UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file Number 811-3171
--------
Value Line US Government Securities Fund, Inc.
- ----------------------------------------------------------
(Exact name of registrant as specified in charter)
220 East 42nd Street, New York, N.Y. 10017
- --------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-907-1500
------------
Date of fiscal year end: August 31, 2004
---------------
Date of reporting period: February 29, 2004
-----------------
Item 1. Reports to Stockholders.
- ------ ------------------------
A copy of the Semi-Annual Report to Stockholders for the period ended
2/29/04 is included with this Form.
Item 2. Code of Ethics
- ------ --------------
Not applicable.
Item 3. Audit Committee Financial Expert.
- ------ --------------------------------
Not applicable.
Item 10. Controls and Procedures.
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(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures (as defined in rule 30a-2(c) under the Act (17 CFR
270.30a-2(c) ) based on their evaluation of these controls and
procedures as of a date within 90 days of the filing date of this
report, are appropriately designed to ensure that material
information relating to the registrant is made known to such
officers and are operating effectively.
(b) The registrant's principal executive officer and principal financial
officer have determined that there have been no significant changes
in the registrant's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their
evaluation, including corrective actions with regard to significant
deficiencies and material weaknesses.
Item 11. Exhibits.
- ------- --------
(a) Not applicable.
(b) (1) Certification pursuant to Rule 30a-2 under the Investment
Company Act of 1940 (17 CFR 270.30a-2) attached hereto as
Exhibit 99.CERT.
(2) Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 attached hereto as Exhibit 99.906.CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
By /s/ Jean B. Buttner
--------------------------
Jean B. Buttner, President
Date: April 29, 2004
--------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Jean B. Buttner
--------------------------
Jean B. Buttner, President, Principal Executive Officer
By: /s/ David T. Henigson
--------------------------
David T. Henigson, Vice President, Treasurer, Principal Financial Officer
Date: April 29, 2004
--------------------------
================================================================================
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 BFDS
P.O. Box 219729
Kansas City, MO 64121-9729
INDEPENDENT PricewaterhouseCoopers LLP
AUDITORS 1177 Avenue of the Americas
New York, NY 10036
LEGAL COUNSEL Peter D. Lowenstein, Esq.
Two Sound View Drive, Suite 100
Greenwich, CT 06830
DIRECTORS Jean Bernhard Buttner
John W. Chandler
Frances T. Newton
Francis C. Oakley
David H. Porter
Paul Craig Roberts
Marion N. Ruth
Nancy-Beth Sheerr
OFFICERS Jean Bernhard Buttner
CHAIRMAN AND PRESIDENT
Jeffrey D. Geffen
VICE PRESIDENT
Charles Heebner
VICE PRESIDENT
Bradley T. Brooks
VICE PRESIDENT
David T. Henigson
VICE PRESIDENT,
SECRETARY/TREASURER
Joseph Van Dyke
ASSISTANT SECRETARY/TREASURER
Stephen La Rosa
ASSISTANT SECRETARY/TREASURER
THE FINANCIAL STATEMENTS INCLUDED HEREIN HAVE BEEN TAKEN FROM THE RECORDS OF
THE FUND WITHOUT EXAMINATION BY THE INDEPENDENT ACCOUNTANTS AND, ACCORDINGLY,
THEY DO NOT EXPRESS AN OPINION THEREON.
THIS UNAUDITED REPORT IS ISSUED FOR INFORMATION OF SHAREHOLDERS. IT IS NOT
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR
ACCOMPANIED BY A CURRENTLY EFFECTIVE PROSPECTUS OF THE FUND (OBTAINABLE FROM
THE DISTRIBUTOR).
#529401
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SEMI-ANNUAL REPORT
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FEBRUARY 29, 2004
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VALUE LINE
U.S. GOVERNMENT
SECURITIES
FUND, INC.
[VALUE LINE LOGO]
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
To Our Value Line
================================================================================
To Our Shareholders:
Despite strong economic growth and rising equity markets, bond prices gained
ground over the last six-month period.
Often, strong economic growth is accompanied by rising inflation which calls
for a tightening monetary policy. This results in short-term interest rates
being raised by the Federal Reserve Board. This interest rate hike is necessary
to moderate growth and thereby control inflation. However, rising inflation
has, thus far, been absent in the present economic recovery, causing bond
prices to rally and yields to drop during the period.
Inflation remains at very low historical levels through February 2004. The core
Consumer Price Index, which strips out the volatile oil and food components,
sits at just 1.1%, year over year. The Federal Reserve Board has maintained its
federal funds rate at 1%, indicating to the markets that they will keep
interest rates steady. There are concerns about slow job growth, which remains
subpar at this juncture in the economic expansion. Bonds have benefited because
a slow labor market indicates that consumer spending should remain moderate
and, therefore, should not ignite inflation. And with inflation benign, the
Federal Reserve Board can afford to keep rates stable, despite continuing
strong growth and strong corporate profits.
