UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT
OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-04098
| Name of Registrant: | Vanguard Chester Funds |
| Address of Registrant: | P.O. Box 2600 |
| Valley Forge, PA 19482 |
| Name and address of agent for service: | Anne E. Robinson, Esquire |
| P.O. Box 876 | |
| Valley Forge, PA 19482 |
Registrant’s telephone number, including area code: (610) 669-1000
Date of fiscal year end: September 30
Date of reporting period: October 1, 2022—March 31, 2023
Item 1: Reports to Shareholders
Semiannual Report | March 31, 2023
Vanguard PRIMECAP
Fund
Contents
About Your Fund’s Expenses | 1 |
Financial Statements | 4 |
Liquidity Risk Management | 17 |
About Your Fund’s Expenses
As a shareholder of the fund,
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 fund’s gross
income, directly reduce the investment return of the fund.
A fund’s expenses are
expressed as a percentage of its average net assets. This figure is known as the expense ratio. The following examples are intended to help you understand the ongoing costs (in dollars) of investing in your fund 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 accompanying table
illustrates your fund’s costs in two ways:
| • | Based on actual fund 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 fund‘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 fund. 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 fund under the heading ”Expenses Paid During Period.“
| • | Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund 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 fund’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 fund’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 and do not reflect transaction costs incurred by the fund for buying and selling securities. Further, the expenses do not include any purchase, redemption, or
account service fees described in the fund prospectus. If such fees were applied to your account, your costs would be higher. Your fund does not carry a “sales load.”
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 fund’s expenses, including annual expense ratios, in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your
fund’s current prospectus.
1
| Six Months Ended March 31, 2023 | |||
| Beginning Account Value 9/30/2022 | Ending Account Value 3/31/2023 | Expenses Paid During Period | |
| Based on Actual Fund Return | |||
| PRIMECAP Fund | |||
| Investor Shares | $1,000.00 | $1,175.60 | $2.06 |
| Admiral™ Shares | 1,000.00 | 1,176.00 | 1.68 |
| Based on Hypothetical 5% Yearly Return | |||
| PRIMECAP Fund | |||
| Investor Shares | $1,000.00 | $1,023.04 | $1.92 |
| Admiral Shares | 1,000.00 | 1,023.39 | 1.56 |
The calculations are
based on expenses incurred in the most recent six-month period. The fund’s annualized six-month expense ratios for that period are 0.38% for Investor Shares and 0.31% for Admiral Shares. The dollar amounts shown
as “Expenses Paid” are equal to the annualized expense ratio 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 (182/365).
2
PRIMECAP Fund
Fund Allocation
As of March 31, 2023
| Communication Services | 6.2% |
| Consumer Discretionary | 11.6 |
| Consumer Staples | 0.4 |
| Energy | 2.3 |
| Financials | 6.7 |
| Health Care | 31.1 |
| Industrials | 14.1 |
| Information Technology | 26.2 |
| Materials | 1.4 |
The table reflects the fund’s
investments, except for short-term investments. Sector categories are based on the Global Industry Classification Standard (“GICS”), except for the “Other” category (if applicable), which
includes securities that have not been provided a GICS classification as of the effective reporting period.
Global Industry
Classification Standard (“GICS”) was developed by and is the exclusive property and a service mark of MSCI Inc. (“MSCI”) and Standard and Poor’s, a division of McGraw-Hill Companies, Inc.
(“S&P”), and is licensed for use by Vanguard. Neither MSCI, S&P nor any third party involved in making or compiling the GICS or any GICS classification makes any express or implied warranties or
representations with respect to such standard or classification (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties of originality, accuracy, completeness,
merchantability or fitness for a particular purpose with respect to any such standard or classification. Without limiting any of the foregoing, in no event shall MSCI, S&P, any of its affiliates or any third party
involved in making or compiling the GICS or any GICS classification have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the
possibility of such damages.
3
PRIMECAP Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2023
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
4
PRIMECAP Fund
5
PRIMECAP Fund
| Shares | Market Value• ($000) | ||
| Materials (1.4%) | |||
| Glencore plc | 37,983,549 | 218,565 | |
| Albemarle Corp. | 882,935 | 195,164 | |
| DuPont de Nemours Inc. | 2,000,656 | 143,587 | |
| Linde plc | 259,300 | 92,166 | |
| Freeport-McMoRan Inc. | 2,148,900 | 87,911 | |
| Corteva Inc. | 1,219,216 | 73,531 | |
| Dow Inc. | 1,339,817 | 73,449 | |
| 884,373 | |||
| Total Common Stocks (Cost $25,036,824) | 61,771,428 | ||
| Temporary Cash Investments (2.8%) | |||
| Money Market Fund (2.8%) | |||
| 4,5 | Vanguard Market Liquidity Fund, 4.839% (Cost $1,737,521) | 17,380,173 | 1,737,844 |
| Total Investments (99.9%) (Cost $26,774,345) | 63,509,272 | ||
| Other Assets and Liabilities—Net (0.1%) | 85,938 | ||
| Net Assets (100%) | 63,595,210 | ||
| Cost is in $000. | |||
| • | See Note A in Notes to Financial Statements. |
| * | Non-income-producing security. |
| 1 | Considered an affiliated company of the fund as the fund owns more than 5% of the outstanding voting securities of such company. |
| 2 | Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $9,996,000. |
| 3 | Security exempt from registration under Rule 144A of the Securities Act of 1933. Such securities may be sold in transactions exempt from registration, normally to qualified institutional buyers. At March 31, 2023, the aggregate value was $48,801,000, representing 0.1% of net assets. |
| 4 | Affiliated money market fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown is the 7-day yield. |
| 5 | Collateral of $10,648,000 was received for securities on loan. |
| ADR—American Depositary Receipt. |
See accompanying
Notes, which are an integral part of the Financial Statements.
6
PRIMECAP Fund
Statement of Assets and Liabilities
As of March 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value1 | |
| Unaffiliated Issuers (Cost $23,826,545) | 58,369,752 |
| Affiliated Issuers (Cost $2,947,800) | 5,139,520 |
| Total Investments in Securities | 63,509,272 |
| Investment in Vanguard | 2,231 |
| Cash | 4,567 |
| Receivables for Investment Securities Sold | 71,043 |
| Receivables for Accrued Income | 70,418 |
| Receivables for Capital Shares Issued | 15,747 |
| Total Assets | 63,673,278 |
| Liabilities | |
| Foreign Currency Due to Custodian, at Value (Proceeds $0) | 51 |
| Payables for Investment Securities Purchased | 25,500 |
| Collateral for Securities on Loan | 10,648 |
| Payables to Investment Advisor | 28,653 |
| Payables for Capital Shares Redeemed | 9,566 |
| Payables to Vanguard | 3,650 |
| Total Liabilities | 78,068 |
| Net Assets | 63,595,210 |
| 1 Includes $9,996,000 of securities on loan. | |
| At March 31, 2023, net assets consisted of: | |
| Paid-in Capital | 24,824,208 |
| Total Distributable Earnings (Loss) | 38,771,002 |
| Net Assets | 63,595,210 |
| Investor Shares—Net Assets | |
| Applicable to 34,865,162 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 4,710,719 |
| Net Asset Value Per Share—Investor Shares | $135.11 |
| Admiral Shares—Net Assets | |
| Applicable to 420,688,666 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 58,884,491 |
| Net Asset Value Per Share—Admiral Shares | $139.97 |
See accompanying
Notes, which are an integral part of the Financial Statements.
7
PRIMECAP Fund
Statement of Operations
| Six Months Ended March 31, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Dividends—Unaffiliated Issuers1 | 495,991 |
| Dividends—Affiliated Issuers | 10,462 |
| Interest—Unaffiliated Issuers | — |
| Interest—Affiliated Issuers | 31,176 |
| Securities Lending—Net | 77 |
| Total Income | 537,706 |
| Expenses | |
| Investment Advisory Fees—Note B | 56,508 |
| The Vanguard Group—Note C | |
| Management and Administrative—Investor Shares | 4,384 |
| Management and Administrative—Admiral Shares | 34,771 |
| Marketing and Distribution—Investor Shares | 85 |
| Marketing and Distribution—Admiral Shares | 823 |
| Custodian Fees | 1,228 |
| Shareholders’ Reports—Investor Shares | 33 |
| Shareholders’ Reports—Admiral Shares | 95 |
| Trustees’ Fees and Expenses | 13 |
| Other Expenses | 6 |
| Total Expenses | 97,946 |
| Expenses Paid Indirectly | (2) |
| Net Expenses | 97,944 |
| Net Investment Income | 439,762 |
| Realized Net Gain (Loss) | |
| Capital Gains Distributions Received – Affiliated Issuers | 4 |
| Investment Securities Sold—Unaffiliated Issuers | 2,010,342 |
| Investment Securities Sold—Affiliated Issuers | 141 |
| Foreign Currencies | 4 |
| Realized Net Gain (Loss) | 2,010,491 |
| Change in Unrealized Appreciation (Depreciation) | |
| Investment Securities—Unaffiliated Issuers | 7,198,451 |
| Investment Securities—Affiliated Issuers | 75,994 |
| Foreign Currencies | 616 |
| Change in Unrealized Appreciation (Depreciation) | 7,275,061 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 9,725,314 |
| 1 | Dividends are net of foreign withholding taxes of $15,698,000. |
See accompanying
Notes, which are an integral part of the Financial Statements.
8
PRIMECAP Fund
Statement of Changes in Net Assets
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 439,762 | 694,417 | |
| Realized Net Gain (Loss) | 2,010,491 | 5,251,839 | |
| Change in Unrealized Appreciation (Depreciation) | 7,275,061 | (17,464,208) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 9,725,314 | (11,517,952) | |
| Distributions | |||
| Investor Shares | (408,795) | (553,707) | |
| Admiral Shares | (5,062,138) | (6,487,189) | |
| Total Distributions | (5,470,933) | (7,040,896) | |
| Capital Share Transactions | |||
| Investor Shares | 143,348 | (197,112) | |
| Admiral Shares | 3,356,514 | 659,600 | |
| Net Increase (Decrease) from Capital Share Transactions | 3,499,862 | 462,488 | |
| Total Increase (Decrease) | 7,754,243 | (18,096,360) | |
| Net Assets | |||
| Beginning of Period | 55,840,967 | 73,937,327 | |
| End of Period | 63,595,210 | 55,840,967 | |
See accompanying
Notes, which are an integral part of the Financial Statements.
9
PRIMECAP Fund
Financial Highlights
| Investor Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended March 31, 2023 | Year Ended September 30, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $126.26 | $168.72 | $142.86 | $133.12 | $147.61 | $126.84 |
| Investment Operations | ||||||
| Net Investment Income1 | .912 | 1.456 | 1.183 | 1.745 | 1.715 | 1.474 |
| Net Realized and Unrealized Gain (Loss) on Investments | 20.377 | (27.430) | 39.134 | 17.947 | (6.495) | 26.529 |
| Total from Investment Operations | 21.289 | (25.974) | 40.317 | 19.692 | (4.780) | 28.003 |
| Distributions | ||||||
| Dividends from Net Investment Income | (1.549) | (1.150) | (1.542) | (1.690) | (1.470) | (1.400) |
| Distributions from Realized Capital Gains | (10.890) | (15.336) | (12.915) | (8.262) | (8.240) | (5.833) |
| Total Distributions | (12.439) | (16.486) | (14.457) | (9.952) | (9.710) | (7.233) |
| Net Asset Value, End of Period | $135.11 | $126.26 | $168.72 | $142.86 | $133.12 | $147.61 |
| Total Return2 | 17.56% | -17.25% | 29.74% | 15.05% | -2.41% | 22.86% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $4,711 | $4,243 | $5,878 | $5,697 | $6,095 | $7,126 |
| Ratio of Total Expenses to Average Net Assets | 0.38%3 | 0.38%3 | 0.38% | 0.38% | 0.38% | 0.38% |
| Ratio of Net Investment Income to Average Net Assets | 1.36% | 0.95% | 0.73% | 1.31% | 1.32% | 1.08% |
| Portfolio Turnover Rate | 3% | 3% | 5% | 6% | 5% | 8% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.38%. |
See accompanying
Notes, which are an integral part of the Financial Statements.
10
PRIMECAP Fund
Financial Highlights
| Admiral Shares | ||||||
| For a Share Outstanding Throughout Each Period | Six Months Ended March 31, 2023 | Year Ended September 30, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $130.87 | $174.92 | $148.12 | $138.02 | $153.09 | $131.45 |
| Investment Operations | ||||||
| Net Investment Income1 | .997 | 1.621 | 1.345 | 1.920 | 1.880 | 1.622 |
| Net Realized and Unrealized Gain (Loss) on Investments | 21.110 | (28.426) | 40.564 | 18.600 | (6.756) | 27.508 |
| Total from Investment Operations | 22.107 | (26.805) | 41.909 | 20.520 | (4.876) | 29.130 |
| Distributions | ||||||
| Dividends from Net Investment Income | (1.718) | (1.343) | (1.716) | (1.853) | (1.647) | (1.444) |
| Distributions from Realized Capital Gains | (11.289) | (15.902) | (13.393) | (8.567) | (8.547) | (6.046) |
| Total Distributions | (13.007) | (17.245) | (15.109) | (10.420) | (10.194) | (7.490) |
| Net Asset Value, End of Period | $139.97 | $130.87 | $174.92 | $148.12 | $138.02 | $153.09 |
| Total Return2 | 17.60% | -17.19% | 29.83% | 15.13% | -2.34% | 22.95% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $58,884 | $51,598 | $68,059 | $58,626 | $57,177 | $62,361 |
| Ratio of Total Expenses to Average Net Assets | 0.31%3 | 0.31%3 | 0.31% | 0.31% | 0.31% | 0.31% |
| Ratio of Net Investment Income to Average Net Assets | 1.43% | 1.02% | 0.80% | 1.39% | 1.39% | 1.15% |
| Portfolio Turnover Rate | 3% | 3% | 5% | 6% | 5% | 8% |
| The expense ratio and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 3 | The ratio of expenses to average net assets for the period net of reduction from custody fee offset arrangements was 0.31%. |
See accompanying
Notes, which are an integral part of the Financial Statements.
11
PRIMECAP Fund
Notes to Financial Statements
Vanguard PRIMECAP Fund is
registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund offers two classes of shares: Investor Shares and Admiral Shares. Each of the share classes has different
eligibility and minimum purchase requirements, and is designed for different types of investors.
Significant market
disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia’s invasion of Ukraine), acts of terrorism, or other events, can adversely affect
local and global markets and normal market operations. Any such disruptions could have an adverse impact on the value of the fund’s investments and fund performance.
| A. | The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund consistently follows such policies in preparing its financial statements. |
1. Security Valuation:
Securities are valued as of the close of trading on the New York Stock Exchange (generally 4 p.m., Eastern time) on the valuation date. Equity securities are valued at the latest quoted sales prices or official
closing prices taken from the primary market in which each security trades; such securities not traded on the valuation date are valued at the mean of the latest quoted bid and asked prices. Securities for which
market quotations are not readily available, or whose values have been affected by events occurring before the fund’s pricing time but after the close of the securities’ primary markets, are valued by
methods deemed by the valuation designee to represent fair value and subject to oversight by the board of trustees. These procedures include obtaining quotations from an independent pricing service, monitoring
news to identify significant market- or security-specific events, and evaluating changes in the values of foreign market proxies (for example, ADRs, futures contracts, or exchange-traded funds), between the time the
foreign markets close and the fund’s pricing time. When fair-value pricing is employed, the prices of securities used by a fund to calculate its net asset value may differ from quoted or published prices for the
same securities. Investments in Vanguard Market Liquidity Fund are valued at that fund's net asset value.
2. Foreign Currency:
Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates obtained from an independent third party as of the fund’s pricing time on the
valuation date. Realized gains (losses) and unrealized appreciation (depreciation) on investment securities include the effects of changes in exchange rates since the securities were purchased, combined with the
effects of changes in security prices. Fluctuations in the value of other assets and liabilities resulting from changes in exchange rates are recorded as unrealized foreign currency gains (losses) until the assets or
liabilities are settled in cash, at which time they are recorded as realized foreign currency gains (losses).
3. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute virtually all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until
expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state
income tax years, and has concluded that no provision for income tax is required in the fund’s financial statements.
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial
reporting purposes.
12
PRIMECAP Fund
5. Securities Lending:
To earn additional income, the fund lends its securities to qualified institutional borrowers. Security loans are subject to termination by the fund at any time, and are required to be secured at all times by
collateral in an amount at least equal to the market value of securities loaned. Daily market fluctuations could cause the value of loaned securities to be more or less than the value of the collateral received. When
this occurs, the collateral is adjusted and settled before the opening of the market on the next business day. The fund further mitigates its counterparty risk by entering into securities lending transactions only
with a diverse group of prequalified counterparties, monitoring their financial strength, and entering into master securities lending agreements with its counterparties. The master securities lending agreements
provide that, in the event of a counterparty’s default (including bankruptcy), the fund may terminate any loans with that borrower, determine the net amount owed, and sell or retain the collateral up to the net
amount owed to the fund; however, such actions may be subject to legal proceedings. While collateral mitigates counterparty risk, in the event of a default, the fund may experience delays and costs in recovering the
securities loaned. The fund invests cash collateral received in Vanguard Market Liquidity Fund, and records a liability in the Statement of Assets and Liabilities for the return of the collateral, during the period
the securities are on loan. Collateral investments in Vanguard Market Liquidity Fund are subject to market appreciation or depreciation. Securities lending income represents fees charged to borrowers plus income
earned on invested cash collateral, less expenses associated with the loan. During the term of the loan, the fund is entitled to all distributions made on or in respect of the loaned securities.
6. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which are allocated to the funds based on a method approved by the fund’s board of trustees and included
in Management and Administrative expenses on the fund’s Statement of Operations. Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate,
the overnight bank funding rate, or the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest
based upon an alternate rate agreed to by the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March
31, 2023, the fund did not utilize the credit facilities or the Interfund Lending Program.
13
PRIMECAP Fund
7. Other: Dividend
income is recorded on the ex-dividend date. Non-cash dividends included in income, if any, are recorded at the fair value of the securities received. Interest income includes income distributions received from
Vanguard Market Liquidity Fund and is accrued daily. 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.
Taxes on foreign dividends and
capital gains have been provided for in accordance with the fund's understanding of the applicable countries' tax rules and rates. Deferred foreign capital gains tax, if any, is accrued daily based upon net unrealized
gains. The fund has filed tax reclaims for previously withheld taxes on dividends earned in certain European Union countries. These filings are subject to various administrative and judicial proceedings within
these countries. Amounts related to these reclaims are recorded when there are no significant uncertainties as to the ultimate resolution of proceedings, the likelihood of receipt of these reclaims, and the potential
timing of payment. Such tax reclaims and related professional fees, if any, are included in dividend income and other expenses, respectively.
Each class of shares has equal
rights as to assets and earnings, except that each class separately bears certain class-specific expenses related to maintenance of shareholder accounts (included in Management and Administrative expenses) and
shareholder reporting. Marketing and distribution expenses are allocated to each class of shares based on a method approved by the board of trustees. Income, other non-class-specific expenses, and gains and losses on
investments are allocated to each class of shares based on its relative net assets.
| B. | PRIMECAP Management Company provides investment advisory services to the fund for a fee calculated at an annual percentage rate of average net assets. For the six months ended March 31, 2023, the investment advisory fee represented an effective annual basic rate of 0.18% of the fund’s average net assets. |
| C. | In accordance with the terms of a Funds' Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund corporate management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines approved by the board of trustees and are generally settled twice a month. |
Upon the request of Vanguard,
the fund may invest up to 0.40% of its net assets as capital in Vanguard. At March 31, 2023, the fund had contributed to Vanguard capital in the amount of $2,231,000, representing less than 0.01% of the fund’s
net assets and 0.89% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
| D. | The fund’s custodian bank has agreed to reduce its fees when the fund maintains cash on deposit in the non-interest-bearing custody account. For the six months ended March 31, 2023, custodian fee offset arrangements reduced the fund’s expenses by $2,000 (an annual rate of less than 0.01% of average net assets). |
| E. | Various inputs may be used to determine the value of the fund’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.
14
PRIMECAP Fund
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 fund’s own assumptions used to determine the fair value of investments). Any investments valued with significant unobservable
inputs are noted on the Schedule of Investments.
The following table summarizes
the market value of the fund’s investments as of March 31, 2023, based on the inputs used to value them:
| Level 1 ($000) | Level 2 ($000) | Level 3 ($000) | Total ($000) | |
| Investments | ||||
| Assets | ||||
| Common Stocks | 59,022,956 | 2,748,472 | — | 61,771,428 |
| Temporary Cash Investments | 1,737,844 | — | — | 1,737,844 |
| Total | 60,760,800 | 2,748,472 | — | 63,509,272 |
| F. | As of March 31, 2023, gross unrealized appreciation and depreciation for investments based on cost for U.S. federal income tax purposes were as follows: |
| Amount ($000) | |
| Tax Cost | 26,781,351 |
| Gross Unrealized Appreciation | 38,847,614 |
| Gross Unrealized Depreciation | (2,119,693) |
| Net Unrealized Appreciation (Depreciation) | 36,727,921 |
| G. | During the six months ended March 31, 2023, the fund purchased $1,633,426,000 of investment securities and sold $3,398,591,000 of investment securities, other than temporary cash investments. |
| H. | Capital share transactions for each class of shares were: |
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Investor Shares | |||||
| Issued | 116,316 | 857 | 229,327 | 1,457 | |
| Issued in Lieu of Cash Distributions | 388,809 | 3,083 | 527,986 | 3,387 | |
| Redeemed | (361,777) | (2,681) | (954,425) | (6,080) | |
| Net Increase (Decrease)—Investor Shares | 143,348 | 1,259 | (197,112) | (1,236) | |
15
PRIMECAP Fund
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||||
| Amount ($000) | Shares (000) | Amount ($000) | Shares (000) | ||
| Admiral Shares | |||||
| Issued | 949,014 | 7,009 | 1,600,922 | 10,130 | |
| Issued in Lieu of Cash Distributions | 4,730,924 | 36,219 | 6,077,212 | 37,637 | |
| Redeemed | (2,323,424) | (16,802) | (7,018,534) | (42,598) | |
| Net Increase (Decrease)—Admiral Shares | 3,356,514 | 26,426 | 659,600 | 5,169 | |
| I. | Certain of the fund’s investments are in companies that are considered to be affiliated companies of the fund because the fund owns more than 5% of the outstanding voting securities of the company or the issuer is another member of The Vanguard Group. Transactions during the period in securities of these companies were as follows: |
| Current Period Transactions | ||||||||
| Sep. 30, 2022 Market Value ($000) | Purchases at Cost ($000) | Proceeds from Securities Sold ($000) | Realized Net Gain (Loss) ($000) | Change in Unrealized App. (Dep.) ($000) | Income ($000) | Capital Gain Distributions Received ($000) | Mar. 31, 2023 Market Value ($000) | |
| Biogen Inc. | 2,381,790 | 24,556 | 933 | 208 | 98,234 | — | — | 2,503,855 |
| Mattel Inc. | 517,760 | — | 674 | (83) | (14,358) | — | — | 502,645 |
| Vanguard Market Liquidity Fund | 1,696,764 | NA1 | NA1 | 143 | 202 | 31,176 | 4 | 1,737,844 |
| Whirlpool Corp. | 403,733 | 1,025 | 1,372 | (127) | (8,084) | 10,462 | — | 395,176 |
| Total | 5,000,047 | 25,581 | 2,979 | 141 | 75,994 | 41,638 | 4 | 5,139,520 |
| 1 | Not applicable—purchases and sales are for temporary cash investment purposes. |
| J. | Management has determined that no events or transactions occurred subsequent to March 31, 2023, that would require recognition or disclosure in these financial statements. |
16
Liquidity Risk Management
Vanguard funds (except for the
money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that
each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining
investors’ interests in the fund.
Assessment and management of a
fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably
foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding
sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and
limiting holdings of illiquid investments.
The board of trustees of
Vanguard Chester Funds approved the appointment of liquidity risk management program administrators responsible for administering Vanguard PRIMECAP Fund's Program and for carrying out the specific responsibilities set
forth in the Program, including reporting to the board on at least an annual basis regarding the Program’s operation, its adequacy, and the effectiveness of its implementation for the past year (the
“Program Administrator Report”). The board has reviewed the Program Administrator Report covering the period from January 1, 2022, through December 31, 2022 (the “Review Period”). The Program
Administrator Report stated that during the Review Period the Program operated and was implemented effectively to manage the fund’s liquidity risk.
