which is incorporated by reference in the Statement of
Additional Information. This information should be read in conjunction with the
financial statements and notes thereto which also appear in the Fund's Annual
Report to Shareholders available from the Fund without charge.
2
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<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of year...... $11.20 $13.44 $13.06 $12.39 $11.82 $11.94 $11.85 $11.91 $12.95 $12.61
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from
investment operations:
Net investment
income.............. .74 .82 .93 .88 .93 1.08 1.19 1.18 1.19 1.30
Net gains or losses
on securities (both
realized and
unrealized)......... .04 (1.80) .44 .68 .64 (.16) (.01) (.16) (.77) .51
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total income (loss)
from investment
operations........ .78 (.98) 1.37 1.56 1.57 .92 1.18 1.02 .42 1.81
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net
investment income... (.70) (.93) (.89) (.89) (1.00) (1.04) (1.09) (1.08) (1.23) (1.32)
Distributions from
capital gains....... -- (.33) (.10) -- -- -- -- -- (.23) (.15)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total
distributions..... (.70) (1.26) (.99) (.89) (1.00) (1.04) (1.09) (1.08) (1.46) (1.47)
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net asset value, end of
year................... $11.28 $11.20 $13.44 $13.06 $12.39 $11.82 $11.94 $11.85 $11.91 $12.95
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total return............. 7.37% (7.87)% 11.07% 13.11% 13.96% 8.09% 10.58% 9.05% 3.36% 15.07%
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Ratios/Supplemental Data:
Net assets, end of year
(in thousands)......... $256,004 $339,478 $456,711 $424,330 $336,523 $257,840 $251,553 $246,526 $217,768 $112,437
Ratio of expenses to
average net assets..... .66% .63% .61% .64% .64% .67% .66% .67% .72% .76%
Ratio of investment
income--net to average
net assets............. 6.58% 6.58% 7.29% 7.47% 8.54% 9.25% 10.05% 10.09% 9.49% 10.10%
Portfolio turnover
rate................... 193% 100% 169% 130% 79% 59% 34% 54% 48% 73%
</TABLE>
INVESTMENT OBJECTIVES AND POLICIES
The primary investment objective of the Fund is to obtain maximum income
without undue risk of principal. Capital preservation and possible capital
appreciation are secondary objectives. The Fund's investment objectives cannot
be changed without shareholder approval. There can be no assurance that such
objectives will be achieved as there are risks in all investments.
To attain its primary investment objective, the Fund has a fundamental
policy that under normal conditions at least 80% of the value of its net assets
will be invested in issues of the U.S. Government and its agencies and
instrumentalities ("U.S. Government Securities"). This policy cannot be changed
without shareholder approval. The balance of the Fund's net assets may be
invested in repurchase agreements, commercial paper, convertible debentures,
short-term money market instruments, preferred stocks, common stocks, and bonds
at such times and in such amounts as in the opinion of Value Line, Inc. (the
"Adviser") seem appropriate to achieve the Fund's investment objective. While
emphasis is on income, careful consideration is given to security of principal,
marketability and diversification.
U.S. Government Securities include direct obligations of the U.S. Treasury
(such as Treasury bills, Treasury notes and Treasury bonds) or securities issued
or guaranteed by U.S. government agencies or instrumentalities. These
obligations, including those which are guaranteed by Federal agencies or
instrumentalities, may or may not be backed by the "full faith and credit" of
the United States. Agencies and instrumentalities which issue or guarantee
securities include: the Federal Farm Credit System and the Federal Home Loan
Banks, the Tennessee Valley Authority, the Federal
3
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National Mortgage Association, the Federal Home Loan Mortgage Corporation, the
United States Postal Service, the Government National Mortgage Association,
Farmers Home Administration, and the Export-Import Bank.
Although the Fund does not intend to engage in substantial short-term
trading, it may sell portfolio securities without regard to the length of time
that they have been held to take advantage of new investment opportunities or
yield differentials, or because the Fund desires to preserve gains or limit
losses due to changing economic conditions.
The Fund may invest temporary cash balances in repurchase agreements. A
repurchase agreement involves a sale of securities to the Fund, with the
concurrent agreement of the seller (a member bank of the Federal Reserve System
or a securities dealer which the Adviser believes to be financially sound) to
repurchase the securities at the same price plus an amount equal to an agreed-
upon interest rate, within a specified time, usually less than one week, but, on
occasion, at a later time. The Fund will make payment for such securities only
upon physical delivery or evidence of book-entry transfer to the account of the
custodian or a bank acting as agent for the Fund. Repurchase agreements may also
be viewed as loans made by the Fund which are collateralized by the securities
subject to repurchase. The value of the underlying securities will be at least
equal at all times to the total amount of the repurchase obligation, including
the interest factor. In the event of a bankruptcy or other default of a seller
of a repurchase agreement, the Fund could experience both delays in liquidating
the underlying securities and losses, including: (a) possible decline in the
value of the underlying security during the period while the Fund seeks to
enforce its rights thereto; (b) possible subnormal levels of income and lack of
access to income during this period; and (c) expenses of enforcing its rights.
The Fund has a fundamental policy that it will not enter into repurchase
agreements which will not mature within seven days if any such investment,
together with all other assets held by the Fund which are not readily
marketable, amounts to more than 15% of its total assets. The Board of Directors
monitors the creditworthiness of parties dealing with the Fund in repurchase
agreements and loans of portfolio securities.
MORTGAGE-BACKED SECURITIES. The Fund may invest in securities issued by
certain private, nongovernment entities, such as financial institutions, if the
securities are "fully collateralized" at the time of issuance by securities or
certificates issued or guaranteed by the U.S. Government, its agencies or
instrumentalities. Two principal types of mortgage-backed securities are
collateralized mortgage obligations (CMOs) and real estate mortgage investment
conduits (REMICs).
CMOs are debt securities issued by U.S. Government agencies or by financial
institutions, such as trusts and special purpose corporations, and other
mortgage lenders and collateralized by a pool of mortgages held under an
indenture. CMOs are issued in a number of classes or series with different
maturities. The classes or series are retired in sequence as the underlying
mortgages are repaid. Prepayment may shorten the stated maturity of the
obligation and can result in a loss of premium, if any has been paid. Certain of
these securities may have variable or floating interest rates and others may be
stripped (securities which provide only the principal or interest feature of the
underlying security).
REMICs are private entities formed for the purpose of holding a fixed pool
of mortgages secured by an interest in real property. REMICs are similar to CMOs
in that they issue multiple classes of securities.
4
<PAGE>
The Fund may invest in stripped mortgage-backed securities ("SMBS"), which
are derivative multiclass mortgage securities. SMBS are usually structured with
two classes that receive different proportions of the interest and principal
distributions from a pool of mortgage assets. A common type of SMBS will have
one class receiving all of the interest ("IO") from the mortgage assets, while
the other class will receive all of the principal ("PO"). However, in some
instances, one class will receive some of the interest and most of the principal
while the other class will receive most of the interest and the remainder of the
principal. If the underlying mortgage assets experience greater than anticipated
prepayments of principal, the Fund may fail to recoup fully its initial
investment in these securities. The market value of the class consisting
entirely of principal payments generally is unusually volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest from mortgage assets are generally higher than prevailing
market yields on other mortgage-backed securities because their cash flow
patterns are more volatile and there is a greater risk that the initial
investment will not be fully recouped.
STRUCTURED SECURITIES. The Fund may invest in structured notes, bonds or
debentures. The value of the principal of and/or interest on such securities is
determined by reference to changes in the value of specific currencies, interest
rates, commodities, indices or other financial indicators (the "Reference") or
the relative change in two or more References. The interest rate or the
principal amount payable upon maturity or redemption may be increased or
decreased depending upon changes in the applicable Reference. The terms of the
structured securities may provide that in certain circumstances no principal is
due at maturity and, therefore, may result in the loss of the Fund's investment.
Structured securities may be positively or negatively indexed, so the
appreciation of the Reference may produce an increase or decrease in the
interest rate or value of the security at maturity. In addition, changes in
interest rates or the value of the security at maturity may be a multiple of
changes in the value of the Reference. Consequently, structured securities may
entail a greater degree of market risk than other types of fixed income
securities. Structured securities may also be more volatile, less liquid and
more difficult to accurately price than less complex securities.
CUSTODIAL RECEIPTS. The Fund may acquire custodial receipts in respect of
securities issued or guaranteed as to principal and interest by the U.S.
Government, its agencies, authorities, instrumentalities or sponsored
enterprises. Such custodial receipts evidence ownership of future interest
payments, principal payments or both on certain notes or bonds issued by the
U.S. Government or its agencies or instrumentalities. For certain securities law
purposes, custodial receipts are not considered obligations of the U.S.
Government.
INVERSE FLOATING RATE SECURITIES. The Fund may invest in inverse floating
rate securities. The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent that
its interest rate varies by a magnitude that exceeds the magnitude of the change
in the index rate of interest. The higher the degree of leverage of an inverse
floater, the greater the volatility of its market value.
SPECIAL CONSIDERATIONS AND ADDITIONAL RISK FACTORS. One of the principal
risks regarding mortgaged-backed securities ("MBS") is the risk of prepayments.
Prepayment rates may vary significantly over relatively short periods of time.
Payments of principal of and interest on MBSs are made more frequently than are
payments on conventional debt securities. In addition, holders of MBSs may
receive unscheduled payments of principal at any time representing prepayments
on the underlying mortgage loans or financial assets. Such prepayments may
usually be made without
5
<PAGE>
penalty. Prepayment rates are affected by changes in prevailing interest rates
and numerous other economic, geographic, social and other factors. Changes in
the rate of prepayments will generally affect the yield to maturity of the
security. During periods of rising interest rates, reduced prepayment rates may
extend the average life of mortgage-backed securities and increase the Fund's
exposure to rising interest rates. Moreover, when the holder of the security
attempts to reinvest prepayments or even the scheduled payments of principal and
interest, it may receive a rate of interest which is higher or lower than the
rate on the MBS originally held. Another consideration is that to the extent
that MBSs are purchased at a premium, mortgage foreclosures and principal
prepayments may result in loss to the extent of the premium paid. On the other
hand, where such securities are bought at a discount, both scheduled payments of
principal and unscheduled prepayments will increase current and total returns
and will accelerate the recognition of income which, when distributed to
stockholders, will be taxable as ordinary income. The Adviser will consider
remaining maturities or estimated average lives of MBSs in selecting them for
the Fund.
Fixed income securities are subject to price volatility due to such factors
as interest rate sensitivity and general market liquidity. When interest rates
decline, the value of fixed income securities can generally be expected to rise.
Conversely, when interest rates rise, the value of fixed income securities can
be expected to decline. The interest rates payable on certain fixed income
securities in which the Fund may invest are not fixed and may fluctuate based
upon changes in market rates of interest.
LOANS OF PORTFOLIO SECURITIES. The Fund may lend its portfolio securities
to broker-dealers or institutional investors if as a result thereof the
aggregate value of all securities loaned does not exceed 33 1/3% of the total
assets of the Fund. The loans will be made in conformity with applicable
regulatory policies and will be 100% collateralized by cash, cash equivalents or
United States Treasury Bills on a daily basis in an amount equal to the market
value of the securities loaned and interest earned. The Fund will retain the
right to call, upon notice, the loaned securities and intends to call loaned
voting securities in anticipation of any important or material matter to be
voted on by shareholders. While there may be delays in recovery or even loss of
rights in the collateral should the borrower fail financially, the loans will be
made only to firms deemed by the Adviser to be of good standing and will not be
made unless, in the judgment of the Adviser, the consideration which can be
earned from such loans justifies the risk. The Fund may pay reasonable custodian
and administrative fees in connection with the loans.