However, looking out longer-term, the Federal Reserve Board has indicated that
as the economic expansion continues, job growth will most likely improve and,
therefore, very low interest rates cannot be maintained indefinitely. The most
likely scenario over the course of the next year or two, is gradually rising
interest rates and slowly declining bond prices.
For the six-month period ending February 29th, the benchmark 10-year Treasury
note rose five points and declined 50 basis points in yield, beginning the
period at a yield of 4.47% and ending at 3.97%. Short-term interest rates also
fell as the 2-year Treasury note declined 32 basis points from 1.97% to 1.65%
at the end of February.
Your Fund returned 3.47% for the six-month period ended February 29, 2004,
which compares to the 3.49% return of the unmanaged Lehman Brothers
Intermediate U.S. Government Bond Index, a proxy for the Fund's government
investment strategy(1).
Your Fund's long-term strategy is to generate high income consistent with
safety of principal by investing primarily in U.S. Government securities,
representing the highest level of safety. Additionally, we control risk by
limiting the portfolio's average maturity to a maximum of 10 years, and by
maintaining a well-diversified portfolio. These measures, we believe, will
protect the fund from the dramatic swings in value caused by gyrating interest
rates and produce more stable and consistent performance. With interest rates
hovering near historically low levels, the Fund has begun to increase its
allocation to mortgage-backed securities, which are issued by government
sponsored enterprises. Such issues carry more yield and usually offer more
price protection than U.S. Treasuries in rising interest rate environments, the
most likely scenario over the next year.
We continue to emphasize an intermediate-term maturity structure in our bond
selection to provide competitive performance going forward. We appreciate your
continued support.
Sincerely,
/s/ Jean Bernhard Buttner
Jean Bernhard Buttner
CHAIRMAN and PRESIDENT
March 31, 2004
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(1) THE LEHMAN BROTHERS INTERMEDIATE U.S. GOVERNMENT BOND INDEX REPRESENTS THE
INTERMEDIATE MATURITIES (1-10 YEARS) OF THE U.S. TREASURY AND U.S. AGENCY
SEGMENT OF THE FIXED-INCOME MARKET. THE RETURNS FOR THE INDEX DO NOT
REFLECT CHARGES, EXPENSES, OR TAXES, AND IT IS NOT POSSIBLE TO DIRECTLY
INVEST IN THIS INDEX. A U.S. TREASURY SECURITY IS ISSUED BY THE TREASURY
DEPARTMENT OF THE U.S. GOVERNMENT. U.S. AGENCY SECURITIES ARE ISSUED BY
OTHER GOVERNMENT AGENCIES SUCH AS THE FEDERAL HOME LOAN BANK, FEDERAL
NATIONAL MORTGAGE ASSOCIATION AND FEDERAL HOME LOAN MORTGAGE CORPORATION.
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2
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
U.S. GOVERMENT SECURITIES FUND SHAREHOLDERS
================================================================================
ECONOMIC OBSERVATIONS
The U.S. economic recovery, which proceeded at an uninspiring pace in 2002 and
the first half of 2003, really took off during last year's third and fourth
quarters, when the nation's gross domestic product, buoyed by a strengthening
in both consumer spending and capital goods activity, rose at the fastest pace
in several years. What's more, early indications are that the economy will
continue to press forward at a solid gait in the opening half of 2004, with GDP
most likely increasing by more than 4%.
Meanwhile, underpinned by the critical support of the Federal Reserve, which
continues to maintain its low-interest-rate policies, and boosted also by the
stimulative effects of last year's tax reduction and spending programs, the
U.S. economy should remain in forward gear throughout the year with GDP
maintaining that healthy pace of better than 4%. We currently expect the
business expansion to continue into 2005.
Inflation, meantime, remains generally muted, thanks, in part, to subdued labor
costs. Adequate supplies of most raw materials are also helping to keep the
costs of production low. We note, though, that as the U.S. economy moves
further along the recovery trail over the next several years, some modest
increases in inflation may emerge. Absent a stronger long-term business
recovery than we now envision, or a further sharp rise in oil and gas prices
stemming from an escalating conflict in Iraq and elsewhere in the always
contentious Middle East, or some severe production cutbacks by the Organization
of Petroleum Exporting Countries (OPEC), inflation should generally remain in
check through the latter years of this decade. Long-term interest rates should
increase modestly over the next several years, but most likely not to the
degree that would bring the expansion to a halt.
PERFORMANCE DATA:*
GROWTH OF
AN ASSUMED AVERAGE
INVESTMENT OF ANNUAL
$10,000 TOTAL RETURN
-------------------------------
1 year ended 02/29/04 ... $10,208 2.08%
5 years ended 02/29/04 .. $13,606 6.35%
10 years ended 02/29/04 .. $16,815 5.33%
* THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND ARE NO GUARANTEE
OF FUTURE PERFORMANCE. THE AVERAGE ANNUAL TOTAL RETURNS 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 PERFORMANCE DATA AND GRAPH DO
NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND
DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. CURRENT PERFORMANCE MAY BE
LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. CALL 1-800-243-2729 TO
OBTAIN PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH-END.
