================================================================================
---------------
ANNUAL REPORT
---------------
August 31, 1997
---------------
Value Line
U.S. Government
Securities
Fund, Inc.
[LOGO]
VALUE LINE
No-Load
Mutual
Funds
<PAGE>
Value Line U.S. Government Securities Fund, Inc.
To Our Value Line
================================================================================
To Our Shareholders
The Value Line U.S. Government Securities Fund's fiscal year was a fascinating
one for the fixed-income markets, with the yield on the 30-year Treasury bond
ranging rather dramatically between 7.17% and 6.30%. Interest rates began 1996
at their highs and ended the year, near their lows, but swung wildly in between
as investor's perceptions of the economic scenario and Fed policy changed. As
the economy began to lose some steam, long-term interest rates reversed course
and the 30-year bond reached a low of 6.35% in November. However, as 1997
unfolded, a stronger first-half economy caused rates to reverse trend and move
back to their highs in April. Finally, as fear of a further Fed tightening
receded, economic growth moderated, and inflation fears were calmed by benign
reports, the 30-Year Treasury bond rallied once again with yields declining to
as low as 6.30% by late summer.
In light of these market fluctuations, I am pleased to report to you that for
the fiscal year ended August 31, 1997, The Value Line U.S. Government Securities
Fund's return was 9.01%. While the Lehman Mutual Fund Government/Mortgage Index
produced a 9.75% return, during the same time period, when that Index's return
is lowered by the amount of our Fund's expense ratio of 0.65%, its return falls
to 9.10%. Moreover, your Fund's low expense ratio of 0.65% is significantly less
than its peer group average of 1.26%.
Looking forward, real interest rates (inflation adjusted) look to be at
historically high levels and, therefore, fixed-income securities are likely to
generate strong returns. The Fund's management team will continue to manage the
assets of your Fund by allocating resources among government, mortgage-backed
and selected other securities to meet the objective of obtaining maximum income
(and total return) without undue risk to principal. By identifying and
exploiting opportunities among securities and sectors, management believes it
can continue to achieve superior performance.
Sincerely,
/s/ Jean Bernhard Buttner
Jean Bernhard Buttner
Chairman and President
October 22, 1997
================================================================================
2
<PAGE>
Value Line U.S. Government Securities Fund, Inc.
U.S. Government Securities Fund Shareholders
================================================================================
Economic Observations
The economy continues to push ahead, with such important indicators as the level
of manufacturing activity and the rate of employment growth exhibiting a
reasonably good degree of strength. Such trends, and a continuing healthy level
of consumer confidence, suggest that growth will average 2.5%-3.0% during the
closing half of the year. Thereafter, we would expect the expansion pace to
moderate somewhat, with real, inflation-adjusted GDP growth holding in the range
of 2.0%-2.5% in 1998.
Inflation, meanwhile, continues to be remarkably subdued. This healthy pricing
trend, which is all the more impressive given the longevity of the business
upcycle, is, moreover, unlikely to change dramatically in the months ahead.
Underscoring our optimism in this area is the earlier hammering out of a budget
package which should reduce the government's need to borrow to finance the
deficit and the fact that there is still a lack of serious shortages on either
the labor or the raw-materials fronts.
Interest rates, meantime, reflecting the current, relatively moderate pace of
economic growth and the subdued pricing structure, are unlikely to increase much
over the next few months. Nevertheless, we caution that given the seeming
resiliency of the business expansion, an inflation-wary Federal Reserve will
probably not shy away from tightening the monetary reins if the present pricing
stability gives way. And an upward move in rates, if sufficiently pronounced,
would be poorly received, in our opinion, by both the stock and the bond markets
and, as well, by the U.S. economy down the road. The recent increase in
volatility in the financial markets suggests that many are now questioning
whether the current, benign environment can last much longer. We think a
cautious investment strategy is now in order.
