---------------
ANNUAL REPORT
---------------
August 31, 1998
---------------
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
We are pleased to report that the Value Line U.S. Government Securities Fund
returned 10.28% for the fiscal year ended August 31, 1998. For comparative
purposes, the Lipper Intermediate U.S. Government Fund Index*, that most closely
matches the maturity strategy of your Fund, produced a return of 9.92%. As we
have previously indicated, the Fund seeks ". . . to obtain maximum income
without undue risk of principal . . ." by investing in a portfolio of government
securities with an average maturity ranging between 5 and 10 years. The broader
unrestricted Lipper General U.S. Government Fund Index* returned 10.42%.
The above returns are the product of favorable fiscal and monetary policy and
low inflation. These powerful forces produced strong tax revenues that reduced
the government's budget deficit to a surplus and consequently reduced the need
for financing in the credit markets. Adding global uncertainties to the mix
created a world-wide flight to the safety of the U.S. dollar and U.S. Treasury
securities.
Interest rates dropped from 6.70% on the 30 year Treasury bond as the year began
to a thirty-year low of 5.25% on August 31, 1998. Bond yields were pushed
downward by expectations of slower domestic growth in the wake of the Asian
crisis. As the crisis spread to Latin America, the world's financial markets
were severely rocked once again, with the Dow Jones Industrial Average tumbling
nearly 20% in just over a month. Bond yields continued to decline reaching a low
of 4.71% in early October. The U.S. Treasury bond market benefited the most as
investors fled from the volatile equity and foreign exchange markets to the
safety of U.S. Treasury bonds. More recently, the collapse of several notable
hedge funds resulted in heavy selling of US long bonds pushing yields back to
5.125%. Government bonds were the place to be in fixed income, as most other
bond market sectors, including all corporate bonds and mortgage-backed
securities, dramatically underperformed treasuries.
The Fund's management team believes that, although the major move in interest
rates is behind us, bond yields are likely to move lower approaching 4.50%. In
this environment, the Fund will continue to emphasize the highest quality
government securities and intermediate maturities to protect your principal from
undue risk. One area of value we expect to emphasize in the near future is the
government mortgage-backed sector, that is priced at the cheapest levels in a
decade, representing the potential for superior returns.
Sincerely,
/s/ Jean Bernhard Buttner
Jean Bernhard Buttner
Chairman and President
October 16, 1998
- --------------------------------------------------------------------------------
* The Lipper Intermediate U.S. Government Fund Index invests at least 65% of
fund assets in securities issued or guaranteed by the U.S. Government, its
agencies, or its instrumentalities, with dollar-weighted average maturities
of five to ten years. The Lipper General U.S. Government Fund Index invests
at least 65% of fund assets in U.S. government and agency issues.
- --------------------------------------------------------------------------------
2
<PAGE>
Value Line U.S. Government Securities Fund, Inc.
U.S. Government Securities Fund Shareholders
- --------------------------------------------------------------------------------
Economic Observations
The U.S. economy has slowed considerably since the early part of this year,
principally as a result of the fallout from the series of financial crises now
engulfing the Pacific Rim, Russia, and parts of Latin America. As such, this
nation's gross domestic product, which expanded at better than a 5% rate early
in the year, is currently proceeding at just about a third of that pace.
Moreover, the figures released in recent weeks, including those relating to
manufacturing, housing, retailing, and employment do not suggest that we'll see
any appreciable strengthening in economic activity over the next three to six
months.
At this point, though, we do not believe that this slower pace of economic
activity is the opening act in a serious domestic business downturn. Our sense
is that the global crisis will gradually recede over the next 12 to 18 months
and that the continuing modest level of inflation in this country will encourage
the Federal Reserve Board, which has already reduced short-term interest rates
in recent weeks, to relax the credit reins again--perhaps before year-end.
Performance Data:*
Growth of
an Assumed Average
Investment of Annual
$10,000 Total Return
------------- ------------
1 year ended 6/30/98 .............. $10,966 9.66%
5 years ended 6/30/98 ............. $12,328 4.27%
10 years ended 6/30/98 ............ $20,465 7.42%
* The average annual total returns for the one, five and ten year periods ended
August 31, 1998, were 10.28%, 4.15% and 7.69%, 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, Inc., the Lehman Aggregate Bond
Index, and the Lehman Government Bond Index
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIALS]
The ten-year period covered by this graph is from September 1, 1988 to August
31, 1998.
- --------------------------------------------------------------------------------
4
<PAGE>
Value Line U.S. Government Securities Fund, Inc.
