VANGUARD/WELLESLEY INCOME FUND INC, 497, 2000-04-25

VANGUARD/WELLESLEY INCOME FUND INC
497, 2000-04-25

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-1A

REGISTRATION STATEMENT (NO. 2-31333) UNDER
THE SECURITIES ACT OF 1933

PRE-EFFECTIVE AMENDMENT NO.

POST-EFFECTIVE AMENDMENT NO. 51

AND

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY
ACT OF 1940

AMENDMENT NO. 51

VANGUARD WELLESLEY INCOME
FUND
(EXACT NAME OF REGISTRANT AS SPECIFIED IN DECLARATION OF TRUST)

P.O. BOX 2600, VALLEY FORGE, PA 19482
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)

REGISTRANT'S TELEPHONE NUMBER (610) 669-1000

R. GREGORY BARTON, ESQUIRE
P.O. BOX 876
VALLEY FORGE, PA 19482

APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.

IT IS PROPOSED THAT THIS AMENDMENT BECOME EFFECTIVE:
ON APRIL 21, 2000, PURSUANT TO PARAGRAPH (B) OF RULE 485.

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<PAGE>

VANGUARD(R)
WELLESLEY
INCOME FUND

Prospectus
April 21, 2000

This prospectus contains
financial data for the
Fund through the
fiscal year ended
December 31, 1999.

[A MEMBER OF
THE VANGUARD GROUP (R) LOGO]

<PAGE>

VANGUARD WELLESLEY INCOME FUND
Prospectus
April 21, 2000
A Balanced Mutual Fund

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CONTENTS
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1 FUND PROFILE 18 INVESTING WITH VANGUARD

4 ADDITIONAL INFORMATION 18 Services and Account Features

4 A WORD ABOUT RISK 19 Types of Accounts

4 WHO SHOULD INVEST 20 Buying Shares

5 PRIMARY INVESTMENT STRATEGIES 22 Redeeming Shares

12 THE FUND AND VANGUARD 26 Transferring Registration

12 INVESTMENT ADVISER 26 Fund and Account Updates

13 DIVIDENDS, CAPITAL GAINS, AND TAXES GLOSSARY (inside back cover)

15 SHARE PRICE

16 FINANCIAL HIGHLIGHTS
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WHY READING THIS PROSPECTUS IS IMPORTANT
This prospectus explains the objective, risks, and strategies of Vanguard
Wellesley Income Fund. To highlight terms and concepts important to mutual fund
investors, we have provided "Plain Talk(R)" explanations along the way. Reading
the prospectus will help you to decide whether the Fund is the right investment
for you. We suggest that you keep it for future reference.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<PAGE>

1
FUND PROFILE
The following profile summarizes key features of Vanguard Wellesley Income Fund.

INVESTMENT OBJECTIVE
The Fund seeks to provide a high and sustainable level of current income along
with moderate long-term capital growth.

INVESTMENT STRATEGIES
The Fund invests approximately 60% to 65% of its assets in investment-grade,
longer- term corporate, U.S. Treasury, government agency, and mortgage-backed
bonds. 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.

PRIMARY RISKS
THE FUND'S TOTAL RETURN, LIKE STOCK AND BOND PRICES GENERALLY, WILL FLUCTUATE
WITHIN A WIDE RANGE, SO AN INVESTOR COULD LOSE MONEY OVER SHORT OR EVEN LONG
PERIODS. The Fund is also subject to:
o Interest rate risk, which is the chance that bond prices overall will
decline over short or even long periods due to rising interest rates.
Interest rate risk is generally high for longer-term bond funds.
o Income risk, which is the chance that falling interest rates will cause the
Fund's income to decline. Income risk is generally low for longer-term bond
funds.
o Credit risk, which is the chance that a bond issuer will fail to pay
interest and principal in a timely manner, reducing the Fund's return.
Credit risk should be low for the Fund.

o Call risk, which is the chance that during periods of falling interest
rates, a bond issuer will "call"--or repay--a high-yielding bond before the
bond's maturity date. For mortgage-backed bonds, this phenomena is called
prepayment risk. Forced to reinvest the unanticipated proceeds at lower
interest rates, the Fund would experience a decline in income and lose the
opportunity for additional price appreciation associated with falling
rates. Call (or prepayment) risk is generally high for longer-term bond
funds.

o Investment style risk, which is the chance that returns from large- and
mid-capitalization value stocks will trail returns from other asset classes
or the overall stock market.
o Manager risk, which is the chance that poor security selection will cause
the Fund to underperform other funds with similar investment objectives.

PERFORMANCE/RISK INFORMATION
The bar chart and table below provide an indication of the risk of investing in
the Fund. The bar chart shows the Fund's performance in each calendar year over
a ten-year period. The table shows how the Fund's average annual total returns
for one, five, and ten calendar years compare with those of both the Lehman
Brothers Long Corporate AA or Better Bond Index, a broad-based securities market
index, and a composite stock/bond index weighted to match the Fund's target
allocation. Keep in mind that the Fund's past performance does not necessarily
indicate how it will perform in the future.

<PAGE>

----------------------------------------------------
ANNUAL TOTAL RETURNS
----------------------------------------------------
1990 3.76%
1991 21.57%
1992 8.67%
1993 14.65%
1994 -4.44%
1995 28.91%
1996 9.42%
1997 20.19%
1998 11.84%
1999 -4.14%
----------------------------------------------------

During the period shown in the bar chart, the highest return for a calendar
quarter was 8.50% (quarter ended June 30, 1995) and the lowest return for a
quarter was -4.47% (quarter ended March 31, 1994).

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AVERAGE ANNUAL TOTAL RETURNS FOR YEARS ENDED DECEMBER 31, 1999
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1 YEAR 5 YEARS 10 YEARS
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Vanguard Wellesley Income Fund -4.14% 12.69% 10.56%
Lehman Brothers Long Corporate AA or
Better Bond Index -7.00 8.44 8.35
Wellesley Composite Index* -1.40 13.55 10.68
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*Prior to April 1, 2000, weighted 65% in the Lehman Brothers Long Corporate
AA or Better Bond Index, and 35% in a blended stock composite (75% in
the S&P/BARRA Value Index, 12.5% in the S&P Utilities Index, and 12.5%
in the S&P Telephone Index). Effective April 1, 2000, the Lehman
Brothers Corporate A or Better Bond Index has replaced the Lehman
Brothers Long Corporate AA or Better Bond Index within the Wellesley
Composite Index.
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FEES AND EXPENSES

The following table describes the fees and expenses you may pay if you buy and
hold shares of the Fund. The expenses shown under Annual Fund Operating Expenses
are based upon those incurred in the fiscal year ended December 31, 1999.

SHAREHOLDER FEES (fees paid directly from your investment)
Sales Charge (Load) Imposed on Purchases: None
Sales Charge (Load) Imposed on Reinvested Dividends: None
Redemption Fee: None
Exchange Fee: None

ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Management Expenses: 0.28%
12b-1 Distribution Fee: None
Other Expenses: 0.02%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.30%

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PLAIN TALK ABOUT
FUND EXPENSES
All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the net assets of
the fund. Vanguard Wellesley Income Fund's expense ratio in fiscal year 1999 was
0.30%, or $3.00 per $1,000 of average net assets. The average balanced mutual
fund had expenses in 1999 of 1.33%, or $13.30 per $1,000 of average net assets
(derived from data provided by Lipper Inc., which reports on the mutual fund
industry). Management expenses, which are one part of operating expenses,
include investment advisory fees as well as other costs of managing a fund--such
as account maintenance, reporting, accounting, legal, and other administrative
expenses.
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The following example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. It illustrates the
hypothetical expenses that you would incur over various periods if you invest
$10,000 in the Fund. This example assumes that the Fund provides a return of 5%
a year, and applies whether or not you redeem your investment at the end of each
period.
-------------------------------------------------
1 YEAR 3 YEARS 5 YEARS 10 YEARS
-------------------------------------------------
$31 $97 $169 $381
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THIS EXAMPLE SHOULD NOT BE CONSIDERED TO REPRESENT ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE. ACTUAL FUTURE EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.

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PLAIN TALK ABOUT
THE COSTS OF INVESTING

Costs are an important consideration in choosing a mutual fund. That's because
you, as a shareholder, pay the costs of operating a fund, plus any transaction
costs associated with the fund's buying and selling of securities. These costs
can erode a substantial portion of the gross income or capital appreciation a
fund achieves. Even seemingly small differences in expenses can, over time, have
a dramatic effect on a fund's performance.
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4

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ADDITIONAL INFORMATION

DIVIDENDS AND CAPITAL GAINS MINIMUM INITIAL INVESTMENT
Dividends are distributed quarterly in $3,000; $1,000 for IRAs and custodial
March, June, September, and December; accounts for minors
capital gains, if any, are distributed
annually in December NEWSPAPER ABBREVIATION
Wellsl
INVESTMENT ADVISER
Wellington Management Company, LLP, VANGUARD FUND NUMBER
Boston, Mass., since inception 027

INCEPTION DATE CUSIP NUMBER
July 1, 1970 921938106

NET ASSETS AS OF DECEMBER 31, 1999 TICKER SYMBOL
$6.98 billion VWINX

SUITABLE FOR IRAS
Yes
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A WORD ABOUT RISK

This prospectus describes risks you would face as an investor in Vanguard
Wellesley Income Fund. It is important to keep in mind one of the main axioms of
investing: The higher the risk of losing money, the higher the potential reward.
The reverse, also, is generally true: The lower the risk, the lower the
potential reward. As you consider an investment in the Fund, you should also
take into account your personal tolerance for the daily fluctuations of the
stock and bond market.
Look for this [FLAG] symbol throughout the prospectus. It is used to mark
detailed information about each type of risk that you would confront as a
shareholder of the Fund.
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WHO SHOULD INVEST

The Fund may be a suitable investment for you if:
- - You wish to add a balanced fund to your existing holdings, which could
include other stock and bond investments, as well as money market and
tax-exempt investments.
- - You are seeking moderate growth of capital over the long term--at least
five years--along with a high level of current income.
- - You want a simple way to invest in a relatively fixed percentage of stocks
and bonds.