Growth of
an Assumed Average
Investment of Annual
$10,000 Total Return
------------- ------------
1 year ended 6/30/97.............. $10,743 7.43%
5 years ended 6/30/97............. $12,546 4.64%
10 years ended 6/30/97............ $20,315 7.35%
* The average annual total return for the one, five and 10 year periods ended
August 31, 1997, were 9.01%, 4.30% and 7.57%, 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.
================================================================================
[THE FOLLOWING TABLE WAS PRESENTED AS A LINE GRAPH IN THE PRINTED MATERIAL]
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
Value Line Lehman Lehman
U.S. Government Fund Aggregate Bond Government Bond
-------------------- -------------- ---------------
9/1/87 10,000 10,000 10,000
8/31/88 10,905 10,843 10,750
8/31/89 12,058 12,275 12,155
8/31/90 13,035 13,162 12,929
8/31/91 14,854 15,087 14,762
8/31/92 16,802 17,122 16,782
8/31/93 18,663 19,001 18,833
8/31/94 17,194 18,714 18,401
8/31/95 18,461 20,829 20,407
8/31/96 19,027 21,684 21,163
8/31/97 20,740 23,853 23,137
The ten-year period covered by this graph is from August 31, 1987 to August 31,
1997.
================================================================================
4
<PAGE>
Value Line U.S. Government Securities Fund, Inc.
Schedule of Investments August 31, 1997
<TABLE>
<CAPTION>
==========================================================================================================================
Principal Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (11.7%)
$ 4,000,000 U.S. Treasury Notes............................................. 5.88% 7/31/99 $ 3,994,400
10,000,000 U.S. Treasury Notes............................................. 5.75 8/15/03 9,738,200
5,000,000 U.S. Treasury Notes............................................. 5.88 2/15/04 4,890,550
3,000,000 U.S. Treasury Notes............................................. 6.63 5/15/07 3,052,500
------------ -------------
22,000,000 TOTAL U.S. TREASURY OBLIGATIONS (Cost $21,777,791).............. 21,675,650
------------ -------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (87.6%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (47.8%)
5,394,517 Federal National Mortgage Association Pool #313031.............. 6.83 7/01/03 5,434,383
5,000,000 Federal National Mortgage Association Pool #360010.............. 7.05 9/01/03 5,086,350
15,171,873 Federal National Mortgage Association Pool #313443.............. 6.78 4/01/04 15,243,484
8,707,018 Federal National Mortgage Association Pool #313032.............. 7.04 7/01/06 8,885,774
10,000,000 Federal National Mortgage Association REMIC Trust 1993-156 B.... 6.50 4/25/18 9,739,400
10,665,409 Federal National Mortgage Association REMIC Trust 1990-132 G.... 9.00 2/25/20 10,894,715
10,000,000 Federal National Mortgage Association REMIC
Trust 1992-129 JA............................................ 7.00 7/25/20 9,954,400
12,144,645 Federal National Mortgage Association REMIC Trust 1992-6 Z...... 7.50 1/25/21 12,017,127
10,000,000 Federal National Mortgage Association REMIC Trust 1996-7 J...... 6.50 9/25/24 9,387,000
6,761,002 +Federal National Mortgage Association REMIC Trust 1996-55 PL... 7.00 6/25/25 1,702,927
------------ -------------
93,844,464 TOTAL FEDERAL NATIONAL MORTGAGE
------------
ASSOCIATION (Cost $87,995,147) ............................... 88,345,560
-------------
FEDERAL HOME LOAN MORTGAGE CORPORATION (20.2%)
9,280,338 Federal Home Loan Mortgage Corporation 1157 KZ.................. 7.50 10/15/20 9,386,690
6,761,000 Federal Home Loan Mortgage Corporation 1674 B................... 6.05 10/15/21 6,367,780
10,000,000 Federal Home Loan Mortgage Corporation 1928 CA.................. 7.00 12/15/24 9,813,300
12,942,541 Federal Home Loan Mortgage Corporation 1888 Z................... 7.00 8/15/26 11,801,980
------------ -------------
38,983,879 TOTAL FEDERAL HOME LOAN MORTGAGE
------------
CORPORATION (Cost $37,182,791) ............................... 37,369,750
-------------
</TABLE>
================================================================================
5
<PAGE>
Value Line U.S. Government Securities Fund, Inc.
