Vanguard Variable Insurance Fund
Conservative Allocation PortfolioEquity Index Portfolio Mid-Cap Index Portfolio Moderate Allocation Portfolio REIT Index Portfolio
Total Stock Market Index Portfolio (with underlying Equity Index Portfolio)
Contents
On May 1, 1975, Vanguard began operations, a fledgling company based on the simple but revolutionary idea that a mutual fund company should be managed solely in the interest of its investors.
Four decades later, that revolutionary spirit continues to animate the enterprise. Vanguard remains on a mission to give investors the best chance of investment success.
As we mark our 40th anniversary, we thank you for entrusting your assets to Vanguard and giving us the opportunity to help you reach your financial goals in the decades to come.
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.
See the Glossary for definitions of investment terms used in this report.
About the cover: Since our founding, Vanguard has drawn inspiration from the enterprise and valor demonstrated by British naval hero Horatio Nelson and his command at the Battle of the Nile in 1798. The photograph displays a replica of a merchant ship from the same era as Nelson’s flagship, the HMS Vanguard.
Market Perspective 1
Conservative Allocation Portfolio 2
Equity Index Portfolio 12
Mid-Cap Index Portfolio 26
Moderate Allocation Portfolio 39
REIT Index Portfolio 49
Total Stock Market Index Portfolio
Market Barometer
Average Annual Total Returns Periods Ended December 31, 2014
One Year Three Years Five Years
Stocks
Russell 1000 Index (Large-caps) 13.24% 20.62% 15.64%
Russell 2000 Index (Small-caps) 4.89 19.21 15.55
Russell 3000 Index (Broad U.S. Market) 12.56 20.51 15.63
FTSE All-World ex US Index (International) -3.31 9.41 4.75
Bonds
Barclays U.S. Aggregate Bond Index (Broad taxable market) 5.97% 2.66% 4.45%
Barclays Municipal Bond Index (Broad tax-exempt market) 9.05 4.30 5.16
Citigroup Three-Month U.S. Treasury Bill Index 0.03 0.04 0.06
CPI
Consumer Price Index 0.76% 1.33% 1.69%
U.S. stocks finished strongly
for the sixth straight year
U.S. stocks returned nearly 13% for the 12 months ended December 31, 2014, posting gains for the sixth consecutive calendar year. Rising corporate earnings, the growing U.S. economy, and generally accommodative global monetary policies lifted domestic markets. Elsewhere, Europe and China faced economic challenges, tensions flared in the Middle East and Ukraine, and concerns arose over stocks’ high valuations.
Although the Federal Reserve ended its bond-buying program in October, investors seemed reassured by its stance that it would be “patient” in deciding when to increase short-term interest rates. Other central banks—including the Bank of Japan, the European Central Bank, and the People’s Bank of China—announced significant stimulus measures.
International stocks didn’t fare as well as their U.S. counterparts, returning about –3% in dollar terms. Their performance was hurt as many foreign currencies weakened against the U.S. dollar. Emerging- market stocks rose slightly, but stocks from the developed markets of Europe and the Pacific region retreated.
Defying analysts’ expectations,
bond prices rose during the period
Bond prices received a boost from many of the world’s central banks along with various global economic, market, and geopolitical challenges that drew investors to perceived safe havens. In an unexpected rebound from the previous year, the broad U.S. bond market returned 5.97% for the period.
Even as the Fed pared back its bond purchases, prices climbed and yields fell. (Bond prices and yields move in opposite directions.) The yield of the 10-year Treasury note ended December at 2.19%, down from 2.97% at the close of December 2013.
Returns for money market funds and savings accounts were minuscule as the Fed’s target for short-term interest rates remained between 0% and 0.25%. Dear Planholder,
When 2014 began, some investors and experts feared a worst-case scenario in the financial markets. After five straight years of gains, stocks were considered pricey in some quarters. And the anticipated end of the Federal Reserve’s bond-buying program and economic concerns at home and abroad made for a forecast that included more frost than froth. Last January’s decline further underlined the anxiety. Bond prices, which fell in 2013, were widely expected to continue to struggle as yields were already at relative low levels.
Lo and behold, 12 months later, we’re looking back at another year of double-digit returns for U.S. stocks and a significant
rebound in bonds. This performance offers a lesson in how difficult it is to predict the markets, especially in the short term, and why market timing so often leads to disappointment.
Overseas, various troubles and the weakening of many foreign currencies against the U.S. dollar spelled negative returns for global stocks and bonds. These events serve as a reminder that balance, diversification, and a long-term perspective are paramount for long-term investors.
This report starts with a brief overview of the financial markets during the past year. In the pages that follow, you’ll find a review of the performance of your portfolio. Each portfolio in Vanguard Variable Insurance
Fund can serve as part of an investment program that includes a combination of stock, bond, and money market funds appropriate for your own long-term goals, risk tolerance, and time horizon.
Thank you for entrusting your assets to Vanguard.
Sincerely,
F. William McNabb III
Chairman and Chief Executive Officer January 16, 2015
Despite periods of volatility, U.S. stocks and bonds finished 2014 with healthy returns. International stocks didn’t fare as well. For the fiscal year ended December 31, 2014, Vanguard Conservative Allocation Portfolio returned 6.91%, in line with its composite benchmark index and well ahead of the average return of its peers.
The table below shows the returns of your portfolio and its comparative standards for the past year. For additional perspective, we also present their annualized returns since the portfolio’s inception. Please note that the portfolio returns in Vanguard Variable Insurance Fund are different from those in Vanguard Variable Annuity (and other plans that invest in the fund), which take into account insurance-related expenses.
U.S. markets had a good year;
international stocks struggled
The Conservative Allocation Portfolio, as a “fund of funds,” seeks to capture the returns of its benchmark by investing in a combination of Vanguard Variable Insurance Fund (VVIF) portfolios and Vanguard index funds.
Although the exact percentages may vary, the portfolio targets an asset allocation of approximately 60% bonds and 40% stocks. Its holdings consist of VVIF Total Bond Market Index Portfolio (48%), VVIF Equity Index Portfolio (22%), Vanguard Total International Bond Index Fund (12%), Vanguard Total International Stock Index Fund (12%), and Vanguard Extended Market Index Fund (6%).
The Total Bond Market Index Portfolio, which encompasses most of the U.S. bond market, returned 5.89%. Intermediate- and long-term yields drifted lower over the
period, which boosted bond prices. Prospects for global growth grew more clouded, geopolitical tensions simmered, and any acceleration in inflation appeared more distant.
Vanguard Total International Bond Index Fund returned 8.83% as investors veered away from foreign stocks into the less volatile sanctuary of fixed income investments.
In equity markets, U.S. large-capitalization stocks handsomely outpaced their small-cap brethren during the 12 months. Accordingly, VVIF Equity Index Portfolio, which holds larger-company stocks, returned about 13.5%. Vanguard Extended Market Index Fund, which focuses on small- and mid-cap stocks, returned about 7.5%.
Two U.S. stock sectors had an outsized impact. Technology firms were powered by increased corporate spending and a surge in mobile device sales. And health care companies benefited from new product development and mergers and acquisitions.
Not surprisingly, the energy sector was hurt by tumbling oil prices, which made it the only industry to record a negative return.
International stocks returned about –3% in dollar terms. Their performance was hurt as many foreign currencies weakened against the U.S. dollar.
The portfolio’s long-term record
shows the benefit of low costs
For the period since its inception on October 19, 2011, the Conservative Allocation Portfolio returned 8.60% on an average annual basis—very close to the result of its target benchmark. It exceeded the average return of its peers by more than a full percentage point. Total Returns
October 19, 20111 through December 31, 2014
Year Ended Average
December 31, 2014 Annual Return
Vanguard Conservative Allocation Portfolio 6.91% 8.60%
Conservative Allocation Composite Index2 7.09 8.77
Variable Insurance Mixed-Asset Target Allocation
Conservative Funds Average3 4.30 7.10
The figures shown represent past performance, which is not a guarantee of future results. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month- end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost.