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PLAIN TALK ABOUT
COSTS AND MARKET-TIMING

Some investors try to profit from market-timing--switching money into
investments when they expect prices to rise, and taking money out when they
expect the market to fall. As money is shifted in and out, a fund incurs
expenses for buying and selling securities. These costs are borne by all fund
shareholders, including the long-term investors who do not generate the costs.
Therefore, the Fund discourages short-term trading by, among other things,
limiting the number of exchanges it permits.
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<PAGE>

THE VANGUARD FUNDS DO NOT PERMIT MARKET-TIMING. DO NOT INVEST IN THIS FUND
IF YOU ARE A MARKET-TIMER.

The Fund has adopted the following policies, among others, to discourage
short-term trading:
- - The Fund reserves the right to reject any purchase request--including
exchanges from other Vanguard funds--that it regards as disruptive to the
efficient management of the Fund. A purchase request could be rejected
because of the timing of the investment or because of a history of
excessive trading by the investor.
- - There is a limit on the number of times you can exchange into and out of
the Fund (see "Redeeming Shares" in the INVESTING WITH VANGUARD section).
- - The Fund reserves the right to stop offering shares at any time.

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PLAIN TALK ABOUT
BALANCED FUNDS

Balanced funds are generally "middle of the road" investments that seek to
provide some combination of growth, income, and conservation of capital by
investing in a mix of stocks, bonds, and/or money market instruments. Because
the prices of stocks and bonds often move in different directions, balanced
funds are able to use rewards from one type of investment to help offset the
risks from another.
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PRIMARY INVESTMENT STRATEGIES

This section explains the strategies that the investment adviser uses in pursuit
of the Fund's objective, income and moderate growth of capital. It also explains
how the adviser implements these strategies. In addition, this section discusses
several important risks--income risk, interest rate risk, stock market risk,
manager risk, credit risk, call or prepayment risk, and investment style
risk--faced by investors in the Fund. The Fund's Board of Trustees, which
oversees the management of the Fund, may change the Fund's investment objective
or strategies in the interest of shareholders, without a shareholder vote.

MARKET EXPOSURE

BONDS
The Fund invests approximately two-thirds of its assets in bonds.

[FLAG] THE FUND IS SUBJECT TO INCOME RISK, WHICH IS THE CHANCE THAT THE FUND'S
DIVIDENDS (INCOME) WILL DECLINE DUE TO FALLING INTEREST RATES. INCOME RISK
IS GENERALLY THE GREATEST FOR SHORT-TERM BOND FUNDS, AND THE LEAST FOR
LONG-TERM BOND FUNDS.
<PAGE>
6

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PLAIN TALK ABOUT
BONDS AND INTEREST RATES

As a rule, when interest rates rise, bond prices fall. The opposite is also
true: Bond prices go up when interest rates fall. Why do bond prices and
interest rates move in opposite directions? Let's assume that you hold a bond
offering a 5% yield. A year later, interest rates are on the rise and bonds are
offered with a 6% yield. With higher-yielding bonds available, you would have
trouble selling your 5% bond for the price you paid--causing you to lower your
asking price. On the other hand, if interest rates were falling and 4% bonds
were being offered, you should be able to sell your 5% bond for more than you
paid.
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Changes in interest rates will affect bond prices as well as bond income.

[FLAG] THE FUND IS SUBJECT TO INTEREST RATE RISK, WHICH IS THE CHANCE THAT BOND
PRICES OVERALL WILL DECLINE OVER SHORT OR EVEN LONG PERIODS DUE TO RISING
INTEREST RATES. INTEREST RATE RISK SHOULD BE HIGH FOR LONGER-TERM BOND
FUNDS.

In the past, bond investors have seen the value of their investments rise
and fall-- sometimes significantly--with changes in interest rates. Between
December 1976 and September 1981, for instance, rising interest rates caused
long-term bond prices to fall by almost 48%.
Because the Wellesley Income Fund invests mainly in bonds, changes in
interest rates will have a significant impact on the value of the Fund's assets.
To illustrate how much of an impact, the following table shows the effect of a
1% and a 2% change (both up and down) in interest rates on three bonds of
different maturities, each with a face value of $1,000.

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HOW INTEREST RATE CHANGES AFFECT THE
VALUE OF A $1,000 BOND*
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AFTER A 1% AFTER A 1% AFTER A 2% AFTER A 2%
TYPE OF BOND (MATURITY) INCREASE DECREASE INCREASE DECREASE
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Short-Term (2.5 years) $978 $1,023 $956 $1,046
Intermediate-Term (10 years) 932 1,074 870 1,156
Long-Term (20 years) 901 1,116 816 1,251
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*Assuming a 7% yield.
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These figures are for illustrative purposes only and should not be regarded
as an indication of future returns from the bond market as a whole, or the Fund
in particular.

<PAGE>

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PLAIN TALK ABOUT
BOND MATURITIES

A bond is issued with a specific maturity date--the date when the bond's issuer,
or seller, must pay back the bond's initial value (known as its "face value").
Bond maturities generally range from less than one year (short-term) to 30 years
(long-term). The longer a bond's maturity, the more risk you, as a bond
investor, face as interest rates rise--but also the more interest you could
receive. Long-term bonds are more suitable for investors willing to take greater
risks in hope of higher yields; short-term bond investors should be willing to
accept lower yields in return for less fluctuation in the value of their
investment.
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STOCKS
Roughly one-third of the Fund's assets are invested in common stocks.

[FLAG] THE FUND IS SUBJECT TO STOCK MARKET RISK, WHICH IS THE CHANCE THAT STOCK
PRICES OVERALL WILL DECLINE OVER SHORT OR EVEN LONG PERIODS. STOCK MARKETS
TEND TO MOVE IN CYCLES, WITH PERIODS OF RISING PRICES AND PERIODS OF
FALLING PRICES.

To illustrate the volatility of stock prices, the following table shows the
best, worst, and average total returns for the U.S. stock market over various
periods as measured by the Standard & Poor's 500 Index, a widely used barometer
of market activity. (Total returns consist of dividend income plus change in
market price.) Note that the returns shown do not include the costs of buying
and selling stocks or other expenses that a real-world investment portfolio
would incur. Note, also, that the gap between best and worst tends to narrow
over the long term.

------------------------------------------------------
U.S. STOCK MARKET RETURNS (1926-1999)
------------------------------------------------------
1 YEAR 5 YEARS 10 YEARS 20 YEARS
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Best 54.2% 28.6% 19.9% 17.9%
Worst -43.1 -12.4 -0.9 3.1
Average 13.2 11.0 11.1 11.1
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The table covers all of the 1-, 5-, 10-, and 20-year periods from 1926
through 1999. You can see, for example, that while the average return on common
stocks for all of the 5-year periods was 11.0%, returns for individual 5-year
periods ranged from a -12.4% average (from 1928 through 1932) to 28.6% (from
1995 through 1999). These average returns reflect past performance on common
stocks; you should not regard them as an indication of future returns from
either the stock market as a whole or this Fund in particular.
Because bond prices and stock prices can move in different directions, the
Fund's stock holdings help to dampen--but not eliminate--some of the bond-price
fluctuations caused by changes in interest rates. Likewise, stock market
volatility may not be as dramatic for the Fund as it would be for a fund made up
entirely of stocks.

<PAGE>

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PLAIN TALK ABOUT
LARGE-CAP, MID-CAP, AND SMALL-CAP STOCKS

Stocks of publicly traded companies--and mutual funds that hold these
stocks--can be classified by the companies' market value, or capitalization.
Market capitalization changes over time, and there is no "official" definition
of the boundaries of large-, mid-, and small-cap stocks. Vanguard generally
defines large-capitalization (large-cap) funds as those holding stocks of
companies whose outstanding shares have a market value exceeding $12 billion;
mid-cap funds as those holding stocks of companies with a market value between
$1 billion and $12 billion; and small-cap funds as those typically holding
stocks of companies with a market value of less than $1 billion. Vanguard
periodically reassesses these classifications.
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SECURITY SELECTION

Wellington Management Company, LLP (Wellington Management), adviser to the Fund,
invests approximately 60% to 65% of the Fund's assets in investment-grade bonds
and approximately 35% to 40% of the Fund's assets in dividend-paying common
stocks. While the mix of stocks and bonds varies from time to time depending on
the adviser's view of economic and market conditions, bonds can be expected to
represent at least 60% of the Fund's holdings.
The Fund is run by Wellington Management according to traditional methods
of active investment management. To achieve the Fund's objective, income and
moderate capital growth, the adviser follows specific strategies for bond and
stock selection.
The Fund is generally managed without regard to tax ramifications.

[FLAG] THE FUND IS SUBJECT TO MANAGER RISK, WHICH IS THE CHANCE THAT THE ADVISER
WILL DO A POOR JOB OF SELECTING STOCKS AND BONDS.

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PLAIN TALK ABOUT
TYPES OF BONDS

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 such as those issued by the Government National
Mortgage Association (GNMAs). Each issuer is responsible for paying back the
bond's initial value as well as periodic interest payments.
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BONDS
Wellington Management selects investment-grade bonds that it believes will
generate a high and sustainable level of current income. These bonds may include
intermediate- and long-term corporate, U.S. Treasury, government agency,
mortgage-backed, and asset-backed bonds. The bonds are bought and sold according
to Wellington Management's judgment about bond issuers and the general direction
of interest rates, within the context of the economy in general. The
dollar-weighted average maturity of the Fund's bonds as of December 31, 1999,
was 15.8 years but is expected to decline in 2000.
A breakdown of the Fund's bond holdings (which amounted to 59% of net
assets) as of December 31, 1999, follows:

<PAGE>
9

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PERCENTAGE OF
TYPE OF BOND FUND'S BOND HOLDINGS
------------------------------------------------------
Industrial 35.5%
Bank/Finance 25.0
Utilities 15.4
Mortgage 15.1
U.S. Treasury and government agency 8.3
Foreign issuers 0.7
------------------------------------------------------

Keep in mind that, because the bond makeup of the Fund changes daily, this
listing is only a "snapshot" at one point in time.

[FLAG] THE FUND IS SUBJECT TO CREDIT RISK, WHICH IS THE CHANCE THAT A BOND
ISSUER WILL FAIL TO PAY INTEREST AND PRINCIPAL IN A TIMELY MANNER.