Schedule of Investments August 31, 1997
<TABLE>
<CAPTION>
==========================================================================================================================
Principal Maturity
Amount Rate Date Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (13.0%)
$ 3,933,062 Government National Mortgage Association
Project Loan Pool #262847 ................................... 10.25% 9/15/23 $ 3,933,022
19,945,897 Government National Mortgage Association
Single Family Pool #439558 .................................. 7.50 5/15/27 20,126,607
------------ -------------
23,878,959 TOTAL GOVERNMENT NATIONAL MORTGAGE
------------
ASSOCIATION (Cost $24,210,529) ............................... 24,059,629
-------------
TENNESSEE VALLEY AUTHORITY (4.2%)
8,000,000 Tennessee Valley Authority Global Power Bonds 1995 Series E..... 6.75 11/01/25 7,811,360
------------ -------------
8,000,000 TOTAL TENNESSEE VALLEY AUTHORITY (Cost $8,005,920).............. 7,811,360
------------ -------------
RESOLUTION TRUST CORPORATION SECURITIES (2.4%)
4,250,563 Resolution Trust Corporation 1992-5 A-6......................... 9.24 5/25/26 4,371,194
------------ -------------
4,250,563 TOTAL RESOLUTION TRUST CORPORATION (Cost $4,319,635)............ 4,371,194
------------ -------------
168,957,865 TOTAL U.S. GOVERNMENT AGENCY
OBLIGATIONS (Cost $161,714,022) ............................. 161,957,493
------------ -------------
190,957,865 TOTAL INVESTMENT SECURITIES (99.3%) (Cost $183,491,813)......... 183,633,143
------------ -------------
REPURCHASE AGREEMENT (0.6%) (including accrued interest)
1,100,000 Collateralized by $885,000 U.S. Treasury Notes 11.625%
due 11/15/02, with a value of $1,126,204 (with Morgan
Stanley & Co., Inc., 5.57%, dated 8/29/97, due 9/2/97,
delivery
value $1,100,681) ........................................... 1,100,511
EXCESS OF CASH AND OTHER ASSETS OVER LIABILITIES (0.1%) ........ 270,577
-------------
NET ASSETS (100.0%) ............................................ $ 185,004,231
=============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER
OUTSTANDING SHARE ($185,004,231 / 16,752,566 shares of
capital stock outstanding) .................................. $11.04
=============
</TABLE>
+ Interest only security. Principal represents notional amount.
See Notes to Financial Statements.
================================================================================
6
<PAGE>
Value Line U.S. Government Securities Fund, Inc.
