<PAGE>
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INVESTMENT ADVISER
Value Line, Inc.
220 East 42nd Street, New York, NY 10017-5891
DISTRIBUTOR
Value Line Securities, Inc.
220 East 42nd Street, New York, NY 10017-5891
CUSTODIAN BANK
State Street Bank and Trust Company
225 Franklin Street, Boston, MA 02110
SHAREHOLDER SERVICING AGENT
State Street Bank and Trust Company c/o NFDS
P.O. Box 419729, Kansas City, MO 64141-6729
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
1177 Avenue of the Americas, New York, NY 10036-2798
LEGAL COUNSEL
Peter D. Lowenstein, Esq.
Two Greenwich Plaza, Suite 100
Greenwich, CT 06830
BOARD OF DIRECTORS
Jean Bernhard Buttner Francis C. Oakley
Marion N. Ruth Frances T. Newton
OFFICERS
Jean Bernhard Buttner
CHAIRMAN AND PRESIDENT
David T. Henigson
VICE PRESIDENT AND SECRETARY/TREASURER
Charles Heebner John Risner
VICE PRESIDENT VICE PRESIDENT
Jack M. Houston Stephen La Rosa
ASSISTANT ASSISTANT
SECRETARY/TREASURER SECRETARY/TREASURER
This report is issued for the 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).
VLF50699
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ANNUAL REPORT
October 31, 1995
-----------------------------------------------------------------------
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THE VALUE LINE
ADJUSTABLE RATE
U.S. GOVERNMENT
SECURITIES
FUND, INC.
[LOGO]
VALUE LINE
MUTUAL FUNDS
<PAGE>
[LOGO]
TO THE VALUE LINE ADJUSTABLE RATE U.S. GOVERNMENT SECURITIES FUND SHAREHOLDERS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
DEAR SHAREHOLDER:
Effective November 1, 1995, with the approval of shareholders, The Value Line
Adjustable Rate U.S. Government Securities Fund, Inc. became the Value Line
Intermediate Bond Fund, Inc. The primary objective of the Fund--high current
income, consistent with low volatility of principal--remains the same. The means
of achieving this objective are different, however. The Fund now will invest
primarily in a diversified portfolio of investment-grade debt securities with a
dollar-weighted average maturity of between three and 10 years. This orientation
replaces our former portfolio consisting primarily of adjustable-rate,
mortgage-backed securities, an asset class that experienced extreme market vo
latility during much of 1994.
In view of that volatility, the Fund concentrated on stabilizing its net asset
value throughout the year ended October 31, 1995. We accomplished this goal,
primarily through new investments in short-term fixed and adjustable-rate
securities. The net asset value of your Fund on October 31, 1995, was $8.67,
just 0.4% shy of the $8.70 net asset value on October 31, 1994. The Fund's
portfolio at year-end consisted of U.S. government agency securities (42.8%),
asset-backed securities (30.2%), and cash equivalents (27.0%). Adjustable-rate
securities comprised 43.8% of the Fund's net assets.
In addition to stabilizing the Fund's net asset value, your management has
achieved a recovery in returns to you, our shareholders. The total return of the
Fund for the 12 months ended October 31, 1995, was 4.14%. This represented a
sharp turnaround from the previous year's nominal total return (see the graph on
page 4).
The past year witnessed a remarkable recovery in the bond markets. Between
November 7, 1994, and December 4, 1995, long-term interest rates, as measured by
the 30-year Treasury bond, plunged 2.13 percentage points--from 8.16% to 6.03%.
Meanwhile, short-term rates (as measured by the three-month Treasury bill)
dropped only 0.62%--from a high of 6.06% on February 1, 1995, to the current
level of 5.44%. With the spread between long- and short-term rates having
narrowed to such a degree (from 2.88 percentage points on November 2, 1994, to
0.64 points on November 30, 1995), the yield curve flattened considerably.
Similarly, the total return on longer maturity securities was several times that
of short-term bonds for the 12-month period ended October 31, 1995: 28.5% for
30-year Treasury bonds, vs. 5.9% for three-month Treasury bills.
In view of the past year's bull market for bonds and the emphasis of your Fund
on stabilizing net asset value, the Fund underperformed both the Lehman ARM
Index and the Lehman Aggregate Bond Index for the 12-month period ended October
31, 1995 (see graph on page 4). Both the Lehman ARM Index, consisting of more
volatile mortgage-backed securities , and the Lehman Aggregate Bond Index, which
includes long-term bonds, benefited from the sharp price appreciation of their
holdings during the past year.
