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The Balanced Portfolio invests in both stocks and bonds. The Conservative and Moderate AllocationPortfolios invest in

shares of other Vanguard mutual funds to achieve exposure to stocks and bonds. The stock portion of the Balanced Portfolio

is subject to investment style risk. The stock portion of each Portfolio is subject to stock market risk, while the bond portion

of each Portfolio is subject to interest rate risk, income risk, credit risk, call risk, and prepayment risk. The bond portions of

the Conservative and Moderate Allocation Portfolios are also subject to risks associated with investments in currency-

hedged foreign bonds, including country/regional risk and currency hedging risk. Both portions of the Balanced Portfolio are

subject to manager risk. Each Portfolio’s bond holdings help to reduce—but not eliminate—some of the stock market

volatility experienced by the Portfolio. Likewise, changes in interest rates may not have as dramatic an effect on the Portfolios as they would on a portfolio made up entirely of bonds. Each Portfolio’s balanced holdings, in the long run, should result in less investment risk—and a lower investment return—than those of a portfolio investing exclusively in common stocks.

Credit Quality Percentage of Portfolio’s Net Assets

U.S. Government 2.4%

Baa 3.1

Ba 53.4

B 34.3

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Balanced Portfolio

Roughly 60% to 70% of the Portfolio’s assets are invested in stocks and the remaining 30% to 40% are invested in bonds. For the stock portion of the Portfolio, the advisor uses extensive research to find what it considers to be undervalued stocks of established large and mid-size companies. The advisor considers a stock to be undervalued if company earnings, or potential earnings, are not fully reflected in the stock’s share price. The advisor’s goal is to identify and purchase these securities before their value is recognized by other investors. The advisor emphasizes stocks that, on average, provide a higher level of dividend income than generally provided by stocks in the overall market. By adhering to this stock selection strategy and by investing in a wide variety of companies and industries, the advisor expects to moderate overall risk. The asset-weighted median market capitalization of the Portfolio’s stock holdings as of December 31, 2014, was $99.1 billion. For the bond portion of the Portfolio, the advisor selects investment-grade bonds that it believes will generate a reasonable level of current income. These may include short-, intermediate-, and long-term corporate and U.S. Treasury, government agency, and asset-backed bonds, as well as mortgage-backed securities. The advisor does not generally make large adjustments in the average maturity of the Portfolio’s bond holdings in anticipation of changes in interest rates. Although the Portfolio does not have specific maturity guidelines, the average duration of the Portfolio’s bond holdings as of December 31, 2014, was 6.5 years. A breakdown of the Portfolio’s bond holdings (which amounted to 33.8% of the Portfolio’s net assets) as of

December 31, 2014, follows:

The advisor purchases bonds of investment-grade quality—that is, bonds rated at least Baa3 by Moody’s Investors Service, Inc., or BBB– by Standard & Poor’s—and, to a lesser extent, unrated bonds that are of comparable credit quality in the advisor’s opinion.

Although the mix of stocks and bonds varies from time to time, depending on the advisor’s view of economic and market conditions, the stock portion can be expected to represent at least 60% of the Portfolio’s holdings under normal circumstances. The Portfolio may invest up to 25% of its assets in foreign securities, which may include depositary receipts. Foreign securities may be traded on U.S. or foreign markets. To the extent that it owns foreign securities, the Portfolio 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 or liquidity 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.

Conservative and Moderate Allocation Portfolios

The Allocation Portfolios are “funds of funds,” which means that each Portfolio seeks to achieve its objective by investing in other mutual funds rather than in individual securities. Each Portfolio separately invests a percentage of its assets in five other Vanguard stock and bond mutual funds. The trustees of the Fund allocate each Portfolio’s assets among the underlying funds. The trustees may authorize a Portfolio to invest in additional Vanguard funds without shareholder approval.

Plain Talk About Balanced Funds

Balanced funds are generally investments that seek to provide some combination of income and capital appreciation by investing in a mix of stocks and bonds. Because prices of stocks and bonds can respond differently to economic events and influences, a balanced fund should experience less volatility than a fund investing exclusively in stocks.