Schedule of Investments August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Maturity
Amount Rate Date Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (5.8%)
$ 10,300,000 U.S. Treasury Notes........................................... 6.25% 2/28/02 $ 10,688,310
------------ ------------
10,300,000 TOTAL U.S. TREASURY OBLIGATIONS (Cost $10,555,086) ........... 10,688,310
------------ ------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (88.8%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (55.3%)
7,782,333 Federal National Mortgage Association Pool #313031............ 6.83 7/01/03 8,230,440
15,016,433 Federal National Mortgage Association Pool #313443............ 6.78 4/01/04 15,814,706
10,000,000 Federal National Mortgage Association......................... 5.75 6/15/05 10,110,900
8,613,726 Federal National Mortgage Association Pool #313032............ 7.04 7/01/06 9,284,735
10,446,777 Federal National Mortgage Association Pool #375667............ 6.02 2/01/08 10,420,660
5,000,000 Federal National Mortgage Association......................... 5.75 2/15/08 5,047,000
10,000,000 Federal National Mortgage Association Pool #380188............ 6.45 4/01/08 10,228,125
13,087,466 Federal National Mortgage Association REMIC Trust 1992-6 Z.... 7.50 1/25/21 13,550,239
9,954,580 Federal National Mortgage Association Pool #412682............ 6.00 3/01/28 9,800,483
4,932,270 Federal National Mortgage Association Pool #424691............ 6.50 4/01/28 4,952,295
4,930,311 Federal National Mortgage Association Pool #425239............ 6.50 4/01/28 4,950,328
------------ ------------
99,763,896 TOTAL FEDERAL NATIONAL MORTGAGE
------------
ASSOCIATION (Cost $99,765,393) ............................. 102,389,911
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (23.0%)
10,000,000 Federal Home Loan Mortgage Corporation........................ 5.75 7/15/03 10,151,700
12,000,000 Federal Home Loan Mortgage Corporation........................ 5.90 2/14/06 12,216,480
10,000,000 Federal Home Loan Mortgage Corporation........................ 5.75 4/15/08 10,094,900
3,431,063 Federal Home Loan Mortgage Corporation REMIC 1157 KZ.......... 7.50 10/15/20 3,439,161
6,761,000 Federal Home Loan Mortgage Corporation REMIC 1674 B........... 6.05 10/15/21 6,817,725
------------ ------------
42,192,063 TOTAL FEDERAL HOME LOAN MORTGAGE
------------
CORPORATION (Cost $41,949,235) ............................. 42,719,966
------------
FEDERAL HOME LOAN BANK (4.3%)
8,000,000 Federal Home Loan Bank........................................ 5.50 8/13/01 8,053,760
------------ ------------
8,000,000 TOTAL FEDERAL HOME LOAN BANK (Cost $7,977,910) ............... 8,053,760
------------ ------------
TENNESSEE VALLEY AUTHORITY (2.8%)
5,000,000 Tennessee Valley Authority Global Bonds Series C.............. 6.00 3/15/13 5,139,250
------------ ------------
5,000,000 TOTAL TENNESSEE VALLEY AUTHORITY (Cost $4,923,035) ........... 5,139,250
------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
Value Line U.S. Government Securities Fund, Inc.
Schedule of Investments August 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal Maturity
Amount Rate Date Value
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (2.1%)
$ 3,902,718 Government National Mortgage Association
Project Loan Pool #262847...................................10.25% 9/15/23 $ 3,902,718
------------ ------------
3,902,718 TOTAL GOVERNMENT NATIONAL MORTGAGE
------------
ASSOCIATION (Cost $3,973,430) .............................. 3,902,718
------------
RESOLUTION TRUST CORPORATION SECURITIES (1.3%)
2,427,472 Resolution Trust Corporation 1992-5 A-6....................... 9.24 5/25/26 2,473,108
------------ ------------
2,427,472 TOTAL RESOLUTION TRUST CORPORATION (Cost $2,466,918).......... 2,473,108
------------ ------------
161,286,149 TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
------------
(Cost $161,055,921) ........................................ 164,678,713
-----------
171,586,149 TOTAL INVESTMENT SECURITIES (94.6%) (Cost $171,611,007) ...... 175,367,023
------------ ------------
REPURCHASE AGREEMENT (3.4%) (including accrued interest)
6,300,000 Collateralized by $4,855,000 U.S. Treasury Bonds, 10.75%,
due 8/15/05, with a value of $6,460,118 (with State Street
Bank and Trust Company, 5.82%, dated 8/31/98,
due 9/1/98, delivery value $6,301,019)...................... 6,301,019
EXCESS OF CASH AND OTHER ASSETS
OVER LIABILITIES (2.0%) .................................... 3,625,712
------------
NET ASSETS (100.0%) .......................................... $185,293,754
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER OUTSTANDING SHARE ($185,293,754 / 16,199,429
shares of capital stock outstanding) ....................... $11.44
============
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
6
<PAGE>
Value Line U.S. Government Securities Fund, Inc.
