Report of Independent Accountants
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, 2000 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 controls may become inadequate because of
changes in conditions or that the effectiveness of their
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, 2000.
This report is intended solely for the information and use
of the Trustees, management and the Securities and Exchange
Commission and is not intended to be and should not be used
by anyone other than these specified parties.
PRICEWATERHOUSECOOPERS LLP
November 29, 2000
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