Expense Ratios
Your Portfolio Compared With Its Peer Group
Variable Insurance
Mixed-Asset
Target Allocation
Acquired Fund Fees Conservative
and Expenses4 Funds Average5
Conservative Allocation Portfolio 0.19% 0.89%
1 Portfolio inception.
2 Weighted 48% Barclays U.S. Aggregate Float Adjusted Index, 28% S&P Total Market Index, 12% Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged), and 12% FTSE Global All Cap ex US Index as of June 3, 2013. Previously, the composite was weighted 60% Barclays U.S. Aggregate Float Adjusted Index, 28% S&P Total Market Index, and 12% MSCI ACWI ex USA IMI Index. 3 Derived from data provided by Lipper, a Thomson Reuters Company.
4 This figure—drawn from the prospectus dated April 30, 2014—represents an estimate of the weighted average of the expense ratios and any transaction fees charged by the underlying mutual funds (the “acquired” funds) in which the Conservative Allocation Portfolio invests. The Conservative Allocation Portfolio does not charge any expenses or fees of its own. For the fiscal year ended December 31, 2014, the annualized acquired fund fees and expenses were 0.19%.
Portfolio Profile
As of December 31, 20141 30-day SEC yield.
2 This figure—drawn from the prospectus dated April 30, 2014—represents an estimate of the weighted average of the expense ratios and any transaction fees charged by the underlying mutual funds (the “acquired” funds) in which the Conservative Allocation Portfolio invests. The Conservative Allocation Portfolio does not charge any expenses or fees of its own. For the fiscal year ended December 31, 2014, the annualized acquired fund fees and expenses were 0.19%.
Total Portfolio Characteristics
Yield1 2.3%
Acquired Fund Fees and Expenses2 0.19%
Allocation to Underlying Funds
Vanguard Variable Insurance Fund
Total Bond Market Index Portfolio 48.5%
Vanguard Variable Insurance Fund
Equity Index Portfolio 22.4
Vanguard Total International
Stock Index Fund Investor Shares 11.9
Vanguard Total International Bond Index
Fund Investor Shares 11.7
Vanguard Extended Market Index Fund
Investor Shares 5.5
30-Day SEC Yield. A portfolio’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the portfolio’s security holdings in the previous 30 days are used to calculate the portfolio’s hypothetical net income for that period, which is then annualized and divided by the portfolio’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds), its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the portfolio’s actual experience. As a result, the portfolio’s income distributions may be higher or lower than implied by the SEC yield.
Acquired Fund Fees and Expenses. Portfolios that invest in other Vanguard funds incur no direct expenses, but they do bear proportionate shares of the operating, administrative, and advisory expenses of the underlying funds, and they must pay any fees charged by those funds. The figure for acquired fund fees and expenses represents a weighted average of these underlying costs. Acquired is a term that the Securities and Exchange Commission applies to any mutual fund whose shares are owned by another fund.
Portfolio Asset Allocation
Q 60.2% Bonds
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the portfolio. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on portfolio distributions or on the sale of portfolio shares. Nor do the returns reflect fees and expenses associated with the annuity or life insurance program through which a shareholder invests. If these fees and expenses were included, the portfolio’s returns would be lower.
Cumulative Performance: October 19, 2011–December 31, 2014
Initial Investment of $10,000
Average Annual Total Returns Final Value
Periods Ended December 31, 2014 of a $10,000
One Year Since Inception1 Investment
Conservative Allocation Portfolio 6.91% 8.60% $13,020
Conservative Allocation Composite Index2 7.09 8.77 13,087
Variable Insurance Mixed-Asset Target
Conservative Funds Average3 4.30 7.10 12,455
Dow Jones U.S. Total Stock Market
Float Adjusted Index 12.47 20.74 18,278
Fiscal-Year Total Returns (%): October 19, 2011–December 31, 2014
Conservative Allocation Portfolio Conservative Allocation Composite Index2
1 October 19, 2011.
2 Weighted 48% Barclays U.S. Aggregate Float Adjusted Index, 28% S&P Total Market Index, 12% Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged), and 12% FTSE Global All Cap ex US Index as of June 3, 2013. Previously, the composite was weighted 60% Barclays U.S. Aggregate Float Adjusted Index, 28% S&P Total Market Index, and 12% MSCI ACWI ex USA IMI Index through June 2, 2013. 3 Derived from data provided by Lipper, a Thomson Reuters Company.
See Financial Highlights for dividend and capital gains information.
Performance Summary
2.20 2.13 2011 9.25 9.40 2012 9.06 9.38 2013 6.91 7.09 2014 2014 2013 2012 2011 $21,000 7,000 13,020Financial Statements
Statement of Net Assets
As of December 31, 2014The portfolio reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the portfolio’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the portfolio files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the portfolio’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
• See Note A in Notes to Financial Statements.
1 Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. See accompanying Notes, which are an integral part of the Financial Statements.
Investment Companies (100.0%) U.S. Stock Funds (27.9%)
Vanguard Variable Insurance Fund—Equity Index Portfolio 1,037,004 35,715
Vanguard Extended Market Index Fund Investor Shares 131,612 8,769
44,484
International Stock Fund (11.9%)
Vanguard Total International Stock Index Fund Investor Shares 1,221,866 19,000
U.S. Bond Fund (48.6%)
Vanguard Variable Insurance Fund—Total Bond Market Index Portfolio 6,424,258 77,541
International Bond Fund (11.6%)
Vanguard Total International Bond Index Fund Investor Shares 1,752,806 18,597
Total Investment Companies (Cost $152,765) 159,622
Temporary Cash Investment (0.1%) Money Market Fund (0.1%)
1 Vanguard Market Liquidity Fund, 0.126% (Cost $126) 126,000 126
Total Investments (100.1%) (Cost $152,891) 159,748
Other Assets and Liabilities (–0.1%)
Other Assets 8
Liabilities (102)
(94)
Net Assets (100%)
Applicable to 6,532,292 outstanding $.001 par value shares of
beneficial interest (unlimited authorization) 159,654
Net Asset Value Per Share $24.44
At December 31, 2014, net assets consisted of:
Amount
($000)
Paid-in Capital 147,357
Undistributed Net Investment Income 2,683
Accumulated Net Realized Gains 2,757
Unrealized Appreciation (Depreciation) 6,857
Net Assets 159,654
Market
Value•
Statement of Changes in Net Assets
1 Includes fiscal 2014 and 2013 short-term gain distributions totaling $822,000 and $331,000, respectively. Short-term gain distributions are treated as ordinary income dividends for tax purposes. 2 Net Assets—End of Period includes undistributed (overdistributed) net investment income of $2,683,000 and $1,852,000.
See accompanying Notes, which are an integral part of the Financial Statements.
Year Ended
December 31, 2014
($000)
Investment Income Income
Income Distributions Received 2,697
Net Investment Income—Note B 2,697 Realized Net Gain (Loss)
Capital Gain Distributions Received 706
Affiliated Investment Securities Sold 2,078
Realized Net Gain (Loss) 2,784 Change in Unrealized Appreciation
(Depreciation) of Investment Securities 3,200 Net Increase (Decrease) in Net Assets
Resulting from Operations 8,681
Statement of Operations
Year Ended December 31,
2014 2013 ($000) ($000)
Increase (Decrease) in Net Assets Operations
Net Investment Income 2,697 1,851
Realized Net Gain (Loss) 2,784 3,036
Change in Unrealized Appreciation (Depreciation) 3,200 2,241
Net Increase (Decrease) in Net Assets Resulting from Operations 8,681 7,128
Distributions
Net Investment Income (1,866) (677)
Realized Capital Gain1 (3,046) (598)
Total Distributions (4,912) (1,275)
Capital Share Transactions
Issued 67,986 59,378
Issued in Lieu of Cash Distributions 4,912 1,275
Redeemed (18,517) (26,127)
Net Increase (Decrease) from Capital Share Transactions 54,381 34,526
Total Increase (Decrease) 58,150 40,379
Net Assets
Beginning of Period 101,504 61,125
Financial Highlights
See accompanying Notes, which are an integral part of the Financial Statements.