Statement of Assets and Liabilities
at August 31, 1998
- --------------------------------------------------------------------------------
Assets:
Investment securities at value
(Cost--$171,611,007) .................................. $ 175,367,023
Repurchase agreement
(Cost--$6,301,019) .................................... 6,301,019
Cash .................................................... 437,997
Receivable for capital shares sold ...................... 2,013,749
Interest receivable ..................................... 1,458,489
-------------
Total Assets ........................................ 185,578,277
=============
Liabilities:
Payable for capital shares
repurchased ........................................... 118,026
Accrued expenses:
Advisory fee .......................................... 77,002
Other ................................................. 89,495
-------------
Total Liabilities ................................... 284,523
-------------
Net Assets .............................................. $ 185,293,754
=============
Net Assets consist of:
Capital stock, at $1 par value
(authorized 100,000,000,
outstanding 16,199,429 shares) ........................ $ 16,199,429
Additional paid-in capital .............................. 212,555,823
Undistributed net investment income ..................... 1,827,191
Accumulated net realized loss
on investments ........................................ (49,044,705)
Net unrealized appreciation
of investments ........................................ 3,756,016
-------------
Net Assets .............................................. $ 185,293,754
=============
Net Asset Value, Offering and
Redemption Price per
Outstanding Share
($185,293,754 / 16,199,429 shares
outstanding) .......................................... $ 11.44
=============
Statement of Operations
for the year ended August 31, 1998
- --------------------------------------------------------------------------------
Investment Income:
Interest income ........................................ $ 12,596,271
------------
Expenses:
Advisory fee ........................................... 932,396
Transfer agent fees .................................... 92,277
Auditing and legal fees ................................ 50,302
Printing ............................................... 39,464
Postage ................................................ 27,954
Custodian fees ......................................... 25,990
Telephone .............................................. 17,637
Directors' fees and expenses ........................... 15,671
Insurance, dues and other .............................. 14,286
Registration and filing fees ........................... 12,790
------------
Total Expenses Before
Custody Credits .................................... 1,228,767
Less: Custody Credits ................................ (13,532)
------------
Net Expenses ......................................... 1,215,235
------------
Net Investment Income .................................. 11,381,036
------------
Net Realized and Unrealized Gain
on Investments:
Net Realized Gain .................................... 3,150,561
Change in Net Unrealized
Appreciation ....................................... 3,614,686
------------
Net Realized Gain and Change in
Net Unrealized Appreciation
on Investments ....................................... 6,765,247
------------
Net Increase in Net Assets
from Operations ...................................... $ 18,146,283
============
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
7
<PAGE>
Value Line U.S. Government Securities Fund, Inc.
Statement of Changes in Net Assets
for the years ended August 31, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
August 31, August 31,
1998 1997
-------------------------------
<S> <C> <C>
Operations:
Net investment income ............................................ $ 11,381,036 $ 13,004,606
Net realized gain on investments ................................. 3,150,561 324,459
Change in net unrealized appreciation ............................ 3,614,686 4,068,492
-----------------------------
Net increase in net assets from operations........................ 18,146,283 17,397,557
-----------------------------
Dividends to Shareholders:
Net investment income ............................................ (11,621,120) (13,704,364)
-----------------------------
Capital Share Transactions:
Proceeds from sale of shares ..................................... 23,808,062 15,492,038
Proceeds from reinvestment of distributions to shareholders....... 9,423,276 10,979,149
Cost of shares repurchased ....................................... (39,466,978) (60,049,643)
-----------------------------
Decrease from capital share transactions ......................... (6,235,640) (33,578,456)
-----------------------------
Total Increase (Decrease) .......................................... 289,523 (29,885,263)
Net Assets:
Beginning of year ................................................ 185,004,231 214,889,494
-----------------------------
End of year ...................................................... $185,293,754 $185,004,231
=============================
Undistributed Net Investment Income, at end of year ................ $ 1,827,191 $ 2,067,275
=============================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8
<PAGE>
Value Line U.S. Government Securities Fund, Inc.
