N-CSR 1 tm2132655d1_ncsr.htm N-CSR

 

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, 2020—September 30, 2021

 

 

 

 

Item 1: Reports to Shareholders

 

 

 

 

Annual Report   |   September 30, 2021
Vanguard PRIMECAP Fund

Contents
Your Fund’s Performance at a Glance

1
Advisor’s Report

2
About Your Fund’s Expenses

5
Performance Summary

7
Financial Statements

9
Trustees Approve Advisory Arrangement

25
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.

Your Fund’s Performance at a Glance
Vanguard PRIMECAP Fund returned 29.83% for Admiral Shares and 29.74% for Investor Shares for the 12 months ended September 30, 2021. Its benchmark, the Standard & Poor’s 500 Index, returned 30.00%.
The global economy rebounded faster than many had expected after the pandemic-induced contraction in the spring of 2020. Countries that have been more successful in containing the virus have generally fared better economically. Swift and extensive fiscal and monetary support from policymakers has also been key to the rebound. Stock returns were excellent for the year under review, reflecting the recovery following the sharp downturn at the start of the pandemic.
Value stocks outperformed their growth counterparts, and small-capitalization stocks outdistanced mid- and large-caps for the fiscal year.
In the bond markets, yields moved higher across much of the developed world amid concerns about inflation and the prospect of central banks scaling back their bond-buying programs or raising interest rates.
The fund’s holdings in the information technology sector contributed most to relative performance for the 12 months. Health care stocks detracted most.
Market Barometer
  Average Annual Total Returns
Periods Ended September 30, 2021
  One Year Three Years Five Years
Stocks      
Russell 1000 Index (Large-caps) 30.96% 16.43% 17.11%
Russell 2000 Index (Small-caps) 47.68 10.54 13.45
Russell 3000 Index (Broad U.S. market) 31.88 16.00 16.85
FTSE All-World ex US Index (International) 24.73 8.49 9.28
Bonds      
Bloomberg U.S. Aggregate Bond Index
(Broad taxable market)
-0.90% 5.36% 2.94%
Bloomberg Municipal Bond Index
(Broad tax-exempt market)
2.63 5.06 3.26
FTSE Three-Month U.S. Treasury Bill Index 0.06 1.14 1.13
CPI      
Consumer Price Index 5.39% 2.81% 2.59%
1

Advisor’s Report
For the 12 months ended September 30, 2021, Vanguard PRIMECAP Fund returned 29.83% for Admiral Shares and 29.74% for Investor Shares, in line with the 30.00% total return of its benchmark, the Standard & Poor’s 500 Index, but ahead of the 26.98% total return of its multi-capitalization growth fund competitors. Relative to the S&P 500 Index, favorable stock selection roughly offset unfavorable sector allocation during the period.
Investment environment
The fiscal year ended September 30, 2021, featured a steady rise in the equity markets alongside an uneven economic recovery. U.S. indexes continued their aggressive upswing—the S&P 500 Index doubled from its March 2020 low to its early September 2021 peak—as last year’s initial bounce, powered primarily by Big Tech and other pandemic beneficiaries, yielded to broader cyclical strength. Oil prices and interest rates rebounded, pushing the energy (+83%) and financial (+59%) sectors sharply higher, while COVID-19 “ground zero” industries such as airlines and cruise lines also outperformed. More defensive sectors, such as consumer staples (+11%) and utilities (+11%), lagged the market but still registered gains.
The improvement in underlying economic activity was less uniform. Following last winter’s alarming scourge, when the country largely retrenched amid several thousand daily COVID-19-related deaths, our springtime reopening signaled a robust economic renewal. More than
150 million Americans achieved “fully vaccinated” status by midyear, and daily deaths plummeted more than 90 percent. The Federal Reserve in June forecasted 7% real GDP growth for 2021, an annual growth rate not seen since 1984.
But the euphoria was short-lived. The highly transmissible Delta variant surfaced, creating yet another wave of infection. Meanwhile, abundant monetary and fiscal stimulus collided with fragile supply chains, inducing worrisome inflation. The recovery’s momentum thus stalled somewhat—the Fed now estimates less than 6% real GDP growth for 2021—and the equity market eventually ceded ground, sliding 5% in September.
Outlook for U.S. equities
Our view on U.S. equities overall remains conflicted. We continue to view them as relatively attractive compared with conventional alternatives. However, we still assess inflation as an underappreciated risk. Treasury yields doubled during the period (the 10-year Treasury yield increased from 0.7% to 1.5%) but remain historically low. The 10-year breakeven inflation rate, a market-based gauge of inflation expectations, finished the period higher than a year ago (2.4%, compared with 1.6%), but a mid-2% reading is hardly a distress signal. The market’s apparent complacency reflects the Fed’s characterization of inflation as a temporary phenomenon.
 
2

The market has thus managed to maintain its elevated valuation; the S&P 500 Index trades at 19.7 times price/earnings valuation on 2022 estimated earnings. This valuation metric has stabilized of late, not worsened, with index advances largely mirroring upward revisions to estimated earnings. But absolute valuation levels are historically expensive. Coupled with stubbornly high inflation readings, this dynamic necessarily tempers our outlook.
Portfolio update
The portfolio maintained its substantial overweight positions in health care and industrial stocks; these sectors made up 40% of average assets, compared with their 22% combined weighting in the S&P 500 Index. The portfolio was modestly overweighted in information technology (28% of average assets versus 27% for the index) and consumer discretionary (13% versus 12%), and underweighted in financials (7% versus 11%) and communication services (7% versus 11%). The fund maintained limited exposure to all other sectors, including consumer staples, energy, materials, real estate, and utilities.
Sector allocation was unfavorable during the period. The fund’s overweight to health care (+23% index return) and underweight positions in energy (+83%) and financials (+59%) detracted from results.
Strong stock selection provided an offset, particularly in information technology and financials. Within information technology, outperformance from some
semiconductor holdings—KLA (+75%), Micron (+53%), and Texas Instruments (+38%)—complemented limited exposure to heavyweight Apple (+23%), which lagged the market after more than doubling last year. Within financials, Charles Schwab (+100%) and Wells Fargo (+100%) soared as beneficiaries of both cyclical strength and higher interest rates.
Selection elsewhere was more mixed. Within health care, Eli Lilly (+59%) was unable to offset multiple biopharmaceutical laggards, most notably Amgen (–15%), Novartis (–4%), and Biogen (flat). And in consumer discretionary, a large position in Tesla (+81%, most of which pre-dated its December inclusion in the S&P 500 Index) and a sizable underweight in Amazon (+1%) only partially offset a dramatic decline in Alibaba (–50%), which suffered under increased Chinese regulatory scrutiny.
As of September 30, 2021, the fund’s top 10 holdings made up 35% of assets.
Advisor perspectives
Health care is our second-largest sector weighting and, by a wide margin, our largest overweight position; the fund’s exposure eclipses the benchmark’s average weighting (13%) by 12 percentage points. This positioning proved detrimental during the period, as the sector was unable to keep pace with the market’s vigorous ascent. But we remain confident in our holdings’ long-term opportunities.
3

When the pandemic unfolded, the U.S. government response was to dig proverbial trenches and, from its foxhole, blindly launch a monetary and fiscal bazooka. This lockdown-heavy reaction surprised us, but perhaps should not have—the same self-preservation instinct underlies the inherent value in better medical outcomes. It also informs our attraction to the biopharmaceutical industry, where innovative drugs and therapies can create immense value. Indeed, in our opinion this common COVID-19 response strategy was destined to fail absent the biopharmaceutical industry (and modern medicine more generally) providing a viable exit path.
We thus hoped the pandemic would highlight the health care sector’s unsung significance—in sharp contrast to its usual position in political and regulatory crosshairs. But even miraculous vaccines and ongoing therapy breakthroughs have been unable to salvage health care’s reputation. The sector is among the least expensive, trading at a quite reasonable 16.4 times 2022 price/earnings at period-end—a nearly 20% discount to the market (19.7 times) and well below its defensive peers, consumer staples (19.4 times) and utilities (18.4 times).
Within this less-favorable context, our own health care portfolio suffered numerous stock-specific setbacks, most notably Biogen’s relapse. One of our largest holdings, Biogen’s stock spiked 38% on June 7, when the FDA granted Aduhelm accelerated approval for the treatment of Alzheimer’s disease. By
period-end, Biogen had squandered its gain, a function of the drug’s disastrous launch amid intense market skepticism.
As with Biogen, we continue to own companies, in health care and elsewhere, that are controversial or unloved. These stocks often feature outsized risks (including binary clinical trial outcomes), unusually opaque futures, and well-worn Wall Street opposition. We do not pursue volatility or opacity or hostility per se; rather, we seek mismatches between current share prices and our assessments of long-term value, and we tend to find these dislocations in such fraught environments.
Conclusion
COVID-19’s unwelcome impact has been more devastating and lasting than we first contemplated. And yet the core of our original conviction has been sustained: Normalcy will ultimately return. The contours of society have no doubt forever shifted, but society’s underlying structure and purpose—our collective humanity—endure. As COVID-19 transitions from pandemic to endemic, we believe that collective humanity, briefly obscured by both virus and fiat, will flourish once more. Our portfolio continues to be positioned for this eventuality.
PRIMECAP Management Company
October 15, 2021
4

