<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT ADVISER Value Line, Inc.
220 East 42nd Street
New York, NY 10017-5891
DISTRIBUTOR Value Line Securities, Inc.
220 East 42nd Street
New York, NY 10017-5891
CUSTODIAN BANK State Street Bank and Trust
Co.
225 Franklin Street
Boston, MA 02110
SHAREHOLDER SERVICING AGENT State Street Bank and Trust
Co.
c/o NFDS
P.O. Box 419729
Kansas City, MO 64141-6729
INDEPENDENT Price Waterhouse LLP
ACCOUNTANTS 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
Nancy-Beth Sheerr
OFFICERS Jean Bernhard Buttner
CHAIRMAN AND PRESIDENT
David T. Henigson
VICE PRESIDENT,
SECRETARY/TREASURER
Charles Heebner
VICE PRESIDENT
Milton Schlein
VICE PRESIDENT
Jack M. Houston
ASSISTANT SECRETARY/TREASURER
Stephen La Rosa
ASSISTANT SECRETARY/TREASURER
</TABLE>
THIS REPORT IS ISSUED FOR INFORMATION OF SHAREHOLDERS. IT IS NOT
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR
ACCOMPANIED BY A CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND (OBTAINABLE
FROM THE DISTRIBUTOR).
VLFO89196
------------------------------------
ANNUAL REPORT
------------------------------------
AUGUST 31, 1996
----------------------------------------
VALUE LINE
U.S. GOVERNMENT
SECURITIES
FUND, INC.
[LOGO]
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
TO OUR VALUE LINE U.S.
- -------------------------------------------
TO OUR SHAREHOLDERS:
When we last wrote to you in March, we noted that throughout most of the first
half of the Fund's 1996 fiscal year (the period between August 31, 1995 and
February 29, 1996), interest rates on long-term U.S. Treasury bonds were
generally falling. That reflected a low rate of inflation and a strong, but not
overheated, economy. Rates were up modestly between February and August,
however, (the fiscal year ended August 31, 1996) as investors started to worry
about inflation and the probable response of the Federal Reserve. The Fed did,
indeed, raise short-term interest rates a bit last January 31. Investors also
took note of the federal budget problems and the uncertainties created by the
approaching Presidential election. As a result, the prices and yield of
long-term bonds ended the fiscal year about where they had started. Many
observers expected the Fed to nudge short-term rates up again last September,
but it did not oblige. As a result, bond prices gathered strength in September.
The Lehman Brothers Government Bond Index rose 2.4% in that month. Some expect
that the Fed will still tighten after the November elections. But even though
short rates may rise a bit, Value Line believes that the probable moderation of
the rate of growth in the economy and the lessening of inflationary pressures
make it likely that long-term rates will fluctuate only about one-half
percentage point from their present level of just under 7%. (See the
accompanying Economic Observation insert.)
FUND PERFORMANCE
The Fund continues to be managed with the objective of providing the highest
possible income consistent with safety of capital and the avoidance of
significant market risk. To do so, the Fund maintains a mix of U.S. Treasury and
Agency bonds and bonds secured by mortgages guaranteed by government agencies.
One beneficial effect of this strategy was evident in the latest fiscal year
when total dividends of 77 CENTS per share were paid versus 70 CENTS in the
previous year. In addition, the Fund's mortgage-backed securities are typically
less volatile in price than ordinary bonds, providing some insulation from
market risk as interest rates fluctuate. They also normally offer higher yields
than do U.S. Treasury bonds.
In the latest fiscal year, the Fund provided a total return (change in asset
value plus income) of 3.06%. The corresponding returns for 5 and 10 years were
5.08% and 7.00%, respectively. The Lehman Brothers Government Bond Index,
mentioned above, was 6,175 at fiscal year-end versus 6,108 a year earlier, a
gain of only 1.1%. (And bear in mind that the Index makes no allowance for
management costs.) Moreover, this return was achieved with less than market
risk, since month-to-month changes in the Fund's asset value per share were
typically narrower than the change in the Index.
LOOKING AHEAD
The Fund's management intends to maintain the mix of government and agency bonds
and mortgage-backed securities. As of fiscal year-end, U.S. Treasury bonds
accounted for about 15% of the Fund's assets, agencies, 13%, and mortgage-backed
bonds, 64%. (The remaining 8% is in cash and equivalents.) We believe this mix
will enable the Fund to keep providing good income without undue risk.
