Value Line Asset Allocation Fund N-CSRSCertified semi-annual shareholder report (management investment company)

On behalf of all of us here at Value Line Funds, I hope this semi-annual report finds you and your families safe and well.

As we continue through these challenging times, know that our long-term commitment to you, our Fund shareholders, remains unchanged. As such, we are pleased to present you with this semi-annual report for Value Line Small Cap Opportunities Fund, Inc. and Value Line Asset Allocation Fund, Inc. (individually, a “Fund” and collectively, the “Funds”) for the six months ended September 30, 2021.

The semi-annual period was highlighted by each Fund being recognized for both its long-term performance and attractive risk and return profiles.

On the following pages, the Funds’ portfolio managers discuss the management of their respective Funds during the semi-annual period. The discussions highlight key factors influencing recent performance of the Funds. You will also find a schedule of investments and financial statements for each Fund.

Before reviewing the performance of your individual mutual fund investment, we encourage you to take a brief look at the major factors affecting the financial markets during the six months ended September 30, 2021, especially given the newsworthy events of the semi-annual period.

The U.S. economy increasingly re-opened during the semi-annual period, with a majority of Americans vaccinated for COVID-19 and lockdowns limited. However, the pandemic persisted, as the new, more contagious COVID-19 Delta variant led to heightened case counts, particularly in those areas of the country with lower vaccination rates, and break-through cases among those already vaccinated. These pandemic trends led the Center for Disease Control to renew its recommendations of mask wearing, especially indoors.

Still, the U.S. economy proved resilient. U.S. Gross Domestic Product (GDP) growth for the second quarter of 2021 registered an annualized rate of 6.7%, an increase from the 6.3% annualized growth rate seen in the first quarter of the calendar year. The U.S. labor market also remained rather healthy. Non-farm payroll jobs posted an average monthly gain of 625,000 jobs from the end of March until the end of July 2021, though August and September were weaker, averaging 324,000 job gains each month. Jobless claims started the semi-annual period at a monthly clip of 742,000 but declined significantly to 324,000 in September. The U.S. unemployment rate fell from 6.0% at the beginning of March 2021 to 4.8% at the end of the semi-annual period.

Manufacturing was the strongest sector during the semi-annual period, with the Institute for Supply Management (ISM) Manufacturing Survey reaching a reading of 64.7 at the start of the semi-annual period, well above the level widely considered to be a sign of expansion and, indeed, the highest level since December 1983. The ISM Manufacturing Survey averaged 61.1 for the semi-annual period overall. Even so, intransigent disruptions in the global supply chain, exacerbated by distribution bottlenecks, factory shutdowns, clogged container ship routes and a shortage of truck drivers, caused massive delays in the delivery of goods. Further, the supply chain was not prepared for the significant increase in demand, pent up during the pandemic and enabled by fiscal stimulus measures, both in the U.S. and globally. Services, the largest sector of the U.S. economy and most hard hit during the peak of the COVID-19 pandemic, similarly experienced a strong recovery during the semi-annual period. The ISM Services Index registered readings above 60 throughout, having fallen to 41.8 in April 2020, as Americans returned to restaurants, movies, sports stadiums, travel and more. The emergence of the Delta variant muted service sector activity somewhat, but an improvement trend remained intact.

The combination of strong consumer demand for goods and services along with a breakdown in the supply chain led to a significant increase in the overall U.S. inflation rate, with figures exceeding consensus estimates. For example, the Consumer Price Index began the semi-annual period at a year-over-year growth rate of 2.6% but was subsequently above the 5.0% level since May, with the latest available reading at the end of September 2021 registering 5.4%. U.S. Treasury rates rose modestly in the latter months of the semi-annual period, and some economists criticized the U.S. Federal Reserve (the Fed) for maintaining its monetary policy accommodation rather than tightening its policy via interest rate hikes and/or asset purchase tapering in an effort to counteract increasing inflation. While acknowledging that upward price pressures have persisted longer than initially anticipated, the Fed has maintained that the higher inflation is “transitory” and should “move back down towards our 2% long-run objective on its own” as the supply chain disruptions ease, consumer demand declines from its frenzied pace and fiscal

Many analysts are forecasting third quarter 2021 U.S. GDP growth to still be strong but slower than that of the second calendar quarter, dipping below 6%, as the annualized rate of economic growth is anticipated to incorporate the larger than expected impact of the COVID-19 Delta variant and the elevated concerns around inflation risks.