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3
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)
================================================================================
PRINCIPAL MATURITY
AMOUNT RATE DATE VALUE
- ------------- ---------- ----------- -------------
U.S. TREASURY OBLIGATIONS (7.6%)
$ 1,000,000 U.S. Treasury Notes ................................ 2.00% 5/15/06 $ 1,005,899
4,000,000 U.S. Treasury Notes ................................ 6.50 10/15/06 4,462,972
2,000,000 U.S. Treasury Notes ................................ 6.25 2/15/07 2,237,422
1,000,000 U.S. Treasury Notes ................................ 4.38 5/15/07 1,066,133
1,000,000 U.S. Treasury Bonds ................................ 7.25 8/15/22 1,300,821
- ------------ -----------
9,000,000 TOTAL U.S. TREASURY OBLIGATIONS
- ------------ (COST $9,757,218) ................................. 10,073,247
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS (81.9%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (45.1%)
6,016,107 Federal National Mortgage Association Pool #313032.. 7.05 7/01/06 6,327,668
4,000,000 Federal National Mortgage Association .............. 4.75 1/02/07 4,250,856
9,722,379 Federal National Mortgage Association Pool #375667.. 6.02 2/01/08 10,621,792
10,000,000 Federal National Mortgage Association Pool #380188.. 6.45 4/01/08 10,879,690
187,253 Federal National Mortgage Association Pool #254243.. 6.00 2/01/09 192,480
346,236 Federal National Mortgage Association Pool #254273.. 5.00 3/01/09 355,649
1,000,000 Federal National Mortgage Association .............. 6.38 6/15/09 1,144,019
979,975 Federal National Mortgage Association Pool #254956.. 4.00 11/01/10 990,542
2,950,626 Federal National Mortgage Association Pool #255054.. 4.00 12/01/10 2,982,443
1,000,000 Federal National Mortgage Association .............. 5.00 4/16/15 1,000,110
341,157 Federal National Mortgage Association Pool #511823.. 5.50 5/01/16 356,048
913,671 Federal National Mortgage Association Pool #622373.. 5.50 12/01/16 953,551
380,128 Federal National Mortgage Association Pool #615289.. 5.50 12/01/16 396,720
648,266 Federal National Mortgage Association Pool #623503.. 6.00 2/01/17 684,031
345,113 Federal National Mortgage Association Pool #631328.. 5.50 2/01/17 360,088
47,931 Federal National Mortgage Association Pool #643277.. 5.50 4/01/17 50,011
49,549 Federal National Mortgage Association Pool #638247.. 5.50 5/01/17 51,699
712,086 Federal National Mortgage Association Pool #669613.. 5.00 10/01/17 732,204
857,419 Federal National Mortgage Association Pool #685183.. 5.00 3/01/18 881,574
796,430 Federal National Mortgage Association Pool #254684.. 5.00 3/01/18 818,867
893,703 Federal National Mortgage Association Pool #695828.. 5.00 4/01/18 918,881
902,014 Federal National Mortgage Association Pool #703936.. 5.00 5/01/18 927,425
959,446 Federal National Mortgage Association Pool #713379.. 5.00 7/01/18 986,475
943,764 Federal National Mortgage Association REMIC Trust
Series 2003-28 Class KA ............................ 4.25 3/25/22 942,840
834,140 Federal National Mortgage Association REMIC Trust
Series 2003-38 Class TC ............................ 5.00 3/25/23 858,548
599,430 Federal National Mortgage Association Pool #412682.. 6.00 3/01/28 625,943
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4
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
FEBRUARY 29, 2004
- --------------------------------------------------------------------------------
PRINCIPAL MATURITY
AMOUNT RATE DATE VALUE
- ------------- ---------- ---------- -------------
$ 386,946 Federal National Mortgage Association Pool #424691 .......... 6.50% 4/01/28 $ 407,741
200,280 Federal National Mortgage Association Pool #425239 .......... 6.50 4/01/28 211,044
1,000,000 Federal National Mortgage Association ....................... 7.25 5/15/30 1,263,494
1,000,000 Federal National Mortgage Association ....................... 6.63 11/15/30 1,177,633
159,079 Federal National Mortgage Association Pool #571090 .......... 7.50 1/01/31 170,485
5,787 Federal National Mortgage Association Pool #568625 .......... 7.50 1/01/31 6,202
10,480 Federal National Mortgage Association Pool #573935 .......... 7.50 3/01/31 11,232
1,548,766 Federal National Mortgage Association Pool #626440 .......... 7.50 2/01/32 1,659,836
202,919 Federal National Mortgage Association Pool #629297 .......... 6.50 2/01/32 213,575
343,012 Federal National Mortgage Association Pool #254383 .......... 7.50 5/01/32 367,611
159,855 Federal National Mortgage Association Pool #634996 .......... 6.50 5/01/32 168,245
1,496,175 Federal National Mortgage Association Pool #254476 .......... 5.50 9/01/32 1,532,285
953,285 Federal National Mortgage Association Pool #726889 .......... 5.50 7/01/33 976,300
969,626 Federal National Mortgage Association Pool #650386 .......... 5.00 7/01/33 972,569
500,050 Federal National Mortgage Association Pool #769862 .......... 5.50 2/01/34 512,126