We strongly recommend that Fund holders reinvest all distributions to reap the
advantages of compound interest. (Most fundholders do so.) At 7%, for example, a
$10,000 investment doubles in 10 years. Income alone would have amounted to only
$7,000. The advantages of compounding become even more pronounced over longer
time periods. And the Fund's return is enhanced by its "no-load" feature. That
means there is no sales charge and your entire investment goes to work at once.
This strategy is especially suitable for providing for a long-term goal, such as
education or retirement. We suggest fundholders ask their tax counsel for advice
on setting up tax deferred IRAs for such purposes. The tax deferral
- --------------------------------------------------------------------------------
2
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
GOVERNMENT SECURITIES FUND SHAREHOLDERS
- -------------------------------------------
feature increases the return since the portion of the annual income that would
normally go to the tax collector continues to keep working for you for many
years.
We appreciate your confidence. We look forward to continuing to meet your
investment needs in the future.
Sincerely,
/s/ Jean Bernhard Buttner
CHAIRMAN AND PRESIDENT
October 27, 1996
ECONOMIC OBSERVATIONS
Things continue to move along smoothly on the economic front, with the majority
of government and private-sector reports still indicating moderate, albeit
broad-based, growth. For example, recent figures show that retail spending and
industrial activity strengthened over the course of the summer, while
factory-use levels and auto sales remained quite high. Meanwhile, the housing
market continues to be resilient, in spite of higher mortgage rates, while
healthy employment growth is still helping to underpin consumer confidence.
Moreover, we don't see any marked changes in the economic trend over the final
months of the year, with a probable deceleration in growth during the next
several quarters not likely to be the opening salvo in a full-blown recession.
Our feeling is that unless the Federal Reserve, which opted to hold the line on
short-term interest rates in late September, decides to shift gears and tighten
the monetary reins aggressively after the November Presidential election, the
long business expansion will persist through at least 1997, although probably at
a more deliberate pace.
The danger, though, is that at some point we could get too much of a good thing,
namely a sharper economic slowdown than desired--or even a contraction in
business activity. True, such a turn of events would sustain the positive news
on inflation (and that would likely help the bond market). On the other hand, an
economic downturn would probably prove to be the undoing of the corporate profit
uptrend, and thus perhaps bring to a close the bull market in equities.
PERFORMANCE DATA:*
<TABLE>
<CAPTION>
GROWTH OF
AN ASSUMED AVERAGE
INVESTMENT ANNUAL TOTAL
OF $10,000 RETURN
------------ -------------
<S> <C> <C>
1 year ended 6/30/96............................. $10,380 3.80%
5 years ended 6/30/96............................ $13,245 5.78%
10 years ended 6/30/96............................ $20,203 7.29%
</TABLE>
* THE AVERAGE ANNUAL TOTAL RETURN FOR THE ONE, FIVE AND 10 YEAR PERIODS ENDED
AUGUST 31, 1996, WERE 3.06%, 5.08% AND 7.00%, RESPECTIVELY. THE PERFORMANCE
DATA QUOTED REPRESENT PAST PERFORMANCE AND ARE NO GUARANTEE OF FUTURE
PERFORMANCE. THE AVERAGE ANNUAL TOTAL RETURN AND GROWTH OF AN ASSUMED
INVESTMENT OF $10,000 INCLUDE DIVIDENDS REINVESTED AND CAPITAL GAINS
DISTRIBUTIONS ACCEPTED IN SHARES. THE INVESTMENT RETURN AND PRINCIPAL VALUE
OF AN INVESTMENT WILL FLUCTUATE SO THAT AN INVESTMENT, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN ITS ORIGINAL COST.
