Vanguard Balanced

Objective And Strategy

Objective
Long-term capital appreciation and reasonable current income.

Strategy
The Portfolio invests 60% to 70% of its assets in dividend-paying and, to a lesser extent, non-dividend-paying common stocks of established, medium-size and large companies. In choosing these companies, the advisor seeks those that appear to be undervalued but have prospects for improvement. These stocks are commonly referred to as value stocks. The remaining 30% to 40% of Portfolio assets are invested mainly in fixed income securities that the advisor believes will generate a reasonable level of current income. These securities include investment-grade corporate bonds, some U.S. Treasury and Government agency bonds, and mortgage-backed securities.
Low Cost Fund

Principal Risks

* This portfolio invests (or may invest) in securities of companies with micro-, small-, or mid-capitalization. Any investment in micro-, small-, or mid-capitalization companies involves greater risk than that customarily associated with investments in larger, more established companies because of the greater business risks of smaller size, limited markets and financial resources, narrower product lines, and frequent lack of management depth. As such, micro- or small-cap companies may be more subject to erratic and abrupt market movements than securities of larger, more established companies.

* Fixed income securities are subject to interest rate risk because the prices of fixed income securities tend to move in the opposite direction of interest rates. When interest rates rise, fixed income security prices fall. When interest rates fall, fixed income security prices rise.

* Value stocks may perform differently from the market as a whole and following a value-oriented investment strategy may cause the Portfolio to at times underperform equity funds that use other investment strategies.

* During periods of declining interest rates, the issuer of a security may exercise its option to prepay principal earlier than scheduled, forcing the portfolio to reinvest in lower yielding securities.

* Generally, a security is liquid if the Portfolio is able to sell the security at a fair price within a reasonable time. Liquidity is generally related to the market trading volume for a particular security.

* The Fund is subject to the risks of investing in equity securities, that of market volatility. There is no assurance that the investment objective of any fund (or that of any underlying fund) will be achieved or that a diversified portfolio will produce better results than a non-diversified portfolio. Diversification does not guarantee returns or insulate an investor from potential losses, including the possible loss of principal. When evaluating the purchase of a variable annuity product, your clients should be aware that variable annuity products are long-term investment vehicles designed for retirement purposes and will fluctuate in value; and investing involves market risk, including possible loss of principal.