Oct. 19,
20111 to
Year Ended December 31, Dec. 31,
For a Share Outstanding Throughout Each Period 2014 2013 2012 2011
Net Asset Value, Beginning of Period $23.86 $22.27 $20.44 $20.00
Investment Operations
Net Investment Income .4952 .5142 .4242 .1722
Capital Gain Distributions Received .1302 .2522 .1972 —
Net Realized and Unrealized Gain (Loss) on Investments .971 1.229 1.268 .268
Total from Investment Operations 1.596 1.995 1.889 .440
Distributions
Dividends from Net Investment Income (.386) (.215) (.041) —
Distributions from Realized Capital Gains (.630) (.190) (.018) —
Total Distributions (1.016) (.405) (.059) —
Net Asset Value, End of Period $24.44 $23.86 $22.27 $20.44
Total Return 6.91% 9.06% 9.25% 2.20%
Ratios/Supplemental Data
Net Assets, End of Period (Millions) $160 $102 $61 $11
Ratio of Total Expenses to Average Net Assets — — — —
Acquired Fund Fees and Expenses 0.19% 0.19% 0.20% 0.25%3
Ratio of Net Investment Income to Average Net Assets 2.07% 2.23% 1.97% 0.75%3
Portfolio Turnover Rate 13% 37% 17% 20%
1 Inception.
2 Calculated based on average shares outstanding. 3 Annualized.
Vanguard Conservative Allocation Portfolio, a portfolio of Vanguard Variable Insurance Fund, is registered under the Investment Company Act of 1940 as an open-end investment company. The portfolio follows a balanced investment strategy by investing in selected Vanguard funds and portfolios to achieve its targeted allocation of assets to U.S. and international stocks, and U.S. and international bonds. Financial statements and other information about each underlying fund and portfolio are available on vanguard.com. The portfolio’s shares are only available for purchase by separate accounts of insurance companies as investments for variable annuity plans, variable life insurance contracts, or other variable benefit insurance contracts.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The portfolio consistently follows such policies in preparing its financial statements.
1. Security Valuation: Investments are valued at the net asset value of each underlying Vanguard fund determined as of the close of the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date.
2. Federal Income Taxes: The portfolio intends to continue to qualify as a regulated investment company and distribute all of its taxable income. Management has analyzed the portfolio’s tax positions taken for all open federal income tax years (December 31, 2011–2014), and has concluded that no provision for federal income tax is required in the portfolio’s financial statements.
3. Distributions: Distributions to shareholders are recorded on the ex-dividend date.
4. Credit Facility: The portfolio and certain other funds managed by The Vanguard Group participate in a $2.89 billion committed credit facility provided by a syndicate of lenders pursuant to a credit agreement that may be renewed annually; each portfolio is individually liable for its borrowings, if any, under the credit facility. Borrowings may be utilized for temporary and emergency purposes, and are subject to the portfolio’s regulatory and contractual borrowing restrictions. The participating funds are charged administrative fees and an annual commitment fee of 0.06% of the undrawn amount of the facility; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and borne by the funds in which the portfolio invests (see Note B). Any borrowings under this facility bear interest at a rate equal to the higher of the federal funds rate or LIBOR reference rate plus an agreed-upon spread.
The portfolio had no borrowings outstanding at December 31, 2014, or at any time during the period then ended.
5. Other: Income and capital gain distributions received are recorded on the ex-dividend date. Security transactions are accounted for on the date securities are bought or sold. Costs used to determine realized gains (losses) on the sale of investment securities are those of the specific securities sold.
B. Under a service agreement, The Vanguard Group furnishes investment advisory, corporate management, administrative, marketing, and distribution services to the portfolio. The service agreement provides that the portfolio’s expenses may be reduced or eliminated to the extent of savings realized by the Vanguard funds by the operation of the portfolio. Accordingly, all incremental expenses for services provided by Vanguard and all other expenses incurred by the portfolio during the year ended December 31, 2014, were borne by the funds in which the portfolio invests. The portfolio’s trustees and officers are also directors and officers of Vanguard and the funds in which the portfolio invests.
C. Various inputs may be used to determine the value of the portfolio’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1—Quoted prices in active markets for identical securities.
Level 2—Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.).
Level 3—Significant unobservable inputs (including the portfolio’s own assumptions used to determine the fair value of investments).
At December 31, 2014, 100% of the market value of the portfolio’s investments was determined based on Level 1 inputs.
D. Distributions are determined on a tax basis and may differ from net investment income and realized capital gains for financial reporting purposes. Differences may be permanent or temporary. Permanent differences are reclassified among capital accounts in the financial statements to reflect their tax character. Temporary differences arise when certain items of income, expense, gain, or loss are recognized in different periods for financial statement and tax purposes. These differences will reverse at some time in the future. Differences in classification may also result from the treatment of short-term gains as ordinary income for tax purposes.
For tax purposes, at December 31, 2014, the portfolio had $2,791,000 of ordinary income and $2,648,000 of long-term captal gains available for distribution.
At December 31, 2014, the cost of investment securities for tax purposes was $152,891,000. Net unrealized appreciation of investment securities for tax purposes was $6,857,000, consisting of unrealized gains of $7,650,000 on securities that had risen in value since their purchase and $793,000 in unrealized losses on securities that had fallen in value since their purchase.
E. Capital shares issued and redeemed were:
Year Ended December 31, 2014 2013 Shares Shares
(000) (000)
Issued 2,840 2,591
Issued in Lieu of Cash Distributions 212 57
Redeemed (774) (1,139)
Net Increase (Decrease) in Shares Outstanding 2,278 1,509
F. Transactions during the year in affiliated underlying Vanguard funds were as follows:
Current Period Transactions
Dec. 31, Proceeds Dec. 31,
2013 from Capital Gain 2014
Market Purchases Securities Dividend Distributions Market
Value at Cost Sold Income Received Value
($000) ($000) ($000) ($000) ($000) ($000) Vanguard Extended Market
Index Fund 5,815 5,333 2,932 103 — 8,769
Vanguard Market Liquidity Fund 247 NA1 NA1 — — 126
Vanguard Total International
Bond Index Fund 11,815 5,871 125 237 — 18,597
Vanguard Total International
Stock Index Fund 12,118 9,267 1,114 503 — 19,000
Vanguard Variable Insurance
Fund—Equity Index Portfolio 22,796 13,505 3,699 454 502 35,715
Vanguard Variable Insurance Fund—Total Bond Market
Index Portfolio 48,965 35,389 8,659 1,400 204 77,541
Total 101,756 69,365 16,529 2,697 706 159,748
1 Not applicable—purchases and sales are for temporary cash investment purposes.
G. Management has determined that no material events or transactions occurred subsequent to December 31, 2014, that would require recognition or disclosure in these financial statements.
To the Board of Trustees of Vanguard Variable Insurance Funds and the Shareholders of Conservative Allocation Portfolio:
In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Conservative Allocation Portfolio (constituting a separate portfolio of Vanguard Variable Insurance Funds, hereafter referred to as the “Portfolio”) at December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Portfolio’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2014 by agreement to the underlying ownership records of the transfer agent, provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP Philadelphia, Pennsylvania February 10, 2015
Report of Independent Registered Public Accounting Firm
Special 2014 tax information (unaudited) for corporate shareholders only for Vanguard Conservative Allocation Portfolio, a portfolio of Vanguard Variable Insurance Fund
This information for the fiscal year ended December 31, 2014, is included pursuant to provisions of the Internal Revenue Code for corporate shareholders only.
