{SHIP GRAPHIC}VANGUARD(R)
January 26, 2006
Christian Sandoe, Esq.
Division of Investment Management
U.S. Securities and Exchange Commission via electronic filing
450 Fifth Street,
N.W., Fifth Floor
Washington, D.C. 20549
Re: Vanguard Chester Funds (the "Trust")
Dear Mr. Sandoe:
The following responds to your comments of January 12, 2006 on the
post-effective amendment of the registration statement of the above-referenced
registrant. You commented on Post-Effective Amendment No. 33 that was filed on
November 29, 2005.
Comment 1: Vanguard PRIMECAP Fund Prospectus: Performance/Risk Information
Comment: Should the following sentence be removed from page 1 of the
prospectus since it does not apply to the Vanguard PRIMECAP
Fund? "If applicable shareholder fees were reflected, returns
would be less than those shown."
Response: The sentence has been removed since it does not apply to the
Fund.
Comment 2: Vanguard Target Retirement Funds Prospectus: Risk Disclosure
Comment: On page 5 the prospectus states that the 2005 Target
Retirement Fund's indirect stock holdings consist
substantially of large-capitalization U.S. stocks and, to a
lesser extent, of mid-and small-cap U.S. stocks. Please add
mid-cap risk as a primary investment risk of the Fund.
Response: We believe the disclosure is appropriate as written. The 2005
Fund invests in four underlying Vanguard funds, one of
which is the Vanguard Total Stock Market Index Fund. The
Total Stock Market Index Fund seeks to track the performance
of the MSCI US Broad Market Index by investing primarily in
the largest stocks in the Index. Since the MSCI US Broad
Market Index, with a median market-cap of approximately $27
billion, is dominated by large-cap stocks, we do not consider
the much lesser existence of the mid- and small-cap stocks, to
warrant inclusion of this
January 26, 2006
Christian Sandoe
Page 2 of 4
disclosure in the primary investment strategies and risks
section. This is especially true in light of the fact that
equity securities only account for approximately 30% of the
Fund's total assets. We discuss the risks of mid- and small-
cap stocks in the Item 4 disclosure and we are comfortable
with that disclosure in that location.
Comment 3: Vanguard Target Retirement Funds Prospectus: Fundamental
Objective
Comment: Is each Target Retirement Fund's objective fundamental?
Response: Each Target Retirement Fund's objective is fundamental, and is
disclosed as such in the Fund's Statement of Additional
Information. No additional Prospectus disclosure is required.
Comment 4: Vanguard Target Retirement Funds Prospectus: Diversification.
Comment: On page 22, modify the final sentence in the paragraph "More
on the Funds," to clarify that these funds, while classified
as nondiversified, have actually "operated as" diversified.
Response: We believe the current disclosure is appropriate. The Target
Retirement Funds are "funds of funds," that hold only four or
five underlying Vanguard mutual funds. For this reason they
are nondiversified. However, each fund indirectly owns a
diversified portfolio of stocks and bonds. Moreover, each of
the Target Retirement Funds is registered as a nondiversified,
open-end, management investment company.
Comment 5: Statement of Additional Information: Portfolio Manager
Disclosure.
Comment: On page B-36, please clarify the accounts that are jointly and
separately managed by the PRIMECAP portfolio managers.
Response: We have identified accounts that are jointly managed by the
PRIMECAP managers, and accounts that are separately managed.
Comment 6: Statement of Additional Information: Portfolio Manager
Disclosure.
Comment: On page B-36, please clarify what the material conflicts of
interest are, and how PRIMECAP will respond to them.
Response: We believe the disclosure adequately identifies the material
conflicts by stating: "potential conflicts of interest . . .
may arise between mutual funds and separate accounts, whereby
a client or clients may be disadvantaged by trades executed in
other clients' portfolios on the same security." PRIMECAP
manages these risks, as noted in the disclosure, by adopting
best execution and trade allocation policies and procedures to
prevent conflicts between mutual funds and separate accounts.
In addition, such
January 26, 2006
Christian Sandoe
Page 3 of 4
policies and procedures are strictly monitored and are
reviewed continuously by PRIMECAP.
Comment 7: Statement of Additional Information: Portfolio Manager
Disclosure.
Comment: On page B-37, please identify whether the portfolio manager's
base compensation is fixed.
Response: The modified disclosure on portfolio manager compensation
notes that "[e]ach portfolio manager receives a fixed salary
that is in part based on industry experience, as well as
contribution to the firm." The disclosure also includes a
description of bonus structure and profit sharing
arrangements.
Comment 8: Statement of Additional Information: Portfolio Manager
Disclosure.
Comment: On page B-38, please identify the benchmark indexes from which
portfolio managers are paid.
Response: The disclosure notes that a portfolio manager's performance is
tracked against the fund's benchmark index over a one-year
period. Each fund's benchmark is identified in that fund's
prospectus.
Comment 9: Statement of Additional Information: Power of Attorney.
Comment: Please modify your Power of Attorney to clarify the registrant
numbers for each Vanguard registrant.
Response: A Power of Attorney will be filed that details each Vanguard
registrant's Securities Act of 1933 filing number.
Comment 10: Tandy Requirements
Comment: The SEC is now requiring all registrants to provide at the end
of response letters to registration statement comments, the
following statements:
- The Trust is responsible for the adequacy and accuracy of
the disclosure in the filing.
- Staff comments or changes in response to staff comments in
the filings reviewed by the staff do not foreclose the
Commission from taking any action with respect to the
filing.
- The Trust may not assert staff comments as a defense in
any proceeding initiated by the Commission or any person
under the federal securities laws of the United States.
Response: As required by the SEC, we will provide the foregoing
acknowledgements.
* * * * *
2
January 26, 2006
Christian Sandoe
Page 4 of 4
As required by the SEC, the Trust acknowledges that:
- The Trust is responsible for the adequacy and accuracy of the
disclosure in the filing.
- Staff comments or changes in response to staff comments in the
filings reviewed by the staff do not foreclose the Commission
from taking any action with respect to the filing.
- The Trust may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
Please contact me at (610) 669-5284 with any questions or comments
regarding the above responses. Thank you.
Sincerely,
/s/ Lisa Matson
Lisa Matson
Associate Counsel