Wellington Management purchases bonds that are investment-grade
quality--that is, bonds that are rated at least Baa by Moody's Investors
Service, Inc., or BBB by Standard & Poor's Corporation. The dollar-weighted
average quality of bonds held by the Fund, as of December 31, 1999, was Aa3,
according to Moody's.
The U.S. government guarantees the timely payment of interest and principal
for its Treasury bonds; many (but not all) agency bonds have the same guarantee.
The government does not, however, guarantee its bonds' prices. In other words,
while Treasury and agency bonds enjoy the highest credit ratings, their
prices--like the prices of other bonds in the Fund--will fluctuate with changes
in interest rates.

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PLAIN TALK ABOUT
CREDIT QUALITY

A bond's credit quality depends on the issuer's ability to pay interest on the
bond and, ultimately, to repay the debt. The lower the rating by one of the
independent bond-rating agencies (for example, Moody's or Standard & Poor's),
the greater the chance (in the rating agency's opinion) that the bond issuer
will default, or fail to meet its payment obligations. All things being equal,
the lower a bond's credit rating, the higher its yield should be to compensate
investors for assuming additional risk. Bonds rated in one of the four highest
ratings categories are considered "investment grade." The Fund's Statement of
Additional Information includes a detailed description of the credit-rating
scales used by major, independent bond-rating agencies.
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While falling interest rates tend to strengthen bond prices, they can cause
another sort of problem for bond fund investors--bond calls.

<PAGE>

[FLAG] THE FUND IS SUBJECT TO CALL RISK, WHICH IS THE CHANCE THAT DURING PERIODS
OF FALLING INTEREST RATES A BOND ISSUER WILL "CALL"--OR REPAY--A
HIGH-YIELDING BOND BEFORE THE BONDS MATURITY DATE. FOR MORTGAGE-BACKED
BONDS, THIS PHENOMENA IS CALLED PREPAYMENT RISK. FORCED TO REINVEST THE
UNANTICIPATED PROCEEDS AT LOWER INTEREST RATES, THE FUND WOULD EXPERIENCE A
DECLINE IN INCOME AND LOSE THE OPPORTUNITY FOR ADDITIONAL PRICE
APPRECIATION ASSOCIATED WITH FALLING RATES. CALL (OR PREPAYMENT) RISK IS
GENERALLY HIGH FOR LONGER-TERM BOND FUNDS.

To protect the Fund's corporate bond holdings against call risk, Wellington
Management purchases bonds that have reasonable protection from being called.
Bond issuers take advantage of falling interest rates by calling corporate
bonds. With mortgage-backed securities, it is the mortgage holder--such as the
American homeowner--who benefits from lower rates.

STOCKS
The Fund's stocks are chosen primarily for their dividend-producing
capabilities, but must also have the potential for moderate long-term capital
growth. Wellington Management looks for stocks of companies that either offer
significant dividends now or expect to increase their dividends in the future.
Securities are sold when an investment has achieved its intended purpose, or
because it is no longer considered attractive.

[FLAG] THE FUND IS SUBJECT TO INVESTMENT STYLE RISK, WHICH IS THE CHANCE THAT
RETURNS FROM LARGE- AND MID-CAPITALIZATION VALUE STOCKS WILL TRAIL RETURNS
FROM OTHER ASSET CLASSES OR THE OVERALL STOCK MARKET. AS A GROUP, VALUE
STOCKS TEND TO GO THROUGH CYCLES OF DOING BETTER--OR WORSE--THAN COMMON
STOCKS IN GENERAL. THESE PERIODS HAVE, IN THE PAST, LASTED FOR AS LONG AS
SEVERAL YEARS.

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PLAIN TALK ABOUT
STOCKS AND DIVIDENDS

Many large and established companies share their profits, in the form of
dividends, with their shareholders. Other companies--particularly those that are
new or small--reinvest any profits back into the business to help the company
grow (and, hopefully, increase its stock's share price). In general, stocks that
offer above-average dividends appeal to investors who want some dividend income
and the potential for capital growth but are less tolerant of share price
fluctuations, while growth stocks are appropriate for investors who will accept
more share price volatility in hope of a greater increase in share price.
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TURNOVER RATE
Although the Fund generally seeks to invest for the long term, it retains the
right to sell securities regardless of how long the securities have been held.
The Fund's average turnover rate for the past five years has been about 29%. (A
turnover rate of 100% would occur, for example, if the Fund sold and replaced
securities valued at 100% of its net assets within a one-year period.)

<PAGE>

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PLAIN TALK ABOUT
TURNOVER RATE

Before investing in a mutual fund, you should review its turnover rate. This
gives an indication of how transaction costs could affect the fund's future
returns. In general, the greater the volume of buying and selling by the fund,
the greater the impact that brokerage commissions and other transaction costs
will have on its return. Also, funds with high turnover rates may be more likely
to generate capital gains that must be distributed to shareholders as income
subject to taxes. As of December 31, 1999, the average turnover rate for all
balanced funds was approximately 85%, according to Morningstar, Inc.
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OTHER INVESTMENT POLICIES AND RISKS
Besides investing in bonds and stocks, the Fund may make certain other kinds of
investments to achieve its objective.
Although the Fund typically does not make significant investments in
securities of companies based outside the United States, the Fund reserves the
right to invest up to 20% of stock holdings in foreign common stocks as well as
securities that are convertible into common stocks. These securities may be
traded in U.S. or foreign markets.
To the extent that it owns foreign stocks, the Fund is subject to (1)
country risk, which is the chance that political events (such as a war),
financial problems (such as government default), or natural disasters (such as
an earthquake) will weaken a country's economy and cause investments in that
country to lose money, and (2) currency risk, which is the chance that Americans
investing abroad could lose money because of a rise in the value of the U.S.
dollar versus foreign currencies.
The Fund may also invest in fixed-income securities issued by foreign
governments and by companies domiciled outside the United States; however, these
securities must be valued in U.S. dollars and meet the Fund's credit quality
standards. With respect to its investments in foreign bonds, the Fund is subject
to country risk.
The Fund may also invest, to a limited extent, in futures and options
contracts, which are traditional types of derivatives. The Fund may also invest
modestly in less risky classes of collateralized mortgage obligations (CMOs).
Losses (or gains) involving futures can sometimes be substantial--in part
because a relatively small price movement in a futures contract may result in an
immediate and substantial loss (or gain) for a fund. This Fund will not use
futures for speculative purposes or as leveraged investments that magnify the
gains or losses of an investment. The Fund's obligation to purchase securities
under futures contracts will not exceed 20% of its total assets.
The reasons for which the Fund will invest in futures and options are:
- - To keep cash on hand to meet shareholder redemptions or other needs while
simulating full investment in bonds and stocks.
- - To reduce the Fund's transaction costs or add value when these instruments
are favorably priced.
The Fund may temporarily depart from its normal investment policies--for
instance, by investing substantially in cash reserves--in response to
extraordinary market, economic, political, or other conditions. In doing so, the
Fund may succeed in avoiding losses but otherwise fail to achieve its investment
objective.

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
DERIVATIVES

A derivative is a financial contract whose value is based on (or "derived" from)
a traditional security (such as a stock or a bond), an asset (such as a
commodity like gold), or a market index (such as the S&P 500 Index). Futures and
options are derivatives that have been trading on regulated exchanges for more
than two decades. These "traditional" derivatives are standardized contracts
that can easily be bought and sold, and whose market values are determined and
published daily. It is these characteristics that differentiate futures and
options from the relatively new types of derivatives. If used for speculation or
as leveraged investments, derivatives can carry considerable risks.
- --------------------------------------------------------------------------------

THE FUND AND VANGUARD

The Fund is a member of The Vanguard Group, a family of more than 35 investment
companies with more than 100 funds holding assets worth more than $550 billion.
All of the Vanguard funds share in the expenses associated with business
operations, such as personnel, office space, equipment, and advertising.
Vanguard also provides marketing services to the funds. Although
shareholders do not pay sales commissions or 12b-1 distribution fees, each fund
pays its allocated share of The Vanguard Group's marketing costs.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
VANGUARD'S UNIQUE CORPORATE STRUCTURE

The Vanguard Group is truly a MUTUAL mutual fund company. It is owned jointly by
the funds it oversees and thus indirectly by the shareholders in those funds.
Most other mutual funds are operated by for-profit management companies that may
be owned by one person, by a group of individuals, or by investors who own the
management company's stock. By contrast, Vanguard provides its services on an
"at-cost" basis, and the funds' expense ratios reflect only these costs. No
separate management company reaps profits or absorbs losses from operating the
funds.
- --------------------------------------------------------------------------------

INVESTMENT ADVISER

<PAGE>

Composite Index was comprised of the Lehman Brothers Long Corporate AA or Better
Bond Index.
For the year ended December 31, 1999, the net fee paid to Wellington
Management represented an effective annual rate of 0.05% of the Fund's average
net assets.
The Fund has authorized Wellington Management to choose brokers or dealers
to handle the purchase and sale of securities for the Fund, and to get the best
available price and most favorable execution from these brokers with respect to
all transactions.
In the interest of obtaining better execution of a transaction, Wellington
Management may choose brokers who charge higher commissions. If more than one
broker can obtain the best available price and most favorable execution of a
transaction, then Wellington Management is authorized to choose a broker who, in
addition to executing the transaction, will provide research services to
Wellington Management or the Fund. Also, the Fund may direct Wellington
Management to use a particular broker for certain transactions in exchange for
commission rebates or research services provided to the Fund.
The Board of Trustees may, without prior approval from shareholders, change
the terms of an advisory agreement or hire a new investment adviser--either as a
replacement for an existing adviser or as an additional adviser. Any significant
change in the Fund's advisory arrangements will be communicated to shareholders
in writing. In addition, as the Fund's sponsor and overall manager, The Vanguard
Group may provide investment advisory services to the Fund, on an at-cost basis,
at any time.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE FUND'S ADVISER

The individuals responsible for overseeing the implementation of Wellington
Management's strategy for Vanguard Wellesley Income Fund are:

EARL E. MCEVOY, Senior Vice President and Partner of Wellington Management; has
worked in investment management since 1972; with Wellington Management since
1978; Fund Manager since 1982; B.A., Dartmouth College; M.B.A., Columbia
Business School.

