<PAGE>
INVESTMENT ADVISER
Value Line, Inc.
220 East 42nd Street, New York, NY 10017-5891
DISTRIBUTOR
Value Line Securities, Inc.
220 East 42nd Street, New York, NY 10017-5891
CUSTODIAN BANK
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
State Street Bank and Trust Company c/o NFDS
P.O. Box 419729, Kansas City, MO 64141-6729
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas, New York, NY 10036-2798
LEGAL COUNSEL
Peter D. Lowenstein, Esq.
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
BOARD OF DIRECTORS
Jean Bernhard Buttner
John W. Chandler Leo R. Futia
Charles E. Reed Paul Craig Roberts
OFFICERS
Jean Bernhard Buttner
CHAIRMAN AND PRESIDENT
David T. Henigson
VICE PRESIDENT AND SECRETARY/TREASURER
Charles Heebner Robert E. Manning
VICE PRESIDENT VICE PRESIDENT
Jack M. Houston Stephen La Rosa
ASSISTANT ASSISTANT
SECRETARY/TREASURER SECRETARY/TREASURER
The financial statements included herein have been taken from the records of the
Fund without examination by the independent accountants and, accordingly, they
do not express an opinion thereon.
This unaudited report is issued for information of shareholders. It is not
authorized to distribution to prospective investors unless preceded or
accompanied by a currently effective prospectus of the Fund (obtainable from the
Distributor).
VLF 511220
SEMI-ANNUAL REPORT
FEBRUARY 29, 1996
VALUE LINE
U.S. GOVERNMENT
SECURITIES
FUND, INC.
VALUE LINE MUTUAL FUNDS
<PAGE>
TO OUR VALUE LINE U.S.
- --------------------------------------------------------------------------------
DEAR SHAREHOLDER:
This first six months of your Fund's fiscal year, from August 31, 1995, to
February 29, 1996, falls naturally into two contrasting periods. The first
brought with it a sharp drop in interest rates that ended literally on the final
trading day of 1995. With the coming of the new year, rates suddenly reversed
course and surged upward. When all was said and done, the overall level of
rates had changed little, but the experience left the confidence of market
participants badly shaken.
From August through December, the yield on bench-mark 30-year U.S. Treasury
bonds fell from 6.65% on August 31, 1995, to 5.95% at yearend. As the 30-year
bond rate neared 6.00%, the majority of investors expected the monetary
authorities to lower interest rates both substantially and frequently during the
first six months of 1996. Indeed, when the Fed did act on December 19, 1995, to
reduce the target for the Fed Funds rate from 5.75% to 5.50%, most experts felt
that conditions warranted even stronger action. A profusion of data supported
three key premises: (1) Economic growth was nowhere nearly fast enough to create
the kinds of production bottlenecks that give rise to inflationary pressures;
(2) commodity prices, wage pressures, and other early warning measures of
inflation were held in check by a combination of deregulation of domestic
industry and global competion; and (3) confidence in the dollar was high, and
other signs pointed to strong international demand for U.S. fixed-income
securities.
Long-term rates reached their low on the final trading day of 1995, and a return
trip to higher levels commenced in January. Although the Federal Reserve did
cut short-term rates again, some bond investors were becoming wary: The
continued failure to reach an agreement over the federal budget seemed to
unsettle the market. A collective bargaining agreement between Boeing and
striking engineers appeared to offer unusually generous settlement terms to
strikers. The onset of the presidential race raised questions about changes in
tax-policy and in rules governing international trade, among other topics. By
the end of February, the 30-year bond rate had retraced its decline to close at
6.47%.
During March, the trend accelerated. The news of unexpectedly strong employment
growth during February was received with alarm. Such a sharp jump seemed to
signify excessive growth. By late March, the 30-year Treasury bond had breached
6.70% on the way higher.
FUND PERFORMANCE
For the six months ended February 29, 1996, the performance of the Value Line
U.S. Government Securities Fund lagged that of unmanaged index portfolios. The
Fund's portfolio of U.S. Treasury and agency bonds and of mortgage-backed
securities issued or guaranteed by government agencies earned 3.04% in total
return, after deducting all management costs. Total return for the Lehman
Brothers Government Bond Index was 4.14%, while that of the Lehman Brothers
Mortgage Backed Securities Index was 4.04%. (Index returns are not adjusted to
reflect any costs of management.) Your Fund's performance lagged during the
September-to-December period, when rates were falling. Our higher concentration
on short-maturity bonds penalized returns during the market rally; prices of
shorter-maturity bonds are less volatile than those with longer maturities.