- --------------------------------------------------------------------------------
3
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
- -------------------------------------------
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT IN THE
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, THE LEHMAN AGGREGATE BOND INDEX,
AND THE LEHMAN GOVERNMENT BOND INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
VALUE LINE
<S> <C> <C> <C>
U.S. Government Fund Lehman Government Bond Lehman Aggregate Bond
9/86 10,000 10,000 10,000
11/86 10,268 10,094 10,185
2/87 10,495 10,293 10,439
5/87 10,227 9,937 10,068
8/87 10,336 9,976 10,144
11/87 10,530 10,213 10,364
2/88 11,102 10,789 11,003
5/88 11,093 10,543 10,768
8/88 11,271 10,724 10,999
11/88 11,569 11,019 11,321
2/89 11,611 11,111 11,413
5/89 12,081 11,688 12,010
8/89 12,464 12,125 12,451
11/89 12,815 12,614 12,950
2/90 12,867 12,481 12,867
5/90 13,167 12,713 13,137
8/90 13,472 12,897 13,351
11/90 13,995 13,527 13,926
2/91 14,515 13,963 14,440
5/91 14,843 14,244 14,783
8/91 15,353 14,726 15,305
11/91 15,955 15,318 15,933
2/92 16,320 15,655 16,289
5/92 16,611 15,950 16,622
8/92 17,366 16,741 17,368
11/92 17,310 16,704 17,345
2/93 18,122 17,693 18,273
5/93 18,445 17,869 18,501
8/93 19,289 18,787 19,274
11/93 19,245 18,723 19,234
2/94 19,273 18,649 19,259
5/94 17,703 18,063 18,632
8/94 17,771 18,357 18,984
11/94 17,184 18,051 18,646
2/95 17,897 18,897 19,602
5/95 18,794 20,041 20,771
8/95 19,081 20,357 21,129
11/95 19,576 21,192 21,935
2/96 19,661 21,183 22,002
5/96 19,449 20,837 21,682
8/96 19,665 21,111 21,996
</TABLE>
The ten-year period covered by this graph is from August 31, 1986 to August 31,
1996.
- --------------------------------------------------------------------------------
4
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
SCHEDULE OF INVESTMENTS AUGUST 31, 1996
- -------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY
AMOUNT COUPON DATE VALUE
<C> <S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS (15.0%)
$ 11,000,000 U.S. Treasury Notes......................................... 7.75% 1/31/00 $11,378,125
6,000,000 U.S. Treasury Notes......................................... 7.13 2/29/00 6,095,616
11,000,000 U.S. Treasury Bonds......................................... 14.25 2/15/02 14,722,796
- ------------ -----------
28,000,000 TOTAL U.S. TREASURY OBLIGATIONS (COST $32,852,656)..................................... 32,196,537
- ------------ -----------
U.S. GOVERNMENT AGENCY OBLIGATIONS (77.2%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (42.4%)
7,000,000 Federal National Mortgage Association Notes................. 5.30 12/10/98 6,814,843
14,000,000 Federal National Mortgage Association Notes................. 9.05 4/10/00 14,982,114
5,000,000 Federal National Mortgage Association Notes................. 5.44 1/24/01 4,728,400
1,000,000 Federal National Mortgage Association Notes................. 6.05 3/12/01 963,412
7,000,000 Federal National Mortgage Association Notes................. 6.16 4/03/01 6,798,526
6,000,000 Federal National Mortgage Association Notes................. 5.80 2/22/06 5,422,278
5,000,000 Federal National Mortgage Association Notes................. 6.63 3/21/06 4,796,785
5,877,673 Federal National Mortgage Association REMIC Trust
93-59 K................................................... 6.00 12/25/07 5,630,629
7,157,899 Federal National Mortgage Association REMIC Trust
95-23 G................................................... 6.50 6/25/08 6,524,876
8,961,470 Federal National Mortgage Association MBS Pool #250387...... 7.00 10/01/10 8,794,509
9,790,000 Federal National Mortgage Association REMIC Trust 1992-202
G......................................................... 7.50 12/25/18 9,591,145
4,819,539 Federal National Mortgage Association REMIC Trust
1994-43 G................................................. 6.50 5/25/22 4,183,962
5,560,000 Federal National Mortgage Association REMIC Trust
1993-122 C................................................ 6.50 2/25/23 4,858,050
7,000,000 Federal National Mortgage Association REMIC Trust
----------- 1995-WI A6................................................ 8.10(1) 4/25/25 7,083,125
-----------
94,166,581 TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION (COST $93,376,877)......................... 91,172,654
- ------------ -----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (20.2%)
5,000,000 Federal Home Loan Mortgage Corporation...................... 6.97 3/15/06 4,814,235
6,565,888 Federal Home Loan Mortgage Corporation 1679 A............... 5.25 9/15/06 6,376,094
4,878,150 Federal Home Loan Mortgage Corporation 1564 SG.............. 8.11(1)(2) 8/15/08 3,658,613
1,491,854 Federal Home Loan Mortgage Corporation 1587 SH.............. 8.50(1)(2) 10/15/08 1,316,561
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
SCHEDULE OF INVESTMENTS
- -------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MATURITY
AMOUNT COUPON DATE VALUE
- --------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
FEDERAL HOME LOAN MORTGAGE CORPORATION (CONT.)
