VANGUARD PREFERRED STOCK FUND

                             Prospectus Supplement

                                 May 17, 1996

The Board of Trustees of Vanguard Preferred Stock Fund, Inc. (the "Fund") has
approved a revised investment advisory agreement with Wellington Management
Company ("WMC"), the Fund's investment adviser. The new agreement involves a
reduction in the annual rate of advisory fees to be paid to WMC.
  Under the terms of the new agreement, the Fund will pay WMC a basic advisory
fee at the end of each fiscal quarter based on the Fund's average month-end net
assets during the quarter. The quarterly rate is applied according to the
following annual fee schedule:

           Net Assets                   Annual Basic Fee Rate
           ----------                   ---------------------

           First $200 million                   0.150%

           Next $200 million                    0.100

           Over $400 million                    0.075

  This revised investment advisory agreement replaces the Fund's original
agreement with the adviser dated June 1, 1980, and will go into effect on or
about August 1, 1996. Until the effective date, the adviser has agreed to waive
its advisory fees to the extent necessary to abide by the new fee schedule.

                                                        AFVP