Since the end of 1995, the performance of your
- --------------------------------------------------------------------------------
THE LEHMAN BROTHERS GOVERNMENT BOND INDEX IS MADE UP OF ALL PUBLIC OBLIGATIONS
OF THE U.S. TREASURY EXCLUDING FLOWER BONDS AND FOREIGN-TARGETED ISSUES; ALL
PUBLICLY ISSUED DEBT OF U.S. GOVERNMENT AGENCIES AND QUASI-FEDERAL CORPORATIONS;
AND CORPORATE DEBT GUARANTEED BY THE U.S. GOVERNMENT. THE LEHMAN BROTHERS
MORTGAGE-BACKED SECURITIES INDEX INCLUDES 15- AND 30-YEAR FIXED-RATE SECURITIES
BACKED BY MORTGAGE POOLS OF THE GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA),
THE FEDERAL HOME LOAN MORTGAGE CORP, (FHLMC), AND THE FEDERAL NATIONAL MORTGAGE
ASSOCIATION (FNMA).
2
<PAGE>
GOVERNMENT SECURITIES FUND SHAREHOLDERS
- -------------------------------------------------------------------------------
Fund has been slightly ahead of both indexes.
THE OUTLOOK
Looking ahead, we anticipate that the volatile movements in interest rates
experienced during the last three or four years will continue. Following the
recent rise in long-term rates, we shifted emphasis in the portfolio toward a
neutral posture from one that weighted mortgage-backed issues more heavily.
Treasuries normally provide higher price appreciation than mortgage-backed
securities when interest rates fall because investors, fearing that a
significant upsurge in mortgage prepayments will follow, put greater selling
pressure on mortgage-backed issues. Investors are usually penalized when
mortgage-backed securities repay too rapidly, because the proceeds must be
reinvested at a time when bond prices are relatively high. However, mortgage-
backed bonds do offer a clear advantage in yield over non-callable Treasuries
and agencies. Therefore, if interest rates stabilize or seem likely to rise, we
may again increase our holdings of callable agencies and mortgages.
We continue to seek maximum income without undue risk to principal. We
encourage shareholders to study the table at the end of this report entitled
"Financial Highlights." The line labeled "ratio of net investment income to
average net assets" demonstrates clearly how the secular decline in interest
rates during the 1990s has reduced investment earnings and, therefore, the
amount available for dividends. The recent decline in long-term rates stopped
short of the lows recorded in 1993. If rates should stabilize at present
levels or move gradually higher, it would alleviate downward pressure on our
dividend. Without taking imprudent risks, we will continue actively to seek
investments that will add to income.
Your Fund's management believes that a carefully selected portfolio of
government bonds and mortgage-backed securities will offer both an attractive
yield and favorable prospects for total return. Over long periods the yield
advantage enjoyed by a diversified government-bond portfolio has offered an
attractive mix of yield, safety of principal, and total return. Our portfolio
is well structured to meet its objective of high current income without undue
risk to principal. On February 29, 1996, 14.6% of the Fund was invested in U.S.
Treasury notes and bonds, 21.4% in notes and bonds issued by U.S. government
agencies, 57.7% in U.S. securities backed by residential mortgages, and 6.3% in
short-term cash equivalents.
We thank you for your continued confidence, and we look forward to serving your
investment needs in the future.
Sincerely,
s/s Jean Bernhard Buttner
Jean Bernhard Buttner
CHAIRMAN AND PRESIDENT
March 26, 1996
3
<PAGE>
ECONOMIC OBSERVATIONS
The pace of economic growth is quickening once again, in a clear reversal in
form from the very early part of the year. Back then, declining retail
activity, a faltering industrial sector, and an assortment of weather-related
dislocations had combined to almost bring the long-lived business expansion to a
halt. Now, by comparison, the construction markets are firming, employment is
improving, the nation's factories are somewhat busier, and the American public
is a touch more upbeat. To be sure, pockets of weakness still exist, with
department-store sales, for example, still rather sluggish. On the whole,
though, the positives would seem to outweigh the negatives, suggesting that GDP
growth in the opening half of this year will comfortably exceed the tepid 0.9%
rate of increase recorded during the final three months of 1995.