WHEN-ISSUED TRANSACTIONS. The Fund may from time to time purchase
securities on a "when-issued" basis. The price of such securities, which may be
expressed in yield terms, is fixed at the time the commitment to purchase is
made, but delivery and payment for the when-issued securities take place at a
later date. Normally, the settlement date occurs within one month of the
purchase. During the period between purchase and settlement, no payment is made
by the Fund to the issuer and no interest accrues to the Fund. Forward
commitments involve a risk of loss if the value of the security to be purchased
declines prior to the settlement date, which risk is in addition to the risk of
decline in value of the Fund's other assets. While when-issued securities may be
sold prior to the settlement date, the Fund intends to purchase such securities
with the purpose of actually acquiring them unless a sale appears desirable for
investment reasons. At the time the commitment to purchase a security on a
when-issued basis is confirmed, the Fund will record the transaction and reflect
the value of the security in determining its net asset value. The Fund does not
believe that its
6
<PAGE>
net asset value or income will be adversely affected by its purchase of
securities on a when-issued basis. The Fund will maintain cash and high quality
marketable securities equal in value to commitments for when-issued securities
in a segregated account.
RISK FACTORS
Investors should be aware of the following:
- There are risks in all investments, including investments in U.S.
Government Securities, and in all mutual funds. The Fund's net asset value
will fluctuate to reflect the investment performance of the securities
held by the Fund.
- The value a shareholder receives upon redemption may be greater or lesser
than the value of such shares when acquired.
- The use of investment techniques such as investing in repurchase
agreements, lending portfolio securities and purchasing securities on a
when-issued basis involve greater risk than does an investment in a fund
that does not engage in these activities.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of investment restrictions which may not be
changed without shareholder approval. These are set forth in the Statement of
Additional Information and provide, among other things, that the Fund may not
(a) borrow in excess of 10% of the value of its assets and then only as a
temporary measure;
(b) purchase securities (other than U.S. Government Securities) if the
purchase would cause the Fund, at the time, to have more than 5% of the value of
its total assets invested in the securities of any one company or to own more
than 10% of the outstanding voting securities of any one company; or
(c) invest 25% or more of the value of the Fund's assets in one particular
industry.
MANAGEMENT OF THE FUND
The management and affairs of the Fund are supervised by the Fund's Board of
Directors, the members of which were elected by the shareholders. The Fund's
officers conduct and supervise the daily business operations of the Fund. The
Fund's investment decisions are made by an investment committee of employees of
the Adviser. The Fund's Annual Report contains a discussion on the Fund's
performance which will be made available upon request and without charge.
THE ADVISER. Value Line, Inc. (the "Adviser") serves as the Fund's
investment adviser. The Adviser was organized in 1982 and is the successor to
substantially all of the operations of Arnold Bernhard & Co., Inc. ("AB&Co.").
The Adviser was formed as part of a reorganization of AB&Co., a sole
proprietorship formed in 1931 which became a New York corporation in 1946.
AB&Co. currently owns approximately 81% of the outstanding shares of the
Adviser's common stock. Jean Bernhard Buttner, Chairman and President of the
Fund and Chairman, President and Chief Executive Officer of the Adviser, owns a
majority of the voting stock of AB&Co. All of the non-voting stock is owned by
or for the benefit of members of the Bernhard family and certain employees and
former employees of the Adviser and AB&Co. The Adviser currently acts as
investment adviser to the other Value Line mutual funds and furnishes investment
counseling services to private and institutional accounts with combined assets
in excess of $4 billion. Value Line Securities, Inc., the Fund's distributor, is
a
7
<PAGE>
subsidiary of the Adviser. The Adviser manages the Fund's investments, provides
various administrative services and supervises the Fund's daily business
affairs, subject to the authority of the Board of Directors. The Adviser is paid
a monthly advisory fee at an annual rate of 1/2 of 1% of the Fund's average
daily net assets during the year. For more information about the Fund's
management fees and expenses, see the "Summary of Fund Expenses" on page 2.
BROKERAGE. The Fund may pay a portion of its total brokerage commissions to
Value Line Securities, Inc. which clears transactions for the Fund through an
unaffiliated broker-dealer.
CALCULATION OF NET ASSET VALUE
The net asset value of the Fund's shares for purposes of both purchases and
redemptions is determined once daily as of the close of regular trading of the
first session of the New York Stock Exchange (currently 4:00 p.m., New York
time) on each day that the New York Stock Exchange is open for trading except on
days on which no orders to purchase, sell or redeem Fund shares have been
received. The holidays on which the New York Stock Exchange is closed currently
are: New Year's Day, President's Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset value per
share is determined by dividing the total value of the investments and other
assets of the Fund, less any liabilities, by the total outstanding shares. The
Fund values mortgage-backed securities other than GNMAs (Government National
Mortgage Association) on the basis of valuations provided by dealers in such
securities. Some of the general factors which may be considered by the dealers
in arriving at such valuations include the fundamental analytical data relating
to the security and an evaluation of the forces which influence the market in
which these securities are purchased and sold. Determination of values may
involve subjective judgment, as the actual market value of a particular security
can be established only by negotiations between the parties in a sales
transaction. The values for GNMAs are determined on the valuation date by
reference to valuations obtained from an independent pricing service which
determines valuations for normal institutional-size trading units of debt
securities, without exclusive reliance upon quoted prices. This service takes
into account appropriate factors such as institutional-size trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data in determining valuations.
Securities not priced in this manner are valued at the midpoint between the
latest available and representative asked and bid prices provided by market
makers for such securities or, when stock exchange valuations are used, at the
latest quoted sale price as of the close of business of the New York Stock
Exchange on the day of valuation. If there is no such reported sale, the
midpoint between the latest available and representative asked and bid prices
will be used. Short-term instruments with maturities of 60 days or less at the
date of purchase are valued at amortized cost, which approximates market.
Short-term instruments with maturities greater than 60 days, at date of
purchase, are valued at the midpoint between the latest available and
representative asked and bid prices, and, commencing 60 days prior to maturity,
such securities are valued at amortized cost. Other assets and securities for
which market valuations are not readily available will be valued at fair value
as the Board of Directors may determine.
HOW TO PURCHASE SHARES
PURCHASE BY CHECK. To purchase shares, send a check made payable to
"NFDS-Agent" and a completed and signed application form to Value Line Funds,
c/o National Financial Data Services, Inc., P.O. Box 419729, Kansas City, MO
64141-6729. For assistance in completing the application and for information on
pre-authorized telephone purchases, call Value Line Securities at
8
<PAGE>
1-800-223-0818 during New York business hours. Upon receipt of the completed and
signed purchase application and a check, National Financial Data Services, Inc.
("NFDS"), the Fund's shareholder servicing agent, will purchase full and
fractional shares (to three decimal places) at the net asset value next computed
after the funds are received and will confirm the investment to the investor.
Subsequent investments may be made by attaching a check to the confirmation's
"next payment" stub, by telephone or by federal funds wire. Investors may also
arrange to acquire shares through broker-dealers other than through Value Line
Securities. Such broker-dealers may charge investors a reasonable service fee.
Neither Value Line Securities nor the Fund receives any part of such fees when
charged (and which can be avoided by investing directly). If an order to
purchase shares is cancelled due to nonpayment or because the purchaser's check
does not clear, the purchaser will be responsible for any loss incurred by the
Fund or Value Line Securities by reason of such cancellation. If the purchaser
is a shareholder, Value Line Securities reserves the right to redeem sufficient
shares from the shareholder's account to protect the Fund against loss. Minimum
orders are $1,000 for an initial purchase and $250 for each subsequent purchase.
The Fund may refuse any order for the purchase of shares.
WIRE PURCHASE--$1,000 MINIMUM. An investor should call 1-800-243-2729 to
obtain an account number. After receiving an account number, instruct your
commercial bank to wire transfer "Federal Funds" via the Federal Reserve System
as follows:
State Street Bank and Trust Company, Boston, MA
ABA #011000028
Attn: DDA #99049868
Value Line U.S. Government Securities Fund, Inc.
A/C # ________________________
Shareholder's name and account information
Tax ID # ________________________
NOTE: A COMPLETED AND SIGNED APPLICATION MUST BE MAILED IMMEDIATELY AND
RECEIVED BY NFDS BEFORE IT CAN HONOR ANY WITHDRAWAL OR EXCHANGE TRANSACTIONS.
After your account has been opened, you may wire additional investments in
the same manner.
For an initial investment made by federal funds wire purchase, the wire must
include a valid social security number or tax identification number. Investors
purchasing shares in this manner will then have 30 days after purchase to
provide the certification and account application. All payments should be made
in U.S. dollars and, to avoid fees and delays, should be drawn on only U.S.
banks. Until receipt of the above, any distributions from the account will be
subject to 31% withholding.
SUBSEQUENT TELEPHONE PURCHASES--$250 MINIMUM. Upon completion of the
telephone purchase authorization section of the account application,
shareholders who own Fund shares with a current value of $500 or more may also
purchase additional shares in amounts of $250 or more up to twice the value of
their shares by calling 1-800-243-2729 between 9:00 a.m. and 4:00 p.m. New York
time. Such orders will be priced at the closing net asset value on the day
received and payment will be due within three business days. If payment is not
received within the required time or a purchaser's check does not clear, the
order is subject to cancellation and the purchaser will be responsible for any
loss incurred by the Fund or Value Line Securities.
9
<PAGE>
DIVIDENDS, DISTRIBUTIONS AND TAXES
The Fund intends to distribute net investment income quarterly and any net
realized capital gains at least annually. Income dividends and capital gains
distributions are automatically reinvested in additional shares of the Fund
unless the shareholder has requested otherwise. Because the Fund intends to
distribute all of its net investment income and capital gains to shareholders,
it is not expected that the Fund will be required to pay any Federal income
taxes. However, shareholders of the Fund normally will pay Federal income taxes,
and any state or local taxes, on the dividends and capital gains distributions
they receive from the Fund (whether or not reinvested in additional Fund
shares). Shareholders will be informed annually of the amount and nature of the
Fund's income and distributions.
PERFORMANCE INFORMATION
The Fund may from time to time include information regarding its total
return performance or yield in advertisements or in information furnished to
existing or prospective shareholders. When information regarding total return is
furnished, it will be based upon changes in the Fund's net asset value and will
assume the reinvestment of all capital gains distributions and income dividends.
It will take into account nonrecurring charges, if any, which the Fund may incur
but will not take into account income taxes due on Fund distributions.
The table below illustrates the total return performance of the Fund for the
periods indicated by showing the value of a hypothetical $1,000 investment made
at the beginning of each period. The information contained in the table has been
computed by applying the Fund's average annual compounded rate of return to the
hypothetical $1,000 investment. The table assumes reinvestment of all capital
gains distributions and income dividends, but does not take into account income
taxes due on Fund distributions or dividends.
<TABLE>
<CAPTION>
AVERAGE
ANNUAL
COMPOUNDED
RATE OF RETURN
--------------
<S> <C> <C>
For the year ended August 31, 1995....................................... $ 1,074 7.37%
For the five years ended August 31, 1995................................. $ 1,416 7.21%
For the ten years ended August 31, 1995.................................. $ 2,196 8.18%
</TABLE>
When information regarding "yield" is furnished it will refer to the net
investment income per share generated by an investment in the Fund over a
thirty-day period. This income will then be annualized by assuming that the
amount of income generated by the investment during that thirty-day period is
generated each 30 days over one year and assuming that the income is reinvested
every six months.