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.
5

Six Months Ended September 30, 2021      
  Beginning
Account Value
3/31/2021
Ending
Account Value
9/30/2021
Expenses
Paid During
Period
Based on Actual Fund Return      
PRIMECAP Fund      
Investor Shares $1,000.00 $1,032.60 $1.94
Admiral™ Shares 1,000.00 1,033.00 1.58
Based on Hypothetical 5% Yearly Return      
PRIMECAP Fund      
Investor Shares $1,000.00 $1,023.16 $1.93
Admiral Shares 1,000.00 1,023.51 1.57
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 (183/365).
6

PRIMECAP Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: September 30, 2011, Through September 30, 2021
Initial Investment of $10,000
    Average Annual Total Returns
Periods Ended September 30, 2021
 
    One
Year
Five
Years
Ten
Years
Final Value
of a $10,000
Investment
 PRIMECAP Fund Investor Shares 29.74% 17.24% 17.88% $51,803
 S&P 500 Index 30.00 16.90 16.63 46,586
 Dow Jones U.S. Total Stock Market Float
Adjusted Index
32.13 16.82 16.56 46,280
       
    One
Year
Five
Years
Ten
Years
Final Value
of a $50,000
Investment
PRIMECAP Fund Admiral Shares 29.83% 17.32% 17.97% $260,996
S&P 500 Index 30.00 16.90 16.63 232,931
Dow Jones U.S. Total Stock Market Float
Adjusted Index
32.13 16.82 16.56 231,402
See Financial Highlights for dividend and capital gains information.
7

PRIMECAP Fund
Fund Allocation
As of September 30, 2021
Communication Services 7.0%
Consumer Discretionary 13.2
Consumer Staples 0.2
Energy 1.4
Financials 8.7
Health Care 25.0
Industrials 14.0
Information Technology 29.3
Materials 1.2
Real Estate 0.0
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.
8

PRIMECAP Fund
Financial Statements
Schedule of Investments
As of September 30, 2021
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)
Common Stocks (97.7%)
Communication Services (6.9%)
* Alphabet Inc. Class A    715,637  1,913,270
* Alphabet Inc. Class C    390,661  1,041,233
* Baidu Inc. ADR  5,366,078    825,035
* Walt Disney Co.  2,877,425    486,774
  Activision Blizzard Inc.  3,884,000    300,583
* Facebook Inc. Class A    531,050    180,233
* Charter Communications Inc. Class A    202,300    147,185
* Take-Two Interactive Software Inc.    333,500     51,382
* Live Nation Entertainment Inc.    550,340     50,152
* T-Mobile U.S. Inc.    360,800     46,096
  Comcast Corp. Class A    412,369     23,064
* Altice USA Inc. Class A  1,068,500     22,139
  Nintendo Co. Ltd.      1,750        836
  Electronic Arts Inc.      5,700        811
       5,088,793
Consumer Discretionary (12.9%)
* Tesla Inc.  2,404,700  1,864,797
1 Sony Group Corp. ADR 14,912,157  1,648,986
* Alibaba Group Holding Ltd. ADR  9,597,317  1,420,883
  Ross Stores Inc.  7,941,200    864,400
* Amazon.com Inc.    256,480    842,547
  Whirlpool Corp.  3,002,832    612,157
  TJX Cos. Inc.  8,624,500    569,045
*,2 Mattel Inc. 27,518,338    510,740
  Bath & Body Works Inc.  3,562,414    224,539
* Royal Caribbean Cruises Ltd.  1,806,947    160,728
* Carnival Corp.  6,154,065    153,913
  eBay Inc.  1,320,000     91,964
* Marriott International Inc. Class A    556,710     82,443
* Burlington Stores Inc.    248,000     70,325
* Victoria's Secret & Co.  1,187,471     65,620
* Dollar Tree Inc.    637,000     60,974
* Hilton Worldwide Holdings Inc.    423,766     55,984
  Restaurant Brands International Inc.    808,900     49,497
  McDonald's Corp.    191,800     46,245
  Lowe's Cos. Inc.    220,000     44,629
* Las Vegas Sands Corp.    712,300     26,070
  MGM Resorts International    553,400     23,879
    Shares Market
Value

($000)
* Ulta Beauty Inc.     21,000      7,579
* O'Reilly Automotive Inc.     11,000      6,722
* AutoZone Inc.      2,750      4,669
       9,509,335
Consumer Staples (0.2%)
  Sysco Corp.  1,371,300    107,647
  Altria Group Inc.    621,700     28,300
  Mowi ASA    418,000     10,606
  Constellation Brands Inc. Class A     25,700      5,415
  Philip Morris International Inc.     43,300      4,104
         156,072
Energy (1.4%)
  Hess Corp.  6,033,900    471,308
  Pioneer Natural Resources Co.  2,092,700    348,455
  EOG Resources Inc.  1,781,200    142,977
*,1 Transocean Ltd. 11,863,773     44,964
  Schlumberger NV     75,200      2,229
       1,009,933
Financials (8.5%)
  Wells Fargo & Co. 29,880,027  1,386,732
  Charles Schwab Corp. 16,835,216  1,226,277
  JPMorgan Chase & Co.  7,309,275  1,196,455
  Bank of America Corp. 21,111,032    896,163
  Marsh & McLennan Cos. Inc.  4,844,515    733,605
  U.S. Bancorp  3,592,300    213,526
  Raymond James Financial Inc.  2,257,965    208,365
  Citigroup Inc.  2,047,300    143,680
  Progressive Corp.    924,000     83,520
  CME Group Inc.    375,168     72,550
  Morgan Stanley    625,000     60,819
  Goldman Sachs Group Inc.    152,000     57,461
  Discover Financial Services    182,525     22,423
       6,301,576
Health Care (24.4%)
  Eli Lilly & Co. 18,347,208  4,239,122
*,2 Biogen Inc.  9,169,553  2,594,892
  Amgen Inc.  9,506,255  2,021,505
  AstraZeneca plc ADR 26,685,968  1,602,759
  Thermo Fisher Scientific Inc.  2,485,129  1,419,829
* Boston Scientific Corp. 28,110,044  1,219,695
9

PRIMECAP Fund
    Shares Market
Value

($000)
  Novartis AG ADR 11,382,725    930,879
  Roche Holding AG  1,761,013    642,717
  Bristol-Myers Squibb Co.  8,796,513    520,490
* BioMarin Pharmaceutical Inc.  6,200,439    479,232
* Elanco Animal Health Inc. (XNYS) 13,943,419    444,656
* BeiGene Ltd. ADR  1,143,340    415,032
  Abbott Laboratories  3,023,095    357,118
  Zimmer Biomet Holdings Inc.  1,865,030    272,966
  CVS Health Corp.  2,410,000    204,513
  Agilent Technologies Inc.    822,516    129,571
* IQVIA Holdings Inc.    442,224    105,930
  Stryker Corp.    389,200    102,640
  Medtronic plc    735,000     92,132
* Edwards Lifesciences Corp.    492,100     55,711
3 Siemens Healthineers AG    851,517     55,226
  Sanofi ADR    969,000     46,715
  Alcon Inc.    433,987     34,923
  GlaxoSmithKline plc ADR    548,000     20,939
  Danaher Corp.     54,452     16,577
* Waters Corp.     27,030      9,658
  Humana Inc.     19,776      7,696
  UnitedHealth Group Inc.      5,735      2,241
      18,045,364
Industrials (13.7%)
  FedEx Corp.  8,988,058  1,970,991
* Southwest Airlines Co. 27,252,878  1,401,615
  Siemens AG (Registered)  8,547,564  1,397,963
* Airbus SE  4,844,239    642,229
* United Airlines Holdings Inc. 13,081,203    622,273
  Union Pacific Corp.  2,606,600    510,920
  Caterpillar Inc.  2,616,968    502,379
* American Airlines Group Inc. 21,210,513    435,240
* Delta Air Lines Inc.  9,483,900    404,109
  United Parcel Service Inc. Class B  1,952,970    355,636
  Textron Inc.  3,708,000    258,855
* Alaska Air Group Inc.  4,246,500    248,845
* TransDigm Group Inc.    343,916    214,800
  Carrier Global Corp.  3,261,300    168,805
  Deere & Co.    400,000    134,028
* Lyft Inc. Class A  2,149,970    115,217
  Otis Worldwide Corp.  1,334,100    109,770
  General Dynamics Corp.    549,330    107,685
  AMETEK Inc.    864,750    107,238
  CSX Corp.  3,417,000    101,621
  Raytheon Technologies Corp.    720,000     61,891
  Rockwell Automation Inc.    177,000     52,045
  Honeywell International Inc.    240,000     50,947
  L3Harris Technologies Inc.    227,800     50,171
  Pentair plc    586,000     42,561
  nVent Electric plc    887,900     28,706
* Ryanair Holdings plc ADR    250,000     27,515
    Shares Market
Value