17
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Connect with
Vanguard®>vanguard.com
Semiannual Report | March 31, 2023
Vanguard Target
Retirement Funds
| Vanguard Target Retirement Income Fund |
| Vanguard Target Retirement 2020 Fund |
| Vanguard Target Retirement 2025 Fund |
| Vanguard Target Retirement 2030 Fund |
| Vanguard Target Retirement 2035 Fund |
| Vanguard Target Retirement 2040 Fund |
About Your Fund’s Expenses
As a shareholder of the fund,
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 fund’s gross
income, directly reduce the investment return of the fund.
A fund’s expenses are
expressed as a percentage of its average net assets. The Target Retirement Funds have no direct expenses, but each fund bears its proportionate share of the costs for 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 fund 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 each Target Retirement Fund.
The accompanying table
illustrates your fund’s costs in two ways:
| • | Based on actual fund 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 fund’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 fund. 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 fund under the heading ”Expenses Paid During Period.“
| • | Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund 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 fund’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 fund’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. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account,
your costs would be higher. Your fund does not carry a “sales load.”
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 fund’s expenses in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current
prospectus.
1
| Six Months Ended March 31, 2023 | |||
| Beginning Account Value 9/30/2022 | Ending Account Value 3/31/2023 | Expenses Paid During Period | |
| Based on Actual Fund Return | |||
| Target Retirement Income Fund | $1,000.00 | $1,081.20 | $0.42 |
| Target Retirement 2020 Fund | $1,000.00 | $1,099.80 | $0.42 |
| Target Retirement 2025 Fund | $1,000.00 | $1,116.30 | $0.42 |
| Target Retirement 2030 Fund | $1,000.00 | $1,128.70 | $0.42 |
| Target Retirement 2035 Fund | $1,000.00 | $1,138.30 | $0.43 |
| Target Retirement 2040 Fund | $1,000.00 | $1,149.10 | $0.43 |
| Based on Hypothetical 5% Yearly Return | |||
| Target Retirement Income Fund | $1,000.00 | $1,024.53 | $0.40 |
| Target Retirement 2020 Fund | $1,000.00 | $1,024.53 | $0.40 |
| Target Retirement 2025 Fund | $1,000.00 | $1,024.53 | $0.40 |
| Target Retirement 2030 Fund | $1,000.00 | $1,024.53 | $0.40 |
| Target Retirement 2035 Fund | $1,000.00 | $1,024.53 | $0.40 |
| Target Retirement 2040 Fund | $1,000.00 | $1,024.53 | $0.40 |
The calculations are
based on acquired fund fees and expenses for the most recent six-month period. The underlying funds’ annualized expense figures for that period are (in order as listed from top to bottom above) 0.08%, 0.08%,
0.08%, 0.08%, 0.08%, and 0.08%. 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 (182/365).
2
Target Retirement Income Fund
Underlying Vanguard Funds
As of March 31, 2023
| Vanguard Total Bond Market II Index Fund Investor Shares | 37.0% |
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 17.6 |
| Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares | 16.8 |
| Vanguard Total International Bond II Index Fund Institutional Shares | 16.4 |
| Vanguard Total International Stock Index Fund Investor Shares | 12.2 |
The table reflects the fund’s
investments, except for short-term investments and derivatives.
3
Target Retirement Income Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2023
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
| Shares | Market Value• ($000) | |||||
| Investment Companies (98.7%) | ||||||
| U.S. Stock Fund (17.4%) | ||||||
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 34,656,534 | 6,459,631 | ||||
| International Stock Fund (12.0%) | ||||||
| Vanguard Total International Stock Index Fund Investor Shares | 252,051,681 | 4,468,876 | ||||
| U.S. Bond Funds (53.2%) | ||||||
| 1 | Vanguard Total Bond Market II Index Fund Investor Shares | 1,418,180,287 | 13,614,531 | |||
| Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares | 258,380,454 | 6,185,628 | ||||
| 19,800,159 | ||||||
| International Bond Fund (16.1%) | ||||||
| 1 | Vanguard Total International Bond II Index Fund Institutional Shares | 228,769,398 | 6,012,060 | |||
| Total Investment Companies (Cost $33,297,951) | 36,740,726 | |||||
| Temporary Cash Investments (1.3%) | ||||||
| Money Market Fund (1.3%) | ||||||
| 1 | Vanguard Market Liquidity Fund, 4.839% (Cost $469,974) | 4,701,485 | 470,102 | |||
| Total Investments (100.0%) (Cost $33,767,925) | 37,210,828 | |||||
| Other Assets and Liabilities—Net (0.0%) | (3,755) | |||||
| Net Assets (100%) | 37,207,073 | |||||
| Cost is in $000. |
| • | See Note A in Notes to Financial Statements. |
| 1 | Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market Liquidity Fund is the 7-day yield. |
4
Target Retirement Income Fund
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| 10-Year U.S. Treasury Note | June 2023 | 1,903 | 218,696 | 5,624 |
| E-mini S&P 500 Index | June 2023 | 1,299 | 268,747 | 15,758 |
| 21,382 | ||||
See accompanying
Notes, which are an integral part of the Financial Statements.
5
Target Retirement Income Fund
Statement of Assets and Liabilities
As of March 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value—Affiliated Funds (Cost $33,767,925) | 37,210,828 |
| Cash | 4 |
| Cash Collateral Pledged—Futures Contracts | 18,837 |
| Receivables for Investment Securities Sold | 22,440 |
| Receivables for Accrued Income | 47,020 |
| Receivables for Capital Shares Issued | 11,686 |
| Variation Margin Receivable—Futures Contracts | 4,405 |
| Total Assets | 37,315,220 |
| Liabilities | |
| Payables for Investment Securities Purchased | 47,028 |
| Payables for Capital Shares Redeemed | 61,119 |
| Total Liabilities | 108,147 |
| Net Assets | 37,207,073 |
| At March 31, 2023, net assets consisted of: | |
| Paid-in Capital | 33,607,211 |
| Total Distributable Earnings (Loss) | 3,599,862 |
| Net Assets | 37,207,073 |
| Net Assets | |
| Applicable to 2,926,251,251 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 37,207,073 |
| Net Asset Value Per Share | $12.71 |
See accompanying Notes, which are an
integral part of the Financial Statements.
6
Target Retirement Income Fund
Statement of Operations
| Six Months Ended March 31, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received from Affiliated Funds | 496,557 |
| Net Investment Income—Note B | 496,557 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received from Affiliated Funds | 1 |
| Affiliated Funds Sold1 | 120,742 |
| Futures Contracts | (30,129) |
| Realized Net Gain (Loss) | 90,614 |
| Change in Unrealized Appreciation (Depreciation) | |
| Affiliated Funds | 2,259,646 |
| Futures Contracts | 64,698 |
| Change in Unrealized Appreciation (Depreciation) | 2,324,344 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 2,911,515 |
| 1 | Includes $52,086,000 of net gain (loss) resulting from in-kind redemptions. |
See accompanying Notes, which are an
integral part of the Financial Statements.
7
Target Retirement Income Fund
Statement of Changes in Net Assets
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 496,557 | 682,240 | |
| Realized Net Gain (Loss) | 90,614 | 367,744 | |
| Change in Unrealized Appreciation (Depreciation) | 2,324,344 | (5,178,040) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 2,911,515 | (4,128,056) | |
| Distributions | |||
| Total Distributions | (750,225) | (1,512,703) | |
| Capital Share Transactions | |||
| Issued | 1,583,088 | 4,128,690 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement Income Fund—Note G | — | 8,507,454 | |
| Issued in Connection with Acquisition of Vanguard Target Retirement 2015 Fund—Note G | — | 17,151,053 | |
| Issued in Lieu of Cash Distributions | 725,501 | 1,422,170 | |
| Redeemed | (3,784,759) | (5,368,260) | |
| Net Increase (Decrease) from Capital Share Transactions | (1,476,170) | 25,841,107 | |
| Total Increase (Decrease) | 685,120 | 20,200,348 | |
| Net Assets | |||
| Beginning of Period | 36,521,953 | 16,321,605 | |
| End of Period | 37,207,073 | 36,521,953 | |
See accompanying Notes, which are an
integral part of the Financial Statements.
8
Target Retirement Income Fund
Financial Highlights
| For a Share Outstanding Throughout Each Period | Six Months Ended March 31, 2023 | Year Ended September 30, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $12.00 | $15.24 | $14.54 | $13.85 | $13.52 | $13.46 |
| Investment Operations | ||||||
| Net Investment Income1 | .167 | .380 | .278 | .308 | .341 | .334 |
| Capital Gain Distributions Received1 | .0002 | .017 | .056 | — | — | .001 |
| Net Realized and Unrealized Gain (Loss) on Investments | .797 | (2.381) | .887 | .696 | .533 | .107 |
| Total from Investment Operations | .964 | (1.984) | 1.221 | 1.004 | .874 | .442 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.208) | (.382) | (.256) | (.297) | (.352) | (.327) |
| Distributions from Realized Capital Gains | (.046) | (.874) | (.265) | (.017) | (.192) | (.055) |
| Total Distributions | (.254) | (1.256) | (.521) | (.314) | (.544) | (.382) |
| Net Asset Value, End of Period | $12.71 | $12.00 | $15.24 | $14.54 | $13.85 | $13.52 |
| Total Return3 | 8.12% | -14.19% | 8.48% | 7.35% | 6.75% | 3.31% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $37,207 | $36,522 | $16,322 | $17,576 | $16,984 | $16,613 |
| Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.08% | 0.09%4 | 0.12% | 0.12% | 0.12% | 0.12% |
| Ratio of Net Investment Income to Average Net Assets | 2.70% | 2.82% | 1.84% | 2.19% | 2.54% | 2.47% |
| Portfolio Turnover Rate | 2%5 | 19%5 | 6% | 17% | 10% | 6% |
| The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Distribution was less than $.001 per share. |
| 3 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 4 | The Acquired Fund Fees and Expenses (AFFE) of 0.09% reflects the blended amount of expenses for the year ended September 30, 2022. Before the acquisition of Vanguard Institutional Target Retirement Income Fund on February 11, 2022, the AFFE was 0.12% on an annualized basis. Following the acquisition, the AFFE was 0.08% on an annualized basis and remained 0.08% following the acquisition of Vanguard Target Retirement 2015 Fund on July 8, 2022. See Note G. |
| 5 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares. |
See accompanying
Notes, which are an integral part of the Financial Statements.
9
Target Retirement Income Fund
Notes to Financial Statements
Vanguard Target Retirement
Income Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds 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 are available at www.vanguard.com.
Significant market
disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia's invasion of Ukraine), acts of terrorism, or other events, can adversely affect local
and global markets and normal market operations. Any such disruptions could have an adverse impact on the value of the fund's investments and fund performance.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund 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. Futures Contracts:
The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use
of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk
involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors
the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s
performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any securities pledged as initial margin for open contracts are noted in the Schedule of
Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
March 31, 2023, the fund’s average investments in long and short futures contracts represented 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
3. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute virtually all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until
expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state
income tax years, and has concluded that no provision for income tax is required in the fund’s financial statements.
10
Target Retirement Income Fund
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial
reporting purposes.
5. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which 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 fund invests (see Note B). Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate, the overnight bank funding rate, or
the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based upon an alternate rate agreed to by
the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March
31, 2023, the fund did not utilize the credit facilities or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate
management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines
approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by
virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the six months ended March 31, 2023, were borne by
the underlying Vanguard funds in which the fund invests. The fund's trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees,
respectively, of Vanguard.
11
Target Retirement Income Fund
C. The fund’s SEC registrant (the Vanguard Chester Funds (the “Trust”)), certain officers and trustees of the Trust, and The Vanguard Group Inc. (collectively, the
“Defendants”) were named in putative class action lawsuits filed in 2022 by certain investors (the “Plaintiffs”) in the U.S. District Court for the Eastern District of Pennsylvania; these class
action lawsuits were later consolidated into one action. The Plaintiffs assert claims related to their allegations that the Defendants improperly decided to lower minimum investment limits in 2020 for the
Trust’s Institutional Target Retirement funds for certain smaller retirement plan participants, which purportedly harmed certain investors in taxable accounts. The Plaintiffs seek damages and various other forms
of relief. The Defendants do not agree with these allegations and claims and intend to vigorously defend against them.
D. Various inputs may be used to determine the value of the fund’s investments and derivatives. 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 fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
At March 31, 2023, 100% of the
market value of the fund's investments and derivatives was determined based on Level 1 inputs.
E. As of March 31, 2023, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
| Amount ($000) | |
| Tax Cost | 33,782,102 |
| Gross Unrealized Appreciation | 5,406,141 |
| Gross Unrealized Depreciation | (1,956,033) |
| Net Unrealized Appreciation (Depreciation) | 3,450,108 |
12
Target Retirement Income Fund
F. Capital shares issued and redeemed were:
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| Shares (000) | Shares (000) | ||
| Issued | 126,703 | 308,419 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement Income Fund—Note G | — | 610,729 | |
| Issued in Connection with Acquisition of Vanguard Target Retirement 2015 Fund—Note G | — | 1,349,414 | |
| Issued in Lieu of Cash Distributions | 59,166 | 102,470 | |
| Redeemed | (304,061) | (397,574) | |
| Net Increase (Decrease) in Shares Outstanding | (118,192) | 1,973,458 |
G. On February 11, 2022, the Vanguard Target Retirement Income Fund acquired all the net assets of Vanguard Institutional Target Retirement Income Fund (the “Institutional Target
Retirement Income Fund”) pursuant to a plan of reorganization approved by the funds' board of trustees in September 2021. The acquisition was accomplished by a tax-free exchange of 610,729,000 shares of Vanguard
Target Retirement Income Fund for the 358,209,000 shares of the Institutional Target Retirement Income Fund outstanding on February 11, 2022. The Institutional Target Retirement Income Fund's net assets of
$8,507,454,000, including $918,723,000 of unrealized appreciation, were combined with Vanguard Target Retirement Income Fund's net assets of $15,628,555,000, resulting in combined net assets of $24,136,009,000 on
February 11, 2022.
On July 8, 2022, the Vanguard
Target Retirement Income Fund acquired all the net assets of Vanguard Target Retirement 2015 Fund (the “Target Retirement 2015 Fund”) pursuant to a plan of reorganization approved by the funds' board of
trustees in December 2021. The acquisition was accomplished by a tax-free exchange of 1,349,414,000 shares of Vanguard Target Retirement Income Fund for the 1,369,892,000 shares of the Target Retirement 2015 Fund
outstanding on July 8, 2022. The Target Retirement 2015 Fund's net assets of $17,151,053,000, including $1,731,772,000 of unrealized appreciation, were combined with Vanguard Target Retirement Income Fund's net assets
of $22,160,053,000, resulting in combined net assets of $39,311,106,000 on July 8, 2022.
13
Target Retirement Income Fund
H. Transactions during the period in affiliated underlying Vanguard funds were as follows:
| Current Period Transactions | ||||||||
| Sep. 30, 2022 Market Value ($000) | Purchases at Cost ($000) | Proceeds from Securities Sold1 ($000) | Realized Net Gain (Loss) ($000) | Change in Unrealized App. (Dep.) ($000) | Income ($000) | Capital Gain Distributions Received ($000) | Mar. 31, 2023 Market Value ($000) | |
| Vanguard Market Liquidity Fund | 446,308 | NA2 | NA2 | 9 | 81 | 9,047 | 1 | 470,102 |
| Vanguard Short-Term Inflation-Protected Securities Index Fund | 6,232,081 | 180,625 | 294,614 | (10,084) | 77,620 | 145,476 | — | 6,185,628 |
| Vanguard Total Bond Market II Index Fund | 13,535,615 | 425,459 | 809,185 | (64,719) | 527,361 | 184,069 | — | 13,614,531 |
| Vanguard Total International Bond II Index Fund | 5,936,226 | 41,480 | 131,191 | (9,963) | 175,508 | 41,480 | — | 6,012,060 |
| Vanguard Total International Stock Index Fund | 4,191,103 | 75,574 | 639,044 | 2,136 | 839,107 | 61,238 | — | 4,468,876 |
| Vanguard Total Stock Market Index Fund | 6,173,767 | 91,428 | 648,896 | 203,363 | 639,969 | 55,247 | — | 6,459,631 |
| Total | 36,515,100 | 814,566 | 2,522,930 | 120,742 | 2,259,646 | 496,557 | 1 | 37,210,828 |
| 1 | Includes $304,640,000 of portfolio securities delivered as a result of in-kind redemptions of the fund’s capital shares. |
| 2 | Not applicable—purchases and sales are for temporary cash investment purposes. |
I. Management has determined that no events or transactions occurred subsequent to March 31, 2023, that would require recognition or disclosure in these financial statements.
14
Target Retirement 2020 Fund
Underlying Vanguard Funds
As of March 31, 2023
| Vanguard Total Bond Market II Index Fund Investor Shares | 32.1% |
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 25.5 |
| Vanguard Total International Stock Index Fund Investor Shares | 17.2 |
| Vanguard Total International Bond II Index Fund Institutional Shares | 14.2 |
| Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares | 11.0 |
The table reflects the fund’s
investments, except for short-term investments and derivatives.
15
Target Retirement 2020 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2023
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
| Shares | Market Value• ($000) | |||||
| Investment Companies (98.9%) | ||||||
| U.S. Stock Fund (25.1%) | ||||||
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 54,914,073 | 10,235,434 | ||||
| International Stock Fund (17.0%) | ||||||
| Vanguard Total International Stock Index Fund Investor Shares | 390,866,734 | 6,930,067 | ||||
| U.S. Bond Funds (42.7%) | ||||||
| 1 | Vanguard Total Bond Market II Index Fund Investor Shares | 1,346,165,021 | 12,923,184 | |||
| Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares | 185,241,631 | 4,434,685 | ||||
| 17,357,869 | ||||||
| International Bond Fund (14.1%) | ||||||
| 1 | Vanguard Total International Bond II Index Fund Institutional Shares | 217,894,344 | 5,726,263 | |||
| Total Investment Companies (Cost $34,567,741) | 40,249,633 | |||||
| Temporary Cash Investments (1.1%) | ||||||
| Money Market Fund (1.1%) | ||||||
| 1 | Vanguard Market Liquidity Fund, 4.839% (Cost $421,908) | 4,220,533 | 422,011 | |||
| Total Investments (100.0%) (Cost $34,989,649) | 40,671,644 | |||||
| Other Assets and Liabilities—Net (0.0%) | 11,857 | |||||
| Net Assets (100%) | 40,683,501 | |||||
| Cost is in $000. |
| • | See Note A in Notes to Financial Statements. |
| 1 | Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market Liquidity Fund is the 7-day yield. |
16
Target Retirement 2020 Fund
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| 10-Year U.S. Treasury Note | June 2023 | 1,969 | 226,281 | 5,689 |
| E-mini S&P 500 Index | June 2023 | 992 | 205,233 | 12,034 |
| 17,723 | ||||
See accompanying
Notes, which are an integral part of the Financial Statements.
17
Target Retirement 2020 Fund
Statement of Assets and Liabilities
As of March 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value—Affiliated Funds (Cost $34,989,649) | 40,671,644 |
| Cash | 25 |
| Cash Collateral Pledged—Futures Contracts | 15,550 |
| Receivables for Investment Securities Sold | 16,174 |
| Receivables for Accrued Income | 43,801 |
| Receivables for Capital Shares Issued | 20,096 |
| Variation Margin Receivable—Futures Contracts | 3,541 |
| Total Assets | 40,770,831 |
| Liabilities | |
| Payables for Investment Securities Purchased | 43,807 |
| Payables for Capital Shares Redeemed | 43,523 |
| Total Liabilities | 87,330 |
| Net Assets | 40,683,501 |
| At March 31, 2023, net assets consisted of: | |
| Paid-in Capital | 34,350,527 |
| Total Distributable Earnings (Loss) | 6,332,974 |
| Net Assets | 40,683,501 |
| Net Assets | |
| Applicable to 1,531,107,296 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 40,683,501 |
| Net Asset Value Per Share | $26.57 |
See accompanying Notes, which are an
integral part of the Financial Statements.
18
Target Retirement 2020 Fund
Statement of Operations
| Six Months Ended March 31, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received from Affiliated Funds | 515,045 |
| Net Investment Income—Note B | 515,045 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received from Affiliated Funds | 1 |
| Affiliated Funds Sold1 | 537,703 |
| Futures Contracts | (32,928) |
| Realized Net Gain (Loss) | 504,776 |
| Change in Unrealized Appreciation (Depreciation) | |
| Affiliated Funds | 2,774,003 |
| Futures Contracts | 64,097 |
| Change in Unrealized Appreciation (Depreciation) | 2,838,100 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 3,857,921 |
| 1 | Includes $159,357,000 of net gain (loss) resulting from in-kind redemptions. |
See accompanying Notes, which are an
integral part of the Financial Statements.
19
Target Retirement 2020 Fund
Statement of Changes in Net Assets
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 515,045 | 947,441 | |
| Realized Net Gain (Loss) | 504,776 | 1,480,701 | |
| Change in Unrealized Appreciation (Depreciation) | 2,838,100 | (9,865,534) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 3,857,921 | (7,437,392) | |
| Distributions | |||
| Total Distributions | (1,915,242) | (4,080,032) | |
| Capital Share Transactions | |||
| Issued | 1,523,495 | 3,925,733 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement 2020 Fund—Note G | — | 27,887,495 | |
| Issued in Lieu of Cash Distributions | 1,876,939 | 3,912,325 | |
| Redeemed | (4,494,386) | (9,745,997) | |
| Net Increase (Decrease) from Capital Share Transactions | (1,093,952) | 25,979,556 | |
| Total Increase (Decrease) | 848,727 | 14,462,132 | |
| Net Assets | |||
| Beginning of Period | 39,834,774 | 25,372,642 | |
| End of Period | 40,683,501 | 39,834,774 | |
See accompanying Notes, which are an
integral part of the Financial Statements.
20
Target Retirement 2020 Fund
Financial Highlights
| For a Share Outstanding Throughout Each Period | Six Months Ended March 31, 2023 | Year Ended September 30, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $25.37 | $36.04 | $33.79 | $32.24 | $32.14 | $31.19 |
| Investment Operations | ||||||
| Net Investment Income1 | .333 | .725 | .613 | .713 | .778 | .729 |
| Capital Gain Distributions Received1 | .0002 | .033 | .110 | — | — | .002 |
| Net Realized and Unrealized Gain (Loss) on Investments | 2.131 | (5.358) | 3.680 | 1.987 | .736 | 1.079 |
| Total from Investment Operations | 2.464 | (4.600) | 4.403 | 2.700 | 1.514 | 1.810 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.654) | (.789) | (.554) | (.789) | (.745) | (.631) |
| Distributions from Realized Capital Gains | (.610) | (5.281) | (1.599) | (.361) | (.669) | (.229) |
| Total Distributions | (1.264) | (6.070) | (2.153) | (1.150) | (1.414) | (.860) |
| Net Asset Value, End of Period | $26.57 | $25.37 | $36.04 | $33.79 | $32.24 | $32.14 |
| Total Return3 | 9.98% | -15.83% | 13.37% | 8.51% | 5.29% | 5.87% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $40,684 | $39,835 | $25,373 | $31,887 | $32,790 | $33,114 |
| Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.08% | 0.09%4 | 0.13% | 0.13% | 0.13% | 0.13% |
| Ratio of Net Investment Income to Average Net Assets | 2.54% | 2.48% | 1.73% | 2.21% | 2.51% | 2.30% |
| Portfolio Turnover Rate | 2%5 | 14%5 | 5% | 19% | 13% | 10% |
| The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Distribution was less than $.001 per share. |
| 3 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 4 | The Acquired Fund Fees and Expenses (AFFE) of 0.09% reflects the blended amount of expenses for the year ended September 30, 2022. Before the acquisition of Vanguard Institutional Target Retirement 2020 Fund on February 11, 2022, the AFFE was 0.13% on an annualized basis. Following the acquisition, the AFFE was 0.08% on an annualized basis. See Note G. |
| 5 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares. |
See accompanying
Notes, which are an integral part of the Financial Statements.
21
Target Retirement 2020 Fund
Notes to Financial Statements
Vanguard Target Retirement
2020 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds 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 are available at www.vanguard.com.