Comparative performance information may be used from time to time in
advertising the Fund's shares, including data from Lipper Analytical Services,
Inc. and other industry or financial publications. The Fund may compare its
performance to that of other mutual funds with similar investment objectives,
other financial instruments such as certificates of deposit, and to stock or
other relevant indices. From time to time, articles about the Fund regarding its
performance or ranking may appear in national publications such as Kiplinger's
Personal Finance, Money Magazine, Financial World, Morningstar, Personal
Investors, Forbes, Fortune, Business Week, Wall Street Journal, Investor's
Business Daily, Donoghue, The Financial Times, The Economist, Worth, Smart
Money, Mutual Fund
10
<PAGE>
Forecaster, U.S. News and World Report and Barron's. Some of these publications
may publish their own rankings or performance reviews of mutual funds, including
the Fund. Reference to or reprints of such articles may be used in the Fund's
promotional literature.
HOW TO REDEEM SHARES
Shares of the Fund may be redeemed at any time at their current net asset
value next determined after a request in proper form is received by NFDS. A
shareholder holding certificates for shares must surrender the certificates
properly endorsed with signature guaranteed. A signature guarantee may be
executed by any "eligible" guarantor. Eligible guarantors include domestic
banks, savings associations, credit unions, member firms of a national
securities exchange, and participants in the New York Stock Exchange Medallion
Signature Program, the Securities Transfer Agents Medallion Program ("STAMP")
and the Stock Exchanges Medallion Program. A guaranty from a Notary Public is
not an acceptable source. The signature on any request for redemption of shares
not represented by certificates, or on any stock power in lieu thereof, must be
similarly guaranteed. In each case the signature or signatures must correspond
to the names in which the account is registered. Additional documentation may be
required when shares are registered in the name of a corporation, agent or
fiduciary. For further information, you should contact NFDS.
The Fund does not make a redemption charge but shares redeemed through
brokers or dealers may be subject to a service charge by such firms. A check in
payment of redemption proceeds will be mailed within seven days following
receipt of all required documents. However, payment may be postponed under
unusual circumstances such as when normal trading is not taking place on the New
York Stock Exchange. In addition, shares purchased by check may not be redeemed
for up to 15 days following the purchase date.
If the Board of Directors determines that it is in the best interests of the
Fund, it has the right to redeem, upon prior written notice, at net asset value
all shareholder accounts which due to redemptions fall below $500 in net asset
value. In such event, an investor will have 30 days to increase the shares in
his account to the minimum level.
BY TELEPHONE OR WIRE. You may redeem shares by telephone or wire
instructions to NFDS by so indicating on the initial application. Payment will
normally be transmitted by wire on the business day following receipt of your
instructions to the bank account at a member bank of the Federal Reserve System
you have designated on your initial purchase application. The Fund employs
reasonable procedures to confirm that instructions communicated by telephone are
genuine. These procedures include requiring some form of personal identification
prior to acting upon instructions received by telephone. The Fund will not be
liable for following instructions communicated by telephone that it reasonably
believes to be genuine. Any loss will be borne by the investor. Heavy wire
traffic, however, may delay its arrival until after public hours at your bank.
Telephone or wire redemptions must be in amounts of $1,000 or more and your
instructions must include your name and account number. The number to call
before the close of business on the New York Stock Exchange is 1-800-243-2729.
BY CHECK. You may elect this method of redemption by indicating so on the
initial application and you will be provided a supply of checks by NFDS. These
checks may be made payable to the order of any person in any amount of $500 or
more. When your check is presented for payment, the Fund will redeem a
sufficient number of full and fractional shares in your account to cover the
11
<PAGE>
amount of the check. Checks will be returned unpaid if there are insufficient
shares to meet the withdrawal amount. Potential fluctuations in the net asset
value of the Fund's shares should be considered in determining the amount of the
check.
This method of redemption requires that your shares must remain in an open
account and that no share certificates are issued and outstanding. You cannot
close your account through the issuance of a check because the exact balance at
the time your check clears will not be known when you write the check. Checks
are free, but NFDS will impose a $5 fee for stopping payment of a check upon
your request or if NFDS cannot honor the check due to insufficient funds or
other valid reasons.
If you use this privilege you will be required to sign a signature card
which will subject you to State Street Bank and Trust Company's rules and
regulations governing checking accounts. The authorization form which you must
sign also contains a provision relieving the bank, NFDS, the Fund, Value Line
Securities and the Adviser from liability for loss, if any, which you may
sustain arising out of a non-genuine instruction pursuant to this redemption
feature. Any additional documentation required to assure a genuine redemption
must be maintained on file with NFDS in such a current status as NFDS may deem
necessary. A new form properly signed and with the signature guaranteed as
described above must be received and accepted by NFDS before authorized
redemption instructions already on file with NFDS can be changed.
An additional supply of checks will be furnished upon request. There
presently is no charge to the shareholder for these checks or their clearance.
However, the Fund and NFDS reserve the right to make reasonable charges and to
terminate or modify any or all of the services in connection with this privilege
at any time without prior notice.
IMPORTANT: Shares purchased by check may not be redeemed until the Fund is
reasonably assured of the final collection of such check, currently determined
to be up to 15 days.
INVESTOR SERVICES
VALU-MATIC-REGISTERED TRADEMARK-. The Fund offers a free, pre-authorized
check service to its shareholders through which monthly investments of $25 or
more are automatically made into the shareholder's Fund account. Further
information regarding this service can be obtained from Value Line Securities by
calling 1-800-223-0818.
EXCHANGE OF SHARES. Shares of the Fund may be exchanged for shares of the
other Value Line funds on the basis of the respective net asset values next
computed after receipt of the exchange order. No telephone exchanges can be made
for less than $1,000. In the event shares of the Fund are being exchanged for
shares of The Value Line Cash Fund, Inc. or The Value Line Tax Exempt
Fund--Money Market Portfolio and the shares (including shares in accounts under
the control of one investment adviser) have a value in excess of $500,000, then,
at the discretion of the Adviser, the shares to be purchased will be purchased
at the closing price on the third business day following the redemption of the
shares being exchanged to allow the Fund to utilize normal securities settlement
procedures in transferring the proceeds of the redemption.
The exchange privilege may be exercised only if the shares to be acquired
may be sold in the investor's State. Prospectuses for the other Value Line funds
may be obtained from Value Line Securities by calling 1-800-223-0818. Each such
exchange involves a redemption and a purchase for tax purposes. Broker-dealers
are not prohibited from charging a commission for handling the
12
<PAGE>
exchange of Fund shares. To avoid paying such a commission, send the request
with signature guaranteed to NFDS. The Fund reserves the right to terminate the
exchange privilege of any account making more than eight exchanges a year. (An
exchange out of The Value Line Cash Fund, Inc. or The Value Line Tax Exempt
Fund--Money Market Portfolio is not counted for this purpose.) The exchange
privilege may be modified or terminated upon sixty days' notice to shareholders,
and any of the Value Line funds may discontinue offering its shares generally or
in any particular state without prior notice. To make an exchange, call
1-800-243-2729. Although it has not been a problem in the past, shareholders
should be aware that a telephone exchange may be difficult during periods of
major economic or market changes.
SYSTEMATIC CASH WITHDRAWAL PLAN. A shareholder who has invested a minimum
of $5,000 in the Fund, or whose shares have attained that value, may request a
transfer of his shares to a Value Line Systematic Cash Withdrawal Account which
NFDS will maintain in his name on the Fund's books. Under the Systematic Cash
Withdrawal Plan (the "Plan") the shareholder will request that NFDS, acting as
his agent, redeem monthly or quarterly a sufficient number of shares to provide
for payment to him, or someone he designates, of any specified dollar amount
(minimum $25). All certificated shares must be placed on deposit under the Plan
and dividends and capital gains distributions, if any, are automatically
reinvested at net asset value. The Plan will automatically terminate when all
shares in the account have been redeemed. The shareholder may at any time
terminate the Plan, change the amount of the regular payment, or request
liquidation of the balance of his account on written notice to NFDS. The Fund
may terminate the Plan at any time on written notice to the shareholder.
TAX-SHELTERED RETIREMENT PLANS. Shares of the Fund may be purchased for
various types of retirement plans. For more complete information, contact Value
Line Securities, Inc. at 1-800-223-0818 during New York business hours.
ADDITIONAL INFORMATION
The Fund is an open-end, diversified management investment company
incorporated in Maryland in 1981 as The Value Line Bond Fund, Inc. In 1986, the
Fund's name was changed to Value Line U.S. Government Securities Fund, Inc. The
Fund has 100,000,000 authorized shares of common stock, $1 par value. Each share
has one vote with fractional shares voting proportionately. Shares have no
preemptive rights, are freely transferable, are entitled to dividends as
declared by the Directors, and, if the Fund were liquidated, would receive the
net assets of the Fund.
INQUIRIES. All inquiries regarding the Fund should be directed to the Fund
at the telephone numbers or address set forth on the cover page of this
Prospectus. Inquiries from shareholders regarding their accounts and account
balances should be directed to National Financial Data Services, Inc., servicing
agent for State Street Bank and Trust Company, the Fund's transfer agent, at
1-800-243-2729. Shareholders should note that they may be required to pay a fee
for special requests such as historical transcripts for an account. Our
Info-Line provides the latest account information 24 hours a day, every day, and
is available to shareholders with push-button phones. The Info-Line toll free
number is 1-800-243-2739.
WITHHOLDING. Mutual funds are required to withhold 31% of dividends,
distributions of capital gains and redemption proceeds in accounts without a
valid social security or tax identification number. You must provide this
information when you complete the Fund's application and certify
13
<PAGE>
that you are not currently subject to backup withholding. The Fund reserves the
right to close by redemption accounts for which the holder fails to provide a
valid social security or tax identification number.
SHAREHOLDER MEETINGS. The Fund does not intend to hold routine annual
meetings of shareholders. However, special meetings of shareholders will be held
as required by law, for purposes such as changing fundamental policies or
approving an advisory agreement.
14
<PAGE>
THE VALUE LINE FAMILY OF FUNDS
- ------------------------------------
1950--THE VALUE LINE FUND seeks long-term growth of capital along with modest
current income by investing substantially all of its assets in common stocks or
securities convertible into common stock.
1952--THE VALUE LINE INCOME FUND'S primary investment objective is income, as
high and dependable as is consistent with reasonable growth. Capital growth to
increase total return is a secondary objective.
1956--THE VALUE LINE SPECIAL SITUATIONS FUND seeks to obtain long-term growth of
capital by investing not less than 80% of its assets in "special situations". No
consideration is given to achieving current income.
1972--VALUE LINE LEVERAGED GROWTH INVESTORS' sole investment objective is to
realize capital growth by investing substantially all of its assets in common
stocks. The Fund may borrow up to 50% of its net assets to increase its
purchasing power.
1979--THE VALUE LINE CASH FUND, a money market fund, seeks high current income
consistent with preservation of capital and liquidity.
1981--VALUE LINE U.S. GOVERNMENT SECURITIES FUND seeks maximum income without
undue risk to principal. Under normal conditions, at least 80% of the value to
its assets will be invested in issues of the U.S. Government and its agencies
and instrumentalities.
1983--VALUE LINE CENTURION FUND* seeks long-term growth of capital as its sole
objective by investing primarily in stocks ranked 1 or 2 by Value Line for
year-ahead relative performance.
1984--THE VALUE LINE TAX EXEMPT FUND seeks
to provide investors with maximum income
exempt from federal income taxes while avoiding undue risk to principal. The
Fund offers investors a choice of two portfolios: a Money Market Portfolio and a
High-Yield Portfolio.
1985--VALUE LINE CONVERTIBLE FUND seeks high current income together with
capital appreciation primarily from convertible securities ranked 1 or 2 for
year-ahead performance by the Value Line Convertible Ranking System.
1986--VALUE LINE AGGRESSIVE INCOME TRUST seeks to maximize current income by
investing in high-yielding, lower-rated, fixed-income corporate securities.
1987--VALUE LINE NEW YORK TAX EXEMPT TRUST seeks to provide New York taxpayers
with maximum income exempt from New York State, New York City and federal
individual income taxes while avoiding undue risk to principal.