Statement of Asset and Liabilities
at August 31, 1997
================================================================================
Assets:
Investment securities at value:
(Cost--$183,491,813)........................... $183,633,143
Repurchase agreement
(Cost--$1,100,511)............................. 1,100,511
Cash............................................. 63,027
Receivable for securities sold................... 10,953,145
Interest receivable.............................. 1,200,107
Receivable for capital shares sold............... 35,397
------------
Total Assets ................................ 196,985,330
------------
Liabilities:
Payable for securities purchased................. 11,743,828
Payable for capital shares repurchased........... 58,754
Accrued expenses:
Advisory fee................................... 79,192
Other.......................................... 99,325
------------
Total Liabilities ........................... 11,981,099
------------
Net Assets ...................................... $185,004,231
============
Net Assets consist of:
Capital Stock, at $1 par value
(authorized 100,000,000,
outstanding 16,752,566 shares)................. $16,752,566
Additional paid-in capital....................... 218,238,326
Undistributed investment income-net.............. 2,067,275
Accumulated net realized loss on
investments.................................... (52,195,266)
Unrealized net appreciation of
investments.................................... 141,330
------------
Net Assets .................................. $185,004,231
============
Net Asset Value, Offering and
Redemption Price per
Outstanding Share
($185,004,231 / 16,752,566 shares
outstanding)................................... $ 11.04
============
Statement of Operations
for the year ended August 31, 1997
================================================================================
Investment Income:
Interest income................................... $ 14,297,728
------------
Expenses:
Advisory fee...................................... 991,099
Transfer agent fees............................... 107,205
Auditing and legal fees........................... 48,316
Postage........................................... 31,610
Custodian fees.................................... 27,821
Printing.......................................... 23,944
Telephone......................................... 21,436
Registration and filing fees...................... 19,377
Directors' fees and expenses...................... 14,794
Insurance, dues and other......................... 12,646
------------
Total Expenses before
Custody Credits .............................. 1,298,248
Less: Custody Credits........................... (5,126)
------------
Net Expenses ................................... 1,293,122
------------
Investment Income-Net ............................ 13,004,606
------------
Realized and Unrealized Gain on Investments-Net:
Realized Gain-Net............................... 324,459
Change in Unrealized Appreciation
(Depreciation)................................ 4,068,492
------------
Net Realized Gain and Change in
Net Unrealized Appreciation
(Depreciation) on Investments .................. 4,392,951
------------
Net Increase in Net Assets
from Operations ................................ $ 17,397,557
============
See Notes to Financial Statements.
================================================================================
7
<PAGE>
Value Line U.S. Government Securities Fund, Inc.
<TABLE>
<CAPTION>
Statement of Changes in Net Assets
for the years ended August 31, 1997 and 1996
=============================================================================================
Year Ended Year Ended
August 31, 1997 August 31, 1996
---------------------------------
<S> <C> <C>
Operations:
Net investment income ................................. $ 13,004,606 $ 15,750,414
Net realized gain (loss) on investments ............... 324,459 (4,133,643)
Change in unrealized appreciation (depreciation) ...... 4,068,492 (3,938,964)
------------------------------
Net increase in net assets from operations ............ 17,397,557 7,677,807
------------------------------
Dividends to Shareholders:
Net investment income ................................. (13,704,364) (16,270,938)
------------------------------
Capital Share Transactions:
Proceeds from sale of shares .......................... 15,492,038 30,038,363
Proceeds from reinvestment of dividends to shareholders 10,979,149 12,860,558
Cost of shares repurchased ............................ (60,049,643) (75,420,076)
------------------------------
Decrease from capital share transactions .............. (33,578,456) (32,521,155)
------------------------------
Total Decrease .......................................... (29,885,263) (41,114,286)
Net Assets:
Beginning of year ..................................... 214,889,494 256,003,780
------------------------------
End of year ........................................... $ 185,004,231 $ 214,889,494
==============================
Undistributed Investment Income - Net, at end of year ... $ 2,067,275 $ 2,767,033
==============================
</TABLE>
See Notes to Financial Statements.
================================================================================
8
<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 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.
================================================================================
9
<PAGE>
Value Line U.S. Government Securities Fund, Inc.
August 31, 1997
================================================================================
(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:
1997 1996
------------------------
Shares sold .......................... 1,407,967 2,709,711
Shares issued to shareholders in
reinvestment of dividends........... 1,009,943 1,162,193
-------------------------
2,417,910 3,871,904
Shares repurchased ................... (5,469,260) (6,765,764)
-------------------------
Net decrease ......................... (3,051,350) (2,893,860)
=========================
Dividends per share .................. $.755 $.77
=========================
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
On September 18, 1997 the Fund's Board of Directors declared a quarterly
dividend from net investment income of $.18 per share payable on September 26,
1997 to shareholders of record on September 24, 1997.