Significant market
disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia's invasion of Ukraine), acts of terrorism, or other events, can adversely affect local
and global markets and normal market operations. Any such disruptions could have an adverse impact on the value of the fund's investments and fund performance.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund 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. Futures Contracts:
The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use
of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk
involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors
the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s
performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any securities pledged as initial margin for open contracts are noted in the Schedule of
Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
March 31, 2023, the fund’s average investments in long and short futures contracts represented 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
3. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute virtually all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until
expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state
income tax years, and has concluded that no provision for income tax is required in the fund’s financial statements.
22
Target Retirement 2020 Fund
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial
reporting purposes.
5. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which 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 fund invests (see Note B). Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate, the overnight bank funding rate, or
the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based upon an alternate rate agreed to by
the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March
31, 2023, the fund did not utilize the credit facilities or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate
management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines
approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by
virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the six months ended March 31, 2023, were borne by
the underlying Vanguard funds in which the fund invests. The fund's trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees,
respectively, of Vanguard.
23
Target Retirement 2020 Fund
C. The fund’s SEC registrant (the Vanguard Chester Funds (the “Trust”)), certain officers and trustees of the Trust, and The Vanguard Group Inc. (collectively, the
“Defendants”) were named in putative class action lawsuits filed in 2022 by certain investors (the “Plaintiffs”) in the U.S. District Court for the Eastern District of Pennsylvania; these class
action lawsuits were later consolidated into one action. The Plaintiffs assert claims related to their allegations that the Defendants improperly decided to lower minimum investment limits in 2020 for the
Trust’s Institutional Target Retirement funds for certain smaller retirement plan participants, which purportedly harmed certain investors in taxable accounts. The Plaintiffs seek damages and various other forms
of relief. The Defendants do not agree with these allegations and claims and intend to vigorously defend against them.
D. Various inputs may be used to determine the value of the fund’s investments and derivatives. 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 fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
At March 31, 2023, 100% of the
market value of the fund's investments and derivatives was determined based on Level 1 inputs.
E. As of March 31, 2023, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
| Amount ($000) | |
| Tax Cost | 35,010,297 |
| Gross Unrealized Appreciation | 7,840,449 |
| Gross Unrealized Depreciation | (2,161,379) |
| Net Unrealized Appreciation (Depreciation) | 5,679,070 |
F. Capital shares issued and redeemed were:
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| Shares (000) | Shares (000) | ||
| Issued | 57,893 | 132,504 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement 2020 Fund—Note G | — | 937,710 | |
| Issued in Lieu of Cash Distributions | 74,364 | 126,123 | |
| Redeemed | (171,570) | (329,983) | |
| Net Increase (Decrease) in Shares Outstanding | (39,313) | 866,354 |
24
Target Retirement 2020 Fund
G. On February 11, 2022, the Vanguard Target Retirement 2020 Fund acquired all the net assets of Vanguard Institutional Target Retirement 2020 Fund (the “Acquired Fund”)
pursuant to a plan of reorganization approved by the funds' board of trustees in September 2021. The acquisition was accomplished by a tax-free exchange of 937,710,000 shares of Vanguard Target Retirement 2020 Fund
for the 1,085,539,000 shares of the Acquired Fund outstanding on February 11, 2022. The Acquired Fund's net assets of $27,887,495,000, including $4,980,181,000 of unrealized appreciation, were combined with Vanguard
Target Retirement 2020 Fund's net assets of $23,510,659,000, resulting in combined net assets of $51,398,154,000 on February 11, 2022.
H. Transactions during the period in affiliated underlying Vanguard funds were as follows:
| Current Period Transactions | ||||||||
| Sep. 30, 2022 Market Value ($000) | Purchases at Cost ($000) | Proceeds from Securities Sold1 ($000) | Realized Net Gain (Loss) ($000) | Change in Unrealized App. (Dep.) ($000) | Income ($000) | Capital Gain Distributions Received ($000) | Mar. 31, 2023 Market Value ($000) | |
| Vanguard Market Liquidity Fund | 500,087 | NA2 | NA2 | 9 | 86 | 8,881 | 1 | 422,011 |
| Vanguard Short-Term Inflation-Protected Securities Index Fund | 4,373,617 | 189,585 | 175,638 | (6,831) | 53,952 | 103,970 | — | 4,434,685 |
| Vanguard Total Bond Market II Index Fund | 12,595,113 | 397,915 | 506,438 | (15,480) | 452,074 | 176,676 | — | 12,923,184 |
| Vanguard Total International Bond II Index Fund | 5,745,903 | 39,433 | 217,622 | (27,145) | 185,694 | 39,434 | — | 5,726,263 |
| Vanguard Total International Stock Index Fund | 6,729,370 | 97,556 | 1,226,726 | 87,924 | 1,241,943 | 97,558 | — | 6,930,067 |
| Vanguard Total Stock Market Index Fund | 9,880,354 | 88,527 | 1,072,927 | 499,226 | 840,254 | 88,526 | — | 10,235,434 |
| Total | 39,824,444 | 813,016 | 3,199,351 | 537,703 | 2,774,003 | 515,045 | 1 | 40,671,644 |
| 1 | Includes $708,970,000 of portfolio securities delivered as a result of in-kind redemptions of the fund’s capital shares. |
| 2 | Not applicable—purchases and sales are for temporary cash investment purposes. |
I. Management has determined that no events or transactions occurred subsequent to March 31, 2023, that would require recognition or disclosure in these financial statements.
25
Target Retirement 2025 Fund
Underlying Vanguard Funds
As of March 31, 2023
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 33.2% |
| Vanguard Total Bond Market II Index Fund Investor Shares | 28.2 |
| Vanguard Total International Stock Index Fund Investor Shares | 22.4 |
| Vanguard Total International Bond II Index Fund Institutional Shares | 12.2 |
| Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares | 4.0 |
The table reflects the fund’s
investments, except for short-term investments and derivatives.
26
Target Retirement 2025 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2023
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
| Shares | Market Value• ($000) | |||||
| Investment Companies (99.0%) | ||||||
| U.S. Stock Fund (32.8%) | ||||||
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 130,984,543 | 24,414,209 | ||||
| International Stock Fund (22.2%) | ||||||
| Vanguard Total International Stock Index Fund Investor Shares | 929,910,769 | 16,487,318 | ||||
| U.S. Bond Funds (31.9%) | ||||||
| 1 | Vanguard Total Bond Market II Index Fund Investor Shares | 2,165,761,541 | 20,791,311 | |||
| Vanguard Short-Term Inflation-Protected Securities Index Fund Admiral Shares | 122,762,157 | 2,938,926 | ||||
| 23,730,237 | ||||||
| International Bond Fund (12.1%) | ||||||
| 1 | Vanguard Total International Bond II Index Fund Institutional Shares | 342,932,241 | 9,012,259 | |||
| Total Investment Companies (Cost $60,541,381) | 73,644,023 | |||||
| Temporary Cash Investments (1.0%) | ||||||
| Money Market Fund (1.0%) | ||||||
| 1 | Vanguard Market Liquidity Fund, 4.839% (Cost $728,496) | 7,287,149 | 728,642 | |||
| Total Investments (100.0%) (Cost $61,269,877) | 74,372,665 | |||||
| Other Assets and Liabilities—Net (0.0%) | 22,086 | |||||
| Net Assets (100%) | 74,394,751 | |||||
| Cost is in $000. |
| • | See Note A in Notes to Financial Statements. |
| 1 | Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market Liquidity Fund is the 7-day yield. |
27
Target Retirement 2025 Fund
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| 10-Year U.S. Treasury Note | June 2023 | 4,401 | 505,771 | 13,064 |
| E-mini S&P 500 Index | June 2023 | 1,098 | 227,163 | 12,978 |
| 26,042 | ||||
See accompanying
Notes, which are an integral part of the Financial Statements.
28
Target Retirement 2025 Fund
Statement of Assets and Liabilities
As of March 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value—Affiliated Funds (Cost $61,269,877) | 74,372,665 |
| Cash | 5 |
| Cash Collateral Pledged—Futures Contracts | 22,205 |
| Receivables for Investment Securities Sold | 47,332 |
| Receivables for Accrued Income | 67,801 |
| Receivables for Capital Shares Issued | 59,558 |
| Variation Margin Receivable—Futures Contracts | 4,683 |
| Total Assets | 74,574,249 |
| Liabilities | |
| Payables for Investment Securities Purchased | 67,803 |
| Payables for Capital Shares Redeemed | 111,695 |
| Total Liabilities | 179,498 |
| Net Assets | 74,394,751 |
| At March 31, 2023, net assets consisted of: | |
| Paid-in Capital | 60,747,048 |
| Total Distributable Earnings (Loss) | 13,647,703 |
| Net Assets | 74,394,751 |
| Net Assets | |
| Applicable to 4,235,997,860 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 74,394,751 |
| Net Asset Value Per Share | $17.56 |
See accompanying Notes, which are an
integral part of the Financial Statements.
29
Target Retirement 2025 Fund
Statement of Operations
| Six Months Ended March 31, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received from Affiliated Funds | 849,654 |
| Net Investment Income—Note B | 849,654 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received from Affiliated Funds | 3 |
| Affiliated Funds Sold1 | 301,627 |
| Futures Contracts | (53,516) |
| Realized Net Gain (Loss) | 248,114 |
| Change in Unrealized Appreciation (Depreciation) | |
| Affiliated Funds | 6,737,669 |
| Futures Contracts | 106,689 |
| Change in Unrealized Appreciation (Depreciation) | 6,844,358 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 7,942,126 |
| 1 | Includes $402,345,000 of net gain (loss) resulting from in-kind redemptions. |
See accompanying Notes, which are an
integral part of the Financial Statements.
30
Target Retirement 2025 Fund
Statement of Changes in Net Assets
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 849,654 | 1,430,621 | |
| Realized Net Gain (Loss) | 248,114 | 1,472,838 | |
| Change in Unrealized Appreciation (Depreciation) | 6,844,358 | (17,396,559) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 7,942,126 | (14,493,100) | |
| Distributions | |||
| Total Distributions | (2,068,532) | (5,793,135) | |
| Capital Share Transactions | |||
| Issued | 3,501,817 | 7,986,116 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement 2025 Fund—Note G | — | 47,651,059 | |
| Issued in Lieu of Cash Distributions | 2,031,055 | 5,596,269 | |
| Redeemed | (6,398,114) | (12,829,147) | |
| Net Increase (Decrease) from Capital Share Transactions | (865,242) | 48,404,297 | |
| Total Increase (Decrease) | 5,008,352 | 28,118,062 | |
| Net Assets | |||
| Beginning of Period | 69,386,399 | 41,268,337 | |
| End of Period | 74,394,751 | 69,386,399 | |
See accompanying Notes, which are an
integral part of the Financial Statements.
31
Target Retirement 2025 Fund
Financial Highlights
| For a Share Outstanding Throughout Each Period | Six Months Ended March 31, 2023 | Year Ended September 30, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $16.20 | $22.84 | $20.56 | $19.34 | $19.02 | $18.25 |
| Investment Operations | ||||||
| Net Investment Income1 | .200 | .413 | .362 | .438 | .464 | .419 |
| Capital Gain Distributions Received1 | .0002 | .019 | .063 | — | — | .001 |
| Net Realized and Unrealized Gain (Loss) on Investments | 1.654 | (3.761) | 2.792 | 1.292 | .390 | .807 |
| Total from Investment Operations | 1.854 | (3.329) | 3.217 | 1.730 | .854 | 1.227 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.368) | (.440) | (.356) | (.471) | (.434) | (.369) |
| Distributions from Realized Capital Gains | (.126) | (2.871) | (.581) | (.039) | (.100) | (.088) |
| Total Distributions | (.494) | (3.311) | (.937) | (.510) | (.534) | (.457) |
| Net Asset Value, End of Period | $17.56 | $16.20 | $22.84 | $20.56 | $19.34 | $19.02 |
| Total Return3 | 11.63% | -17.53% | 15.93% | 9.04% | 4.89% | 6.79% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $74,395 | $69,386 | $41,268 | $46,521 | $44,146 | $41,860 |
| Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.08% | 0.09%4 | 0.13% | 0.13% | 0.13% | 0.13% |
| Ratio of Net Investment Income to Average Net Assets | 2.35% | 2.19% | 1.63% | 2.25% | 2.51% | 2.24% |
| Portfolio Turnover Rate | 3%5 | 14%5 | 7% | 21% | 11% | 8% |
| The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Distribution was less than $.001 per share. |
| 3 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 4 | The Acquired Fund Fees and Expenses (AFFE) of 0.09% reflects the blended amount of expenses for the year ended September 30, 2022. Before the acquisition of Vanguard Institutional Target Retirement 2025 Fund on February 11, 2022, the AFFE was 0.13% on an annualized basis. Following the acquisition, the AFFE was 0.08% on an annualized basis. See Note G. |
| 5 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares. |
See accompanying
Notes, which are an integral part of the Financial Statements.
32
Target Retirement 2025 Fund
Notes to Financial Statements
Vanguard Target Retirement
2025 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds 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 are available at www.vanguard.com.
Significant market
disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia's invasion of Ukraine), acts of terrorism, or other events, can adversely affect local
and global markets and normal market operations. Any such disruptions could have an adverse impact on the value of the fund's investments and fund performance.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund 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. Futures Contracts:
The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use
of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk
involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors
the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s
performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any securities pledged as initial margin for open contracts are noted in the Schedule of
Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
March 31, 2023, the fund’s average investments in long and short futures contracts represented 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
3. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute virtually all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until
expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state
income tax years, and has concluded that no provision for income tax is required in the fund’s financial statements.
33
Target Retirement 2025 Fund
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial
reporting purposes.
5. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which 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 fund invests (see Note B). Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate, the overnight bank funding rate, or
the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based upon an alternate rate agreed to by
the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March
31, 2023, the fund did not utilize the credit facilities or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate
management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines
approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by
virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the six months ended March 31, 2023, were borne by
the underlying Vanguard funds in which the fund invests. The fund's trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees,
respectively, of Vanguard.
34
Target Retirement 2025 Fund
C. The fund’s SEC registrant (the Vanguard Chester Funds (the “Trust”)), certain officers and trustees of the Trust, and The Vanguard Group Inc. (collectively, the
“Defendants”) were named in putative class action lawsuits filed in 2022 by certain investors (the “Plaintiffs”) in the U.S. District Court for the Eastern District of Pennsylvania; these class
action lawsuits were later consolidated into one action. The Plaintiffs assert claims related to their allegations that the Defendants improperly decided to lower minimum investment limits in 2020 for the
Trust’s Institutional Target Retirement funds for certain smaller retirement plan participants, which purportedly harmed certain investors in taxable accounts. The Plaintiffs seek damages and various other forms
of relief. The Defendants do not agree with these allegations and claims and intend to vigorously defend against them.
D. Various inputs may be used to determine the value of the fund’s investments and derivatives. 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 fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
At March 31, 2023, 100% of the
market value of the fund's investments and derivatives was determined based on Level 1 inputs.
E. As of March 31, 2023, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
| Amount ($000) | |
| Tax Cost | 61,351,330 |
| Gross Unrealized Appreciation | 16,721,405 |
| Gross Unrealized Depreciation | (3,674,028) |
| Net Unrealized Appreciation (Depreciation) | 13,047,377 |
F. Capital shares issued and redeemed were:
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| Shares (000) | Shares (000) | ||
| Issued | 204,310 | 417,232 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement 2025 Fund—Note G | — | 2,456,240 | |
| Issued in Lieu of Cash Distributions | 122,574 | 275,136 | |
| Redeemed | (375,001) | (671,433) | |
| Net Increase (Decrease) in Shares Outstanding | (48,117) | 2,477,175 |
35
Target Retirement 2025 Fund
G. On February 11, 2022, the Vanguard Target Retirement 2025 Fund acquired all the net assets of Vanguard Institutional Target Retirement 2025 Fund (the “Acquired Fund”)
pursuant to a plan of reorganization approved by the funds' board of trustees in September 2021. The acquisition was accomplished by a tax-free exchange of 2,456,240,000 shares of Vanguard Target Retirement 2025 Fund
for the 1,719,634,000 shares of the Acquired Fund outstanding on February 11, 2022. The Acquired Fund's net assets of $47,651,059,000, including $9,248,285,000 of unrealized appreciation, were combined with Vanguard
Target Retirement 2025 Fund's net assets of $39,508,070,000, resulting in combined net assets of $87,159,129,000 on February 11, 2022.
H. Transactions during the period in affiliated underlying Vanguard funds were as follows:
| Current Period Transactions | ||||||||
| Sep. 30, 2022 Market Value ($000) | Purchases at Cost ($000) | Proceeds from Securities Sold1 ($000) | Realized Net Gain (Loss) ($000) | Change in Unrealized App. (Dep.) ($000) | Income ($000) | Capital Gain Distributions Received ($000) | Mar. 31, 2023 Market Value ($000) | |
| Vanguard Market Liquidity Fund | 861,189 | NA2 | NA2 | 3 | 172 | 16,286 | 3 | 728,642 |
| Vanguard Short-Term Inflation-Protected Securities Index Fund | 2,333,592 | 634,405 | 60,151 | (136) | 31,216 | 59,926 | — | 2,938,926 |
| Vanguard Total Bond Market II Index Fund | 19,950,264 | 774,853 | 621,789 | (11,225) | 699,208 | 280,163 | — | 20,791,311 |
| Vanguard Total International Bond II Index Fund | 8,964,226 | 77,036 | 278,278 | (30,265) | 279,540 | 62,035 | — | 9,012,259 |
| Vanguard Total International Stock Index Fund | 14,785,436 | 237,249 | 1,545,172 | (129,378) | 3,139,183 | 225,092 | — | 16,487,318 |
| Vanguard Total Stock Market Index Fund | 22,470,930 | 206,153 | 1,323,852 | 472,628 | 2,588,350 | 206,152 | — | 24,414,209 |
| Total | 69,365,637 | 1,929,696 | 3,829,242 | 301,627 | 6,737,669 | 849,654 | 3 | 74,372,665 |
| 1 | Includes $1,376,870,000 of portfolio securities delivered as a result of in-kind redemptions of the fund’s capital shares. |
| 2 | Not applicable—purchases and sales are for temporary cash investment purposes. |
I. Management has determined that no events or transactions occurred subsequent to March 31, 2023, that would require recognition or disclosure in these financial statements.
36
Target Retirement 2030 Fund
Underlying Vanguard Funds
As of March 31, 2023
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 38.1% |
| Vanguard Total International Stock Index Fund Investor Shares | 26.1 |
| Vanguard Total Bond Market II Index Fund Investor Shares | 24.9 |
| Vanguard Total International Bond II Index Fund Institutional Shares | 10.9 |
The table reflects the fund’s
investments, except for short-term investments and derivatives.
37
Target Retirement 2030 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2023
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
| Shares | Market Value• ($000) | |||||
| Investment Companies (99.0%) | ||||||
| U.S. Stock Fund (37.8%) | ||||||
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 163,550,520 | 30,484,182 | ||||
| International Stock Fund (25.9%) | ||||||
| Vanguard Total International Stock Index Fund Investor Shares | 1,177,961,538 | 20,885,258 | ||||
| U.S. Bond Fund (24.6%) | ||||||
| 1 | Vanguard Total Bond Market II Index Fund Investor Shares | 2,070,474,811 | 19,876,558 | |||
| International Bond Fund (10.7%) | ||||||
| 1 | Vanguard Total International Bond II Index Fund Institutional Shares | 330,028,514 | 8,673,149 | |||
| Total Investment Companies (Cost $66,476,062) | 79,919,147 | |||||
| Temporary Cash Investments (1.0%) | ||||||
| Money Market Fund (1.0%) | ||||||
| 1 | Vanguard Market Liquidity Fund, 4.839% (Cost $828,765) | 8,290,016 | 828,919 | |||
| Total Investments (100.0%) (Cost $67,304,827) | 80,748,066 | |||||
| Other Assets and Liabilities—Net (0.0%) | 25,228 | |||||
| Net Assets (100%) | 80,773,294 | |||||
| Cost is in $000. |
| • | See Note A in Notes to Financial Statements. |
| 1 | Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market Liquidity Fund is the 7-day yield. |
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| 10-Year U.S. Treasury Note | June 2023 | 3,745 | 430,383 | 13,278 |
| E-mini S&P 500 Index | June 2023 | 1,980 | 409,637 | 22,654 |
| 35,932 | ||||
See accompanying
Notes, which are an integral part of the Financial Statements.
38
Target Retirement 2030 Fund
Statement of Assets and Liabilities
As of March 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value—Affiliated Funds (Cost $67,304,827) | 80,748,066 |
| Cash | 5 |
| Cash Collateral Pledged—Futures Contracts | 30,605 |
| Receivables for Investment Securities Sold | 24,727 |
| Receivables for Accrued Income | 63,627 |
| Receivables for Capital Shares Issued | 89,097 |
| Variation Margin Receivable—Futures Contracts | 7,005 |
| Total Assets | 80,963,132 |
| Liabilities | |
| Payables for Investment Securities Purchased | 83,655 |
| Payables for Capital Shares Redeemed | 106,183 |
| Total Liabilities | 189,838 |
| Net Assets | 80,773,294 |
| At March 31, 2023, net assets consisted of: | |
| Paid-in Capital | 66,607,422 |
| Total Distributable Earnings (Loss) | 14,165,872 |
| Net Assets | 80,773,294 |
| Net Assets | |
| Applicable to 2,436,856,852 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 80,773,294 |
| Net Asset Value Per Share | $33.15 |
See accompanying Notes, which are an
integral part of the Financial Statements.
39
Target Retirement 2030 Fund
Statement of Operations
| Six Months Ended March 31, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received from Affiliated Funds | 868,040 |
| Net Investment Income—Note B | 868,040 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received from Affiliated Funds | 3 |
| Affiliated Funds Sold1 | 436,014 |
| Futures Contracts | (65,455) |
| Realized Net Gain (Loss) | 370,562 |
| Change in Unrealized Appreciation (Depreciation) | |
| Affiliated Funds | 7,834,232 |
| Futures Contracts | 125,975 |
| Change in Unrealized Appreciation (Depreciation) | 7,960,207 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 9,198,809 |
| 1 | Includes $543,653,000 of net gain (loss) resulting from in-kind redemptions. |
See accompanying Notes, which are an
integral part of the Financial Statements.
40
Target Retirement 2030 Fund
Statement of Changes in Net Assets
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 868,040 | 1,349,350 | |
| Realized Net Gain (Loss) | 370,562 | 1,416,136 | |
| Change in Unrealized Appreciation (Depreciation) | 7,960,207 | (18,554,899) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 9,198,809 | (15,789,413) | |
| Distributions | |||
| Total Distributions | (1,883,769) | (5,575,104) | |
| Capital Share Transactions | |||
| Issued | 5,081,942 | 10,016,570 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement 2030 Fund—Note G | — | 51,947,425 | |
| Issued in Lieu of Cash Distributions | 1,854,906 | 5,417,389 | |
| Redeemed | (5,594,141) | (10,847,444) | |
| Net Increase (Decrease) from Capital Share Transactions | 1,342,707 | 56,533,940 | |
| Total Increase (Decrease) | 8,657,747 | 35,169,423 | |
| Net Assets | |||
| Beginning of Period | 72,115,547 | 36,946,124 | |
| End of Period | 80,773,294 | 72,115,547 | |
See accompanying Notes, which are an
integral part of the Financial Statements.
41
Target Retirement 2030 Fund
Financial Highlights
| For a Share Outstanding Throughout Each Period | Six Months Ended March 31, 2023 | Year Ended September 30, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $30.12 | $43.40 | $37.63 | $35.22 | $34.74 | $32.93 |
| Investment Operations | ||||||
| Net Investment Income1 | .361 | .730 | .679 | .782 | .830 | .754 |
| Capital Gain Distributions Received1 | .0002 | .028 | .098 | — | — | .001 |
| Net Realized and Unrealized Gain (Loss) on Investments | 3.463 | (7.291) | 6.031 | 2.495 | .486 | 1.744 |
| Total from Investment Operations | 3.824 | (6.533) | 6.808 | 3.277 | 1.316 | 2.499 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.643) | (.822) | (.661) | (.867) | (.767) | (.670) |
| Distributions from Realized Capital Gains | (.151) | (5.925) | (.377) | — | (.069) | (.019) |
| Total Distributions | (.794) | (6.747) | (1.038) | (.867) | (.836) | (.689) |
| Net Asset Value, End of Period | $33.15 | $30.12 | $43.40 | $37.63 | $35.22 | $34.74 |
| Total Return3 | 12.87% | -18.42% | 18.29% | 9.38% | 4.15% | 7.65% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $80,773 | $72,116 | $36,946 | $42,285 | $39,114 | $35,913 |
| Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.08% | 0.09%4 | 0.13% | 0.14% | 0.14% | 0.14% |
| Ratio of Net Investment Income to Average Net Assets | 2.25% | 2.07% | 1.62% | 2.20% | 2.46% | 2.22% |
| Portfolio Turnover Rate | 1%5 | 11%5 | 6% | 21% | 8% | 9% |
| The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Distribution was less than $.001 per share. |
| 3 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 4 | The Acquired Fund Fees and Expenses (AFFE) of 0.09% reflects the blended amount of expenses for the year ended September 30, 2022. Before the acquisition of Vanguard Institutional Target Retirement 2030 Fund on February 11, 2022, the AFFE was 0.13% on an annualized basis. Following the acquisition, the AFFE was 0.08% on an annualized basis. See Note G. |
| 5 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares. |
See accompanying
Notes, which are an integral part of the Financial Statements.