($000)
* Uber Technologies Inc.     27,450      1,230
      10,125,285
Information Technology (28.6%)
  Microsoft Corp. 11,421,468  3,219,940
* Adobe Inc.  4,996,957  2,876,848
  Texas Instruments Inc. 12,703,192  2,441,681
  Micron Technology Inc. 25,959,974  1,842,639
  KLA Corp.  4,477,240  1,497,682
  Intel Corp. 21,885,787  1,166,075
  NetApp Inc.  9,363,871    840,501
  Intuit Inc.  1,452,700    783,746
1 Telefonaktiebolaget LM Ericsson ADR 62,505,426    700,061
  NVIDIA Corp.  2,877,560    596,115
  Oracle Corp.  6,639,900    578,534
  QUALCOMM Inc.  4,273,586    551,207
  Analog Devices Inc.  2,755,160    461,434
  Visa Inc. Class A  1,931,100    430,153
  Hewlett Packard Enterprise Co. 30,173,716    429,975
  HP Inc. 15,172,426    415,118
* PayPal Holdings Inc.  1,233,470    320,961
  Cisco Systems Inc.  5,158,679    280,787
  Apple Inc.  1,850,000    261,775
  Entegris Inc.  2,021,822    254,547
* Splunk Inc.  1,387,501    200,785
  Applied Materials Inc.  1,452,300    186,955
  Corning Inc.  4,253,500    155,210
* Autodesk Inc.    464,200    132,376
*,1 BlackBerry Ltd.  9,975,500     97,062
*,2 Plantronics Inc.  3,645,100     93,716
  Mastercard Inc. Class A    211,600     73,569
  Fidelity National Information Services Inc.    550,000     66,924
* Palo Alto Networks Inc.    112,700     53,983
* Western Digital Corp.    695,000     39,226
* Keysight Technologies Inc.    233,000     38,280
* RingCentral Inc. Class A    133,950     29,134
* Dell Technologies Class C    276,000     28,715
* salesforce.com Inc.    100,400     27,230
  Infineon Technologies AG ADR     75,000      3,085
* Okta Inc.      3,500        831
* Arista Networks Inc.      1,000        344
      21,177,204
Materials (1.1%)
  Albemarle Corp.  1,220,235    267,195
  Glencore plc 31,604,371    148,670
  DuPont de Nemours Inc.  1,384,056     94,102
  Dow Inc.  1,610,217     92,684
  Freeport-McMoRan Inc.  2,764,900     89,942
  Linde plc    277,200     81,325
  Corteva Inc.  1,331,916     56,047
         829,965
Real Estate (0.0%)
  Alexandria Real Estate Equities Inc.     25,000      4,777
Total Common Stocks (Cost $25,325,190) 72,248,304
 
10

PRIMECAP Fund
    Shares Market
Value

($000)
Temporary Cash Investments (2.4%)
Money Market Fund (2.4%)
4,5 Vanguard Market Liquidity Fund, 0.068% (Cost$1,726,129) 17,262,566           1,726,256
Total Investments (100.1%) (Cost $27,051,319) 73,974,560
Other Assets and Liabilities—Net (-0.1%) (37,233)
Net Assets (100%) 73,937,327
Cost is in $000.
See Note A in Notes to Financial Statements.
* Non-income-producing security.
1 Includes partial security positions on loan to broker-dealers. The total value of securities on loan is $92,262,000.
2 Considered an affiliated company of the fund as the fund owns more than 5% of the outstanding voting securities of such company.
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 September 30, 2021, the aggregate value was $55,226,000, 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 $95,542,000 was received for securities on loan, of which $95,066,000 is held in Vanguard Market Liquidity Fund and $476,000 is held in cash.
  ADR—American Depositary Receipt.
See accompanying Notes, which are an integral part of the Financial Statements.
11

PRIMECAP Fund
Statement of Assets and Liabilities
As of September 30, 2021
($000s, except shares and per-share amounts) Amount
Assets  
Investments in Securities, at Value  
Unaffiliated Issuers (Cost $24,528,161) 69,048,956
Affiliated Issuers (Cost $2,523,158) 4,925,604
Total Investments in Securities 73,974,560
Investment in Vanguard 2,575
Cash 476
Foreign Currency, at Value (Cost $0) 51
Receivables for Investment Securities Sold 126,854
Receivables for Accrued Income 85,163
Receivables for Capital Shares Issued 13,554
Total Assets 74,203,233
Liabilities  
Due to Custodian 94,684
Payables for Investment Securities Purchased 12,777
Collateral for Securities on Loan 95,542
Payables to Investment Advisor 34,169
Payables for Capital Shares Redeemed 24,494
Payables to Vanguard 4,240
Total Liabilities 265,906
Net Assets 73,937,327
At September 30, 2021, net assets consisted of:  
   
Paid-in Capital 20,623,435
Total Distributable Earnings (Loss) 53,313,892
Net Assets 73,937,327
 
Investor Shares—Net Assets  
Applicable to 34,841,714 outstanding $.001 par value shares of
beneficial interest (unlimited authorization)
5,878,428
Net Asset Value Per Share—Investor Shares $168.72
 
Admiral Shares—Net Assets  
Applicable to 389,093,797 outstanding $.001 par value shares of
beneficial interest (unlimited authorization)
68,058,899
Net Asset Value Per Share—Admiral Shares $174.92
  
See accompanying Notes, which are an integral part of the Financial Statements.
12

PRIMECAP Fund
Statement of Operations
  Year Ended
September 30, 2021
  ($000)
Investment Income  
Income  
Dividends—Unaffiliated Issuers1 765,261
Dividends—Affiliated Issuers 39,777
Interest—Affiliated Issuers 1,041
Securities Lending—Net 1,597
Total Income 807,676
Expenses  
Investment Advisory Fees—Note B 130,617
The Vanguard Group—Note C  
Management and Administrative—Investor Shares 12,121
Management and Administrative—Admiral Shares 82,108
Marketing and Distribution—Investor Shares 371
Marketing and Distribution—Admiral Shares 1,625
Custodian Fees 3,034
Auditing Fees 32
Shareholders’ Reports—Investor Shares 40
Shareholders’ Reports—Admiral Shares 135
Trustees’ Fees and Expenses 52
Total Expenses 230,135
Net Investment Income 577,541
Realized Net Gain (Loss)  
Investment Securities Sold—Unaffiliated Issuers 6,822,136
Investment Securities Sold—Affiliated Issuers 440,815
Foreign Currencies (159)
Realized Net Gain (Loss) 7,262,792
Change in Unrealized Appreciation (Depreciation)  
Investment Securities—Unaffiliated Issuers 9,463,440
Investment Securities—Affiliated Issuers 928,633
Foreign Currencies (263)
Change in Unrealized Appreciation (Depreciation) 10,391,810
Net Increase (Decrease) in Net Assets Resulting from Operations 18,232,143
1 Dividends are net of foreign withholding taxes of $20,434,000.
  