1987--VALUE LINE STRATEGIC ASSET MANAGEMENT TRUST* invests in stocks, bonds and
cash equivalents according to computer trend models developed by Value Line. The
objective is to professionally manage the optimal allocation of these
investments at all times.
1992--VALUE LINE INTERMEDIATE BOND FUND seeks high current income consistent
with low volatility of principal by investing in a diversified portfolio of
investment-debt securities with a dollar-weighted average portfolio maturity of
between three and ten years.
1993--VALUE LINE SMALL-CAP GROWTH FUND invests primarily in common stocks or
securities convertible into common stock, with its primary objective being
long-term growth of capital.
1993--VALUE LINE ASSET ALLOCATION FUND seeks high total investment return,
consistent with reasonable risk. The Fund invests in stocks, bonds and money
market instruments utilizing quantitative modeling to determine the correct
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. READ THE PROSPECTUS CAREFULLY BEFORE YOU INVEST OR
SEND MONEY.
<PAGE>
INVESTMENT ADVISER
Value Line, Inc.
220 East 42nd Street
New York, NY 10017-5891
DISTRIBUTOR
Value Line Securities, Inc.
220 East 42nd Street
New York, NY 10017-5891
SHAREHOLDER SERVICING AGENT
State Street Bank
and Trust Company
c/o NFDS
P.O. Box 419729
Kansas City, MO 64141-6729
CUSTODIAN AND TRANSFER AGENT
State Street Bank
and Trust Company
225 Franklin Street
Boston, MA 02110
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas
New York, NY 10036
LEGAL COUNSEL
Peter D. Lowenstein, Esq.
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Summary of Fund Expenses....................... 2
Financial Highlights........................... 2
Investment Objectives and Policies............. 3
Investment Restrictions........................ 7
Management of the Fund......................... 7
Calculation of Net Asset Value................. 8
How to Purchase Shares......................... 8
Dividends, Distributions and Taxes............. 10
Performance Information........................ 10
How to Redeem Shares........................... 11
Investor Services.............................. 12
Additional Information......................... 13
</TABLE>
- -------------------------------------------
PROSPECTUS
- -------------------
JANUARY 2, 1996
VALUE LINE
U.S. GOVERNMENT
SECURITIES
FUND, INC.
(800) 223-0818
[LOGO]
<PAGE>
VALUE LINE U.S. GOVERNMENT
SECURITIES FUND, INC.
220 East 42nd Street, New York, New York 10017-5891
1-800-223-0818 or 1-800-243-2729
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL INFORMATION
JANUARY 2, 1996
- -------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be
read in conjunction with the Prospectus of Value Line U.S. Government Securities
Fund, Inc. dated January 2, 1996, a copy of which may be obtained without charge
by writing or telephoning the Fund.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Investment Objectives and Policies.................................................. B-1
Investment Restrictions............................................................. B-9
Directors and Officers.............................................................. B-10
The Adviser......................................................................... B-12
Brokerage Arrangements.............................................................. B-13
How to Purchase Shares.............................................................. B-14
How to Redeem Shares................................................................ B-14
Taxes............................................................................... B-15
Performance Data.................................................................... B-16
Additional Information.............................................................. B-18
Financial Statements................................................................ B-18
</TABLE>
--------------
The Fund's investment adviser is Value Line, Inc. (the "Adviser").
INVESTMENT OBJECTIVES AND POLICIES
(SEE ALSO "INVESTMENT OBJECTIVES AND POLICIES" IN THE FUND'S PROSPECTUS)
Value Line U.S. Government Securities Fund, Inc. (the "Fund") is a no-load,
diversified, open-end management investment company. Its primary investment
objective is to obtain maximum income without undue risk of principal. Capital
preservation and possible capital appreciation are secondary objectives. To
attain its primary objective, the Fund has a fundamental policy that under
normal conditions at least 80% of the value of its net assets will be invested
in issues of the U.S. Government and its agencies and instrumentalities.
B-1
<PAGE>
The Fund will not concentrate its investments in any particular industry but
reserves the right to invest up to 25% of its total assets (taken at market
value) in any one industry. The Fund does not invest for the purposes of
management or control of companies whose securities the Fund owns. It is the
policy of the Fund to purchase and hold securities which are believed to have
potential for long-term capital appreciation. The Fund does not attempt to
realize short-term trading profits.
The Fund has a fundamental policy that permits it, on occasion, to purchase
securities which would have to be registered under the Securities Act of 1933 if
they were to be publicly distributed. However, it will not do so if the value of
such securities and other securities which are not readily marketable (including
repurchase agreements maturing in more than seven days) would exceed 15% of the
market value of its total assets. It is management's policy to permit the
occasional acquisition of such restricted securities only if (except in the case
of short-term non-convertible debt securities) there is an agreement by the
issuer to register such securities, ordinarily at the issuer's expense, when
requested to do so by the Fund. The acquisition in limited amounts of restricted
securities is believed to be helpful toward the attainment of the Fund's
secondary objective of capital appreciation without unduly restricting its
liquidity or freedom in the management of its portfolio. However, because
restricted securities may only be sold privately or in an offering registered
under the Securities Act of 1933, or pursuant to an exemption from such
registration, substantial time may be required to sell such securities, and
there is greater than usual risk of price decline prior to sale. The Fund has no
present intention to purchase such securities.
MORTGAGE-BACKED SECURITIES
GENERAL CHARACTERISTICS. Each mortgage pool underlying mortgage-backed
securities consists of mortgage loans evidenced by promissory notes secured by
first mortgages or first deeds of trust or other similar security instruments
creating a first lien on owner occupied and non-owner occupied one-unit to
four-unit residential properties, multifamily (i.e., five or more) properties,
agriculture properties, commercial properties and mixed use properties (the
"Mortgaged Properties"). The Mortgaged Properties may consist of detached
individual dwelling units, multifamily dwelling units, individual condominiums,
townhouses, duplexes, triplexes, fourplexes, row houses, individual units in
planned unit developments and other attached dwelling units. The Mortgaged
Properties may also include residential investment properties and second homes.
The investment characteristics of adjustable and fixed rate mortgage-backed
securities differ from those of traditional fixed income securities. The major
differences include the payment of interest and principal on mortgage-backed
securities on a more frequent (usually monthly) schedule, and the possibility
that principal may be prepaid at any time due to prepayments on the underlying
mortgage loans or other assets. These differences can result in significantly
greater price and yield volatility than is the case with traditional fixed
income securities. As a result, if the Fund purchases mortgage-backed securities
at a premium, a faster than expected prepayment rate will reduce both the market
value and the yield to maturity from those which were anticipated. A prepayment
rate that is slower than expected will have the opposite effect of increasing
yield to maturity and market value. Conversely, if the Fund purchases
mortgage-backed securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce yield to maturity
and market values. To the extent that the Fund invests in mortgage-backed
securities, the Investment Adviser will seek to manage these potential risks by
investing in a variety of mortgage-backed securities and by using certain
hedging techniques.
B-2
<PAGE>
GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. There are several types
of guaranteed mortgage-backed securities currently available, including
guaranteed mortgage pass-through certificates and multiple class securities,
which include guaranteed Real Estate Mortgage Investment Conduit Certificates
("REMIC Certificates") and stripped mortgage-backed securities. The Fund is
permitted to invest in other types of mortgage-backed securities that may be
available in the future to the extent consistent with its investment policies
and objective.
The Fund's investments in mortgage-backed securities may include securities
issued or guaranteed by the U.S. Government or one of its agencies, authorities,
instrumentalities or sponsored enterprises, like the Government National
Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association
("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac").
GINNIE MAE CERTIFICATES. Ginnie Mae is a wholly-owned corporate
instrumentality of the United States. Ginnie Mae is authorized to guarantee the
timely payment of the principal of and interest on certificates that are based
on and backed by a pool of mortgage loans insured by the Federal Housing
Administration ("FHA Loans"), or guaranteed by the Veterans Administration ("VA
Loans"), or by pools of other eligible mortgage loans. In order to meet its
obligations under any guaranty, Ginnie Mae is authorized to borrow from the
United States Treasury in an unlimited amount.
FANNIE MAE CERTIFICATES. Fannie Mae is a stockholder-owned corporation
chartered under an act of the United States Congress. Each Fannie Mae
Certificate is issued and guaranteed by Fannie Mae and represents an undivided
interest in a pool of mortgage loans (a "Pool") formed by Fannie Mae. Each Pool
consists of residential mortgage loans ("Mortgage Loans") either previously
owned by Fannie Mae or purchased by it in connection with the formation of the
Pool. The Mortgage Loans may be either conventional Mortgage Loans (i.e., not
insured or guaranteed by any U.S. Government agency) or Mortgage Loans that are
either insured by the Federal Housing Administration ("FHA") or guaranteed by
the Veterans Administration ("VA"). However, the Mortgage Loans in Fannie Mae
Pools are primarily conventional Mortgage Loans. The lenders originating and
servicing the Mortgage Loans are subject to certain eligibility requirements
established by Fannie Mae.
Fannie Mae has certain contractual responsibilities. With respect to each
Pool, Fannie Mae is obligated to distribute scheduled monthly installments of
principal and interest after Fannie Mae's servicing and guaranty fee, whether or
not received, to Certificate holders. Fannie Mae also is obligated to distribute
to holders of Certificates an amount equal to the full principal balance of any
foreclosed Mortgage Loan, whether or not such principal balance is actually
recovered. The obligations of Fannie Mae under its guaranty of the Fannie Mae
Certificates are obligations solely of Fannie Mae.
FREDDIE MAC CERTIFICATES. Freddie Mac is a publicly held U.S. Government
sponsored enterprise. The principal activity of Freddie Mac currently is the
purchase of first lien, conventional, residential mortgage loans and
participation interests in such mortgage loans and their resale in the form of
mortgage securities, primarily Freddie Mac Certificates. A Freddie Mac
Certificate represents a pro rata interest in a group of mortgage loans or
participations in mortgage loans (a "Freddie Mac Certificate group") purchased
by Freddie Mac.
Freddie Mac guarantees to each registered holder of a Freddie Mac
Certificate the timely payment of interest at the rate provided for by such
Freddie Mac Certificate (whether or not received
B-3
<PAGE>
on the underlying loans). Freddie Mac also guarantees to each registered
Certificate holder ultimate collection of all principal of the related mortgage
loans, without any offset or deduction, but does not, generally, guarantee the
timely payment of scheduled principal. The obligations of Freddie Mac under its
guaranty of Freddie Mac Certificates are obligations solely of Freddie Mac.
The mortgage loans underlying the Freddie Mac and Fannie Mae Certificates
consist of adjustable rate or fixed rate mortgage loans with original terms to
maturity of between five and thirty years. Substantially all of these mortgage
loans are secured by first liens on one-to-four-family residential properties or
multifamily projects. Each mortgage loan must meet the applicable standards set
forth in the law creating Freddie Mac or Fannie Mae. A Freddie Mac Certificate
group may include whole loans, participation interests in whole loans and
undivided interests in whole loans and participations comprising another Freddie
Mac Certificate group.
MORTGAGE PASS-THROUGH SECURITIES. The Fund may invest in both government
guaranteed and privately issued mortgage pass-through securities ("Mortgage
Pass-Throughs"); that is, fixed or adjustable rate mortgage-backed securities
which provide for monthly payments that are a "pass-through" of the monthly
interest and principal payments (including any prepayments) made by the
individual borrowers on the pooled mortgage loans, net of any fees or other
amounts paid to any guarantor, administrator and/or servicer of the underlying
mortgage loans.
The following discussion describes only a few of the wide variety of
structures of Mortgage Pass-Throughs that are available or may be issued.