JOHN R. RYAN, CFA, Senior Vice President and Managing Partner of Wellington
Management; has worked in investment management with Wellington Management since
1981; Fund Manager since 1986; B.S., Lehigh University; M.B.A., University of
Virginia.
- --------------------------------------------------------------------------------

DIVIDENDS, CAPITAL GAINS, AND TAXES

FUND DISTRIBUTIONS
The Fund distributes to shareholders virtually all of its net income (interest
and dividends, less expenses), as well as any capital gains realized from the
sale of its holdings. Income dividends generally are distributed in March, June,
September, and December; capital gains distributions generally occur in
December. In addition, the Fund may occasionally be required to make
supplemental dividend or capital gains distributions at some other time during
the year. You can receive distributions of income dividends or capital gains in
cash, or you can have them automatically reinvested in more shares of the Fund.

<PAGE>
14

BASIC TAX POINTS
Vanguard will send you a statement each year showing the tax status of all your
distributions. In addition, taxable investors should be aware of the following
basic tax points:
- - Distributions are taxable to you for federal income tax purposes whether or
not you reinvest these amounts in additional Fund shares.
- - Distributions declared in December--if paid to you by the end of
January--are taxable for federal income tax purposes as if received in
December.
- - Any dividends and short-term capital gains that you receive are taxable to
you as ordinary income for federal income tax purposes.
- - Any distributions of net long-term capital gains are taxable to you as
long-term capital gains for federal income tax purposes, no matter how long
you've owned shares in the Fund.
- - Capital gains distributions may vary considerably from year to year as a
result of the Fund's normal investment activities and cash flows.
- - A sale or exchange of Fund shares is a taxable event. This means that you
may have a capital gain to report as income, or a capital loss to report as
a deduction, when you complete your federal income tax return.
- - Dividend and capital gains distributions that you receive, as well as your
gains or losses from any sale or exchange of Fund shares, may be subject to
state and local income taxes.

GENERAL INFORMATION
BACKUP WITHHOLDING. By law, Vanguard must withhold 31% of any taxable
distributions or redemptions from your account if you do not:
- - provide us with your correct taxpayer identification number;
- - certify that the taxpayer identification number is correct; and
- - confirm that you are not subject to backup withholding.
Similarly, Vanguard must withhold from your account if the IRS instructs us to
do so.
FOREIGN INVESTORS. The Vanguard funds generally do not offer their shares for
sale outside of the United States. Foreign investors should be aware that U.S.
withholding and estate taxes may apply to any investments in Vanguard funds.
INVALID ADDRESSES. If a dividend or capital gains distribution check mailed to
your address of record is returned as undeliverable, Vanguard will automatically
reinvest all future distributions until you provide us with a valid mailing
address.
TAX CONSEQUENCES. This prospectus provides general tax information only. If you
are investing through a tax-deferred retirement account, such as an IRA, special
tax rules apply. Please consult your tax adviser for detailed information about
a fund's tax consequences for you.

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
DISTRIBUTIONS

As a shareholder, you are entitled to your share of the fund's income from
interest and dividends, and gains from the sale of investments. You receive such
earnings as either an income dividend or a capital gains distribution. Income
dividends come from both the dividends that the fund earns from its holdings and
the interest it receives from its money market and bond investments. Capital
gains are realized whenever the fund sells securities for higher prices than it
paid for them. These capital gains are either short-term or long-term, depending
on whether the fund held the securities for one year or less, or more than one
year.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
"BUYING A DIVIDEND"

Unless you are investing through a tax-deferred retirement account (such as an
IRA), it is not to your advantage to buy shares of a fund shortly before it
makes a distribution, because doing so can cost you money in taxes. This is
known as "buying a dividend." For example: on December 15, you invest $5,000,
buying 250 shares for $20 each. If the fund pays a distribution of $1 per share
on December 16, its share price would drop to $19 (not counting market change).
You still have only $5,000 (250 shares x $19 = $4,750 in share value, plus 250
shares x $1 = $250 in distributions), but you owe tax on the $250 distribution
you received--even if you reinvest it in more shares. To avoid "buying a
dividend," check a fund's distribution schedule before you invest.
- --------------------------------------------------------------------------------

SHARE PRICE

The Fund's share price, called its net asset value, or NAV, is calculated each
business day after the close of regular trading on the New York Stock Exchange
(the NAV is not calculated on holidays or other days when the Exchange is
closed). Net asset value per share is computed by adding up the total value of
the Fund's investments and other assets, subtracting any of its liabilities
(debts), and then dividing by the number of Fund shares outstanding:

TOTAL ASSETS - LIABILITIES
NET ASSET VALUE = --------------------------------
NUMBER OF SHARES OUTSTANDING

Knowing the daily net asset value is useful to you as a shareholder because
it indicates the current value of your investment. The Fund's NAV, multiplied by
the number of shares you own, gives you the dollar amount you would have
received had you sold all of your shares back to the Fund that day.
A NOTE ON PRICING: The Fund's investments will be priced at their market
value when market quotations are readily available. When these quotations are
not readily available, investments will be priced at their fair value,
calculated according to procedures adopted by the Fund's Board of Trustees.
The Fund's share price can be found daily in the mutual fund listings of
most major newspapers under the heading "Vanguard Funds." Different newspapers
use different abbreviations of the Fund's name, but the most common is WELLSL.

<PAGE>

FINANCIAL HIGHLIGHTS

The following financial highlights table is intended to help you understand the
Fund's financial performance for the past five years, and certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned or lost each year on
an investment in the Fund (assuming reinvestment of all dividend and capital
gains distributions). This information has been derived from the financial
statements audited by PricewaterhouseCoopers LLP, independent accountants, whose
report--along with the Fund's financial statements--is included in the Fund's
most recent annual report to shareholders. You may have the annual report sent
to you without charge by contacting Vanguard.

- --------------------------------------------------------------------------------
VANGUARD WELLESLEY INCOME FUND
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $22.12 $21.86 $20.51 $20.44 $17.05
- --------------------------------------------------------------------------------
INVESTMENT OPERATIONS
Net Investment Income 1.120 1.13 1.190 1.17 1.13
Net Realized and
Unrealized Gain (Loss)
on Investments (2.025) 1.40 2.805 .66 3.68
--------------------------------------------------------
Total from Investment
Operations (.905) 2.53 3.995 1.83 4.81
--------------------------------------------------------
DISTRIBUTIONS
Dividends from Net
Investment Income (1.120) (1.13) (1.200) (1.16) (1.14)
Distributions from
Realized Capital Gains (1.245) (1.14) (1.445) (.60) (.28)
--------------------------------------------------------
Total Distributions (2.365) (2.27) (2.645) (1.76) (1.42)
- --------------------------------------------------------------------------------
NET ASSET VALUE, END
OF YEAR $18.85 $22.12 $21.86 $20.51 $20.44
================================================================================

TOTAL RETURN -4.14% 11.84% 20.19% 9.42% 28.91%
================================================================================

RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Year (Millions) $6,976 $8,498 $7,646 $7,013 $7,181
Ratio of Total
Expenses to Average
Net Assets 0.30% 0.31% 0.31% 0.31% 0.35%
Ratio of Net
Investment Income to
Average Net Assets 5.22% 5.05% 5.47% 5.74% 5.96%
Turnover Rate 20% 32% 36% 26% 32%
================================================================================

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE

The Fund began fiscal 1999 with a net asset value (price) of $22.12 per share.
During the year, the Fund earned $1.12 per share from investment income
(interest and dividends). There was a decline of $2.025 per share from
investments that had depreciated in value or that were sold for lower prices
than the Fund paid for them.
Shareholders received $2.365 per share in the form of dividend and capital gains
distributions. A portion of each year's distributions may come from the prior
year's income or capital gains.
Investment losses ($0.905 per share) plus the distributions ($2.365 per share)
resulted in a share price of $18.85 at the end of the year. This was a decrease
of $3.27 per share (from $22.12 at the beginning of the year to $18.85 at the
end of the year). For a shareholder who reinvested the distributions in the
purchase of more shares, the total return from the Fund was -4.14% for the year.
As of December 31, 1999, the Fund had $6.98 billion in net assets. For the year,
its expense ratio was 0.30% ($3.00 per $1,000 of net assets); and its net
investment income amounted to 5.22% of its average net assets. It sold and
replaced securities valued at 20% of its net assets.
- --------------------------------------------------------------------------------

"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc.

<PAGE>

- --------------------------------------------------------------------------------
INVESTING WITH VANGUARD
Are you looking for the most convenient way to open or add money to a Vanguard
account? Obtain instant access to fund information? Establish an account for a
minor child or for your retirement savings?
Vanguard can help. Our goal is to make it easy and pleasant for you to do
business with us.
The following sections of the prospectus briefly explain the many services
we offer. Booklets providing detailed information are available on the services
marked with a [BOOK]. Please call us to request copies.
- --------------------------------------------------------------------------------

SERVICES AND ACCOUNT FEATURES

Vanguard offers many services that make it convenient to buy, sell, or exchange
shares, or to obtain fund or account information.
- --------------------------------------------------------------------------------

TELEPHONE REDEMPTIONS (SALES AND EXCHANGES)
Automatically set up for this Fund unless you notify us otherwise.