See accompanying Notes, which are an integral part of the Financial Statements.
13

PRIMECAP Fund
Statement of Changes in Net Assets
  Year Ended September 30,
  2021
($000)
2020
($000)
     
Increase (Decrease) in Net Assets    
Operations    
Net Investment Income 577,541 875,564
Realized Net Gain (Loss) 7,262,792 5,074,768
Change in Unrealized Appreciation (Depreciation) 10,391,810 2,803,462
Net Increase (Decrease) in Net Assets Resulting from Operations 18,232,143 8,753,794
Distributions    
Investor Shares (551,613) (444,045)
Admiral Shares (5,760,196) (4,239,627)
Total Distributions (6,311,809) (4,683,672)
Capital Share Transactions    
Investor Shares (897,885) (803,660)
Admiral Shares (1,408,182) (2,214,671)
Net Increase (Decrease) from Capital Share Transactions (2,306,067) (3,018,331)
Total Increase (Decrease) 9,614,267 1,051,791
Net Assets    
Beginning of Period 64,323,060 63,271,269
End of Period 73,937,327 64,323,060
  
See accompanying Notes, which are an integral part of the Financial Statements.
14

PRIMECAP Fund
Financial Highlights
Investor Shares          
For a Share Outstanding
Throughout Each Period 
Year Ended September 30,
2021 2020 2019 2018 2017
Net Asset Value, Beginning of Period $142.86 $133.12 $147.61 $126.84 $107.60
Investment Operations          
Net Investment Income1 1.183 1.745 1.715 1.474 1.398
Net Realized and Unrealized Gain (Loss) on Investments 39.134 17.947 (6.495) 26.529 23.145
Total from Investment Operations 40.317 19.692 (4.780) 28.003 24.543
Distributions          
Dividends from Net Investment Income (1.542) (1.690) (1.470) (1.400) (1.356)
Distributions from Realized Capital Gains (12.915) (8.262) (8.240) (5.833) (3.947)
Total Distributions (14.457) (9.952) (9.710) (7.233) (5.303)
Net Asset Value, End of Period $168.72 $142.86 $133.12 $147.61 $126.84
Total Return2 29.74% 15.05% -2.41% 22.86% 23.75%
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $5,878 $5,697 $6,095 $7,126 $7,699
Ratio of Total Expenses to Average Net Assets 0.38% 0.38% 0.38% 0.38% 0.39%
Ratio of Net Investment Income to Average Net Assets 0.73% 1.31% 1.32% 1.08% 1.22%
Portfolio Turnover Rate 5% 6% 5% 8% 8%
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.
  
See accompanying Notes, which are an integral part of the Financial Statements.
15

PRIMECAP Fund
Financial Highlights
Admiral Shares          
For a Share Outstanding
Throughout Each Period 
Year Ended September 30,
2021 2020 2019 2018 2017
Net Asset Value, Beginning of Period $148.12 $138.02 $153.09 $131.45 $111.52
Investment Operations          
Net Investment Income1 1.345 1.920 1.880 1.622 1.528
Net Realized and Unrealized Gain (Loss) on Investments 40.564 18.600 (6.756) 27.508 23.981
Total from Investment Operations 41.909 20.520 (4.876) 29.130 25.509
Distributions          
Dividends from Net Investment Income (1.716) (1.853) (1.647) (1.444) (1.491)
Distributions from Realized Capital Gains (13.393) (8.567) (8.547) (6.046) (4.088)
Total Distributions (15.109) (10.420) (10.194) (7.490) (5.579)
Net Asset Value, End of Period $174.92 $148.12 $138.02 $153.09 $131.45
Total Return2 29.83% 15.13% -2.34% 22.95% 23.83%
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $68,059 $58,626 $57,177 $62,361 $50,615
Ratio of Total Expenses to Average Net Assets 0.31% 0.31% 0.31% 0.31% 0.32%
Ratio of Net Investment Income to Average Net Assets 0.80% 1.39% 1.39% 1.15% 1.29%
Portfolio Turnover Rate 5% 6% 5% 8% 8%
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.
  
See accompanying Notes, which are an integral part of the Financial Statements.
16

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.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus 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 at their fair values calculated according to procedures adopted 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 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.
17

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, 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; these fees 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 a rate based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread, except that 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 year ended September 30, 2021, the fund did not utilize the credit facilities or the Interfund Lending Program.
18

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.
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 year ended September 30, 2021, 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 September 30, 2021, the fund had contributed to Vanguard capital in the amount of $2,575,000, representing less than 0.01% of the fund’s net assets and 1.03% of Vanguard’s capital received pursuant to the FSA. The fund’s trustees and officers are also directors and employees, respectively, of Vanguard.
D. 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.
19

PRIMECAP Fund
The following table summarizes the market value of the fund’s investments as of September 30, 2021, based on the inputs used to value them:
  Level 1
($000)
Level 2
($000)
Level 3
($000)
Total
($000)
Investments        
Assets        
Common Stocks 69,305,093 2,943,211 72,248,304
Temporary Cash Investments 1,726,256 1,726,256
Total 71,031,349 2,943,211 73,974,560
E. Permanent differences between book-basis and tax-basis components of net assets are reclassified among capital accounts in the financial statements to reflect their tax character. These reclassifications have no effect on net assets or net asset value per share. As of period end, permanent differences primarily attributable to the accounting for foreign currency transactions and distributions in connection with fund share redemptions were reclassified between the following accounts:
  Amount
($000)
Paid-in Capital 362,813
Total Distributable Earnings (Loss) (362,813)
Temporary differences between book-basis and tax-basis components of total distributable earnings (loss) arise when certain items of income, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. The differences are primarily related to the deferral of losses from wash sales. As of period end, the tax-basis components of total distributable earnings (loss) are detailed in the table as follows:
  Amount
($000)
Undistributed Ordinary Income 693,161
Undistributed Long-Term Gains 5,698,772
Capital Loss Carryforwards
Qualified Late-Year Losses
Net Unrealized Gains (Losses) 46,921,959
The tax character of distributions paid was as follows:
  Year Ended September 30,
  2021
Amount
($000)
2020
Amount
($000)
Ordinary Income* 722,975 925,147
Long-Term Capital Gains 5,588,834 3,758,525
Total 6,311,809 4,683,672
* Includes short-term capital gains, if any.
20

PRIMECAP Fund
As of September 30, 2021, gross unrealized appreciation and depreciation for investments based on cost for U.S. federal income tax purposes were as follows:
  Amount
($000)
Tax Cost 27,053,643
Gross Unrealized Appreciation 48,536,889
Gross Unrealized Depreciation (1,615,972)
Net Unrealized Appreciation (Depreciation) 46,920,917
F. During the year ended September 30, 2021, the fund purchased $3,535,472,000 of investment securities and sold $12,169,053,000 of investment securities, other than temporary cash investments.
G. Capital share transactions for each class of shares were:
    
  Year Ended September 30,  
  2021   2020
  Amount
($000)
Shares
(000)
  Amount
($000)
Shares
(000)
Investor Shares          
Issued 348,874 2,168   547,781 4,262
Issued in Lieu of Cash Distributions 536,328 3,657   432,110 3,129
Redeemed (1,783,087) (10,861)   (1,783,551) (13,296)
Net Increase (Decrease)—Investor Shares (897,885) (5,036)   (803,660) (5,905)
Admiral Shares          
Issued 3,667,358 21,693   2,426,834 17,481
Issued in Lieu of Cash Distributions 5,395,981 35,507   3,984,207 27,842
Redeemed (10,471,521) (63,912)   (8,625,712) (63,781)
Net Increase (Decrease)—Admiral Shares (1,408,182) (6,712)   (2,214,671) (18,458)
21

PRIMECAP Fund
H. 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,
2020
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)
Sep. 30,
2021
Market
Value
($000)
Biogen Inc. 2,586,564 77,760 79,078 15,802 (6,156) 2,594,892
Mattel Inc. 314,153 12,815 3,025 (111) 186,908 510,740
NetApp Inc. 554,573 249,140 124,930 410,138 22,401 NA1
Plantronics Inc. 43,480 342 (810) 51,388 93,716
Southwest Airlines Co. 1,283,631 383,072 255,800 245,256 NA1
Vanguard Market Liquidity Fund 1,421,884 NA2 NA2 65 (273) 1,041 1,726,256
Whirlpool Corp. 727,169 1,888 203,411 45,139 41,372 17,376 NA1
Total 6,931,454     440,815 928,633 40,818 4,925,604
1 Not applicable—at September 30, 2021, the security was still held, but the issuer was no longer an affiliated company of the fund.
2 Not applicable—purchases and sales are for temporary cash investment purposes.
I. Management has determined that no events or transactions occurred subsequent to September 30, 2021, that would require recognition or disclosure in these financial statements.
22

Report of Independent Registered Public Accounting Firm
To the Board of Trustees of Vanguard Chester Funds and Shareholders of Vanguard PRIMECAP Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Vanguard PRIMECAP Fund (one of the funds constituting Vanguard Chester Funds, referred to hereafter as the "Fund") as of September 30, 2021, the related statement of operations for the year ended September 30, 2021, the statement of changes in net assets for each of the two years in the period ended September 30, 2021, including the related notes, and the financial highlights for each of the five years in the period ended September 30, 2021 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of September 30, 2021, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period ended September 30, 2021 and the financial highlights for each of the five years in the period ended September 30, 2021 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of September 30, 2021 by correspondence with the custodian, transfer agent and brokers; when replies were not received from the transfer agent or brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
/s/PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
November 19, 2021
We have served as the auditor of one or more investment companies in The Vanguard Group of Funds since 1975.
23