Moreover, we think the business uptrend will remain on track during the second
half and into 1997. The current improvement and the prospective growth over the
next several quarters, meanwhile, suggest that fears expressed earlier this year
about a widespread reversal in corporate profits were exaggerated, although some
selective weakness is likely over the next couple of months.
Thus far, the modest stepup in business activity has not generated havoc on the
pricing front. There had been some concern earlier that a pickup in the
economy--even a limited one--would lead to the labor and raw-materials shortages
that often precede a rise in inflation. To date, this has not been the case.
In fact, neither wholesale nor consumer inflation shows any major sighs of
heating up. We caution, though, that commodity prices have worked their way
higher recently and that this uptrend will need to be watched closely to
determine whether a more worrisome pricing scenario will eventually evolve.
*PERFORMANCE DATA:
AVERAGE ANNUAL TOTAL RETURN
12/31/95 2/29/96
1 year ended 14.44% 9.86%
5 years ended 6.79% 6.26%
10 years ended 7.82% 7.49%
*The performance data quoted represent past performance and are no guarantee of
future performance. The average annual total return includes dividends
reinvested and capital gains distributions accepted in shares. The investment
return and principal value of an investment will fluctuate so that an
investment, when redeemed, may be worth more or less than its original cost.
4
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
AMOUNT COUPON MATURITY DATE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (14.6%)
$ 11,000,000 U.S. Treasury Notes ............................................ 7.75% 1/31/00 $ 11,776,875
16,000,000 U.S. Treasury Notes ............................................ 7.125 2/29/00 16,800,000
5,000,000 U.S. Treasury Notes ............................................ 6.25 5/31/00 5,095,305
- ------------ -------------
32,000,000 TOTAL U.S. TREASURY OBLIGATIONS
(Cost) $33,326,250) ............................................. 33,672,180
--------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (79.1%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (36.5%)
7,000,000 Federal National Mortgage Association Notes..................... 5.30 12/10/98 6,919,199
5,000,000 Federal National Mortgage Association Notes..................... 5.44 1/24/01 4,892,590
6,000,000 Federal National Mortgage Association Notes..................... 5.45 10/10/03 5,686,686
7,000,000 Federal National Mortgage Association Notes..................... 6.44 6/21/05 7,008,848
8,150,000 Federal National Mortgage Association REMIC Trust G93-31 MB..... 7.00 6/25/06 8,142,363
9,524,091 Federal National Mortgage Association MBS Pool #250387.......... 7.00 10/01/10 9,595,893
1,000,000 Federal National Mortgage Association REMIC Trust 1993-70 SB.... 10.00(1)(2) 5/25/21 997,187
4,387,570 Federal National Mortgage Association MBS Pool #312298.......... 9.50 12/01/21 4,606,949
4,819,539 Federal National Mortgage Association REMIC Trust 1994-43 G..... 6.50 5/25/22 4,406,866
9,926,324 Federal National Mortgage Association REMIC Trust 1992-207 Z.... 7.50 11/25/22 9,237,685
5,948,215 Federal National Mortgage Association REMIC Trust 1993-2 H...... 16.00 1/25/23 7,673,198
5,560,000 Federal National Mortgage Association REMIC Trust 1993-122 C.... 6.50 2/25/23 5,205,550
5,000,000 Federal National Mortgage Association REMIC Trust 1993-155 M.... 7.00 9/25/23 4,787,500
5,000,000 Federal National Mortgage Association REMIC Trust 1995-W1 A6.... 8.10 (1) 4/25/25 5,200,000
- ------------
84,315,739 TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION
- ------------
(COST $86,029,568) .............................................. 84,360,514
----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (23.4%)
4,273,632 Federal Home Loan Mortgage Corporation 1561 S................... 9.676 (1)(2) 8/15/08 4,102,686
1,491,854 Federal Home Loan Mortgage Corporation 1587 SH ................. 8.504 (1)(2) 10/15/08 1,434,977
9,734,097 Federal Home Loan Mortgage Corporation C0004-A1................. 7.00 9/15/10 9,724,353
5,000,000 Federal Home Loan Mortgage Corporation 1332 H................... 7.50 4/15/20 5,050,000