Looking ahead, your Fund's management expects to continue to invest in a
diversified portfolio of intermediate-term bonds. These will comprise U.S.
Treasury and agency securities and investment-grade corporate, asset-backed, and
mortgage-backed issues. We expect to further
2
<PAGE>
reduce the exposure to adjustable-rate securities in the portfolio and to
lengthen the weighted-average maturity of our holdings so it will be more
comparable to that of the Lehman Government/Corporate Intermediate Bond Index.
We believe this strategy will provide shareholders with higher returns than
money market funds and lower net-asset volatility than typically is associated
with long-term bond funds.
We thank you for your continued confidence in the Fund, and we look forward to
serving your investment needs in the future.
Yours truly,
/s/ Jean Bernhard Buttner
-------------------------
Jean Bernhard Buttner
CHAIRMAN AND PRESIDENT
December 8, 1995
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ECONOMIC OBSERVATIONS
Most signs now point to a slowdown in the rate of economic growth over the next
several months. Several key industrial indicators are now trending lower, and
this is causing manufacturers to become more cautious in their outlook. At the
same time, consumers, burdened with a heavy debt load, are becoming more
selective in their purchasing plans. Not surprisingly, retailers are not
stocking their shelves the way they did earlier in the business expansion.
Taken together, these developments suggest that the economy, which grew by
better than 4% in the third quarter, will expand by little more than half that
rate in the final three months of 1995 and the opening quarter of 1996.
Moreover, we think the economy will retain this calm, orderly growth character
throughout 1996. Perhaps the most distinguishing characteristic of the
five-year-old business expansion has been the notable lack of excess on the
growth side. Thus, while the automobile industry, the housing sector, and the
key industrial markets have all participated in the advance, none has veered out
of control. As a result, potentially inflationary labor and raw-materials
shortages have not developed. Hence, the Federal Reserve, which has had to
respond to higher prices in the past by clamping down hard on the monetary
brakes, has been able to be more gentle this time around.
On balance, we think little will change over the next several quarters.
Specifically, we would look for growth and inflation to hold within a comforting
2%-3% band. We also see interest rates remaining near current levels, with a
further slight decline being perhaps more likely than an increase. Finally, we
expect corporate profits to edge higher, on balance, over the next 12 to 15
months. Altogether, this scenario should not presage troubling times for
fixed-income-market participants in the months ahead, nor should it lull
investors into thinking future gains will come easily.
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3
<PAGE>
THE VALUE LINE ADJUSTABLE RATE U.S. GOVERNMENT SECURITES FUND, INC.
- -------------------------------------------------------------------------------
Comparison of Change in Value of a $10,000 Investment in the Value Line
("VL"), Adjustable Rate U.S. Government Securities Fund, the Lehman ARM Index,
and the Lehman Aggregate Bond Index
[graph]
- -------------------------------------------------------------------------------
* PERFORMANCE DATA:
FROM 4/10/92
(COMMENCEMENT
1 YEAR ENDED OF OPERATIONS)
9/30/95 to 9/30/95
------------- --------------
Average Annual Total Return 3.32% 1.08%
Growth of an Assumed
Investment of $10,000 $10,332 $10,380
* THE TOTAL RETURNS FOR THE ONE-YEAR PERIOD ENDED 10/31/95 AND THE PERIOD
FROM 4/10/92 (COMMENCEMENT OF OPERATIONS) TO 10/31/95 WERE 4.14% AND 1.24%,
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.
- -------------------------------------------------------------------------------
THE LEHMAN AGGREGATE BOND INDEX IS AN UNMANAGED INDEX THAT IS
REPRESENTATIVE OF THE INVESTMENT-GRADE DOMESTIC CORPORATE AND GOVERNMENT
BOND MARKETS.
THE LEHMAN ARM INDEX IS AN UNMANAGED INDEX THAT IS REPRESENTATIVE OF THE
ADJUSTABLE RATE MORTGAGE SECURITIES (ARM) MARKET.