DESCRIPTION OF CERTIFICATES. Mortgage Pass-Throughs may be issued in one or
more classes of senior certificates and one or more classes of subordinate
certificates. Each such class may bear a different pass-through rate. Generally,
each certificate will evidence the specified interest of the holder thereof in
the payments of principal or interest or both in respect of the mortgage pool
comprising part of the trust fund for such certificates.
Any class of certificates may also be divided into subclasses entitled to
varying amounts of principal and interest. If a REMIC election has been made,
certificates of such subclasses may be entitled to payments on the basis of a
stated principal balance and stated interest rate, and payments among different
subclasses may be made on a sequential, concurrent, PRO RATA or disproportionate
basis, or any combination thereof. The stated interest rate on any such subclass
of certificates may be a fixed rate or one which varies in direct or inverse
relationship to an objective interest index.
Generally, each registered holder of a certificate will be entitled to
receive its PRO RATA share of monthly distributions of all or a portion of
principal of the underlying mortgage loans or of interest on the principal
balances thereof, which accrues at the applicable mortgage pass-through rate, or
both. The difference between the mortgage interest rate and the related mortgage
pass-through rate (less the amount, if any, of retained yield) with respect to
each mortgage loan will generally be paid to the servicer as a servicing fee.
Since certain adjustable rate mortgage loans included in a mortgage pool may
provide for deferred interest (i.e., negative amortization), the amount of
interest actually paid by a mortgagor in any month may be less than the amount
of interest accrued on the outstanding principal balance of the related mortgage
loan during the relevant period at the applicable mortgage interest rate. In
such event, the amount of interest that is treated as deferred interest will be
added to
B-4
<PAGE>
the principal balance of the related mortgage loan and will be distributed PRO
RATA to certificate-holders as principal of such mortgage loan when paid by the
mortgagor in subsequent monthly payments or at maturity.
RATINGS. The ratings assigned by a rating organization to Mortgage
Pass-Throughs address the likelihood of the receipt of all distributions on the
underlying mortgage loans by the related certificate-holders under the
agreements pursuant to which such certificates are issued. A rating
organization's ratings take into consideration the credit quality of the related
mortgage pool, including any credit support providers, structural and legal
aspects associated with such certificates, and the extent to which the payment
stream on such mortgage pool is adequate to make payments required by such
certificates. A rating organization's ratings on such certificates do not,
however, constitute a statement regarding frequency of prepayments on the
related mortgage loans. In addition, the rating assigned by a rating
organization to a certificate does not apply to secondary market price
volatility and does not address the remote possibility that, in the event of the
insolvency of the issuer of certificates where a subordinated interest was
retained, the issuance and sale of the senior certificates may be
recharacterized as a financing and, as a result of such recharacterization,
payments on such certificates may be affected.
CREDIT ENHANCEMENT. Credit support falls generally into two categories: (i)
liquidity protection and (ii) protection against losses resulting from default
by an obligor on the underlying assets. Liquidity protection refers to the
provision of advances, generally by the entity administering the pools of
mortgages, the provision of a reserve fund, or a combination thereof, to ensure,
subject to certain limitations, that scheduled payments on the underlying pool
are made in a timely fashion. Protection against losses resulting from default
ensures ultimate payment of the obligations on at least a portion of the assets
in the pool. Such credit support can be provided by among other things, payment
guarantees, letters of credit, pool insurance, subordination, or any combination
thereof.
SUBORDINATION; SHIFTING OF INTEREST; RESERVE FUND. In order to achieve
ratings on one or more classes of Mortgage Pass-Throughs, one or more classes of
certificates may be subordinate certificates which provide that the rights of
the subordinate certificate-holders to receive any or a specified portion of
distributions with respect to the underlying mortgage loans may be subordinated
to the rights of the senior certificate-holders. If so structured, the
subordination feature may be enhanced by distributing to the senior
certificate-holders on certain distribution dates, as payment of principal, a
specified percentage (which generally declines over time) of all principal
payments received during the preceding prepayment period ("shifting interest
credit enhancement"). This will have the effect of accelerating the amortization
of the senior certificates while increasing the interest in the trust fund
evidenced by the subordinate certificates. Increasing the interest of the
subordinate certificates relative to that of the senior certificates is intended
to preserve the availability of the subordination provided by the subordinate
certificates. In addition, because the senior certificate-holders in a shifting
interest credit enhancement structure are entitled to receive a percentage of
principal prepayments which is greater than their proportionate interest in the
trust fund, the rate of principal prepayments on the mortgage loans will have an
even greater effect on the rate of principal payments and the amount of interest
payments on, and the yield to maturity of, the senior certificates.
In addition to providing for a preferential right of the senior
certificate-holders to receive current distributions from the mortgage pool, a
reserve fund may be established relating to such certificates (the "Reserve
Fund"). The Reserve Fund may be created with an initial cash deposit by the
B-5
<PAGE>
originator or servicer and augmented by the retention of distributions otherwise
available to the subordinate certificate-holders or by excess servicing fees
until the Reserve Fund reaches a specified amount.
The subordination feature, and any Reserve Fund, are intended to enhance the
likelihood of timely receipt by senior certificate-holders of the full amount of
scheduled monthly payments of principal and interest due them and will protect
the senior certificate-holders against certain losses; however, in certain
circumstances the Reserve Fund could be depleted and temporary shortfalls could
result. In the event the Reserve Fund is depleted before the subordinated amount
is reduced to zero, senior certificate-holders will nevertheless have a
preferential right to receive current distributions from the mortgage pool to
the extent of the then outstanding subordinated amount. Unless otherwise
specified, until the subordinated amount is reduced to zero, on any distribution
date any amount otherwise distributable to the subordinate certificates or, to
the extent specified, in the Reserve Fund will generally be used to offset the
amount of any losses realized with respect to the mortgage loans ("Realized
Losses"). Realized Losses remaining after application of such amounts will
generally be applied to reduce the ownership interest of the subordinate
certificates in the mortgage pool. If the subordinated amount has been reduced
to zero, Realized Losses generally will be allocated PRO RATA among all
certificate-holders in proportion to their respective outstanding interests in
the mortgage pool.
ALTERNATIVE CREDIT ENHANCEMENT. As an alternative, or in addition to the
credit enhancement afforded by subordination, credit enhancement for Mortgage
Pass-Throughs may be provided by mortgage insurance, hazard insurance, by the
deposit of cash, certificates of deposit, letters of credit, a limited guaranty
or by such other methods as are acceptable to a rating agency. In certain
circumstances, such as where credit enhancement is provided by guarantees or a
letter of credit, the security is subject to credit risk because of its exposure
to an external credit enhancement provider.
VOLUNTARY ADVANCES. Generally, in the event of delinquencies in payments on
the mortgage loans underlying the Mortgage Pass-Throughs, the servicer agrees to
make advances of cash for the benefit of certificate-holders, but only to the
extent that it determines such voluntary advances will be recoverable from
future payments and collections on the mortgage loans or otherwise.
OPTIONAL TERMINATION. Generally, the servicer may, at its option with
respect to any certificates, repurchase all of the underlying mortgage loans
remaining outstanding at such time as the aggregate outstanding principal
balance of such mortgage loans is less than a specified percentage (generally
5-10%) of the aggregate outstanding principal balance of the mortgage loans as
of the cut-off date specified with respect to such series.
MULTIPLE CLASS MORTGAGE-BACKED SECURITIES AND COLLATERALIZED MORTGAGE
OBLIGATIONS. The Fund may invest in multiple class securities including
collateralized mortgage obligations ("CMOs") and REMIC Certificates issued by
U.S. Government agencies and instrumentalities such as Fannie Mae or Freddie Mac
or by trusts formed by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage bankers, commercial banks,
insurance companies, investment banks and special purpose subsidiaries of the
foregoing. In general, CMOs are debt obligations of a legal entity that are
collateralized by, and multiple class mortgage-backed securities represent
direct ownership interests in, a pool of mortgage loans or mortgage-backed
securities the payments on which are used to make payments on the CMOs or
multiple class mortgage-backed securities.
B-6
<PAGE>
Fannie Mae REMIC Certificates are issued and guaranteed as to timely
distribution of principal and interest by Fannie Mae. In addition, Fannie Mae
will be obligated to distribute the principal balance of each class of REMIC
Certificates in full, whether or not sufficient funds are otherwise available.
Freddie Mac guarantees the timely payment of interest on Freddie Mac REMIC
Certificates and also guarantees the payment of principal as payments are
required to be made on the underlying mortgage participation certificates
("PCs"). PCs represent undivided interests in specified level payment,
residential mortgages or participations therein purchased by Freddie Mac and
placed in a PC pool. With respect to principal payments on PCs, Freddie Mac
generally guarantees ultimate collection of all principal of the related
mortgage loans without offset or deduction. Freddie Mac also guarantees timely
payment of principal of certain PCs.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie Mac
are types of multiple class mortgage-backed securities. Investors may purchase
beneficial interests in REMICs, which are known as "regular" interests or
"residual" interests. The Fund does not intend to purchase residual interests in
REMICs. The REMIC Certificates represent beneficial ownership interests in a
REMIC trust, generally consisting of mortgage loans or Fannie Mae, Freddie Mac
or Ginnie Mae guaranteed mortgage-backed securities (the "Mortgage Assets"). The
obligations of Fannie Mae or Freddie Mac under their respective guaranty of the
REMIC Certificates are obligations solely of Fannie Mae or Freddie Mac,
respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each class of
CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the Mortgage Loans or
the Mortgage Assets underlying the CMOs or REMIC Certificates may cause some or
all of the classes of CMOs or REMIC Certificates to be retired substantially
earlier than their final distribution dates. Generally, interest is paid or
accrues on all classes of CMOs or REMIC Certificates on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among
the several classes of CMOs or REMIC Certificates in various ways. In certain
structures (known as "sequential pay" CMOs or REMIC Certificates), payments of
principal, including any principal prepayments, on the Mortgage Assets generally
are applied to the classes of CMOs or REMIC Certificates in the order of their
respective final distribution dates. Thus no payment of principal will be made
on any class of sequential pay CMOs or REMIC Certificates until all other
classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs and REMIC Certificates include, among others,
"parallel pay" CMOs and REMIC Certificates. Parallel pay CMOs or REMIC
Certificates are those which are structured to apply principal payments and
prepayments of the Mortgage Assets to two or more classes concurrently on a
proportionate or disproportionate basis. These simultaneous payments are taken
into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in parallel pay or
sequential pay structures. These securities include accrual certificates (also
known as "Z-Bonds"), which only accrue interest at a specified rate until all
other certificates having an earlier final distribution date have been retired
and are converted thereafter to an interest-paying security, and planned
amortization class ("PAC") certificates, which are parallel pay REMIC
Certificates that generally require that specified amounts
B-7
<PAGE>
of principal be applied on each payment date to one or more classes or REMIC
Certificates (the "PAC Certificates"), even though all other principal payments
and prepayments of the Mortgage Assets are then required to be applied to one or
more other classes of the Certificates. The scheduled principal payments for the
PAC Certificates generally have the highest priority on each payment date after
interest due has been paid to all classes entitled to receive interest
currently. Shortfalls, if any, are added to the amount payable on the next
payment date. The PAC Certificate payment schedule is taken into account in
calculating the final distribution date of each class of PAC. In order to create
PAC tranches, one or more tranches generally must be created that absorb most of
the volatility in the underlying mortgage assets. These tranches tend to have
market prices and yields that are much more volatile than other PAC classes.