- --------------------------------------------------------------------------------
VANGUARD(R) DIRECT DEPOSIT SERVICE [BOOK]
Automatic method for depositing your paycheck or U.S. government payment
(including Social Security and government pension checks) into your account.
- --------------------------------------------------------------------------------
VANGUARD(R) AUTOMATIC EXCHANGE SERVICE [BOOK]
Automatic method for moving a fixed amount of money from one Vanguard fund
account to another.
- --------------------------------------------------------------------------------
VANGUARD FUND EXPRESS(R) [BOOK]
Electronic method for buying or selling shares. You can transfer money between
your Vanguard fund account and an account at your bank, savings and loan, or
credit union on a systematic schedule or whenever you wish.
- --------------------------------------------------------------------------------
VANGUARD DIVIDEND EXPRESS(TM) [BOOK]
Electronic method for transferring dividend and/or capital gains distributions
directly from your Vanguard fund account to your bank, savings and loan, or
credit union account.
- --------------------------------------------------------------------------------
VANGUARD TELE-ACCOUNT(R) 1-800-662-6273 (ON-BOARD) [BOOK]

Toll-free 24-hour access to Vanguard fund and account information--as well as
some transactions--by using any touch-tone phone. Tele-Account provides total
return, share price, price change, and yield quotations for all Vanguard funds;
gives your account balances and history (e.g., last transaction, latest dividend
distribution); and allows you to sell or exchange shares to and from most
Vanguard funds.
- --------------------------------------------------------------------------------
ACCESS VANGUARD(TM) www.vanguard.com [COMPUTER]

You can use your personal computer to perform certain transactions for most
Vanguard funds by accessing our website. To establish this service, you must
register through our website. We will then mail you an account access password
that allows you to process the following financial and administrative
transactions online:
- - Open a new account.*
- - Buy, sell, or exchange shares of most funds.
- - Change your name/address.

<PAGE>

- - Add/change fund options (including dividend options, Vanguard Fund Express,
bank instructions, checkwriting, and Vanguard Automatic Exchange Service).
(Some restrictions may apply.) Please call our Client Services Department
for assistance.
*Only current Vanguard shareholders can open a new account online, by exchanging
shares from other existing Vanguard accounts.
- --------------------------------------------------------------------------------
INVESTOR INFORMATION DEPARTMENT: 1-800-662-7447 (SHIP) TEXT TELEPHONE:
1-800-952-3335
Call Vanguard for information on our funds, fund services, and retirement
accounts, and to request literature.
- --------------------------------------------------------------------------------
CLIENT SERVICES DEPARTMENT: 1-800-662-2739 (CREW) TEXT TELEPHONE: 1-800-749-7273
Call Vanguard for information on your account, account transactions, and account
statements.
- --------------------------------------------------------------------------------
SERVICES FOR CLIENTS OF VANGUARD'S INSTITUTIONAL DIVISION: 1-888-809-8102
Vanguard's Institutional Division offers a variety of specialized services for
large institutional investors, including the ability to effect account
transactions through private electronic networks and third-party recordkeepers.
- --------------------------------------------------------------------------------

TYPES OF ACCOUNTS

Individuals and institutions can establish a variety of accounts with Vanguard.
- --------------------------------------------------------------------------------
FOR ONE OR MORE PEOPLE
Open an account in the name of one (individual) or more (joint tenants) people.
- --------------------------------------------------------------------------------
FOR HOLDING PERSONAL TRUST ASSETS [BOOK]
Invest assets held in an existing personal trust.
- --------------------------------------------------------------------------------
FOR INDIVIDUAL RETIREMENT ACCOUNT [BOOK]
Open a traditional IRA account or a Roth IRA account. Eligibility and other
requirements are established by federal law and Vanguard custodial account
agreements. For more information, please call 1-800-662-7447 (SHIP).
- --------------------------------------------------------------------------------
FOR AN ORGANIZATION [BOOK]
Open an account as a corporation, partnership, endowment, foundation, or other
entity.
- --------------------------------------------------------------------------------
FOR THIRD-PARTY TRUSTEE RETIREMENT INVESTMENTS
Open an account as a retirement trust or plan based on an existing corporate or
institutional plan. These accounts are established by the trustee of the
existing plan.
- --------------------------------------------------------------------------------
VANGUARD PROTOTYPE PLANS
Open a variety of retirement accounts using Vanguard prototype plans for
individuals, sole proprietorships, and small businesses. For more information,
please call 1-800-662-2003.
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
A NOTE ON INVESTING WITH VANGUARD THROUGH OTHER FIRMS
You may purchase or sell Fund shares through a financial intermediary such as a
bank, broker, or investment adviser. If you invest with Vanguard through an
intermediary, please read that firm's program materials carefully to learn of
any special rules that may apply. For example, special terms may apply to
additional service features, fees, or other policies. Consult your intermediary
to determine when your order will be priced.
- --------------------------------------------------------------------------------

<PAGE>

BUYING SHARES

You buy your shares at the Fund's next-determined net asset value after Vanguard
receives your request. As long as your request is received before the close of
trading on the New York Stock Exchange, generally 4 p.m. Eastern time, you will
buy your shares at that day's net asset value.
- --------------------------------------------------------------------------------
MINIMUM INVESTMENT TO . . .
open a new account
$3,000 (regular account); $1,000 (traditional IRAs and Roth IRAs).

add to an existing account
$100 by mail or exchange; $1,000 by wire.
- --------------------------------------------------------------------------------
A NOTE ON LOW BALANCES
The Fund reserves the right to close any nonretirement fund account whose
balance falls below the minimum initial investment. The Fund will deduct a $10
annual fee in June if your nonretirement account balance at that time is below
$2,500. The low balance fee is waived for investors who have aggregate Vanguard
account assets of $50,000 or more.
- --------------------------------------------------------------------------------
BY MAIL TO . . . [ENVELOPE]
open a new account
Complete and sign the account registration form and enclose your check.

add to an existing account
Mail your check with an Invest-By-Mail form detached from your confirmation
statement to the address listed on the form. Please do not alter Invest-By-Mail
forms, since they are fund- and account-specific.

Make your check payable to: The Vanguard Group-27
All purchases must be made in U.S. dollars, and checks must be drawn on U.S.
banks.

First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 1110 455 Devon Park Drive
Valley Forge, PA 19482-1110 Wayne, PA 19087-1815

For clients of Vanguard's Institutional Division . . .

First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
IMPORTANT NOTE: To prevent check fraud, Vanguard will not accept checks made
payable to third parties.
- --------------------------------------------------------------------------------
BY TELEPHONE TO . . . [TELEPHONE]
open a new account
Call Vanguard Tele-Account* 24 hours a day--or Client Services during business
hours--to exchange from another Vanguard fund account with the same registration
(name, address, taxpayer identification number, and account type). (Note that
some restrictions apply to index fund accounts.)

<PAGE>

add to an existing account
Call Vanguard Tele-Account* 24 hours a day--or Client Services during business
hours--to exchange from another Vanguard fund account with the same registration
(name, address, taxpayer identification number, and account type). (Note that
some restrictions apply to index fund accounts.) Use Vanguard Fund Express (see
"Services and Account Features") to transfer assets from your bank account. Call
Client Services before your first use to verify that this option is available.

Vanguard Tele-Account Client Services
1-800-662-6273 1-800-662-2739

*You must obtain a Personal Identification Number (PIN) through Tele-Account at
least seven days before you request your first exchange.

- --------------------------------------------------------------------------------
IMPORTANT NOTE: Once you have initiated a telephone transaction and a
confirmation number has been assigned, the transaction cannot be revoked. We
reserve the right to refuse any purchase request.
- --------------------------------------------------------------------------------
BY WIRE TO OPEN A NEW ACCOUNT OR ADD TO AN EXISTING ACCOUNT [WIRE]
Call Client Services to arrange your wire transaction. Wire transactions to
retirement accounts are only available for asset transfers and rollovers from
other financial institutions. Individual IRA contributions will not be accepted
by wire.

Wire to:
FRB ABA 021001088
HSBC Bank USA

For credit to:
Account: 000112046
Vanguard Incoming Wire Account

In favor of:
Vanguard Wellesley Income Fund-27
[Account number, or temporary number for a new account]
[Registered account owner(s)]
[Registered address]

- --------------------------------------------------------------------------------
You can redeem (that is, sell or exchange) shares purchased by check or Vanguard
Fund Express at any time. However, while your redemption request will be
processed at the next-determined net asset value after it is received, your
redemption proceeds will not be available until payment for your purchase is
collected, which may take up to ten calendar days.
- --------------------------------------------------------------------------------
A NOTE ON LARGE PURCHASES
It is important that you call Vanguard before you invest a large dollar amount.
It is our responsibility to consider the interests of all Fund shareholders, and
so we reserve the right to refuse any purchase that may disrupt the Fund's
operation or performance.
- --------------------------------------------------------------------------------

<PAGE>

REDEEMING SHARES

This section describes how you can redeem--that is, sell or exchange--the Fund's
shares.

When Selling Shares:
- - Vanguard sends the redemption proceeds to you or a designated third party.*
- - You can sell all or part of your Fund shares at any time.
*May require a signature guarantee; see footnote on page 24.

When Exchanging Shares:
- - The redemption proceeds are used to purchase shares of a different Vanguard
fund.
- - You must meet the receiving fund's minimum investment requirements.
- - Vanguard reserves the right to revise or terminate the exchange privilege,
limit the amount of an exchange, or reject an exchange at any time, without
notice.
- - In order to exchange into an account with a different registration
(including a different name, address, or taxpayer identification number),
you must include the guaranteed signatures of all current account owners on
your written instructions.

In both cases, your transaction will be based on the Fund's next-determined
share price, subject to any special rules discussed in the "Redeeming Shares"
section of this prospectus.

- --------------------------------------------------------------------------------

NOTE: Once a redemption is initiated and a confirmation number given, the
transaction CANNOT be canceled.
- --------------------------------------------------------------------------------

HOW TO REQUEST A REDEMPTION
You can request a redemption from your Fund account in any one of three ways:
online, by telephone, or by mail.
The Vanguard funds whose shares you cannot exchange online or by telephone
are: VANGUARD U.S. STOCK INDEX FUNDS, VANGUARD BALANCED INDEX FUND, VANGUARD
INTERNATIONAL STOCK INDEX FUNDS, VANGUARD REIT INDEX FUND, and VANGUARD GROWTH
AND INCOME FUND. These funds do, however, permit online and telephone exchanges
within IRAs and other retirement accounts. If you sell shares of these funds
online, you will receive a redemption check at your address of record.
- --------------------------------------------------------------------------------
ONLINE REQUESTS [COMPUTER]
ACCESS VANGUARD at www.vanguard.com
You can use your personal computer to sell or exchange shares of most Vanguard
funds by accessing our website. To establish this service, you must register
through our website. We will then mail you an account access password that will
enable you to sell or exchange shares online (as well as perform other
transactions).
- --------------------------------------------------------------------------------
TELEPHONE REQUESTS [TELEPHONE]
All Account Types Except Retirement:
Call Vanguard Tele-Account 24 hours a day--or Client Services during business
hours-- to sell or exchange shares. You can exchange shares from this Fund to
open an account in another Vanguard fund or to add to an existing Vanguard fund
account with an identical registration.