4
<PAGE>
SCHEDULE OF INVESTMENTS OCTOBER 31, 1995
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<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT RATE MATURITY DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (42.8%)
FEDERAL HOME LOAN BANK (17.6%)
$ 2,000,000 Federal Home Loan Bank Floating Rate Note . . . . . . . . . .4.644%(2) 10/01/96 $ 1,976,058
1,000,000 Federal Home Loan Bank Floating Rate Note . . . . . . . . . .6.200%(4) 04/10/97 1,004,634
- ----------- -----------
3,000,000 TOTAL FEDERAL HOME LOAN BANK
- -----------
(COST $2,978,232) . . . . . . . . . . . . . . . . . . . . . . 2,980,692
-----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (12.5%)
1,000,000 Federal National Mortgage Association . . . . . . . . . . . .5.813% 10/04/96 1,001,049
1,096,194 Federal National Mortgage Association Pool #170758. . . . . .6.859%(3) 06/01/21 1,108,526
- ----------- -----------
2,096,194 TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION
(COST $2,077,011) . . . . . . . . . . . . . . . . . . . . . . 2,109,575
-----------
STUDENT LOAN MARKETING ASSOCIATION (11.9%)
2,000,000 Student Loan Marketing Association Floating Rate Note . . . .5.800%(1) 10/30/97 2,005,696
- ----------- -----------
TOTAL STUDENT LOAN MARKETING ASSOCIATION
(COST $2,002,500) . . . . . . . . . . . . . . . . . . . . . . 2,005,696
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (0.8%)
105,862 Federal Home Loan Mortgage Corporation #1505 ND . . . . . . .7.588%(2)(5) 12/15/22 71,986
80,232 Federal Home Loan Mortgage Corporation #1505 NB . . . . . . .9.023%(2)(5) 12/15/22 58,770
- ----------- -----------
186,094 TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION
(COST $189,533) . . . . . . . . . . . . . . . . . . . . . . . 130,756
-----------
7,282,288 TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
- -----------
(COST $7,247,276) . . . . . . . . . . . . . . . . . . . . . . 7,226,719
-----------
ASSET BACKED SECURITIES (30.2%)
AUTOMOBILE FINANCING (18.6%)
779,847 Premier Auto Trust 1994-2 A4. . . . . . . . . . . . . . . . .6.000% 05/02/00 780,579
764,298 Ford Credit Grantor Trust 1995-A A. . . . . . . . . . . . . .5.900% 05/15/00 764,878
800,000 World Omni Automobile Lease Securitization Trust 1995-A A . .6.050% 11/25/01 798,500
800,000 Western Financial Grantor Trust 1995-4 A1 . . . . . . . . . .6.200% 02/01/02 801,000
- ----------- -----------
3,144,145 TOTAL AUTOMOBILE LEASING (COST $3,141,646). . . . . . . . . . 3,144,957
- ----------- -----------
CREDIT CARD FINANCING (6.8%)
750,000 Advanta Credit Card Master Trust 1994-1 A . . . . . . . . . .6.025%(2) 04/30/99 750,194
400,000 Standard Credit Card Master Trust 1995-5 A. . . . . . . . . .6.040%(4)(6) 05/08/00 401,000
- ----------- -----------
1,150,000 TOTAL CREDIT CARD FINANCING (COST $1,150,969) . . . . . . . . 1,151,194
- ----------- -----------
5
<PAGE>
<CAPTION>
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PRINCIPAL
AMOUNT RATE MATURITY DATE VALUE
- ------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
EQUIPMENT LEASING (4.8%)
$ 800,000 Navistar Financial Corporation Owner Trust 1995-B A3. . . . .6.050%(7) 04/15/02 $ 800,000
- ----------- -----------
TOTAL EQUIPMENT LEASING (COST $799,980) . . . . . . . . . . . 800,000
-----------
5,094,145 TOTAL ASSET BACKED SECURITIES
- -----------
(COST $5,092,595) . . . . . . . . . . . . . . . . . . . . . . 5,096,151
-----------
12,376,433 TOTAL INVESTMENT SECURITIES (73.0%)
- -----------
(COST $12,339,871). . . . . . . . . . . . . . . . . . . . . . 12,322,870
-----------
SHORT-TERM INVESTMENTS (31.7%)
DISCOUNT NOTE (15.9%)
2,700,000 Federal Farm Credit Bank 5.59% due 11/20/95 . . . . . . . . . 2,692,034
-----------
REPURCHASE AGREEMENT (15.8%) (including accrued interest)
2,665,000 Collateralized by $2,785,000 U.S. Treasury Bills due 03/28/96,
- -----------
with a value of $2,724,138. (With First Chicago Capital
Markets, Inc. 5.86%, dated 10/31/95, due 11/01/95, delivery
value $2,665,434.). . . . . . . . . . . . . . . . . . . . . . 2,665,434
-----------
5,365,000 TOTAL SHORT-TERM INVESTMENTS
- -----------
(COST $5,357,468) . . . . . . . . . . . . . . . . . . . . . . 5,357,468
-----------
EXCESS OF LIABILITIES OVER CASH AND OTHER ASSETS (-4.7%). . . (791,398)
-----------
NET ASSETS (100.0%) . . . . . . . . . . . . . . . . . . . . . $ 16,888,940
-----------
-----------
NET ASSET VALUE, OFFERING AND REDEMPTION
PRICE PER OUTSTANDING SHARE ($16,888,940
DIVIDED BY 1,948,623 SHARES OUTSTANDING). . . . . . . . . . $ 8.67
-----------
-----------
</TABLE>
(1) RESETS WEEKLY. RATE IN EFFECT ON 10/31/95.