500,000 Federal National Mortgage Association Pool #763393 .......... 5.50 2/01/34 512,071
----------- -----------
55,863,083 TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION
----------- (COST $56,486,230) ......................................... 59,452,603
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (15.0%)
2,000,000 Federal Home Loan Mortgage Corporation ...................... 1.50 8/15/05 2,000,152
1,500,000 Federal Home Loan Mortgage Corporation ...................... 3.00 12/16/05 1,507,971
1,000,000 Federal Home Loan Mortgage Corporation ...................... 5.95 1/19/06 1,077,339
1,000,000 Federal Home Loan Mortgage Corporation ...................... 4.26 7/19/07 1,050,868
1,000,000 Federal Home Loan Mortgage Corporation ...................... 2.75 3/15/08 996,770
4,500,000 Federal Home Loan Mortgage Corporation ...................... 5.88 3/21/11 4,974,179
1,000,000 Federal Home Loan Mortgage Corporation ...................... 4.50 5/14/12 1,000,225
1,000,000 Federal Home Loan Mortgage Corporation ...................... 4.75 5/06/13 1,002,940
603,078 Federal Home Loan Mortgage Corporation REMIC Trust
Series 2540 Class GA ........................................ 5.00 12/15/13 608,798
47,743 Federal Home Loan Mortgage Corporation Gold PC Pool #E92226.. 5.00 11/01/17 49,106
736,420 Federal Home Loan Mortgage Corporation Gold PC Pool #E93499.. 5.00 12/01/17 757,435
51,178 Federal Home Loan Mortgage Corporation Gold PC Pool #E92829.. 5.00 12/01/17 52,638
651,132 Federal Home Loan Mortgage Corporation REMIC Trust
Series 2597 Class KJ ...................................... 4.50 7/15/22 650,419
950,634 Federal Home Loan Mortgage Corporation Gold PC Pool #C90684.. 4.50 5/01/23 947,278
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5
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
PRINCIPAL MATURITY
AMOUNT RATE DATE VALUE
- ------------- ---------- ---------- -------------
$ 1,000,000 Federal Home Loan Mortgage Corporation ............... 6.75% 3/15/31 $ 1,196,438
970,588 Federal Home Loan Mortgage Corporation REMIC Trust
Series 2645 Class NA ............................... 3.50 9/15/31 970,381
930,158 Federal Home Loan Mortgage Corporation REMIC Trust
----------- Series 2594 Class OR ............................... 4.25 6/15/32 949,225
-----------
18,940,931 TOTAL FEDERAL HOME LOAN MORTGAGE
----------- CORPORATION (COST $19,130,124)...................... 19,792,162
-----------
FEDERAL HOME LOAN BANK (10.4%)
1,000,000 Federal Home Loan Bank ............................... 4.13 5/13/05 1,033,156
1,000,000 Federal Home Loan Bank ............................... 4.88 8/15/05 1,049,535
1,000,000 Federal Home Loan Bank ............................... 2.85 2/13/07 1,003,092
500,000 Federal Home Loan Bank ............................... 4.88 5/15/07 536,173
500,000 Federal Home Loan Bank ............................... 3.50 11/15/07 512,633
1,000,000 Federal Home Loan Bank ............................... 6.01 4/22/08 1,117,741
1,000,000 Federal Home Loan Bank ............................... 5.50 8/15/08 1,099,327
1,000,000 Federal Home Loan Bank ............................... 5.25 11/14/08 1,088,888
1,000,000 Federal Home Loan Bank ............................... 6.21 6/02/09 1,138,141
1,000,000 Federal Home Loan Bank ............................... 6.63 6/30/14 1,173,193
3,000,000 Federal Home Loan Bank ............................... 7.45 2/03/20 3,912,939
----------- -----------
12,000,000 TOTAL FEDERAL HOME BANK
----------- (COST $13,033,611) ................................. 13,664,818
-----------
FEDERAL FARM CREDIT BANK (5.9%)
2,000,000 Federal Farm Credit Bank ............................. 6.03 5/07/08 2,237,854
1,000,000 Federal Farm Credit Bank ............................. 6.82 3/16/09 1,160,775
1,000,000 Federal Farm Credit Bank ............................. 4.85 10/25/12 1,045,166
3,000,000 Federal Farm Credit Bank ............................. 5.70 7/03/17 3,285,327
----------- -----------
7,000,000 TOTAL FEDERAL FARM CREDIT BANK
----------- (COST $7,453,573) .................................. 7,729,122
-----------
PRIVATE EXPORT FUNDING CORPORATION (4.7%)
5,000,000 Private Export Funding Corporation Series "J" ........ 7.65 5/15/06 5,613,495
500,000 Private Export Funding Corporation Series "L" ........ 5.75 1/15/08 552,906
----------- -----------
5,500,000 TOTAL PRIVATE EXPORT FUNDING CORPORATION
----------- (COST $5,500,000) .................................. 6,166,401
-----------
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6
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
FEBRUARY 29, 2004
- --------------------------------------------------------------------------------
PRINCIPAL MATURITY
AMOUNT RATE DATE VALUE
- -------------- ---------- ---------- -----------------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (0.8%)
$ 49,842 Government National Mortgage Association REMIC Trust Series
2003-35 Class VB ............................................ 5.00% 12/16/15 $ 49,893