42
Target Retirement 2030 Fund
Notes to Financial Statements
Vanguard Target Retirement
2030 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds 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 are available at www.vanguard.com.
Significant market
disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia's invasion of Ukraine), acts of terrorism, or other events, can adversely affect local
and global markets and normal market operations. Any such disruptions could have an adverse impact on the value of the fund's investments and fund performance.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund 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. Futures Contracts:
The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use
of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk
involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors
the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s
performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any securities pledged as initial margin for open contracts are noted in the Schedule of
Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
March 31, 2023, the fund’s average investments in long and short futures contracts represented 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
3. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute virtually all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until
expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state
income tax years, and has concluded that no provision for income tax is required in the fund’s financial statements.
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Target Retirement 2030 Fund
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial
reporting purposes.
5. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which 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 fund invests (see Note B). Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate, the overnight bank funding rate, or
the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based upon an alternate rate agreed to by
the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March
31, 2023, the fund did not utilize the credit facilities or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate
management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines
approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by
virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the six months ended March 31, 2023, were borne by
the underlying Vanguard funds in which the fund invests. The fund's trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees,
respectively, of Vanguard.
44
Target Retirement 2030 Fund
C. The fund’s SEC registrant (the Vanguard Chester Funds (the “Trust”)), certain officers and trustees of the Trust, and The Vanguard Group Inc. (collectively, the
“Defendants”) were named in putative class action lawsuits filed in 2022 by certain investors (the “Plaintiffs”) in the U.S. District Court for the Eastern District of Pennsylvania; these class
action lawsuits were later consolidated into one action. The Plaintiffs assert claims related to their allegations that the Defendants improperly decided to lower minimum investment limits in 2020 for the
Trust’s Institutional Target Retirement funds for certain smaller retirement plan participants, which purportedly harmed certain investors in taxable accounts. The Plaintiffs seek damages and various other forms
of relief. The Defendants do not agree with these allegations and claims and intend to vigorously defend against them.
D. Various inputs may be used to determine the value of the fund’s investments and derivatives. 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 fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
At March 31, 2023, 100% of the
market value of the fund's investments and derivatives was determined based on Level 1 inputs.
E. As of March 31, 2023, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
| Amount ($000) | |
| Tax Cost | 67,382,425 |
| Gross Unrealized Appreciation | 17,255,098 |
| Gross Unrealized Depreciation | (3,853,525) |
| Net Unrealized Appreciation (Depreciation) | 13,401,573 |
F. Capital shares issued and redeemed were:
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| Shares (000) | Shares (000) | ||
| Issued | 157,623 | 280,621 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement 2030 Fund—Note G | — | 1,421,270 | |
| Issued in Lieu of Cash Distributions | 59,567 | 140,931 | |
| Redeemed | (174,468) | (299,972) | |
| Net Increase (Decrease) in Shares Outstanding | 42,722 | 1,542,850 |
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Target Retirement 2030 Fund
G. On February 11, 2022, the Vanguard Target Retirement 2030 Fund acquired all the net assets of Vanguard Institutional Target Retirement 2030 Fund (the “Acquired Fund”)
pursuant to a plan of reorganization approved by the funds' board of trustees in September 2021. The acquisition was accomplished by a tax-free exchange of 1,421,270,000 shares of Vanguard Target Retirement 2030 Fund
for the 1,801,853,000 shares of the Acquired Fund outstanding on February 11, 2022. The Acquired Fund's net assets of $51,947,425,000, including $10,095,444,000 of unrealized appreciation, were combined with Vanguard
Target Retirement 2030 Fund's net assets of $36,054,289,000, resulting in combined net assets of $88,001,714,000 on February 11, 2022.
H. Transactions during the period in affiliated underlying Vanguard funds were as follows:
| Current Period Transactions | ||||||||
| Sep. 30, 2022 Market Value ($000) | Purchases at Cost ($000) | Proceeds from Securities Sold1 ($000) | Realized Net Gain (Loss) ($000) | Change in Unrealized App. (Dep.) ($000) | Income ($000) | Capital Gain Distributions Received ($000) | Mar. 31, 2023 Market Value ($000) | |
| Vanguard Market Liquidity Fund | 925,032 | NA2 | NA2 | 17 | 172 | 17,543 | 3 | 828,919 |
| Vanguard Total Bond Market II Index Fund | 18,202,037 | 1,494,482 | 461,640 | (10) | 641,689 | 260,304 | — | 19,876,558 |
| Vanguard Total International Bond II Index Fund | 8,025,494 | 611,537 | 194,593 | (13,307) | 244,018 | 57,431 | — | 8,673,149 |
| Vanguard Total International Stock Index Fund | 17,780,277 | 401,981 | 967,980 | (3,919) | 3,674,899 | 278,120 | — | 20,885,258 |
| Vanguard Total Stock Market Index Fund | 27,143,585 | 426,654 | 812,744 | 453,233 | 3,273,454 | 254,642 | — | 30,484,182 |
| Total | 72,076,425 | 2,934,654 | 2,436,957 | 436,014 | 7,834,232 | 868,040 | 3 | 80,748,066 |
| 1 | Includes $1,561,540,000 of portfolio securities delivered as a result of in-kind redemptions of the fund’s capital shares. |
| 2 | Not applicable—purchases and sales are for temporary cash investment purposes. |
I. Management has determined that no events or transactions occurred subsequent to March 31, 2023, that would require recognition or disclosure in these financial statements.
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Target Retirement 2035 Fund
Underlying Vanguard Funds
As of March 31, 2023
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 42.4% |
| Vanguard Total International Stock Index Fund Investor Shares | 29.1 |
| Vanguard Total Bond Market II Index Fund Investor Shares | 19.9 |
| Vanguard Total International Bond II Index Fund Institutional Shares | 8.6 |
The table reflects the fund’s
investments, except for short-term investments and derivatives.
47
Target Retirement 2035 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2023
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
| Shares | Market Value• ($000) | |||||
| Investment Companies (98.7%) | ||||||
| U.S. Stock Fund (41.8%) | ||||||
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 180,233,796 | 33,593,777 | ||||
| International Stock Fund (28.8%) | ||||||
| Vanguard Total International Stock Index Fund Investor Shares | 1,304,093,854 | 23,121,584 | ||||
| U.S. Bond Fund (19.6%) | ||||||
| 1 | Vanguard Total Bond Market II Index Fund Investor Shares | 1,644,996,582 | 15,791,967 | |||
| International Bond Fund (8.5%) | ||||||
| 1 | Vanguard Total International Bond II Index Fund Institutional Shares | 259,512,248 | 6,819,982 | |||
| Total Investment Companies (Cost $63,369,545) | 79,327,310 | |||||
| Temporary Cash Investments (1.2%) | ||||||
| Money Market Fund (1.2%) | ||||||
| 1 | Vanguard Market Liquidity Fund, 4.839% (Cost $950,545) | 9,508,071 | 950,712 | |||
| Total Investments (99.9%) (Cost $64,320,090) | 80,278,022 | |||||
| Other Assets and Liabilities—Net (0.1%) | 54,085 | |||||
| Net Assets (100%) | 80,332,107 | |||||
| Cost is in $000. |
| • | See Note A in Notes to Financial Statements. |
| 1 | Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market Liquidity Fund is the 7-day yield. |
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| 10-Year U.S. Treasury Note | June 2023 | 3,833 | 440,495 | 13,196 |
| E-mini S&P 500 Index | June 2023 | 2,562 | 530,046 | 30,126 |
| 43,322 | ||||
See accompanying
Notes, which are an integral part of the Financial Statements.
48
Target Retirement 2035 Fund
Statement of Assets and Liabilities
As of March 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value—Affiliated Funds (Cost $64,320,090) | 80,278,022 |
| Cash | 1 |
| Cash Collateral Pledged—Futures Contracts | 37,325 |
| Receivables for Investment Securities Sold | 26,000 |
| Receivables for Accrued Income | 51,599 |
| Receivables for Capital Shares Issued | 103,796 |
| Variation Margin Receivable—Futures Contracts | 8,715 |
| Total Assets | 80,505,458 |
| Liabilities | |
| Payables for Investment Securities Purchased | 86,681 |
| Payables for Capital Shares Redeemed | 86,670 |
| Total Liabilities | 173,351 |
| Net Assets | 80,332,107 |
| At March 31, 2023, net assets consisted of: | |
| Paid-in Capital | 63,607,212 |
| Total Distributable Earnings (Loss) | 16,724,895 |
| Net Assets | 80,332,107 |
| Net Assets | |
| Applicable to 3,918,664,027 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 80,332,107 |
| Net Asset Value Per Share | $20.50 |
See accompanying Notes, which are an
integral part of the Financial Statements.
49
Target Retirement 2035 Fund
Statement of Operations
| Six Months Ended March 31, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received from Affiliated Funds | 852,740 |
| Net Investment Income—Note B | 852,740 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received from Affiliated Funds | 3 |
| Affiliated Funds Sold1 | 526,201 |
| Futures Contracts | (66,367) |
| Realized Net Gain (Loss) | 459,837 |
| Change in Unrealized Appreciation (Depreciation) | |
| Affiliated Funds | 8,255,173 |
| Futures Contracts | 136,983 |
| Change in Unrealized Appreciation (Depreciation) | 8,392,156 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 9,704,733 |
| 1 | Includes $613,571,000 of net gain (loss) resulting from in-kind redemptions. |
See accompanying Notes, which are an
integral part of the Financial Statements.
50
Target Retirement 2035 Fund
Statement of Changes in Net Assets
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 852,740 | 1,332,204 | |
| Realized Net Gain (Loss) | 459,837 | 1,417,350 | |
| Change in Unrealized Appreciation (Depreciation) | 8,392,156 | (18,674,595) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 9,704,733 | (15,925,041) | |
| Distributions | |||
| Total Distributions | (1,976,114) | (6,285,063) | |
| Capital Share Transactions | |||
| Issued | 5,304,494 | 9,880,784 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement 2035 Fund—Note G | — | 47,857,993 | |
| Issued in Lieu of Cash Distributions | 1,946,585 | 6,115,959 | |
| Redeemed | (4,897,543) | (9,216,559) | |
| Net Increase (Decrease) from Capital Share Transactions | 2,353,536 | 54,638,177 | |
| Total Increase (Decrease) | 10,082,155 | 32,428,073 | |
| Net Assets | |||
| Beginning of Period | 70,249,952 | 37,821,879 | |
| End of Period | 80,332,107 | 70,249,952 | |
See accompanying Notes, which are an
integral part of the Financial Statements.
51
Target Retirement 2035 Fund
Financial Highlights
| For a Share Outstanding Throughout Each Period | Six Months Ended March 31, 2023 | Year Ended September 30, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $18.50 | $27.25 | $23.16 | $21.60 | $21.46 | $20.20 |
| Investment Operations | ||||||
| Net Investment Income1 | .222 | .455 | .430 | .470 | .500 | .459 |
| Capital Gain Distributions Received1 | .0002 | .014 | .046 | — | — | .001 |
| Net Realized and Unrealized Gain (Loss) on Investments | 2.301 | (4.566) | 4.244 | 1.614 | .146 | 1.243 |
| Total from Investment Operations | 2.523 | (4.097) | 4.720 | 2.084 | .646 | 1.703 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.402) | (.559) | (.409) | (.524) | (.464) | (.410) |
| Distributions from Realized Capital Gains | (.121) | (4.094) | (.221) | — | (.042) | (.033) |
| Total Distributions | (.523) | (4.653) | (.630) | (.524) | (.506) | (.443) |
| Net Asset Value, End of Period | $20.50 | $18.50 | $27.25 | $23.16 | $21.60 | $21.46 |
| Total Return3 | 13.83% | -18.87% | 20.60% | 9.71% | 3.37% | 8.51% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $80,332 | $70,250 | $37,822 | $40,597 | $37,126 | $34,522 |
| Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.08% | 0.09%4 | 0.14% | 0.14% | 0.14% | 0.14% |
| Ratio of Net Investment Income to Average Net Assets | 2.24% | 2.08% | 1.64% | 2.15% | 2.42% | 2.19% |
| Portfolio Turnover Rate | 1%5 | 9%5 | 6% | 18% | 7% | 8% |
| The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Distribution was less than $.001 per share. |
| 3 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 4 | The Acquired Fund Fees and Expenses (AFFE) of 0.09% reflects the blended amount of expenses for the year ended September 30, 2022. Before the acquisition of Vanguard Institutional Target Retirement 2035 Fund on February 11, 2022, the AFFE was 0.14% on an annualized basis. Following the acquisition, the AFFE was 0.08% on an annualized basis. See Note G. |
| 5 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares. |
See accompanying
Notes, which are an integral part of the Financial Statements.
52
Target Retirement 2035 Fund
Notes to Financial Statements
Vanguard Target Retirement
2035 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds 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 are available at www.vanguard.com.
Significant market
disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia's invasion of Ukraine), acts of terrorism, or other events, can adversely affect local
and global markets and normal market operations. Any such disruptions could have an adverse impact on the value of the fund's investments and fund performance.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund 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. Futures Contracts:
The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use
of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk
involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors
the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s
performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any securities pledged as initial margin for open contracts are noted in the Schedule of
Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
March 31, 2023, the fund’s average investments in long and short futures contracts represented 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
3. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute virtually all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until
expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state
income tax years, and has concluded that no provision for income tax is required in the fund’s financial statements.
53
Target Retirement 2035 Fund
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial
reporting purposes.
5. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which 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 fund invests (see Note B). Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate, the overnight bank funding rate, or
the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based upon an alternate rate agreed to by
the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March
31, 2023, the fund did not utilize the credit facilities or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate
management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines
approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by
virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the six months ended March 31, 2023, were borne by
the underlying Vanguard funds in which the fund invests. The fund's trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees,
respectively, of Vanguard.
54
Target Retirement 2035 Fund
C. The fund’s SEC registrant (the Vanguard Chester Funds (the “Trust”)), certain officers and trustees of the Trust, and The Vanguard Group Inc. (collectively, the
“Defendants”) were named in putative class action lawsuits filed in 2022 by certain investors (the “Plaintiffs”) in the U.S. District Court for the Eastern District of Pennsylvania; these class
action lawsuits were later consolidated into one action. The Plaintiffs assert claims related to their allegations that the Defendants improperly decided to lower minimum investment limits in 2020 for the
Trust’s Institutional Target Retirement funds for certain smaller retirement plan participants, which purportedly harmed certain investors in taxable accounts. The Plaintiffs seek damages and various other forms
of relief. The Defendants do not agree with these allegations and claims and intend to vigorously defend against them.
D. Various inputs may be used to determine the value of the fund’s investments and derivatives. 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 fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
At March 31, 2023, 100% of the
market value of the fund's investments and derivatives was determined based on Level 1 inputs.
E. As of March 31, 2023, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
| Amount ($000) | |
| Tax Cost | 64,412,790 |
| Gross Unrealized Appreciation | 19,070,526 |
| Gross Unrealized Depreciation | (3,161,972) |
| Net Unrealized Appreciation (Depreciation) | 15,908,554 |
F. Capital shares issued and redeemed were:
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| Shares (000) | Shares (000) | ||
| Issued | 266,426 | 448,756 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement 2035 Fund—Note G | — | 2,113,869 | |
| Issued in Lieu of Cash Distributions | 101,437 | 256,327 | |
| Redeemed | (247,376) | (408,647) | |
| Net Increase (Decrease) in Shares Outstanding | 120,487 | 2,410,305 |
55
Target Retirement 2035 Fund
G. On February 11, 2022, the Vanguard Target Retirement 2035 Fund acquired all the net assets of Vanguard Institutional Target Retirement 2035 Fund (the “Acquired Fund”)
pursuant to a plan of reorganization approved by the funds' board of trustees in September 2021. The acquisition was accomplished by a tax-free exchange of 2,113,869,000 shares of Vanguard Target Retirement 2035 Fund
for the 1,603,283,000 shares of the Acquired Fund outstanding on February 11, 2022. The Acquired Fund's net assets of $47,857,993,000, including $10,559,260,000 of unrealized appreciation, were combined with Vanguard
Target Retirement 2035 Fund's net assets of $37,004,381,000, resulting in combined net assets of $84,862,374,000 on February 11, 2022.
H. Transactions during the period in affiliated underlying Vanguard funds were as follows:
| Current Period Transactions | ||||||||
| Sep. 30, 2022 Market Value ($000) | Purchases at Cost ($000) | Proceeds from Securities Sold1 ($000) | Realized Net Gain (Loss) ($000) | Change in Unrealized App. (Dep.) ($000) | Income ($000) | Capital Gain Distributions Received ($000) | Mar. 31, 2023 Market Value ($000) | |
| Vanguard Market Liquidity Fund | 947,200 | NA2 | NA2 | 3 | 188 | 19,316 | 3 | 950,712 |
| Vanguard Total Bond Market II Index Fund | 14,118,599 | 1,549,480 | 386,046 | 2,466 | 507,468 | 204,371 | — | 15,791,967 |
| Vanguard Total International Bond II Index Fund | 6,157,142 | 615,792 | 132,615 | (5,023) | 184,686 | 44,614 | — | 6,819,982 |
| Vanguard Total International Stock Index Fund | 19,557,677 | 399,049 | 858,226 | 9,667 | 4,013,417 | 304,722 | — | 23,121,584 |
| Vanguard Total Stock Market Index Fund | 29,457,311 | 780,121 | 712,157 | 519,088 | 3,549,414 | 279,717 | — | 33,593,777 |
| Total | 70,237,929 | 3,344,442 | 2,089,044 | 526,201 | 8,255,173 | 852,740 | 3 | 80,278,022 |
| 1 | Includes $1,539,770,000 of portfolio securities delivered as a result of in-kind redemptions of the fund’s capital shares. |
| 2 | Not applicable—purchases and sales are for temporary cash investment purposes. |
I. Management has determined that no events or transactions occurred subsequent to March 31, 2023, that would require recognition or disclosure in these financial statements.
56
Target Retirement 2040 Fund
Underlying Vanguard Funds
As of March 31, 2023
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 46.9% |
| Vanguard Total International Stock Index Fund Investor Shares | 31.8 |
| Vanguard Total Bond Market II Index Fund Investor Shares | 15.0 |
| Vanguard Total International Bond II Index Fund Institutional Shares | 6.3 |
The table reflects the fund’s
investments, except for short-term investments and derivatives.
57
Target Retirement 2040 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2023
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
| Shares | Market Value• ($000) | |||||
| Investment Companies (98.6%) | ||||||
| U.S. Stock Fund (46.3%) | ||||||
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 173,879,554 | 32,409,409 | ||||
| International Stock Fund (31.3%) | ||||||
| Vanguard Total International Stock Index Fund Investor Shares | 1,237,565,430 | 21,942,035 | ||||
| U.S. Bond Fund (14.7%) | ||||||
| 1 | Vanguard Total Bond Market II Index Fund Investor Shares | 1,075,056,931 | 10,320,547 | |||
| International Bond Fund (6.3%) | ||||||
| 1 | Vanguard Total International Bond II Index Fund Institutional Shares | 166,625,441 | 4,378,917 | |||
| Total Investment Companies (Cost $54,837,352) | 69,050,908 | |||||
| Temporary Cash Investments (1.3%) | ||||||
| Money Market Fund (1.3%) | ||||||
| 1 | Vanguard Market Liquidity Fund, 4.839% (Cost $900,967) | 9,011,983 | 901,108 | |||
| Total Investments (99.9%) (Cost $55,738,319) | 69,952,016 | |||||
| Other Assets and Liabilities—Net (0.1%) | 39,905 | |||||
| Net Assets (100%) | 69,991,921 | |||||
| Cost is in $000. |
| • | See Note A in Notes to Financial Statements. |
| 1 | Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market Liquidity Fund is the 7-day yield. |
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| 10-Year U.S. Treasury Note | June 2023 | 4,049 | 465,319 | 12,557 |
| E-mini S&P 500 Index | June 2023 | 2,221 | 459,497 | 26,605 |
| 39,162 | ||||
See accompanying
Notes, which are an integral part of the Financial Statements.
58
Target Retirement 2040 Fund
Statement of Assets and Liabilities
As of March 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value—Affiliated Funds (Cost $55,738,319) | 69,952,016 |
| Cash Collateral Pledged—Futures Contracts | 33,995 |
| Receivables for Investment Securities Sold | 15,000 |
| Receivables for Accrued Income | 34,670 |
| Receivables for Capital Shares Issued | 97,851 |
| Variation Margin Receivable—Futures Contracts | 7,805 |
| Total Assets | 70,141,337 |
| Liabilities | |
| Payables for Investment Securities Purchased | 77,297 |
| Payables for Capital Shares Redeemed | 72,119 |
| Total Liabilities | 149,416 |
| Net Assets | 69,991,921 |
| At March 31, 2023, net assets consisted of: | |
| Paid-in Capital | 55,081,024 |
| Total Distributable Earnings (Loss) | 14,910,897 |
| Net Assets | 69,991,921 |
| Net Assets | |
| Applicable to 1,938,439,894 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 69,991,921 |
| Net Asset Value Per Share | $36.11 |
See accompanying Notes, which are an
integral part of the Financial Statements.
59
Target Retirement 2040 Fund
Statement of Operations
| Six Months Ended March 31, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received from Affiliated Funds | 735,755 |
| Net Investment Income—Note B | 735,755 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received from Affiliated Funds | 2 |
| Affiliated Funds Sold1 | 507,296 |
| Futures Contracts | (56,391) |
| Realized Net Gain (Loss) | 450,907 |
| Change in Unrealized Appreciation (Depreciation) | |
| Affiliated Funds | 7,669,613 |
| Futures Contracts | 119,654 |
| Change in Unrealized Appreciation (Depreciation) | 7,789,267 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 8,975,929 |
| 1 | Includes $624,480,000 of net gain (loss) resulting from in-kind redemptions. |
See accompanying Notes, which are an
integral part of the Financial Statements.
60
Target Retirement 2040 Fund
Statement of Changes in Net Assets
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 735,755 | 1,122,991 | |
| Realized Net Gain (Loss) | 450,907 | 1,265,818 | |
| Change in Unrealized Appreciation (Depreciation) | 7,789,267 | (16,607,438) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 8,975,929 | (14,218,629) | |
| Distributions | |||
| Total Distributions | (1,648,245) | (5,068,358) | |
| Capital Share Transactions | |||
| Issued | 4,979,493 | 9,029,706 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement 2040 Fund—Note G | — | 44,528,150 | |
| Issued in Lieu of Cash Distributions | 1,625,528 | 4,930,722 | |
| Redeemed | (4,304,109) | (7,921,967) | |
| Net Increase (Decrease) from Capital Share Transactions | 2,300,912 | 50,566,611 | |
| Total Increase (Decrease) | 9,628,596 | 31,279,624 | |
| Net Assets | |||
| Beginning of Period | 60,363,325 | 29,083,701 | |
| End of Period | 69,991,921 | 60,363,325 | |
See accompanying Notes, which are an
integral part of the Financial Statements.
