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.
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(Exact name of registrant as specified in charter)
220 East 42nd Street, New York, N.Y. 10017
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 212-907-1500
Date of fiscal year end: August 31, 2005
Date of reporting period: August 31, 2005
Item I. Reports to Stockholders.
A copy of the Annual Report to Stockholders for the period ended 8/31/05
is included with this Form.
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ANNUAL REPORT
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August 31, 2005
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Value Line
U.S. Government
Securities
Fund, Inc.
[LOGO]
----------
VALUE LINE
No-Load
Mutual
Funds
Value Line U.S. Government Securities Fund, Inc.
To Our Value Line U.S. Government
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To Our Shareholders:
During the fiscal year ended August 31, 2005, the Federal Reserve Board
continued to carry out a restrictive monetary policy, begun in the middle of
2004, implementing a series of interest rate hikes.
The Federal Reserve decided to raise interest rates out of a concern that
historically low interest rates, which prevailed from 2002 to the middle of
2004, coupled with strong economic growth, could create a rise in the inflation
rate. They decided to counteract this inflationary potential by raising the
Federal Funds rate, the short term rate under its control. The Federal Funds
rate increased from 1.50% to 3.50% during the fiscal year ended August 31, 2005.
As a result of the interest rate hikes, the rates of short term fixed income
securities rose to a similar degree. The 2-year Treasury note climbed from 2.40%
to 3.81% and its price declined over the period. The 5-year Treasury note
increased from 3.31% to 3.86%. However, the rates of longer maturities within
the 9-year to 30-year range actually fell, and their prices rose. The rate on
the 10-year Treasury note fell from 4.12% to 4.01%, but the most significant
decline stemmed from the 30-year Treasury bond whose rate fell from 4.93% to
4.25%, as its price gained 9% in value. Such a gain in the value of longer term
securities was quite atypical. Historically, whenever the Federal Reserve has
raised interest rates, the rates of all maturities rise, although those of
longer maturities often rise less. The unusual decline in longer rates prompted
Alan Greenspan, Chairman of the Federal Reserve Board, to characterize it as a
"conundrum." However, most fixed income investors have come to believe that
strong foreign demand, particularly buyers in Japan and China, explains this
anomaly. Foreign investors were attracted to the higher U.S. long term rates and
they had a need to buy U.S. dollars to support their trade export advantage,
which they invested in U.S. bonds.
Although your Fund's position in short term fixed income securities fell in
value, the Fund still managed a positive return of 2.86%, outperforming the
return of its benchmark, the Lehman Brothers Intermediate U.S. Government Bond
Index, which gained 2.51%(1). This relative outperformance resulted from the
Fund's position in longer term securities, whose price gains offset the losses
on the shorter maturities. In addition, the Fund holds a significant position in
mortgage backed securities, whose performance for the fiscal period was superior
to most other fixed income sectors, particularly U.S. agency and treasury
securities.
Your Fund's long-term strategy remains generating high income consistent with
safety of principal by investing
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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.
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2
Value Line U.S. Government Securities Fund, Inc.
Securities Fund Shareholders
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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 dramatic
swings in value caused by gyrating interest rates and produce more stable and
consistent performance.
We continue to emphasize an intermediate-term maturity structure in our bond
selection as well as a diversified allocation toward treasury, agency and
mortgage backed
securities. We believe this will position the Fund for competitive performance
going forward. We appreciate your continued support.
Sincerely,
/s/ Jean Bernhard Buttner
Jean Bernhard Buttner
Chairman and President
October 11, 2005
Economic Observations
The business expansion is likely to proceed at a somewhat slower pace of
3.0%-3.5% during the latter stages of 2005 than we had expected earlier,
reflecting the major damage done to the Gulf Coast's economic underpinnings by
the recent hurricanes in that region. As before, the economic up cycle should be
sustained by healthy levels of construction spending and capital goods demand.
Moreover, recent trends suggest that the economy will continue to grow at a
stable 3.0%-3.5% in 2006.
Helping to sustain this upturn next year are likely to be solid levels of
activity in the manufacturing area and the service sector. In fact, the need to
rebuild portions of the hurricane-ravaged Gulf area should give the economy a
modest boost. Such growth will probably be accompanied by still moderate, but
somewhat higher, rates of inflation. The wild card in this equation, and one
reason that we are not likely to see a higher level of business growth, is the
high price of oil. Should that commodity stabilize in price over the next
several months, as we assume, the sustainability of the long economic expansion,
as well as the prolonged period of comparative price stability, probably would
continue. Any material and sustained increase in oil prices from these recent
levels would logically threaten this economic and inflation stability.
A continuing steady rate of gross domestic product growth and the accompanying
stable rates of inflation that we expect would have positive ramifications for
the financial markets. That's because this combination would logically allow the
Federal Reserve to bring its cycle of monetary tightening to a close over the
next several months--if not sooner--without undue harm to the lengthy economic
and corporate earnings up cycles.
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3
Value Line U.S. Government Securities Fund, Inc.
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The following graph compares the performance of the Value Line U.S. Government
Securities Fund, Inc. to that of the Lehman Brothers Aggregate Bond Index and
the Lehman Brothers Intermediate U.S. Government Bond Index. The Value Line U.S.
Government Securities Fund, Inc. is a professionally managed mutual fund, while
the indices are not available for investment and are not managed. The comparison
is shown for illustrative purposes only.
Comparison of a Change in Value of a $10,000 Investment in the
Value Line U.S. Government Securities Fund, Inc.,
the Lehman Brothers Aggregate Bond Index**,
and the Lehman Brothers Intermediate U.S. Government Bond Index**
[The table below was represented as a line chart in the printed material.]
Lehman Brothers
Value Line Lehman Brothers Intermediate
U.S. Government Aggregate U.S. Government
Securities Fund, Inc. Bond Index Bond Index
Sep-95 $10,000 $10,000 $10,000
10,260 10,382 10,301
10,304 10,413 10,380
10,193 10,262 10,297
Aug-96 10,306 10,411 10,446
10,873 11,012 10,884
10,826 10,970 10,885
10,921 11,115 11,030
Aug-97 11,234 11,452 11,286
11,676 11,844 11,567
11,864 12,107 11,807
12,034 12,328 11,976
Aug-98 12,390 12,662 12,332
12,606 12,963 12,602
12,484 12,866 12,533
12,493 12,866 12,573
Aug-99 12,369 12,763 12,611
12,564 12,958 12,753
12,540 13,009 12,775
12,598 13,136 12,950
Aug-00 13,177 13,727 13,392
13,624 14,132 13,801
14,284 14,757 14,362
14,301 14,859 14,480
Aug-01 14,735 15,425 14,929
15,023 15,710 15,300
15,150 15,889 15,419
15,308 16,062 15,578
Aug-02 16,038 16,675 16,254
16,113 16,863 16,391
16,639 17,464 16,845
16,991 17,923 17,161
Aug-03 16,415 17,400 16,747
16,616 17,737 16,944
16,985 18,257 17,332
16,603 17,843 17,008
Aug-04 17,037 18,468 17,430
16,997 18,524 17,380
17,124 18,701 17,399
17,406 19,061 17,699
Aug-05 17,525 19,234 17,801
From 9/1/95 to 8/31/05
Performance Data:*
Growth of an Assumed Average Annual
Investment of $10,000 Total Return
----------------------- ---------------
1 year ended 08/31/05 .......... $10,286 2.86%
5 years ended 08/31/05 ......... $13,300 5.87%
10 years ended 08/31/05 ......... $17,525 5.77%
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* 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.