24,623 Government National Mortgage Association Pool #541349 ......... 6.00 4/15/31 25,766
48,887 Government National Mortgage Association Pool #557681 ......... 6.00 8/15/31 51,156
514,714 Government National Mortgage Association Pool #548880 ......... 6.00 12/15/31 538,608
402,931 Government National Mortgage Association Pool #551762 ......... 6.00 4/15/32 421,315
------------ -------------
1,040,997 TOTAL GOVERNMENT NATIONAL MORTGAGE
------------ ASSOCIATION (COST $1,041,655)................................ 1,086,738
-------------
100,345,011 TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
------------ (COST $102,645,193).......................................... 107,891,844
-------------
109,345,011 TOTAL INVESTMENT SECURITIES (89.5%)
------------ (COST $112,402,411).......................................... 117,965,091
-------------
REPURCHASE AGREEMENTS (9.7%) (INCLUDING ACCRUED INTEREST)
6,400,000 Collateralized by $6,277,000 U.S. Treasury Bonds 5.250%, due 2/15/29, with a value of
$6,535,021 (with UBS Warburg LLC, 0.99%, dated 2/27/04, due 3/01/04, delivery value
$6,400,528)......................................................................... 6,400,528
6,400,000 Collateralized by $5,790,000 U.S. Treasury Notes 7.000%, due 7/15/06, with a value of
- ------------- $6,527,251 (with State Street Bank and Trust Company, 0.95%, dated 2/27/04, due
3/01/04, delivery value $6,400,507)................................................. 6,400,507
-------------
12,800,000 TOTAL REPURCHASE AGREEMENTS (9.7%) (COST $12,801,035) ................................ 12,801,035
- ------------- -------------
CASH AND OTHER ASSETS IN EXCESS OF LIABILITLES (0.8%) ................................ 1,073,153
-------------
NET ASSETS (100.0%) .................................................................. $ 131,839,279
=============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER OUTSTANDING
SHARE ($131,839,279 DIVIDED BY 10,953,899 SHARES OF CAPITAL STOCK OUTSTANDING)...... $ 12.04
=============
SEE NOTES TO FINANCIAL STATEMENTS
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7
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS FOR
AT FEBRUARY 29, 2004 (UNAUDITED) THE SIX MONTHS ENDED FEBRUARY 29, 2004 (UNAUDITED)
=================================================================================================================================
ASSETS: INVESTMENT INCOME:
Investment securities, at value Interest income ........................ $2,954,094
(Cost - $112,402,411) ................... $117,965,091 ----------
Repurchase agreements EXPENSES:
(Cost - $12,801,035) .................... 12,801,035 Advisory fee ........................... 345,567
Cash ....................................... 5,618 Service & distribution plan fees ....... 172,783
Interest receivable ........................ 1,257,017 Transfer agent fees .................... 40,022
Receivable for capital shares sold ......... 14,754 Auditing and legal fees ................ 31,506
------------ Custodian fees ......................... 19,063
TOTAL ASSETS ............................. 132,043,515 Printing ............................... 17,951
------------ Registration and filing fees ........... 14,183
LIABILITIES: Directors' fees and expenses ........... 10,690
Payable for capital shares repurchased ..... 53,768 Postage ................................ 9,422
Accrued expenses: Insurance .............................. 9,071
Advisory fee ............................. 52,373 Telephone, dues and other .............. 6,870
Service & distribution plan fee .......... 26,187 ----------
Other .................................... 71,908 Total Expenses Before Custody
------------ Credits ........................ 677,128
TOTAL LIABILITIES ........................ 204,236 Less: Custody Credits ............. (261)
------------ ----------
NET ASSETS ................................. $131,839,279 Net Expenses ...................... 676,867
============ ----------
NET ASSETS CONSIST OF: NET INVESTMENT INCOME .................. 2,277,227
Capital stock, at $1 par value ----------
(authorized 100,000,000, outstanding NET REALIZED AND UNREALIZED GAIN
10,953,899 shares) ...................... $ 10,953,897 (LOSS) ON INVESTMENTS:
Additional paid-in capital ................. 128,661,173 Net Realized Loss ................. (35,638)
Undistributed net investment income ........ 635,103 Change in Net Unrealized
Accumulated net realized loss on Appreciation (Depreciation) .... 2,432,591
investments ............................. (13,973,574) ----------
Net unrealized appreciation of NET REALIZED LOSS AND CHANGE IN NET
investments ............................. 5,562,680 UNREALIZED APPRECIATION
------------ (DEPRECIATION) ON INVESTMENTS ....... 2,396,953
NET ASSETS ................................. $131,839,279 ----------
============ NET INCREASE IN NET ASSETS FROM
NET ASSET VALUE, OFFERING AND OPERATIONS .......................... $4,674,180
REDEMPTION PRICE PER OUTSTANDING ==========