61
Target Retirement 2040 Fund
Financial Highlights
| For a Share Outstanding Throughout Each Period | Six Months Ended March 31, 2023 | Year Ended September 30, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $32.25 | $48.29 | $40.07 | $37.27 | $37.26 | $34.73 |
| Investment Operations | ||||||
| Net Investment Income1 | .389 | .797 | .764 | .799 | .850 | .786 |
| Capital Gain Distributions Received1 | .0002 | .017 | .057 | — | — | .001 |
| Net Realized and Unrealized Gain (Loss) on Investments | 4.357 | (8.162) | 8.312 | 2.892 | (.005) | 2.441 |
| Total from Investment Operations | 4.746 | (7.348) | 9.133 | 3.691 | .845 | 3.228 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.714) | (1.003) | (.719) | (.891) | (.779) | (.684) |
| Distributions from Realized Capital Gains | (.172) | (7.689) | (.194) | — | (.056) | (.014) |
| Total Distributions | (.886) | (8.692) | (.913) | (.891) | (.835) | (.698) |
| Net Asset Value, End of Period | $36.11 | $32.25 | $48.29 | $40.07 | $37.27 | $37.26 |
| Total Return3 | 14.91% | -19.42% | 23.00% | 9.96% | 2.63% | 9.37% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $69,992 | $60,363 | $29,084 | $32,404 | $29,043 | $26,445 |
| Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.08% | 0.09%4 | 0.14% | 0.14% | 0.14% | 0.14% |
| Ratio of Net Investment Income to Average Net Assets | 2.23% | 2.08% | 1.66% | 2.12% | 2.38% | 2.17% |
| Portfolio Turnover Rate | 1%5 | 7%5 | 5% | 13% | 5% | 8% |
| The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Distribution was less than $.001 per share. |
| 3 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 4 | The Acquired Fund Fees and Expenses (AFFE) of 0.09% reflects the blended amount of expenses for the year ended September 30, 2022. Before the acquisition of Vanguard Institutional Target Retirement 2040 Fund on February 11, 2022, the AFFE was 0.14% on an annualized basis. Following the acquisition, the AFFE was 0.08% on an annualized basis. See Note G. |
| 5 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares. |
See accompanying
Notes, which are an integral part of the Financial Statements.
62
Target Retirement 2040 Fund
Notes to Financial Statements
Vanguard Target Retirement
2040 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds 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 are available at www.vanguard.com.
Significant market
disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia's invasion of Ukraine), acts of terrorism, or other events, can adversely affect local
and global markets and normal market operations. Any such disruptions could have an adverse impact on the value of the fund's investments and fund performance.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund 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. Futures Contracts:
The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use
of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk
involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors
the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s
performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any securities pledged as initial margin for open contracts are noted in the Schedule of
Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
March 31, 2023, the fund’s average investments in long and short futures contracts represented 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
3. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute virtually all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until
expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state
income tax years, and has concluded that no provision for income tax is required in the fund’s financial statements.
63
Target Retirement 2040 Fund
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial
reporting purposes.
5. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which 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 fund invests (see Note B). Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate, the overnight bank funding rate, or
the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based upon an alternate rate agreed to by
the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March
31, 2023, the fund did not utilize the credit facilities or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate
management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines
approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by
virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the six months ended March 31, 2023, were borne by
the underlying Vanguard funds in which the fund invests. The fund's trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees,
respectively, of Vanguard.
64
Target Retirement 2040 Fund
C. The fund’s SEC registrant (the Vanguard Chester Funds (the “Trust”)), certain officers and trustees of the Trust, and The Vanguard Group Inc. (collectively, the
“Defendants”) were named in putative class action lawsuits filed in 2022 by certain investors (the “Plaintiffs”) in the U.S. District Court for the Eastern District of Pennsylvania; these class
action lawsuits were later consolidated into one action. The Plaintiffs assert claims related to their allegations that the Defendants improperly decided to lower minimum investment limits in 2020 for the
Trust’s Institutional Target Retirement funds for certain smaller retirement plan participants, which purportedly harmed certain investors in taxable accounts. The Plaintiffs seek damages and various other forms
of relief. The Defendants do not agree with these allegations and claims and intend to vigorously defend against them.
D. Various inputs may be used to determine the value of the fund’s investments and derivatives. 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 fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
At March 31, 2023, 100% of the
market value of the fund's investments and derivatives was determined based on Level 1 inputs.
E. As of March 31, 2023, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
| Amount ($000) | |
| Tax Cost | 55,858,854 |
| Gross Unrealized Appreciation | 16,464,349 |
| Gross Unrealized Depreciation | (2,332,025) |
| Net Unrealized Appreciation (Depreciation) | 14,132,324 |
F. Capital shares issued and redeemed were:
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| Shares (000) | Shares (000) | ||
| Issued | 142,305 | 233,751 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement 2040 Fund—Note G | — | 1,117,955 | |
| Issued in Lieu of Cash Distributions | 48,264 | 117,203 | |
| Redeemed | (123,766) | (199,582) | |
| Net Increase (Decrease) in Shares Outstanding | 66,803 | 1,269,327 |
65
Target Retirement 2040 Fund
G. On February 11, 2022, the Vanguard Target Retirement 2040 Fund acquired all the net assets of Vanguard Institutional Target Retirement 2040 Fund (the “Acquired Fund”)
pursuant to a plan of reorganization approved by the funds' board of trustees in September 2021. The acquisition was accomplished by a tax-free exchange of 1,117,955,000 shares of Vanguard Target Retirement 2040 Fund
for the 1,441,507,000 shares of the Acquired Fund outstanding on February 11, 2022. The Acquired Fund's net assets of $44,528,150,000, including $10,288,799,000 of unrealized appreciation, were combined with Vanguard
Target Retirement 2040 Fund's net assets of $28,598,081,000, resulting in combined net assets of $73,126,231,000 on February 11, 2022.
H. Transactions during the period in affiliated underlying Vanguard funds were as follows:
| Current Period Transactions | ||||||||
| Sep. 30, 2022 Market Value ($000) | Purchases at Cost ($000) | Proceeds from Securities Sold1 ($000) | Realized Net Gain (Loss) ($000) | Change in Unrealized App. (Dep.) ($000) | Income ($000) | Capital Gain Distributions Received ($000) | Mar. 31, 2023 Market Value ($000) | |
| Vanguard Market Liquidity Fund | 814,453 | NA2 | NA2 | 4 | 163 | 17,214 | 2 | 901,108 |
| Vanguard Total Bond Market II Index Fund | 8,996,887 | 1,352,318 | 355,739 | (10,668) | 337,749 | 131,044 | — | 10,320,547 |
| Vanguard Total International Bond II Index Fund | 3,880,069 | 476,027 | 91,432 | (1,037) | 115,290 | 28,403 | — | 4,378,917 |
| Vanguard Total International Stock Index Fund | 18,622,532 | 496,401 | 1,018,492 | (13,957) | 3,855,551 | 291,427 | — | 21,942,035 |
| Vanguard Total Stock Market Index Fund | 28,037,857 | 1,157,164 | 679,426 | 532,954 | 3,360,860 | 267,667 | — | 32,409,409 |
| Total | 60,351,798 | 3,481,910 | 2,145,089 | 507,296 | 7,669,613 | 735,755 | 2 | 69,952,016 |
| 1 | Includes $1,437,150,000 of portfolio securities delivered as a result of in-kind redemptions of the fund’s capital shares. |
| 2 | Not applicable—purchases and sales are for temporary cash investment purposes. |
I. Management has determined that no events or transactions occurred subsequent to March 31, 2023, that would require recognition or disclosure in these financial statements.
66
Trustees Approve Advisory Arrangements
The board of trustees of Vanguard Target
Retirement Funds has renewed each fund’s investment advisory arrangement with The Vanguard Group, Inc. (Vanguard), through its Equity Index Group. The board determined that continuing each
fund’s internalized management structure was in the best interests of the funds and their shareholders.
The board based its decision
upon an evaluation of the advisor’s investment staff, portfolio management process, and performance. This evaluation included information provided to the board by Vanguard’s Portfolio Review
Department, which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisor and made monthly presentations to the board
during the fiscal year that directed the board’s focus to relevant information and topics.
The board, or an investment
committee made up of board members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that
included information about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board
received periodic reports throughout the year, which included information about each fund’s performance relative to its peers and benchmark, as applicable, and updates, as needed, on the Portfolio
Review Department’s ongoing assessment of the advisor.
Prior to their meeting, the
trustees were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no
single factor determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decisions.
Nature, extent, and quality of
services
The board reviewed the quality of the
funds’ investment management services over both the short and long term, and took into account the organizational depth and stability of the advisor. The board considered that Vanguard has been
managing investments for more than four decades. The Equity Index Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and
depth.
The board concluded that
Vanguard’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangements.
Investment performance
The board considered the performance of each
fund, including any periods of outperformance or underperformance compared with a relevant benchmark index and peer group. The board concluded that the performance was such that the advisory
arrangements should continue.
Cost
The board concluded that each fund’s
acquired fund fees and expenses were below the average expense ratios charged by funds in its respective peer group. The funds do not incur advisory expenses directly; however, the board noted that each
of the underlying funds in which the funds invest has advisory expenses below the relevant peer-group average.
The board does not conduct a
profitability analysis of Vanguard because of Vanguard’s unique structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees.
67
The benefit of economies of
scale
The board concluded that Vanguard’s
arrangements with the Target Retirement Funds and their underlying funds ensure that the funds will realize economies of scale as they grow, with the cost to shareholders declining as assets
increase.
The board will consider
whether to renew the advisory arrangements again after a one-year period.
68
Liquidity Risk Management
Vanguard funds (except for the
money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that
each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining
investors’ interests in the fund.
Assessment and management of a
fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably
foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding
sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and
limiting holdings of illiquid investments.
The board of trustees of
Vanguard Chester Funds approved the appointment of liquidity risk management program administrators responsible for administering the Program for Vanguard Target Retirement Income Fund, Vanguard Target Retirement 2020
Fund, Vanguard Target Retirement 2025 Fund, Vanguard Target Retirement 2030 Fund, Vanguard Target Retirement 2035 Fund, and Vanguard Target Retirement 2040 Fund, and for carrying out the specific responsibilities set
forth in the Program, including reporting to the board on at least an annual basis regarding the Program's operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program
Administrator Report”). The board has reviewed the Program Administrator Report covering the period from January 1, 2022, through December 31, 2022 (the “Review Period”). The Program Administrator
Report stated that during the Review Period the Program operated and was implemented effectively to manage the funds' liquidity risk.
69
Semiannual Report | March 31, 2023
Vanguard Target
Retirement Funds
| Vanguard Target Retirement 2045 Fund |
| Vanguard Target Retirement 2050 Fund |
| Vanguard Target Retirement 2055 Fund |
| Vanguard Target Retirement 2060 Fund |
| Vanguard Target Retirement 2065 Fund |
| Vanguard Target Retirement 2070 Fund |
About Your Fund’s Expenses
As a shareholder of the fund,
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 fund’s gross
income, directly reduce the investment return of the fund.
A fund’s expenses are
expressed as a percentage of its average net assets. The Target Retirement Funds have no direct expenses, but each fund bears its proportionate share of the costs for 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 fund 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 each Target Retirement Fund.
The accompanying table
illustrates your fund’s costs in two ways:
| • | Based on actual fund 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 fund’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 fund. 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 fund under the heading ”Expenses Paid During Period.“
| • | Based on hypothetical 5% yearly return. This section is intended to help you compare your fund‘s costs with those of other mutual funds. It assumes that the fund 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 fund’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 fund’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. Further, the expenses do not include any purchase, redemption, or account service fees described in the fund prospectus. If such fees were applied to your account,
your costs would be higher. Your fund does not carry a “sales load.”
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 fund’s expenses in the Financial Statements section of this report. For additional information on operating expenses and other shareholder costs, please refer to your fund’s current
prospectus.
1
| Six Months Ended March 31, 2023 | |||
| Beginning Account Value 9/30/2022 | Ending Account Value 3/31/2023 | Expenses Paid During Period | |
| Based on Actual Fund Return | |||
| Target Retirement 2045 Fund | $1,000.00 | $1,159.50 | $0.43 |
| Target Retirement 2050 Fund | $1,000.00 | $1,164.80 | $0.43 |
| Target Retirement 2055 Fund | $1,000.00 | $1,164.90 | $0.43 |
| Target Retirement 2060 Fund | $1,000.00 | $1,164.90 | $0.43 |
| Target Retirement 2065 Fund | $1,000.00 | $1,165.00 | $0.43 |
| Target Retirement 2070 Fund | $1,000.00 | $1,164.70 | $0.43 |
| Based on Hypothetical 5% Yearly Return | |||
| Target Retirement 2045 Fund | $1,000.00 | $1,024.53 | $0.40 |
| Target Retirement 2050 Fund | $1,000.00 | $1,024.53 | $0.40 |
| Target Retirement 2055 Fund | $1,000.00 | $1,024.53 | $0.40 |
| Target Retirement 2060 Fund | $1,000.00 | $1,024.53 | $0.40 |
| Target Retirement 2065 Fund | $1,000.00 | $1,024.53 | $0.40 |
| Target Retirement 2070 Fund | $1,000.00 | $1,024.53 | $0.40 |
The calculations are
based on acquired fund fees and expenses for the most recent six-month period. The underlying funds’ annualized expense figures for that period are (in order as listed from top to bottom above) 0.08%, 0.08%,
0.08%, 0.08%, 0.08%, and 0.08%. 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 (182/365).
2
Target Retirement 2045 Fund
Underlying Vanguard Funds
As of March 31, 2023
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 51.6% |
| Vanguard Total International Stock Index Fund Investor Shares | 34.7 |
| Vanguard Total Bond Market II Index Fund Investor Shares | 9.6 |
| Vanguard Total International Bond II Index Fund Institutional Shares | 4.1 |
The table reflects the fund’s
investments, except for short-term investments and derivatives.
3
Target Retirement 2045 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2023
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
| Shares | Market Value• ($000) | |||||
| Investment Companies (98.6%) | ||||||
| U.S. Stock Fund (50.9%) | ||||||
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 179,778,210 | 33,508,860 | ||||
| International Stock Fund (34.2%) | ||||||
| Vanguard Total International Stock Index Fund Investor Shares | 1,272,012,893 | 22,552,789 | ||||
| U.S. Bond Fund (9.5%) | ||||||
| 1 | Vanguard Total Bond Market II Index Fund Investor Shares | 653,648,516 | 6,275,026 | |||
| International Bond Fund (4.0%) | ||||||
| 1 | Vanguard Total International Bond II Index Fund Institutional Shares | 100,349,691 | 2,637,190 | |||
| Total Investment Companies (Cost $49,975,891) | 64,973,865 | |||||
| Temporary Cash Investments (1.3%) | ||||||
| Money Market Fund (1.3%) | ||||||
| 1 | Vanguard Market Liquidity Fund, 4.839% (Cost $890,110) | 8,903,334 | 890,244 | |||
| Total Investments (99.9%) (Cost $50,866,001) | 65,864,109 | |||||
| Other Assets and Liabilities—Net (0.1%) | 57,646 | |||||
| Net Assets (100%) | 65,921,755 | |||||
| Cost is in $000. |
| • | See Note A in Notes to Financial Statements. |
| 1 | Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market Liquidity Fund is the 7-day yield. |
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| 10-Year U.S. Treasury Note | June 2023 | 4,138 | 475,547 | 12,424 |
| E-mini S&P 500 Index | June 2023 | 2,103 | 435,084 | 24,917 |
| 37,341 | ||||
See accompanying
Notes, which are an integral part of the Financial Statements.
4
Target Retirement 2045 Fund
Statement of Assets and Liabilities
As of March 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value—Affiliated Funds (Cost $50,866,001) | 65,864,109 |
| Cash Collateral Pledged—Futures Contracts | 32,870 |
| Receivables for Investment Securities Sold | 22,000 |
| Receivables for Accrued Income | 22,296 |
| Receivables for Capital Shares Issued | 115,758 |
| Variation Margin Receivable—Futures Contracts | 7,495 |
| Total Assets | 66,064,528 |
| Liabilities | |
| Payables for Investment Securities Purchased | 93,267 |
| Payables for Capital Shares Redeemed | 49,506 |
| Total Liabilities | 142,773 |
| Net Assets | 65,921,755 |
| At March 31, 2023, net assets consisted of: | |
| Paid-in Capital | 50,180,897 |
| Total Distributable Earnings (Loss) | 15,740,858 |
| Net Assets | 65,921,755 |
| Net Assets | |
| Applicable to 2,712,988,702 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 65,921,755 |
| Net Asset Value Per Share | $24.30 |
See accompanying Notes, which are an
integral part of the Financial Statements.
5
Target Retirement 2045 Fund
Statement of Operations
| Six Months Ended March 31, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received from Affiliated Funds | 684,712 |
| Net Investment Income—Note B | 684,712 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received from Affiliated Funds | 2 |
| Affiliated Funds Sold1 | 573,505 |
| Futures Contracts | (51,828) |
| Realized Net Gain (Loss) | 521,679 |
| Change in Unrealized Appreciation (Depreciation) | |
| Affiliated Funds | 7,597,022 |
| Futures Contracts | 112,138 |
| Change in Unrealized Appreciation (Depreciation) | 7,709,160 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 8,915,551 |
| 1 | Includes $682,804,000 of net gain (loss) resulting from in-kind redemptions. |
See accompanying Notes, which are an
integral part of the Financial Statements.
6
Target Retirement 2045 Fund
Statement of Changes in Net Assets
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 684,712 | 1,059,647 | |
| Realized Net Gain (Loss) | 521,679 | 1,194,719 | |
| Change in Unrealized Appreciation (Depreciation) | 7,709,160 | (15,908,582) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 8,915,551 | (13,654,216) | |
| Distributions | |||
| Total Distributions | (1,622,229) | (3,956,957) | |
| Capital Share Transactions | |||
| Issued | 4,964,893 | 8,673,949 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement 2045 Fund—Note G | — | 38,974,576 | |
| Issued in Lieu of Cash Distributions | 1,597,470 | 3,853,831 | |
| Redeemed | (3,855,248) | (6,887,917) | |
| Net Increase (Decrease) from Capital Share Transactions | 2,707,115 | 44,614,439 | |
| Total Increase (Decrease) | 10,000,437 | 27,003,266 | |
| Net Assets | |||
| Beginning of Period | 55,921,318 | 28,918,052 | |
| End of Period | 65,921,755 | 55,921,318 | |
See accompanying Notes, which are an
integral part of the Financial Statements.
7
Target Retirement 2045 Fund
Financial Highlights
| For a Share Outstanding Throughout Each Period | Six Months Ended March 31, 2023 | Year Ended September 30, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $21.54 | $31.04 | $25.22 | $23.38 | $23.49 | $21.80 |
| Investment Operations | ||||||
| Net Investment Income1 | .260 | .536 | .495 | .492 | .527 | .492 |
| Capital Gain Distributions Received1 | .0002 | .007 | .020 | — | — | — |
| Net Realized and Unrealized Gain (Loss) on Investments | 3.128 | (5.672) | 5.840 | 1.900 | (.128) | 1.636 |
| Total from Investment Operations | 3.388 | (5.129) | 6.355 | 2.392 | .399 | 2.128 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.486) | (.629) | (.452) | (.552) | (.483) | (.428) |
| Distributions from Realized Capital Gains | (.142) | (3.742) | (.083) | — | (.026) | (.010) |
| Total Distributions | (.628) | (4.371) | (.535) | (.552) | (.509) | (.438) |
| Net Asset Value, End of Period | $24.30 | $21.54 | $31.04 | $25.22 | $23.38 | $23.49 |
| Total Return3 | 15.95% | -19.93% | 25.42% | 10.27% | 2.06% | 9.85% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $65,922 | $55,921 | $28,918 | $30,205 | $26,670 | $24,330 |
| Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.08% | 0.09%4 | 0.15% | 0.15% | 0.15% | 0.15% |
| Ratio of Net Investment Income to Average Net Assets | 2.22% | 2.09% | 1.68% | 2.08% | 2.35% | 2.16% |
| Portfolio Turnover Rate | 1%5 | 5%5 | 4% | 9% | 4% | 7% |
| The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Distribution was less than $.001 per share. |
| 3 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 4 | The Acquired Fund Fees and Expenses (AFFE) of 0.09% reflects the blended amount of expenses for the year ended September 30, 2022. Before the acquisition of Vanguard Institutional Target Retirement 2045 Fund on February 11, 2022, the AFFE was 0.15% on an annualized basis. Following the acquisition, the AFFE was 0.08% on an annualized basis. See Note G. |
| 5 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares. |
See accompanying
Notes, which are an integral part of the Financial Statements.
8
Target Retirement 2045 Fund
Notes to Financial Statements
Vanguard Target Retirement
2045 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds to achieve
its targeted allocation of assets to U.S. and international stocks, and U.S. and international bonds. The fund invests a substantial amount of its assets in Vanguard Total Stock Market Index Fund. Financial statements
and other information about each underlying fund are available at www.vanguard.com.
Significant market
disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia's invasion of Ukraine), acts of terrorism, or other events, can adversely affect local
and global markets and normal market operations. Any such disruptions could have an adverse impact on the value of the fund's investments and fund performance.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund 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. Futures Contracts:
The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use
of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk
involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors
the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s
performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any securities pledged as initial margin for open contracts are noted in the Schedule of
Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
March 31, 2023, the fund’s average investments in long and short futures contracts represented 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
3. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute virtually all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until
expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state
income tax years, and has concluded that no provision for income tax is required in the fund’s financial statements.
9
Target Retirement 2045 Fund
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial
reporting purposes.
5. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which 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 fund invests (see Note B). Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate, the overnight bank funding rate, or
the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based upon an alternate rate agreed to by
the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March
31, 2023, the fund did not utilize the credit facilities or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate
management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines
approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by
virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the six months ended March 31, 2023, were borne by
the underlying Vanguard funds in which the fund invests. The fund's trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees,
respectively, of Vanguard.
10
Target Retirement 2045 Fund
C. The fund’s SEC registrant (the Vanguard Chester Funds (the “Trust”)), certain officers and trustees of the Trust, and The Vanguard Group Inc. (collectively, the
“Defendants”) were named in putative class action lawsuits filed in 2022 by certain investors (the “Plaintiffs”) in the U.S. District Court for the Eastern District of Pennsylvania; these class
action lawsuits were later consolidated into one action. The Plaintiffs assert claims related to their allegations that the Defendants improperly decided to lower minimum investment limits in 2020 for the
Trust’s Institutional Target Retirement funds for certain smaller retirement plan participants, which purportedly harmed certain investors in taxable accounts. The Plaintiffs seek damages and various other forms
of relief. The Defendants do not agree with these allegations and claims and intend to vigorously defend against them.
D. Various inputs may be used to determine the value of the fund’s investments and derivatives. 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 fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
At March 31, 2023, 100% of the
market value of the fund's investments and derivatives was determined based on Level 1 inputs.
E. As of March 31, 2023, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
| Amount ($000) | |
| Tax Cost | 50,949,638 |
| Gross Unrealized Appreciation | 16,605,675 |
| Gross Unrealized Depreciation | (1,653,863) |
| Net Unrealized Appreciation (Depreciation) | 14,951,812 |
F. Capital shares issued and redeemed were:
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| Shares (000) | Shares (000) | ||
| Issued | 211,078 | 336,528 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement 2045 Fund—Note G | — | 1,452,108 | |
| Issued in Lieu of Cash Distributions | 70,747 | 135,603 | |
| Redeemed | (165,139) | (259,692) | |
| Net Increase (Decrease) in Shares Outstanding | 116,686 | 1,664,547 |
11
Target Retirement 2045 Fund
G. On February 11, 2022, the Vanguard Target Retirement 2045 Fund acquired all the net assets of Vanguard Institutional Target Retirement 2045 Fund (the “Acquired Fund”)
pursuant to a plan of reorganization approved by the funds' board of trustees in September 2021. The acquisition was accomplished by a tax-free exchange of 1,452,108,000 shares of Vanguard Target Retirement 2045 Fund
for the 1,222,157,000 shares of the Acquired Fund outstanding on February 11, 2022. The Acquired Fund's net assets of $38,974,576,000, including $9,546,130,000 of unrealized appreciation, were combined with Vanguard
Target Retirement 2045 Fund's net assets of $28,598,689,000, resulting in combined net assets of $67,573,265,000 on February 11, 2022.