** The Lehman Brothers Aggregate Bond Index is representative of the broad
fixed-income market. It includes government, investment-grade corporate,
and mortgage-backed bonds. The Lehman Brothers Intermediate U.S.
Government Bond Index represents the intermediate maturity (1-10 year) of
the U.S. Treasury and U.S. Agency segment of the fixed-income market. The
returns for the indices do not reflect expenses which are deducted from
the fund's returns.
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4
Value Line U.S. Government Securities Fund, Inc.
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FUND EXPENSES:
Example
As a shareholder of the Fund, you incur ongoing costs, including management
fees; distribution and service (12b-1) fees; and other Fund expenses. This
Example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with the ongoing costs of
investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (March 1, 2005 through August 31, 2005).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example an $8,600
account value divided by $1,000=8.6), then multiply the result by the number in
the first line under the heading "Expenses Paid During Period" to estimate the
expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Expenses*
paid during
Beginning Ending period
account account 3/1/05
value value thru
3/1/05 8/31/05 8/31/05
-------------- -------------- ------------
Actual ........................................... $ 1,000.00 $ 1,023.40 $ 5.46
Hypothetical (5% return before expenses) ......... $ 1,000.00 $ 1,019.81 $ 5.45
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* Expenses are equal to the Fund's annualized expense ratio of 1.07%
multiplied by the average account value over the period, multiplied by
184/365 to reflect the one-half period.
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5
Value Line U.S. Government Securities Fund, Inc.
Portfolio Highlights at August 31, 2005 (unaudited)
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Ten Largest Holdings
Principal Percentage of
Issue Amount Value Net Assets
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Federal National Mortgage Association, 6.45%, 4/1/08 .................. $10,000,000 $10,265,630 9.2%
Private Export Funding Corporation Series "J", 7.65%, 5/15/06 ......... 4,000,000 4,103,340 3.7%
Federal Home Loan Bank, 7.45%, 2/3/20 ................................. 3,000,000 3,946,272 3.5%
Federal National Mortgage Association, 7.04%, 7/1/06 .................. 3,559,173 3,558,672 3.2%
Federal Farm Credit Bank, 5.70%, 7/3/17 ............................... 3,000,000 3,278,331 2.9%
Federal Home Loan Bank, 4.43%, 4/7/08 ................................. 3,000,000 3,000,768 2.7%
UBS Warburg, LLC, Repurchase Agreement, 3.48%, 9/1/05 ................. 3,000,000 3,000,290 2.7%
Federal Home Loan Mortgage Corporation, 5.50%, 9/15/11 ................ 2,500,000 2,672,300 2.4%
Federal Home Loan Mortgage Corporation Gold PC, 6.00%, 3/1/33 ......... 2,419,392 2,480,567 2.2%
Morgan Stanley, Repurchase Agreement, 3.47%, 9/1/05 ................... 2,300,000 2,300,222 2.1%
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Asset Allocation -- Percentage of Net Assets
[The following table was represented as a pie chart in the printed material.]
Short-Term, Cash & Other 5.6%
U.S. Treasury Obligations 7.9%
U.S. Government Agency Obligations 86.5%
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Coupon Distribution
% of Fund's
investments
------------
Less than 4% 12.1
4-4.99% 24.2
5-5.99% 25.1
6-6.99% 24.6
7-7.99% 14.0
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6
Value Line U.S. Government Securities Fund, Inc.
Schedule of Investments August 31, 2005
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Principal Maturity
Amount Rate Date Value
- ------------- ---------- ----------- -------------
U.S. TREASURY OBLIGATIONS (7.9%)
$ 1,000,000 U.S. Treasury Notes ......................................... 3.25% 1/15/09 $ 981,602
1,000,000 U.S. Treasury Notes ......................................... 4.38 8/15/12 1,029,688
1,000,000 U.S. Treasury Notes ......................................... 4.00 11/15/12 1,004,805
1,000,000 U.S. Treasury Notes ......................................... 4.00 2/15/14 999,883
1,018,600 U.S. Treasury Notes* ........................................ 1.63 1/15/15 1,017,685
1,000,000 U.S. Treasury Bonds ......................................... 7.13 2/15/23 1,343,321
1,000,000 U.S. Treasury Bonds ......................................... 6.25 8/15/23 1,239,454
1,000,000 U.S. Treasury Bonds ......................................... 6.13 11/15/27 1,256,641
----------- -----------
8,018,600 TOTAL U.S. TREASURY OBLIGATIONS
----------- (Cost $8,648,737) ......................................... 8,873,079
-----------
U.S. GOVERNMENT AGENCY OBLIGATIONS (86.5%)
FEDERAL NATIONAL MORTGAGE ASSOCIATION (35.0%)
3,559,173 Federal National Mortgage Association Pool #313032 .......... 7.04 7/1/06 3,558,672
1,000,000 Federal National Mortgage Association ....................... 4.75 1/2/07 1,009,024
1,000,000 Federal National Mortgage Association ....................... 4.10 6/14/07 997,852
10,000,000 Federal National Mortgage Association Pool #380188 .......... 6.45 4/1/08 10,265,630
75,776 Federal National Mortgage Association Pool #254243 .......... 6.00 2/1/09 77,040
169,721 Federal National Mortgage Association Pool #254273 .......... 5.00 3/1/09 171,107
722,594 Federal National Mortgage Association Pool #254956 .......... 4.00 11/1/10 710,414
437,812 Federal National Mortgage Association Pool #255325 .......... 4.50 6/1/11 436,457
1,000,000 Federal National Mortgage Association ....................... 5.00 4/16/15 1,000,472
208,791 Federal National Mortgage Association Pool #511823 .......... 5.50 5/1/16 213,476
460,327 Federal National Mortgage Association Pool #622373 .......... 5.50 12/1/16 470,654
179,402 Federal National Mortgage Association Pool #615289 .......... 5.50 12/1/16 183,427
353,701 Federal National Mortgage Association Pool #623503 .......... 6.00 2/1/17 365,450
207,181 Federal National Mortgage Association Pool #631328 .......... 5.50 2/1/17 211,855
32,959 Federal National Mortgage Association Pool #643277 .......... 5.50 4/1/17 33,703
31,900 Federal National Mortgage Association Pool #638247 .......... 5.50 5/1/17 32,619
169,581 Federal National Mortgage Association Pool #685183 .......... 5.00 3/1/18 170,971
558,907 Federal National Mortgage Association Pool #254684 .......... 5.00 2/1/18 563,487
702,480 Federal National Mortgage Association Pool #695828 .......... 5.00 4/1/18 708,236
201,154 Federal National Mortgage Association Pool #703936 .......... 5.00 5/1/18 202,802
866,541 Federal National Mortgage Association Pool #703617 .......... 5.00 7/1/18 873,642
864,721 Federal National Mortgage Association Pool #790984 .......... 5.00 7/1/19 871,513
874,655 Federal National Mortgage Association Pool #786915 .......... 5.00 8/1/19 881,525
634,637 Federal National Mortgage Association REMIC Trust
Series 2003-28 Class KA ................................... 4.25 3/25/22 618,311
570,689 Federal National Mortgage Association REMIC Trust
Series 2003-38 Class TC ................................... 5.00 3/25/23 576,869
See Notes to Financial Statements.
