Cultivos más vulnerables al cambio climático

The Equity Income, Diversified Value, Equity Index, Mid-Cap Index, Growth, Capital Growth, Small Company Growth,

International, and REIT Index Portfolios invest mainly in common stocks, although each has its own strategies and types

of holdings. To achieve exposure to common stocks, the Total Stock Market Index Portfolio invests in shares of other

mutual funds.

Each stock Portfolio is subject to stock market risk, which is the chance that stock prices overall will decline. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices. In addition, a Portfolio’s target index may, at times, become focused in stocks of a particular market sector, which would subject the Portfolio to proportionately higher exposure to the risks of that sector.

Other than the International Portfolio, each Portfolio invests mainly in, or has exposure mainly to, stocks of U.S. companies. To illustrate the volatility of stock prices, the following table shows the best, worst, and average annual total returns for the U.S. stock market over various periods as measured by the S&P 500 Index, a widely used barometer of U.S. market activity. (Total returns consist of dividend income plus change in market price.) Note that the returns shown in the table do not include

the costs of buying and selling stocks or other expenses that a real-world investment portfolio would incur. (You will find a

chart illustrating the volatility of the international stock market on page 60.)

The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926 through 2014. You can see, for example, that although

the average annual return on common stocks for all of the 5-year periods was 10%, average annual returns for individual

5-year periods ranged from –12.4% (from 1928 through 1932) to 28.6% (from 1995 through 1999). These average annual

returns reflect past performance of common stocks; you should not regard them as an indication of future performance of

either the stock market as a whole or the Portfolios in particular.

Actively Managed Portfolios

Six of the stock Portfolios are actively managed, meaning that their investment advisors buy and sell securities based on research, judgment, and analysis in an attempt to outperform the market. These six Portfolios are the Equity Income, Diversified Value, Growth, Capital Growth, Small Company Growth, and International Portfolios.

Each actively managed stock Portfolio is subject to manager risk, which is the chance that poor security selection or focus on securities in a particular sector, category, or group of companies will cause the Portfolio to underperform relevant benchmarks or other funds with a similar investment objective.

Because the Diversified Value, Growth, Capital Growth, and Equity Income Portfolios each tend to invest a high percentage of assets in their ten largest holdings, the Portfolios are subject to asset concentration risk, which is the chance that a Portfolio’s performance may be hurt disproportionately by the poor performance of relatively few stocks. U.S. Stock Market Returns (1926–2014)

1 Year 5 Years 10 Years 20 Years

Best 54.2% 28.6% 19.9% 17.8%

Worst –43.1 –12.4 –1.4 3.1

55

Investment Styles

Mutual funds that invest in stocks are often classified according to market value or market capitalization. These classifications typically include small-cap, mid-cap, and large-cap. It’s important to understand that, for both companies and stock funds, market-capitalization ranges change over time. Also, interpretations of size vary, and there are no “official” definitions of small-, mid-, and large-cap, even among Vanguard fund advisors. The asset-weighted median market capitalization of each of the stock Portfolios as of December 31, 2014, was:

Stock funds can also be categorized according to whether the stocks they hold are value or growth stocks or a blend of both.

Each stock Portfolio (other than the Total Stock Market Index Portfolio) is subject to investment style risk, which is the chance that returns from the types of stocks in which the Portfolio invests will trail returns from the overall stock market. Specific types of stocks tend to go through cycles of doing better—or worse—than the stock market in general. These periods have, in the past, lasted for as long as several years. Likewise, international stocks go through cycles of doing better—or worse—than U.S. stocks.

The following illustration shows how each of the nine Portfolios that invest in U.S. stocks generally fits into these categories. (The International Portfolio invests primarily in large-capitalization growth stocks of companies located outside the

United States.)