The portfolio distributed $2,224,000 as capital gain dividends (from net long-term capital gains) to shareholders during the fiscal year.
For corporate shareholders, 18.7% of investment income (dividend income plus short-term gains, if any) qualifies for the dividends-received deduction.
As a shareholder of the portfolio, you incur ongoing costs, which include costs for portfolio management, administrative services, and shareholder reports (like this one), among others. Operating expenses, which are deducted from a portfolio’s gross income, directly reduce the investment return of the portfolio.
A typical portfolio’s expenses are expressed as a percentage of its average net assets. The Conservative Allocation Portfolio has no direct expenses, but bears its proportionate share of the expenses of the underlying funds in which it invests. These indirect expenses make up the acquired fund fees and expenses, also expressed as a percentage of average net assets. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your portfolio and to compare these costs with those of other mutual funds. The examples are based on an investment of $1,000 made at the beginning of the period shown and held for the entire period. The costs were calculated using the acquired fund fees and expenses for the Conservative Allocation Portfolio.
The accompanying table illustrates your portfolio’s costs in two ways:
• Based on actual portfolio return. This section helps you to estimate the actual expenses that you paid over the period. The “Ending Account Value” shown is derived from the portfolio’s actual return, and the third column shows the dollar amount that would have been paid by an investor who started with $1,000 in the portfolio. You may use the information here, together with the amount you invested, to estimate the expenses that you paid over the period.
To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your portfolio under the heading “Expenses Paid During Period.”
• Based on hypothetical 5% yearly return. This section is intended to help you compare your portfolio’s costs with those of other mutual funds. It assumes that the portfolio had a yearly return of 5% before expenses, but that the expense ratio is unchanged. In this case—because the return used is not the portfolio’s actual return—the results do not apply to your investment. The example is useful in making comparisons because the Securities and Exchange Commission requires all mutual funds to calculate expenses based on a 5% return. You can assess your portfolio’s costs by comparing this hypothetical example with the hypothetical examples that appear in shareholder reports of other funds.
Note that the expenses shown in the table are meant to highlight and help you compare ongoing costs only. The portfolio’s expense figure does not reflect additional fees and expenses associated with the annuity or life insurance program through which you invest.
The calculations assume no shares were bought or sold during the period. Your actual costs may have been higher or lower, depending on the amount of your investment and the timing of any purchases or redemptions.
You can find more information about the portfolio’s expenses in the Financial Statements section. For additional information on operating expenses and other shareholder costs, please refer to the prospectus.
Six Months Ended December 31, 2014
Beginning Ending Expenses
Account Value Account Value Paid During
Conservative Allocation Portfolio 6/30/2014 12/31/2014 Period1
Based on Actual Portfolio Return $1,000.00 $1,017.49 $0.97
Based on Hypothetical 5% Yearly Return 1,000.00 1,024.25 0.97
About Your Portfolio’s Expenses
1 The calculations are based on the Conservative Allocation Portfolio’s acquired fund fees and expenses for the most recent six-month period. The Conservative Allocation Portfolio’s annualized expense figure for that period is 0.19%. The dollar amounts shown as “Expenses Paid” are equal to the annualized average weighted expense ratio for the underlying funds, multiplied by the average account value over the period, multiplied by the number of days in the most recent six-month period, then divided by the number of days in the most recent 12-month period.
U.S. stocks continued to advance smartly in 2014 thanks to better-than-expected domestic economic growth, low interest rates and inflation, and strong corporate profits. For the fiscal year ended December 31, 2014, Vanguard Equity Index Portfolio returned 13.51%. The portfolio’s performance was in line with that of its benchmark index and exceeded the average return of peer funds.
The table below shows the returns of your portfolio and its comparative standards for the year. For additional perspective, we also present their annualized returns for the past ten years.
Please note that the portfolio returns in Vanguard Variable Insurance Fund are different from those in Vanguard Variable Annuity (and other plans that invest in the fund), which take into account insurance-related expenses.
Nearly every sector did well
as the U.S. economy expanded
In contrast to a year ago, large-capitalization stocks handsomely outpaced their
small-cap brethren during the 12 months. Concerned about high valuations, investors
were less willing to invest in smaller companies, which can offer higher growth potential but can also be riskier and more volatile.
In such an environment, the S&P 500 Index returned more than 13%. This index, the Equity Index Portfolio’s bench-mark, consists of 500 of the largest U.S. companies and accounts for more than three-quarters of the U.S. stock market’s value.
Like its benchmark index, Vanguard Equity Index Portfolio posted gains in nine of the market’s ten industry sectors. Two had an outsized impact. Technology firms were powered by increased corporate spending and a surge in mobile device sales. And health care companies benefited from new product development, mergers and acquisitions, and strategic alliances among pharmaceutical and biotechnology companies.
Improvement in the employment situation, falling gas prices, and increased consumer confidence boosted the economy as well, helping the consumer discretionary and consumer staples sectors.
Utilities—a small, often unheralded sector—posted the highest return (+28%) as the severe winter led to increased earnings and lower interest rates sent investors searching for higher yields. Not surprisingly, energy-related stocks were hurt by tumbling oil prices, recording the only negative return among industry groups.
The portfolio’s long-term record
shows the benefit of low costs
For the decade through December 2014, the Equity Index Portfolio recorded an average annual return of 7.57%. This result was quite close to that of the fund’s target, the S&P 500 Index, which has no transaction costs or operating expenses. Vanguard Equity Investment Group, the portfolio’s advisor, deserves credit for its successful tracking of the index, particularly considering the extreme market volatility that accompanied the financial crisis of 2008–2009. The advisor was helped by the portfolio’s low expenses, which are far below the average for its peer group. Over the decade, the portfolio outdistanced the 6.67% average annual result of its peers.
Whether gains continue or not,
focus on timeless principles
Whether the market continues to perform well or turns downward, we believe that following four timeless, straightforward principles can help put you on the right track toward investment success: setting goals, staying diversified, holding down costs, and sticking to a long-term plan. All four principles are essential, and the order in which they’re listed is intentional. You can read more about our principles in Vanguard’s Principles for Investment Success, available at vanguard.com/ research.
Total Returns
Ten Years Ended December 31, 2014
Year Ended Average
December 31, 2014 Annual Return
Vanguard Equity Index Portfolio 13.51% 7.57%
S&P 500 Index 13.69 7.67
Variable Insurance Large-Cap Core Funds Average1 11.31 6.67
The figures shown represent past performance, which is not a guarantee of future results. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month- end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost.
Expense Ratios2
Your Portfolio Compared With Its Peer Group
Variable Insurance
Large-Cap Core
Portfolio Funds Average
Equity Index Portfolio 0.16% 0.41%
1 Derived from data provided by Lipper, a Thomson Reuters Company.
2 The portfolio expense ratio shown is from the prospectus dated April 30, 2014, and represents estimated costs for the current fiscal year. For the fiscal year ended December 31, 2014, the portfolio’s expense ratio was 0.16%. The peer-group expense ratio is derived from data provided by Lipper, a Thomson Reuters Company, and captures information through year-end 2013.