(2) RESETS MONTHLY. RATE IN EFFECT ON 10/31/95.
(3) RESETS VARIOUS MONTHS. RATE IN EFFECT ON 10/31/95.
(4) RESETS QUARTERLY. RATE IN EFFECT ON 10/31/95.
(5) 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.
(6) FEDERAL FUNDS FLOATER--RESETS QUARTERLY BASED ON THE FEDERAL FUNDS
RATE.
(7) WHEN-ISSUED SECURITY. SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES AT OCTOBER 31, 1995
- -------------------------------------------------------------------------------
ASSETS:
Investment securities, at value
(Cost--$12,339,871). . . . . . . . . . . . . . . . . . $ 12,322,870
Short-term investments (Cost--
$2,692,034). . . . . . . . . . . . . . . . . . . . . . 2,692,034
Repurchase agreement (Cost--
$2,665,434). . . . . . . . . . . . . . . . . . . . . . 2,665,434
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . 4,485
Interest receivable. . . . . . . . . . . . . . . . . . . 46,766
Deferred organization costs (note 2) . . . . . . . . . . 22,066
Receivable for capital shares sold . . . . . . . . . . . 350
-------------
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . 17,754,005
-------------
LIABILITIES:
Payable for securities purchased . . . . . . . . . . . . 799,980
Payable for capital shares repurchased . . . . . . . . . 16,018
Dividends payable to shareholders. . . . . . . . . . . . 9,134
Accrued expenses
Advisory fee. . . . . . . . . . . . . . . . . . . . 7,287
Other . . . . . . . . . . . . . . . . . . . . . . . 32,646
-------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . 865,065
-------------
NET ASSETS . . . . . . . . . . . . . . . . . . . . . . . $ 16,888,940
-------------
-------------
NET ASSETS CONSISTS OF:
Capital stock, at $.001 par value (authorized
300,000,000, outstanding 1,948,623
shares) . . . . . . . . . . . . . . . . . . . . . . 1,948
Additional paid-in capital . . . . . . . . . . . . . . . 23,220,118
Accumulated net realized loss
on investments. . . . . . . . . . . . . . . . . . . (6,316,125)
Unrealized net depreciation of
investments . . . . . . . . . . . . . . . . . . . . (17,001)
-------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . $16,888,940
-------------
-------------
Net Asset Value, Offering and
Redemption Price, per
Outstanding Share ($16,888,940 DIVIDED
BY 1,948,623 shares outstanding). . . . . . . . $ 8.67
-------------
-------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1995
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest income. . . . . . . . . . . . . . . . . . . . . $ 988,149
-------------
EXPENSES:
Advisory fee . . . . . . . . . . . . . . . . . . . . . . 79,866
Accounting and bookkeeping expense . . . . . . . . . . . 32,400
Auditing and legal fees. . . . . . . . . . . . . . . . . 31,015
Registration and filing fees . . . . . . . . . . . . . . 29,322
Custodian fees . . . . . . . . . . . . . . . . . . . . . 22,864
Amortization of deferred organization costs (note 2) . . 15,312
Printing . . . . . . . . . . . . . . . . . . . . . . . . 14,124
Directors' fees and expenses . . . . . . . . . . . . . . 11,500
Transfer agent fees. . . . . . . . . . . . . . . . . . . 10,774
Postage, insurance, and dues . . . . . . . . . . . . . . 4,831
Telephone and other. . . . . . . . . . . . . . . . . . . 3,557
-------------
Total Expenses. . . . . . . . . . . . . . . . . . . 255,565
-------------
INVESTMENT INCOME--NET . . . . . . . . . . . . . . . . . 732,584
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS--ET:
REALIZED LOSS--NET. . . . . . . . . . . . . . . . . (2,380,313)
Change in Unrealized
Appreciation (Depreciation) . . . . . . . . . . . . 2,143,938
-------------
Net Realized Loss and Change in
Unrealized Appreciation
(Depreciation) on Investments . . . . . . . . . . . (236,375)
-------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS. . . . . . . . . . . . . . . . . . . . $ 496,209
-------------
-------------
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED OCTOBER 31, 1995, AND 1994