Notes to Financial Statements August 31, 1998
- --------------------------------------------------------------------------------
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, 1998
- --------------------------------------------------------------------------------
(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 discounts on securities owned. The Fund purchases
stripped mortgage-backed securities at premiums and discounts. 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 and Dividends to Shareholders
Transactions in capital stock were as follows:
Year Ended August 31,
----------------------
1998 1997
----------------------
Shares sold ......................... 2,118,818 1,407,967
Shares issued to shareholders in
reinvestment of dividends ......... 845,513 1,009,943
-----------------------
2,964,331 2,417,910
Shares repurchased .................. (3,517,468) (5,469,260)
-----------------------
Net decrease ........................ (553,137) (3,051,350)
=======================
Dividends per share ................. $ .70 $ .755
=======================
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
On September 24, 1998 the Fund's Board of Directors declared a quarterly
dividend from net investment income of $.16 per share payable on September 29,
1998 to shareholders of record on September 25, 1998.
3. Purchases and Sales of Securities
Purchases and sales of investment securities, excluding short-term investments,
were as follows:
Year Ended
August 31, 1998
---------------
PURCHASES:
U.S. Treasury Obligations ............................. $111,126,008
U.S. Government Agency
Obligations and Other
Investment Securities ............................... 169,843,322
------------
$280,969,330
============
SALES AND REDEMPTIONS:
U.S. Treasury Obligations ............................. $122,978,546
U.S. Government Agency
Obligations and Other
Investment Securities ............................... 173,339,573
------------
$296,318,119
============
At August 31, 1998, the aggregate cost of investment securities and repurchase
agreement for federal income tax purposes was $177,912,504. The aggregate
appreciation and depreciation of investments at August 31, 1998, based on a
comparison of investment values and their costs for federal income tax purposes,
was $3,894,861 and $139,323 respectively, resulting in a net appreciation of
$3,755,538.
For federal income tax purposes, the Fund had a net capital loss carryover at
August 31, 1998 of approximately $49,044,227 of which approximately $37,238,382
will expire in 2003, $8,976,510 will expire in 2004 and $2,829,335 will expire
in 2005. During the year ended August 31, 1998, the Fund utilized prior year's
carryover losses of approximately $2,997,688 to offset net realized gains.
- --------------------------------------------------------------------------------
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 $932,396 was paid or payable to Value Line, Inc. (the
"Adviser"), the Fund's investment adviser, for the year ended August 31, 1998.
This was computed at the annual rate of 1/2 of 1% of the Fund's 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.
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, 1998 owned 953,822 shares of the Fund's capital
stock, representing 5.9% of the outstanding shares. In addition, officers and
directors owned 233,384 shares of capital stock, representing 1.4% of the
outstanding shares.
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout each year:
<TABLE>
<CAPTION>
Years Ended August 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ......... $ 11.04 $ 10.85 $ 11.28 $ 11.20 $ 13.44
----------------------------------------------------------------
Income (loss) from investment operations:
Net investment income .................. .69 .74 .77 .74 .82
Net gains or losses on securities
(both realized and unrealized)........ .41 .21 (.43) .04 (1.80)
----------------------------------------------------------------
Total income (loss) from
investment operations ................ 1.10 .95 .34 .78 (.98)
----------------------------------------------------------------
Less distributions:
Dividends from net investment income ... (.70) (.76) (.77) (.70) (.93)
Distributions from capital gains ....... -- -- -- -- (.33)
----------------------------------------------------------------
Total distributions .................... (.70) (.76) (.77) (.70) (1.26)
----------------------------------------------------------------
Net asset value, end of year ............... $ 11.44 $ 11.04 $ 10.85 $ 11.28 $ 11.20
================================================================
Total return ............................... 10.28% 9.01% 3.06% 7.37% -7.87%
================================================================
Ratios/Supplemental Data:
Net assets, end of year (in thousands) ..... $185,294 $185,004 $214,889 $256,004 $339,478
Ratio of operating expenses to
average net assets........................ .66%(1) .65%(1) .65%(1) .66% .63%
Ratio of net investment income to
average net assets........................ 6.07% 6.52% 6.74% 6.58% 6.58%
Portfolio turnover rate .................... 159% 255% 158% 193% 100%
</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
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 Value Line U.S. Government
Securities Fund, Inc. (the "Fund") at August 31, 1998, 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, 1998, by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036-2798
October 22, 1998
- --------------------------------------------------------------------------------
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 PricewaterhouseCoopers 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
David H. Porter
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).
501964
