[SHIP LOGO] VANGUARD/R/
July 12, 2005
Christian Sandoe, Esq.
Division of Investment Management
U.S. Securities and Exchange Commission via electronic filing
450 Fifth Street,
N.W., Fifth Floor
Washington, D.C. 20549
Re: VANGUARD WELLESLEY INCOME FUND
FILE NO. 811-01766
Dear Mr. Sandoe:
The following responds to your comments of July 8, 2005 on the
post-effective amendment of the Vanguard Wellesley Income Fund (the
"Registrant") registration statement on Form N-1A. You commented on PEA number
57 that was filed on May 23, 2005 pursuant to Rule 485(a). Note that each
prospectus page reference is to the Investor Shares versions of the prospectus.
COMMENT 1: VANGUARD WELLESLEY INCOME FUND (PROSPECTUS PAGE 1)
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Comment: The "Fund Profile" contains the following description of the
Fund's primary investment strategies: "The Fund invests
approximately 60% to 65% of its assets in investment-grade
corporate, U.S. Treasury, and government agency bonds, as well
as mortgage-backed securities. The remaining 35% to 40% of
Fund assets are invested in common stocks of companies that
have a history of above-average dividends or expectations of
increasing dividends." It is not clear what the strategy is
and how the portfolio manager invests the Fund's assets.
Response: We believe that with the following (underlined) change, the
"Fund Profile" appropriately summarizes the Fund's primary
investment strategies as required by Item 2(a) of Form N-1A:
"The Fund invests approximately 60% to 65% of its assets in
investment-grade corporate, U.S. Treasury, and government
agency bonds, as well as mortgage-backed securities that the
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advisor believes will generate a high and sustained level of
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current income. The remaining 35% to 40% of Fund assets are
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invested in common stocks of companies that have a history of
above-average dividends or expectations of increasing
dividends."
COMMENT 2A: VANGUARD WELLESLEY INCOME FUND (PROSPECTUS PAGE 1)
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Comment: Disclose the following in the "Fund Profile" section on page 1
of the prospectus: (a) dollar-weighted average maturity or
average duration of the Fund as of a recent date; and (b) the
market capitalization of the Fund as of a recent date.
Christian Sandoe, Esq.
July 12, 2005
Page 2
Response: Although dollar-weighted average maturity, duration, and
market-capitalization are all important economic
characteristics of the Fund, they are not part of the Fund's
primary investment strategies and are not, therefore, subject
to disclosure in the "Fund Profile" pursuant to Item 2 of Form
N-1A.
Because they are important characteristics, we
already disclose the Fund's average duration as of a recent
date (see page 8 of the prospectus). We will add the following
disclosure concerning market capitalization to the Security
Selection section of the prospectus: "Stocks of publicly
traded companies and funds that invest in stocks are often
classified according to market value, or market
capitalization. These classifications typically include
small-cap, mid-cap, and large-cap. It's important to
understand that, for both companies and stock funds, market
capitalization ranges change over time. Also, interpretations
of size vary, and there are no `official' definitions of
small-, mid-, and large-cap, even among Vanguard fund
advisors. The asset-weighted median market capitalization of
the Fund as of x, 2005, was $x billion."
COMMENT 2B: VANGUARD WELLESLEY INCOME FUND (PROSPECTUS PAGE 6)
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Comment: The following statement appears in the discussion of interest
rate risk on page 6 of the prospectus: "Interest rate risk for
the Fund should be moderate because the average duration of
the Fund's bond portfolio is intermediate-term ... ."
"Intermediate-term" is term used to describe bond maturity,
and not duration.
Response: We believe that it is appropriate to characterize the Fund's
duration as intermediate-term. Furthermore, we have included
additional disclosure in the prospectus that defines
"duration" and states exactly what the Fund's average duration
was as of a specific date.
COMMENT 3: VANGUARD WELLESLEY INCOME FUND (PROSPECTUS PAGE 7)
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Comment: The introduction to the "Security Selection" of the prospectus
contains the following statement: "The Fund is run according
to traditional methods of active investment management. To
achieve the Fund's investment objective--income and moderate
capital appreciation--the advisor follows specific strategies
for bond and stock selection." Describe the "specific
strategies" used by the advisor.
Response: We have deleted the sentence that uses the phrase "specific
strategies," and have replaced it with the following:
"Securities are bought and sold based on the advisor's
judgments about companies and their financial prospects, and
about bond issuers and the general level of interest rates."
In addition to the foregoing statement, the prospectus
contains other disclosure about the advisor's investment
strategies.
COMMENT 4: VANGUARD WELLESLEY INCOME FUND (PROSPECTUS PAGE 8)
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Comment: Define the term duration and give an example of how changes in
interest rates influence duration.
Response: We already disclose the following definition and example in
the prospectus's glossary. "DURATION: A measure of the
sensitivity of bond--and bond fund--prices to interest rate
movements. For example, if a bond has a duration of two years,
its price would fall by approximately 2% when interest rates
rose by 1%. On the other hand, the bond's price would rise by
approximately 2% when interest rates fell by 1%."
Christian Sandoe, Esq.