Portfolio Characteristics
Target Broad
Portfolio Index1 Index2
Number of Stocks 504 502 3,776
Median Market Cap $77.2B $77.2B $48.1B
Price/Earnings Ratio 19.3x 19.3x 20.6x
Price/Book Ratio 2.8x 2.8x 2.7x
Yield3 1.8% 2.0% 1.9%
Return on Equity 19.2% 19.0% 17.8%
Earnings Growth Rate 15.4% 15.4% 15.4%
Foreign Holdings 0.0% 0.0% 0.0%
Turnover Rate 7% — —
Expense Ratio4 0.16% — —
Short-Term Reserves 0.2% — —
Volatility Measures
Portfolio Versus Portfolio Versus
Target Index1 Broad Index2
R-Squared 1.00 0.99
Beta 1.00 0.96
Sector Diversification (% of equity exposure)
Target Broad
Portfolio Index1 Index2
Consumer Discretionary 12.1% 12.1% 12.9% Consumer Staples 9.8 9.8 8.5 Energy 8.4 8.4 7.6 Financials 16.7 16.7 17.9 Health Care 14.2 14.2 14.0 Industrials 10.4 10.4 11.3 Information Technology 19.7 19.7 19.0 Materials 3.2 3.2 3.6 Telecommunication Services 2.3 2.3 2.0 Utilities 3.2 3.2 3.2
Ten Largest Holdings5 (% of total net assets)
Apple Inc. Technology Hardware,
Storage & Peripherals 3.5%
Exxon Mobil Corp. Integrated Oil & Gas 2.1
Microsoft Corp. Systems Software 2.1
Google Inc. Internet Software
& Services 1.7
Johnson & Johnson Pharmaceuticals 1.6
Berkshire
Hathaway Inc. Multi-Sector Holdings 1.5
Wells Fargo & Co. Diversified Banks 1.4
General Electric Co. Industrial
Conglomerates 1.4
Procter & Gamble Co. Household Products 1.3
JPMorgan Chase & Co. Diversified Banks 1.3
Top Ten 17.9%
1 S&P 500 Index.
2 Dow Jones U.S. Total Stock Market Float Adjusted Index.
3 30-day SEC yield for the portfolio; annualized dividend yield for the indexes.
4 The expense ratio shown is from the prospectus dated April 30, 2014, and represents estimated costs for the current fiscal year. For the fiscal year ended December 31, 2014, the expense ratio was 0.16%. 5 The holdings listed exclude any temporary cash investments and equity index products.
Portfolio Profile
As of December 31, 201430-Day SEC Yield. A portfolio’s 30-day SEC yield is derived using a formula specified by the U.S. Securities and Exchange Commission. Under the formula, data related to the portfolio’s security holdings in the previous 30 days are used to calculate the portfolio’s hypothetical net income for that period, which is then annualized and divided by the portfolio’s estimated average net assets over the calculation period. For the purposes of this calculation, a security’s income is based on its current market yield to maturity (for bonds) its actual income (for asset-backed securities), or its projected dividend yield (for stocks). Because the SEC yield represents hypothetical annualized income, it will differ—at times significantly—from the portfolio’s actual experience. As a result, the portfolio’s income distributions may be higher or lower than implied by the SEC yield.
Beta. A measure of the magnitude of a portfolio’s past share-price fluctuations in relation to the ups and downs of a given market index. The index is assigned a beta of 1.00. Compared with a given index, a portfolio with a beta of 1.20 typically would have seen its share price rise or fall by 12% when the index rose or fell by 10%. For this report, beta is based on returns over the past 36 months for both the portfolio and the index.
Equity Exposure. A measure that reflects a portfolio’s investments in stocks and stock futures. Any holdings in short-term reserves are excluded.
R-Squared. A measure of how much of a portfolio’s past returns can be explained by the returns from the market in general, as measured by a given index. If a portfolio’s total returns were precisely synchronized with an index’s returns, its R-squared would be 1.00. If the portfolio’s returns bore no relationship to the index’s returns, its R-squared would be 0. For this report, R-squared is based on returns over the past 36 months for both the portfolio and the index.
Market Cap Investment Focus Value Large Medium Small Blend Growth Style
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the portfolio. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on portfolio distributions or on the sale of portfolio shares. Nor do the returns reflect fees and expenses associated with the annuity or life insurance program through which a shareholder invests. If these fees and expenses were included, the portfolio’s returns would be lower.
Cumulative Performance: December 31, 2004–December 31, 2014
Initial Investment of $10,000
Average Annual Total Returns Final Value
Periods Ended December 31, 2014 of a $10,000
One Year Five Years Ten Years Investment
Equity Index Portfolio 13.51% 15.28% 7.57% $20,747
S&P 500 Index 13.69 15.45 7.67 20,947
Variable Insurance Large-Cap Core
Funds Average1 11.31 13.68 6.67 19,073
Dow Jones U.S. Total Stock Market
Float Adjusted Index 12.47 15.72 8.09 21,779
Fiscal Year Total Returns (%): December 31, 2004–December 31, 2014
Equity Index Portfolio
S&P 500 Index
1 Derived from data provided by Lipper, a Thomson Reuters Company. See Financial Highlights for dividend and capital gains information.
Performance Summary
2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 $25,000 4,000 20,747 4.79 4.91 2005 15.71 15.79 2006 5.38 5.49 2007 –36.93 –37.00 2008 26.44 26.46 2009 14.91 15.06 2010 1.93 2.11 2011 15.86 16.00 2012 32.18 32.39 2013 13.51 13.69 2014Market Value• Shares ($000) Market Value• Shares ($000) Common Stocks (99.5%)1 Consumer Discretionary (12.1%)
Walt Disney Co. 322,135 30,342
Comcast Corp. Class A 505,445 29,321
Home Depot Inc. 271,911 28,543
* Amazon.com Inc. 78,332 24,310
McDonald’s Corp. 200,891 18,824
Time Warner Inc. 173,151 14,791
Twenty-First Century Fox
Inc. Class A 383,030 14,710
NIKE Inc. Class B 144,139 13,859
Lowe’s Cos. Inc. 200,601 13,801
Starbucks Corp. 154,501 12,677
* Priceline Group Inc. 10,809 12,325
Ford Motor Co. 793,581 12,301
Target Corp. 131,604 9,990
TJX Cos. Inc. 142,225 9,754
General Motors Co. 278,627 9,727
* DIRECTV 103,702 8,991
Time Warner Cable Inc. 57,993 8,818
Johnson Controls Inc. 137,725 6,658
Yum! Brands Inc. 90,445 6,589
Viacom Inc. Class B 76,426 5,751
CBS Corp. Class B 98,581 5,456
VF Corp. 71,140 5,328
Macy’s Inc. 71,423 4,696
Delphi Automotive plc 60,919 4,430
* Dollar General Corp. 62,488 4,418
L Brands Inc. 50,689 4,387
* Chipotle Mexican Grill Inc.
Class A 6,396 4,378
* Netflix Inc. 12,403 4,237
Carnival Corp. 92,825 4,208
* AutoZone Inc. 6,593 4,082
Ross Stores Inc. 43,276 4,079
* O’Reilly Automotive Inc. 21,027 4,050
Omnicom Group Inc. 51,415 3,983
Marriott International Inc.
Class A 43,704 3,410
Genuine Parts Co. 31,418 3,348
* Michael Kors Holdings Ltd. 42,459 3,189
Whirlpool Corp. 16,025 3,105
Starwood Hotels & Resorts
Worldwide Inc. 36,947 2,995
* Dollar Tree Inc. 42,528 2,993
* CarMax Inc. 44,287 2,949
* Bed Bath & Beyond Inc. 38,308 2,918
Harley-Davidson Inc. 44,036 2,902
Royal Caribbean Cruises Ltd. 34,492 2,843
BorgWarner Inc. 46,750 2,569
Kohl’s Corp. 41,971 2,562
Wynn Resorts Ltd. 16,655 2,478
Tiffany & Co. 23,107 2,469
Staples Inc. 131,851 2,389
Best Buy Co. Inc. 60,091 2,342
* Under Armour Inc. Class A 34,467 2,340
Nordstrom Inc. 29,246 2,322
Gap Inc. 54,909 2,312
Ralph Lauren Corp. Class A 12,432 2,302
Tractor Supply Co. 28,246 2,226
Wyndham Worldwide Corp. 25,576 2,193
Mattel Inc. 70,058 2,168
PVH Corp. 16,905 2,167
Coach Inc. 56,961 2,139
Newell Rubbermaid Inc. 56,035 2,134
* Mohawk Industries Inc. 12,758 1,982
H&R Block Inc. 57,118 1,924
* Discovery Communications
Inc. 56,718 1,913
Interpublic Group of Cos.