STRIPPED MORTGAGE-BACKED SECURITIES. The Fund may invest in stripped
mortgage-backed securities ("SMBS"), which are derivative multiclass mortgage
securities. Although the market for such securities is increasingly liquid,
certain SMBS may not be readily marketable and may be considered illiquid for
purposes of the Fund's limitation on investments in illiquid securities. The
market value of the class consisting entirely of principal payments generally is
unusually volatile in response to changes in interest rates. The yields on a
class of SMBS that receives all or most of the interest from Mortgage Assets are
generally higher than prevailing market yields on other mortgage-backed
securities because their cash flow patterns are more volatile and there is a
greater risk that the initial investment will not be fully recouped.
VARIABLE AND FLOATING RATE SECURITIES
The interest rates payable on certain securities in which the Fund may
invest are not fixed and may fluctuate based upon changes in market rates. A
variable rate obligation has an interest rate which is adjusted at predesignated
periods in response to changes in the market rate of interest on which the
interest rate is based. Variable and floating rate obligations are less
effective than fixed rate instruments at locking in a particular yield.
Nevertheless, such obligations may fluctuate in value in response to interest
rate changes if there is a delay between changes in market interest rates and
the interest reset date for the obligation.
BANK OBLIGATIONS
The Fund may invest in U.S. dollar denominated obligations issued or
guaranteed by U.S. banks. Bank obligations, including without limitation time
deposits, bankers' acceptances and certificates of deposit, may be general
obligations of the parent bank or may be limited to the issuing branch by the
terms of the specific obligations or by government regulation.
Banks are subject to extensive but different governmental regulations which
may limit both the amount and types of loans which may be made and interest
rates which may be charged. In addition, the profitability of the banking
industry is largely dependent upon the availability and cost of funds for the
purpose of financing lending operations under prevailing money market
conditions. General economic conditions as well as exposure to credit losses
arising from possible financial difficulties of borrowers play an important part
in the operations of this industry.
ZERO COUPON BONDS
The Fund's investments in fixed income securities may include zero coupon
bonds, which are debt obligations issued or purchased at a significant discount
from face value. The discount approximates the total amount of interest the
bonds would have accrued and compounded over the
B-8
<PAGE>
period until maturity. Zero coupon bonds do not require the periodic payment of
interest. Such investments benefit the issuer by mitigating its need for cash to
meet debt service, but some also require a higher rate of return to attract
investors who are willing to defer receipt of such cash. Such investments may
experience greater volatility in market value than debt obligations which
provide for regular payments of interest. In addition, if an issuer of zero
coupon bonds held by the Fund defaults, the Fund may obtain no return at all on
its investment. The Fund will accrue income on such investments for tax and
accounting purposes, as required, which is distributable to shareholders and
which, because no cash is received at the time of accrual, may require the
liquidation of other portfolio securities to satisfy the Fund's distribution
obligations (see "Taxation").
INVESTMENT RESTRICTIONS
The Fund may not:
(1) Engage in arbitrage transactions or in short sales, except to the
extent that it owns other securities convertible into an equivalent
amount of such securities. Such transactions may only occur for the purpose
of protecting a profit or in attempting to minimize a loss with respect to
convertible securities. No more than 10% of the value of the Fund's net
assets taken at market may at any one time be held as collateral for such
sales.
(2) Write, purchase or sell puts, calls or combinations thereof.
(3) Borrow money in excess of 10% of the value of its assets and then
only as a temporary measure to meet unusually heavy redemption
requests or for other extraordinary or emergency purposes. Securities will
not be purchased while borrowings are outstanding. No assets of the Fund may
be pledged, mortgaged or otherwise encumbered, transferred or assigned to
secure a debt.
(4) Engage in the underwriting of securities, except to the extent that
the Fund may be deemed an underwriter as to restricted securities
under the Securities Act of 1933 in selling portfolio securities.
(5) Invest in real estate, mortgages or illiquid securities of real
estate investment trusts although the Fund may purchase securities
of issuers which engage in real estate operations.
(6) Invest in commodities or commodity contracts.
(7) Lend money except in connection with the purchase of debt
obligations or by investment in repurchase agreements, provided that
repurchase agreements maturing in more than seven days when taken together
with other illiquid investments including restricted securities do not
exceed 15% of the Fund's assets. The Fund may lend its portfolio securities
to broker-dealers and institutional investors if as a result thereof the
aggregate value of all securities loaned does not exceed 33 1/3% of the
total assets of the Fund.
(8) Invest more than 5% of the value of its total assets in the
securities of any one issuer or purchase more than 10% of the
outstanding voting securities, or any other class of securities, of any one
issuer. For purposes of this restriction, all outstanding debt securities of
an issuer are considered as one class, and all preferred stock of an issuer
is considered as one class. This restriction does not apply to obligations
issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
B-9
<PAGE>
(9) Purchase securities of other investment companies.
(10) Invest 25% or more of its assets in securities of issuers in any one
industry. For the purpose of this restriction, gas, electric, water
and telephone utilities will each be treated as a separate industry.
(11) Invest more than 5% of its total assets in securities of issuers
having a record, together with predecessors, of less than three
years of continuous operation. The restriction does not apply to any
obligation issued or guaranteed by the U.S. Government, its agencies or
instrumentalities.
(12) Purchase or retain the securities of any issuer if, to the knowledge
of the Fund, those officers and directors of the Fund and of the
Adviser, who each owns more than 0.5% of the outstanding securities of such
issuer, together own more than 5% of such securities.
(13) Issue senior securities except evidences of indebtedness permitted
by restriction No. 3 above.
(14) Purchase securities for the purpose of exercising control over
another company.
(15) Purchase securities on margin or participate on a joint or a joint
and several basis in any trading account in securities.
(16) Purchase oil, gas or other mineral type development programs or
leases, except that the Fund may invest in the securities of
companies which invest in or sponsor such programs.
If a percentage restriction is adhered to at the time of investment, a later
change in percentage resulting from changes in values or assets will not be
considered a violation of the restriction. For purposes of industry
classifications, the Fund follows the industry classifications in The Value Line
Investment Survey.
DIRECTORS AND OFFICERS
<TABLE>
<CAPTION>
NAME, ADDRESS AND AGE POSITION WITH FUND PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------------------------- --------------------- ---------------------------------------------
<S> <C> <C>
*Jean Bernhard Buttner Chairman of the Board Chairman, President and Chief Executive
Age 61 of Directors, Officer of the Adviser and Value Line Pub-
President lishing, Inc. Chairman of the Value Line
Funds and Value Line Securities, Inc.
John W. Chandler Director Consultant, Academic Search Consultation
2801 New Mexico Ave., N.W. Service, Inc. since 1992; Consultant,
Washington, DC 20007 Korn/Ferry International, 1990-1992. Trustee
Age 72 Emeritus and Chairman (1993-1994) of Duke
University; President Emeritus, Williams
College.
</TABLE>
B-10
<PAGE>
<TABLE>
<CAPTION>
DIRECTORS AND OFFICERS--(CONTINUED)
NAME, ADDRESS AND AGE POSITION WITH FUND PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ---------------------------------- --------------------- ---------------------------------------------
<S> <C> <C>
*Leo R. Futia Director Retired Chairman and Chief Executive Officer
201 Park Avenue South of The Guardian Life Insurance Company of
New York, NY 10003 America and Director since 1970. Director
Age 76 (Trustee) of The Guardian Insurance & Annuity
Company, Inc., Guardian Investor Services
Corporation and the Guardian-sponsored mutual
funds.
Charles E. Reed Director Retired. Formerly, Senior Vice President of
3200 Park Avenue General Electric Co.; Director Emeritus of
Bridgeport, CT 06604 People's Bank, Bridgeport, CT.
Age 82
Paul Craig Roberts Director Distinguished Fellow, Cato Institute, since
505 S. Fairfax Street 1993; formerly, William E. Simon Professor of
Alexandria, VA 22320 Political Economy, Center for Strategic and
Age 56 International Studies; Director, A. Schulman
Inc. (plastics) since 1992.
Charles Heebner Vice President Director of Fixed Income with the Adviser.
Age 59
Robert E. Manning Vice President Portfolio Manager with the Adviser since
Age 59 1993; Vice President, Fixed Income, GAMCO
Investors, Inc. 1992-1993; Vice President,
Axe-Houghton Management, Inc., 1981-1992.
David T. Henigson Vice President, Compliance Officer and since 1992, Vice
Age 38 Secretary and President and Director of the Adviser. Di-
Treasurer rector and Vice President of the Distribu-
tor.
</TABLE>
- --------------
* "Interested" director as defined in the Investment Company Act of 1940 (the
"1940 Act").
Unless otherwise indicated, the address for each of the above is 220 East 42nd
Street, New York, NY.
Directors and certain officers of the Fund are also directors/trustees and
officers of other investment companies for which the Adviser acts as investment
adviser.
The following table sets forth information regarding compensation of
Directors by the Fund and by the Fund and the twelve other Value Line Funds of
which each of the Directors is a director or trustee for the fiscal year ended
August 31, 1995. Directors who are officers or employees of the Adviser do not
receive any compensation from the Fund or any of the Value Line Funds.
B-11
<PAGE>
COMPENSATION TABLE
FISCAL YEAR ENDED AUGUST 31, 1995
<TABLE>
<CAPTION>
TOTAL
PENSION OR ESTIMATED COMPENSATION
RETIREMENT ANNUAL FROM FUND
AGGREGATE BENEFITS BENEFITS AND FUND
COMPENSATION ACCRUED AS PART UPON COMPLEX
NAME OF PERSONS FROM FUND OF FUND EXPENSES RETIREMENT (13 FUNDS)
- ------------------------------------------- --------------- ------------------ ----------- ---------------
<S> <C> <C> <C> <C>
Jean B. Buttner $ -0- N/A N/A $ -0-
John W. Chandler 2,740 N/A N/A 35,620
Leo R. Futia 2,740 N/A N/A 35,620
Charles E. Reed 2,740 N/A N/A 35,620
Paul Craig Roberts 2,740 N/A N/A 35,620
</TABLE>
As of October 31, 1995, no person owned of record or, to the knowledge of
the Fund, owned beneficially, 5% or more of the outstanding stock of the Fund
other than Guardian Insurance & Annuity Company, Inc., 201 Park Avenue South,
New York, NY 10003, which owned 1,478,231 shares of record or approximately 6.7%
and Charles Schwab & Co., Inc., 101 Montgomery Street, San Francisco, CA 94104
which owned 1,335,760 shares of record or approximately 6.0%. Certain officers
and directors of the Fund as a group, the Adviser (and its Parent) and Union
Trust Company as Trustee of the Value Line, Inc. Profit Sharing and Savings Plan
owned an aggregate of 96,298 shares (0.4%).
THE ADVISER
(SEE ALSO "MANAGEMENT OF THE FUND" IN THE FUND'S PROSPECTUS)
The Fund's investment adviser is Value Line, Inc. (the "Adviser"). The
investment advisory agreement between the Fund and the Adviser dated August 10,
1988 provides for an advisory fee payable monthly at a rate equal to 1/2 of 1%
of the Fund's average daily net assets during the year. During the fiscal years
ended August 31, 1993, 1994 and 1995, the Fund paid or accrued advisory fees of
$2,169,892, $2,113,587 and $1,414,604, respectively. In the computation of the
advisory fee, the net amount of any tender fees received by Value Line
Securities, Inc., the Fund's Distributor, from acting as tendering broker with
respect to any portfolio securities of the Fund will be subtracted from the
advisory fee. In addition, the Adviser shall reimburse the Fund for expenses
(exclusive of interest, taxes, brokerage expenses and extraordinary expenses)
which in any year exceed the limits prescribed by any state in which shares of
the Fund are qualified for sale. The lowest percentage limitation to which the
Fund is currently subject is 2 1/2% of the first $30 million of the average
daily net assets, 2% of the next $70 million and 1 1/2% on any excess over $100
million.