2,689,000 Federal Home Loan Mortgage Corporation 1061 L................... 6.65 4/15/21 2,623,456
7,584,384 Federal Home Loan Mortgage Corporation 1251 Z................... 8.00 4/15/22 7,752,666
7,000,000 Federal Home Loan Mortgage Corporation 1351 TE.................. 7.00 8/15/22 6,699,217
8,692,628 Federal Home Loan Mortgage Corporation 1443 OC.................. 8.962 (1)(2) 12/15/22 7,432,197
1,114,304 Federal Home Loan Mortgage Corporation 11560 AD................. 7.00 3/15/23 387,221
6,500,000 Federal Home Loan Mortgage Corporation 1499 H................... 7.00 4/15/23 2,254,687
6,229,333 Federal Home Loan Mortgage Corporation 1775 G................... 9.50 11/15/23 6,634,240
- ----------- ---------
60,309,232 TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION
(COST $54,709,122).............................................. 54,095,700
----------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
FEBRUARY 29.1996
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL MATURITY DATE
AMOUNT COUPON OR RANGE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FEDERAL HOME LOAN BANK (6.5%)
$ 5,000,000 Federal Home Loan Bank Notes.................................... 6.53% 11/20/00 4,998.500
5,000,000 Federal Home Loan Bank Structured Notes......................... 6.457 11/20/02 4,990,625
5,000,000 Federal Home Loan Bank Structered Notes MS2 1................... 6.340 11/27/02 4,975,000
---------- -----------
15,000,000 TOTAL FEDERAL HOME LOAN BANK
(COST $15,041,406).............................................. 14,964,125
----------
TENNESSEE VALLEY AUTHORITY (4.4%)
10,000,000 Tennessee Valley Authority....................................... 6.235 07/15/45 10,132,840
---------- ----------
10,000,000 Total Tennessee Valley Authority
(COST $9,958,240)............................................... 10,132,840
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (6.1%)
4,866,275 Government National Mortgage Association
Single Family Pool #316121...................................... 7.50 3/15/22 4,935,615
5,000,000 Government National Mortgage Association
REMIC Trust 1995-6A E........................................... 7.50 5/20/23 4,943,750
3,973,023 Government National Mortgage Association
--------- Project Loan Pool #262847....................................... 10.25 9/15/23 4,316,936
----------
13,839,298 TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
---------- (COST $14,098,078).............................................. 14,196,301
----------
RESOLUTION TRUST CORPORATION SECURITIES (2.2%)
5,000,000 Resolution Trust Corporation 1992-5 A-6......................... 9.239 5/25/26 5,143,750
---------- ----------
5,000,000 TOTAL RESOLUTION TRUST CORPORATION
---------- (COST $5,081,250)............................................... 5,143,750
----------
188,464,269 TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
----------- (COST $184,917,664)............................................. 182,893,230
-----------
220,464,269 TOTAL INVESTMENTS (93.7%)
----------- (Cost $218,243,914)............................................. 216,565,410
-----------
</TABLE>
6
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
SCHEDULE OF INVESTMENTS (unaudited)
- -------------------------------------------------------------------------------
PRINCIPAL
AMOUNT VALUE
- -------------------------------------------------------------------------------
REPURCHASE AGREEMENT (8.9%)
(Including accrued interest)
$ 20,600,000 Collateralized by $21,870,000 U.S. Treasury Bills
due 12/12/96, with a value of $20,835,355 (with
First Chicago Capital Markets, Inc., 5.42%, dated
2/22/96, due 3/1/96, delivery value $20,603,101)... $ 20,603,101
EXCESS OF LIABILITIES OVER
CASH AND OTHER ASSETS (-2.6%) .................... (5,921,771)
-----------
NET ASSETS (100.0%) ............................... $231,246,740
------------
------------
NET ASSET VALUE OFFERING AND REDEMPTION
PRICE PER OUTSTANDING SHARE ($231,246,740
DIVIDED BY 20,590,994 shares of capital
stock outstanding) ............................... $ 11.23
-----------
-----------
(1) Floating Rate Mortgage Backed Security - Resets Monthly (rate in effect on
2/29/96)
(2) Inverse Floater- Floating Rate Mortgage Backed Security whose interest rate
fluctuates in the opposite direction of general market rates.