SHARE ($131,893,279 DIVIDED BY 10,953,899
SHARES OUTSTANDING) ..................... $ 12.04
============
SEE NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
8
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED FEBRUARY 29, 2004 (UNAUDITED) AND
FOR THE YEAR ENDED AUGUST 31, 2003
================================================================================
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 29, 2004 AUGUST 31,
(UNAUDITED) 2003
------------------- -----------------
OPERATIONS:
Net investment income .......................................... $ 2,277,227 $ 5,589,668
Net realized (loss) gain on investments ........................ (35,638) 1,821,513
Change in net unrealized appreciation (depreciation) ........... 2,432,591 (3,569,894)
------------- --------------
Net increase in net assets from operations ..................... 4,674,180 3,841,287
------------- --------------
DIVIDENDS TO SHAREHOLDERS:
Net investment income .......................................... (2,464,437) (5,766,950)
------------- --------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sale of shares ................................... 43,620,161 248,802,569
Proceeds from reinvestment of distributions to shareholders .... 2,124,957 4,930,910
Cost of shares repurchased ..................................... (60,379,412) (263,202,861)
------------- --------------
Net decrease from capital share transactions ................... (14,634,294) (9,469,382)
------------- --------------
TOTAL DECREASE IN NET ASSETS .................................... (12,424,551) (11,395,045)
NET ASSETS:
Beginning of period ............................................ 144,263,830 155,658,875
------------- --------------
End of period .................................................. $ 131,839,279 $ 144,263,830
============= ==============
UNDISTRIBUTED NET INVESTMENT INCOME, AT END OF PERIOD ........... $ 635,103 $ 822,313
============= ==============
SEE NOTES TO FINANCIAL STATEMENTS.
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9
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
Value Line U.S. Government Securities Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940, as amended, as a diversified,
open-end 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. The Fund utilizes an independent pricing service (the
"Service") approved by the Board of Directors. Where market quotations are
readily available, portfolio securities are valued at the midpoint between the
latest available and representative asked and bid prices 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 other portfolio
securities are determined on the valuation date by reference to valuations
obtained from the Service which determines valuations for normal
institutional-size trading units of debt securities, without exclusive reliance
upon quoted prices. The 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 of
1986, and to distribute all of its taxable income and capital gains to its
shareholders. Therefore, no federal income tax or excise tax provision is
required.
(D) SECURITY TRANSACTIONS AND RELATED INCOME. Security transactions are
accounted for on the date the securities are purchased or sold. Realized gains
and losses on securities transactions are determined using the identified cost
method. Interest income, adjusted for amortization of discount and premium, is
earned from settlement date and recognized on the accrual basis.
(E) REPRESENTATIONS AND INDEMNIFICATIONS. In the normal course of business the
Fund enters into contracts that contain a variety of representations and
warranties
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10
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
FEBRUARY 29, 2004
================================================================================
which provide general indemnifications. The Fund's maximum exposure under these
arrangements is unknown, as this would involve future claims that may be made
against the Fund that have not yet occurred. However, based on experience, the
Fund expects the risk of loss to be remote.
2. CAPITAL SHARE TRANSACTIONS AND DIVIDENDS TO SHAREHOLDERS
Transactions in capital stock were as follows:
SIX MONTHS
ENDED
FEBRUARY 29, YEAR ENDED
2004 AUGUST 31,
(UNAUDITED) 2003
---------------------------------
Shares sold ................. 3,661,480 20,615,131
Shares issued to
shareholders in
reinvestment of
dividends ................ 178,704 407,998
--------- ----------
3,840,184 21,023,129
Shares repurchased .......... (5,069,886) (21,812,007)
---------- -----------
Net decrease ................ (1,229,702) (788,878)
========== ===========
Dividends per share ......... $ .2075 $ .445
========== ===========
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
On March 11, 2004 the Fund's Board of Directors declared a quarterly dividend
from net investment income of $.1025 per share payable on March 24, 2004 to
shareholders of record on March 22, 2004.