3. Purchases and Sales of Securities
Purchases and sales of investment securities, excluding short-term investments,
were as follows:
1997
------------
PURCHASES:
U.S. Treasury Obligations................... $134,095,859
U.S. Government Agency
Obligations and Other
Investment Securities..................... 361,956,039
------------
$496,051,898
============
SALES AND REDEMPTIONS:
U.S. Treasury Obligations................... $144,644,688
U.S. Government Agency
Obligations and Other
Investment Securities..................... 370,494,587
------------
$515,139,275
============
At August 31, 1997, the aggregate cost of investment securities and repuchase
agreement for federal income tax purposes was $184,592,324. The aggregate
appreciation and depreciation of investments at August 31, 1997, based on a
comparison of investment values and their costs for federal income tax purposes,
were $1,052,007 and $910,677 respectively, resulting in a net appreciation of
$141,330.
For federal income tax purposes, the Fund had a net capital loss carryover at
August 31, 1997 of approximately $52,042,000 of which approximately $40,236,000
will expire in 2003, $8,977,000 will expire in 2004 and $2,829,000 will expire
in 2005. 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 $154,000. To the extent
future capital gains are offset by such capital losses, the Fund does not
anticipate distributing any such gains to the shareholders.
================================================================================
10
<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 $991,099 was paid or payable to Value Line, Inc. (the
Adviser), the Fund's investment adviser, for the year ended August 31, 1997.
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.
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, 1997 owned 209,608 shares of the Fund's capital
stock, representing 1.3% of the outstanding shares. In addition, officers and
directors owned 220,172 shares, representing 1.3% of the outstanding shares.
Financial Highlights
================================================================================
Selected Data for a Share of Capital Stock Outstanding Throughout Each Year:
<TABLE>
<CAPTION>
Year Ended August 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ................. $ 10.85 $ 11.28 $ 11.20 $ 13.44 $ 13.06
------------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .......................... .74 .77 .74 .82 .93
Net gains or losses on securities (both realized
and unrealized) .............................. .21 (.43) .04 (1.80) .44
------------------------------------------------------------------
Total income (loss) from investment operations . .95 .34 .78 (.98) 1.37
------------------------------------------------------------------
Less distributions:
Dividends from net investment income ........... (.76) (.77) (.70) (.93) (.89)
Distributions from capital gains ............... -- -- -- (.33) (.10)
------------------------------------------------------------------
Total distributions ............................ (.76) (.77) (.70) (1.26) (.99)
------------------------------------------------------------------
Net asset value, end of year ....................... $ 11.04 $ 10.85 $ 11.28 $ 11.20 $ 13.44
==================================================================
Total return ....................................... 9.01% 3.06% 7.37% (7.87)% 11.07%
==================================================================
Ratios/Supplemental Data:
Net assets, end of year (in thousands) ............. $185,004 $214,889 $256,004 $339,478 $456,711
Ratio of operating expenses to average net assets .. .65%(1) .65%(1) .66% .63% .61%
Ratio of net investment income to average net assets 6.52% 6.74% 6.58% 6.58% 7.29%
Portfolio turnover rate ............................ 255% 158% 193% 100% 169%
</TABLE>
(1) Before offset of custody credits.
See Notes to Financial Statements.
================================================================================
11
<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, 1997, 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, 1997, by correspondence with the
custodian and broker, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
October 27, 1997
================================================================================
12
<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 Co.
225 Franklin Street
Boston, MA 02110
SHAREHOLDER State Street Bank and Trust Co.
SERVICING AGENT 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
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
Nathan N.J. Grant
Vice President
Bruce H. Alston
Vice President
Jack M. Houston
Assistant Secretary/Treasurer
Stephen La Rosa
Assistant Secretary/Treasurer
This report is issued for information of shareholders. It is not authorized for
distribution to prospective investors unless preceded or accompanied by a
currently effective prospectus of the Fund (obtainable from the Distributor).
VLF708083