7
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF ASSETS
AND LIABILITIES AT
FEBRUARY 29,1996 (UNAUDITED)
- --------------------------------------------------------------
ASSETS
Investment securities at value
(Cost-$218,243,914) $ 216,565,410
Repurchase agreements
(Cost-$20,603,101) 20,603,101
Cash ....................................... 637,443
Interest receivable ............................ 1,540,899
Receivable for capital shares sold.............. 139,617
------------
TOTAL ASSETS .............................. 239,486,470
------------
LIABILITIES:
Payable for securities purchased ............... 7,779,050
Payable for capital shares repurchased.......... 242,242
Accrued expenses:
Advisory fee .............................. 93,827
Other ..................................... 124,611
-------------
Total Liabilities ......................... 8,239,730
-------------
NET ASSETS...................................... $ 231,246,740
-------------
-------------
Net Assets consist of:
Capital stock, at $1 par value (authorized
100,000,000, outstanding 20,590,994
shares) ................................... $ 20,590,994
Additional paid-in capital ..................... 256,630,755
Undistributed investment income-net ............ 2,581,899
Accumulated net realized loss on
investments................................ (46,878,404)
Unrealized net depreciation of
investments................................ (1,678,504)
-------------
NET ASSETS ..................................... $231,246,740
-------------
-------------
Net Asset Value, Offering and
Redemption Price per
Outstanding Share ($231,246,740
DIVIDED BY 20,590,994 shares outstanding).. $ 11.23
-------------
-------------
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED
FEBRUARY 29, 1996 (UNAUDITED)
- ---------------------------------------------------------------
INVESTMENT INCOME:
Interest income ................................ $ 8,717,421
--------------
EXPENSES:
Advisory fee ................................... 618,017
Transfer agent fees ............................ 62,663
Auditing and legal fees ........................ 21,262
Postage ........................................ 20,710
Registration and filing fees ................... 17,319
Printing and Stationery......................... 16,190
Custodian fees.................................. 12,739
Insurance, dues and other....................... 8,632
Telephone and wire charges...................... 8,210
Directors' fees and expenses.................... 5,752
--------------
TOTAL EXPENSES............................. 791,494
--------------
INVESTMENT INCOME-NET........................... 7,925,927
--------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS-NET:
Realized Gain-Net ......................... 1,507,678
Change in Unrealized Appreciation
(Depreciation) ............................ (1,690,306)
---------------
NET REALIZED GAIN AND CHANGE IN NET
UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS.............. (182,628)
--------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS............................ $ 7,743,299
--------------
--------------
See Notes to Financial Statements
8
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED FEBRUARY 29, 1996 (UNAUDITED), AND
FOR THE YEAR ENDED AUGUST 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended Year
February 29, 1996 Ended
(unaudited) August 31, 1995
<S> <C> <C>
OPERATIONS:
Investment income-net. . . . . . . . . . . . . . . . . . . . . . . . $ 7,925,927 $ 18,671,894
Realized gain (loss) on investments-net. . . . . . . . . . . . . 1,507,678 (21,392,006)
Change in unrealized appreciation (depreciation) . . . . . . . . (1,690,306) 20,178,999
------------ -------------
Net increase in net assets from operations . . . . . . . . . . . 7,743,299 17,458,887
----------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
Investment income-net. . . . . . . . . . . . . . . . . . . . . . (8,631,585) (18,519,083)
------------ -------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares . . . . . . . . . . . . . . . . . . 11,973,996 24,282,328
Proceeds from reinvestment of distributions to shareholders. . . 6,821,563 14,937,817
Cost of shares repurchased . . . . . . . . . . . . . . . . . . . (42,664,313) (121,634,092)
------------ -------------
Decrease from capital share transactions . . . . . . . . . . . . (23,868,754) (82,413,947)
------------ -------------
Total Decrease . . . . . . . . . . . . . . . . . . . . . . . . . (24,757,040) (83,474,143)
NET ASSETS:
Beginning of period. . . . . . . . . . . . . . . . . . . . . . . 256,003,780 339,477,923
------------ -------------
End of period. . . . . . . . . . . . . . . . . . . . . . . . . . $ 231,246,740 $ 256,003,780
------------ -------------
------------ -------------
Undistributed investment income-net, at end of period. . . . . . $ 2,581,899 $ 3,287,557
------------ -------------
------------ -------------
</TABLE>
See Notes to Financial Statements
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Value Line U.S. Government Securities Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940, as amended, as a diversified, open-end
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 following significant accounting principles are in conformity with generally
accepted accounting principles for investment companies. Such policies are
consistently followed by the Fund in the preparation of its financial
statements. Generally accepted accounting principles may require management to
make estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results may differ from those estimates
(A) SECURITY VALUATION. Where market quotations are readily available,
portfolio securities are valued at the midpoint between the latest available and
representative asked and bid prices, 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 valuation date. The Fund values mortgage-backed
securities other than GNMAs (Government National Mortgage Association) on the
9
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- -------------------------------------------------------------------------------
basis of valuations provided by dealers in such securities. Some of the general
factors that may be considered by the dealers in arriving at such valuations
include the fundamental analytic data relating to the security and an evaluation
of the forces that 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
negotiation between the parties in a sales transaction. The values for GNMAs
and agency debentures are determined on the valuation date by reference to
valuations obtained from an independent pricing service that 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 institution-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics, and other market data in determining valuations. Short-term
instruments with maturities of 60 days or less at the date of purchase are
valued at amortized cost, which approximates market value. 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.