Retirement Accounts:
You can exchange--but not sell--shares by calling Tele-Account or Client
Services.

<PAGE>

Vanguard Tele-Account Client Services
1-800-662-6273 1-800-662-2739
- --------------------------------------------------------------------------------
SPECIAL INFORMATION: We will automatically establish the telephone redemption
option for your account, unless you instruct us otherwise in writing. While
telephone redemption is easy and convenient, this account feature involves a
risk of loss from unauthorized or fraudulent transactions. Vanguard will take
reasonable precautions to protect your account from fraud. You should do the
same by keeping your account information private and immediately reviewing any
account statements that we send to you. Make sure to contact Vanguard
immediately about any transaction you believe to be unauthorized.
- --------------------------------------------------------------------------------
We reserve the right to refuse a telephone redemption if the caller is unable to
provide:
- - The ten-digit account number.
- - The name and address exactly as registered on the account.
- - The primary Social Security or employer identification number as registered
on the account.
- - The Personal Identification Number (PIN), if applicable (for instance,
Tele-Account).
Please note that Vanguard will not be responsible for any account losses
due to telephone fraud, so long as we have taken reasonable steps to verify the
caller's identity. If you wish to remove the telephone redemption feature from
your account, please notify us in writing.
- --------------------------------------------------------------------------------
A NOTE ON UNUSUAL CIRCUMSTANCES
Vanguard reserves the right to revise or terminate the telephone redemption
privilege at any time, without notice. In addition, Vanguard can stop selling
shares or postpone payment at times when the New York Stock Exchange is closed
or under any emergency circumstances as determined by the U.S. Securities and
Exchange Commission. If you experience difficulty making a telephone redemption
during periods of drastic economic or market change, you can send us your
request by regular or express mail. Follow the instructions on selling or
exchanging shares by mail in this section.
- --------------------------------------------------------------------------------
MAIL REQUESTS [ENVELOPE]
All Account Types Except Retirement:
Send a letter of instruction signed by all registered account holders. Include
the fund name and account number and (if you are selling) a dollar amount or
number of shares OR (if you are exchanging) the name of the fund you want to
exchange into and a dollar amount or number of shares. To exchange into an
account with a different registration (including a different name, address,
taxpayer identification number, or account type), you must provide Vanguard with
written instructions that include the guaranteed signatures of all current
owners of the fund from which you wish to redeem.

Vanguard Retirement Accounts:
For information on how to request distributions from:
- - Traditional IRAs and Roth IRAs--call Client Services.
- - SEP-IRAs, SIMPLE IRAs, 403(b)(7) custodial accounts, and Profit-Sharing and
Money Purchase Pension (Keogh) Plans--call Individual Retirement Plans at
1-800-662-2003.

Depending on your account registration type, additional documentation may be
required.

First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 1110 455 Devon Park Drive
Valley Forge, PA 19482-1110 Wayne, PA 19087-1815

<PAGE>

For clients of Vanguard's Institutional Division . . .

First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 2900 455 Devon Park Drive
Valley Forge, PA 19482-2900 Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
A NOTE ON LARGE REDEMPTIONS
It is important that you call Vanguard before you redeem a large dollar amount.
It is our responsibility to consider the interests of all fund shareholders and
so we reserve the right to delay delivery of your redemption proceeds--up to
seven days--if the amount may disrupt the Fund's operation or performance.
If you redeem more than $250,000 worth of Fund shares within any 90-day
period, the Fund reserves the right to pay part or all of the redemption
proceeds above $250,000 in-kind, i.e., in securities, rather than in cash. If
payment is made in-kind, you may incur brokerage commissions if you elect to
sell the securities for cash.
- --------------------------------------------------------------------------------

OPTIONS FOR REDEMPTION PROCEEDS
You may receive your redemption proceeds in one of three ways: check, exchange
to another Vanguard fund, or Fund Express Redemption.
- --------------------------------------------------------------------------------
CHECK REDEMPTIONS
Normally, Vanguard will mail your check within two business days of a
redemption.
- --------------------------------------------------------------------------------
EXCHANGE REDEMPTIONS
As described above, an exchange involves using the proceeds of your redemption
to purchase shares of another Vanguard fund.
- --------------------------------------------------------------------------------
FUND EXPRESS REDEMPTIONS
Vanguard will electronically transfer funds to your pre-linked checking or
savings account.
- --------------------------------------------------------------------------------

FOR OUR MUTUAL PROTECTION
For your best interests and ours, Vanguard applies these additional requirements
to redemptions:

REQUEST IN "GOOD ORDER"
All redemption requests must be received by Vanguard in "good order." This means
that your request must include:
- - The Fund name and account number.
- - The amount of the transaction (in dollars or shares).
- - Signatures of all owners exactly as registered on the account (for mail
requests).
- - Signature guarantees (if required).*
- - Any supporting legal documentation that may be required.
- - Any outstanding certificates representing shares to be redeemed.
*For instance, a signature guarantee must be provided by all registered account
shareholders when redemption proceeds are to be sent to a different person or
address. A signature guarantee can be obtained from most commercial and savings
banks, credit unions, trust companies, or member firms of a U.S. stock
exchange.

TRANSACTIONS ARE PROCESSED AT THE NEXT-DETERMINED SHARE PRICE AFTER VANGUARD HAS
RECEIVED ALL REQUIRED INFORMATION.

<PAGE>

- --------------------------------------------------------------------------------
LIMITS ON ACCOUNT ACTIVITY

Because excessive account transactions can disrupt management of the Fund and
increase the Fund's costs for all shareholders, Vanguard limits account activity
as follows:
- - You may make no more than TWO SUBSTANTIVE "ROUND TRIPS" THROUGH THE FUND
during any 12-month period.
- - Your round trips through the Fund must be at least 30 days apart.
- - The Fund may refuse a share purchase at any time, for any reason.
- - Vanguard may revoke an investor's telephone exchange privilege at any time,
for any reason.

A "round trip" is a redemption from the Fund followed by a purchase back into
the Fund. Also, a "round trip" covers transactions accomplished by any
combination of methods, including transactions conducted by check, wire, or
exchange to/from another Vanguard fund. "Substantive" means a dollar amount that
Vanguard determines, in its sole discretion, could adversely affect the
management of the Fund.
- --------------------------------------------------------------------------------
RETURN YOUR SHARE CERTIFICATES
Any portion of your account represented by share certificates cannot be redeemed
until you return the certificates to Vanguard. Certificates must be returned
(unsigned), along with a letter requesting the sale or exchange you wish to
process, via certified mail to:

The Vanguard Group
455 Devon Park Drive
Wayne, PA 19087-1815
- --------------------------------------------------------------------------------
ALL TRADES ARE FINAL
Vanguard will not cancel any transaction request (including any purchase or
redemption) that we believe to be authentic once the request has been initiated
and a confirmation number assigned.
- --------------------------------------------------------------------------------
UNCASHED CHECKS
Please cash your distribution or redemption checks promptly. Vanguard will not
pay interest on uncashed checks.
- --------------------------------------------------------------------------------

<PAGE>

TRANSFERRING REGISTRATION

You can transfer the registration of your Fund shares to another owner by
completing a transfer form and sending it to Vanguard.

First-class mail to: Express or Registered mail to:
The Vanguard Group The Vanguard Group
P.O. Box 1110 455 Devon Park Drive
Valley Forge, PA 19482-1110 Wayne, PA 19087-1815

For clients of Vanguard's Institutional Division . . .

FUND AND ACCOUNT UPDATES

STATEMENTS AND REPORTS
We will send you account and tax statements to help you keep track of your Fund
account throughout the year as well as when you are preparing your income tax
returns.
In addition, you will receive financial reports about the Fund twice a
year. These comprehensive reports include an assessment of the Fund's
performance (and a comparison to its industry benchmark), an overview of the
financial markets, a report from the adviser, and the Fund's financial
statements which include a listing of the Fund's holdings.
To keep the Fund's costs as low as possible (so that you and other
shareholders can keep more of the Fund's investment earnings), Vanguard attempts
to eliminate duplicate mailings to the same address. When two or more Fund
shareholders have the same last name and address, we send just one Fund report
to that address--instead of mailing separate reports to each shareholder. If you
want us to send separate reports, notify our Client Services Department at
1-800-662-2739.
- --------------------------------------------------------------------------------
CONFIRMATION STATEMENT
Sent each time you buy, sell, or exchange shares; confirms the trade date and
the amount of your transaction.
- --------------------------------------------------------------------------------
PORTFOLIO SUMMARY [BOOK]
Mailed quarterly for most accounts; shows the market value of your account at
the close of the statement period, as well as distributions, purchases, sales,
and exchanges for the current calendar year.
- --------------------------------------------------------------------------------
FUND FINANCIAL REPORTS
Mailed in February and August for this Fund.
- --------------------------------------------------------------------------------
TAX STATEMENTS
Generally mailed in January; report previous year's dividend and capital gains
distributions, proceeds from the sale of shares, and distributions from IRAs or
other retirement accounts.
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
AVERAGE COST REVIEW STATEMENT [BOOK]
Issued quarterly for most taxable accounts (accompanies your Portfolio Summary);
shows the average cost of shares that you redeemed during the calendar year,
using only the average cost single category method.
- --------------------------------------------------------------------------------

<PAGE>

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<PAGE>

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<PAGE>
GLOSSARY OF INVESTMENT TERMS

BALANCED FUND
A mutual fund that seeks to provide some combination of income, capital growth,
and conservation of capital by investing in stocks, bonds, and/or money market
instruments.

BOND
A debt security (IOU) issued by a corporation, government, or government agency
in exchange for the money you lend it. In most instances, the issuer agrees to
pay back the loan by a specific date and to make regular interest payments until
that date.

CAPITAL GAINS DISTRIBUTION
Payment to mutual fund shareholders of gains realized on securities that a fund
has sold at a profit, minus any realized losses.

