[Federal Register Volume 75, Number 120 (Wednesday, June 23, 2010)]
[Proposed Rules]
[Pages 35920-35945]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-15012]



[[Page 35919]]

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Part V





Securities and Exchange Commission





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17 CFR Parts 230 and 270



Investment Company Advertising: Target Date Retirement Fund Names and 
Marketing; Proposed Rule

  Federal Register / Vol. 75 , No. 120 / Wednesday, June 23, 2010 / 
Proposed Rules  

[[Page 35920]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 230 and 270

[Release Nos. 33-9126; 34-62300; IC-29301; File No. S7-12-10]
RIN 3235-AK50


Investment Company Advertising: Target Date Retirement Fund Names 
and Marketing

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: The Securities and Exchange Commission is proposing amendments 
to rule 482 under the Securities Act of 1933 and rule 34b-1 under the 
Investment Company Act of 1940 that, if adopted, would require a target 
date retirement fund that includes the target date in its name to 
disclose the fund's asset allocation at the target date immediately 
adjacent to the first use of the fund's name in marketing materials. 
The Commission is also proposing amendments to rule 482 and rule 34b-1 
that, if adopted, would require marketing materials for target date 
retirement funds to include a table, chart, or graph depicting the 
fund's asset allocation over time, together with a statement that would 
highlight the fund's final asset allocation. In addition, the 
Commission is proposing to amend rule 482 and rule 34b-1 to require a 
statement in marketing materials to the effect that a target date 
retirement fund should not be selected based solely on age or 
retirement date, is not a guaranteed investment, and the stated asset 
allocations may be subject to change. Finally, the Commission is 
proposing amendments to rule 156 under the Securities Act that, if 
adopted, would provide additional guidance regarding statements in 
marketing materials for target date retirement funds and other 
investment companies that could be misleading. The amendments are 
intended to provide enhanced information to investors concerning target 
date retirement funds and reduce the potential for investors to be 
confused or misled regarding these and other investment companies.

DATES: Comments should be received on or before August 23, 2010.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml);
     Send an e-mail to [email protected]. Please include 
File Number S7-12-10 on the subject line; or
     Use the Federal eRulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.
    All submissions should refer to File Number S7-12-10. This file 
number should be included on the subject line if e-mail is used. To 
help us process and review your comments more efficiently, please use 
only one method. The Commission will post all comments on the 
Commission's Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments are also available for Web site viewing and 
copying in the Commission's Public Reference Room, 100 F Street, NE., 
Washington, DC 20549, on official business days between the hours of 10 
a.m. and 3 p.m. All comments received will be posted without change; we 
do not edit personal identifying information from submissions. You 
should submit only information that you wish to make available 
publicly.

FOR FURTHER INFORMATION CONTACT: Devin F. Sullivan, Senior Counsel; 
Michael C. Pawluk, Branch Chief; or Mark T. Uyeda, Assistant Director, 
Office of Disclosure Regulation, Division of Investment Management, at 
(202) 551-6784, 100 F Street, NE., Washington, DC 20549-8549.

SUPPLEMENTARY INFORMATION: The Securities and Exchange Commission 
(``Commission'') is proposing amendments to rules 156 \1\ and 482 \2\ 
under the Securities Act of 1933 (``Securities Act'') \3\ and rule 34b-
1 \4\ under the Investment Company Act of 1940 (``Investment Company 
Act'').\5\
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    \1\ 17 CFR 230.156.
    \2\ 17 CFR 230.482.
    \3\ 15 U.S.C. 77a et seq.
    \4\ 17 CFR 270.34b-1.
    \5\ 15 U.S.C. 80a-1 et seq.
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Table of Contents

I. Background
    A. Growth of Target Date Retirement Funds
    B. Recent Concerns About Target Date Funds
II. Discussion
    A. Content Requirements for Target Date Fund Marketing Materials
    1. Background and Scope of Proposed Amendments
    2. Use of Target Dates in Fund Names
    3. Asset Allocation Table, Chart, or Graph and Landing Point 
Allocation
    4. Disclosure of Risks and Considerations Relating to Target 
Date Funds
    B. Antifraud Guidance
    C. Technical and Conforming Amendments
    D. Compliance Date
    E. Request for Comments on Prospectus Disclosure Requirements
III. General Request for Comments
IV. Paperwork Reduction Act
V. Cost/Benefit Analysis
VI. Consideration of Burden on Competition and Promotion of 
Efficiency, Competition, and Capital Formation
VII. Initial Regulatory Flexibility Analysis
VIII. Consideration of Impact on the Economy
IX. Statutory Authority
Text of Proposed Rule Amendments

