In general, there isn't an advantage. In fact, it's a negative in a taxable account because you pay taxes on the reinvested dividends. Which is why they are paid. There's a law that says that 100% of the dividends received by the fund must be paid to investors every year and that is taxable income. Prior to the law, some funds just accumulated dividends. Investors then were able to get the benefit of the dividends (in the NAV) without paying taxes until the shares were sold. And the value of the sold shares with accumulated dividends were accounted as capital gains. The law was changed to bring the taxation of mutual fund investments in line with what investors in individual stocks faced.
Of course, it's the Wellesley INCOME fund. If you are investing for income, then those distributions represent your income.
I am not addressing all that you wrote above, BUT I want to point out that if your account is an IRA you will not report any income or gains each year. Now if you hold VWINX in a regular account, you must pay taxes on capital gains, dividends and interest if earned. This fund does not pay distributions, so you lost me on that issue!
IF it did pay distributions like partnerships and some trust funds, those would not be taxable either because IRS views them as a return of capital. The only time distributions are reportable is when they exceed your investment cost (or basis).
I bought VWINX because it is very safe and the price doesn't jump up or down much. It is much safer because it holds bonds and "gentle" stocks. When the next market crash comes, I won't lose much compared to other funds.
Taxes. If you are getting a dividend or LT gains you only pay 15%. If you are forced to sell in the short term then you pay capital gaines at ordinarly income rates. Of course this might be changing now with Obama which is why many funds and companies are accelerating payouts to investors before the end of this year.