$ 14,540,183 Federal Home Loan Mortgage Corporation 1853 D............... 7.00% 12/15/20 $14,390,550
7,000,000 Federal Home Loan Mortgage Corporation 1133 H............... 7.00 9/15/21 6,650,000
6,115,250 Federal Home Loan Mortgage Corporation 1853 E............... 7.00 1/15/22 5,784,647
1,114,304 Federal Home Loan Mortgage Corporation 1560 AD.............. 7.00(3) 3/15/23 398,713
- ------------ -----------
46,705,629 TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION
----------- (COST $43,994,306)................................................................... 43,389,413
-----------
FEDERAL HOME LOAN BANK (5.9%)
5,000,000 Federal Home Loan Bank Notes................................ 6.53 11/20/00 4,899,100
8,000,000 Federal Home Loan Bank Notes................................ 6.00 1/24/01 7,692,744
- ------------ -----------
13,000,000 TOTAL FEDERAL HOME LOAN BANK (COST $12,772,055)........................................ 12,591,844
- ------------ -----------
TENNESSEE VALLEY AUTHORITY (4.6%)
10,000,000 Tennessee Valley Authority 1995 Series "B".................. 6.24 07/15/45 9,784,480
- ------------ -----------
10,000,000 TOTAL TENNESSEE VALLEY AUTHORITY (COST $9,958,240)..................................... 9,784,480
- ------------ -----------
RESOLUTION TRUST CORPORATION SECURITIES (2.3%)
5,000,000 Resolution Trust Corporation 1992-5 A-6..................... 9.24 5/25/26 5,050,000
- ------------ -----------
5,000,000 TOTAL RESOLUTION TRUST CORPORATION (COST $5,081,250)................................... 5,050,000
- ------------ -----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (1.8%)
3,960,393 Government National Mortgage Association Project Loan Pool
----------- #262847................................................... 10.25 9/15/23 3,955,442
-----------
3,960,393 TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
----------- (COST $4,032,148).................................................................... 3,955,442
-----------
172,832,603 TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS (COST $169,214,876)........................... 165,943,833
- ------------ -----------
200,832,603 TOTAL INVESTMENT SECURITIES (92.2%) (COST $202,067,532)................................ 198,140,370
- ------------ -----------
</TABLE>
- --------------------------------------------------------------------------------
6
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
AUGUST 31, 1996
- -------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
<C> <S> <C>
- ---------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT (3.4%) (INCLUDING ACCRUED INTEREST)
$7,200,000 Collateralized by $6,930,000 U.S. Treasury Notes 7.875% due 11/15/99,
- ---------- with a value of $7,370,210, (with Morgan Stanley & Co., Inc., 5.20%,
dated 8/30/96, due 9/3/96, delivery value $7,204,160)........................... $7,202,080
--------------
</TABLE>
<TABLE>
<S> <C>
EXCESS OF CASH AND OTHER ASSETS OVER LIABILITIES (4.4%)........................................ 9,547,044
--------------
NET ASSETS (100.0%)............................................................................ $ 214,889,494
--------------
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER OUTSTANDING SHARE
($214,889,494 DIVIDED BY 19,803,917 SHARES OF CAPITAL STOCK OUTSTANDING).................... $ 10.85
--------------
</TABLE>
(1)RESETS MONTHLY. RATE DISCLOSED IS THAT IN EFFECT ON 8/31/96
(2)INVERSE FLOATER--FLOATING RATE MORTGAGE BACKED SECURITY WHOSE INTEREST RATE
RESETS IN THE OPPOSITE DIRECTION OF 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.
(3)INTEREST-ONLY CMO. PRINCIPAL REPRESENTS NOTIONAL AMOUNT.
SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
7
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
AT AUGUST 31, 1996
- ------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investment securities at value
(Cost--$202,067,532)................ $198,140,370
Repurchase agreement
(Cost--$7,202,080).................. 7,202,080
Cash.................................. 147,641
Receivable for securities sold........ 7,330,238
Interest receivable................... 2,360,384
Receivable for capital shares sold.... 69,911
------------
TOTAL ASSETS...................... 215,250,624
------------
LIABILITIES:
Payable for capital shares
repurchased......................... 165,130
Accrued expenses:
Advisory fee........................ 92,779
Other............................... 103,221
------------
TOTAL LIABILITIES................. 361,130
------------
NET ASSETS:........................... $214,889,494
------------
NET ASSETS CONSIST OF:
Capital Stock, at $1 par value
(authorized 100,000,000 outstanding
19,803,917 shares).................. $ 19,803,917
Additional paid-in capital............ 248,765,431
Undistributed investment income-net... 2,767,033
Accumulated net realized loss on
investments......................... (52,519,725)
Unrealized net depreciation of
investments......................... (3,927,162)
------------
NET ASSETS............................ $214,889,494
------------
NET ASSET VALUE, OFFERING AND
REDEMPTION PRICE PER OUTSTANDING
SHARE
($214,889,494 DIVIDED BY 19,803,917
SHARES OUTSTANDING)................. $ 10.85
------------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1996
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest income........................ $17,267,030
-----------
EXPENSES:
Advisory fee........................... 1,170,848
Transfer agent fees.................... 126,565
Auditing and legal fees................ 49,781
Postage................................ 39,340
Printing and stationery................ 31,659
Custodian fees......................... 28,278
Registration and filing fees........... 24,012
Telephone and wire charges............. 21,238
Insurance, dues and other.............. 15,417
Directors' fees and expenses........... 11,794
-----------
Total Expenses Before Expense
Offset............................ 1,518,932
Less: Expense Offset............... (2,316)
-----------
Net Expenses....................... 1,516,616
-----------
Investment Income--Net................. 15,750,414
-----------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS--NET:
Realized Loss--Net................... (4,133,643)
Change in Unrealized Appreciation
(Depreciation)...................... (3,938,964)
-----------
NET REALIZED LOSS AND CHANGE IN NET
UNREALIZED APPRECIATION
(DEPRECIATION) ON INVESTMENTS........ (8,072,607)
-----------
NET INCREASE IN NET ASSETS FROM
OPERATIONS........................... $ 7,677,807
-----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
8
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED AUGUST 31, 1996 AND 1995
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
---------------------------
OPERATIONS:
Investment income--net....................................................... $ 15,750,414 $ 18,671,894
Realized loss on investments--net............................................ (4,133,643) (21,392,006)
Change in unrealized appreciation (depreciation)............................. (3,938,964) 20,178,999
---------------------------
Net increase in net assets from operations................................... 7,677,807 17,458,887
---------------------------
DIVIDENDS TO SHAREHOLDERS:
Investment income--net....................................................... (16,270,938) (18,519,083)
---------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares................................................. 30,038,363 24,282,328
Proceeds from reinvestment of distributions to shareholders.................. 12,860,558 14,937,817
Cost of shares repurchased................................................... (75,420,076) (121,634,092)
---------------------------
Decrease from capital share transactions..................................... (32,521,155) (82,413,947)
---------------------------
TOTAL DECREASE................................................................. (41,114,286) (83,474,143)
NET ASSETS:
Beginning of year............................................................ 256,003,780 339,477,923
---------------------------
End of year.................................................................. $214,889,494 $256,003,780
---------------------------
UNDISTRIBUTED INVESTMENT INCOME--NET, AT END OF YEAR........................... $ 2,767,033 $ 3,287,557
---------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
9
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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
management 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 maker 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 GNMA's (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 analytic 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 negotiation
between the parties in a sales transaction. The values for GNMA's and agency
debentures 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. 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 in good faith.
(B) REPURCHASE AGREEMENTS. In connection with transactions in repurchase
agreements, the Fund's custodian takes possession of the underlying collateral
securities, the value of which exceeds the principal amount of the repurchase
transaction, including accrued interest. To the extent that any repurchase
transaction exceeds one business day, the value of the collateral is
marked-to-market on a daily basis to ensure the adequacy of the collateral. In
the event of default of the obligation to repurchase, the Fund has the right to
liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral or proceeds may be subject to legal proceedings.