Special 2021 tax information (unaudited) for Vanguard PRIMECAP Fund
This information for the fiscal year ended September 30, 2021, is included pursuant to provisions of the Internal Revenue Code.
The fund distributed $5,921,941,000 as capital gain dividends (20% rate gain distributions) to shareholders during the fiscal year.
For nonresident alien shareholders, 100% of short-term capital gain dividends distributed by the fund are qualified short-term capital gains.
The fund distributed $722,975,000 of qualified dividend income to shareholders during the fiscal year.
For corporate shareholders, 71.6% of investment income (dividend income plus short-term gains, if any) qualifies for the dividends-received deduction.
24

Trustees Approve Advisory Arrangement
The board of trustees of Vanguard PRIMECAP Fund has renewed the fund’s investment advisory arrangement with PRIMECAP Management Company (PRIMECAP). The board determined that renewing the fund’s advisory arrangement was in the best interests of the fund and its 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 the 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 material 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 arrangement. Rather, it was the totality of the circumstances that drove the board’s decision.
Nature, extent, and quality of services
The board reviewed the quality of the fund’s 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 PRIMECAP, founded in 1983, is recognized for its long-term approach to growth equity investing. Five experienced portfolio managers are responsible for separate subportfolios, and each portfolio manager employs a fundamental, research-driven approach in seeking to identify companies with long-term growth potential that the market has yet to appreciate. The multi-counselor approach employed by PRIMECAP is designed to emphasize individual decision-making and enable the portfolio managers to invest in their highest-conviction ideas. The advisor’s fundamental research focuses on developing opinions independent from Wall Street’s consensus and maintaining a long-term horizon. PRIMECAP has managed the fund since its inception in 1984.
The board concluded that the advisor’s experience, stability, depth, and performance, among other factors, warranted continuation of the advisory arrangement.
25

Investment performance
The board considered the short- and long-term performance of the 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 arrangement should continue.
Cost
The board concluded that the fund’s expense ratio was well below the average expense ratio charged by funds in its peer group and that the fund’s advisory fee rate was also well below the peer-group average.
The board did not consider the profitability of PRIMECAP in determining whether to approve the advisory fee, because PRIMECAP is independent of Vanguard and the advisory fee is the result of arm’s-length negotiations.
The benefit of economies of scale
The board concluded that the fund’s shareholders benefit from economies of scale because of breakpoints in the fund’s advisory fee schedule. The breakpoints reduce the effective rate of the fee as the fund’s assets increase.
The board will consider whether to renew the advisory arrangement again after a one-year period.
26

The People Who Govern Your Fund
The trustees of your mutual fund are there to see that the fund is operated and managed in your best interests since, as a shareholder, you are a part owner of the fund. Your fund’s trustees also serve on the board of directors of The Vanguard Group, Inc., which is owned by the Vanguard funds and provides services to them.
A majority of Vanguard’s board members are independent, meaning that they have no affiliation with Vanguard or the funds they oversee, apart from the sizable personal investments they have made as private individuals. The independent board members have distinguished backgrounds in business, academia, and public service. Each of the trustees and executive officers oversees 212 Vanguard funds.
Information for each trustee and executive officer of the fund appears below. That information, as well as the Vanguard fund count, is as of the date on the cover of this fund report. The mailing address of the trustees and officers is P.O. Box 876, Valley Forge, PA 19482. More information about the trustees is in the Statement of Additional Information, which can be obtained, without charge, by contacting Vanguard at 800-662-7447, or online at vanguard.com.
Interested Trustee1
Mortimer J. Buckley
Born in 1969. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: chairman of the board (2019–present) of Vanguard and of each of the investment companies served by Vanguard; chief executive officer (2018–present) of Vanguard; chief executive officer, president, and trustee (2018–present) of each of the investment companies served by Vanguard; president and director (2017–present) of Vanguard; and president (2018–present) of Vanguard Marketing Corporation. Chief investment officer (2013–2017), managing director (2002–2017), head of the Retail Investor Group (2006–2012), and chief information officer (2001–2006) of Vanguard. Chairman of the board (2011–2017) and trustee (2009–2017) of the Children’s Hospital of Philadelphia; and trustee (2018–present) and vice chair (2019–present) of The Shipley School.
Independent Trustees
Emerson U. Fullwood
Born in 1948. Trustee since January 2008. Principal occupation(s) during the past five years and other experience: executive chief staff and marketing officer for North America and corporate vice president (retired 2008) of Xerox Corporation (document management products and services). Former president of the Worldwide Channels Group, Latin
America, and Worldwide Customer Service and executive chief staff officer of Developing Markets of Xerox. Executive in residence and 2009–2010 Distinguished Minett Professor at the Rochester Institute of Technology. Director of SPX FLOW, Inc. (multi-industry manufacturing). Director of the University of Rochester Medical Center, the Monroe Community College Foundation, the United Way of Rochester, North Carolina A&T University, and Roberts Wesleyan College. Trustee of the University of Rochester.
Amy Gutmann
Born in 1949. Trustee since June 2006. Principal occupation(s) during the past five years and other experience: president (2004–present) of the University of Pennsylvania. Christopher H. Browne Distinguished Professor of Political Science, School of Arts and Sciences, and professor of communication, Annenberg School for Communication, with secondary faculty appointments in the Department of Philosophy, School of Arts and Sciences, and at the Graduate School of Education, University of Pennsylvania.
F. Joseph Loughrey
Born in 1949. Trustee since October 2009. Principal occupation(s) during the past five years and other experience: president and chief operating officer (retired 2009) and vice chairman of the board (2008–2009) of Cummins Inc. (industrial machinery). Chairman of the board of Hillenbrand, Inc. (specialized consumer services). Director of the V Foundation.
 
1  Mr. Buckley is considered an “interested person,” as defined in the Investment Company Act of 1940, because he is an officer of the Vanguard funds.

Member of the advisory council for the College of Arts and Letters and chair of the advisory board to the Kellogg Institute for International Studies, both at the University of Notre Dame. Chairman of the board of Saint Anselm College.
Mark Loughridge
Born in 1953. Trustee since March 2012. Principal occupation(s) during the past five years and other experience: senior vice president and chief financial officer (retired 2013) of IBM (information technology services). Fiduciary member of IBM’s Retirement Plan Committee (2004–2013), senior vice president and general manager (2002–2004) of IBM Global Financing, vice president and controller (1998–2002) of IBM, and a variety of other prior management roles at IBM. Member of the Council on Chicago Booth.
Scott C. Malpass
Born in 1962. Trustee since March 2012. Principal occupation(s) during the past five years and other experience: chief investment officer (retired June 2020) and vice president (retired June 2020) of the University of Notre Dame. Assistant professor (retired June 2020) of finance at the Mendoza College of Business, University of Notre Dame, and member of the Notre Dame 403(b) Investment Committee. Member of the board of Catholic Investment Services, Inc. (investment advisors) and the board of superintendence of the Institute for the Works of Religion.
Deanna Mulligan
Born in 1963. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: board chair (2020), chief executive officer (2011–2020), and president (2010–2019) of The Guardian Life Insurance Company of America. Chief operating officer (2010–2011) and executive vice president (2008–2010) of Individual Life and Disability of the Guardian Life Insurance Company of America. Member of the board of the Economic Club of New York. Trustee of the Partnership for New York City (business leadership), Chief Executives for Corporate Purpose, NewYork-Presbyterian Hospital, and the Bruce Museum (arts and science). Member of the Advisory Council for the Stanford Graduate School of Business.
André F. Perold
Born in 1952. Trustee since December 2004. Principal occupation(s) during the past five years and other experience: George Gund Professor of Finance and Banking, Emeritus at the Harvard Business School (retired 2011). Chief investment officer and co-managing partner of HighVista Strategies (private investment firm). Member of the board
(2018–present) of RIT Capital Partners (investment firm). Member of the investment committee of Partners Health Care System.
Sarah Bloom Raskin
Born in 1961. Trustee since January 2018. Principal occupation(s) during the past five years and other experience: deputy secretary (2014–2017) of the United States Department of the Treasury. Governor (2010–2014) of the Federal Reserve Board. Commissioner (2007–2010) of financial regulation for the State of Maryland. Professor (2020–present), Distinguished Fellow of the Global Financial Markets Center (2020–present), and Rubenstein Fellow (2017–2020) at Duke University. Trustee (2017–present) of Amherst College and member of Amherst College Investment Committee (2019–present). Member of the Regenerative Crisis Response Committee (2020–present).
David A. Thomas
Born in 1956. Trustee since July 2021. Principal occupation(s) during the past five years and other experience: president of Morehouse College (2018–present). Professor of business administration, emeritus at Harvard University (2017–2018). Dean (2011–2016) and professor of management (2016–2017) at the Georgetown University McDonough School of Business. Director of DTE Energy Company (2013–present). Trustee of Common Fund (2019–present).
Peter F. Volanakis
Born in 1955. Trustee since July 2009. Principal occupation(s) during the past five years and other experience: president and chief operating officer (retired 2010) of Corning Incorporated (communications equipment) and director of Corning Incorporated (2000–2010) and Dow Corning (2001–2010). Director (2012) of SPX Corporation (multi-industry manufacturing). Overseer of the Amos Tuck School of Business Administration, Dartmouth College (2001–2013). Chairman of the board of trustees of Colby-Sawyer College. Member of the BMW Group Mobility Council.