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7
Value Line U.S. Government Securities Fund, Inc.
Schedule of Investments
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Principal Maturity
Amount Rate Date Value
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$ 307,341 Federal National Mortgage Association Pool #412682 .......... 6.00% 3/1/28 $ 315,627
207,957 Federal National Mortgage Association Pool #424691 .......... 6.50 4/1/28 215,935
195,410 Federal National Mortgage Association Pool #425239 .......... 6.50 4/1/28 202,906
1,000,000 Federal National Mortgage Association ....................... 7.25 5/15/30 1,384,054
1,000,000 Federal National Mortgage Association ....................... 6.63 11/15/30 1,296,126
156,371 Federal National Mortgage Association Pool #571090 .......... 7.50 1/1/31 165,866
2,321 Federal National Mortgage Association Pool #568625 .......... 7.50 1/1/31 2,462
5,068 Federal National Mortgage Association Pool #573935 .......... 7.50 3/1/31 5,376
826,592 Federal National Mortgage Association Pool #626440 .......... 7.50 2/1/32 876,653
86,804 Federal National Mortgage Association Pool #629297 .......... 6.50 2/1/32 89,981
147,620 Federal National Mortgage Association Pool #254383 .......... 7.50 5/1/32 156,560
95,703 Federal National Mortgage Association Pool #634996 .......... 6.50 5/1/32 99,144
488,347 Federal National Mortgage Association Pool #254476 .......... 5.50 9/1/32 494,089
14,537 Federal National Mortgage Association Pool #688539 .......... 5.50 3/1/33 14,704
699,023 Federal National Mortgage Association Pool #650386 .......... 5.00 7/1/33 696,466
674,561 Federal National Mortgage Association Pool #726889 .......... 5.50 7/1/33 682,334
768,407 Federal National Mortgage Association Pool #759028 .......... 5.50 1/1/34 777,261
430,265 Federal National Mortgage Association Pool #761913 .......... 5.50 2/1/34 434,976
342,772 Federal National Mortgage Association Pool #769862 .......... 5.50 2/1/34 346,525
370,038 Federal National Mortgage Association Pool #763393 .......... 5.50 2/1/34 374,302
37,878 Federal National Mortgage Association Pool #769682 .......... 5.00 3/1/34 37,684
29,785 Federal National Mortgage Association Pool #778141 .......... 5.00 5/1/34 29,632
534,785 Federal National Mortgage Association Pool #773586 .......... 5.50 6/1/34 540,640
743,397 Federal National Mortgage Association Pool #255311 .......... 6.00 7/1/34 761,287
39,454 Federal National Mortgage Association Pool #258149 .......... 5.50 9/1/34 39,886
6,400 Federal National Mortgage Association Pool #789150 .......... 5.00 10/1/34 6,368
852,167 Federal National Mortgage Association Pool #255496 .......... 5.00 10/1/34 847,803
97,624 Federal National Mortgage Association Pool #797154 .......... 5.50 11/1/34 98,693
207,880 Federal National Mortgage Association Pool #801063 .......... 5.50 11/1/34 210,157
369,620 Federal National Mortgage Association Pool #803675 .......... 5.50 12/1/34 373,666
528,978 Federal National Mortgage Association Pool #804683 .......... 5.50 12/1/34 534,770
950,216 Federal National Mortgage Association Pool #815813 .......... 4.59 2/1/35 950,216
69,633 Federal National Mortgage Association Pool #255580 .......... 5.50 2/1/35 70,396
951,389 Federal National Mortgage Association Pool #735224 .......... 5.50 2/1/35 962,351
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38,121,045 TOTAL FEDERAL NATIONAL MORTGAGE
----------- ASSOCIATION (Cost $38,611,294) ............................ 39,300,104
-----------
FEDERAL HOME LOAN MORTGAGE CORPORATION (22.2%)
1,000,000 Federal Home Loan Mortgage Corporation ...................... 4.26 7/19/07 1,002,153
1,000,000 Federal Home Loan Mortgage Corporation ...................... 3.50 9/15/07 990,874
1,000,000 Federal Home Loan Mortgage Corporation ...................... 3.25 11/2/07 983,388
See Notes to Financial Statements.
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8
Value Line U.S. Government Securities Fund, Inc.