Inc. 86,267 1,792
Expedia Inc. 20,317 1,734
* TripAdvisor Inc. 23,217 1,733
DR Horton Inc. 67,927 1,718
Lennar Corp. Class A 37,045 1,660
PetSmart Inc. 20,387 1,657
* News Corp. Class A 103,623 1,626
Goodyear Tire & Rubber Co. 56,384 1,611
Darden Restaurants Inc. 27,149 1,592
Scripps Networks
Interactive Inc. Class A 20,871 1,571
Family Dollar Stores Inc. 19,672 1,558
Comcast Corp. 26,563 1,529
Harman International
Industries Inc. 14,252 1,521
PulteGroup Inc. 69,325 1,488
Gannett Co. Inc. 46,232 1,476
Garmin Ltd. 24,915 1,316
Hasbro Inc. 23,490 1,292
Leggett & Platt Inc. 28,144 1,199
* Discovery Communications
Inc. Class A 30,318 1,044
* Fossil Group Inc. 9,159 1,014
Cablevision Systems Corp.
Class A 45,723 944
* AutoNation Inc. 15,281 923
GameStop Corp. Class A 22,309 754
* Urban Outfitters Inc. 21,209 745
456,894
Consumer Staples (9.7%)
Procter & Gamble Co. 557,824 50,812
Coca-Cola Co. 813,887 34,362
PepsiCo Inc. 308,800 29,200
Wal-Mart Stores Inc. 325,829 27,982
Philip Morris International
Inc. 320,600 26,113
CVS Health Corp. 236,561 22,783
Altria Group Inc. 407,775 20,091
* Walgreens Boots Alliance
Inc. 179,435 13,673
Costco Wholesale Corp. 90,372 12,810
Mondelez International Inc.
Class A 346,655 12,592
Colgate-Palmolive Co. 176,772 12,231
Kimberly-Clark Corp. 76,812 8,875
Kraft Foods Group Inc. 121,520 7,615
Archer-Daniels-Midland Co. 132,712 6,901
General Mills Inc. 124,714 6,651
Financial Statements
Statement of Net Assets
As of December 31, 2014The portfolio reports a complete list of its holdings in regulatory filings four times in each fiscal year, at the quarter-ends. For the second and fourth fiscal quarters, the lists appear in the portfolio’s semiannual and annual reports to shareholders. For the first and third fiscal quarters, the portfolio files the lists with the Securities and Exchange Commission on Form N-Q. Shareholders can look up the portfolio’s Forms N-Q on the SEC’s website at sec.gov. Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room (see the back cover of this report for further information).
Kroger Co. 101,519 6,519
Sysco Corp. 121,008 4,803
Lorillard Inc. 74,249 4,673
Mead Johnson Nutrition Co. 41,681 4,191
Reynolds American Inc. 63,503 4,081
Whole Foods Market Inc. 74,540 3,758
Estee Lauder Cos. Inc.
Class A 46,068 3,510
* Constellation Brands Inc.
Class A 34,605 3,397
Kellogg Co. 51,818 3,391
Keurig Green Mountain Inc. 24,978 3,307
* Monster Beverage Corp. 29,722 3,220
Hershey Co. 30,590 3,179
ConAgra Foods Inc. 87,471 3,174
Dr Pepper Snapple Group
Inc. 39,942 2,863
Brown-Forman Corp.
Class B 32,375 2,844
Clorox Co. 26,687 2,781
Molson Coors Brewing Co.
Class B 33,060 2,464
Tyson Foods Inc. Class A 60,632 2,431
JM Smucker Co. 20,895 2,110
Coca-Cola Enterprises Inc. 46,265 2,046
McCormick & Co. Inc. 26,565 1,974
Safeway Inc. 47,192 1,657
Campbell Soup Co. 37,216 1,638
Hormel Foods Corp. 27,560 1,436
Avon Products Inc. 89,036 836
368,974
Energy (8.4%)
Exxon Mobil Corp. 874,027 80,804
Chevron Corp. 390,361 43,791
Schlumberger Ltd. 265,505 22,677
ConocoPhillips 254,187 17,554
Kinder Morgan Inc. 350,584 14,833
Occidental Petroleum Corp. 159,945 12,893
EOG Resources Inc. 113,182 10,421
Anadarko Petroleum Corp. 104,609 8,630
Phillips 66 114,240 8,191
Halliburton Co. 174,770 6,874
Williams Cos. Inc. 139,131 6,253
National Oilwell Varco Inc. 88,722 5,814
Valero Energy Corp. 107,835 5,338
Marathon Petroleum Corp. 57,952 5,231
Spectra Energy Corp. 138,133 5,014
Baker Hughes Inc. 89,085 4,995
Apache Corp. 77,489 4,856
Devon Energy Corp. 79,223 4,849
Pioneer Natural Resources
Co. 30,747 4,577
Marathon Oil Corp. 139,083 3,935
Hess Corp. 52,286 3,860
Noble Energy Inc. 74,286 3,523
Cabot Oil & Gas Corp. 85,424 2,529
EQT Corp. 31,457 2,381 * FMC Technologies Inc. 48,110 2,253 ONEOK Inc. 43,212 2,151 Market Value• Shares ($000)
Market Value• Shares ($000) Market Value• Shares ($000) Market Value• Shares ($000)
Chesapeake Energy Corp. 107,643 2,107
* Cameron International
Corp. 40,557 2,026
* Southwestern Energy Co. 73,175 1,997
Tesoro Corp. 26,263 1,953
Cimarex Energy Co. 18,106 1,919
Range Resources Corp. 34,581 1,848
Murphy Oil Corp. 34,237 1,730
CONSOL Energy Inc. 47,106 1,593
Helmerich & Payne Inc. 22,228 1,499
Ensco plc Class A 48,629 1,456
^ Transocean Ltd. 69,758 1,279
Noble Corp. plc 52,089 863
Nabors Industries Ltd. 59,727 775
* Newfield Exploration Co. 28,138 763
QEP Resources Inc. 34,400 696
Denbury Resources Inc. 72,703 591
Diamond Offshore Drilling
Inc. 14,176 520
317,842
Financials (16.6%)
Wells Fargo & Co. 974,460 53,420
* Berkshire Hathaway Inc.
Class B 344,963 51,796
JPMorgan Chase & Co. 771,632 48,289
Bank of America Corp. 2,170,946 38,838
Citigroup Inc. 625,527 33,847
American Express Co. 183,690 17,090
US Bancorp 369,382 16,604
Goldman Sachs Group Inc. 83,556 16,196
American International
Group Inc. 289,060 16,190
MetLife Inc. 234,368 12,677
Morgan Stanley 315,016 12,223
Simon Property Group Inc. 64,218 11,695
PNC Financial Services
Group Inc. 108,596 9,907
Capital One Financial Corp. 114,828 9,479
Bank of New York Mellon
Corp. 232,268 9,423
BlackRock Inc. 26,298 9,403
Prudential Financial Inc. 94,465 8,545
American Tower
Corporation 81,940 8,100
ACE Ltd. 68,493 7,868
Travelers Cos. Inc. 68,451 7,246
Charles Schwab Corp. 237,461 7,169
State Street Corp. 86,300 6,775
Marsh & McLennan Cos.