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED OCTOBER 31,
OCTOBER 31, 1995 1994
---------------- ----------------------
OPERATIONS:
Investment income--net . . . . . . . $ 732,584 $ 2,168,933
Realized loss on investments--net. . (2,380,313) (3,907,636)
Change in unrealized appreciation
(depreciation) . . . . . . . . . . 2,143,938 (2,163,233)
------------ ------------
Net increase (decrease) in net
assets from operations . . . . . . 496,209 (3,901,936)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS:
Investment income--net . . . . . . . (732,584) (2,181,029)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from sale of shares . . 10,931,415 22,424,620
Net proceeds from reinvestment
of distributions to shareholders . 596,742 1,836,985
Cost of shares repurchased . . . . . (22,833,521) (34,255,826)
------------ ------------
Decrease from capital share
transactions . . . . . . . . . . . (11,305,364) (9,994,221)
------------ ------------
Total Decrease . . . . . . . . . . . (11,541,739) (16,077,186)
NET ASSETS:
Beginning of year. . . . . . . . . . 28,430,679 44,507,865
------------ ------------
End of year. . . . . . . . . . . . . $ 16,888,940 $28,430,679
------------ ------------
------------ ------------
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 1995
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940, as amended, as
a diversified, open-end management investment company. The following is a
summary of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements.
(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 on the basis of valuations provided by dealers in such securities.
Some of the general factors that may be considered by the dealers in arriving at
such valuations include the fundamental analytic data relating to the security
and an evaluation of the forces that influence the market in which these
securities are purchased and sold. Determination of values may involve
subjective judgment, as the actual market value of a particular security can be
established only by negotiations between the parties in a sales transaction.
The values for U.S. Treasury securities are determined on the valuation date by
reference to valuations obtained from an independent pricing service that
determines valuations for normal institutional-size trading units of debt
securities, without exclusive reliance upon quoted prices. This service takes
into account appropriate factors such as 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.
(B) REPURCHASE AGREEMENT. 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 of
1986, and to distribute all of its taxable income to its shareholders.
Therefore, no federal income-tax or excise-tax provision is required.
(D) SECURITY TRANSACTIONS AND DISTRIBUTIONS. 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
9
<PAGE>
interest income is accrued as earned. Distributions to shareholders are
recorded on the ex-dividend date. Distributions are determined in accordance
with income-tax regulations, which may differ from generally accepted accounting
principles.
(E) AMORTIZATION. Discounts on debt securities are amortized to interest income
over the life of the security with a corresponding increase to the security's
cost basis; premiums on debt securities are not amortized.
2. ORGANIZATION COSTS
Costs of $76,603 incurred in connection with the Funds's organization and
initial registration have been deferred and are being amortized over 60 months
beginning at the commencement of operations of the Fund. In the event any of
the initial shares of the Fund are redeemed by the holder thereof during the
five-year amoritzation period, the redemption proceeds will be reduced by a
pro-rata portion of any unamortized, deferred organizational costs in the same
proportion as the number of initial shares being redeemed bears to the number of
initial shares outstanding at the time of redemption.