Executive Officers
John Bendl
Born in 1970. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Chief financial officer (2019–present) of each of the investment companies served by Vanguard. Chief accounting officer, treasurer, and controller of Vanguard (2017–present). Partner (2003–2016) at KPMG (audit, tax, and advisory services).
Christine M. Buchanan
Born in 1970. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Treasurer (2017–present) of each of the investment companies served by Vanguard. Partner (2005–2017) at KPMG (audit, tax, and advisory services).
David Cermak
Born in 1960. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Finance director (2019–present) of each of the investment companies served by Vanguard. Managing director and head (2017–present) of Vanguard Investments Singapore. Managing director and head (2017–2019) of Vanguard Investments Hong Kong. Representative director and head (2014–2017) of Vanguard Investments Japan.
John Galloway
Born in 1973. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Investment stewardship officer (September 2020–present) of each of the investment companies served by Vanguard. Head of Investor Advocacy (February 2020–present) and head of Marketing Strategy and Planning (2017–2020) at Vanguard. Deputy assistant to the President of the United States (2015).
Peter Mahoney
Born in 1974. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Controller (2015–present) of each of the investment companies served by Vanguard. Head of International Fund Services (2008–2014) at Vanguard.
Anne E. Robinson
Born in 1970. Principal occupation(s) during the past five years and other experience: general counsel (2016–present) of Vanguard. Secretary (2016–present) of Vanguard and of each of the investment companies served by Vanguard. Managing director (2016–present) of Vanguard. Managing director and general counsel of Global Cards and Consumer Services (2014–2016) at Citigroup. Counsel (2003–2014) at American Express.
Michael Rollings
Born in 1963. Principal occupation(s) during the past five years and other experience: finance director (2017–present) and treasurer (2017) of each of the investment companies served by Vanguard. Managing director (2016–present) of Vanguard. Chief financial officer (2016–present) of Vanguard. Director (2016–present) of Vanguard Marketing Corporation. Executive vice president and chief financial officer (2006–2016) of MassMutual Financial Group.
John E. Schadl
Born in 1972. Principal occupation(s) during the past five years and other experience: principal of Vanguard. Chief compliance officer (2019–present) of Vanguard and of each of the investment companies served by Vanguard. Assistant vice president (2019–present) of Vanguard Marketing Corporation.
Vanguard Senior Management Team
Matthew Benchener Thomas M. Rampulla
Joseph Brennan Karin A. Risi
Mortimer J. Buckley Anne E. Robinson
Gregory Davis Michael Rollings
John James Nitin Tandon
John T. Marcante Lauren Valente
Chris D. Mclsaac  

Connect with Vanguard®>vanguard.com
Fund Information > 800-662-7447
Direct Investor Account Services > 800-662-2739
Institutional Investor Services > 800-523-1036
Text Telephone for People Who Are Deaf or Hard of Hearing > 800-749-7273
This material may be used in conjunction with the offering of shares of any Vanguard fund only if preceded or accompanied by the fund’s current prospectus.
All comparative mutual fund data are from Morningstar, Inc., unless otherwise noted.
You can obtain a free copy of Vanguard’s proxy voting guidelines by visiting vanguard.com/proxyreporting or by calling Vanguard at 800-662-2739. The guidelines are also available from the SEC’s website, www.sec.gov. In addition, you may obtain a free report on how your fund voted the proxies for securities it owned during the 12 months ended June 30. To get the report, visit either vanguard.com/proxyreporting or www.sec.gov.
You can review information about your fund on the SEC’s website, and you can receive copies of this information, for a fee, by sending a request via email addressed to publicinfo@sec.gov.
Source for Bloomberg indexes: Bloomberg Index Services Limited. Copyright 2021, Bloomberg. All rights reserved.
© 2021 The Vanguard Group, Inc.
All rights reserved.
Vanguard Marketing Corporation, Distributor.
Q590 112021

 

 

Annual Report  |  September 30, 2021
Vanguard Target Retirement Funds
Vanguard Target Retirement Income Fund
Vanguard Target Retirement 2015 Fund
Vanguard Target Retirement 2020 Fund
Vanguard Target Retirement 2025 Fund
Vanguard Target Retirement 2030 Fund
Vanguard Target Retirement 2035 Fund

Contents
Please note: The opinions expressed in this report are just that—informed opinions. They should not be considered promises or advice. Also, please keep in mind that the information and opinions cover the period through the date on the front of this report. Of course, the risks of investing in your fund are spelled out in the prospectus.

Your Fund’s Performance at a Glance
For the 12 months ended September 30, 2021, returns for the six Vanguard Target Retirement Funds covered in this report ranged from 8.48% for the Target Retirement Income Fund to 20.60% for the Target Retirement 2035 Fund. (The funds with target dates of 2040 through 2065 are covered in a separate report).
The global economy rebounded faster than many had expected after the sharp pandemic-induced contraction in the spring of 2020. Stock returns were strong and bond yields moved broadly higher.
Vanguard Target Retirement Funds are designed to reach an allocation of 70% bonds and 30% stocks within seven years after their target dates. The funds invest all of their assets in Vanguard index funds that seek to match the performance of broad stock and bond market indexes.
For the 10 years ended September 30, the funds’ average annual returns ranged from 6.08% for the Target Retirement Income Fund to 11.54% for the Target Retirement 2035 Fund.
In late September, Vanguard announced plans to merge each of the Vanguard Institutional Target Retirement Funds into its corresponding Target Retirement Fund. The mergers are scheduled to be completed in February 2022.
Market Barometer
  Average Annual Total Returns
Periods Ended September 30, 2021
  One Year Three Years Five Years
Stocks      
Russell 1000 Index (Large-caps) 30.96% 16.43% 17.11%
Russell 2000 Index (Small-caps) 47.68 10.54 13.45
Russell 3000 Index (Broad U.S. market) 31.88 16.00 16.85
FTSE All-World ex US Index (International) 24.73 8.49 9.28
Bonds      
Bloomberg U.S. Aggregate Bond Index
(Broad taxable market)
-0.90% 5.36% 2.94%
Bloomberg Municipal Bond Index
(Broad tax-exempt market)
2.63 5.06 3.26
FTSE Three-Month U.S. Treasury Bill Index 0.06 1.14 1.13
CPI      
Consumer Price Index 5.39% 2.81% 2.59%
1

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.
2

Six Months Ended September 30, 2021      
  Beginning
Account Value
3/31/2021
Ending
Account Value
9/30/2021
Expenses
Paid During
Period
Based on Actual Fund Return      
Target Retirement Income Fund $1,000.00 $1,030.90 $0.61
Target Retirement 2015 Fund $1,000.00 $1,032.30 $0.61
Target Retirement 2020 Fund $1,000.00 $1,037.70 $0.66
Target Retirement 2025 Fund $1,000.00 $1,041.00 $0.67
Target Retirement 2030 Fund $1,000.00 $1,044.30 $0.67
Target Retirement 2035 Fund $1,000.00 $1,047.30 $0.72
Based on Hypothetical 5% Yearly Return      
Target Retirement Income Fund $1,000.00 $1,024.47 $0.61
Target Retirement 2015 Fund $1,000.00 $1,024.47 $0.61
Target Retirement 2020 Fund $1,000.00 $1,024.42 $0.66
Target Retirement 2025 Fund $1,000.00 $1,024.42 $0.66
Target Retirement 2030 Fund $1,000.00 $1,024.42 $0.66
Target Retirement 2035 Fund $1,000.00 $1,024.37 $0.71
The calculations are based on the 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) 0.12%, 0.12%, 0.13%, 0.13%, 0.13%, and 0.14%. 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 (183/365).
3