August 31, 2005
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Principal Maturity
Amount Rate Date Value
- ---------------------------------------------------------------------------------------------------------------------------
$ 1,007,451 Federal Home Loan Mortgage Corporation Gold PC
Pool #M90840 .............................................. 3.00% 9/1/08 $ 969,804
1,000,000 Federal Home Loan Mortgage Corporation ...................... 4.00 12/15/09 996,575
1,000,000 Federal Home Loan Mortgage Corporation ...................... 4.13 7/12/10 999,290
2,500,000 Federal Home Loan Mortgage Corporation ...................... 5.50 9/15/11 2,672,300
1,000,000 Federal Home Loan Mortgage Corporation ...................... 4.50 5/14/12 991,622
1,000,000 Federal Home Loan Mortgage Corporation ...................... 4.75 5/6/13 991,425
1,000,000 Federal Home Loan Mortgage Corporation ...................... 4.50 1/15/15 1,014,479
929,887 Federal Home Loan Mortgage Corporation REMIC Trust
Series 2849 Class VA ...................................... 5.00 8/15/15 941,396
33,035 Federal Home Loan Mortgage Corporation Gold PC
Pool #E92226 .............................................. 5.00 11/1/17 33,331
544,982 Federal Home Loan Mortgage Corporation Gold PC
Pool #E93499 .............................................. 5.00 12/1/17 549,858
36,451 Federal Home Loan Mortgage Corporation Gold PC
Pool #E92829 .............................................. 5.00 12/1/17 36,777
972,078 Federal Home Loan Mortgage Corporation REMIC Trust
Series 2892 Class DC ...................................... 4.50 12/15/17 970,682
79,334 Federal Home Loan Mortgage Corporation Gold PC
Pool #B17398 .............................................. 4.50 12/1/19 78,786
544,143 Federal Home Loan Mortgage Corporation Gold PC
Pool #G18044 .............................................. 4.50 3/1/20 540,272
347,295 Federal Home Loan Mortgage Corporation Gold PC
Pool #B18034 .............................................. 4.50 4/1/20 344,825
1,000,000 Federal Home Loan Mortgage Corporation REMIC Trust
Series 2937 Class JC ...................................... 5.00 9/15/22 1,011,535
783,726 Federal Home Loan Mortgage Corporation Gold PC
Pool #C90684 .............................................. 4.50 5/1/23 768,059
1,000,000 Federal Home Loan Mortgage Corporation ...................... 6.75 3/15/31 1,316,506
792,277 Federal Home Loan Mortgage Corporation REMIC Trust
Series 2645 Class NA ...................................... 3.50 9/15/31 767,678
637,933 Federal Home Loan Mortgage Corporation REMIC Trust
Series 2594 Class OR ...................................... 4.25 6/15/32 627,345
2,419,392 Federal Home Loan Mortgage Corporation Gold PC
Pool #C77717 .............................................. 6.00 3/1/33 2,480,567
1,247,209 Federal Home Loan Mortgage Corporation Gold PC
Pool #A29526 .............................................. 5.00 1/1/35 1,239,276
621,544 Federal Home Loan Mortgage Corporation Gold PC
Pool #A29633 .............................................. 5.00 1/1/35 617,591
955,075 Federal Home Loan Mortgage Corporation Gold PC
----------- Pool #783022 .............................................. 4.45 2/1/35 951,680
-----------
24,451,812 TOTAL FEDERAL HOME LOAN MORTGAGE
----------- CORPORATION (Cost $24,802,558) ............................ 24,888,074
-----------
See Notes to Financial Statements.
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9
Value Line U.S. Government Securities Fund, Inc.
Schedule of Investments
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Principal Maturity
Amount Rate Date Value
- ----------------------------------------------------------------------------------------------------------------------
FEDERAL HOME LOAN BANK (15.2%)
$ 1,000,000 Federal Home Loan Bank ...................................... 2.75% 12/15/06 $ 984,807
1,000,000 Federal Home Loan Bank ...................................... 2.85 2/13/07 983,943
500,000 Federal Home Loan Bank ...................................... 4.88 5/15/07 506,742
500,000 Federal Home Loan Bank ...................................... 3.50 11/15/07 494,052
1,000,000 Federal Home Loan Bank ...................................... 4.00 3/10/08 996,771
3,000,000 Federal Home Loan Bank ...................................... 4.43 4/7/08 3,000,768
1,000,000 Federal Home Loan Bank ...................................... 6.01 4/22/08 1,048,266
1,000,000 Federal Home Loan Bank ...................................... 4.25 5/16/08 995,739
1,000,000 Federal Home Loan Bank ...................................... 4.10 6/13/08 994,162
1,000,000 Federal Home Loan Bank ...................................... 5.25 11/14/08 1,033,956
1,000,000 Federal Home Loan Bank ...................................... 6.21 6/2/09 1,074,236
1,000,000 Federal Home Loan Bank ...................................... 4.38 3/17/10 1,010,589
3,000,000 Federal Home Loan Bank ...................................... 7.45 2/3/20 3,946,272
----------- -----------
16,000,000 TOTAL FEDERAL HOME BANK
----------- (Cost $16,601,181) ........................................ 17,070,303
-----------
FEDERAL FARM CREDIT BANK (7.6%)
2,000,000 Federal Farm Credit Bank .................................... 6.03 5/7/08 2,099,008
1,000,000 Federal Farm Credit Bank .................................... 6.82 3/16/09 1,088,198
1,000,000 Federal Farm Credit Bank .................................... 4.85 10/25/12 1,040,259
1,000,000 Federal Farm Credit Bank .................................... 5.30 6/22/15 997,316
3,000,000 Federal Farm Credit Bank .................................... 5.70 7/3/17 3,278,331
----------- -----------
8,000,000 TOTAL FEDERAL FARM CREDIT BANK
----------- (Cost $8,324,393) ......................................... 8,503,112
-----------
PRIVATE EXPORT FUNDING CORPORATION (3.7%)
4,000,000 Private Export Funding Corporation Series "J" ............... 7.65 5/15/06 4,103,340
----------- -----------
4,000,000 TOTAL PRIVATE EXPORT FUNDING
----------- CORPORATION (Cost $4,000,000) ............................. 4,103,340
-----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (2.8%)
305,095 Government National Mortgage Association Pool #003645 ....... 4.50 12/20/19 304,143
17,287 Government National Mortgage Association Pool #541349 ....... 6.00 4/15/31 17,847
32,554 Government National Mortgage Association Pool #557681 ....... 6.00 8/15/31 33,608
276,436 Government National Mortgage Association Pool #548880 ....... 6.00 12/15/31 285,391
220,140 Government National Mortgage Association Pool #551762 ....... 6.00 4/15/32 227,263
75,283 Government National Mortgage Association Pool #582415 ....... 6.00 11/15/32 77,719
387,191 Government National Mortgage Association Pool #604485 ....... 6.00 7/15/33 399,720
300,304 Government National Mortgage Association Pool #622603 ....... 6.00 11/15/33 310,022
14,391 Government National Mortgage Association Pool #429786 ....... 6.00 12/15/33 14,856
704,137 Government National Mortgage Association Pool #605025 ....... 6.00 2/15/34 726,644
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10
Value Line U.S. Government Securities Fund, Inc.