COMMON STOCK
A security representing ownership rights in a corporation. A stockholder is
entitled to share in the company's profits, some of which may be paid out as
dividends.

CREDIT QUALITY
A measure of a bond issuer's ability to pay interest and principal in a timely
manner.

DIVIDEND INCOME
Payment to shareholders of income from interest or dividends generated by a
fund's investments.

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 about 2% when interest rates rose one percentage point. On the other
hand, the bond's price would rise by about 2% when interest rates fell by one
percentage point.

EXPENSE RATIO
The percentage of a fund's average net assets used to pay its expenses. The
expense ratio includes management fees, administrative fees, and any 12b-1
distribution fees.

INVESTMENT ADVISER
An organization that makes the day-to-day decisions regarding a fund's
investments.

INVESTMENT GRADE
A bond whose credit quality is considered by independent bond-rating agencies to
be sufficient to ensure timely payment of principal and interest under current
economic circumstances. Bonds rated in one of the four highest rating categories
are considered "investment grade."

MATURITY
The date when a bond issuer agrees to repay the bond's principal, or face value,
to the bond's buyer.

NET ASSET VALUE (NAV)
The market value of a mutual fund's total assets, minus liabilities, divided by
the number of shares outstanding. The value of a single share is called its
share value or share price.

PRICE/EARNINGS (P/E) RATIO
The current share price of a stock, divided by its per-share earnings (profits)
from the past year. A stock selling for $20, with earnings of $2 per share, has
a price/earnings ratio of 10.

PRINCIPAL
The amount of money you put into an investment.

TOTAL RETURN
A percentage change, over a specified time period, in a mutual fund's net asset
value, with the ending net asset value adjusted to account for the reinvestment
of all distributions of dividends and capital gains.

VOLATILITY
The fluctuations in value of a mutual fund or other security. The greater a
fund's volatility, the wider the fluctuations between its high and low prices.

YIELD
Income (interest or dividends) earned by an investment, expressed as a
percentage of the investment's price.

<PAGE>

[SHIP(R) LOGO]
[THE VANGUARD GROUP(R) LOGO]

Post Office Box 2600
Valley Forge, PA 19482-2600

FOR MORE INFORMATION
If you'd like more information about
Vanguard Wellesley Income Fund,
the following documents are
available free upon request:

ANNUAL/SEMIANNUAL REPORT
TO SHAREHOLDERS
Additional information about the
Fund's investments is available in
the Fund's annual and semiannual
reports to shareholders.

STATEMENT OF ADDITIONAL
INFORMATION (SAI)
The SAI provides more detailed
information about the Fund.

The current annual and semiannual
reports and the SAI are
incorporated by reference into
(and are thus legally a part of)
this prospectus.

To receive a free copy of the latest
annual or semiannual report or the
SAI, or to request additional
information about the Fund or other
Vanguard funds, please contact us
as follows:

THE VANGUARD GROUP
INVESTOR INFORMATION
DEPARTMENT
P.O. BOX 2600
VALLEY FORGE, PA 19482-2600

TELEPHONE:
1-800-662-7447 (SHIP)

TEXT TELEPHONE:
1-800-952-3335

WORLD WIDE WEB:
WWW.VANGUARD.COM

If you are a current Fund shareholder
and would like information about
your account, account transactions,
and/or account statements,
please call:

CLIENT SERVICES DEPARTMENT
TELEPHONE:
1-800-662-2739 (CREW)

TEXT TELEPHONE:
1-800-749-7273

INFORMATION PROVIDED BY THE
SECURITIES AND EXCHANGE
COMMISSION (SEC)
You can review and copy
information about the Fund
(including the SAI) at the SEC's
Public Reference Room in
Washington, DC. To find out more
about this public service, call the
SEC at 1-202-942-8090. Reports and
other information about the Fund
are also available on the SEC's
website (www.sec.gov), or you can
receive copies of this information,
for a fee, by electronic request at
the following e-mail address:
[email protected], or by writing
the Public Reference Section,
Securities and Exchange
Commission, Washington, DC
20549-0102.

Fund's Investment Company Act
file number: 811-1776

P027N-04/21/2000

<PAGE>

VANGUARD(R)
WELLESLEY
INCOME FUND

Participant Prospectus
April 21, 2000

This prospectus contains
financial data for the
Fund through the
fiscal year ended
December 31, 1999.

[A MEMBER OF
THE VANGUARD GROUP (R) LOGO]

<PAGE>

VANGUARD WELLESLEY INCOME FUND
Participant Prospectus
April 21, 2000
A Balanced Mutual Fund

- --------------------------------------------------------------------------------
CONTENTS
- --------------------------------------------------------------------------------

1 FUND PROFILE 13 DIVIDENDS, CAPITAL GAINS, AND TAXES

3 ADDITIONAL INFORMATION 14 SHARE PRICE

4 A WORD ABOUT RISK 15 FINANCIAL HIGHLIGHTS

4 WHO SHOULD INVEST 17 INVESTING WITH VANGUARD

5 PRIMARY INVESTMENT STRATEGIES 18 ACCESSING FUND INFORMATION BY
COMPUTER
11 THE FUND AND VANGUARD
GLOSSARY (inside back cover)
12 INVESTMENT ADVISER

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
IMPORTANT NOTE
This prospectus is intended for participants in employer-sponsored retirement or
savings plans. Another version--for investors who would like to open a personal
investment account--can be obtained by calling Vanguard at 1-800-662-7447.
- --------------------------------------------------------------------------------

<PAGE>

FUND PROFILE

The following profile summarizes key features of Vanguard Wellesley Income Fund.

INVESTMENT OBJECTIVE
The Fund seeks to provide a high and sustainable level of current income along
with moderate long-term capital growth.

o Interest rate risk, which is the chance that bond prices overall will
decline over short or even long periods due to rising interest rates.
Interest rate risk is generally high for longer-term bond funds.
o Income risk, which is the chance that falling interest rates will cause the
Fund's income to decline. Income risk is generally low for longer-term bond
funds.
o Credit risk, which is the chance that a bond issuer will fail to pay
interest and principal in a timely manner, reducing the Fund's return.
Credit risk should be low for the Fund.

PERFORMANCE/RISK INFORMATION

The bar chart and table below provide an indication of the risk of investing in
the Fund. The bar chart shows the Fund's performance in each calendar year over
a ten-year period. The table shows how the Fund's average annual total returns
for one, five, and ten calendar years compare with those of both the Lehman
Brothers Long Corporate AA or Better Bond Index, a broad-based securities market
index, and a composite stock/bond index weighted to match the Fund's target
allocation. Keep in mind that the Fund's past performance does not necessarily
indicate how it will perform in the future.

<PAGE>
2
----------------------------------------------------
ANNUAL TOTAL RETURNS
----------------------------------------------------
1990 3.76%
1991 21.57%
1992 8.67%
1993 14.65%
1994 -4.44%
1995 28.91%
1996 9.42%
1997 20.19%
1998 11.84%
1999 -4.14%
----------------------------------------------------

FEES AND EXPENSES

ANNUAL FUND OPERATING EXPENSES (expenses deducted from the Fund's assets)
Management Expenses: 0.28%
12b-1 Distribution Fee: None
Other Expenses: 0.02%
TOTAL ANNUAL FUND OPERATING EXPENSES: 0.30%

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
FUND EXPENSES

All mutual funds have operating expenses. These expenses, which are deducted
from a fund's gross income, are expressed as a percentage of the net assets of
the fund. Vanguard Wellesley Income Fund's expense ratio in fiscal year 1999 was
0.30%, or $3.00 per $1,000 of average net assets. The average balanced mutual
fund had expenses in 1999 of 1.33%, or $13.30 per $1,000 of average net assets
(derived from data provided by Lipper Inc., which reports on the mutual fund
industry). Management expenses, which are one part of operating expenses,
include investment advisory fees as well as other costs of managing a fund--such
as account maintenance, reporting, accounting, legal, and other administrative
expenses.
- --------------------------------------------------------------------------------

THIS EXAMPLE SHOULD NOT BE CONSIDERED TO REPRESENT ACTUAL EXPENSES OR
PERFORMANCE FROM THE PAST OR FOR THE FUTURE. ACTUAL FUTURE EXPENSES MAY BE
HIGHER OR LOWER THAN THOSE SHOWN.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE COSTS OF INVESTING

- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION

DIVIDENDS AND CAPITAL GAINS NEWSPAPER ABBREVIATION
Dividends are distributed quarterly in Wellsl
March, June, September, and December;
capital gains, if any, are distributed VANGUARD FUND NUMBER
annually in December 027

INVESTMENT ADVISER CUSIP NUMBER
Wellington Management Company, LLP, 921938106
Boston, Mass., since inception
TICKER SYMBOL
INCEPTION DATE VWINX
July 1, 1970

NET ASSETS AS OF DECEMBER 31, 1999
$6.98 billion
- --------------------------------------------------------------------------------
<PAGE>
4

- --------------------------------------------------------------------------------
A WORD ABOUT RISK

WHO SHOULD INVEST

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
COSTS AND MARKET-TIMING

THE VANGUARD FUNDS DO NOT PERMIT MARKET-TIMING. DO NOT INVEST IN THIS FUND
IF YOU ARE A MARKET-TIMER.

The Fund has adopted the following policies, among others, to discourage
short-term trading:
- - The Fund reserves the right to reject any purchase request--including
exchanges from other Vanguard funds--that it regards as disruptive to the
efficient management of the Fund. A purchase request could be rejected
because of the timing of the investment or because of a history of
excessive trading by the investor.
- - There is a limit on the number of times you can exchange into and out of
the Fund (see "Exchanges" in the INVESTING WITH VANGUARD section).
- - The Fund reserves the right to stop offering shares at any time.

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
BALANCED FUNDS

PRIMARY INVESTMENT STRATEGIES

MARKET EXPOSURE

BONDS
The Fund invests approximately two-thirds of its assets in bonds.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
BONDS AND INTEREST RATES

Changes in interest rates will affect bond prices as well as bond income.

<PAGE>

These figures are for illustrative purposes only and should not be regarded
as an indication of future returns from the bond market as a whole, or the Fund
in particular.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
BOND MATURITIES

STOCKS
Roughly one-third of the Fund's assets are invested in common stocks.