Portfolio Asset-Weighted Median Market Capitalization

Total Stock Market Index $48.0 billion

Equity Income 105.4 Diversified Value 84.8 Equity Index 77.2 Mid-Cap Index 11.1 Growth 47.0 Capital Growth 72.1

Small Company Growth 1.6

International 29.8

REIT Index 10.3

Plain Talk About Growth Funds and Value Funds

Growth investing and value investing are two styles employed by stock-fund managers. Growth funds generally focus on stocks of companies believed to have above-average potential for growth in revenue, earnings, cash flow, or other similar criteria. These stocks typically have low dividend yields and above-average prices in relation to measures such as earnings and book value. Value funds typically emphasize stocks whose prices are below average in relation to those

measures; these stocks often have above-average dividend yields. Value stocks also may remain undervalued by the market

for long periods of time. Growth and value stocks have historically produced similar long-term returns, though each style has periods when it outperforms the other.

56

Foreign Securities

The International Portfolio invests primarily in foreign securities. None of the other stock Portfolios typically makes significant investments in securities of companies based outside the United States. For the Equity Index, Mid-Cap Index, and REIT Index Portfolios, foreign securities will be held only to the extent that they are represented in each Portfolio’s target index. The Equity Income, Capital Growth, Diversified Value, and Small Company Growth Portfolios may each invest up to 25% of their assets in foreign securities, and the Growth Portfolio may invest up to 20% of its assets in foreign securities.

To the extent that a Portfolio owns foreign securities, it is subject to country risk and currency risk. Country risk is the chance

that world events—such as political upheaval, financial troubles, or natural disasters—will adversely affect the value of securities issued by companies in foreign countries. In addition, the prices of foreign stocks and the prices of U.S. stocks

have, at times, moved in opposite directions. Currency risk is the chance that the value of a foreign investment, measured in

U.S. dollars, will decrease because of unfavorable changes in currency exchange rates.

Equity Income Portfolio

The Equity Income Portfolio invests mainly in common stocks of mid-size and large companies whose stocks pay above- average dividends. At the time of purchase by the Portfolio, a stock can be out of favor with the investment community. Stocks purchased by the Portfolio are expected to produce an above average level of current income and to have the potential for long-term capital appreciation.

The Portfolio uses multiple investment advisors. Each investment advisor independently selects and maintains a portfolio of common stocks for the Portfolio. These advisors employ active investment management methods, which means that securities are bought and sold according to the advisors’ evaluations of companies and their financial prospects, the prices of the securities, and the stock market and the economy in general. Each advisor will sell a security when, in the view of the advisor, it is no longer as attractive as an alternative investment. Each advisor uses a different process to select securities for its portion of the Portfolio’s assets; however, each is committed to buying stocks that it believes will produce above-average income and that, in the advisor’s opinion, have the potential for long-term capital appreciation.

Wellington Management Company LLP(Wellington Management) employs a fundamental security analysis approach to

identify desirable individual stocks, seeking those that typically offer above-average dividend yields, below-average valuations, and the potential for dividend increases in the future.

The Vanguard Group, Inc. (Vanguard) constructs a diversified portfolio of dividend-paying stocks based on its assessment of

the relative return potential of the securities. The advisor selects securities that it believes offer an appropriate balance between strong growth prospects and reasonable valuations relative to their industry peers. Vanguard manages the portfolio through the use of a quantitative process to evaluate all of the securities in the Portfolio’s benchmark, the FTSE High Dividend Yield Index, while seeking to maintain a risk profile similar to that of the Index. This process was developed by a team of Vanguard researchers, and this process is continually evolving. All potential enhancements to the process go through rigorous peer vetting and validation before being implemented. A team of portfolio managers utilizes the resulting process to determine which securities to buy and sell in the portfolio.