H. Transactions during the period in affiliated underlying Vanguard funds were as follows:
| Current Period Transactions | ||||||||
| Sep. 30, 2022 Market Value ($000) | Purchases at Cost ($000) | Proceeds from Securities Sold1 ($000) | Realized Net Gain (Loss) ($000) | Change in Unrealized App. (Dep.) ($000) | Income ($000) | Capital Gain Distributions Received ($000) | Mar. 31, 2023 Market Value ($000) | |
| Vanguard Market Liquidity Fund | 760,294 | NA2 | NA2 | 13 | 145 | 15,672 | 2 | 890,244 |
| Vanguard Total Bond Market II Index Fund | 5,283,074 | 1,064,914 | 268,988 | (7,336) | 203,362 | 79,101 | — | 6,275,026 |
| Vanguard Total International Bond II Index Fund | 2,357,925 | 278,236 | 67,304 | (1,736) | 70,069 | 17,065 | — | 2,637,190 |
| Vanguard Total International Stock Index Fund | 18,989,256 | 786,878 | 1,151,815 | (6,613) | 3,935,083 | 297,839 | — | 22,552,789 |
| Vanguard Total Stock Market Index Fund | 28,525,761 | 1,752,757 | 747,198 | 589,177 | 3,388,363 | 275,035 | — | 33,508,860 |
| Total | 55,916,310 | 3,882,785 | 2,235,305 | 573,505 | 7,597,022 | 684,712 | 2 | 65,864,109 |
| 1 | Includes $1,443,010,000 of portfolio securities delivered as a result of in-kind redemptions of the fund’s capital shares. |
| 2 | Not applicable—purchases and sales are for temporary cash investment purposes. |
I. Management has determined that no events or transactions occurred subsequent to March 31, 2023, that would require recognition or disclosure in these financial statements.
12
Target Retirement 2050 Fund
Underlying Vanguard Funds
As of March 31, 2023
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 54.1% |
| Vanguard Total International Stock Index Fund Investor Shares | 36.3 |
| Vanguard Total Bond Market II Index Fund Investor Shares | 6.8 |
| Vanguard Total International Bond II Index Fund Institutional Shares | 2.8 |
The table reflects the fund’s
investments, except for short-term investments and derivatives.
13
Target Retirement 2050 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2023
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
| Shares | Market Value• ($000) | |||||
| Investment Companies (98.6%) | ||||||
| U.S. Stock Fund (53.3%) | ||||||
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 153,297,695 | 28,573,158 | ||||
| International Stock Fund (35.9%) | ||||||
| Vanguard Total International Stock Index Fund Investor Shares | 1,083,650,581 | 19,213,125 | ||||
| U.S. Bond Fund (6.7%) | ||||||
| 1 | Vanguard Total Bond Market II Index Fund Investor Shares | 374,389,240 | 3,594,136 | |||
| International Bond Fund (2.7%) | ||||||
| 1 | Vanguard Total International Bond II Index Fund Institutional Shares | 55,697,025 | 1,463,718 | |||
| Total Investment Companies (Cost $42,369,319) | 52,844,137 | |||||
| Temporary Cash Investments (1.3%) | ||||||
| Money Market Fund (1.3%) | ||||||
| 1 | Vanguard Market Liquidity Fund, 4.839% (Cost $699,390) | 6,995,786 | 699,509 | |||
| Total Investments (99.9%) (Cost $43,068,709) | 53,543,646 | |||||
| Other Assets and Liabilities—Net (0.1%) | 46,166 | |||||
| Net Assets (100%) | 53,589,812 | |||||
| Cost is in $000. |
| • | See Note A in Notes to Financial Statements. |
| 1 | Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market Liquidity Fund is the 7-day yield. |
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| 10-Year U.S. Treasury Note | June 2023 | 3,048 | 350,282 | 9,078 |
| E-mini S&P 500 Index | June 2023 | 1,740 | 359,984 | 21,108 |
| 30,186 | ||||
See accompanying
Notes, which are an integral part of the Financial Statements.
14
Target Retirement 2050 Fund
Statement of Assets and Liabilities
As of March 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value—Affiliated Funds (Cost $43,068,709) | 53,543,646 |
| Cash Collateral Pledged—Futures Contracts | 26,353 |
| Receivables for Investment Securities Sold | 10,000 |
| Receivables for Accrued Income | 13,497 |
| Receivables for Capital Shares Issued | 119,774 |
| Variation Margin Receivable—Futures Contracts | 6,072 |
| Total Assets | 53,719,342 |
| Liabilities | |
| Payables for Investment Securities Purchased | 86,685 |
| Payables for Capital Shares Redeemed | 42,845 |
| Total Liabilities | 129,530 |
| Net Assets | 53,589,812 |
| At March 31, 2023, net assets consisted of: | |
| Paid-in Capital | 42,459,025 |
| Total Distributable Earnings (Loss) | 11,130,787 |
| Net Assets | 53,589,812 |
| Net Assets | |
| Applicable to 1,329,605,573 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 53,589,812 |
| Net Asset Value Per Share | $40.31 |
See accompanying Notes, which are an
integral part of the Financial Statements.
15
Target Retirement 2050 Fund
Statement of Operations
| Six Months Ended March 31, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received from Affiliated Funds | 549,959 |
| Net Investment Income—Note B | 549,959 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received from Affiliated Funds | 1 |
| Affiliated Funds Sold1 | 513,932 |
| Futures Contracts | (41,510) |
| Realized Net Gain (Loss) | 472,423 |
| Change in Unrealized Appreciation (Depreciation) | |
| Affiliated Funds | 6,263,477 |
| Futures Contracts | 89,392 |
| Change in Unrealized Appreciation (Depreciation) | 6,352,869 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 7,375,251 |
| 1 | Includes $645,682,000 of net gain (loss) resulting from in-kind redemptions. |
See accompanying Notes, which are an
integral part of the Financial Statements.
16
Target Retirement 2050 Fund
Statement of Changes in Net Assets
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 549,959 | 834,943 | |
| Realized Net Gain (Loss) | 472,423 | 731,107 | |
| Change in Unrealized Appreciation (Depreciation) | 6,352,869 | (12,598,775) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 7,375,251 | (11,032,725) | |
| Distributions | |||
| Total Distributions | (1,134,128) | (2,514,988) | |
| Capital Share Transactions | |||
| Issued | 4,993,095 | 8,252,573 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement 2050 Fund—Note G | — | 31,731,807 | |
| Issued in Lieu of Cash Distributions | 1,115,771 | 2,439,402 | |
| Redeemed | (3,496,408) | (5,723,074) | |
| Net Increase (Decrease) from Capital Share Transactions | 2,612,458 | 36,700,708 | |
| Total Increase (Decrease) | 8,853,581 | 23,152,995 | |
| Net Assets | |||
| Beginning of Period | 44,736,231 | 21,583,236 | |
| End of Period | 53,589,812 | 44,736,231 | |
See accompanying Notes, which are an
integral part of the Financial Statements.
17
Target Retirement 2050 Fund
Financial Highlights
| For a Share Outstanding Throughout Each Period | Six Months Ended March 31, 2023 | Year Ended September 30, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $35.44 | $50.09 | $40.60 | $37.63 | $37.80 | $35.07 |
| Investment Operations | ||||||
| Net Investment Income1 | .429 | .884 | .798 | .793 | .851 | .794 |
| Capital Gain Distributions Received1 | .0002 | .009 | .031 | — | — | .001 |
| Net Realized and Unrealized Gain (Loss) on Investments | 5.342 | (9.524) | 9.498 | 3.053 | (.204) | 2.629 |
| Total from Investment Operations | 5.771 | (8.631) | 10.327 | 3.846 | .647 | 3.424 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.805) | (1.026) | (.741) | (.876) | (.789) | (.684) |
| Distributions from Realized Capital Gains | (.096) | (4.993) | (.096) | — | (.028) | (.010) |
| Total Distributions | (.901) | (6.019) | (.837) | (.876) | (.817) | (.694) |
| Net Asset Value, End of Period | $40.31 | $35.44 | $50.09 | $40.60 | $37.63 | $37.80 |
| Total Return3 | 16.48% | -20.18% | 25.65% | 10.26% | 2.07% | 9.84% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $53,590 | $44,736 | $21,583 | $22,979 | $19,470 | $16,804 |
| Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.08% | 0.09%4 | 0.15% | 0.15% | 0.15% | 0.15% |
| Ratio of Net Investment Income to Average Net Assets | 2.22% | 2.10% | 1.68% | 2.08% | 2.36% | 2.16% |
| Portfolio Turnover Rate | 2%5 | 4%5 | 4% | 9% | 3% | 7% |
| The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Distribution was less than $.001 per share. |
| 3 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 4 | The Acquired Fund Fees and Expenses (AFFE) of 0.09% reflects the blended amount of expenses for the year ended September 30, 2022. Before the acquisition of Vanguard Institutional Target Retirement 2050 Fund on February 11, 2022, the AFFE was 0.15% on an annualized basis. Following the acquisition, the AFFE was 0.08% on an annualized basis. See Note G. |
| 5 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares. |
See accompanying
Notes, which are an integral part of the Financial Statements.
18
Target Retirement 2050 Fund
Notes to Financial Statements
Vanguard Target Retirement
2050 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds to achieve
its targeted allocation of assets to U.S. and international stocks, and U.S. and international bonds. The fund invests a substantial amount of its assets in Vanguard Total Stock Market Index Fund. Financial statements
and other information about each underlying fund are available at www.vanguard.com.
Significant market
disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia's invasion of Ukraine), acts of terrorism, or other events, can adversely affect local
and global markets and normal market operations. Any such disruptions could have an adverse impact on the value of the fund's investments and fund performance.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund 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. Futures Contracts:
The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use
of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk
involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors
the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s
performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any securities pledged as initial margin for open contracts are noted in the Schedule of
Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
March 31, 2023, the fund’s average investments in long and short futures contracts represented 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
3. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute virtually all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until
expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state
income tax years, and has concluded that no provision for income tax is required in the fund’s financial statements.
19
Target Retirement 2050 Fund
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial
reporting purposes.
5. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which 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 fund invests (see Note B). Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate, the overnight bank funding rate, or
the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based upon an alternate rate agreed to by
the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March
31, 2023, the fund did not utilize the credit facilities or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate
management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines
approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by
virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the six months ended March 31, 2023, were borne by
the underlying Vanguard funds in which the fund invests. The fund's trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees,
respectively, of Vanguard.
20
Target Retirement 2050 Fund
C. The fund’s SEC registrant (the Vanguard Chester Funds (the “Trust”)), certain officers and trustees of the Trust, and The Vanguard Group Inc. (collectively, the
“Defendants”) were named in putative class action lawsuits filed in 2022 by certain investors (the “Plaintiffs”) in the U.S. District Court for the Eastern District of Pennsylvania; these class
action lawsuits were later consolidated into one action. The Plaintiffs assert claims related to their allegations that the Defendants improperly decided to lower minimum investment limits in 2020 for the
Trust’s Institutional Target Retirement funds for certain smaller retirement plan participants, which purportedly harmed certain investors in taxable accounts. The Plaintiffs seek damages and various other forms
of relief. The Defendants do not agree with these allegations and claims and intend to vigorously defend against them.
D. Various inputs may be used to determine the value of the fund’s investments and derivatives. 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 fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
At March 31, 2023, 100% of the
market value of the fund's investments and derivatives was determined based on Level 1 inputs.
E. As of March 31, 2023, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
| Amount ($000) | |
| Tax Cost | 43,188,416 |
| Gross Unrealized Appreciation | 11,716,963 |
| Gross Unrealized Depreciation | (1,331,547) |
| Net Unrealized Appreciation (Depreciation) | 10,385,416 |
F. Capital shares issued and redeemed were:
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| Shares (000) | Shares (000) | ||
| Issued | 128,300 | 194,700 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement 2050 Fund—Note G | — | 715,647 | |
| Issued in Lieu of Cash Distributions | 29,841 | 51,935 | |
| Redeemed | (90,701) | (131,023) | |
| Net Increase (Decrease) in Shares Outstanding | 67,440 | 831,259 |
21
Target Retirement 2050 Fund
G. On February 11, 2022, the Vanguard Target Retirement 2050 Fund acquired all the net assets of Vanguard Institutional Target Retirement 2050 Fund (the “Acquired Fund”)
pursuant to a plan of reorganization approved by the funds' board of trustees in September 2021. The acquisition was accomplished by a tax-free exchange of 715,647,000 shares of Vanguard Target Retirement 2050 Fund
for the 990,381,000 shares of the Acquired Fund outstanding on February 11, 2022. The Acquired Fund's net assets of $31,731,807,000, including $7,205,789,000 of unrealized appreciation, were combined with Vanguard
Target Retirement 2050 Fund's net assets of $21,438,369,000, resulting in combined net assets of $53,170,176,000 on February 11, 2022.
H. Transactions during the period in affiliated underlying Vanguard funds were as follows:
| Current Period Transactions | ||||||||
| Sep. 30, 2022 Market Value ($000) | Purchases at Cost ($000) | Proceeds from Securities Sold1 ($000) | Realized Net Gain (Loss) ($000) | Change in Unrealized App. (Dep.) ($000) | Income ($000) | Capital Gain Distributions Received ($000) | Mar. 31, 2023 Market Value ($000) | |
| Vanguard Market Liquidity Fund | 595,970 | NA2 | NA2 | 17 | 107 | 12,117 | 1 | 699,509 |
| Vanguard Total Bond Market II Index Fund | 3,147,317 | 632,016 | 297,502 | (23,875) | 136,180 | 46,018 | — | 3,594,136 |
| Vanguard Total International Bond II Index Fund | 1,437,305 | 71,819 | 85,610 | (10,033) | 50,237 | 9,802 | — | 1,463,718 |
| Vanguard Total International Stock Index Fund | 15,922,776 | 1,014,408 | 1,028,378 | (13,766) | 3,318,085 | 249,695 | — | 19,213,125 |
| Vanguard Total Stock Market Index Fund | 23,619,117 | 2,364,571 | 730,987 | 561,589 | 2,758,868 | 232,327 | — | 28,573,158 |
| Total | 44,722,485 | 4,082,814 | 2,142,477 | 513,932 | 6,263,477 | 549,959 | 1 | 53,543,646 |
| 1 | Includes $1,353,680,000 of portfolio securities delivered as a result of in-kind redemptions of the fund’s capital shares. |
| 2 | Not applicable—purchases and sales are for temporary cash investment purposes. |
I. Management has determined that no events or transactions occurred subsequent to March 31, 2023, that would require recognition or disclosure in these financial statements.
22
Target Retirement 2055 Fund
Underlying Vanguard Funds
As of March 31, 2023
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 54.1% |
| Vanguard Total International Stock Index Fund Investor Shares | 36.3 |
| Vanguard Total Bond Market II Index Fund Investor Shares | 6.8 |
| Vanguard Total International Bond II Index Fund Institutional Shares | 2.8 |
The table reflects the fund’s
investments, except for short-term investments and derivatives.
23
Target Retirement 2055 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2023
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
| Shares | Market Value• ($000) | |||||
| Investment Companies (98.6%) | ||||||
| U.S. Stock Fund (53.3%) | ||||||
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 97,121,443 | 18,102,466 | ||||
| International Stock Fund (35.9%) | ||||||
| Vanguard Total International Stock Index Fund Investor Shares | 686,444,167 | 12,170,655 | ||||
| U.S. Bond Fund (6.7%) | ||||||
| 1 | Vanguard Total Bond Market II Index Fund Investor Shares | 236,460,541 | 2,270,021 | |||
| International Bond Fund (2.7%) | ||||||
| 1 | Vanguard Total International Bond II Index Fund Institutional Shares | 35,208,394 | 925,277 | |||
| Total Investment Companies (Cost $28,899,075) | 33,468,419 | |||||
| Temporary Cash Investments (1.3%) | ||||||
| Money Market Fund (1.3%) | ||||||
| 1 | Vanguard Market Liquidity Fund, 4.839% (Cost $423,037) | 4,231,623 | 423,120 | |||
| Total Investments (99.9%) (Cost $29,322,112) | 33,891,539 | |||||
| Other Assets and Liabilities—Net (0.1%) | 37,275 | |||||
| Net Assets (100%) | 33,928,814 | |||||
| Cost is in $000. |
| • | See Note A in Notes to Financial Statements. |
| 1 | Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market Liquidity Fund is the 7-day yield. |
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| 10-Year U.S. Treasury Note | June 2023 | 1,822 | 209,388 | 5,563 |
| E-mini S&P 500 Index | June 2023 | 1,067 | 220,749 | 12,944 |
| 18,507 | ||||
See accompanying
Notes, which are an integral part of the Financial Statements.
24
Target Retirement 2055 Fund
Statement of Assets and Liabilities
As of March 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value—Affiliated Funds (Cost $29,322,112) | 33,891,539 |
| Cash Collateral Pledged—Futures Contracts | 16,059 |
| Receivables for Investment Securities Sold | 8,000 |
| Receivables for Accrued Income | 8,471 |
| Receivables for Capital Shares Issued | 105,842 |
| Variation Margin Receivable—Futures Contracts | 3,707 |
| Total Assets | 34,033,618 |
| Liabilities | |
| Payables for Investment Securities Purchased | 88,775 |
| Payables for Capital Shares Redeemed | 16,029 |
| Total Liabilities | 104,804 |
| Net Assets | 33,928,814 |
| At March 31, 2023, net assets consisted of: | |
| Paid-in Capital | 28,932,298 |
| Total Distributable Earnings (Loss) | 4,996,516 |
| Net Assets | 33,928,814 |
| Net Assets | |
| Applicable to 754,552,840 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 33,928,814 |
| Net Asset Value Per Share | $44.97 |
See accompanying Notes, which are an
integral part of the Financial Statements.
25
Target Retirement 2055 Fund
Statement of Operations
| Six Months Ended March 31, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received from Affiliated Funds | 343,243 |
| Net Investment Income—Note B | 343,243 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received from Affiliated Funds | 1 |
| Affiliated Funds Sold1 | 337,478 |
| Futures Contracts | (26,567) |
| Realized Net Gain (Loss) | 310,912 |
| Change in Unrealized Appreciation (Depreciation) | |
| Affiliated Funds | 3,877,028 |
| Futures Contracts | 55,114 |
| Change in Unrealized Appreciation (Depreciation) | 3,932,142 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 4,586,297 |
| 1 | Includes $390,952,000 of net gain (loss) resulting from in-kind redemptions. |
See accompanying Notes, which are an
integral part of the Financial Statements.
26
Target Retirement 2055 Fund
Statement of Changes in Net Assets
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 343,243 | 502,651 | |
| Realized Net Gain (Loss) | 310,912 | 336,184 | |
| Change in Unrealized Appreciation (Depreciation) | 3,932,142 | (7,551,022) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 4,586,297 | (6,712,187) | |
| Distributions | |||
| Total Distributions | (648,929) | (1,181,452) | |
| Capital Share Transactions | |||
| Issued | 4,183,636 | 6,339,068 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement 2055 Fund—Note G | — | 19,001,359 | |
| Issued in Lieu of Cash Distributions | 638,184 | 1,145,310 | |
| Redeemed | (2,400,408) | (3,538,531) | |
| Net Increase (Decrease) from Capital Share Transactions | 2,421,412 | 22,947,206 | |
| Total Increase (Decrease) | 6,358,780 | 15,053,567 | |
| Net Assets | |||
| Beginning of Period | 27,570,034 | 12,516,467 | |
| End of Period | 33,928,814 | 27,570,034 | |
See accompanying Notes, which are an
integral part of the Financial Statements.
27
Target Retirement 2055 Fund
Financial Highlights
| For a Share Outstanding Throughout Each Period | Six Months Ended March 31, 2023 | Year Ended September 30, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $39.46 | $54.38 | $44.08 | $40.84 | $40.95 | $37.98 |
| Investment Operations | ||||||
| Net Investment Income1 | .479 | .981 | .868 | .862 | .929 | .868 |
| Capital Gain Distributions Received1 | .0002 | .010 | .034 | — | — | .001 |
| Net Realized and Unrealized Gain (Loss) on Investments | 5.954 | (10.672) | 10.295 | 3.307 | (.209) | 2.819 |
| Total from Investment Operations | 6.433 | (9.681) | 11.197 | 4.169 | .720 | 3.688 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.885) | (1.099) | (.791) | (.929) | (.830) | (.718) |
| Distributions from Realized Capital Gains | (.038) | (4.140) | (.106) | — | — | — |
| Total Distributions | (.923) | (5.239) | (.897) | (.929) | (.830) | (.718) |
| Net Asset Value, End of Period | $44.97 | $39.46 | $54.38 | $44.08 | $40.84 | $40.95 |
| Total Return3 | 16.49% | -20.17% | 25.61% | 10.25% | 2.09% | 9.79% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $33,929 | $27,570 | $12,516 | $12,901 | $10,202 | $8,011 |
| Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.08% | 0.09%4 | 0.15% | 0.15% | 0.15% | 0.15% |
| Ratio of Net Investment Income to Average Net Assets | 2.22% | 2.10% | 1.68% | 2.09% | 2.37% | 2.18% |
| Portfolio Turnover Rate | 1%5 | 4%5 | 6% | 8% | 3% | 5% |
| The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Distribution was less than $.001 per share. |
| 3 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 4 | The Acquired Fund Fees and Expenses (AFFE) of 0.09% reflects the blended amount of expenses for the year ended September 30, 2022. Before the acquisition of Vanguard Institutional Target Retirement 2055 Fund on February 11, 2022, the AFFE was 0.15% on an annualized basis. Following the acquisition, the AFFE was 0.08% on an annualized basis. See Note G. |
| 5 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares. |
See accompanying
Notes, which are an integral part of the Financial Statements.
28
Target Retirement 2055 Fund
Notes to Financial Statements
Vanguard Target Retirement
2055 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds to achieve
its targeted allocation of assets to U.S. and international stocks, and U.S. and international bonds. The fund invests a substantial amount of its assets in Vanguard Total Stock Market Index Fund. Financial statements
and other information about each underlying fund are available at www.vanguard.com.
Significant market
disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia's invasion of Ukraine), acts of terrorism, or other events, can adversely affect local
and global markets and normal market operations. Any such disruptions could have an adverse impact on the value of the fund's investments and fund performance.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund 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. Futures Contracts:
The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use
of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk
involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors
the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s
performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any securities pledged as initial margin for open contracts are noted in the Schedule of
Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
March 31, 2023, the fund’s average investments in long and short futures contracts represented 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
3. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute virtually all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until
expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state
income tax years, and has concluded that no provision for income tax is required in the fund’s financial statements.
29
Target Retirement 2055 Fund
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial
reporting purposes.
5. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which 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 fund invests (see Note B). Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate, the overnight bank funding rate, or
the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based upon an alternate rate agreed to by
the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March
31, 2023, the fund did not utilize the credit facilities or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate
management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines
approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by
virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the six months ended March 31, 2023, were borne by
the underlying Vanguard funds in which the fund invests. The fund's trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees,
respectively, of Vanguard.
30
Target Retirement 2055 Fund
C. The fund’s SEC registrant (the Vanguard Chester Funds (the “Trust”)), certain officers and trustees of the Trust, and The Vanguard Group Inc. (collectively, the
“Defendants”) were named in putative class action lawsuits filed in 2022 by certain investors (the “Plaintiffs”) in the U.S. District Court for the Eastern District of Pennsylvania; these class
action lawsuits were later consolidated into one action. The Plaintiffs assert claims related to their allegations that the Defendants improperly decided to lower minimum investment limits in 2020 for the
Trust’s Institutional Target Retirement funds for certain smaller retirement plan participants, which purportedly harmed certain investors in taxable accounts. The Plaintiffs seek damages and various other forms
of relief. The Defendants do not agree with these allegations and claims and intend to vigorously defend against them.
D. Various inputs may be used to determine the value of the fund’s investments and derivatives. 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 fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
At March 31, 2023, 100% of the
market value of the fund's investments and derivatives was determined based on Level 1 inputs.
E. As of March 31, 2023, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
| Amount ($000) | |
| Tax Cost | 29,390,140 |
| Gross Unrealized Appreciation | 5,486,099 |
| Gross Unrealized Depreciation | (966,193) |
| Net Unrealized Appreciation (Depreciation) | 4,519,906 |
F. Capital shares issued and redeemed were:
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| Shares (000) | Shares (000) | ||
| Issued | 96,458 | 135,178 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement 2055 Fund—Note G | — | 384,955 | |
| Issued in Lieu of Cash Distributions | 15,301 | 21,903 | |
| Redeemed | (55,876) | (73,546) | |
| Net Increase (Decrease) in Shares Outstanding | 55,883 | 468,490 |
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Target Retirement 2055 Fund
G. On February 11, 2022, the Vanguard Target Retirement 2055 Fund acquired all the net assets of Vanguard Institutional Target Retirement 2055 Fund (the “Acquired Fund”)
pursuant to a plan of reorganization approved by the funds' board of trustees in September 2021. The acquisition was accomplished by a tax-free exchange of 384,955,000 shares of Vanguard Target Retirement 2055 Fund
for the 590,471,000 shares of the Acquired Fund outstanding on February 11, 2022. The Acquired Fund's net assets of $19,001,359,000, including $3,713,220,000 of unrealized appreciation, were combined with Vanguard
Target Retirement 2055 Fund's net assets of $12,651,876,000, resulting in combined net assets of $31,653,235,000 on February 11, 2022.