Inc. 111,871 6,403
Discover Financial
Services 93,643 6,133
Allstate Corp. 86,684 6,090
BB&T Corp. 148,995 5,794
CME Group Inc. 65,235 5,783
Aflac Inc. 93,264 5,697
Aon plc 58,986 5,594
Public Storage 29,899 5,527
Crown Castle International
Corp. 68,829 5,417
Equity Residential 74,604 5,360
Health Care REIT Inc. 67,531 5,110
Intercontinental Exchange
Inc. 23,215 5,091
Chubb Corp. 48,773 5,047
Ameriprise Financial Inc. 38,127 5,042
McGraw Hill Financial Inc. 55,945 4,978
* Berkshire Hathaway Inc.
Class A 21 4,746
T. Rowe Price Group Inc. 53,639 4,605
SunTrust Banks Inc. 107,331 4,497
Franklin Resources Inc. 81,124 4,492
AvalonBay Communities
Inc. 27,220 4,447
Prologis Inc. 103,121 4,437
Ventas Inc. 60,697 4,352
Vornado Realty Trust 36,094 4,249
HCP Inc. 94,631 4,167
Boston Properties Inc. 31,587 4,065
Weyerhaeuser Co. 108,155 3,882
Host Hotels & Resorts Inc. 156,118 3,711
Hartford Financial Services
Group Inc. 88,764 3,701
Moody’s Corp. 38,040 3,645
General Growth Properties
Inc. 129,382 3,639
Invesco Ltd. 89,254 3,527
Fifth Third Bancorp 170,714 3,478
M&T Bank Corp. 27,301 3,430
Northern Trust Corp. 45,747 3,083
Lincoln National Corp. 53,450 3,082
Regions Financial Corp. 284,453 3,004
Progressive Corp. 110,179 2,974
Principal Financial Group
Inc. 56,464 2,933
Essex Property Trust Inc. 13,167 2,720
Loews Corp. 61,527 2,585
KeyCorp 179,482 2,495
* Affiliated Managers Group
Inc. 11,488 2,438
Macerich Co. 28,877 2,409
Kimco Realty Corp. 85,122 2,140
* CBRE Group Inc. Class A 57,916 1,984
Navient Corp. 84,435 1,825
XL Group plc Class A 53,043 1,823
Unum Group 52,223 1,821
Huntington Bancshares Inc. 167,245 1,759
Comerica Inc. 37,028 1,734
Cincinnati Financial Corp. 30,215 1,566
Plum Creek Timber Co. Inc. 36,269 1,552
Iron Mountain Inc. 38,769 1,499
Leucadia National Corp. 64,914 1,455
Torchmark Corp. 26,734 1,448
* E*TRADE Financial Corp. 59,151 1,435
Zions Bancorporation 41,595 1,186
NASDAQ OMX Group Inc. 24,217 1,161
Legg Mason Inc. 20,924 1,117
Apartment Investment &
Management Co. Class A 29,033 1,079
Assurant Inc. 14,687 1,005
Hudson City Bancorp Inc. 98,504 997
People’s United Financial
Inc. 63,526 964
* Genworth Financial Inc.
Class A 101,689 864
627,053
Health Care (14.1%)
Johnson & Johnson 577,750 60,415
Pfizer Inc. 1,300,670 40,516
Merck & Co. Inc. 588,661 33,430
* Gilead Sciences Inc. 311,538 29,366
Amgen Inc. 157,046 25,016
AbbVie Inc. 328,830 21,519
Bristol-Myers Squibb Co. 342,496 20,218
UnitedHealth Group Inc. 198,100 20,026
* Celgene Corp. 164,780 18,432
* Biogen Idec Inc. 48,768 16,554
Medtronic Inc. 203,092 14,663
* Actavis plc 54,664 14,071
Abbott Laboratories 310,730 13,989
Eli Lilly & Co. 202,209 13,950
Allergan Inc. 61,465 13,067
* Express Scripts Holding Co. 151,410 12,820
Thermo Fisher Scientific
Inc. 82,539 10,341
McKesson Corp. 47,854 9,933
Covidien plc 93,586 9,572
Baxter International Inc. 111,993 8,208
* Alexion Pharmaceuticals Inc. 41,043 7,594 * Anthem Inc. 55,758 7,007 Aetna Inc. 72,586 6,448 * Regeneron Pharmaceuticals Inc. 15,353 6,299
* Vertex Pharmaceuticals Inc. 49,585 5,891
Stryker Corp. 61,588 5,810
Cigna Corp. 54,009 5,558
Cardinal Health Inc. 68,469 5,527
Becton Dickinson and Co. 39,539 5,502
Perrigo Co. plc 29,054 4,857
Humana Inc. 31,614 4,541
Zoetis Inc. 103,271 4,444
* Mylan Inc. 77,132 4,348
* Cerner Corp. 62,676 4,053
Zimmer Holdings Inc. 34,908 3,959
* Intuitive Surgical Inc. 7,462 3,947
AmerisourceBergen Corp.
Class A 43,006 3,877
St. Jude Medical Inc. 58,879 3,829
* Boston Scientific Corp. 273,362 3,622
Agilent Technologies Inc. 69,031 2,826
* Edwards Lifesciences Corp. 22,061 2,810
* DaVita HealthCare Partners
Inc. 35,604 2,697
CR Bard Inc. 15,564 2,593
* CareFusion Corp. 42,075 2,497
* Mallinckrodt plc 23,961 2,373
* Hospira Inc. 35,017 2,145
Universal Health Services
Inc. Class B 18,752 2,086
Quest Diagnostics Inc. 29,980 2,010
* Waters Corp. 17,207 1,940
* Laboratory Corp. of America
Holdings 17,432 1,881
* Varian Medical Systems Inc. 20,572 1,780
DENTSPLY International Inc. 29,104 1,550
* Tenet Healthcare Corp. 20,094 1,018
PerkinElmer Inc. 23,156 1,013
Patterson Cos. Inc. 17,800 856
535,294
Industrials (10.4%)
General Electric Co. 2,072,816 52,380
Union Pacific Corp. 183,566 21,868
3M Co. 132,337 21,746
United Technologies Corp. 175,138 20,141
Boeing Co. 136,856 17,789
Honeywell International Inc. 161,523 16,139
United Parcel Service Inc.
Class B 143,995 16,008
Caterpillar Inc. 124,833 11,426
Danaher Corp. 126,192 10,816
Lockheed Martin Corp. 55,446 10,677
FedEx Corp. 54,355 9,439
General Dynamics Corp. 64,932 8,936
Emerson Electric Co. 143,210 8,840
Delta Air Lines Inc. 172,532 8,487
CSX Corp. 205,249 7,436
Precision Castparts Corp. 29,360 7,072
Illinois Tool Works Inc. 74,310 7,037
Market Value• Shares ($000) Market Value• Shares ($000) Market Value• Shares ($000) Raytheon Co. 63,610 6,881 Eaton Corp. plc 97,777 6,645
Deere & Co. 74,091 6,555
Northrop Grumman Corp. 41,747 6,153
Southwest Airlines Co. 140,189 5,933
Cummins Inc. 35,084 5,058
PACCAR Inc. 73,030 4,967
Waste Management Inc. 87,635 4,497
Parker-Hannifin Corp. 30,712 3,960
* Tyco International plc 86,235 3,782
Ingersoll-Rand plc 54,779 3,472
Roper Industries Inc. 20,757 3,245
WW Grainger Inc. 12,560 3,201
Rockwell Automation Inc. 28,156 3,131
Stanley Black & Decker Inc. 32,327 3,106
Nielsen NV 66,745 2,985
Kansas City Southern 22,957 2,801
Fastenal Co. 56,468 2,686
AMETEK Inc. 50,804 2,674
Pentair plc 38,374 2,549
Dover Corp. 34,154 2,450
Textron Inc. 57,190 2,408
Rockwell Collins Inc. 27,661 2,337
* Stericycle Inc. 17,612 2,309
CH Robinson Worldwide Inc. 30,182 2,260
L-3 Communications
Holdings Inc. 17,681 2,232
Pall Corp. 21,912 2,218
Republic Services Inc.