U.S. equities, as measured by the S&P 500® Index3, returned 9.18% during the six months ended September 30, 2021, though this masked heightened volatility. U.S. equities rallied strongly in the second quarter of 2021 for a fifth consecutive calendar quarter of positive returns for the S&P 500® Index amid a backdrop of improving COVID-19 vaccination rates, accelerating economic growth, a broader re-opening of the economy and robust corporate earnings. Concerns about rising inflation led to a brief stretch of volatility mid-way through the quarter, but the Fed reassured the markets its monetary policy would remain accommodative for an extended period. As a result, the S&P 500® Index finished June 2021 at a then-all-time high. The U.S. equity market continued to perform reasonably well in July and August during which the prospects of improving economic growth and rising corporate profits outweighed concerns about the COVID-19 Delta variant. However, in September, the U.S. equity market faced a less favorable scenario, including a persistent increase in inflation, worsening supply chain bottlenecks and instability in China’s property market. In addition, the Fed indicated it was likely to announce a tapering of its quantitative easing program before calendar year end. The result was a U.S. equity market downturn in September that erased almost all of the advance of the prior two months. In fact, September 2021 was the worst-performing month for the S&P 500® Index since the start of the pandemic in March 2020. The S&P 500® Index eked out a return of just 0.58% for the third quarter of 2021.

For the semi-annual period overall, large-cap stocks performed best, followed by mid-cap stocks, with these two segments of the U.S. equity market posting positive returns. The small-cap segment was weakest, generating a negative return during the semi-annual period. Growth stocks outperformed value stocks within the large-cap and mid-cap segments of the U.S. equity market, but value stocks outperformed growth stocks in the small-cap segment of the U.S. equity market. (All as measured by the FTSE Russell indices.3)

Among the sectors of the S&P 500® Index, all 11 posted positive returns for the semi-annual period. Real estate, information technology, communication services and financials were the strongest performing sectors, each posting a double-digit gain during the semi-annual period. Industrials, materials, utilities and consumer staples were the weakest sectors of the S&P 500® Index during the semi-annual period.

The broad U.S. fixed income market, as measured by the Bloomberg US Aggregate Bond Index4, posted a return of 1.88% during the semi-annual period, significantly underperforming the broad U.S. equity market.

Sovereign yield curves in most developed and emerging market countries flattened5, led by the U.S. Short-term yields rose modestly, while intermediate- and longer-term yields fell moderately. More specifically, the yield on the three-month U.S. Treasury rose approximately one basis point to end the semi-annual period at 0.04%, and the yield on the two-year U.S. Treasury increased approximately 12 basis points to end the semi-annual period at 0.28%. (A basis point is 1/100th of a percentage point.) The yield on the bellwether 10-year U.S. Treasury fell approximately 22 basis points to end the semi-annual period at 1.52%. Yields on the 30-year U.S. Treasury decreased approximately 33 basis points to end the semi-annual period at 2.08%. All that said, sovereign yields drifted modestly higher across many developed markets, including the U.S., in the third quarter of 2021, as major central banks, including the Fed, laid the groundwork for monetary policy normalization in response to mounting inflation pressures and started to reduce monetary stimulus at varying speeds. Several emerging markets central banks raised their rates in response to ongoing inflation and currency depreciation pressures.

Most spread, or non-government bond, sectors posted positive returns that outperformed U.S. Treasuries, during the annual period, as COVID-19 vaccination rates increased, economic data strengthened, credit fundamentals improved and investors favored the income advantage these sectors offered. Corporate bonds, both investment grade and high yield, outperformed U.S. Treasuries during the semi-annual period. So, too, did Treasury inflation protected securities and emerging markets debt. Securitized assets, including mortgage-backed securities and asset-backed securities, posted positive returns but underperformed U.S. Treasuries during the semi-annual period.

The Fund’s investment objective is long-term growth of capital.