3. CAPITAL SHARE TRANSACTIONS
Transactions in capital stock were as follows:
YEAR ENDED YEAR ENDED
OCTOBER 31, OCTOBER 31,
1995 1994
------------ ------------
Shares sold. . . . . . . . . . . . . 1,263,230 2,269,010
Shares issued to share-
holders in reinvestment
of dividends and
distributions. . . . . . . . . . . 69,375 194,905
------------ ------------
1,332,605 2,463,915
Shares repurchased . . . . . . . . . 2,651,997 3,640,182
------------ ------------
Net decrease . . . . . . . . . . . . (1,319,392) (1,176,627)
------------ ------------
------------ ------------
4. PURCHASES AND SALES OF SECURITIES
Purchases and sales of securities for the year ended October 31, 1995, excluding
short-term investments, were as follows:
PURCHASES:
Investment Securities. . . . . . . . . . . . . . . . . $ 19,652,890
--------------
--------------
SALES AND MATURITIES:
U.S. Treasury Obligations. . . . . . . . . . . . . . . $ 4,413,125
--------------
Other Investment Securities. . . . . . . . . . . . . . 30,322,469
--------------
$ 34,735,594
--------------
--------------
At October 31, 1995, the aggregate cost of investment securities and short-term
investments for Federal income-tax purposes is $17,697,339. The aggregate
appreciation and depreciation of investments at October 31, 1995, based on a
comparison of investment values and their costs for federal income-tax purposes,
is $43,604 and $60,605, respectively, resulting in a net depreciation of
$17,001.
At October 31, 1995, the Fund had a carryover loss of $6,316,125, of which
$28,176 will expire on October 31, 2001, and $3,907,636 will expire on October
31, 2002, and the balance of $2,380,313 will expire on October 31, 2003. To the
extent future capital gains are offset by such carryover capital losses, the
Fund does not anticipate distributing any such gains to its shareholders.
5. INVESTMENT ADVISORY CONTRACT, ADVISORY FEES, AND TRANSACTIONS WITH
AFFILIATES
An advisory fee of $79,866 was paid or payable to Value Line, Inc. (the
"Adviser") for the year ended October 31, 1995. This was computed at the rate
of 1/2 of 1% of average daily net assets during the period and paid monthly.
The Adviser provides research, investment programs, and
10
<PAGE>
supervision of the investment portfolio and pays costs of certain
administrative services and office space. 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's shares are sold, the
advisory fee will be reduced by the amount of such excess, or the amount of such
excess will be refunded. No reimbursement was required for the year ended
October 31, 1995.
A fee of $5,760 for printing services was paid or payable to the Adviser for the
year ended October 31, 1995.
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.
At October 31, 1995, the Adviser and/or affiliated companies owned 1,045,652
shares of the Fund's capital stock, representing 53.7% of the outstanding
shares.
6. SUBSEQUENT EVENT
Effective November 1, 1995, with the approval of shareholders, the Fund changed
its name to Value Line Intermediate Bond Fund, Inc. The primary objective of
high current income consistent with low volatility of principal remains the
same, but the means of meeting this objective has changed. The Fund will seek to
meet its objective by investing in a diversified portfolio of investment-grade
debt securities with a dollar-weighted average portfolio maturity of between
three and 10 years. This will replace a portfolio consisting primarily of
adjustable-rate mortgage-backed securities.
Also effective November 1, 1995, with the approval of shareholders, the Fund
will have a Service and Distribution Plan (the "Plan"), adopted pursuant to Rule
12b-1 under the Investment Company Act of 1940, for the payment of expenses
incurred by Value Line Securities, Inc., a wholly-owned subsidiary of the
Adviser, in advertising, marketing, and distributing the Fund's shares and for
servicing the Fund's shareholders at an annual rate of 0.25% of the Fund's
average daily net assets.