3. PURCHASES AND SALES OF SECURITIES
Purchases and sales of investment securities, excluding short-term investments,
were as follows:
SIX MONTHS
ENDED
FEBRUARY 29, 2004
(UNAUDITED)
------------------
PURCHASES:
U.S. Treasury Obligations .............................. $ 1,069,219
U.S. Government Agency Obligations
and Other Investment Securities ..................... 12,098,145
-----------
$13,167,364
===========
SALES AND REDEMPTIONS:
U.S. Treasury Obligations .............................. $ 6,760,313
U.S. Government Agency Obligations
and Other Investment Securities ..................... 12,684,137
-----------
$19,444,450
===========
4. INCOME TAXES
At February 29, 2004, information on the tax basis of investments is follows:
Cost of investments for tax purposes ................... $125,401,964
============
Gross tax unrealized appreciation ...................... $ 5,468,175
Gross tax unrealized depreciation ...................... $ (104,013)
------------
Net tax unrealized appreciation on
investments ......................................... $ 5,364,162
============
Undistributed ordinary income .......................... $ 833,621
============
Capital loss carryforward, expires
August 31, 2004 ..................................... $ 8,976,510
Capital loss carryforward, expires
August 31, 2005 ..................................... 2,829,335
Capital loss carryforward, expires
August 31, 2008 ..................................... 2,132,091
------------
Capital loss carryforward, at August 31,
2003 ................................................ $ 13,937,936
============
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11
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) FEBRUARY 29, 2004
================================================================================
To the extent future capital gains are offset by capital losses, the Fund does
not anticipate distributing any such gains to shareholders.
Net investment income and net realized gain (loss) differ for financial
statement and tax purposes primarily due to differing treatment of bond
premiums and wash sales.
The tax composition of dividends paid during the six months ending February 29,
2004 and the fiscal year ended August 31, 2003 is as follows:
FEBRUARY 29,
2004 AUGUST 31,
(UNAUDITED) 2003
------------- ----------
Ordinary Income ............................. $2,464,437 $5,766,950
========== ==========
5. INVESTMENT ADVISORY CONTRACT, MANAGEMENT FEES
AND TRANSACTIONS WITH AFFILIATES
An advisory fee of $345,567 was paid or payable to Value Line, Inc., the Fund's
investment adviser ("Adviser"), for the six months ended February 29, 2004.
This was computed at the 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.
The Fund has a Service and Distribution Plan (the "Plan"), adopted pursuant to
Rule 12b-1 under the Investment Company Act of 1940. The Plan compensates Value
Line Securities, Inc., a wholly-owned subsidiary of the Adviser (the
"Distributor"), for 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. Fees amounting to $172,783 were paid or
payable to the Distributor under this Plan for the six months ended February
29, 2004.
For the six months ended February 29, 2004, the Fund's expenses were reduced by
$261 under a custody credit arrangement with the Custodian.
Certain officers and directors of the Adviser and the Distributor are also
officers and directors of the Fund.
The Adviser and/or affiliated companies and the Value Line, Inc. Profit Sharing
and Savings Plan at February 29, 2004 owned 137,823 shares of the Fund's
capital stock, representing 1.26% of the outstanding shares. In addition,
officers and directors owned 951 shares of capital stock, representing less
than 1% of the outstanding shares.
- --------------------------------------------------------------------------------
12
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
FINANCIAL HIGHLIGHTS
================================================================================
SELECTED DATA FOR A SHARE OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH PERIOD:
SIX MONTHS
ENDED YEARS ENDED AUGUST 31,
FEBRUARY 29, 2004 -------------------------------------------------------------------
(UNAUDITED) 2003 2002 2001 2000 1999
================= ========== ========== ========== ========== ==========
NET ASSET VALUE, BEGINNING OF
PERIOD ................................ $ 11.84 $ 12.00 $ 11.51 $ 10.87 $ 10.81 $ 11.44
-------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM INVESTMENT
OPERATIONS:
Net investment income ................ .20 .44 .50 .58 .64 .61
Net gains or losses on
securities (both realized
and unrealized) .................... .21 (.15) .49 .67 .04 (.62)
-------- -------- -------- -------- -------- --------
Total income (loss) from
investment operations ................. .41 .29 .99 1.25 .68 (.01)
-------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Dividends from net
investment income .................. (.21) (.45) (.50) (.61) (.62) (.62)
Distributions from net
realized gains ..................... -- -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total distributions .................. (.21) (.45) (.50) (.61) (.62) (.62)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD ......... $ 12.04 $ 11.84 $ 12.00 $ 11.51 $ 10.87 $ 10.81
======== ======== ======== ======== ======== ========
TOTAL RETURN ........................... 3.47%+ 2.35% 8.84% 11.82% 6.53% (0.17)%
======== ======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in
thousands) ............................ $131,839 $144,264 $155,659 $150,593 $140,408 $167,231
Ratio of operating expenses to
average net assets(1) ................. 0.98%* 0.96% .92% .92% .73% .67%
Ratio of net investment
income to average net assets .......... 3.30%* 3.57% 4.17%(2) 5.17% 5.82% 5.40%
Portfolio turnover rate ................ 11% 65% 168% 140% 49% 125%
(1) RATIOS REFLECT EXPENSES GROSSED UP FOR CUSTODY CREDIT ARRANGEMENT. THE
RATIOS OF EXPENSES TO AVERAGE NET ASSETS NET OF CUSTODY CREDITS WOULD HAVE
BEEN UNCHANGED FOR THE SIX MONTHS ENDED FEBRUARY 29, 2004, FOR THE YEARS
ENDED AUGUST 31, 2003, AUGUST 31, 2002, AUGUST 31, 2001 AND AUGUST 31,
2000, AND WOULD HAVE BEEN 0.66% FOR THE YEAR ENDED AUGUST 31, 1999.