August 31, 2005
- --------------------------------------------------------------------------------
Principal Maturity
Amount Rate Date Value
- -----------------------------------------------------------------------------------------------------------------------------
$ 19,161 Government National Mortgage Association Pool #626480 .......... 6.00% 2/15/34 $ 19,773
151,124 Government National Mortgage Association Pool #610944 .......... 5.50 4/15/34 154,199
389,608 Government National Mortgage Association Pool #583008 .......... 5.50 6/15/34 397,535
184,733 Government National Mortgage Association Pool #605245 .......... 5.50 6/15/34 188,490
- ----------- -------------
3,077,444 TOTAL GOVERNMENT NATIONAL
- ----------- MORTGAGE ASSOCIATION (Cost $3,123,842) ....................... 3,157,210
-------------
93,650,301 TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS
- ----------- (Cost $95,463,268) ........................................... 97,022,143
-------------
101,668,901 TOTAL INVESTMENT SECURITIES (94.4%)
- ----------- (Cost $104,112,005) .......................................... 105,895,222
-------------
REPURCHASE AGREEMENTS (4.7%) (including accrued interest)
$ 2,300,000 With Morgan Stanley, 3.47%, dated 8/31/05, due 9/1/05, delivery value $2,300,222
(collateralized by $2,300,000 U.S. Treasury Bonds 4.00%, due 4/15/10, with a
value of $2,348,204) ................................................................. $ 2,300,222
3,000,000 With UBS Warburg, LLC, 3.48%, dated 8/31/05, due 9/1/05, delivery value
- ----------- $3,000,290 (collateralized by $2,293,000 U.S. Treasury Bonds 6.75%, due
8/15/26, with a value of $3,063,585) ................................................. 3,000,290
-------------
5,300,000 TOTAL REPURCHASE AGREEMENTS (4.7%)
- ----------- (Cost $5,300,512) .................................................................... 5,300,512
-------------
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES (0.9%) .................................. 944,089
-------------
NET ASSETS (100.0%) .................................................................... $ 112,139,823
=============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE
PER OUTSTANDING SHARE ($112,139,823 [divided by] 9,555,463 shares of
capital stock outstanding) ........................................................... $ 11.74
=============
* Treasury Inflation-Protection Security (TIPS)
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
11
Value Line U.S. Government Securities Fund, Inc.
Statement of Assets and Liabilities
at August 31, 2005
- --------------------------------------------------------------------------------
Assets:
Investment securities, at value
(Cost $104,112,005) .................................... $ 105,895,222
Repurchase agreements (Cost $5,300,512) ................... 5,300,512
Cash ...................................................... 45,692
Interest receivable ....................................... 1,173,437
Receivable for capital shares sold ........................ 28,128
-------------
Total Assets ......................................... 112,442,991
-------------
Liabilities:
Payable for capital shares repurchased .................... 147,657
Accrued expenses:
Advisory fee ........................................... 47,297
Service & distribution plan fee ........................ 23,649
Directors' fee ......................................... 6,145
Other .................................................. 78,420
-------------
Total Liabilities .................................... 303,168
-------------
Net Assets ................................................ $ 112,139,823
=============
Net Assets consist of:
Capital stock, at $1 par value
(authorized 100,000,000, outstanding
9,555,463 shares) ...................................... $ 9,555,463
Additional paid-in capital ................................ 101,820,951
Undistributed net investment income ....................... 1,192,176
Accumulated net realized loss on
investments ............................................ (2,211,984)
Net unrealized appreciation of investments ................ 1,783,217
-------------
Net Assets ................................................ $ 112,139,823
=============
Net Asset Value, Offering and
Redemption Price per Outstanding
Share ($112,139,823 [divided by] 9,555,463
shares outstanding) .................................... $ 11.74
=============
Statement of Operations
for the Year Ended August 31, 2005
- --------------------------------------------------------------------------------
Investment Income:
Interest income ........................................... $ 5,377,970
-------------
Expenses:
Advisory fee .............................................. 579,038
Service & distribution plan fees .......................... 289,519
Transfer agent fees ....................................... 76,202
Auditing and legal fees ................................... 59,660
Telephone, dues, taxes, and other ......................... 54,896
Printing .................................................. 37,000
Registration and filing fees .............................. 30,183
Custodian fees ............................................ 25,175
Directors' fees and expenses .............................. 21,400
Postage ................................................... 18,999
Insurance ................................................. 16,501
-------------
Total Expenses Before Custody Credits .................. 1,208,573
Less: Custody Credits .................................. (1,440)
-------------
Net Expenses ........................................... 1,207,133
-------------
Net Investment Income ..................................... 4,170,837
-------------
Net Realized and Unrealized Gain (Loss)
on Investments:
Net Realized Gain (Loss) ............................... 1,193,238
Change in Net Unrealized
Appreciation (Depreciation) .......................... (2,205,458)
-------------
Net Realized Gain (Loss) and Change
in Net Unrealized Appreciation
(Depreciation) on Investments .......................... (1,012,220)
-------------
Net Increase in Net Assets
from Operations ........................................ $ 3,158,617
=============
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12
Value Line U.S. Government Securities Fund, Inc.
Statement of Changes in Net Assets
for the Years Ended August 31, 2005 and August 31, 2004
- --------------------------------------------------------------------------------
Year Ended Year Ended
August 31, August 31,
2005 2004
--------------------------------
Operations:
Net investment income ................................................... $ 4,170,837 $ 4,485,304
Net realized gain (loss) on investments ................................. 1,193,238 (344,427)
Net change in unrealized appreciation (depreciation) on investments ..... (2,205,458) 858,586
-------------------------------
Net increase in net assets from operations .............................. 3,158,617 4,999,463
-------------------------------
Distributions to Shareholders:
Net investment income ................................................... (4,535,933) (4,655,086)
-------------------------------
Capital Share Transactions:
Proceeds from sale of shares ............................................ 5,655,477 46,350,407
Proceeds from reinvestment of distributions to shareholders ............. 3,874,153 3,990,642
Cost of shares repurchased .............................................. (17,456,421) (73,505,326)
-------------------------------
Net decrease from capital share transactions ............................ (7,926,791) (23,164,277)
-------------------------------
Total Decrease in Net Assets ............................................. (9,304,107) (22,819,900)
Net Assets:
Beginning of year ....................................................... 121,443,930 144,263,830
-------------------------------
End of year ............................................................. $ 112,139,823 $ 121,443,930
===============================
Undistributed Net Investment Income, at end of year ...................... $ 1,192,176 $ 653,681
===============================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
13
Value Line U.S. Government Securities Fund, Inc.
Notes to Financial Statements August 31, 2005
- --------------------------------------------------------------------------------
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 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 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. If a security is not priced in this manner, the Fund
utilizes an independent pricing service (the "Service") approved by the Board of
Directors. 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, it is the Fund's policy that 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. To the extent that the Fund distributes all of its required
distributions, no federal income tax or excise tax provision will be required.
For the year ended August 31, 2005, $29,421 of excise tax was incurred and is
included in "Telephone, dues, taxes and other" in the Statement of Operations.
(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 dis-
- --------------------------------------------------------------------------------
14
Value Line U.S. Government Securities Fund, Inc.
Notes to Financial Statements August 31, 2005
- --------------------------------------------------------------------------------
count and premium, is earned from settlement date and recognized on the accrual
basis.