Target Retirement Income Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: September 30, 2011, Through September 30, 2021
Initial Investment of $10,000
      Average Annual Total Returns
Periods Ended September 30, 2021
    One
Year
Five
Years
Ten
Years
Final Value
of a $10,000
Investment
 Target Retirement Income Fund 8.48% 6.22% 6.08% $18,042
 Target Income Composite Index 8.71 6.49 6.30 18,416
 Bloomberg U.S. Aggregate Bond Index -0.90 2.94 3.01 13,455
Target Income Composite Index: Derived by applying the fund’s target asset allocation to the results of the following benchmarks: for international stocks, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for U.S. bonds, the Bloomberg U.S. Aggregate Float Adjusted Index, as well as the Bloomberg U.S. Treasury Inflation-Protected Securities Index through June 2, 2013, and the Bloomberg U.S. Treasury Inflation-Protected Securities (TIPS) 0–5 Year Index thereafter; for short-term reserves, the Citigroup Three-Month Treasury Bill Index through June 2, 2013; for international bonds, the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index Hedged beginning June 3, 2013; and for U.S. stocks, the MSCI US Broad Market Index through June 2, 2013, and the CRSP US Total Market Index thereafter. International stock benchmark returns are adjusted for withholding taxes.
See Financial Highlights for dividend and capital gains information.
4

Target Retirement Income Fund
Underlying Vanguard Funds
As of September 30, 2021
Vanguard Total Bond Market II Index Fund Investor Shares 37.4%
Vanguard Total Stock Market Index Fund Investor Shares 17.3
Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares 17.1
Vanguard Total International Bond Index Fund Investor Shares 16.1
Vanguard Total International Stock Index Fund Investor Shares 11.9
Vanguard Total International Bond II Index Fund Investor Shares 0.2
The table reflects the fund’s investments, except for short-term investments and derivatives.
5

Target Retirement Income Fund
Financial Statements
Schedule of Investments
As of September 30, 2021
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 (17.1%)
  Vanguard Total Stock Market Index Fund Investor Shares  25,775,268  2,785,275
International Stock Fund (11.8%)
  Vanguard Total International Stock Index Fund Investor Shares  94,300,603  1,917,131
U.S. Bond Funds (53.8%)
1 Vanguard Total Bond Market II Index Fund Investor Shares 541,978,110  6,026,797
  Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares 106,360,940  2,754,748
                     8,781,545
International Bond Funds (16.0%)
  Vanguard Total International Bond Index Fund Investor Shares 227,546,447  2,591,754
1 Vanguard Total International Bond II Index Fund Investor Shares   2,631,079     26,337
                     2,618,091
Total Investment Companies (Cost $12,429,893) 16,102,042
Temporary Cash Investments (1.2%)
Money Market Fund (1.2%)
1 Vanguard Market Liquidity Fund, 0.068% (Cost $199,805)   1,998,148           199,815
Total Investments (99.9%) (Cost $12,629,698)   16,301,857
Other Assets and Liabilities—Net (0.1%)   19,748
Net Assets (100%)   16,321,605
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.
6

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 December 2021 890 117,132 (1,423)
E-mini S&P 500 Index December 2021 448 96,270 (3,250)
        (4,673)
  
See accompanying Notes, which are an integral part of the Financial Statements.
7

Target Retirement Income Fund
Statement of Assets and Liabilities
As of September 30, 2021
($000s, except shares and per-share amounts) Amount
Assets  
Investments in Securities, at Value—Affiliated Funds (Cost $12,629,698) 16,301,857
Cash Collateral Pledged—Futures Contracts 6,347
Receivables for Investment Securities Sold 47,762
Receivables for Accrued Income 55,488
Receivables for Capital Shares Issued 6,748
Total Assets 16,418,202
Liabilities  
Payables for Investment Securities Purchased 55,489
Payables for Capital Shares Redeemed 40,059
Variation Margin Payable—Futures Contracts 1,049
Total Liabilities 96,597
Net Assets 16,321,605

At September 30, 2021, net assets consisted of:

   
Paid-in Capital 11,757,877
Total Distributable Earnings (Loss) 4,563,728
Net Assets 16,321,605
   
Net Assets  
Applicable to 1,070,984,672 outstanding $.001 par value shares of
beneficial interest (unlimited authorization)
16,321,605
Net Asset Value Per Share $15.24
See accompanying Notes, which are an integral part of the Financial Statements.
8

Target Retirement Income Fund
Statement of Operations
  Year Ended
September 30, 2021
  ($000)
Investment Income  
Income  
Income Distributions Received from Affiliated Funds 322,402
Net Investment Income—Note B 322,402
Realized Net Gain (Loss)  
Capital Gain Distributions Received from Affiliated Funds 64,959
Affiliated Funds Sold 952,215
Futures Contracts 23,248
Realized Net Gain (Loss) 1,040,422
Change in Unrealized Appreciation (Depreciation)  
Affiliated Funds 94,066
Futures Contracts (7,083)
Change in Unrealized Appreciation (Depreciation) 86,983
Net Increase (Decrease) in Net Assets Resulting from Operations 1,449,807
See accompanying Notes, which are an integral part of the Financial Statements.
9

Target Retirement Income Fund
Statement of Changes in Net Assets
  Year Ended September 30,
  2021
($000)
2020
($000)
Increase (Decrease) in Net Assets    
Operations    
Net Investment Income 322,402 371,700
Realized Net Gain (Loss) 1,040,422 297,540
Change in Unrealized Appreciation (Depreciation) 86,983 506,784
Net Increase (Decrease) in Net Assets Resulting from Operations 1,449,807 1,176,024
Distributions    
Total Distributions (609,990) (378,668)
Capital Share Transactions    
Issued 3,092,305 3,038,878
Issued in Lieu of Cash Distributions 575,385 359,137
Redeemed (5,761,722) (3,603,059)
Net Increase (Decrease) from Capital Share Transactions (2,094,032) (205,044)
Total Increase (Decrease) (1,254,215) 592,312
Net Assets    
Beginning of Period 17,575,820 16,983,508
End of Period 16,321,605 17,575,820
See accompanying Notes, which are an integral part of the Financial Statements.
10

Target Retirement Income Fund
Financial Highlights
For a Share Outstanding
Throughout Each Period
Year Ended September 30,
2021 2020 2019 2018 2017
Net Asset Value, Beginning of Period $14.54 $13.85 $13.52 $13.46 $13.08
Investment Operations          
Net Investment Income1 .278 .308 .341 .334 .250
Capital Gain Distributions Received1 .056 .001 .004
Net Realized and Unrealized Gain (Loss) on Investments .887 .696 .533 .107 .422
Total from Investment Operations 1.221 1.004 .874 .442 .676
Distributions          
Dividends from Net Investment Income (.256) (.297) (.352) (.327) (.254)
Distributions from Realized Capital Gains (.265) (.017) (.192) (.055) (.042)
Total Distributions (.521) (.314) (.544) (.382) (.296)
Net Asset Value, End of Period $15.24 $14.54 $13.85 $13.52 $13.46
Total Return2 8.48% 7.35% 6.75% 3.31% 5.26%
Ratios/Supplemental Data          
Net Assets, End of Period (Millions) $16,322 $17,576 $16,984 $16,613 $16,645
Ratio of Total Expenses to Average Net Assets
Acquired Fund Fees and Expenses 0.12% 0.12% 0.12% 0.12% 0.13%
Ratio of Net Investment Income to Average Net Assets 1.84% 2.19% 2.54% 2.47% 1.90%
Portfolio Turnover Rate 6% 17% 10% 6% 8%
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.
See accompanying Notes, which are an integral part of the Financial Statements.
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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.
In September 2021, the board of trustees approved a plan of reorganization whereby the Vanguard Institutional Target Retirement Income Fund will merge into the fund. The merger is scheduled to be completed in February 2022.
Market disruptions associated with the COVID-19 pandemic have had a global impact, and uncertainty exists as to the long-term implications. Such disruptions can adversely affect assets of the fund and thus 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 year ended September 30, 2021, 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 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
12

Target Retirement Income Fund
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, 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; these fees are allocated to the funds based on a method approved by the fund’s board of trustees and borne by the funds in which the fund invests (see Note B). Any borrowings under either facility bear interest at a rate based upon the higher of the one-month London Interbank Offered Rate (or an acceptable alternate rate, if necessary), federal funds effective rate, or overnight bank funding rate plus an agreed-upon spread, except that borrowings under the uncommitted credit facility may bear interest based upon an alternative 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 year ended September 30, 2021, 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 period ended September 30, 2021, were borne by the underlying Vanguard funds in which the
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Target Retirement Income 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 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 September 30, 2021, 100% of the market value of the fund's investments and derivatives was determined based on Level 1 inputs.
D. Permanent differences between book-basis and tax-basis components of net assets are reclassified among capital accounts in the financial statements to reflect their tax character. These reclassifications have no effect on net assets or net asset value per share. As of period end, permanent differences primarily attributable to the accounting for distributions in connection with fund share redemptions were reclassified between the following accounts:
  Amount
($000)
Paid-in Capital 140,955
Total Distributable Earnings (Loss) (140,955)
Temporary differences between book-basis and tax-basis components of total distributable earnings (loss) arise when certain items of income, gain, or loss are recognized in different periods for financial statement and tax purposes; these differences will reverse at some time in the future. The differences are primarily related to the recognition of unrealized gains or losses from certain derivative contracts. As of period end, the tax-basis components of total distributable earnings (loss) are detailed in the table as follows:
  Amount
($000)
Undistributed Ordinary Income 50,993
Undistributed Long-Term Gains 840,576
Capital Loss Carryforwards
Qualified Late-Year Losses
Net Unrealized Gains (Losses) 3,672,159
14