(C) FEDERAL INCOME TAXES. It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated investment
companies, including the distribution requirements of the Tax Reform Act, 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
- --------------------------------------------------------------------------------
10
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
AUGUST 31, 1996
- -------------------------------------------
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:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
------------------------
Shares sold............................. 2,709,711 2,227,119
Shares issued to shareholders in
reinvestment of dividends............. 1,162,193 1,377,208
------------------------
3,871,904 3,604,327
Shares repurchased...................... (6,765,764) (11,213,352)
------------------------
Net decrease............................ (2,893,860) (7,609,025)
------------------------
Dividends per share..................... $ .77 $ .70
------------------------
</TABLE>
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
On September 19, 1996 the Fund's Board of Directors declared a quarterly
dividend from net investment income of $.18 per share payable on September 27,
1996 to shareholders of record on September 25, 1996.
3.PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities, excluding short-term investments,
were as follows:
<TABLE>
<CAPTION>
1996
<S> <C>
------------
PURCHASES:
U.S. Treasury Obligations.............................. $ 35,045,547
U.S. Government Agency Obligations and Other Investment
Securities........................................... 305,954,825
------------
$341,000,372
------------
SALES AND REDEMPTIONS:
U.S. Treasury Obligations.............................. $ 40,928,515
U.S. Government Agency Obligations and Other Investment
Securities........................................... 325,358,969
------------
$366,287,484
------------
</TABLE>
At August 31, 1996, the aggregate cost of investment securities and short-term
investments for Federal income tax purposes was $209,269,612. The aggregate
appreciation and depreciation of investments at August 31, 1996, based on a
comparison of investment values and their costs for Federal income tax purposes,
is $25,304 and $3,952,466 respectively, resulting in a net depreciation of
$3,927,162.
For Federal income tax purposes, the Fund had a net capital loss carryover at
August 31, 1996 of approximately $40,236,070 which will expire in the year 2003
and $8,976,511 which will expire in the year 2004. 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 $3,308,000. To the extent future capital gains are offset by
such capital losses, the Fund does not anticipate distributing any such gains to
the shareholders.
- --------------------------------------------------------------------------------
11
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4.INVESTMENT ADVISORY CONTRACT, MANAGEMENT FEES AND
TRANSACTIONS WITH AFFILIATES
An advisory fee of $1,170,848 was paid or payable to Value Line, Inc. (the
Adviser), the Fund's investment adviser, for the year ended August 31, 1996.
This was computed at the rate of 1/2 of 1% of the Fund's average daily net
assets during the year 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 shares,
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 year
ended August 31, 1996. During the year ended August 31, 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 August 31, 1996 owned 796,700 shares of the Fund's capital
stock, representing 4.0% of the outstanding shares. In addition, officers and
directors owned 206,157 shares, representing 1.0% of the outstanding shares.
- --------------------------------------------------------------------------------
12
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
-------------------------------------------------------------
Net asset value, beginning of year............ $11.28 $11.20 $13.44 $13.06 $12.39
-------------------------------------------------------------
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income................... .77 .74 .82 .93 .88
Net gains or losses on securities
(both realized and unrealized)........ (.43) .04 (1.80) .44 .68
-------------------------------------------------------------
Total income (loss) from investment
operations.............................. .34 .78 (.98) 1.37 1.56
-------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from net investment
income............................... (.77) (.70) (.93) (.89) (.89)
Distributions from capital gains........ -- -- (.33) (.10) --
-------------------------------------------------------------
Total distributions........................ (.77) (.70) (1.26) (.99) (.89)
-------------------------------------------------------------
Net asset value, end of year.................. $10.85 $11.28 $11.20 $13.44 $13.06
-------------------------------------------------------------
Total return.................................. 3.06% 7.37% (7.87%) 11.07% 13.11%
-------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year (in thousands)........ $214,889 $256,004 $339,478 $456,711 $424,330
Ratio of operating expenses to average net
assets...................................... .65% .66% .63% .61% .64%
Ratio of net investment income
to average net assets....................... 6.74% 6.58% 6.58% 7.29% 7.47%
Portfolio turnover rate....................... 158% 193% 100% 169% 130%
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
13
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF THE
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of the Value Line U.S. Government
Securities Fund, Inc. (the "Fund") at August 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended and the financial highlights for each of
the five years in the period then ended, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at August 31, 1996, by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
October 17, 1996
- --------------------------------------------------------------------------------
14
<PAGE>
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
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 of
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 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
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 primarily in a diversified
portfolio of investment-grade debt securities.
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 ASSETS 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 THE 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.
- --------------------------------------------------------------------------------
15
