401k Participants' Investment Performance Negative but Account Balances Remained Steady 1999-2002.

Business Editors

VALLEY FORGE, Pa.--(BUSINESS WIRE)--March 3, 2003

Vanguard Study Provides First Analysis of Participants' Personalized Returns During Recent Bear Market

Despite the stock market's plunge of nearly 15 percent per year during the longest bear market since the Great Depression, America's 401(k) plan participants on average have seen the performance of their retirement investments decline just 6 percent annually while their account balance fell less than 1 percent annually, according to a study released today by The Vanguard Group. The Vanguard study is the first report on the personalized returns of 401(k) participants during the three-year bear market through December 31, 2002.

"News headlines have focused solely on stock market returns, suggesting to participants that their 401(k) plan holdings have done just as poorly as the broad stock market indexes," said James M. Norris, Principal, Vanguard Institutional Investor Group. "Many 401(k) participants' returns have been negative, and for some the losses have been just as severe as or worse than the market drop. But for the typical participant, their personalized performance posted better returns than the stock market averages and their account balances remained nearly even. The reasons? A balanced portfolio and the benefits of making regular contributions during a declining market."

The Vanguard study underscores the advantages that workplace retirement plans have offered to participants during the stock market decline. These include the availability of broadly diversified investment offerings in a variety of asset classes and the ability to contribute regularly toward saving for retirement tax-deferred.

For participants looking to improve their retirement savings grade, the Vanguard study suggests two courses of action. "Participants' top priority should be to maintain a balanced portfolio," said Norris. "For example, fixed income investments posted returns of 5-10 percent annually during the past three years compared to the stock market's decline of nearly 15 percent. Complementing a well-diversified stock portfolio with fixed income investments will help mitigate the effects of future stock market volatility."

"Second," noted Norris, "ongoing contributions are an essential feature of workplace savings plans, and can help participants maintain a diversified portfolio even in the face of declining markets. Remaining committed to ongoing contributions to your workplace plan is a key to success."

The study, "Participant Report Card for 2002: The Impact of the Bear Market on Retirement Savings Plans," is the first study on the personalized returns of 401(k) plan participants during a bear market. The study was completed in February 2003 and was based on the personalized returns of 50,000 Vanguard participants. This sample is a statistically representative sample of Vanguard's 2.3 million participants, and a reasonable proxy for the over 50 million Americans in defined contribution plans.

Personalized returns used in this study are the internal rate of return, or dollar-weighted return, for each participant in the sample and, thus, represent "real world" or actual results. Personalized returns are not strictly comparable to other measures of investment performances, such as market indexes or mutual fund investment returns. Personalized returns are derived by underlying investment performance and the pattern of cash flows into or out of an account. Market indexes or mutual fund returns reflect pure investment results, assuming $1 invested for the time period measured, with no intervening cash flows.

A copy of Vanguard's Participant Report Card for 2002 can be downloaded for free via the following link on Vanguard.com: http://institutional.vanguard.com/Institutional/ retirement_research.html. (Due to the length of this URL, it may be necessary to copy and paste this hyperlink into your Internet browser's URL address field.)

The Vanguard Group, headquartered in Valley Forge, Pennsylvania, is the nation's second largest mutual fund firm and a leading provider of company sponsored retirement plan services. Vanguard serves some 17 million shareholder accounts and manages nearly $550 billion in U.S. assets, including more than $170 billion in participant-directed defined contribution retirement plans. Vanguard offers 109 funds to U.S. investors and 35 additional funds in foreign markets.

Vanguard funds are offered by prospectus only. Prospectuses contain more complete information on risks, distribution charges, and other expenses and should be read carefully before you invest. Prospectuses can be obtained directly from The Vanguard Group, 1-800-662-7447.

Past performance cannot be used to predict future returns. The investment return and principal value of an investment will fluctuate so that investor's shares, when redeemed, may be worth more or less than their original cost.

Vanguard Marketing Corporation, Distributor.