(B) REPURCHASE AGREEMENTS. In connection with transactions in repurchase
agreements, the Fund's custodian takes possession of the underlying
collateral securities, the value of which exceeds the principal amount of the
repurchase transaction, including accrued interest. To the extent that any
repurchase transaction exceeds one business day, the value of the collateral
is marked-to-market on a daily basis to ensure the adequacy of the
collateral. In the event of default of the obligation to repurchase, the
Fund has the right to liquidate the collateral and apply the proceeds in
satisfaction of the obligation. Under certain circumstances, in the event of
default or bankruptcy by the other party to the agreement, realization and/or
retention of the collateral or proceeds may be subject to legal proceeds.
(C) FEDERAL INCOME TAXES. It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies, including the distribution requirements of the Tax Reform Act of
1986, and to distribute all of its taxable income and capital gains to its
shareholders. Therefore, no federal income-tax or excise-tax provision is
required.
(D) SECURITY TRANSACTIONS AND RELATED INCOME. Security transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses on securities transactions are determined using the identified-cost
method, and interest income is accrued as earned. In computing net investment
income, the Fund amortizes premiums and discounts on securities owned. The Fund
purchases stripped mortgage-backed securities at premiums and discounts. The
Fund amortizes such premiums on interest-only securities using the yield-to-
maturity method. Cash is received based on the stated coupon rate, and interest
income is earned based on the security's effective yield-to-maturity. When the
Fund purchases principal-only securities, although no interest payments are
received, the discounts are accrued using the yield-to-maturity method based on
the effective yield-to-maturity of the security.
2.CAPITAL SHARE TRANSACTIONS, DIVIDENDS, AND DISTRIBUTIONS TO SHAREHOLDERS
Transactions in capital stock were as follows:
Six Months End Year Ended
Feb. 29, 1996 August 31,
(unaudited) 1995
------------- -----------
Shares sold. . . . . . . . . . . . . . . . 1,009,339 2,227,119
Shares issued to shareholders
in reinvestment of dividends
and distributions. . . . . . . . . . . 606,977 1,377,208
----------- ------------
1,616,315 3,604,327
Shares repurchased . . . . . . . . . . . . (3,723,099) (11,213,352)
----------- ------------
Net decrease . . . . . . . . . . . . . . . (2,106,783) (7,609,025)
----------- ------------
----------- ------------
Dividend per share . . . . . . . . . . . . $ .39 $ .70
----------- ------------
----------- ------------
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
10
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
FEBRUARY 29, 1996
- -------------------------------------------------------------------------------
on March 21, 1996, the Fund's Board of Directors declared two quarterly
dividends from net investment income of $.19 per share payable on March 27,
1996, and June 26, 1996, to shareholders of record on March 25 and June 24,
1996, respectively.