H. Transactions during the period in affiliated underlying Vanguard funds were as follows:
| Current Period Transactions | ||||||||
| Sep. 30, 2022 Market Value ($000) | Purchases at Cost ($000) | Proceeds from Securities Sold1 ($000) | Realized Net Gain (Loss) ($000) | Change in Unrealized App. (Dep.) ($000) | Income ($000) | Capital Gain Distributions Received ($000) | Mar. 31, 2023 Market Value ($000) | |
| Vanguard Market Liquidity Fund | 374,454 | NA2 | NA2 | 13 | 64 | 7,713 | 1 | 423,120 |
| Vanguard Total Bond Market II Index Fund | 1,931,971 | 440,669 | 172,737 | (12,613) | 82,731 | 28,764 | — | 2,270,021 |
| Vanguard Total International Bond II Index Fund | 872,382 | 72,700 | 44,688 | (3,422) | 28,305 | 6,071 | — | 925,277 |
| Vanguard Total International Stock Index Fund | 9,834,856 | 866,114 | 583,528 | 16,454 | 2,036,759 | 155,215 | — | 12,170,655 |
| Vanguard Total Stock Market Index Fund | 14,550,078 | 2,026,654 | 540,481 | 337,046 | 1,729,169 | 145,480 | — | 18,102,466 |
| Total | 27,563,741 | 3,406,137 | 1,341,434 | 337,478 | 3,877,028 | 343,243 | 1 | 33,891,539 |
| 1 | Includes $989,620,000 of portfolio securities delivered as a result of in-kind redemptions of the fund’s capital shares. |
| 2 | Not applicable—purchases and sales are for temporary cash investment purposes. |
I. Management has determined that no events or transactions occurred subsequent to March 31, 2023, that would require recognition or disclosure in these financial statements.
32
Target Retirement 2060 Fund
Underlying Vanguard Funds
As of March 31, 2023
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 54.1% |
| Vanguard Total International Stock Index Fund Investor Shares | 36.4 |
| Vanguard Total Bond Market II Index Fund Investor Shares | 6.7 |
| Vanguard Total International Bond II Index Fund Institutional Shares | 2.8 |
The table reflects the fund’s
investments, except for short-term investments and derivatives.
33
Target Retirement 2060 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2023
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
| Shares | Market Value• ($000) | |||||
| Investment Companies (98.6%) | ||||||
| U.S. Stock Fund (53.4%) | ||||||
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 50,191,642 | 9,355,220 | ||||
| International Stock Fund (35.9%) | ||||||
| Vanguard Total International Stock Index Fund Investor Shares | 354,862,914 | 6,291,719 | ||||
| U.S. Bond Fund (6.6%) | ||||||
| 1 | Vanguard Total Bond Market II Index Fund Investor Shares | 120,534,634 | 1,157,133 | |||
| International Bond Fund (2.7%) | ||||||
| 1 | Vanguard Total International Bond II Index Fund Institutional Shares | 18,190,289 | 478,041 | |||
| Total Investment Companies (Cost $15,551,716) | 17,282,113 | |||||
| Temporary Cash Investments (1.3%) | ||||||
| Money Market Fund (1.3%) | ||||||
| 1 | Vanguard Market Liquidity Fund, 4.839% (Cost $226,367) | 2,264,338 | 226,411 | |||
| Total Investments (99.9%) (Cost $15,778,083) | 17,508,524 | |||||
| Other Assets and Liabilities—Net (0.1%) | 20,114 | |||||
| Net Assets (100%) | 17,528,638 | |||||
| Cost is in $000. |
| • | See Note A in Notes to Financial Statements. |
| 1 | Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market Liquidity Fund is the 7-day yield. |
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| 10-Year U.S. Treasury Note | June 2023 | 1,009 | 115,956 | 3,120 |
| E-mini S&P 500 Index | June 2023 | 557 | 115,237 | 6,757 |
| 9,877 | ||||
See accompanying
Notes, which are an integral part of the Financial Statements.
34
Target Retirement 2060 Fund
Statement of Assets and Liabilities
As of March 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value—Affiliated Funds (Cost $15,778,083) | 17,508,524 |
| Cash | 250 |
| Cash Collateral Pledged—Futures Contracts | 8,515 |
| Receivables for Investment Securities Sold | 7,000 |
| Receivables for Accrued Income | 4,375 |
| Receivables for Capital Shares Issued | 63,654 |
| Variation Margin Receivable—Futures Contracts | 1,955 |
| Total Assets | 17,594,273 |
| Liabilities | |
| Payables for Investment Securities Purchased | 47,603 |
| Payables for Capital Shares Redeemed | 18,032 |
| Total Liabilities | 65,635 |
| Net Assets | 17,528,638 |
| At March 31, 2023, net assets consisted of: | |
| Paid-in Capital | 15,621,998 |
| Total Distributable Earnings (Loss) | 1,906,640 |
| Net Assets | 17,528,638 |
| Net Assets | |
| Applicable to 423,265,369 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 17,528,638 |
| Net Asset Value Per Share | $41.41 |
See accompanying Notes, which are an
integral part of the Financial Statements.
35
Target Retirement 2060 Fund
Statement of Operations
| Six Months Ended March 31, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received from Affiliated Funds | 174,358 |
| Net Investment Income—Note B | 174,358 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received from Affiliated Funds | 1 |
| Affiliated Funds Sold1 | 136,031 |
| Futures Contracts | (11,898) |
| Realized Net Gain (Loss) | 124,134 |
| Change in Unrealized Appreciation (Depreciation) | |
| Affiliated Funds | 1,984,175 |
| Futures Contracts | 27,866 |
| Change in Unrealized Appreciation (Depreciation) | 2,012,041 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 2,310,533 |
| 1 | Includes $150,939,000 of net gain (loss) resulting from in-kind redemptions. |
See accompanying Notes, which are an
integral part of the Financial Statements.
36
Target Retirement 2060 Fund
Statement of Changes in Net Assets
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 174,358 | 249,498 | |
| Realized Net Gain (Loss) | 124,134 | 135,724 | |
| Change in Unrealized Appreciation (Depreciation) | 2,012,041 | (3,659,743) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 2,310,533 | (3,274,521) | |
| Distributions | |||
| Total Distributions | (313,854) | (376,437) | |
| Capital Share Transactions | |||
| Issued | 2,809,002 | 4,239,542 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement 2060 Fund—Note G | — | 7,948,750 | |
| Issued in Lieu of Cash Distributions | 307,568 | 363,769 | |
| Redeemed | (1,264,167) | (1,879,595) | |
| Net Increase (Decrease) from Capital Share Transactions | 1,852,403 | 10,672,466 | |
| Total Increase (Decrease) | 3,849,082 | 7,021,508 | |
| Net Assets | |||
| Beginning of Period | 13,679,556 | 6,658,048 | |
| End of Period | 17,528,638 | 13,679,556 | |
See accompanying Notes, which are an
integral part of the Financial Statements.
37
Target Retirement 2060 Fund
Financial Highlights
| For a Share Outstanding Throughout Each Period | Six Months Ended March 31, 2023 | Year Ended September 30, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $36.30 | $48.04 | $38.95 | $36.07 | $36.16 | $33.51 |
| Investment Operations | ||||||
| Net Investment Income1 | .442 | .903 | .773 | .762 | .822 | .768 |
| Capital Gain Distributions Received1 | .0002 | .009 | .029 | — | — | — |
| Net Realized and Unrealized Gain (Loss) on Investments | 5.481 | (9.930) | 9.085 | 2.922 | (.192) | 2.495 |
| Total from Investment Operations | 5.923 | (9.018) | 9.887 | 3.684 | .630 | 3.263 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.813) | (.936) | (.684) | (.804) | (.717) | (.613) |
| Distributions from Realized Capital Gains | — | (1.786) | (.113) | — | (.003) | — |
| Total Distributions | (.813) | (2.722) | (.797) | (.804) | (.720) | (.613) |
| Net Asset Value, End of Period | $41.41 | $36.30 | $48.04 | $38.95 | $36.07 | $36.16 |
| Total Return3 | 16.49% | -20.16% | 25.60% | 10.25% | 2.07% | 9.81% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $17,529 | $13,680 | $6,658 | $6,027 | $4,359 | $3,240 |
| Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.08% | 0.09%4 | 0.15% | 0.15% | 0.15% | 0.15% |
| Ratio of Net Investment Income to Average Net Assets | 2.23% | 2.10% | 1.69% | 2.09% | 2.37% | 2.19% |
| Portfolio Turnover Rate | 1%5 | 3%5 | 8% | 6% | 2% | 3% |
| The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Distribution was less than $.001 per share. |
| 3 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 4 | The Acquired Fund Fees and Expenses (AFFE) of 0.09% reflects the blended amount of expenses for the year ended September 30, 2022. Before the acquisition of Vanguard Institutional Target Retirement 2060 Fund on February 11, 2022, the AFFE was 0.15% on an annualized basis. Following the acquisition, the AFFE was 0.08% on an annualized basis. See Note G. |
| 5 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares. |
See accompanying
Notes, which are an integral part of the Financial Statements.
38
Target Retirement 2060 Fund
Notes to Financial Statements
Vanguard Target Retirement
2060 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds to achieve
its targeted allocation of assets to U.S. and international stocks, and U.S. and international bonds. The fund invests a substantial amount of its assets in Vanguard Total Stock Market Index Fund. Financial statements
and other information about each underlying fund are available at www.vanguard.com.
Significant market
disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia's invasion of Ukraine), acts of terrorism, or other events, can adversely affect local
and global markets and normal market operations. Any such disruptions could have an adverse impact on the value of the fund's investments and fund performance.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund 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. Futures Contracts:
The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use
of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk
involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors
the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s
performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any securities pledged as initial margin for open contracts are noted in the Schedule of
Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
March 31, 2023, the fund’s average investments in long and short futures contracts represented 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
3. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute virtually all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until
expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state
income tax years, and has concluded that no provision for income tax is required in the fund’s financial statements.
39
Target Retirement 2060 Fund
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial
reporting purposes.
5. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which 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 fund invests (see Note B). Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate, the overnight bank funding rate, or
the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based upon an alternate rate agreed to by
the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March
31, 2023, the fund did not utilize the credit facilities or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate
management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines
approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by
virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the six months ended March 31, 2023, were borne by
the underlying Vanguard funds in which the fund invests. The fund's trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees,
respectively, of Vanguard.
40
Target Retirement 2060 Fund
C. The fund’s SEC registrant (the Vanguard Chester Funds (the “Trust”)), certain officers and trustees of the Trust, and The Vanguard Group Inc. (collectively, the
“Defendants”) were named in putative class action lawsuits filed in 2022 by certain investors (the “Plaintiffs”) in the U.S. District Court for the Eastern District of Pennsylvania; these class
action lawsuits were later consolidated into one action. The Plaintiffs assert claims related to their allegations that the Defendants improperly decided to lower minimum investment limits in 2020 for the
Trust’s Institutional Target Retirement funds for certain smaller retirement plan participants, which purportedly harmed certain investors in taxable accounts. The Plaintiffs seek damages and various other forms
of relief. The Defendants do not agree with these allegations and claims and intend to vigorously defend against them.
D. Various inputs may be used to determine the value of the fund’s investments and derivatives. 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 fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
At March 31, 2023, 100% of the
market value of the fund's investments and derivatives was determined based on Level 1 inputs.
E. As of March 31, 2023, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
| Amount ($000) | |
| Tax Cost | 15,797,363 |
| Gross Unrealized Appreciation | 2,262,364 |
| Gross Unrealized Depreciation | (541,326) |
| Net Unrealized Appreciation (Depreciation) | 1,721,038 |
F. Capital shares issued and redeemed were:
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| Shares (000) | Shares (000) | ||
| Issued | 70,356 | 98,649 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement 2060 Fund—Note G | — | 175,083 | |
| Issued in Lieu of Cash Distributions | 8,008 | 7,561 | |
| Redeemed | (31,904) | (43,088) | |
| Net Increase (Decrease) in Shares Outstanding | 46,460 | 238,205 |
41
Target Retirement 2060 Fund
G. On February 11, 2022, the Vanguard Target Retirement 2060 Fund acquired all the net assets of Vanguard Institutional Target Retirement 2060 Fund (the “Acquired Fund”)
pursuant to a plan of reorganization approved by the funds' board of trustees in September 2021. The acquisition was accomplished by a tax-free exchange of 175,083,000 shares of Vanguard Target Retirement 2060 Fund
for the 246,473,000 shares of the Acquired Fund outstanding on February 11, 2022. The Acquired Fund's net assets of $7,948,750,000, including $1,257,329,000 of unrealized appreciation, were combined with Vanguard
Target Retirement 2060 Fund's net assets of $6,986,111,000, resulting in combined net assets of $14,934,861,000 on February 11, 2022.
H. Transactions during the period in affiliated underlying Vanguard funds were as follows:
| Current Period Transactions | ||||||||
| Sep. 30, 2022 Market Value ($000) | Purchases at Cost ($000) | Proceeds from Securities Sold1 ($000) | Realized Net Gain (Loss) ($000) | Change in Unrealized App. (Dep.) ($000) | Income ($000) | Capital Gain Distributions Received ($000) | Mar. 31, 2023 Market Value ($000) | |
| Vanguard Market Liquidity Fund | 180,773 | NA2 | NA2 | 3 | 36 | 4,150 | 1 | 226,411 |
| Vanguard Total Bond Market II Index Fund | 951,772 | 242,695 | 72,917 | (2,470) | 38,053 | 14,516 | — | 1,157,133 |
| Vanguard Total International Bond II Index Fund | 434,124 | 52,359 | 20,917 | (1,295) | 13,770 | 3,084 | — | 478,041 |
| Vanguard Total International Stock Index Fund | 4,891,871 | 588,401 | 219,998 | 11,841 | 1,019,604 | 78,440 | — | 6,291,719 |
| Vanguard Total Stock Market Index Fund | 7,207,187 | 1,339,866 | 232,497 | 127,952 | 912,712 | 74,168 | — | 9,355,220 |
| Total | 13,665,727 | 2,223,321 | 546,329 | 136,031 | 1,984,175 | 174,358 | 1 | 17,508,524 |
| 1 | Includes $430,550,000 of portfolio securities delivered as a result of in-kind redemptions of the fund’s capital shares. |
| 2 | Not applicable—purchases and sales are for temporary cash investment purposes. |
I. Management has determined that no events or transactions occurred subsequent to March 31, 2023, that would require recognition or disclosure in these financial statements.
42
Target Retirement 2065 Fund
Underlying Vanguard Funds
As of March 31, 2023
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 54.2% |
| Vanguard Total International Stock Index Fund Investor Shares | 36.4 |
| Vanguard Total Bond Market II Index Fund Investor Shares | 6.5 |
| Vanguard Total International Bond II Index Fund Institutional Shares | 2.9 |
The table reflects the fund’s
investments, except for short-term investments and derivatives.
43
Target Retirement 2065 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2023
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
| Shares | Market Value• ($000) | |||||
| Investment Companies (98.5%) | ||||||
| U.S. Stock Fund (53.4%) | ||||||
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 12,348,150 | 2,301,572 | ||||
| International Stock Fund (35.9%) | ||||||
| Vanguard Total International Stock Index Fund Investor Shares | 87,295,669 | 1,547,751 | ||||
| U.S. Bond Fund (6.4%) | ||||||
| 1 | Vanguard Total Bond Market II Index Fund Investor Shares | 28,873,380 | 277,184 | |||
| International Bond Fund (2.8%) | ||||||
| 1 | Vanguard Total International Bond II Index Fund Institutional Shares | 4,622,941 | 121,491 | |||
| Total Investment Companies (Cost $4,119,103) | 4,247,998 | |||||
| Temporary Cash Investments (1.4%) | ||||||
| Money Market Fund (1.4%) | ||||||
| 1 | Vanguard Market Liquidity Fund, 4.839% (Cost $61,806) | 618,208 | 61,815 | |||
| Total Investments (99.9%) (Cost $4,180,909) | 4,309,813 | |||||
| Other Assets and Liabilities—Net (0.1%) | 2,833 | |||||
| Net Assets (100%) | 4,312,646 | |||||
| Cost is in $000. |
| • | See Note A in Notes to Financial Statements. |
| 1 | Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market Liquidity Fund is the 7-day yield. |
Derivative Financial
Instruments Outstanding as of Period End
| Futures Contracts | ||||
| ($000) | ||||
| Expiration | Number of Long (Short) Contracts | Notional Amount | Value and Unrealized Appreciation (Depreciation) | |
| Long Futures Contracts | ||||
| 10-Year U.S. Treasury Note | June 2023 | 279 | 32,063 | 842 |
| E-mini S&P 500 Index | June 2023 | 136 | 28,137 | 1,583 |
| 2,425 | ||||
See accompanying
Notes, which are an integral part of the Financial Statements.
44
Target Retirement 2065 Fund
Statement of Assets and Liabilities
As of March 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value—Affiliated Funds (Cost $4,180,909) | 4,309,813 |
| Cash Collateral Pledged—Futures Contracts | 2,160 |
| Receivables for Accrued Income | 1,047 |
| Receivables for Capital Shares Issued | 18,796 |
| Variation Margin Receivable—Futures Contracts | 489 |
| Total Assets | 4,332,305 |
| Liabilities | |
| Payables for Investment Securities Purchased | 16,999 |
| Payables for Capital Shares Redeemed | 2,660 |
| Total Liabilities | 19,659 |
| Net Assets | 4,312,646 |
| At March 31, 2023, net assets consisted of: | |
| Paid-in Capital | 4,165,902 |
| Total Distributable Earnings (Loss) | 146,744 |
| Net Assets | 4,312,646 |
| Net Assets | |
| Applicable to 158,969,860 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 4,312,646 |
| Net Asset Value Per Share | $27.13 |
See accompanying Notes, which are an
integral part of the Financial Statements.
45
Target Retirement 2065 Fund
Statement of Operations
| Six Months Ended March 31, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received from Affiliated Funds | 41,218 |
| Net Investment Income—Note B | 41,218 |
| Realized Net Gain (Loss) | |
| Capital Gain Distributions Received from Affiliated Funds | — |
| Affiliated Funds Sold1 | 13,580 |
| Futures Contracts | (3,556) |
| Realized Net Gain (Loss) | 10,024 |
| Change in Unrealized Appreciation (Depreciation) | |
| Affiliated Funds | 485,491 |
| Futures Contracts | 6,506 |
| Change in Unrealized Appreciation (Depreciation) | 491,997 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 543,239 |
| 1 | Includes $19,711,000 of net gain (loss) resulting from in-kind redemptions. |
See accompanying Notes, which are an
integral part of the Financial Statements.
46
Target Retirement 2065 Fund
Statement of Changes in Net Assets
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 41,218 | 55,399 | |
| Realized Net Gain (Loss) | 10,024 | 17,341 | |
| Change in Unrealized Appreciation (Depreciation) | 491,997 | (799,170) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 543,239 | (726,430) | |
| Distributions | |||
| Total Distributions | (70,815) | (30,464) | |
| Capital Share Transactions | |||
| Issued | 1,004,686 | 1,578,131 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement 2065 Fund—Note G | — | 1,399,373 | |
| Issued in Lieu of Cash Distributions | 68,514 | 28,723 | |
| Redeemed | (366,058) | (546,565) | |
| Net Increase (Decrease) from Capital Share Transactions | 707,142 | 2,459,662 | |
| Total Increase (Decrease) | 1,179,566 | 1,702,768 | |
| Net Assets | |||
| Beginning of Period | 3,133,080 | 1,430,312 | |
| End of Period | 4,312,646 | 3,133,080 | |
See accompanying Notes, which are an
integral part of the Financial Statements.
47
Target Retirement 2065 Fund
Financial Highlights
| For a Share Outstanding Throughout Each Period | Six Months Ended March 31, 2023 | Year Ended September 30, | ||||
| 2022 | 2021 | 2020 | 2019 | 2018 | ||
| Net Asset Value, Beginning of Period | $23.76 | $30.31 | $24.52 | $22.69 | $22.64 | $20.79 |
| Investment Operations | ||||||
| Net Investment Income1 | .289 | .594 | .500 | .485 | .529 | .524 |
| Capital Gain Distributions Received1 | .0002 | .005 | .017 | — | — | — |
| Net Realized and Unrealized Gain (Loss) on Investments | 3.591 | (6.543) | 5.712 | 1.802 | (.116) | 1.496 |
| Total from Investment Operations | 3.880 | (5.944) | 6.229 | 2.287 | .413 | 2.020 |
| Distributions | ||||||
| Dividends from Net Investment Income | (.510) | (.535) | (.400) | (.457) | (.363) | (.170) |
| Distributions from Realized Capital Gains | — | (.071) | (.039) | — | .0002 | — |
| Total Distributions | (.510) | (.606) | (.439) | (.457) | (.363) | (.170) |
| Net Asset Value, End of Period | $27.13 | $23.76 | $30.31 | $24.52 | $22.69 | $22.64 |
| Total Return3 | 16.50% | -20.10% | 25.59% | 10.11% | 2.09% | 9.75% |
| Ratios/Supplemental Data | ||||||
| Net Assets, End of Period (Millions) | $4,313 | $3,133 | $1,430 | $864 | $420 | $202 |
| Ratio of Total Expenses to Average Net Assets | — | — | — | — | — | — |
| Acquired Fund Fees and Expenses | 0.08% | 0.09%4 | 0.15% | 0.15% | 0.15% | 0.15% |
| Ratio of Net Investment Income to Average Net Assets | 2.22% | 2.13% | 1.72% | 2.11% | 2.42% | 2.37% |
| Portfolio Turnover Rate | 1%5 | 2%5 | 5% | 6% | 2% | 1% |
| The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized. | ||||||
| 1 | Calculated based on average shares outstanding. |
| 2 | Distribution was less than $.001 per share. |
| 3 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 4 | The Acquired Fund Fees and Expenses (AFFE) of 0.09% reflects the blended amount of expenses for the year ended September 30, 2022. Before the acquisition of Vanguard Institutional Target Retirement 2065 Fund on February 11, 2022, the AFFE was 0.15% on an annualized basis. Following the acquisition, the AFFE was 0.08% on an annualized basis. See Note G. |
| 5 | Excludes the value of portfolio securities received or delivered as a result of in-kind purchases or redemptions of the fund’s capital shares. |
See accompanying
Notes, which are an integral part of the Financial Statements.
48
Target Retirement 2065 Fund
Notes to Financial Statements
Vanguard Target Retirement
2065 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds to achieve
its targeted allocation of assets to U.S. and international stocks, and U.S. and international bonds. The fund invests a substantial amount of its assets in Vanguard Total Stock Market Index Fund. Financial statements
and other information about each underlying fund are available at www.vanguard.com.
Significant market
disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia's invasion of Ukraine), acts of terrorism, or other events, can adversely affect local
and global markets and normal market operations. Any such disruptions could have an adverse impact on the value of the fund's investments and fund performance.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund 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. Futures Contracts:
The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use
of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk
involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors
the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s
performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any securities pledged as initial margin for open contracts are noted in the Schedule of
Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
March 31, 2023, the fund’s average investments in long and short futures contracts represented 1% and 0% of net assets, respectively, based on the average of the notional amounts at each quarter-end during the
period.
3. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute virtually all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until
expiration of the applicable statute of limitations, which is generally three years after the filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state
income tax years, and has concluded that no provision for income tax is required in the fund’s financial statements.
49
Target Retirement 2065 Fund
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial
reporting purposes.
5. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which 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 fund invests (see Note B). Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate, the overnight bank funding rate, or
the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based upon an alternate rate agreed to by
the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March
31, 2023, the fund did not utilize the credit facilities or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate
management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines
approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by
virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the six months ended March 31, 2023, were borne by
the underlying Vanguard funds in which the fund invests. The fund's trustees and officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees,
respectively, of Vanguard.
50
Target Retirement 2065 Fund
C. The fund’s SEC registrant (the Vanguard Chester Funds (the “Trust”)), certain officers and trustees of the Trust, and The Vanguard Group Inc. (collectively, the
“Defendants”) were named in putative class action lawsuits filed in 2022 by certain investors (the “Plaintiffs”) in the U.S. District Court for the Eastern District of Pennsylvania; these class
action lawsuits were later consolidated into one action. The Plaintiffs assert claims related to their allegations that the Defendants improperly decided to lower minimum investment limits in 2020 for the
Trust’s Institutional Target Retirement funds for certain smaller retirement plan participants, which purportedly harmed certain investors in taxable accounts. The Plaintiffs seek damages and various other forms
of relief. The Defendants do not agree with these allegations and claims and intend to vigorously defend against them.
