<PAGE> PAGE 1
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002 B000000 MALVERN
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008 D020001 MA
008 D030001 02109
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010 B000001 801-11953
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012 B000001 84-772
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012 C020001 PA
012 C030001 19355
013 A000001 PRICEWATERHOUSECOOPERS LLP
013 B010001 PHILADELPHIA
013 B020001 PA
<PAGE> PAGE 2
013 B030001 19103
014 A000001 VANGUARD MARKETING CORP.
014 B000001 8-21570
015 A000001 STATE STREET BANK AND TRUST COMPANY
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015 C020001 MA
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<PAGE> PAGE 3
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<PAGE> PAGE 4
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<PAGE> PAGE 7
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<PAGE> PAGE 8
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<PAGE> PAGE 9
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SIGNATURE SUSAN A. TRONEL
TITLE MANAGER
<TABLE> <S> <C>
<ARTICLE> 6
<RESTATED>
<CIK> 0000081391
<NAME> VANGUARD PREFERRED STOCK FUND
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 322137
<INVESTMENTS-AT-VALUE> 313781
<RECEIVABLES> 2080
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<OVERDISTRIBUTION-GAINS> 0
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<NET-CHANGE-IN-ASSETS> (66202)
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</TABLE>
To the Shareholders and
Trustees of Vanguard Preferred Stock Fund
In planning and performing our audit of the financial statements of
Vanguard Preferred Stock Fund (the "Fund") for the year ended October
31, 1999, we considered its internal control, including control activities
for safeguarding securities, in order to determine our auditing procedures
for the purpose of expressing our opinion on the financial statements and
to comply with the requirements of Form N-SAR, not to provide
assurance on internal control.
The management of the Fund is responsible for establishing and
maintaining internal control. In fulfilling this responsibility, estimates
and judgments by management are required to assess the expected
benefits and related costs of controls. Generally, controls that are
relevant to an audit pertain to the entity's objective of preparing financial
statements for external purposes that are fairly presented in conformity
with generally accepted accounting principles. Those controls include the
safeguarding of assets against unauthorized acquisition, use or
disposition.
Because of inherent limitations in internal control, errors or fraud may
occur and not be detected. Also, projection of any evaluation of internal
control to future periods is subject to the risk that it may become
inadequate because of changes in conditions or that the effectiveness of
the design and operation may deteriorate.
Our consideration of internal control would not necessarily disclose all
matters in internal control that might be material weaknesses under
standards established by the American Institute of Certified Public
Accountants. A material weakness is a condition in which the design or
operation of one or more of the internal control components does not
reduce to a relatively low level the risk that misstatements caused by error
or fraud in amounts that would be material in relation to the financial
statements being audited may occur and not be detected within a timely
period by employees in the normal course of performing their assigned
functions. However, we noted no matters involving internal control and
its operation, including controls for safeguarding securities, that we
consider to be material weaknesses as defined above as of October 31,
1999.
This report is intended solely for the information and use of management
and the Board of Trustees of the Fund and the Securities and Exchange
Commission and is not intended to be and should not be used by anyone
other than these specified parties.
November 30, 1999