The Fund may invest in Treasury Inflation-Protection Securities (TIPS). The
principal value and interest payout of TIPS are periodically adjusted according
to the rate of inflation based on the Consumer Price Index. The adjustments for
interest income due to the inflation are reflected in interest income in the
Statement of Operations.
(E) Representations and Indemnifications. In the normal course of business the
Fund enters into contracts that contain a variety of representations and
warranties 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:
Year Year
Ended Ended
August 31, August 31,
2005 2004
-------------------------------
Shares sold .......................... 482,186 3,892,455
Shares issued in reinvestment
of dividends ...................... 332,235 336,755
-------------------------------
814,421 4,229,210
Shares repurchased ................... (1,487,920) (6,183,849)
-------------------------------
Net decrease ......................... (673,499) (1,954,639)
===============================
Dividends per share .................. $ .4600 $ .4125
===============================
Dividends and distributions to shareholders are recorded on the ex-dividend
date.
3. Purchases and Sales of Securities
Purchases and sales of investment securities, excluding short-term investments,
were as follows:
Year
Ended
August 31,
2005
-------------
Purchases:
U.S. Treasury Obligations ............................. $ 19,246,832
U.S. Government Agency
Obligations ........................................ 47,551,771
-------------
$ 66,798,603
=============
Sales:
U.S. Treasury Obligations ............................. $ 21,059,609
U.S. Government Agency
Obligations ........................................ 43,742,988
-------------
$ 64,802,597
=============
4. Income Taxes
At August 31, 2005, information on the tax basis of investments is follows:
Cost of investments for tax purposes ..................... $ 109,690,325
=============
Gross tax unrealized appreciation ........................ $ 1,991,701
Gross tax unrealized depreciation ........................ (486,292)
-------------
Net tax unrealized appreciation on
investments ........................................... $ 1,505,409
=============
Undistributed ordinary income ............................ $ 1,433,435
=============
Capital loss carryforward, expires
August 31, 2008 ....................................... $ 2,132,091
Capital loss carryforward, expires
August 31, 2012 ....................................... 11,348
-------------
Capital loss carryforward, at
August 31, 2005 ....................................... $ 2,143,439
=============
During the year ended August 31, 2005, as permitted under federal income tax
regulations, the Fund elected to defer
- --------------------------------------------------------------------------------
15
Value Line U.S. Government Securities Fund, Inc.
Notes to Financial Statements August 31, 2005
- --------------------------------------------------------------------------------
$31,996 of post-October net capital losses to the next taxable year.
During the year ended August 31, 2005, the Fund utilized $53,384 of its capital
loss carryforward.
During the year ended August 31, 2005, $2,775,951 of the Fund's capital loss
carryforward expired.
To the extent that current or 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, paydown gains (losses), and prepayment penalty interest. These
permanent book-tax differences relating to the current year were reclassified
within the composition of the net asset accounts. The Fund increased
undistributed net investment income by $903,591, decreased additional paid in
capital $2,805,372 and decreased accumulated net realized loss by $1,901,781.
Net assets were not affected by this reclassification.
The tax composition of dividends paid during the year ended August 31, 2005 and
year ended August 31, 2004 is as follows:
August 31, August 31,
2005 2004
-------------------------
Ordinary Income .................................. $4,535,933 $4,655,086
=========================
5. Investment Advisory Contract, Management Fees and Transactions With
Affiliates
An advisory fee of $579,038 was paid or payable to Value Line, Inc., the Fund's
investment adviser ("Adviser"), for the year ended August 31, 2005. This was
computed at the rate of 1/2 of 1% of the Fund's average daily net assets during
the year and was paid monthly.
The Adviser provides research, investment programs, and supervision of the
investment portfolio and pays costs of administrative services, office space,
equipment and compensation of administrative, bookkeeping, and clerical
personnel necessary for managing the affairs of the Fund. The Advisor 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 $289,519 were paid or payable
to the Distributor under this Plan for the year ended August 31, 2005.
For the year ended August 31, 2005 the Fund's expenses were reduced by $1,440
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 August 31, 2005 owned 124,520 shares of the Fund's capital
stock, representing 1.30% of the outstanding shares. In addition, officers and
directors owned 775 shares of capital stock, representing less than 1% of the
outstanding shares.
- --------------------------------------------------------------------------------
16
Value Line U.S. Government Securities Fund, Inc.
Financial Highlights
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout each year:
Years Ended August 31,
----------------------------------------------------------------------------------
2005 2004 2003 2002 2001
----------------------------------------------------------------------------------
Net asset value, beginning of year ... $ 11.87 $ 11.84 $ 12.00 $ 11.51 $ 10.87
----------------------------------------------------------------------------------
Income (loss) from
investment operations:
Net investment income ............... .52 .41 .44 .50 .58
Net gains or losses on securities
(both realized and unrealized) .... (.19) .03 (.15) .49 .67
----------------------------------------------------------------------------------
Total income from
investment operations ............. .33 .44 .29 .99 1.25
----------------------------------------------------------------------------------
Less dividends and distributions:
Dividends from net
investment income ................. (.46) (.41) (.45) (.50) (.61)
Distributions from net realized gains -- -- -- -- --
----------------------------------------------------------------------------------
Total distributions ................. (.46) (.41) (.45) (.50) (.61)
----------------------------------------------------------------------------------
Net asset value, end of year ......... $ 11.74 $ 11.87 $ 11.84 $ 12.00 $ 11.51
==================================================================================
Total return ......................... 2.86% 3.79% 2.35% 8.84% 11.82%
==================================================================================
Ratios/Supplemental Data:
Net assets, end of year
(in thousands) ...................... $ 112,140 $ 121,444 $ 144,264 $ 155,659 $ 150,593
Ratio of operating expenses to average
net assets (1) ...................... 1.04% 0.98% 0.96% 0.92% 0.92%
Ratio of net investment income
to average net assets ............... 3.60% 3.40% 3.57% 4.17%(2) 5.17%
Portfolio turnover rate .............. 60% 35% 65% 168% 140%
(1) Ratios reflect expenses grossed up for custody credit arrangement. The
ratios of expenses to average net assets net of custody credits would not
have changed.
(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%.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
17
Value Line U.S. Government Securities Fund, Inc.
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders 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, 2005, 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 accounting
principles generally accepted in the United States of America. 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 the
standards of the Public Company Accounting Oversight Board (United States).
Those standards 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, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
October 26, 2005
- --------------------------------------------------------------------------------
18
Value Line U.S. Government Securities Fund, Inc.