The Fund (Investor Class) generated a total return of 4.61% during the six months ended September 30, 2021. This compares to the -0.25% return of the Fund’s benchmark, the Russell 2000® Index1, during the same semi-annual period.

The Fund significantly outperformed the Russell 2000® Index on a relative basis during the six-month reporting period due primarily to stock selection. Sector allocation had a rather neutral effect on relative results during the semi-annual period.

Further, during the semi-annual period, higher-quality, more historically consistent stocks outpaced lower-quality, more volatile stocks within the broad U.S. equity market, as economic uncertainty rose and stock market speculation cooled. The Fund held more higher-quality stocks on average than did the Russell 2000® Index, supporting its strong outperformance.

On an absolute basis, the Russell 2000® Index had gains in five of its 11 sectors during the semi-annual period, while the Fund had absolute gains in four of the eight sectors in which it was invested.

Relative to the Russell 2000® Index, effective stock selection in information technology, health care and consumer discretionary contributed most positively to the Fund’s results. Having an overweight to information technology, which outpaced the Russell 2000® Index during the semi-annual period, and having an underweight to health care, specifically avoiding the weak biotechnology industry during the semi-annual period, also added value. Only partially offsetting these positive contributors was weak stock selection in financials, which detracted. Having no exposure to the energy sector and an underweighted allocation to the real estate sector, each of which outperformed the during the semi-annual period, also dampened relative results.

Among the individual stocks that contributed most to the Fund’s relative results were software and technology services company SPS Commerce, shoe manufacturer Crocs and cloud-based and mobile-enabled software platform provider for enterprises Workiva. Each of these companies’ share price enjoyed a robust double-digit gain during the semi-annual period, each benefiting from stronger than expected operating performance. Also of note, shares of Stamps.com experienced a healthy double-digit gain during the semi-annual period on a takeover offer from private equity firm Thoma Bravo. The Fund received $330 per share in cash for its position in Stamps.com when the deal closed in early October 2021, just after the close of the semi-annual period.

During the semi-annual period, among the stocks that detracted most from the Fund’s relative performance were positions in avocado and other perishable foods procurer and marketer Calavo Growers and specialty insurance company RLI. Each of these stocks posted a negative return that underperformed the Russell 2000® Index during the semi-annual period, each hurt by weaker than expected operating performance. Also, the Fund was hurt relative to the Russell 2000® Index by not owning a position in AMC Entertainment Holdings, as the movie theater company’s share price more than tripled during the semi-annual period.

The Fund did not use derivatives as part of its strategy during the reporting period.

The Fund’s investment objective is to achieve a high total investment return (current income and capital appreciation) consistent with reasonable risk. For this purpose, risk takes into account volatility and other factors as determined by EULAV Asset Management (the “Adviser”).

The Fund (Investor Class) generated a total return of 7.42% during the six months ended September 30, 2021. The Fund outperformed the 6.26% return of the Fund’s blended benchmark, comprised 60% of the S&P 500® Index and 40% of the Bloomberg US Aggregate Bond Index (the “Bloomberg Index”), during the same semi-annual period.

The Fund’s relative results are attributable to the equity portfolio outperforming the S&P 500® Index during the reporting period. The Fund’s fixed income portfolio underperformed the Bloomberg Index during the reporting period, modestly dampening relative results. Asset allocation had a neutral effect on the Fund’s relative results during the semi-annual period.

The equity portion of the Fund outperformed its benchmark, the S&P 500® Index, on a relative basis due primarily to stock selection overall. Sector allocation detracted, albeit modestly.

Broadly speaking, the equity portion of the Fund favors higher-quality issues with historically consistent, less volatile track records on average than does the S&P 500® Index. Heightened economic uncertainty during the semi-annual period increased investors’ preference for these type of stocks over more speculative issues, supporting the equity portion of the Fund’s outperformance. Also, investors favored growth stocks over value stocks in the large-cap and mid-cap segments of the U.S. equity market during the semi-annual period as a whole, and thus the Fund’s emphasis on more growth-oriented stocks contributed positively to its relative results as well.

More specifically, the equity portion of the Fund was helped most by effective stock selection in the health care, industrials and consumer staples sectors. Having an underweighted allocation to consumer staples, which underperformed the S&P 500® Index during the semi-annual period, also contributed positively. Only partially offsetting these positive contributors was the equity portion of the Fund’s weak stock selection in the information technology, financials and materials sectors, which detracted. Having no exposure to the strongly-performing communication services sector also dampened relative results.