(2) AS REQUIRED, EFFECTIVE SEPTEMBER 1, 2001, THE FUND HAS ADOPTED THE
PROVISIONS OF THE AICPA AUDIT AND ACCOUNTING GUIDE FOR INVESTMENT
COMPANIES AND BEGAN AMORTIZING PREMIUM AND DISCOUNT ON DEBT SECURITIES.
THE EFFECT OF THIS CHANGE FOR THE YEAR ENDED AUGUST 31, 2002 ON NET
INVESTMENT INCOME AND NET REALIZED AND UNREALIZED GAINS AND LOSSES WAS
LESS THAN $.01 PER SHARE. THE EFFECT OF THIS CHANGE WAS TO DECREASE THE
RATIO OF NET INVESTMENT INCOME TO AVERAGE NET ASSETS FROM 4.24% TO 4.17%.
+NOT ANNUALIZED.
*ANNUALIZED.
SEE NOTES TO FINANCIAL STATEMENTS.
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13
VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
================================================================================
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VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
================================================================================
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VALUE LINE U.S. GOVERNMENT SECURITIES FUND, INC.
THE VALUE LINE FAMILY OF FUNDS
================================================================================
1950 -- THE VALUE LINE FUND seeks long-term growth of capital. Current income
is a secondary objective.
1952 -- VALUE LINE INCOME AND GROWTH FUND'S primary investment objective is
income, as high and dependable as is consistent with reasonable risk. Capital
growth to increase total return is a secondary objective.
1956 -- THE VALUE LINE SPECIAL SITUATIONS FUND seeks long-term growth of
capital. No consideration is given to current income in the choice of
investments.
1972 -- VALUE LINE LEVERAGED GROWTH INVESTORS' sole investment objective is to
realize capital growth.
1979 -- THE VALUE LINE CASH FUND, a money market fund, seeks to secure as high
a level of current income as is consistent with maintaining liquidity and
preserving capital. An investment in the Fund is not insured or guaranteed by
the Federal Deposit Insurance Corporation or any other government agency.
Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
1981 -- VALUE LINE U.S. GOVERNMENT SECURITIES FUND
seeks maximum income without undue risk to capital. Under normal conditions, at
least 80% of the value of its net assets will be invested in securities issued
or guaranteed by the U.S. Government and its agencies and instrumentalities.
1983 -- VALUE LINE CENTURION FUND* seeks long-term growth of capital.
1984 -- THE VALUE LINE TAX EXEMPT FUND seeks to provide investors with the
maximum income exempt from federal income taxes while avoiding undue risk to
principal. The Fund offers investors a choice of two portfolios: The Money
Market Portfolio and The National Bond Portfolio. The Fund may be subject to
state and local taxes and the Alternative Minimum Tax (if applicable).
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.
1987 -- VALUE LINE NEW YORK TAX EXEMPT TRUST seeks to provide New York
taxpayers with the maximum income exempt from New York State, New York City and
federal income taxes while avoiding undue risk to principal. The Trust may be
subject to state and local taxes and the Alternative Minimum Tax (if
applicable).
1987 -- VALUE LINE STRATEGIC ASSET MANAGEMENT TRUST* seeks to achieve a high
total investment return consistent with reasonable risk.
1993 -- VALUE LINE EMERGING OPPORTUNITIES 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 asset mix.
* ONLY AVAILABLE THROUGH THE PURCHASE OF GUARDIAN INVESTOR, A TAX DEFERRED
VARIABLE ANNUITY, OR VALUEPLUS, A VARIABLE LIFE INSURANCE POLICY.
FOR MORE COMPLETE INFORMATION ABOUT ANY OF THE VALUE LINE FUNDS, INCLUDING
CHARGES AND EXPENSES, SEND FOR A PROSPECTUS FROM VALUE LINE SECURITIES, INC.,
220 EAST 42ND STREET, NEW YORK, NEW YORK 10017-5891 OR CALL 1-800-243-2729, 24
HOURS A DAY, 7 DAYS A WEEK, OR VISIT US AT WWW.VALUELINE.COM. READ THE
PROSPECTUS CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
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16