July 12, 2005
Page 3
COMMENT 5: VANGUARD WELLESLEY INCOME FUND (PROSPECTUS PAGE 8)
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Comment: In the "Plain Talk About Types of Bonds," several types of
bonds offered by corporations, governments, and other entities
are discussed. As discussed in Paul Roye's October 17, 2003
letter to the Investment Company Institute, clarify that not
all bond issuers are government-sponsored entities and that
their bonds may not be guaranteed or insured by the U.S.
government.
Response: We will add the underlined text to the "Plain Talk About Types
of Bonds" as follows: "Bonds are issued (sold) by many
sources: Corporations issue corporate bonds; the federal
government issues U.S. Treasury bonds; agencies of the federal
government issue agency bonds; and mortgage holders issue
"mortgage-backed" pass-through certificates. Each issuer is
responsible for paying back the bond's initial value as well
as for making periodic interest payments. Many bonds issued by
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government agencies and entities are neither guaranteed nor
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insured by the U.S. government."
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COMMENT 6: VANGUARD WELLESLEY INCOME FUND (PROSPECTUS PAGE 9-10)
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Comment: The following disclosure appears on pages 9-10 of the
prospectus: "The Fund's stocks are chosen primarily for their
dividend-producing capabilities, but must also have the
potential for moderate long-term capital appreciation. The
advisor looks for stocks of companies that either offer
significant dividends now or expect to increase their
dividends in the future. This income orientation leads the
Fund to invest in stocks with higher than market-average
dividend yields. As a result, the Fund's equity holdings are
expected to have more of a value orientation than a growth
orientation. Securities are sold when an investment has
achieved its intended purpose, or because it is no longer
considered attractive." Clarify what it means when an
investment has "achieved its intended purpose" or "is no
longer considered attractive."
Response: We have deleted the following sentence: "Securities are sold
when an investment has achieved its intended purpose, or
because it is no longer considered attractive."
COMMENT 7: VANGUARD WELLESLEY INCOME FUND (PROSPECTUS PAGE12)
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Comment: The Fund's broad policies with respect to frequent trading and
market-timing are disclosed on page 7 of the prospectus under
the heading "Frequent Trading or Market-Timing." However,
specific policies applicable to discrete types of investors
are disclosed in various sections throughout the "Investing
with Vanguard" section. All of the Fund's policies concerning
frequent trading and market-timing should be disclosed
together under the heading "Frequent Trading or
Market-Timing."
Response: We believe that the Fund's policies against frequent trading
and market-timing are properly disclosed in the prospectus
pursuant to Item 6(e)(4) of Form N-1A. Item 6(e)(4) does not
require that the specific policies applicable to each type of
shareholder be disclosed together in the prospectus. As such,
we believe that it is appropriate to have the general
discussion of the Fund's policies against frequent trading and
market-timing under the heading "Frequent Trading or Market-
Timing" with a reference to the "Investing with Vanguard"
section where specific policies applicable to different types
of shareholders and transactions are disclosed.
We believe that removing the disclosure from the
"Investing with Vanguard" section and combining the disclosure
into a single "Frequent Trading and Market-Timing" section
would make the discussion of transaction policies incomplete
in the "Investing
<page>
Christian Sandoe, Esq.
July 12, 2005
Page 4
with Vanguard" section. Repeating the specific policies in
both the "Investing with Vanguard" section under the "Frequent
Trading and Market-Timing" section would unnecessarily clutter
the prospectus with duplicative disclosure.
COMMENT 8: VANGUARD WELLESLEY INCOME FUND (PROSPECTUS PAGE 13)
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Comment: In the discussion of the Fund's investment advisor,
there are two portfolio managers listed. Indicate the separate
roles of each portfolio manager.
Response: We will clarify that Earl E. McEvoy is the portfolio manager
responsible for the equity portion of the Fund, and that John
R. Ryan manages the fixed income portion of the Fund.
COMMENT 9: VANGUARD WELLESLEY INCOME FUND (STATEMENT OF ADDITIONAL INFORMATION)
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Comment: Where is the new SAI disclosure concerning portfolio manager
compensation and holdings?
Response: We have not yet included the new disclosure concerning portfolio
managers pursuant to Item 15 of Form N-1A because it is not yet
required. The adopting release for the portfolio manager disclosure
rule (SEC release 33-8458) states, in part, that. "The effective
date of the amendments is October 1, 2004. All initial registration
statements on Forms N-1A, N-2, and N-3, and all post-effective
amendments that are annual updates to effective registration
statements on these forms, filed on or after February 28, 2005, must
include the disclosure required by the amendments."
Although, this particular filing is a post-effective amendment
filed after February 28, 2005, it is not an annual update. We will
include the disclosure when we file the annual update of the Fund's
registration statement.
* * * * *
As required by the SEC staff, each series of the Registrant acknowledges that:
- - It is responsible for the adequacy and accuracy of the disclosure in the
filing.
- - Staff comments or changes in response to staff comments in the filings
reviewed by the staff do not foreclose the Securities and Exchange Commission
from taking any action with respect to the filing.
- - It may not assert staff comments as a defense in any proceeding initiated by
the Securities and Exchange Commission or any person under the federal
securities laws of the United States.
Please call me at (610) 503-2320 if you have any questions.
Sincerely,
Christopher A. Wightman
Associate Counsel