The investment advisory agreement provides that the Adviser shall render
investment advisory and other services to the Fund including, at its expense,
all administrative services, office space and the services of all officers and
employees of the Fund. The Fund pays all other expenses not assumed by the
Adviser including taxes, interest, brokerage commissions, insurance premiums,
fees and expenses of the custodian and shareholder servicing agent, legal and
accounting fees, fees and expenses in connection with qualification under
federal and state securities laws and costs
B-12
<PAGE>
of shareholder reports and proxy materials. The Fund has agreed that it will use
the words "Value Line" in its name only so long as Value Line, Inc. serves as
investment adviser to the Fund. The agreement will terminate upon its
assignment.
The Adviser acts as investment adviser to 15 other investment companies
constituting The Value Line Family of Funds and furnishes investment counseling
services to private and institutional accounts with combined assets in excess of
$4 billion.
Certain of the Adviser's clients may have investment objectives similar to
the Fund and certain investments may be appropriate for the Fund and for other
clients advised by the Adviser. From time to time, a particular security may be
bought or sold for only one client or in different amounts and at different
times for more than one but less than all such clients. In addition, a
particular security may be bought for one or more clients when one or more other
clients are selling such security, or purchases or sales of the same security
may be made for two or more clients at the same time. In such event, such
transactions, to the extent practicable, will be averaged as to price and
allocated as to amount in proportion to the amount of each order. In some cases,
this procedure could have a detrimental effect on the price or amount of the
securities purchased or sold by the Fund. In other cases, however, it is
believed that the ability of the Fund to participate, to the extent permitted by
law, in volume transactions will produce better results for the Fund.
The Adviser and/or its affiliates, officers, directors and employees may
from time to time own securities which are also held in the portfolio of the
Fund. The Adviser has imposed rules upon itself and such persons requiring
monthly reports of security transactions for their respective accounts and
restricting trading in various types of securities in order to avoid possible
conflicts of interest. The Adviser may from time to time, directly or through
affiliates, enter into agreements to furnish for compensation special research
or financial services to companies, including services in connection with
acquisitions, mergers or financings. In the event that such agreements are in
effect with respect to issuers of securities held in the portfolio of the Fund,
specific reference to such agreements will be made in the "Schedule of
Investments" in shareholder reports of the Fund. As of the date of this
Statement of Additional Information no such agreements exist.
BROKERAGE ARRANGEMENTS
(SEE ALSO "MANAGEMENT OF THE FUND" IN THE FUND'S PROSPECTUS)
Orders for the purchase and sale of portfolio securities are placed with
brokers and dealers who, in the judgment of the Adviser, are able to execute
them as expeditiously as possible and at the best obtainable price. Debt
securities are traded principally in the over-the-counter market on a net basis
through dealers acting for their own account and not as brokers. Purchases and
sales of securities which are not listed or traded on a securities exchange will
ordinarily be executed with primary market makers acting as principal, except
when it is determined that better prices and executions may otherwise be
obtained. The Adviser is also authorized to place purchase or sale orders with
brokers or dealers who may charge a commission in excess of that charged by
other brokers or dealers if the amount of the commission charged is reasonable
in relation to the value of the brokerage and research services provided. Such
allocation will be in such amounts and in such proportions as the Adviser may
determine. Orders may also be placed with brokers or dealers who sell shares of
the Fund or other funds for which the Adviser acts as investment adviser, but
this fact,
B-13
<PAGE>
or the volume of such sales, is not a consideration in their selection. During
the years ended August 31, 1993, 1994 and 1995, the Fund paid brokerage
commissions of $33,125, $9,131 and $22,972 respectively.
HOW TO PURCHASE SHARES
(SEE ALSO "CALCULATION OF NET ASSET VALUE", "HOW TO PURCHASE SHARES" AND
"INVESTOR SERVICES" IN THE FUND'S PROSPECTUS)
Shares of the Fund are purchased at net asset value next calculated after
receipt of a purchase order. Minimum orders are $1,000 for an initial purchase
and $250 for each subsequent purchase. The Fund reserves the right to reduce or
waive the minimum purchase requirements in certain cases such as under the Value
Line Monthly Investment Plan and pursuant to payroll deduction plans, etc.,
where subsequent and continuing purchases are contemplated.
The Fund has entered into a distribution agreement with Value Line
Securities, Inc. (the "Distributor"), pursuant to which the Distributor acts as
principal underwriter and distributor of the Fund for the sale and distribution
of its shares. The Distributor is a wholly-owned subsidiary of the Adviser. For
its services under the agreement, the Distributor is not entitled to receive any
compensation. The Distributor also serves as distributor to the other Value Line
funds.
AUTOMATIC PURCHASES: The Fund offers a free service to its shareholders,
Valu-Matic Bank Check Program, through which monthly investments of $25 or more
are automatically made into the shareholder's Value Line account. The Fund's
Transfer Agent debits via automated clearing house a draft each month on the
shareholder's checking account and invests the money in full and fractional
shares. The purchase is confirmed directly to the shareholder (who will also
receive debit information each month with his bank statement). The required form
to enroll in this program is available upon request from the Distributor.
RETIREMENT PLANS: Shares of the Fund may be purchased as the investment medium
for various tax-sheltered retirement plans. Upon request, Value Line Securities,
Inc. will provide information regarding eligibility and permissible
contributions. Because a retirement plan is designed to provide benefits in
future years, it is important that the investment objectives of the Fund be
consistent with the participant's retirement objectives. Premature withdrawals
from a retirement plan may result in adverse tax consequences. For more complete
information, contact Value Line Securities at 1-800-223-0818 during New York
business hours.
HOW TO REDEEM SHARES
(SEE ALSO "HOW TO REDEEM SHARES" AND "INVESTOR SERVICES" IN THE FUND'S
PROSPECTUS)
The right of redemption may be suspended, or the date of payment postponed
beyond the normal seven-day period, by the Fund under the following conditions
authorized by the 1940 Act: (1) For any period (a) during which the New York
Stock Exchange is closed, other than customary weekend and holiday closing, or
(b) during which trading on the New York Stock Exchange is restricted; (2) For
any period during which an emergency exists as a result of which (a) disposal by
the Fund of securities owned by it is not reasonably practical, or (b) it is not
reasonably practical for the Fund to determine the fair value of its net assets;
(3) For such other periods as the Securities and Exchange Commission may by
order permit for the protection of the Fund's shareholders.
B-14
<PAGE>
The value of shares of the Fund on redemption may be more or less than the
shareholder's cost, depending upon the market value of the Fund's assets at the
time. Shareholders should note that if a loss has been realized on the sale of
shares of the Fund, the loss may be disallowed for tax purposes if shares of the
same Fund are purchased within (before or after) 30 days of the sale.
It is possible that conditions may exist in the future which would, in the
opinion of the Board of Directors, make it undesirable for the Fund to pay for
redemptions in cash. In such cases the Board may authorize payment to be made in
portfolio securities or other property of the Fund. However, the Fund has
obligated itself under the 1940 Act to redeem for cash all shares presented for
redemption by any one shareholder up to $250,000 (or 1% of the Fund's net assets
if that is less) in any 90-day period. Securities delivered in payment of
redemptions are valued at the same value assigned to them in computing the net
asset value per share. Shareholders receiving such securities may incur
brokerage costs on their sales.
TAXES
(SEE "DIVIDENDS, DISTRIBUTIONS AND TAXES" IN THE FUND'S PROSPECTUS)
The Fund intends to continue to qualify as a regulated investment company
under the Internal Revenue Code of 1986, as amended (the "Code"). The Fund so
qualified during the Fund's last fiscal year. By so qualifying, the Fund is not
subject to Federal income tax on its net investment income or net realized
capital gains which are distributed to shareholders (whether or not reinvested
in additional Fund shares).
The Code requires each regulated investment company to pay a nondeductible
4% excise tax to the extent the company does not distribute, during each
calendar year, 98% of its ordinary income, determined on a calendar year basis,
and 98% of its capital gains, determined, in general, on an October 31 year end,
plus certain undistributed amounts from previous years. The Fund anticipates
that it will make sufficient timely distributions to avoid imposition of the
excise tax.
For Federal income-tax purposes, the Fund had a net capital-loss carryover
at August 31, 1995, of approximately $40,236,000 that will expire in the year
2003. Realized losses incurred after October 31, if so elected by the Fund, are
deemed to arise on the first day of the following fiscal year. The Fund incurred
and elected to defer losses of approximately $8,151,000. To the extent future
capital gains are offset by such capital losses, the Fund does not anticipate
distributing any such gains to the shareholders.
Distributions of investment income and of the excess of net short-term
capital gain over net long-term capital loss are taxable to shareholders as
ordinary income. Distributions of the excess of net long-term capital gain over
net short-term capital loss (net capital gains) are taxable to the shareholders
as long-term capital gain, regardless of the length of time the shares of the
Fund have been held by such shareholders and regardless of whether the
distribution is received in cash or in additional shares of the Fund. The Fund
does not anticipate that any distributions will be eligible for the
dividends-received deduction for corporate shareholders. Upon request, the Fund
will inform shareholders of the amounts of dividends which so qualify.
A distribution by the Fund will result in reduction in the Fund's net asset
value per share. Such a distribution is taxable to the shareholder as ordinary
income or capital gain as described above even though, from an investment
standpoint, it may constitute a return of capital. In particular, investors
should be careful to consider the tax implications of buying shares just prior
to a distribution. The
B-15
<PAGE>
price of shares purchased at that time (at the net asset value per share)
includes the amount of the forthcoming distribution. Those purchasing just prior
to a distribution will then receive a return of capital upon the distribution
which will nevertheless be taxable to them. All distributions, whether received
in shares or cash, must be reported by each shareholder on his Federal income
tax return. Furthermore, under the Code, dividends declared by the Fund in
October, November or December of any calendar year, and payable to shareholders
of record in such a month, shall be deemed to have been received by the
shareholder on December 31 of such calendar year if such dividend is actually
paid in January of the following calendar year.
A shareholder may realize a capital gain or capital loss on the sale or
redemption of shares of the Fund. The tax consequences of a sale or redemption
depend upon several factors, including the shareholder's tax basis in the shares
sold or redeemed and the length of time the shares have been held. Basis in the
shares may be the actual cost of those shares (net asset value of Fund shares on
purchase or reinvestment date). Under certain circumstances, a loss on the sale
or redemption of shares held for six months or less may be treated as a
long-term capital loss to the extent that the Fund has distributed long-term
capital gain dividends on such shares. Moreover, a loss on sale or redemption of
Fund shares will be disallowed if shares of the Fund are purchased within 30
days before or after the shares are sold or redeemed.
For shareholders who fail to furnish to the Fund their social security or
taxpayer identification numbers and certain related information or who fail to
certify that they are not subject to back-up withholding, dividends,
distributions of capital gains and redemption proceeds paid by the Fund will be
subject to a 31% Federal income tax withholding requirement. If the withholding
provisions are applicable, any such dividends or capital-gains distributions to
these shareholders, whether taken in cash or reinvested in additional shares,
and any redemption proceeds will be reduced by the amounts required to be
withheld.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents, domestic
corporations and partnerships, and certain trusts and estates) and is not
intended to be a complete discussion of all Federal tax consequences.
Shareholders are advised to consult with their tax advisers concerning the
application of Federal, state and local taxes to an investment in the Fund.
PERFORMANCE DATA
From time to time, the Fund may state its total return in advertisements and
investor communications. Total return may be stated for any relevant period as
specified in the advertisement or communication. Any statements of total return
or other performance data on the Fund will be accompanied by information on the
Fund's average annual compounded rate of return for the periods of one year,
five years and ten years, all ended on the last day of a recent calendar
quarter. The Fund may also advertise aggregate total return information for
different periods of time.