D. Various inputs may be used to determine the value of the fund’s investments and derivatives. 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 fund’s own assumptions used to determine the fair value of investments). Any investments and derivatives valued with significant
unobservable inputs are noted on the Schedule of Investments.
At March 31, 2023, 100% of the
market value of the fund's investments and derivatives was determined based on Level 1 inputs.
E. As of March 31, 2023, gross unrealized appreciation and depreciation for investments and derivatives based on cost for U.S. federal income tax purposes were as follows:
| Amount ($000) | |
| Tax Cost | 4,190,764 |
| Gross Unrealized Appreciation | 302,113 |
| Gross Unrealized Depreciation | (180,639) |
| Net Unrealized Appreciation (Depreciation) | 121,474 |
F. Capital shares issued and redeemed were:
| Six Months Ended March 31, 2023 | Year Ended September 30, 2022 | ||
| Shares (000) | Shares (000) | ||
| Issued | 38,407 | 56,194 | |
| Issued in Connection with Acquisition of Vanguard Institutional Target Retirement 2065 Fund—Note G | — | 47,117 | |
| Issued in Lieu of Cash Distributions | 2,723 | 913 | |
| Redeemed | (14,032) | (19,535) | |
| Net Increase (Decrease) in Shares Outstanding | 27,098 | 84,689 |
51
Target Retirement 2065 Fund
G. On February 11, 2022, the Vanguard Target Retirement 2065 Fund acquired all the net assets of Vanguard Institutional Target Retirement 2065 Fund (the “Acquired Fund”)
pursuant to a plan of reorganization approved by the funds' board of trustees in September 2021. The acquisition was accomplished by a tax-free exchange of 47,117,000 shares of Vanguard Target Retirement 2065 Fund for
the 47,101,000 shares of the Acquired Fund outstanding on February 11, 2022. The Acquired Fund's net assets of $1,399,373,000, including $146,955,000 of unrealized appreciation, were combined with Vanguard Target
Retirement 2065 Fund's net assets of $1,667,328,000, resulting in combined net assets of $3,066,701,000 on February 11, 2022.
H. Transactions during the period in affiliated underlying Vanguard funds were as follows:
| Current Period Transactions | ||||||||
| Sep. 30, 2022 Market Value ($000) | Purchases at Cost ($000) | Proceeds from Securities Sold1 ($000) | Realized Net Gain (Loss) ($000) | Change in Unrealized App. (Dep.) ($000) | Income ($000) | Capital Gain Distributions Received ($000) | Mar. 31, 2023 Market Value ($000) | |
| Vanguard Market Liquidity Fund | 40,909 | NA2 | NA2 | 4 | 5 | 898 | — | 61,815 |
| Vanguard Total Bond Market II Index Fund | 216,733 | 65,310 | 13,187 | (371) | 8,699 | 3,347 | — | 277,184 |
| Vanguard Total International Bond II Index Fund | 99,330 | 23,878 | 4,785 | (274) | 3,342 | 776 | — | 121,491 |
| Vanguard Total International Stock Index Fund | 1,120,260 | 225,431 | 39,424 | 2,048 | 239,436 | 18,349 | — | 1,547,751 |
| Vanguard Total Stock Market Index Fund | 1,652,773 | 466,328 | 63,711 | 12,173 | 234,009 | 17,848 | — | 2,301,572 |
| Total | 3,130,005 | 780,947 | 121,107 | 13,580 | 485,491 | 41,218 | — | 4,309,813 |
| 1 | Includes $81,610,000 of portfolio securities delivered as a result of in-kind redemptions of the fund’s capital shares. |
| 2 | Not applicable—purchases and sales are for temporary cash investment purposes. |
I. Management has determined that no events or transactions occurred subsequent to March 31, 2023, that would require recognition or disclosure in these financial statements.
52
Target Retirement 2070 Fund
Underlying Vanguard Funds
As of March 31, 2023
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 54.1% |
| Vanguard Total International Stock Index Fund Investor Shares | 35.9 |
| Vanguard Total Bond Market II Index Fund Investor Shares | 7.0 |
| Vanguard Total International Bond II Index Fund Institutional Shares | 3.0 |
The table reflects the fund’s
investments, except for short-term investments.
53
Target Retirement 2070 Fund
Financial Statements (unaudited)
Schedule of Investments
As of March 31, 2023
The fund files its complete
schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. The fund’s Form N-PORT reports
are available on the SEC’s website at www.sec.gov.
| Shares | Market Value• ($000) | |||||
| Investment Companies (99.5%) | ||||||
| U.S. Stock Fund (53.8%) | ||||||
| Vanguard Total Stock Market Index Fund Institutional Plus Shares | 399,890 | 74,535 | ||||
| International Stock Fund (35.7%) | ||||||
| Vanguard Total International Stock Index Fund Investor Shares | 2,792,867 | 49,518 | ||||
| U.S. Bond Fund (7.0%) | ||||||
| 1 | Vanguard Total Bond Market II Index Fund Investor Shares | 1,005,689 | 9,655 | |||
| International Bond Fund (3.0%) | ||||||
| 1 | Vanguard Total International Bond II Index Fund Institutional Shares | 157,042 | 4,126 | |||
| Total Investment Companies (Cost $132,461) | 137,834 | |||||
| Temporary Cash Investments (0.2%) | ||||||
| Money Market Fund (0.2%) | ||||||
| 1 | Vanguard Market Liquidity Fund, 4.839% (Cost $243) | 2,433 | 243 | |||
| Total Investments (99.7%) (Cost $132,704) | 138,077 | |||||
| Other Assets and Liabilities—Net (0.3%) | 431 | |||||
| Net Assets (100%) | 138,508 | |||||
| Cost is in $000. |
| • | See Note A in Notes to Financial Statements. |
| 1 | Affiliated fund available only to Vanguard funds and certain trusts and accounts managed by Vanguard. Rate shown for Vanguard Market Liquidity Fund is the 7-day yield. |
See accompanying
Notes, which are an integral part of the Financial Statements.
54
Target Retirement 2070 Fund
Statement of Assets and Liabilities
As of March 31, 2023
| ($000s, except shares, footnotes, and per-share amounts) | Amount |
| Assets | |
| Investments in Securities, at Value—Affiliated Funds (Cost $132,704) | 138,077 |
| Receivables for Accrued Income | 28 |
| Receivables for Capital Shares Issued | 1,574 |
| Total Assets | 139,679 |
| Liabilities | |
| Payables for Investment Securities Purchased | 1,149 |
| Payables for Capital Shares Redeemed | 22 |
| Total Liabilities | 1,171 |
| Net Assets | 138,508 |
| At March 31, 2023, net assets consisted of: | |
| Paid-in Capital | 133,514 |
| Total Distributable Earnings (Loss) | 4,994 |
| Net Assets | 138,508 |
| Net Assets | |
| Applicable to 6,487,401 outstanding $.001 par value shares of beneficial interest (unlimited authorization) | 138,508 |
| Net Asset Value Per Share | $21.35 |
See accompanying Notes, which are an
integral part of the Financial Statements.
55
Target Retirement 2070 Fund
Statement of Operations
| Six Months Ended March 31, 2023 | |
| ($000) | |
| Investment Income | |
| Income | |
| Income Distributions Received from Affiliated Funds | 903 |
| Net Investment Income—Note B | 903 |
| Realized Net Gain (Loss) | |
| Affiliated Funds Sold | (33) |
| Futures Contracts | 14 |
| Realized Net Gain (Loss) | (19) |
| Change in Unrealized Appreciation (Depreciation) from Affiliated Funds | 8,284 |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 9,168 |
See accompanying Notes, which are an
integral part of the Financial Statements.
56
Target Retirement 2070 Fund
Statement of Changes in Net Assets
| Six Months Ended March 31, 2023 | June 28, 20221 to September 30, 2022 | ||
| ($000) | ($000) | ||
| Increase (Decrease) in Net Assets | |||
| Operations | |||
| Net Investment Income | 903 | 134 | |
| Realized Net Gain (Loss) | (19) | (771) | |
| Change in Unrealized Appreciation (Depreciation) | 8,284 | (2,911) | |
| Net Increase (Decrease) in Net Assets Resulting from Operations | 9,168 | (3,548) | |
| Distributions | |||
| Total Distributions | (626) | — | |
| Capital Share Transactions | |||
| Issued | 111,530 | 50,855 | |
| Issued in Lieu of Cash Distributions | 608 | — | |
| Redeemed | (14,075) | (15,404) | |
| Net Increase (Decrease) from Capital Share Transactions | 98,063 | 35,451 | |
| Total Increase (Decrease) | 106,605 | 31,903 | |
| Net Assets | |||
| Beginning of Period | 31,903 | — | |
| End of Period | 138,508 | 31,903 | |
| 1 | Inception. |
See accompanying Notes, which are an
integral part of the Financial Statements.
57
Target Retirement 2070 Fund
Financial Highlights
| For a Share Outstanding Throughout Each Period | Six Months Ended March 31, 2023 | June 28, 20221 to September 30, 2022 |
| Net Asset Value, Beginning of Period | $18.50 | $20.00 |
| Investment Operations | ||
| Net Investment Income2 | .241 | .113 |
| Capital Gain Distributions Received2 | — | — |
| Net Realized and Unrealized Gain (Loss) on Investments | 2.791 | (1.613) |
| Total from Investment Operations | 3.032 | (1.500) |
| Distributions | ||
| Dividends from Net Investment Income | (.182) | — |
| Distributions from Realized Capital Gains | — | — |
| Total Distributions | (.182) | — |
| Net Asset Value, End of Period | $21.35 | $18.50 |
| Total Return3 | 16.47% | -7.50% |
| Ratios/Supplemental Data | ||
| Net Assets, End of Period (Millions) | $139 | $32 |
| Ratio of Total Expenses to Average Net Assets | — | — |
| Acquired Fund Fees and Expenses | 0.08% | 0.08%4 |
| Ratio of Net Investment Income to Average Net Assets | 2.34% | 2.15%4 |
| Portfolio Turnover Rate | 1% | 44% |
| The expense ratio, acquired fund fees and expenses, and net investment income ratio for the current period have been annualized. | ||
| 1 | Inception. |
| 2 | Calculated based on average shares outstanding. |
| 3 | Total returns do not include account service fees that may have applied in the periods shown. Fund prospectuses provide information about any applicable account service fees. |
| 4 | Annualized. |
See accompanying
Notes, which are an integral part of the Financial Statements.
58
Target Retirement 2070 Fund
Notes to Financial Statements
Vanguard Target Retirement
2070 Fund is registered under the Investment Company Act of 1940 as an open-end investment company, or mutual fund. The fund follows a balanced investment strategy by investing in selected Vanguard funds to achieve
its targeted allocation of assets to U.S. and international stocks, and U.S. and international bonds. The fund invests a substantial amount of its assets in Vanguard Total Stock Market Index Fund. Financial statements
and other information about each underlying fund are available at www.vanguard.com.
Significant market
disruptions, such as those caused by pandemics (e.g., COVID-19 pandemic), natural or environmental disasters, war (e.g., Russia's invasion of Ukraine), acts of terrorism, or other events, can adversely affect local
and global markets and normal market operations. Any such disruptions could have an adverse impact on the value of the fund's investments and fund performance.
A. The following significant accounting policies conform to generally accepted accounting principles for U.S. investment companies. The fund 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. Futures Contracts:
The fund uses stock and bond futures contracts to a limited extent, with the objectives of maintaining full exposure to the market and maintaining its target asset allocation. The primary risks associated with the use
of futures contracts are imperfect correlation between changes in market values of investments held by the fund and the prices of futures contracts, and the possibility of an illiquid market. Counterparty risk
involving futures is mitigated because a regulated clearinghouse is the counterparty instead of the clearing broker. To further mitigate counterparty risk, the fund trades futures contracts on an exchange, monitors
the financial strength of its clearing brokers and clearinghouse, and has entered into clearing agreements with its clearing brokers. The clearinghouse imposes initial margin requirements to secure the fund’s
performance and requires daily settlement of variation margin representing changes in the market value of each contract. Any securities pledged as initial margin for open contracts are noted in the Schedule of
Investments.
Futures contracts are valued
at their quoted daily settlement prices. The notional amounts of the contracts are not recorded in the Statement of Assets and Liabilities. Fluctuations in the value of the contracts are recorded in the Statement of
Assets and Liabilities as an asset (liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains (losses) on futures
contracts.
During the six months ended
March 31, 2023, the fund’s average investments in long and short futures contracts represented less than 1% of net assets, based on the average of the notional amounts at each quarter-end during the period. The
fund had no open futures contracts at March 31, 2023.
3. Federal Income Taxes:
The fund intends to continue to qualify as a regulated investment company and distribute virtually all of its taxable income. The fund’s tax returns are open to examination by the relevant tax authorities until
expiration of the applicable statute of limitations,
59
Target Retirement 2070 Fund
which is generally three years after the
filing of the tax return. Management has analyzed the fund’s tax positions taken for all open federal and state income tax years, and has concluded that no provision for income tax is required in the
fund’s financial statements.
4. Distributions:
Distributions to shareholders are recorded on the ex-dividend date. Distributions are determined on a tax basis at the fiscal year-end and may differ from net investment income and realized capital gains for financial
reporting purposes.
5. Credit Facilities and
Interfund Lending Program: The fund and certain other funds managed by The Vanguard Group ("Vanguard") participate in a $4.3 billion committed credit facility provided by a syndicate of lenders pursuant to a credit
agreement and an uncommitted credit facility provided by Vanguard. Both facilities may be renewed annually. Each fund is individually liable for its borrowings, if any, under the credit facilities. Borrowings may be
utilized for temporary or emergency purposes and are subject to the fund’s regulatory and contractual borrowing restrictions. With respect to the committed credit facility, the participating funds are charged
administrative fees and an annual commitment fee of 0.10% of the undrawn committed amount of the facility, which 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 fund invests (see Note B). Any borrowings under either facility bear interest at an agreed-upon spread plus the higher of the federal funds effective rate, the overnight bank funding rate, or
the Daily Simple Secured Overnight Financing Rate inclusive of an additional agreed-upon spread. However, borrowings under the uncommitted credit facility may bear interest based upon an alternate rate agreed to by
the fund and Vanguard.
In accordance with an
exemptive order (the “Order”) from the SEC, the fund may participate in a joint lending and borrowing program that allows registered open-end Vanguard funds to borrow money from and lend money to each
other for temporary or emergency purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by the fund’s investment
objective and investment policies. Interfund loans and borrowings normally extend overnight but can have a maximum duration of seven days. Loans may be called on one business day’s notice. The interest rate to
be charged is governed by the conditions of the Order and internal procedures adopted by the board of trustees. The board of trustees is responsible for overseeing the Interfund Lending Program.
For the six months ended March
31, 2023, the fund did not utilize the credit facilities or the Interfund Lending Program.
6. 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. In accordance with the terms of a Funds’ Service Agreement (the “FSA”) between Vanguard and the fund, Vanguard furnishes to the fund investment advisory, corporate
management, administrative, marketing, and distribution services at Vanguard’s cost of operations (as defined by the FSA). These costs of operations are allocated to the fund based on methods and guidelines
approved by the board of trustees. The FSA provides that expenses otherwise allocable to Vanguard funds-of-funds may be reduced or eliminated to the extent of savings realized by the underlying Vanguard funds by
virtue of being part of a fund-of-funds. Accordingly, all expenses for services provided by Vanguard to the fund and all other expenses incurred by the fund during the six months ended March 31, 2023, were borne by
the underlying Vanguard funds in which the
60
Target Retirement 2070 Fund
fund invests. The fund's trustees and
officers are also trustees and officers, respectively, of the underlying Vanguard funds, as well as directors and employees, respectively, of Vanguard.
C. Various inputs may be used to determine the value of the fund’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 fund’s own assumptions used to determine the fair value of investments). Any investments valued with significant unobservable
inputs are noted on the Schedule of Investments.
At March 31, 2023, 100% of the
market value of the fund's investments was determined based on Level 1 inputs.
D. As of March 31, 2023, gross unrealized appreciation and depreciation for investments based on cost for U.S. federal income tax purposes were as follows:
| Amount ($000) | |
| Tax Cost | 133,510 |
| Gross Unrealized Appreciation | 5,352 |
| Gross Unrealized Depreciation | (785) |
| Net Unrealized Appreciation (Depreciation) | 4,567 |
E. Capital shares issued and redeemed were:
| Six Months Ended March 31, 2023 | June 28, 20221 to September 30, 2022 | ||
| Shares (000) | Shares (000) | ||
| Issued | 5,416 | 2,487 | |
| Issued in Lieu of Cash Distributions | 31 | — | |
| Redeemed | (685) | (762) | |
| Net Increase (Decrease) in Shares Outstanding | 4,762 | 1,725 |
| 1 | Inception. |
61
Target Retirement 2070 Fund
F. Transactions during the period in affiliated underlying Vanguard funds were as follows:
| Current Period Transactions | ||||||||
| Sep. 30, 2022 Market Value ($000) | Purchases at Cost ($000) | Proceeds from Securities Sold ($000) | Realized Net Gain (Loss) ($000) | Change in Unrealized App. (Dep.) ($000) | Income ($000) | Capital Gain Distributions Received ($000) | Mar. 31, 2023 Market Value ($000) | |
| Vanguard Market Liquidity Fund | — | NA1 | NA1 | — | — | 3 | — | 243 |
| Vanguard Total Bond Market II Index Fund | 2,243 | 7,348 | 123 | (6) | 193 | 76 | — | 9,655 |
| Vanguard Total International Bond II Index Fund | 960 | 3,120 | 19 | (1) | 66 | 18 | — | 4,126 |
| Vanguard Total International Stock Index Fund | 11,507 | 34,415 | 134 | (12) | 3,742 | 363 | — | 49,518 |
| Vanguard Total Stock Market Index Fund | 17,193 | 53,326 | 253 | (14) | 4,283 | 443 | — | 74,535 |
| Total | 31,903 | 98,209 | 529 | (33) | 8,284 | 903 | — | 138,077 |
| 1 | Not applicable—purchases and sales are for temporary cash investment purposes. |
G. Management has determined that no events or transactions occurred subsequent to March 31, 2023, that would require recognition or disclosure in these financial statements.
62
Trustees Approve Advisory Arrangements
The board of trustees of Vanguard Target
Retirement Funds has renewed each fund’s investment advisory arrangement with The Vanguard Group, Inc. (Vanguard), through its Equity Index Group. The board determined that continuing each
fund’s internalized management structure was in the best interests of the funds and their shareholders.
The board based its decision
upon an evaluation of the advisor’s investment staff, portfolio management process, and performance. This evaluation included information provided to the board by Vanguard’s Portfolio Review
Department, which is responsible for fund and advisor oversight and product management. The Portfolio Review Department met regularly with the advisor and made monthly presentations to the board
during the fiscal year that directed the board’s focus to relevant information and topics.
The board, or an investment
committee made up of board members, also received information throughout the year during advisor presentations. For each advisor presentation, the board was provided with letters and reports that
included information about, among other things, the advisory firm and the advisor’s assessment of the investment environment, portfolio performance, and portfolio characteristics.
In addition, the board
received periodic reports throughout the year, which included information about each fund’s performance relative to its peers and benchmark, as applicable, and updates, as needed, on the Portfolio
Review Department’s ongoing assessment of the advisor.
Prior to their meeting, the
trustees were provided with a memo and materials that summarized the information they received over the course of the year. They also considered the factors discussed below, among others. However, no
single factor determined whether the board approved the arrangements. Rather, it was the totality of the circumstances that drove the board’s decisions.
Nature, extent, and quality of
services
The board reviewed the quality of the
funds’ investment management services over both the short and long term, and took into account the organizational depth and stability of the advisor. The board considered that Vanguard has been
managing investments for more than four decades. The Equity Index Group adheres to a sound, disciplined investment management process; the team has considerable experience, stability, and
depth.
The board concluded that
Vanguard’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangements.
Investment performance
The board considered the performance of each
fund, including any periods of outperformance or underperformance compared with a relevant benchmark index and peer group. The board concluded that the performance was such that the advisory
arrangements should continue.
Cost
The board concluded that each fund’s
acquired fund fees and expenses were below the average expense ratios charged by funds in its respective peer group. The funds do not incur advisory expenses directly; however, the board noted that each
of the underlying funds in which the funds invest has advisory expenses below the relevant peer-group average.
The board does not conduct a
profitability analysis of Vanguard because of Vanguard’s unique structure. Unlike most other mutual fund management companies, Vanguard is owned by the funds it oversees.
63
The benefit of economies of
scale
The board concluded that Vanguard’s
arrangements with the Target Retirement Funds and their underlying funds ensure that the funds will realize economies of scale as they grow, with the cost to shareholders declining as assets
increase.
The board will consider
whether to renew the advisory arrangements again after a one-year period.
64
Liquidity Risk Management
Vanguard funds (except for the
money market funds) have adopted and implemented a written liquidity risk management program (the “Program”) as required by Rule 22e-4 under the Investment Company Act of 1940. Rule 22e-4 requires that
each fund adopt a program that is reasonably designed to assess and manage the fund’s liquidity risk, which is the risk that the fund could not meet redemption requests without significant dilution of remaining
investors’ interests in the fund.
Assessment and management of a
fund’s liquidity risk under the Program take into consideration certain factors, such as the fund’s investment strategy and the liquidity of its portfolio investments during normal and reasonably
foreseeable stressed conditions, its short- and long-term cash-flow projections during both normal and reasonably foreseeable stressed conditions, and its cash and cash-equivalent holdings and access to other funding
sources. As required by the rule, the Program includes policies and procedures for classification of fund portfolio holdings in four liquidity categories, maintaining certain levels of highly liquid investments, and
limiting holdings of illiquid investments.
The board of trustees of
Vanguard Chester Funds approved the appointment of liquidity risk management program administrators responsible for administering the Program for Vanguard Target Retirement 2045 Fund, Vanguard Target Retirement 2050
Fund, Vanguard Target Retirement 2055 Fund, Vanguard Target Retirement 2060 Fund, Vanguard Target Retirement 2065 Fund, and Vanguard Target Retirement 2070 Fund, and for carrying out the specific responsibilities set
forth in the Program, including reporting to the board on at least an annual basis regarding the Program's operation, its adequacy, and the effectiveness of its implementation for the past year (the “Program
Administrator Report”). The board has reviewed the Program Administrator Report covering the period from January 1, 2022, through December 31, 2022 (the “Review Period”). The Program Administrator
Report stated that during the Review Period the Program operated and was implemented effectively to manage the funds' liquidity risk.
65
Item 2: Code of Ethics.
Not applicable.
Item 3: Audit Committee Financial Expert.
Not applicable.
Item 4: Principal Accountant Fees and Services.
Not applicable.
Item 5: Audit Committee of Listed Registrants.
Not applicable.
Item 6: Investments.
Not applicable. The complete schedule of investments is included as part of the report to shareholders filed under Item 1 of this Form.
Item 7: Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8: Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9: Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10: Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 11: Controls and Procedures.
(a) Disclosure Controls and Procedures. The Principal Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on their evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report.
(b) Internal Control Over Financial Reporting. There were no significant changes in the Registrant’s Internal Control Over Financial Reporting or in other factors that could significantly affect this control subsequent to the date of the evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
Item 12: Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
Not applicable.
Item 13: Exhibits.
| (a)(1) | Not applicable. |
| (a)(2) | Certifications filed herewith. |
| (b) | Certifications filed herewith. |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| VANGUARD CHESTER FUNDS | ||
| BY: | /s/ MORTIMER J. BUCKLEY* | |
| MORTIMER J. BUCKLEY | ||
| CHIEF EXECUTIVE OFFICER | ||
Date: May 19, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| VANGUARD CHESTER FUNDS | ||
| BY: | /s/ MORTIMER J. BUCKLEY* | |
| MORTIMER J. BUCKLEY | ||
| CHIEF EXECUTIVE OFFICER | ||
Date: May 19, 2023
| VANGUARD CHESTER FUNDS | ||
| BY: | /s/ CHRISTINE BUCHANAN* | |
| CHRISTINE BUCHANAN | ||
| CHIEF FINANCIAL OFFICER |
Date: May 19, 2023
| * By: /s/ Anne E. Robinson |
Anne E. Robinson, pursuant to a Power of Attorney filed on March 29, 2023 (see File Number 2-11444), Incorporated by Reference.