SMALL CAP GROWTH ACCOUNT - III 

Following is a summary of information about the Small Cap Growth Account III. Investors are advised to learn key data about an investment prior to making any investment decision.

Objective

The objective of this account is to seek long-term capital appreciation by investing mainly in a diversified group of small-company stocks with above-average growth. It invests solely in the Vanguard © Explorer Fund.

Investor Profile

The Small Cap Growth Account III may be suitable for investors with a very long term investment horizon who are seeking long-term capital appreciation by investing in small company stocks with above average growth potential. These companies often provide little or no dividend income.

Investment Strategy

Vanguard Explorer Fund invests in a diversified group of small-company stocks with prospects for above-average growth. The Fund is managed by five advisors, each of whom runs its portion of the fund independently – although all emphasize small capitalization stocks (those companies with total market values of $100 million to $1 billion).

Investment Considerations

The principal value of the Small Cap Growth Account III is subject to decline over short and even long periods. The Account’s share price and total return will fluctuate within a wide range, like the fluctuation of the overall stock market. The primary risk factors that could hurt the Account’s performance include general declines in the overall stock market, the chance that small-cap growth stocks will trail returns of the overall market, and the chance poor security selection will cause the Account to under perform other investments with similar objectives.

PORTFOLIO DATA

Asset Allocation (as of 12-31-2009)     Stocks 98.60% Short-term Reserves 1.40%   Key Facts (as of 12-31-2009)     Number of Stocks 1,045 Price Earnings Ratio 115.3x Turnover Rate (Fiscal Year End October) 111.6% Foreign Holdings 3.6 Beta (vs. Dow Jones Total Stock Market Index) 1.11   Ten Largest Holdings (as of 12-31-2009) Concentration   Range   Alliance Data Systems Corp. 0 %     ON Semiconductor Corp. 0 %     MSC Industrial Direct Co., Inc. Class A 0 %     iShares Russell 2000 Index Fund 0 %     Informatica Corp. 0 %     TiVo Inc. 0 %     Sensient Technologies Corp. 0 %     Polycom, Inc. 0 %     DeVry, Inc. 0 %     Edwards Lifesciences Inc. 0 %     Top Ten Equals 5.9% of Portfolio   Equity Sector Diversification (as of 12-31-2009)       Information Technology 27.60 % Health Care 18.80 % Consumer Discretionary 15.90 % Industrials 15.10 % Financials 7.10 % Materials 5.60 % Energy 4.90 % Consumer Staples 3.40 % Utilities 0.90 % Telecommunication Services 0.70 % Total % 100.00 % Vanguard Explorer Fund* Average Annual Returns Annual Total Returns (as of 02-28-2010) (as of 12-31)           1 Month 4.34%     3 Months 7.58%     YTD 0.30%     1 year 59.95%     3 years (5.98)%     5 years 0.70%     10 years 1.49%                                     1995       26.60%     1996       14.04%     1997       14.57%     1998       3.52%     1999       37.26%     2000       9.22%     2001       0.56%     2002       (24.58)%     2003       44.25%     2004       13.75%     2005       9.28%     2006       9.70%     2007       5.06%     2008       (40.40)%     2009       36.21%