Target Retirement Income Fund
The tax character of distributions paid was as follows:
  Year Ended
September 30,
  2021
Amount
($000)
2020
Amount
($000)
Ordinary Income* 335,548 378,668
Long-Term Capital Gains 274,442
Total 609,990 378,668
* Includes short-term capital gains, if any.
As of September 30, 2021, 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 12,629,698
Gross Unrealized Appreciation 3,678,803
Gross Unrealized Depreciation (6,644)
Net Unrealized Appreciation (Depreciation) 3,672,159
E. Capital shares issued and redeemed were:
    
  Year Ended September 30,  
  2021
Shares
(000)
  2020
Shares
(000)
     
Issued 204,713   216,355
Issued in Lieu of Cash Distributions 38,362   25,681
Redeemed (380,863)   (259,849)
Net Increase (Decrease) in Shares Outstanding (137,788)   (17,813)
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Target Retirement Income Fund
F.Transactions during the period in affiliated underlying Vanguard funds were as follows:
    Current Period Transactions  
  Sep. 30, 2020
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)
Sep. 30, 2021
Market Value
($000)
Vanguard Market Liquidity Fund 224,508 NA1 NA1 134 199,815
Vanguard Short-Term Inflation-Protected Securities Index Fund 2,953,727 161,855 420,732 11,064 48,834 94,623 2,754,748
Vanguard Total Bond Market II Index Fund 6,486,928 468,786 682,193 (21,689) (225,035) 114,756 60,607 6,026,797
Vanguard Total International Bond Index Fund 2,736,237 157,773 243,343 (4,316) (54,597) 22,771 4,352 2,591,754
Vanguard Total International Bond II Index Fund 26,493 (156) 31 26,337
Vanguard Total International Stock Index Fund 2,107,062 59,465 690,059 145,326 295,337 52,234 1,917,131
Vanguard Total Stock Market Index Fund 3,053,704 142,419 1,262,361 821,830 29,683 37,853 2,785,275
Total 17,562,166 1,016,791 3,298,688 952,215 94,066 322,402 64,959 16,301,857
1 Not applicable—purchases and sales are for temporary cash investment purposes.
G. Management has determined that no events or transactions occurred subsequent to September 30, 2021, that would require recognition or disclosure in these financial statements.
16

Target Retirement 2015 Fund
Performance Summary
All of the returns in this report represent past performance, which is not a guarantee of future results that may be achieved by the fund. (Current performance may be lower or higher than the performance data cited. For performance data current to the most recent month-end, visit our website at vanguard.com/performance.) Note, too, that both investment returns and principal value can fluctuate widely, so an investor’s shares, when sold, could be worth more or less than their original cost. The returns shown do not reflect taxes that a shareholder would pay on fund distributions or on the sale of fund shares.
Cumulative Performance: September 30, 2011, Through September 30, 2021
Initial Investment of $10,000
      Average Annual Total Returns
Periods Ended September 30, 2021
    One
Year
Five
Years
Ten
Years
Final Value
of a $10,000
Investment
 Target Retirement 2015 Fund 9.49% 7.13% 7.87% $21,328
 Target 2015 Composite Index 9.78 7.43 8.10 21,783
 MSCI US Broad Market Index 32.45 16.95 16.69 46,791
Target 2015 Composite Index: Derived by applying the fund’s target asset allocation to the results of the following benchmarks: for international stocks, the MSCI ACWI ex USA IMI Index through June 2, 2013, and the FTSE Global All Cap ex US Index thereafter; for U.S. bonds, the Bloomberg U.S. Aggregate Float Adjusted Index, as well as the Bloomberg U.S. Treasury Inflation-Protected Securities Index through June 2, 2013, and the Bloomberg U.S. Treasury Inflation-Protected Securities (TIPS) 0–5 Year Index thereafter; for international bonds, the Bloomberg Global Aggregate ex-USD Float Adjusted RIC Capped Index Hedged beginning June 3, 2013; and for U.S. stocks, the MSCI US Broad Market Index through June 2, 2013, and the CRSP US Total Market Index thereafter. International stock benchmark returns are adjusted for withholding taxes.
See Financial Highlights for dividend and capital gains information.
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Target Retirement 2015 Fund
Underlying Vanguard Funds
As of September 30, 2021
Vanguard Total Bond Market II Index Fund Investor Shares 36.5%
Vanguard Total Stock Market Index Fund Investor Shares 18.7
Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares 16.2
Vanguard Total International Bond Index Fund Investor Shares 15.7
Vanguard Total International Stock Index Fund Investor Shares 12.8
Vanguard Total International Bond II Index Fund Investor Shares 0.1
The table reflects the fund’s investments, except for short-term investments and derivatives.
18

Target Retirement 2015 Fund
Financial Statements
Schedule of Investments
As of September 30, 2021
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 (18.4%)
  Vanguard Total Stock Market Index Fund Investor Shares  22,115,939  2,389,848
International Stock Fund (12.6%)
  Vanguard Total International Stock Index Fund Investor Shares  80,489,381  1,636,349
U.S. Bond Funds (52.0%)
1 Vanguard Total Bond Market II Index Fund Investor Shares 419,905,785  4,669,352
  Vanguard Short-Term Inflation-Protected Securities Index Fund Investor Shares  79,798,565  2,066,783
                     6,736,135
International Bond Funds (15.6%)
  Vanguard Total International Bond Index Fund Investor Shares 176,067,208  2,005,406
1 Vanguard Total International Bond II Index Fund Investor Shares   2,003,206     20,052
                     2,025,458
Total Investment Companies (Cost $9,521,738) 12,787,790
Temporary Cash Investments (1.3%)
Money Market Fund (1.3%)
1 Vanguard Market Liquidity Fund, 0.068% (Cost $161,511)   1,615,162           161,516
Total Investments (99.9%) (Cost $9,683,249)   12,949,306
Other Assets and Liabilities—Net (0.1%)   17,817
Net Assets (100%)   12,967,123
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.
19

Target Retirement 2015 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 December 2021 723 95,154 (1,093)
E-mini S&P 500 Index December 2021 336 72,202 (2,467)
        (3,560)
  
See accompanying Notes, which are an integral part of the Financial Statements.
20

Target Retirement 2015 Fund
Statement of Assets and Liabilities
As of September 30, 2021
($000s, except shares and per-share amounts) Amount
Assets  
Investments in Securities, at Value—Affiliated Funds (Cost $9,683,249) 12,949,306
Cash Collateral Pledged—Futures Contracts 4,843
Receivables for Investment Securities Sold 41,283
Receivables for Accrued Income 41,816
Receivables for Capital Shares Issued 3,054
Total Assets 13,040,302
Liabilities  
Payables for Investment Securities Purchased 41,817
Payables for Capital Shares Redeemed 30,583
Variation Margin Payable—Futures Contracts 779
Total Liabilities 73,179
Net Assets 12,967,123

At September 30, 2021, net assets consisted of:

   
Paid-in Capital 8,373,922
Total Distributable Earnings (Loss) 4,593,201
Net Assets 12,967,123
   
Net Assets  
Applicable to 795,878,750 outstanding $.001 par value shares of
beneficial interest (unlimited authorization)
12,967,123
Net Asset Value Per Share $16.29
See accompanying Notes, which are an integral part of the Financial Statements.
21

Target Retirement 2015 Fund
Statement of Operations
  Year Ended
September 30, 2021
  ($000)
Investment Income  
Income  
Income Distributions Received from Affiliated Funds 264,629
Net Investment Income—Note B 264,629
Realized Net Gain (Loss)  
Capital Gain Distributions Received from Affiliated Funds 52,798
Affiliated Funds Sold 1,335,054
Futures Contracts 21,918
Realized Net Gain (Loss) 1,409,770
Change in Unrealized Appreciation (Depreciation)  
Affiliated Funds (283,889)
Futures Contracts (6,645)
Change in Unrealized Appreciation (Depreciation) (290,534)
Net Increase (Decrease) in Net Assets Resulting from Operations 1,383,865
See accompanying Notes, which are an integral part of the Financial Statements.
22

Target Retirement 2015 Fund
Statement of Changes in Net Assets
  Year Ended September 30,
  2021
($000)
2020
($000)
Increase (Decrease) in Net Assets    
Operations    
Net Investment Income 264,629