Q2 2017 : Portfolio Manager Q&A

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Would you please describe the Fund’s investment approach for the equity portion of the portfolio?

We employ a fundamental bottom-up stock selection process that seeks high-quality companies with at least a 10-year track record of consistent growth of earnings and stock price. This approach results in a portfolio of companies that typically have strong management teams and proprietary products or services with sustainable competitive advantages.

To ensure our holdings adhere to our strict criteria of consistent growth, we are diligent in monitoring their performance and earnings on an ongoing basis. Importantly, we do not allow headlines and short-term trends to affect our buy and sell decisions.

How is the Fund differentiated from other balanced funds?


The Fund differs from other balanced funds in its ability to invest across market capitalizations. While most balanced funds tend to hold primarily large-cap stocks, the Fund’s equity portion is generally comprised of smaller company stocks. In fact, as of June 30, 2017, the Fund had approximately 60% of the equity portfolio in small- and mid-cap stocks.

We believe this differentiation has resulted in solid long-term results. As of June 30, 2017, the Fund achieved top quintile (20% or better) performance among 727 Morningstar 50- 70% Equity Allocation Funds for the past 3, 5, and 10 year periods. Only 3% of funds in the Morningstar category have fared as well.

What is the Fund’s current asset allocation mix?

The Fund’s holdings in stocks, bonds and cash have not significantly changed over the past several quarters. As of June 30, 2017, 68% of the Fund’s assets were allocated to equities while the remaining 32% was invested in high-quality, investment grade fixed income and cash.

Many traditional balanced funds have static portfolios consisting of 60% equities and 40% fixed income. However, the Fund’s asset allocation is flexible, providing the ability to adjust its stock or bond mix depending on the market environment. In a rising rate environment, this flexibility may allow the Fund’s fixed income portion to be less impacted to changes in principal while at the same time participate more fully in the equity market.

The Fund’s higher allocation to stocks represents our current moderately bullish stance on the equity markets. This position is generally based on two factors: long-term interest rates and equity prices. We will likely remain bullish on stocks for the foreseeable future unless we see a significant rise in long-term U.S. interest rates and/ or the stock market.


Average Annual Returns as of 06/30/17

1 Yr 3 Yr 5 Yr 10 Yr
Investor - VLAAX 9.35% 6.19% 9.64% 6.16%
Institutional - VLAIX1 9.60 6.32 9.72 6.20
60/40 S&P 500/Barclays U.S. Aggregate Bond 10.62 6.76 9.66 6.10
Morningstar 50-70% Equity Allocation Cat. Avg. 10.67 4.00 7.97 4.89
Morningstar Category Rank (%) - VLAAX 72 10 15 14
# of Funds in Category 824 727 653 429
Morningstar Return n/a Above Avg. Above Avg. Above Avg.
VLAAX Gross / Net Expense Ratio: 1.13% ,VLAAX Gross / Net Expense Ratio*: 1.32% / 0.88%.
Morningstar rates funds based on enhanced Morningstar risk-adjusted returns.
Morningstar rates funds based on enhanced Morningstar risk-adjusted returns. Morningstar Ratings and Rankings based on Investor class shares.
1Indicates Morningstar Extended Performance. Extended performance is an estimate based on the performance of the fund’s oldest share class, adjusted for fees. The Inception Date of (VLAIX) is November 1, 2015.

* EULAV Securities LLC (the "Distributor") contractually agreed to waive a portion of the Fund's 12b-1 fee in an amount equal to 0.10% of the Fund's average daily net assets for the period August 1, 2014 through July 31, 2015. The waiver cannot be modified or terminated before July 31, 2015 without the approval of the Fund's Board of Directors. The Fund's performance would be lower in the absence of such waivers.

There are risks associated with investing in small and mid cap stocks, which tend to be more volatile and less liquid than stocks of large companies, including the risk of price fluctuations.

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 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. The inception dates of Value Line Mutual Funds range from 1950 to 2017. 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 / 576 funds; 5 Year / 4 stars / 498 funds; 10 Year / 2 stars / 369 funds; ) VALLX (3 Year / 5 stars / 1258 funds; 5 Year / 5 stars / 1124 funds; 10 Year / 3 stars / 790 funds; ) VLEOX (3 Year / 4 stars / 600 funds; 5 Year / 4 stars / 531 funds; 10 Year / 4 stars / 394 funds; ) VALSX (3 Year / 4 stars / 576 funds; 5 Year / 3 stars / 498 funds; 10 Year / 4 stars / 369 funds; ) VLAAX (3 Year / 5 stars / 723 funds; 5 Year / 4 stars / 652 funds; 10 Year / 4 stars / 452 funds; ) VALIX (3 Year / 5 stars / 328 funds; 5 Year / 5 stars / 285 funds; 10 Year / 5 stars / 206 funds; ) VAGIX (3 Year / 2 stars / 849 funds; 5 Year / 3 stars / 762 funds; 10 Year / 2 stars / 531 funds; ) VLHYX (3 Year / 1 stars / 140 funds; 5 Year / 1 stars / 131 funds; 10 Year / 1 stars / 104 funds; )

Source: Morningstar Direct