Investment Objective and Strategy

The primary investment objective of the Fund is to provide investors with the maximum income exempt from federal income taxes while avoiding undue risk to principal. Capital appreciation is a secondary objective.

To achieve the Fund's investment objectives, under normal conditions, the Adviser invests at least 80% of the Fund's assets in securities the income of which is exempt from regular federal income taxation and will not subject non-corporate shareholders to the alternative minimum tax. The Fund invests primarily in investment grade municipal bonds and expects to maintain an average maturity of between 7 and 20 years.

Average Annual Returns as of 10/31/18

YTD 1 Yr 3 Yr 5 Yr 10 Yr
transparent Value Line Tax Exempt Fund -1.74% -1.49% 0.85% 2.22% 3.60%
transparent Bloomberg Barclays Capital Municipal Bond Index -1.01% -0.51% 1.90% 3.25% 4.80%
transparent Morningstar Muni. National Long Funds -1.74% -0.88% 1.85% 3.52% 4.94%
Morningstar Muni. National Long Funds Ranking - 139/162 132/146 125/128 101/106
Percentile Rank as of 10/31/18 - 80% 92% 98% 95%
VLHYX Gross / Net Expense Ratio*: 1.10% / 0.85%
Morningstar rates funds based on enhanced Morningstar risk-adjusted returns.
VLHYX BC Muni Bond Index MMNLF
YTD -1.74% -1.01% -1.74%
1 Yr -1.49% -0.51% -0.88%
3 Yr 0.85% 1.90% 1.85%
5 Yr 2.22% 3.25% 3.52%
10 Yr 3.60% 4.80% 4.94%
VLHYX Gross / Net Expense Ratio*: 1.10% / 0.85%
Morningstar rates funds based on enhanced Morningstar risk-adjusted returns.

Economic Review

For the first quarter of 2018, U.S. Gross Domestic Product (GDP) growth registered 2.0%. Retail sales were particularly weak in the first two months of the calendar year, a key factor in keeping growth rates slower than the 2.9% GDP growth rate of the fourth quarter of 2017. However, retail sales then picked up considerably in March, April and May 2018, leading economists to forecast second quarter GDP growth to be considerably stronger, possibly reaching an annualized growth rate of 3.8% or more. The U.S. labor market remained healthy throughout the semi-annual period, as job gains averaged 214,000 per month, higher than the 188,000 monthly average for the year 2017. Unemployment fell from 4.1% at the beginning of the calendar year to 4.0% in June 2018, the lowest level in more than 18 years. In the month of May 2018, U.S. unemployment actually achieved its lowest reading of the semi-annual period at 3.8%. Manufacturing also remained strong, with the most important measure, the ISM Manufacturing Survey, reaching its highest level in more than nine months. Because of this economic strength, inflation, which had been tame for so long, finally started to pick up, albeit modestly. Although average hourly earnings among U.S. workers did not increase, the broadest measure of inflation, which the Federal Reserve (the Fed) closely follows, i.e. the core Personal Consumption Expenditure price index, which excludes food and energy, rose from 1.5% in January 2018 to 2.0% on a year over year basis as of May 2018 (latest data available).

The modest uptick in inflation supported the Fed’s tightening monetary policy. During the semi-annual period, the Fed increased its targeted federal funds rate twice—in March and June 2018—bringing it to a range of 1.75% to 2.00%. The Fed also signaled to investors that it would increase interest rates once or possibly twice more before the calendar year ends. While U.S. inflation had only increased modestly, Fed policymakers stated concerns about the low unemployment rate, which they believe may eventually push wages higher, driving the overall inflation rate even higher. The hikes in the federal funds rate mostly affected short-term fixed income securities, whose yields rose significantly during the semi-annual period. For example, the two-year U.S. Treasury note started the semi-annual period with a yield of 1.88% and ended June with a yield of 2.53%, an increase of 65 basis points. (A basis point is 1/100th of a percentage point.) Long-term fixed income securities fared somewhat better. The bellwether 10-year U.S. Treasury note began the semi-annual period with a yield of 2.40% and ended June with a yield of 2.86%, up 46 basis points.

Morningstar as of 10/31/18

Category Muni National Long
3 Year of 146 Funds
5 Year of 128 Funds
10 Year of 106 Funds
Overall of 146 Funds

* EULAV Securities LLC (the “Distributor”) has contractually agreed to waive the Fund’s 12b-1 fee in an amount equal to 0.25% of the Fund’s average daily net assets through June 30, 2019. The waiver cannot be modified or terminated before June 30, 2019 without the approval of the Fund’s Board of Directors. There is no assurance that the Distributor will extend the fee waiver beyond June 30, 2019. The Fund's performance would be lower in the absence of such waivers.

The performance data quoted herein represents past performance and does not guarantee future results. Market volatility can dramatically impact the fund's short term performance. Current performance may be lower or higher than figures shown. The investment return and principal value will fluctuate so that an investor's shares, when redeemed may be worth more or less than their original cost. Past performance data through the most recent month end is available at vlfunds.com or by calling 1-800-243-2729.

You should carefully consider investment objectives, risks, charges and expenses of Value Line Funds before investing. This and other information can be found in the fund's prospectus and summary prospectus, which can be obtained free of charge from your investment representative, by calling 800.243.2729, or by clicking on the applicable fund at www.vlfunds.com. Please read it carefully before you invest or send money. Value Line Funds are distributed by EULAV Securities LLC. Past performance is no guarantee of future results.

Portfolio holdings are subject to change and should not be considered a recommendation to buy or sell securities. Current and future portfolio holdings are subject to risk.

The average annual returns shown above are historical and reflect changes in share price, reinvested dividends and are net of expenses. Investment results and the principal value of an investment will vary.

The Morningstar Rating™ for funds, or "star rating", is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of products in each product category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% three- year rating for 36-59 months of total returns, 60% five-year rating/40% three-year rating for 60-119 months of total returns, and 50% 10-year rating/30% five-year rating/20% three-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent three-year period actually has the greatest impact because it is included in all three rating periods. VLIFX (3 Year / 5 stars / 537 funds; 5 Year / 5 stars / 487 funds; 10 Year / 3 stars / 341 funds; ) VALLX (3 Year / 3 stars / 1253 funds; 5 Year / 4 stars / 1120 funds; 10 Year / 2 stars / 811 funds; ) VLEOX (3 Year / 3 stars / 591 funds; 5 Year / 4 stars / 516 funds; 10 Year / 4 stars / 392 funds; ) VALSX (3 Year / 4 stars / 537 funds; 5 Year / 4 stars / 487 funds; 10 Year / 4 stars / 341 funds; ) VLAAX (3 Year / 5 stars / 702 funds; 5 Year / 4 stars / 620 funds; 10 Year / 4 stars / 450 funds; ) VALIX (3 Year / 5 stars / 315 funds; 5 Year / 5 stars / 270 funds; 10 Year / 4 stars / 192 funds; ) VAGIX (3 Year / 2 stars / 887 funds; 5 Year / 2 stars / 785 funds; 10 Year / 5 stars / 568 funds; ) VLHYX (3 Year / 1 stars / 146 funds; 5 Year / 1 stars / 128 funds; 10 Year / 1 stars / 106 funds; )

Source: Morningstar Direct