Class A 52,402 2,109
* United Rentals Inc. 20,558 2,097
Equifax Inc. 24,920 2,015 Fluor Corp. 32,276 1,957 Masco Corp. 73,955 1,864 Expeditors International of Washington Inc. 39,958 1,783 Flowserve Corp. 28,044 1,678
Robert Half International Inc. 28,139 1,643
Snap-on Inc. 11,936 1,632
Cintas Corp. 20,250 1,588
Xylem Inc. 37,448 1,426
ADT Corp. 35,678 1,293
* Quanta Services Inc. 45,294 1,286
* Jacobs Engineering
Group Inc. 27,272 1,219
Allegion plc 19,693 1,092
Pitney Bowes Inc. 41,558 1,013
Ryder System Inc. 10,883 1,010
Joy Global Inc. 20,145 937
Dun & Bradstreet Corp. 7,467 903
392,266
Information Technology (19.6%)
Apple Inc. 1,210,559 133,622
Microsoft Corp. 1,701,444 79,032
Intel Corp. 998,189 36,224
* Facebook Inc. Class A 431,788 33,688
* Google Inc. Class A 58,812 31,209
* Google Inc. Class C 58,802 30,953
International Business
Machines Corp. 189,952 30,476
Oracle Corp. 667,377 30,012
Cisco Systems Inc. 1,055,843 29,368
Visa Inc. Class A 100,762 26,420
QUALCOMM Inc. 343,063 25,500
MasterCard Inc. Class A 202,350 17,435
Hewlett-Packard Co. 385,040 15,452
* eBay Inc. 233,274 13,091
EMC Corp. 419,854 12,487
Texas Instruments Inc. 217,869 11,648
Accenture plc Class A 129,465 11,563
* Yahoo! Inc. 181,779 9,182
Automatic Data Processing
Inc. 99,533 8,298
* Micron Technology Inc. 221,799 7,765
* salesforce.com inc 121,320 7,196
* Adobe Systems Inc. 97,979 7,123
* Cognizant Technology
Solutions Corp. Class A 125,844 6,627
Applied Materials Inc. 251,804 6,275
Corning Inc. 264,188 6,058
Intuit Inc. 58,859 5,426
TE Connectivity Ltd. 83,779 5,299
Avago Technologies Ltd.
Class A 52,102 5,241
Western Digital Corp. 45,095 4,992
Broadcom Corp. Class A 110,968 4,808
Seagate Technology plc 67,450 4,485
SanDisk Corp. 45,641 4,472
* Alliance Data Systems Corp. 13,179 3,770
Symantec Corp. 142,352 3,652
Fidelity National Information
Services Inc. 58,474 3,637
* Fiserv Inc. 50,530 3,586
Analog Devices Inc. 64,303 3,570
Amphenol Corp. Class A 64,100 3,449
Paychex Inc. 67,499 3,116
Xerox Corp. 221,817 3,074
* Electronic Arts Inc. 64,060 3,012
Motorola Solutions Inc. 43,539 2,921
* Autodesk Inc. 47,071 2,827
* Red Hat Inc. 38,768 2,680
NetApp Inc. 64,073 2,656
Lam Research Corp. 33,025 2,620
KLA-Tencor Corp. 33,893 2,383
Xilinx Inc. 54,376 2,354
Altera Corp. 63,279 2,338
* Akamai Technologies Inc. 36,552 2,301
Linear Technology Corp. 49,497 2,257
NVIDIA Corp. 106,706 2,140
* Citrix Systems Inc. 33,096 2,112
CA Inc. 66,547 2,026
* F5 Networks Inc. 15,206 1,984
Western Union Co. 108,399 1,941
Microchip Technology Inc. 41,607 1,877
Computer Sciences Corp. 28,914 1,823
Juniper Networks Inc. 79,171 1,767
Harris Corp. 21,459 1,541
* Teradata Corp. 31,808 1,389
* VeriSign Inc. 22,350 1,274
Total System Services Inc. 33,848 1,150
FLIR Systems Inc. 29,063 939
* First Solar Inc. 15,425 688
740,281
Materials (3.1%)
EI du Pont de Nemours
& Co. 186,812 13,813
Monsanto Co. 99,980 11,945
Dow Chemical Co. 228,548 10,424
Praxair Inc. 60,134 7,791
LyondellBasell Industries
NV Class A 85,896 6,819
PPG Industries Inc. 28,313 6,545
Ecolab Inc. 55,675 5,819
Air Products & Chemicals
Inc. 39,635 5,717
Freeport-McMoRan Inc. 213,890 4,996
International Paper Co. 87,406 4,683
Sherwin-Williams Co. 16,793 4,417
Alcoa Inc. 242,679 3,832
Sigma-Aldrich Corp. 24,615 3,379
Nucor Corp. 65,760 3,225
Mosaic Co. 65,243 2,978
CF Industries Holdings Inc. 10,273 2,800
Eastman Chemical Co. 30,606 2,322
Newmont Mining Corp. 103,481 1,956
Ball Corp. 28,372 1,934
Sealed Air Corp. 43,396 1,841
Vulcan Materials Co. 27,277 1,793
International Flavors &
Fragrances Inc. 16,642 1,687
Airgas Inc. 13,779 1,587
FMC Corp. 27,294 1,557
MeadWestvaco Corp. 34,478 1,530
Martin Marietta Materials
Inc. 12,924 1,426
Avery Dennison Corp. 18,728 972
* Owens-Illinois Inc. 33,769 911 Allegheny Technologies Inc. 22,573 785 119,484 Telecommunication Services (2.3%) Verizon Communications Inc. 856,708 40,077 AT&T Inc. 1,070,881 35,971 CenturyLink Inc. 117,474 4,650 * Level 3 Communications Inc. 57,565 2,842 Frontier Communications Corp. 205,102 1,368
Windstream Holdings Inc. 123,358 1,016
85,924
Utilities (3.2%)
Duke Energy Corp. 145,912 12,190
NextEra Energy Inc. 90,189 9,586
Dominion Resources Inc. 120,668 9,279
Southern Co. 185,892 9,129
Exelon Corp. 177,623 6,586
American Electric Power
Co. Inc. 100,763 6,118
Sempra Energy 47,611 5,302
PG&E Corp. 97,825 5,208
PPL Corp. 136,969 4,976
Edison International 67,113 4,395
Public Service Enterprise
Group Inc. 104,287 4,319
Consolidated Edison Inc. 60,367 3,985
Xcel Energy Inc. 104,240 3,744
Northeast Utilities 65,234 3,491
FirstEnergy Corp. 86,802 3,384
Entergy Corp. 37,193 3,254
DTE Energy Co. 36,548 3,157
NiSource Inc. 65,151 2,764
Wisconsin Energy Corp. 46,676 2,462
Ameren Corp. 50,311 2,321
CenterPoint Energy Inc. 89,089 2,087
CMS Energy Corp. 57,060 1,983
NRG Energy Inc. 70,174 1,891
AES Corp. 136,170 1,875
SCANA Corp. 29,651 1,791
Pinnacle West Capital Corp. 22,657 1,548
Pepco Holdings Inc. 52,376 1,411
AGL Resources Inc. 24,504 1,336
Integrys Energy Group Inc. 16,422 1,278
TECO Energy Inc. 47,849 980
121,830