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FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Per-share data for a share of capital stock outstanding throughout each period:
<TABLE>
<CAPTION>
APRIL 10, 1992
(COMMENCEMENT
YEAR ENDED OCTOBER 31, OF OPERATIONS) TO
1995 1994 1993 OCT. 31, 1992
--------- --------- --------- ------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD . . . . . . . . . . $ 8.70 $ 10.01 $ 9.99 $ 10.00
--------- --------- --------- ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income . . . . . . . . . . . . . . . .38 .50 .54(2) .33(1)
Net gains or losses on securities
(both realized and unrealized). . . . . . . . . . . (.03) (1.31) .05 (.01)
--------- --------- --------- ------------
Total from investment operations. . . . . . . . . . .35 (.81) .59 .32
--------- --------- --------- ------------
LESS DISTRIBUTIONS:
Dividends from net investment income. . . . . . . . (.38) (.50) (.54) (.33)
Distributions from capital gains. . . . . . . . . . - - (.03) -
--------- --------- --------- ------------
Total distributions . . . . . . . . . . . . . . . . (.38) (.50) (.57) (.33)
--------- --------- --------- ------------
NET ASSET VALUE, END OF PERIOD . . . . . . . . . . . . . $ 8.67 $ 8.70 $ 10.01 $ 9.99
--------- --------- --------- ------------
--------- --------- --------- ------------
TOTAL RETURN . . . . . . . . . . . . . . . . . . . . . . 4.14% -8.37% 6.04% 3.26%+(3)
--------- --------- --------- ------------
--------- --------- --------- ------------
RATIOS/SUPPLEMENTAL DATA:
Net assets end of period (in thousands). . . . . . . . . $16,889 $28,431 $44,508 $33,763
Ratio of operating expenses to average net assets. . . . 1.57% .98% .88%(2) 0%(1)
Ratio of interest expense to average net assets. . . . . - .38% 0.18% 0.07%*
Ratio of net investment income to average net assets . . 4.52% 5.23% 5.35%(2) 5.83%*(1)(3)
Portfolio turnover rate. . . . . . . . . . . . . . . . . 177% 175% 126% 85%
Amount of debt outstanding at end of period
(in thousands) . . . . . . . . . . . . . . . . . . . . $ - $ - $ - $ 3,940
Average amount of debt outstanding during
the period (in thousands). . . . . . . . . . . . . . . $ - $ 3,947 $ 1,926 $ 524
Average number of shares outstanding during
the period (in thousands). . . . . . . . . . . . . . . 1,887 4,366 3,766 1,968
Average amount of debt per outstanding share
during the period. . . . . . . . . . . . . . . . . . . $ - $ .90 $ .51 $ .27
</TABLE>
+ NOT ANNUALIZED
* ANNUALIZED
(1) NET OF EXPENSE REIMBURSEMENT. HAD THESE EXPENSES BEEN FULLY PAID BY THE
FUND, INVESTMENT INCOME--NET PER SHARE WOULD HAVE BEEN $.25, AND RATIOS OF
ANNUALIZED OPERATING EXPENSES AND NET INVESTMENT INCOME TO AVERAGE NET
ASSETS WOULD HAVE BEEN 1.46% AND 4.37%, RESPECTIVELY.
(2) NET OF ADVISORY FEE WAIVED BY THE ADVISER FROM 11/1/92 TO 1/31/93. HAD
THIS FEE BEEN PAID BY THE FUND, INVESTMENT INCOME--NET PER SHARE WOULD HAVE
BEEN $.53, AND THE RATIO OF OPERATING EXPENSES AND NET INVESTMENT INCOME TO
AVERAGE NET ASSETS WOULD HAVE BEEN 0.99% AND 5.24%, RESPECTIVELY.
(3) DUE TO FEE WAIVER AND REIMBURSEMENT OF EXPENSES BY THE ADVISER AND THE
SHORT PERIOD COVERED BY THIS REPORT, DATA ARE NOT INDICATIVE OF FUTURE
PERIODS.
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF THE VALUE LINE ADJUSTABLE RATE
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 Adjustable Rate U.S.
Government Securities Fund, Inc. (the "Fund") at October 31, 1995, 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 three years in the period then ended and for the period from April
10, 1992 (commencement of operations), through October 31, 1992, 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 October 31, 1995, by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York
December 8, 1995
13
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15
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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'S 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 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 ASSET ALLOCATION FUND seeks high total investment return,
consistent with reasonable risk. The Fund invests in stocks, bonds, and money
market instruments utilizing quantitative modeling to determine the correct
asset mix.
1995 -- VALUE LINE U.S. MULTINATIONAL COMPANY FUND'S investment objective is
maximum total return. It invests primarily in securities of U.S. companies that
have significant sales from international operations.
*ONLY AVAILABLE THROUGH THE PURCHASE OF GUARDIAN INVESTOR, A TAX DEFERRED
VARIABLE ANNUITY, OR VALUE PLUS, 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.
16