Factors Considered by the Independent Directors
in Approving the Agreement (unaudited)
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that the Fund's investment advisory
agreement (the "Agreement") be approved annually by both the Board of Trustees
(collectively "the Trustees") and a majority of the Trustees who are not
affiliated with Value Line, Inc., the Fund's investment adviser ("Value Line")
(the "Independent Trustees"), voting separately. The Trustees have determined
that the terms of the Fund's Agreement are fair and reasonable and that renewal
of the contract is in the best interests of the Fund and its shareholders. In
making such determinations, the Independent Trustees relied upon the assistance
of counsel to the Independent Trustees. Throughout the year, including the
meeting specifically focused upon the review of the Agreement, the Independent
Trustees met in executive sessions separately from the Interested Trustees of
the Fund and any officers of Value Line.
Both in meetings which specifically addressed the renewal of the Agreement and
at other meetings during the course of the year, the Trustees, including the
Independent Trustees, received materials relating to Value Line's investment and
management services under the Agreement. These materials included: (i)
information on the investment performance of the Fund, a peer group of funds and
an index; (ii) sales and redemption data with respect to the Fund; (iii) the
general investment outlook in the markets in which the Fund invests; (iv)
arrangements with respect to the distribution of the Fund's shares; (v) the
allocation of the Fund's brokerage; and (vi) the record of compliance with the
Fund's investment policies and restrictions and with the Fund's Code of Ethics,
and the structure and responsibilities of Value Line's compliance department.
As part of the review of the Agreement, the Independent Trustees requested and
Value Line provided additional information in order to evaluate the quality of
Value Line's services and the reasonableness of the fee under the Agreement.
Among other items, this information included data or analyses of (1) management
and other fees incurred by a peer group of funds selected by an independent
evaluation service (the "Peer Group"), (2) expense ratios for the Fund and the
Peer Group, (3) the investment performance for the Fund and its Peer Group, (4)
Value Line's financial results and condition, including its and certain of its
affiliates' profitability from services performed for the Fund, (5) investment
management staffing, and (6) the potential for achieving further economies of
scale.
The following summarizes matters considered by the Trustees in connection with
their renewal of the Agreement. However, the Trustees did not identify any
single factor as all-important or controlling, and the summary does not detail
all the matters that were considered.
Compliance and Investment Performance. The Trustees determined that Value Line
had policies and systems reasonably designed to achieve compliance with the
Fund's investment objective and regulatory requirements. The Trustees also
reviewed the Fund's investment performance, as well as the Fund's performance
compared to both the performance of the Peer Group and the results of an index.
The Board considered the Fund's performance for the one-year, three-year,
five-year and 10-year periods ended December 31, 2004. Although the Fund
underperformed its Peer Group for the one-year period ended December 31, 2004,
the Fund outperformed its Peer Group for the three-year, five-year and ten-year
periods ended December 31, 2004. The Board concluded that the Fund's performance
was within a reasonable range of the average fund in the Peer Group and
supported the continuation of the Agreement.
- --------------------------------------------------------------------------------
19
Value Line U.S. Government Securities Fund, Inc.
Factors Considered by the Independent Directors
in Approving the Agreement (unaudited)
- --------------------------------------------------------------------------------
Value Line's Personnel and Methods. The Trustees reviewed the background of
members of the team responsible for the daily management of the Fund and the
Fund's investment objective and discipline. The Independent Trustees also
engaged in discussions with senior management of Value Line responsible for
investment operations. The Trustees concluded that Value Line has the quality
and depth of personnel and the well-developed methods essential to performing
its duties under the Agreement.
Nature and Quality of Other Services. The Trustees considered the nature,
quality, cost and extent of other services provided to the shareholders of the
Fund. The Trustees also considered the nature and extent of the other services
provided by Value Line's affiliates under other contracts and its supervision of
third party service providers. Based on these considerations, the Trustees
concluded that the nature, quality, cost and extent of such services were
satisfactory, reliable and served the shareholders of the Fund well.
Management Fee and Expenses. The Trustees considered Value Line's fee under the
Agreement relative to the management fees charged by the Peer Group. The Fund's
management fee was lower than the average management fee of the Peer Group and
the Trustees concluded that the Adviser's fee was reasonable in light of the
services and expertise provided to the Fund by the Adviser's management team.
While the total expenses of the Fund slightly exceeded the average expenses of
the Peer Group, the Board concluded that the Fund's expense ratio was reasonable
relative its Peer Group.
Profitability. The Trustees considered the level of Value Line's profits with
respect to the management of the Fund. This consideration included a review of
Value Line's methodology in allocating certain of its costs to the management of
each Fund. The Trustees concluded that Value Line's profits from management of
the Funds, including the financial results derived from the Fund, bear a
reasonable relationship to the services rendered and are fair for the management
of the Fund in light of the business risks involved.
Economies of Scale. The Trustees noted that, given the current and anticipated
size of the Fund, any perceived and potential economies of scale were not yet a
relevant consideration for the Fund.
Other Benefits to Value Line. The Trustees also considered the character and
amount of fees paid by the Fund, other than under the Agreement, and by the
Fund's shareholders for services provided by Value Line and affiliates.
Conclusion. The Trustees, in light of Value Line's overall performance,
considered it appropriate to continue to retain the management services of Value
Line. Based on their evaluation of all material factors deemed relevant and the
advice of independent counsel, the Trustees concluded that the Agreement with
the Fund is fair and reasonable and voted to approve the continuation of the
Agreement for another year.
- --------------------------------------------------------------------------------
20
Value Line U.S. Government Securities Fund, Inc.
- --------------------------------------------------------------------------------
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's website at
http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference
Room in Washington, D.C. Information on the operation of the Public Reference
Room may be obtained by calling 1-800-SEC-0330.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities, and information regarding how
the Fund voted these proxies for the 12-month period ended June 30 is available
through the Fund's website at http://www.vlfunds.com and on the SEC's website at
http://www.sec.gov. The description of the policies and procedures is also
available without charge, upon request, by calling 1-800-243-2729.
- --------------------------------------------------------------------------------
21
Value Line U.S. Government Securities Fund, Inc.
Management of the Fund
- --------------------------------------------------------------------------------
MANAGEMENT INFORMATION
The business and affairs of the Fund are managed by the Fund's officers under
the direction of the Board of Directors. The following table sets forth
information on each Director and Officer of the Fund. Each Director serves as a
director or trustee of each of the 14 Value Line Funds and oversees a total of
14 portfolios. Each Director serves until his or her successor is elected and
qualified.
Principal
Occupation Other
Length of During the Directorships
Name, Address, and Age Position Time Served Past 5 Years Held by Director
- -----------------------------------------------------------------------------------------------------------------
Interested Directors*
- ---------------------
Jean Bernhard Buttner Chairman of the Since 1987 Chairman, President and Chief Value Line, Inc.
Age 70 Board of Directors Executive Officer of Value Line,
and President Inc. (the "Adviser") and Value
Line Publishing, Inc. Chairman
and President of each of the 14
Value Line Funds and Value
Line Securities, Inc. (the
"Distributor").