Type of Bond Percentage of Portfolio’s Bond Holdings

Industrial 34.8% Finance 25.5 Treasury/Agency 15.2 Government Mortgage-Backed 5.9 Utilities 5.6 Asset-Backed/Commercial Mortgage-Backed 5.3 Other 4.8 Foreign 2.9

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Additionally, the trustees may increase or decrease the percentage of a Portfolio’s assets invested in any particular underlying fund without advance notice to shareholders.

Through its investments in underlying funds, each of the Allocation Portfolios indirectly owns a diversified portfolio of stocks and bonds.

Each Allocation Portfolio invests in five underlying Vanguard funds to pursue a target allocation of stocks and bonds. The table that follows illustrates the asset allocation range for each Portfolio:

By owning shares of other Vanguard funds, each of the Allocation Portfolios indirectly invests, to varying degrees, in U.S. stocks, with an emphasis on large-cap stocks. To a lesser extent, each of the Allocation Portfolios also invests in foreign stocks. Through their investments in one underlying fund (Vanguard Variable Insurance Fund Equity Index Portfolio), each Portfolio holds a representative sample of the stocks that make up the S&P 500 Index, which is dominated by large-cap stocks. Through another underlying fund (Vanguard Extended Market Index Fund), each Portfolio holds a representative sample of the stocks that make up the S&P Completion Index, which represents mid- and small-capitalization stocks. Historically, mid- and small-cap stocks have been more volatile than—and at times have performed quite differently from—large-cap stocks. This volatility is due to several factors, including the fact that smaller companies often have fewer customers and financial resources than larger firms. These characteristics can make mid-size and small companies more sensitive to economic conditions, leading to less certain growth and dividend prospects.

Stocks of publicly traded companies and 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. As of the calendar year ended

December 31, 2014, the stocks in the underlying domestic equity funds had asset-weighted median market capitalizations of

approximately $62.8 billion. The stocks in the underlying international equity fundhad asset-weighted median market

capitalizations of approximately $24.3 billion.

Because each Allocation Portfolio invests in Vanguard Variable Insurance Fund Equity Index Portfolio and Vanguard Extended Market Index Fund so as to gain exposure to the overall domestic stock market, an Allocation Portfolio may shift its holdings among these two underlying funds to remain proportionate with the overall domestic stock market.

By owning shares of Vanguard Total International Stock Index Fund, each Allocation Portfolio is subject to risks associated with

investments in foreign stocks. For more detail on the risks associated with investing in stocks, see More on the Portfolios:

More on the Stock Portfolios. For additional discussion on the risks associated with investing in stocks issued by companies

located in emerging markets, see More on the Portfolios: More on the Stock Portfolios: International Portfolio.

By owning shares of Vanguard Variable Insurance Fund Total Bond Market Index Portfolio, each Allocation Portfolio indirectly invests, to varying degrees, in U.S. government and U.S. corporate bonds, as well as in mortgage-backed and asset-backed

securities. For more detail on the risks associated with investing in bonds, see More on the Portfolios: More on the Bond

Portfolios.

By owning shares of Vanguard Total International Bond Index Fund, each Allocation Portfolio indirectly invests in currency- hedged foreign bonds and is therefore subject to the risks associated with such investments, including country/regional risk and currency hedging risk.

Plain Talk About Fund of Funds

The term “fund of funds” is used to describe a mutual fund that pursues its objective by investing in other mutual funds. A fund of funds may charge for its own direct expenses, in addition to bearing a proportionate share of the expenses charged by the underlying funds in which it invests. A fund of funds is best suited for long-term investors.

Asset Allocation Stocks Bonds

Conservative Allocation Portfolio 40% 60%

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The Conservative Allocation and Moderate Allocation Portfolios are subject to country/regional risk and currency hedging risk. Country/regional risk is the chance that world events—such as political upheaval, financial troubles, or natural disasters—will adversely affect the value or liquidity of securities issued by foreign governments, government agencies, or companies. Currency hedging risk is the chance that the currency hedging transactions entered into by the underlying international bond fund may not perfectly offset the fund’s foreign currency exposure.

Through their investments in the underlying index funds, each Allocation Portfolio is subject, to a limited extent, to index sampling risk. Index sampling risk is the chance that the securities selected for an underlying fund, in the aggregate, will not provide investment performance matching that of the underlying fund’s target index.