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
LARGE-CAP, MID-CAP, AND SMALL-CAP STOCKS

SECURITY SELECTION

[FLAG] THE FUND IS SUBJECT TO MANAGER RISK, WHICH IS THE CHANCE THAT THE ADVISER
WILL DO A POOR JOB OF SELECTING STOCKS AND BONDS.

<PAGE>
8

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
TYPES OF BONDS

Keep in mind that, because the bond makeup of the Fund changes daily, this
listing is only a "snapshot" at one point in time.

[FLAG] THE FUND IS SUBJECT TO CREDIT RISK, WHICH IS THE CHANCE THAT A BOND
ISSUER WILL FAIL TO PAY INTEREST AND PRINCIPAL IN A TIMELY MANNER.

Wellington Management purchases bonds that are investment-grade quality--that
is, bonds that are rated at least Baa by Moody's Investors Service, Inc., or BBB
by Standard & Poor's Corporation. The dollar-weighted average quality of bonds
held by the Fund, as of December 31, 1999, was Aa3, according to Moody's.
The U.S. government guarantees the timely payment of interest and principal
for its Treasury bonds; many (but not all) agency bonds have the same guarantee.
The government does not, however, guarantee its bonds' prices. In other words,
while Treasury and agency bonds enjoy the highest credit ratings, their
prices--like the prices of other bonds in the Fund--will fluctuate with changes
in interest rates.

<PAGE>

9
- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
CREDIT QUALITY

While falling interest rates tend to strengthen bond prices, they can cause
another sort of problem for bond fund investors--bond calls.

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
STOCKS AND DIVIDENDS

TURNOVER RATE

Although the Fund generally seeks to invest for the long term, it retains the
right to sell securities regardless of how long the securities have been held.
The Fund's average turnover rate for the past five years has been about 29%. (A
turnover rate of 100% would occur, for example, if the Fund sold and replaced
securities valued at 100% of its net assets within a one-year period.)

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
TURNOVER RATE

<PAGE>

The Fund may also invest, to a limited extent, in futures and options
contracts, which are traditional types of derivatives. The Fund may also invest
modestly in less risky classes of collateralized mortgage obligations (CMOs).
Losses (or gains) involving futures can sometimes be substantial--in part
because a relatively small price movement in a futures contract may result in an
immediate and substantial loss (or gain) for a fund. This Fund will not use
futures for speculative purposes or as leveraged investments that magnify the
gains or losses of an investment. The Fund's obligation to purchase securities
under futures contracts will not exceed 20% of its total assets.
The reasons for which the Fund will invest in futures and options are:
- - To keep cash on hand to meet shareholder redemptions or other needs while
simulating full investment in bonds and stocks.
- - To reduce the Fund's transaction costs or add value when these instruments
are favorably priced.
The Fund may temporarily depart from its normal investment policies--for
instance, by investing substantially in cash reserves--in response to
extraordinary market, economic, political, or other conditions. In doing so, the
Fund may succeed in avoiding losses but otherwise fail to achieve its investment
objective.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
DERIVATIVES

THE FUND AND VANGUARD

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
VANGUARD'S UNIQUE CORPORATE STRUCTURE

INVESTMENT ADVISER

Wellington Management Company, LLP (Wellington Management), 75 State Street,
Boston, MA 02109, founded in 1928, serves as the Fund's investment adviser. As
of December 31, 1999, Welllington Management managed more than $235 billion in
stock and bond portfolios, including 15 Vanguard funds. Wellington Management
manages the Fund subject to the control of the Trustees and officers of the
Fund.
Wellington Management's advisory fee is paid quarterly. This fee is based
on certain annual percentage rates applied to the Fund's average month-end
assets for each quarter.
The advisory fee can be increased or decreased based on the difference
between the Fund's total return performance and that of its unmanaged Composite
Index, 65% of which is made up of the Lehman Brothers Corporate A or Better Bond
Index and 35% of which comprises a blended stock composite (75% S&P/BARRA Value
Index, 12.5% S&P Utilities Index, and 12.5% S&P Telephone Index). Prior to April
1, 2000, the bond portion of th Composite Index was comprised of the Lehman
Brothers Long Corporate AA or Better Bond Index.
For the year ended December 31, 1999, the net fee paid to Wellington
Management represented an effective annual rate of 0.05% of the Fund's average
net assets.
The Fund has authorized Wellington Management to choose brokers or dealers
to handle the purchase and sale of securities for the Fund, and to get the best
available price and most favorable execution from these brokers with respect to
all transactions.
In the interest of obtaining better execution of a transaction, Wellington
Management may choose brokers who charge higher commissions. If more than one
broker can obtain the best available price and most favorable execution of a
transaction, then Wellington Management is authorized to choose a broker who, in
addition to executing the transaction, will provide research services to
Wellington Management or the Fund. Also, the Fund may direct Wellington
Management to use a particular broker for certain transactions in exchange for
commission rebates or research services provided to the Fund.
The Board of Trustees may, without prior approval from shareholders, change
the terms of an advisory agreement or hire a new investment adviser--either as a
replacement for an existing adviser or as an additional adviser. Any significant
change in the Fund's advisory arrangements will be communicated to shareholders
in writing. In addition, as the Fund's sponsor and overall manager, The Vanguard
Group may provide investment advisory services to the Fund, on an at-cost basis,
at any time.

<PAGE>

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
THE FUND'S ADVISER

The individuals responsible for overseeing the implementation of Wellington
Management's strategy for Vanguard Wellesley Income Fund are:

DIVIDENDS, CAPITAL GAINS, AND TAXES

The Fund distributes to shareholders virtually all of its net income (interest
and dividends, less expenses), as well as any capital gains realized from the
sale of its holdings. Income dividends generally are distributed in March, June,
September, and December; capital gains distributions generally occur in
December. In addition, the Fund may occasionally be required to make
supplemental dividend or capital gains distributions at some other time during
the year.
Your dividend and capital gains distributions will be reinvested in
additional Fund shares and accumulate on a tax-deferred basis if you are
investing through an employer-sponsored retirement or savings plan. You will not
owe taxes on these distributions until you begin withdrawals from the plan. You
should consult your plan administrator, your plan's Summary Plan Description, or
your tax adviser about the tax consequences of plan withdrawals.

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
DISTRIBUTIONS

<PAGE>

SHARE PRICE

TOTAL ASSETS - LIABILITIES
NET ASSET VALUE = --------------------------------
NUMBER OF SHARES OUTSTANDING

<PAGE>

FINANCIAL HIGHLIGHTS

TOTAL RETURN -4.14% 11.84% 20.19% 9.42% 28.91%
================================================================================

- --------------------------------------------------------------------------------
PLAIN TALK ABOUT
HOW TO READ THE FINANCIAL HIGHLIGHTS TABLE

"Standard & Poor's(R)," "S&P(R)," "S&P 500(R)," "Standard & Poor's 500," and
"500" are trademarks of The McGraw-Hill Companies, Inc.
<PAGE>

INVESTING WITH VANGUARD

The Fund is an investment option in your retirement or savings plan. Your plan
administrator or your employee benefits office can provide you with detailed
information on how to participate in your plan and how to elect the Fund as an
investment option.
- - If you have any questions about the Fund or Vanguard, including those about
the Fund's investment objective, strategies, or risks, contact Vanguard's
Participant Access Center, toll-free, at 1-800-523-1188.
- - If you have questions about your account, contact your plan administrator
or the organization that provides recordkeeping services for your plan.

INVESTMENT OPTIONS AND ALLOCATIONS
Your plan's specific provisions may allow you to change your investment
selections, the amount of your contributions, or how your contributions are
allocated among the investment choices available to you. Contact your plan
administrator or employee benefits office for more details.

TRANSACTIONS
Contributions, exchanges, or redemptions of the Fund's shares are processed as
soon as they have been received by Vanguard in good order. Good order means that
your request includes complete information on your contribution, exchange, or
redemption, and that Vanguard has received the appropriate assets.
In all cases, your transaction will be based on the Fund's next-determined
net asset value after Vanguard receives your request (or, in the case of new
contributions, the next-determined net asset value after Vanguard receives the
order from your plan administrator). As long as this request is received before
the close of trading on the New York Stock Exchange, generally 4 p.m. Eastern
time, you will receive that day's net asset value.

EXCHANGES
The exchange privilege (your ability to redeem shares from one fund to purchase
shares of another fund) may be available to you through your plan. Although we
make every effort to maintain the exchange privilege, Vanguard reserves the
right to revise or terminate this privilege, limit the amount of an exchange or
reject any exchange, at any time, without notice. Because excessive exchanges
can potentially disrupt the management of the Fund and increase its transaction
costs, Vanguard limits PARTICIPANT EXCHANGE ACTIVITY TO NO MORE THAN FOUR
SUBSTANTIVE "ROUND TRIPS" THROUGH THE FUND (at least 90 DAYS APART) DURING ANY
12-MONTH PERIOD. A "ROUND TRIP" IS A REDEMPTION FROM the Fund followed by a
PURCHASE BACK INTO the Fund. "Substantive" means a dollar amount that Vanguard
determines, in its sole discretion, could adversely affect the management of the
Fund.
Before making an exchange to or from another fund available in your plan,
consider the following:
- - Certain investment options, particularly funds made up of company stock or
investment contracts, may be subject to unique restrictions.
- - Make sure to read that fund's prospectus. Contact Vanguard's Participant
Access Center, toll-free, at 1-800-523-1188 for a copy.
- - Vanguard can accept exchanges only as permitted by your plan. Contact your
plan administrator for details on the exchange policies that apply to your
plan.

ACCESSING FUND INFORMATION BY COMPUTER
- --------------------------------------------------------------------------------
VANGUARD ON THE WORLD WIDE WEB WWW.VANGUARD.COM
Use your personal computer to visit Vanguard's education-oriented website, which
provides timely news and information about Vanguard funds and services; an
online "university" that offers a variety of mutual fund classes; and
easy-to-use, interactive tools to help you create your own investment and
retirement strategies.
- --------------------------------------------------------------------------------
<PAGE>
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<PAGE>
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<PAGE>

GLOSSARY OF INVESTMENT TERMS