B-16
<PAGE>
The Fund's average annual compounded rate of return is determined by
reference to a hypothetical $1,000 investment that includes capital appreciation
and depreciation for the stated period, according to the following formula:
T =#ERV/P - 1
n
Where: P = a hypothetical initial purchase order of
$1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of the
hypothetical $1,000 purchase at the end
of the period.
Aggregate total return is calculated in a similar manner, except that the
results are not annualized. Each calculation assumes that all dividends and
distributions are reinvested at net asset value on the reinvestment dates during
the period.
As stated in the Prospectus, the Fund may also quote its current yield in
advertisements and investor communications.
The yield computation is determined by dividing the net investment income
per share earned during the period by the maximum offering price per share on
the last day of the period and annualizing the resulting figure, according to
the following formula:
Yield = 2 a - b +1 6 -1
( cd )
Where: a = dividends and interest earned during the
period (calculated as required by the
Securities and Exchange Commission);
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends;
d = the maximum offering price per share on
the last day of the period.
The above formula will be used in calculating quotations of yield, based on
specified 30-day periods identified in advertising by the Fund.
The Fund may also, from time to time, include a reference to its current
quarterly or annual distribution rate in investor communications and sales
literature preceded or accompanied by a Prospectus, reflecting the amounts
actually distributed to shareholders which could include capital gains and other
items of income not reflected in the Fund's yield, as well as interest and
dividend income received by the Fund and distributed to shareholders (which is
reflected in the Fund's yield).
All calculations of the Fund's distribution rate are based on the
distributions per share which are declared, but not necessarily paid, during the
fiscal year. The distribution rate is determined by dividing the distributions
declared during the period by the maximum offering price per share on the last
day of the period and annualizing the resulting figure. In calculating its
distribution rate, the Fund has used the same assumptions that apply to its
calculation of yield. The distribution rate does not reflect capital
appreciation or depreciation in the price of the Fund's shares and should not be
considered to be a complete indicator of the return to the investor on his
investment.
B-17
<PAGE>
The Fund's current yield, distribution rate and total return may be compared
to relevant indices, including U.S. domestic and international taxable bond
indices and data from Lipper Analytical Services, Inc., or Standard & Poor's
Indices.
From time to time, evaluations of the Fund's performance by independent
sources may also be used in advertisements and in information furnished to
present or prospective investors in the Fund.
Investors should note that the investment results of the Fund will fluctuate
over time, and any presentation of the Fund's current yield, total return or
distribution rate for any period should not be considered as a representation of
what an investment may earn or what an investor's total return, yield or
distribution rate may be in any future period.
ADDITIONAL INFORMATION
EXPERTS
The financial statements of the Fund and the financial highlights included
in the Fund's Annual Report to Shareholders and incorporated by reference in
this Statement of Additional Information have been so incorporated by reference
in reliance on the report of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
CUSTODIAN
The Fund employs State Street Bank and Trust Company, Boston, MA as
custodian for the Fund. The custodian's responsibilities include safeguarding
and controlling the Fund's cash and securities, handling the receipt and
delivery of securities and collecting interest and dividends on the Fund's
investments. The custodian does not determine the investment policies of the
Fund or decide which securities the Fund will buy or sell.
FINANCIAL STATEMENTS
The Fund's financial statements for the year ended August 31, 1995,
including the financial highlights for each of the five fiscal years in the
period ended August 31, 1995, appearing in the 1995 Annual Report to
Shareholders and the report thereon of Price Waterhouse LLP, independent
accountants, appearing therein, are incorporated by reference in this Statement
of Additional Information.
The Fund's 1995 Annual Report to Shareholders is enclosed with this
Statement of Additional Information.
B-18
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
a. Financial Statements
Included in Part A of this Registration Statement:
Financial Highlights for each of the ten years in the period ended
August 31, 1995
Included in Part B of this Registration Statement:*
Schedule of Investments as of August 31, 1995
Statement of Assets and Liabilities at August 31, 1995
Statement of Operations for the year ended August 31, 1995
Statement of Changes in Net Assets for the years ended August 31, 1995
and August 31, 1994
Notes to Financial Statements
Financial Highlights for each of the five years in the period ended
August 31, 1995
Report of Independent Accountants
Statements, schedules and historical information other than those listed
above have been omitted since they are either not applicable or are not
required.
- ---------
* Incorporated by reference from the Annual Report to Shareholders for the
year ended
August 31, 1995.
b. Exhibits
16. Calculation of Performance Data--Exhibit 1
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
None
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of September 30, 1995, there were 12,565 record holders of the
Registrant's Capital Stock ($1.00 par value).
ITEM 27. INDEMNIFICATION.
Incorporated by reference from Post-effective Amendment No. 11 (filed with
the Commission December 22, 1987).
C-1
<PAGE>
ITEM 28. BUSINESS OR OTHER CONNECTIONS OF INVESTMENT ADVISER.
Value Line, Inc., Registrant's investment adviser, acts as investment
adviser for a number of individuals, trusts, corporations and institutions, in
addition to the registered investment companies in the Value Line Family of
Funds listed in Item 29.
<TABLE>
<CAPTION>
POSITION WITH
NAME THE ADVISER OTHER EMPLOYMENT
- -------------------------- -------------------------------- ---------------------------------------------------
<S> <C> <C>
Jean Bernhard Buttner Chairman of the Board, President Chairman of the Board and Chief Executive Officer
and Chief Executive Officer of Arnold Bernhard & Co., Inc. and Chairman of the
Value Line Funds and the Distributor
Samuel Eisenstadt Senior Vice President and ---------------------------------------------
Director
David T. Henigson Vice President, Treasurer and Vice President and a Director of Arnold Bernhard &
Director Co., Inc. and the Distributor
Howard A. Brecher Secretary and Director Secretary and Treasurer of Arnold Bernhard & Co.,
Inc.
Harold Bernard, Jr. Director Administrative Law Judge
William S. Kanaga Director Retired Chairman of Arthur Young (now Ernst &
Young)
W. Scott Thomas Director Partner, Brobeck, Phleger & Harrison, attorneys
</TABLE>
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Value Line Securities, Inc., acts as principal underwriter for the
following Value Line funds, including the Registrant: The Value Line
Fund, Inc.; The Value Line Income Fund, Inc.; The Value Line Special
Situations Fund, Inc.; Value Line Leveraged Growth Investors, Inc.; The
Value Line Cash Fund, Inc.; Value Line U.S. Government Securities Fund,
Inc.; Value Line Centurion Fund, Inc.; The Value Line Tax Exempt Fund,
Inc.; Value Line Convertible Fund, Inc.; Value Line Aggressive Income
Trust; Value Line New York Tax Exempt Trust; Value Line Strategic Asset
Management Trust; Value Line Intermediate Bond Fund, Inc.; Value Line
Small-Cap Growth Fund, Inc.; Value Line Asset Allocation Fund, Inc.;
Value Line U.S. Multinational Company Fund, Inc.
(b)
<TABLE>
<CAPTION>
(2)
POSITION AND (3)
(1) OFFICES POSITION AND
NAME AND PRINCIPAL WITH VALUE LINE OFFICES WITH
BUSINESS ADDRESS SECURITIES, INC. REGISTRANT
- ------------------------- ------------------ --------------------
<S> <C> <C>
Jean Bernhard Buttner Chairman of the Chairman of the
Board Board and President
David T. Henigson Vice President, Vice President,
Secretary, Secretary and
Treasurer and Treasurer
Director
Stephen LaRosa Asst. Vice Asst. Treasurer
President
</TABLE>
The business address of each of the officers and directors is 220 East
42nd Street, NY 10017-5891.
C-2
<PAGE>
(c) Not applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
Value Line, Inc.
220 East 42nd Street
New York, NY 10017
For records pursuant to:
Rule 31a-1(b)(4),(5),(6),(7),(10),(11)
Rule 31a-1(f)
State Street Bank and Trust Company
c/o NFDS
P.O. Box 419729
Kansas City, MO 64141
For records pursuant to Rule 31a-1(b)(2)(iv)
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
For all other records
ITEM 31. MANAGEMENT SERVICES.
None.
ITEM 32. UNDERTAKINGS.
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
--------------
C-3
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus and
Statement of Additional Information constituting parts of this Post-Effective
Amendment No. 19 to the registration statement on Form N-1A (the "Registration
Statement") of our report dated October 23, 1995, relating to the financial
statements and financial highlights appearing in the August 31, 1995 Annual
Report to Shareholders of Value Line U.S. Government Securities Fund, Inc.,
which are also incorporated by reference into the Registration Statement. We
also consent to the references to us under the heading "Financial Highlights" in
the Prospectus and under the headings "Additional Information" and "Financial
Statements" in the Statement of Additional Information.
Price Waterhouse LLP
1177 Avenue of the Americas
New York, New York
December 12, 1995
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment
to its Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, and State of New York, on
the 12th day of December, 1995.
VALUE LINE U.S. GOVERNMENT
SECURITIES FUND, INC.
By: /s/ DAVID T. HENIGSON
...................................
DAVID T. HENIGSON, VICE PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------------------------------------------- --------------------------------- -----------------------
<S> <C> <C> <C>
*JEAN B. BUTTNER Chairman and Director; President; December 12, 1995
(JEAN B. BUTTNER) Principal Executive Officer
*JOHN W. CHANDLER Director December 12, 1995
(JOHN W. CHANDLER)
*LEO R. FUTIA Director December 12, 1995
(LEO R. FUTIA)
*CHARLES E. REED Director December 12, 1995
(CHARLES E. REED)
*PAUL CRAIG ROBERTS Director December 12, 1995
(PAUL CRAIG ROBERTS)
/s/ DAVID T. HENIGSON Treasurer; Principal Financial December 12, 1995
.............................................. and Accounting Officer
(DAVID T. HENIGSON)
</TABLE>
By /s/ DAVID T. HENIGSON
....................................
(DAVID T. HENIGSON,
ATTORNEY-IN-FACT)
C-5
<PAGE>
VALUE LINE US GOVERNMENT FUND INC
SCHEDULE FOR COMPUTATION OF PERFORMANCE QUOTATION
EXHIBIT 16
Year(s) Ended 8/31/95: 1 year 5 years 10 years
----------- ----------- -----------
Initial Investment: 1,000 1,000 1,000
Balance at End of Period: 1,074 1,416 2,196
Change: 74 416 1,196
Percentage Change: 7.37% 41.63% 119.57%
Average Annual Total Return: 7.37% 7.21% 8.18%
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<INVESTMENTS-AT-COST> 269,385
<INVESTMENTS-AT-VALUE> 269,397
<RECEIVABLES> 1,969
<ASSETS-OTHER> 70
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 271,436
<PAYABLE-FOR-SECURITIES> 14,924
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 508
<TOTAL-LIABILITIES> 15,432
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 301,090
<SHARES-COMMON-STOCK> 22,698
<SHARES-COMMON-PRIOR> 30,307
<ACCUMULATED-NII-CURRENT> 3,288
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (48,386)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12
<NET-ASSETS> 256,004
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 20,537
<OTHER-INCOME> 0
<EXPENSES-NET> 1,865
<NET-INVESTMENT-INCOME> 18,672
<REALIZED-GAINS-CURRENT> (21,392)
<APPREC-INCREASE-CURRENT> 20,179
<NET-CHANGE-FROM-OPS> 17,459
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 18,519
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,227
<NUMBER-OF-SHARES-REDEEMED> 11,213
<SHARES-REINVESTED> 1,377
<NET-CHANGE-IN-ASSETS> 83,474
<ACCUMULATED-NII-PRIOR> 3,135
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,415
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,865
<AVERAGE-NET-ASSETS> 283,967
<PER-SHARE-NAV-BEGIN> 11.20
<PER-SHARE-NII> .74
<PER-SHARE-GAIN-APPREC> .04
<PER-SHARE-DIVIDEND> .70
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 11.28
<EXPENSE-RATIO> .66
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