Among the individual stocks that contributed most to the equity portion of the Fund’s relative results were software and information technology services providers Intuit and EPAM Systems and medical products manufacturer Danaher. Each of these stocks generated a double-digit share price gain during the semi-annual period, each benefiting from stronger than expected operating performance.

Among the stocks that detracted most from the equity portion of the Fund’s relative results was software and information technology services provider Fair Isaac, which posted a double-digit share price decline during the semi-annual period, due primarily to potentially facing new competitive pressures. Also hurting the Fund’s relative results was its lack of exposure to and thus its lack of participation in the significant share price gains of S&P 500® Index giants Google-parent Alphabet, software company Microsoft, three-dimensional graphics processors developer NVIDIA and technology hardware company Apple.

During the semi-annual period, one new name was added to the equity portion of the Fund’s portfolio. We initiated a position in Exponent, a small-cap company that operates as a science and engineering consulting firm within the industrials sector. In our view, Exponent has a strong long-term history of consistent gains in earnings and stock price.

We eliminated 14 positions during the semi-annual period, streamlining the equity portion of the Fund’s portfolio to 65 holdings as of September 30, 2021. Among those names sold from the equity portion of the Fund during the semi-annual period were turf equipment manufacturer Toro, reinsurance and insurance provider RenaissanceRe Holdings and flavor products manufacturer McCormick & Company. We believed each had become less consistent in delivering long-term earnings and stock price growth.

During the six-month period ended September 30, 2021, the equity portion of the Fund’s allocation relative to the S&P 500® Index in health care and real estate increased. The equity portion of the Fund’s allocation relative to the S&P 500® Index in materials decreased during the semi-annual period. We eliminated the equity portion of the Fund’s exposure to communication services.

As of September 30, 2021, the equity portion of the Fund was overweighted relative to the S&P 500® Index in information technology, industrials, financials and health care and was underweighted relative to the S&P 500® Index in the consumer staples, consumer discretionary, utilities and materials sectors. The equity portion of the Fund was rather neutrally weighted relative to the S&P 500® Index in real estate and had no exposure to the energy or communication services sectors on September 30, 2021.

We kept the fixed income portion of the Fund’s duration shorter than that of the Bloomberg Index for most of the semi-annual period based on our expectations that interest rates would rise. However, as rates declined on maturities beyond five years, this positioning detracted. Duration is a measure of the Fund’s sensitivity to changes in interest rates.

Yield curve positioning detracted most from the fixed income portion of the Fund’s relative results. The fixed income portion of the Fund was underweight the long-term end of the U.S. Treasury yield curve where rates declined most and was overweight the intermediate segment of the yield curve where rates declined less. (Remember, there is an inverse relationship between bond prices and yield movements, so that bond prices rise when yields decrease and vice versa.)

Sector allocation positioning within the fixed income portion of the Fund contributed positively to its relative results, with overweightings to the corporate bond and municipal bond sectors adding the most value. An overweighted allocation to securitized debt detracted somewhat.

Issue selection dampened relative results overall. The biggest detractors were Fannie Mae mortgage-backed security pass-through securities, which generally underperform when rates are falling, as pre-payment risk usually accelerates amid these conditions. On the other hand, the fixed income portion of the Fund’s best performers were its long-dated securities, particularly its positions in 30-year energy bonds.

We reduced the fixed income portion of the Fund’s exposure to mortgage-backed securities, which proved beneficial during a time of rising pre-payments. We also decreased the fixed income portion of the Fund’s allocation to asset-backed securities based on valuation concerns, which also contributed positively, as the average life of this sector correlates mostly to the short-term segment of the yield curve, where interest rates rose during the semi-annual period. The proceeds from these sales were reinvested rather equally between corporate bonds and U.S. Treasuries. Also, while maintaining a shorter duration than the Bloomberg Index, we modestly lengthened the fixed income portion of the Fund’s duration, which buoyed relative results as longer-maturity bonds significantly outperformed shorter-maturity bonds during the semi-annual period.