3. PURCHASE AND SALES OF SECURITIES
Purchases and sales of investment securities, excluding short-term investments,
were as follows:
Six Months Ended
February 29, 1995
(unaudited)
----------------
PURCHASES:
U.S. Treasury Obligations. . . . . . . . . $ 5,188,594
U.S. Government Agency Obligations
and Other Investment Securities. . . . 168,586,837
--------------
. . . . . . . . . . . . . . . . . . . . . . $ 173,775,431
---------------
---------------
SALES AND REDEMPTIONS:
U.S. Treasury Obligations. . . . . . . . . $ 10,531,250
U.S. Government Agency Obligations
and Other Investment Securities. . . . 177,358,682
--------------
. . . . . . . . . . . . . . . . . . . . . . $ 187,889,932
---------------
---------------
At February 29, 1996, the aggregate cost of investment securities and
short-term investments for Federal income-tax purposes as $238,847,015. The
aggregate appreciation and depreciation of investments at August 31, 1995,
based on a comparison of investment values and their costs for Federal
income-tax purposes, is $1,828,338 and $3,506,842, respectively, resulting in
a net depreciation of $1,678,504.
For Federal income-tax purposes, the Fund had a net capital-loss carryover at
August 31, 1995, of approximately $40,236,000, which 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.
4. INVESTMENT ADVISORY CONTRACT, MANAGEMENT FEES, AND TRANSACTIONS WITH
AFFILIATES
An advisory fee of $618,017 was paid or payable to Value Line, Inc. (the
Advisor), the Fund's investment adviser, for the period ended February 29, 1996.
This was computed at the rate of 1/2 of 1% of the Funds average daily net assets
during the period and was paid monthly.
The Adviser provides research, investment programs, and supervision of the
investment portfolio and pays costs of administrative services, office space,
equipment, and compensation of administrative, bookkeeping, and clerical
personnel necessary for managing the affairs of the Fund. The Adviser also
provides persons, satisfactory to the Fund's Board of Directors, to act as
officers and employees of the Fund and pays their salaries and wages. The
Fund bears all other costs and expenses. If the aggregate expenses of the
Fund, other than taxes, interest, brokerage commissions, and extraordinary
expenses, exceed the expense limitation imposed by any state in which the
Fund sells its share, the advisory fee will be reduced by the amount of such
excess, or the amount of such excess will be refunded. No such reimbursement
was required for the six months ended February 29, 1996. During the six
months ended February 29, 1996, the Fund paid the Adviser $2,880 for printing
services.
Certain officers and directors of the Adviser and its subsidiary, Value Line
Securities, Inc.(the Fund's distributor and a registered broker/dealer), are
also officers and a director of the Fund.
The Adviser and/or affiliated companies and the Value Line, Inc. Profit Sharing
and Savings Plan at February 29, 1996, owned 92,853 shares of the Fund's capital
stock, representing 0.5% of the outstanding shares.
11
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
Six Months Ended
Feb. 29, 1996 Year Ended August 31,
(unaudited) 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . $11.28 $11.20 $13.44 $13.06 $12.39 $11.82
------ ------ ------ ------ ------ ------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income. . . . . . . . . . . . . . . .37 .74 .82 .93 .88 .93
(both realized and unrealized) . . . . . . . . . (.03) .04 (1.80) .44 .68 .64
------ ------ ------ ------ ------ ------
Total income (loss) from investment operations . . .34 .74 (.98) 1.37 1.56 1.57
------ ------ ------ ------ ------ ------
LESS DISTRIBUTIONS:
Dividends from net investment income . . . . . .. (.39) (.70) (.93) (.89) (.89) (1.00)
Distributions from capital gains . . . . . . . . . -- -- (.33) (.10) -- --
------ ------ ------ ------ ------ ------
Total distributions. . . . . . . . . . . . . . . . (.39) (.70) (1.26) (.99) (.89) (1.00)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . $11.23 $11.28 $11.20 $13.44 $13.06 $12.39
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . 3.04%+ 7.37%+ -7.87% 11.07% 13.11 13.96%
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in thousands) . . . . . . $231,247 $256,004 $399,478 $456,711 $424,330 $336,523
Ratio of operating expenses to
average net assets . . . . . . . . . . . . . . . . .65% .66% .63% .63% .61% .64%
Ratio of net investment income to average net assets . . . 6.45% 6.58% 6.58% 7.29% 7.47% 8.54%
Portfolio turnover rate. . . . . . . . . . . . . . . . 76%+ 193% 100% 169% 130% 79%
</TABLE>
+Not annualized
* Annualized
See Notes to Financial Statements
12
