[SHIP GRAPHIC] VANGUARD(R)
P.O. Box 2600
Valley Forge, PA 19482-2600
610-669-1538
Judy_L_Gaines@vanguard.com
May 9, 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
Dear Mr. Sandoe,
The following responds to your comments of May 8, 2006 on the
post-effective amendment of the registration statement of the above-referenced
registrant. You commented on Post-Effective Amendment No. 35 that was filed on
March 20, 2006.
Comment 1: PROSPECTUS - PRIMARY INVESTMENT STRATEGIES - EACH FUND
Comment: The disclosure states that each Fund's indirect stock holdings
consist substantially of large-cap U.S. stocks and, to a
lesser extent, of mid- and small- cap U.S. stocks. If the
presence of mid- and small-cap stocks is significant
enough to warrant it, there should be corresponding primary
risk disclosure.
Response: Vanguard Total Stock Market Index Fund invests across all
market-capitalization segments, and does not focus on a
particular category of stocks. Based on the small percentage
of this fund that is invested in small- and mid-cap stocks,
and the fact that only a portion of each fund's assets are
invested in this fund, we do not believe it is appropriate to
add mid- or small-cap risk as a primary risk of the Funds.
Comment 2: PROSPECTUS - PRIMARY RISKS - EACH FUND
Comment: Certain Funds include Manager Risk as a primary risk while
others do not. Please explain the basis for the inconsistency.
Response: To the extent that a Fund invests in solely in index funds, we
do not consider Manager Risk to be a primary risk of the Fund.
However, to the extent that a Fund invests in actively managed
funds to a significant extent, we do consider Manager Risk to
be a primary risk. We have included Manager Risk as a primary
risk in some Fund profiles and not others based on this
analysis of each Fund's underlying fund investments.
Christian Sandoe, Esq.
May 9, 2006
Page 2
Accordingly, we will amend the sentence to read, "Please refer
to the Performance of a Different but Similar Investment
Vehicle section of this prospectus for information on the
performance of a different but similar investment vehicle."
Comment 3: PROSPECTUS - PERFORMANCE/RISK INFORMATION - 2015 FUND
Comment: Under Comparative Indexes in the average annual total return
table, the Lehman Brothers Aggregate Bond Index appears first,
but bonds only comprise 33.3% of the Fund's holdings.
Response: We will amend the order of the comparative indexes so the
equity indexes precede the bond index.
Comment 4: PROSPECTUS - MORE ON THE FUNDS - EACH FUND
Comment: Please explain why the Fund profiles do not include non-
diversification risk as a primary risk.
Response: We do not consider non-diversification risk to be a primary
risk for the Funds. Each Fund, as a fund of funds, is
classified as non-diversified solely because of a position
taken by the Commission staff several years ago. In reality,
each Fund's portfolio is thoroughly diversified, and that is
unlikely to change in the foreseeable future. Accordingly,
highlighting non-diversification as a risk in Item 2, in our
view, would actually mislead investors about the risks of a
Fund. General Instruction C.1(b) of Form N-1A admonishes funds
not to "disproportionately emphasiz[e] possible investments or
activities of the Fund that are not a significant part of the
Fund's operations."(1)
The likelihood of a fund of funds ever being hurt
disproportionately by a decline in the prices of just a few
securities is extremely remote. All of Vanguard's
funds-of-funds, on a look-through basis, invest in hundreds of
securities and easily meet the diversification tests of the
Investment Company Act. Nevertheless, we will continue to
disclose, in Item 4, that the Fund is classified as
non-diversified and explain why that is.
Comment 5: PROSPECTUS - ASSET ALLOCATION FRAMEWORK
Comment: How can the Funds combine with the Target Retirement Fund
without shareholder approval?
Response: The Trust's agreement and declaration of trust allows for this
type of merger upon the approval of the board of trustees. In
approving any such merger, the board would consider the
relevant factors and make the relevant findings as required by
Rule 17a-8 under the Investment Company Act of 1940.
Comment 6: SAI - DATE OF PROSPECTUSES
Comment: The SAI and Target Retirement Funds prospectus will be
effective as of June 2006, but the prospectus for PRIMECAP
Fund, another series of Vanguard Chester Funds, is dated
January
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1 See also Investment Company Act Release No. 23064 (March 13, 1998) In adopting
Form N-1A, the Commission stated that the purpose of the summary risk disclosure
in a fund's prospectus is to identify briefly the principal risks of investing
in the particular fund and to emphasize those risks reasonable likely to affect
the fund's performance.
Christian Sandoe, Esq.
May 9, 2006
Page 3
2006. How can the January prospectus incorporate by
reference an SAI that did not exist until June?
Response: In response to Item 1(b) of Form N-1A, we disclose on the back
cover of the PRIMECAP prospectus (and all other fund
prospectuses) that:
"The SAI contains more detailed information about the Fund.
The current annual and semiannual reports and the SAI are
incorporated by reference into (and are thus legally a part
of) this prospectus.
To receive a free copy of the latest annual or semiannual
report or the SAI, or to request additional information about
the Fund or other Vanguard funds, please visit our website or
contact us as follows."
Our use of the terms "current" and "latest" are intended to
make clear to investors that we are incorporating by reference
the most recent version of SAI.
Comment 7: TANDY REQUIREMENTS
As required by the SEC, the Fund acknowledges that:
- The Fund 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 Fund 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) 669-1538 with any questions or comments
regarding the above responses. Thank you.
Sincerely,
Judith L. Gaines
Associate Counsel
Securities Regulation, Legal Department