Diversified Value Portfolio

The Diversified Value Portfolio invests mainly in common stocks of large- and mid-cap companies (although the advisor will occasionally select stocks with lower market capitalizations) whose stocks are considered by the advisor to be undervalued. The advisor uses traditional methods of stock selection—research and analysis—to identify undervalued securities. These stocks (called “value” stocks) often have above-average dividend yields. Undervalued stocks are generally those that are out of favor with investors and that the advisor feels are trading at prices that are below average in relation to measures such as earnings and book value.

To keep the Portfolio well diversified, the advisor generally invests no more than 15% of the Portfolio’s assets in a single industry group. The Portfolio’s overall makeup is expected to differ from that of the broad stock market in terms of industry weightings and market capitalization. Therefore, the Portfolio’s performance is likely to differ from the performance of the overall market or of broad indexes such as the S&P 500 Index.

Total Stock Market Index Portfolio

The Total Stock Market Index Portfolio is a fund of funds. The trustees of the Fund allocate the Total Stock Market Index Portfolio’s assets among the underlying funds. The trustees may authorize the Portfolio to invest in additional Vanguard funds without shareholder approval. Additionally, the trustees may increase or decrease the percentage of assets invested in any particular fund without advance notice to shareholders. Under normal circumstances, the Portfolio will invest at least 80%, and usually all or substantially all, of its assets in Vanguard Variable Insurance Fund Equity Index Portfolio and Vanguard

57

Extended Market Index Fund, which together seek to track the Portfolio’s target index. The Portfolio’s 80% investment policy may be changed only upon 60 days’ notice to shareholders.

The Total Stock Market Index Portfolio is a stock index fund that seeks to track the performance of the S&P Total Market Index by investing all, or substantially all, of its assets in two Vanguard funds—Vanguard Variable Insurance Fund Equity Index Portfolio, which seeks to track the S&P 500 Index, and Vanguard Extended Market Index Fund, which seeks to track the S&P Completion Index. The S&P Total Market Index is a combination of the S&P 500 Index and the S&P Completion Index; it consists of substantially all of the U.S. common stocks regularly traded on the New York Stock Exchange and the Nasdaq over-the-counter market. The S&P 500 Index is dominated by stocks of large U.S. companies, and the S&P

Completion Index represents mid- and small-capitalization stocks. As of December 31, 2014, the Portfolio allocated 80.4% of its assets to Vanguard Variable Insurance Fund Equity Index Portfolio and the remaining 19.6% of its assets to Vanguard Extended Market Index Fund. Through its investments in underlying funds, the Portfolio indirectly owns a diversified portfolio of stocks.

Equity Index Portfolio

The Equity Index Portfolio is a stock index fund that seeks to track the performance of a benchmark index that measures the investment return of large-capitalization stocks. The Portfolio employs an indexing investment approach designed to track the performance of the Standard & Poor’s 500 Index, a widely recognized benchmark of U.S. stock market performance that is dominated by the stocks of large U.S. companies. As of December 31, 2014, these stocks represented approximately 77% of the market value of all U.S. common stocks. In seeking to fully replicate the Index’s performance, the Portfolio intends to hold each of the stocks in the Index in approximately the same proportion as its weighting in the Index. For example, if 3% of the Standard & Poor’s 500 Index were made up of the stock of a specific company, the Portfolio would invest approximately 3% of

its assets in that company. All, or substantially all (but in no event less than 80%), of the Portfolio’s assets will be invested in

stocks that make up the Index. The Portfolio’s 80% policy may be changed only upon 60 days’ notice to shareholders. The actual stocks that make up the Index are chosen by Standard & Poor’s. The Index is weighted according to the market capitalization of the stocks it holds, so that the stocks with the highest market values represent the largest portion of the Index and have the heaviest influence on its performance.