- -----------------------------------------------------------------------------------------------------------------
Marion N. Ruth Director Since 2000 Real Estate Executive: None
5 Outrider Road President, Ruth Realty (real
Rolling Hills, CA 90274 estate broker).
Age 70
- -----------------------------------------------------------------------------------------------------------------
Non-Interested Directors*
- -------------------------
John W. Chandler Director Since 1991 Consultant, Academic None
1611 Cold Spring Rd. Search Consultation Service,
Williamstown, MA 01267 Inc.; Trustee Emeritus and
Age 81 Chairman (1993-1994) of
the Board of Trustees of Duke
University; President Emeritus,
Williams College.
- -----------------------------------------------------------------------------------------------------------------
Frances T. Newton Director Since 2000 Customer Support Analyst, None
4921 Buckingham Drive Duke Power Company.
Charlotte, NC 28209
Age 64
- -----------------------------------------------------------------------------------------------------------------
Francis C. Oakley Director Since 2000 Professor of History, Berkshire Life
54 Scott Hill Road Williams College, 1961 to Insurance
Williamstown, MA 01267 present. President Emeritus Company of
Age 74 since 1994 and President, America
1985-1994; Chairman
(1993-1997) and Interim
President (2002) of the American
Council of Learned Societies.
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22
Value Line U.S. Government Securities Fund, Inc.
Management of the Fund
- --------------------------------------------------------------------------------
Principal
Occupation Other
Length of During the Directorships
Name, Address, and Age Position Time Served Past 5 Years Held by Director
- --------------------------------------------------------------------------------------------------------------------------
David H. Porter Director Since 1997 Visiting Professor of Classics, None
5 Birch Run Drive Williams College, since 1999;
Saratoga Springs, NY 12866 President Emeritus, Skidmore
Age 69 College since 1999 and President,
1987-1998.
- --------------------------------------------------------------------------------------------------------------------------
Paul Craig Roberts Director Since 1987 Chairman, Institute for Political A. Schulman Inc.
169 Pompano St. Economy. (plastics)
Panama City Beach, FL 32413
Age 66
- --------------------------------------------------------------------------------------------------------------------------
Nancy-Beth Sheerr Director Since 1996 Senior Financial Advisor, None
1409 Beaumont Drive Veritable L.P. (investment adviser)
Gladwyne, PA 19035 since April 1, 2004; Senior
Age 56 Financial Advisor, Hawthorne,
2001-2004.
- --------------------------------------------------------------------------------------------------------------------------
Officers
- --------
Jeffrey Geffen Vice President Since 1997 Portfolio Manager with
Age 55 the Adviser.
- --------------------------------------------------------------------------------------------------------------------------
Bradley Brooks Vice President Since 2001 Portfolio Manager with
Age 43 the Adviser.
- --------------------------------------------------------------------------------------------------------------------------
David T. Henigson Vice President, Since 1994 Director, Vice President and
Age 47 Secretary and Compliance Officer of the
Treasurer Adviser. Director and Vice
President of the Distributor. Vice
President, Secretary, Treasurer
and Chief Compliance Officer of
each of the 14 Value Line Funds.
- --------------------------------------------------------------------------------------------------------------------------
Howard A. Brecher Assistant Secretary/ Since 2005 Director, Vice President and
Age 51 Assistant Treasurer Secretary of the Adviser. Director
and Vice President of the
Distributor.
* Mrs. Buttner is an "interested person" as defined in the Investment
Company Act of 1940 by virtue of her positions with the Adviser and her
indirect ownership of a controlling interest in the Adviser; Mrs. Ruth is
an interested person by virtue of having been a director of the Adviser.
Unless otherwise indicated, the address for each of the above is 220 East 42nd
Street, New York, NY 10017.
- --------------------------------------------------------------------------------
The Fund's Statement of Additional Information (SAI) includes additional
information about the Fund's directors and is available, without charge, upon
request by calling 1-800-243-2729.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
23
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 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.
- --------------------------------------------------------------------------------
24
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
REGISTERED PUBLIC 300 Madison Avenue
ACCOUNTING FIRM New York, NY 10017
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 Geffen
Vice President
Bradley Brooks
Vice President
David T. Henigson
Vice President
Secretary/Treasurer
Howard A. Brecher
Assistant Secretary/
Assistant 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 Trust (obtainable from the Distributor).
#534002
Item 2. Code of Ethics
(a) The Registrant has adopted a Code of Ethics that applies to its
principal executive officer, and principal financial officer and principal
accounting officer.
(f) Pursuant to item 10(a),the Registrant is attaching as an exhibit a
copy of its Code of Ethics that applies to its principal executive officer, and
principal financial officer and principal accounting officer.
Item 3. Audit Committee Financial Expert.
(a) (1) The Registrant has an Audit Committee Financial Expert serving
on it's Audit Committee.
(2) The Registrant's Board has designated John W. Chandler, a member
of the Registrant's Audit Committee, as the Registrant's Audit Committee
Financial Expert. Mr. Chandler is an independent director who is a senior
consultant with Academic Search Consultation Service. He spent most of his
professional career at Williams College, where he served as a faculty member,
Dean of the Faculty, and President (1973-85). He also served as President of
Hamilton College (1968-73), and as President of the Association of American
Colleges and Universities (1985-90). He has also previously served as Trustee
Emeritus and Chairman of the Board of Trustees of Duke University.
A person who is designated as an "audit committee financial expert" shall not
make such person an "expert" for any purpose, including without limitation under
Section 11 of the Securities Act of 1933 or under applicable fiduciary laws, as
a result of being designated or identified as an audit committee financial
expert. The designation or identification of a person as an audit committee
financial expert does not impose on such person any duties, obligations, or
liabilities that are greater than the duties, obligations, and liabilities
imposed on such person as a member of the audit committee and Board of Trustees
in the absence of such designation or identification.
Item 4. Principal Accountant Fees and Services
(a) Audit Fees 2005 - $31,036.
(b) Audit-Related fees - $2,069.
(c) Tax Preparation Fees 2005 -$2,900.
(d) All Other Fees - None.
(e) (1) Audit Committee Pre-Approval Policy.All services to be
performed for the Registrant by PricewaterhouseCoopers LLP
must be pre-approved by the audit committee. All services
performed during 2005 were pre-approved by the committee.
(e) (2) Not applicable.
(f) Not applicable.
(g) Aggregate Non-Audit Fees 2005 -$2,900.
(h) Not applicable.
Item 10. Controls and Procedures.
(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) Code of Ethics for Principal Executive and Senior Financial Officers
attached hereto as Exhibit 100.COE
(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: 10/31/05
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: 10/31/05