Mid-Cap Index Portfolio

The Mid-Cap Index Portfolio is a stock index fund that seeks to track the performance of a benchmark index that measures the investment return of mid-capitalization stocks. The Portfolio employs an indexing investment approach designed to track the performance of the CRSP US Mid Cap Index, a broadly diversified index of stocks of mid-size U.S. companies. In seeking to replicate the Index’s performance, the Portfolio intends to hold each of the stocks in the Index in approximately the same proportion as its weighting in the Index. For example, if 3% of the CRSP US Mid Cap Index were made up of the stock of a

specific company, the Portfolio would invest approximately 3% of its assets in that company. All, or substantially all (but in no

event less than 80%), of the Portfolio’s assets will be invested in stocks that make up the Index. The actual stocks that make up the Index are chosen by CRSP. The Portfolio’s 80% policy may be changed only upon 60 days’ notice to shareholders.

Historically, mid-cap stocks have been more volatile than—and at times have performed quite differently from—the large-cap stocks that dominate the overall stock market. There is no certainty, however, that this pattern will continue in the future.

Growth Portfolio

The Growth Portfolio invests mainly in common stocks of companies that, in the advisors’ opinions, offer favorable prospects for capital appreciation. These stocks tend to produce little current income. The Portfolio generally focuses on companies that are considered large-cap by the Portfolio’s investment advisors. The Growth Portfolio uses multiple investment advisors. Each advisor independently selects and maintains a portfolio of common stocks for the Portfolio. Different advisors may reach different conclusions on the same security.

Each advisor employs active investment management methods, which means that securities are bought and sold according to the advisor’s evaluations of companies and their financial prospects, the prices of securities, and the stock market and the economy in general. Each advisor will sell a security when, in the view of the advisor, it is no longer as attractive as an alternative investment.

Jackson Square Partners, LLC (Jackson Square) invests primarily in common stocks of large-capitalization, growth-oriented

companies that it believes have long-term capital appreciation potential and are expected to grow faster than the U.S. economy. The advisor uses a bottom-up approach, seeking companies that have large end-market potential, dominant business models, and strong free-cash-flow generation, and are attractively priced compared with the intrinsic value of their securities. Jackson Square tends to hold a relatively focused portfolio with a limited number of stocks.

58

Wellington Management Company LLP (Wellington Management) employs a traditional, bottom-up fundamental research

approach to identify securities that possess sustainable growth at reasonable valuations. Wellington Management identifies companies that have demonstrated above-average growth in the past, then conducts a thorough review of each company’s business model. The goal of this review is to identify companies that can sustain above-average growth because of their superior business model. The advisor takes a long-term perspective and seeks to determine a competitive barrier to entry for each company, which will enable it to maintain its growth profile over time. A disciplined valuation analysis follows to determine which securities are attractively priced.

William Blair & Company, L.L.C. (William Blair & Company) uses an investment process that relies on thorough, in-depth

fundamental analysis. William Blair & Company invests in companies that it believes are high quality and have sustainable, above-average growth. In selecting stocks, the advisor considers some or all of the following company criteria: leadership position within the markets served, quality of the products or services provided, marketing capability, return on equity, accounting policies/financial transparency, and quality/depth of the management team.

Capital Growth Portfolio

The Capital Growth Portfolio invests mainly in common stocks of companies that the advisor expects to have favorable prospects for capital appreciation and that sell at attractive prices, but typically produce little current income. PRIMECAP, the Portfolio’s advisor, selects common stocks that it believes have above-average earnings growth potential that is not reflected in the current market price. Companies selected for stock purchases typically have strong positions within their industries, increasing sales, improving profitability, good long-term prospects for above-average growth in earnings, and strong management teams.

Using careful analysis, the advisorattempts to quantify a company’s “fundamental value”, which is the advisor’s estimate of

the financial value of the company. The advisor compares the fundamental value with the market price of the company’s stock. The Advisor then decides whether or not to purchase the stock mainly on the basis of how attractive its market price is in relation to its fundamental value. Although the Portfolio invests with a long-term horizon of three to five years, the advisor may sell a stock if its market price appears to have risen above its fundamental value, if other securities appear to be more favorably priced, or if the reasons for which the stock was purchased no longer hold true.