I. Background

A. Growth of Target Date Retirement Funds

    Over the past two decades, there has been a sizable shift in how 
Americans provide for their retirement needs. Previously, many 
Americans were able to rely on a combination of Social Security and 
company-sponsored defined benefit pension plans.\6\ Today, however, 
defined benefit pension plans are less common and individuals are 
increasingly dependent on participant-directed vehicles, such as 401(k) 
plans,\7\ that make them responsible for accumulating sufficient assets 
for their retirement.\8\
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    \6\ See, e.g., United States Government Accountability Office, 
Retirement Savings: Automatic Enrollment Shows Promise for Some 
Workers, but Proposals to Broaden Retirement Savings for Other 
Workers Could Face Challenges, at 3 (Oct. 2009) (stating that 
``[t]raditionally, employers that sponsored retirement plans 
generally established `defined benefit' plans'').
    \7\ A 401(k) plan is a defined contribution plan that meets the 
requirements for qualification under Section 401(k) of the Internal 
Revenue Code (26 U.S.C. 401(k)).
    \8\ Department of Labor data indicate that the number of active 
participants in defined benefit plans fell from about 27 million in 
1975 to approximately 20 million in 2006, whereas the number of 
active participants in defined contribution plans increased from 
about 11 million in 1975 to 66 million in 2006. See Request for 
Information Regarding Lifetime Income Options for Participants and 
Beneficiaries in Retirement Plans, 75 FR 5253, 5253-54 (Feb. 2, 
2010) (joint request for information from the Department of the 
Treasury and the Department of Labor).
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    As a result, Americans are increasingly responsible for 
constructing and managing their own retirement portfolios. Effective 
management of a retirement portfolio can be a challenging task, 
requiring significant knowledge and commitment of time.\9\
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    \9\ See, e.g., Testimony of Barbara D. Bovbjerg, Director, 
Education, Workforce, and Income Security, United States Government 
Accountability Office, before the U.S. Senate Special Committee on 
Aging, 401(k) Plans: Several Factors Can Diminish Retirement 
Savings, but Automatic Enrollment Shows Promise for Increasing 
Participation and Savings, at 5-6 (Oct. 28, 2009), available at 
http://www.gao.gov/new.items/d10153t.pdf (attributing the failure of 
some employees to participate in defined contribution plans to ``a 
tendency to procrastinate and follow the path that does not require 
an active decision'').

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[[Page 35921]]

    Target date retirement funds (hereinafter ``target date funds'') 
are designed to make it easier for investors to hold a diversified 
portfolio of assets that is rebalanced automatically among asset 
classes over time without the need for each investor to rebalance his 
or her own portfolio repeatedly.\10\ A target date fund is typically 
intended for investors whose retirement date is at or about the fund's 
stated target date. Target date funds generally invest in a diverse mix 
of asset classes, including stocks, bonds, and cash and cash 
equivalents (such as money market instruments). As the target date 
approaches and often continuing for a significant period thereafter, a 
target date fund shifts its asset allocation in a manner that is 
intended to become more conservative--usually by decreasing the 
percentage allocated to stocks.\11\
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    \10\ See, e.g., Youngkyun Park, Investment Behavior of Target-
Date Fund Users Having Other Funds in 401(k) Plan Accounts, 30 
Employee Benefit Research Institute Issue Brief, at 2 (Dec. 2009).
    \11\ See, e.g., Josh Charlson et al., Morningstar Target-Date 
Series Research Paper: 2009 Industry Survey, at 6 (Sept. 9, 2009) 
(``2009 Morningstar Paper''); Investment Company Institute, 2010 
Investment Company Fact Book, at 116 (2010) (``2010 Fact Book'').
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    Managers of target date funds have stated that, in constructing 
these funds, they attempt to address a variety of risks faced by 
individuals investing for retirement, including investment risk, 
inflation risk, and longevity risk.\12\ Balancing these risks involves 
tradeoffs, such as taking on greater investment risk in an effort to 
increase returns and reduce the chances of outliving one's retirement 
savings.\13\ Further, target date fund managers have taken different 
approaches to balancing these risks, and thus target date funds for the 
same retirement year have had different asset allocations.\14\
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    \12\ See, e.g., Transcript of Public Hearing on Target Date 
Funds and Other Similar Investment Options before the U.S. 
Securities and Exchange Commission and the U.S. Department of Labor, 
at 62 (June 18, 2009), available at http://www.sec.gov/spotlight/targetdatefunds/targetdatefunds061809.pdf (``Joint Hearing 
Transcript'') (testimony of John Ameriks, Principal, Vanguard 
Group).
    \13\ See id. at 23-24 (testimony of Richard Whitney, Director of 
Asset Allocation, T. Rowe Price).
    \14\ See 2009 Morningstar Paper, supra note 11, at 6 
(attributing variations in asset allocations to philosophical 
differences among fund companies' asset allocators and their 
approaches to balancing risks).
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    The schedule by which a target date fund's asset allocation is 
adjusted is commonly referred to as the fund's ``glide path.'' The 
glide path typically reflects a gradual reduction in equity exposure 
before reaching a ``landing point'' at which the asset allocation 
becomes static. For some target date funds, the landing point occurs at 
or near the target date, but for other funds, the landing point is 
reached a significant number of years--as many as 30--after the target 
date.\15\ While there are some target date funds with landing points at 
or near the target date, a significant majority have landing points 
after the target date.\16\
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    \15\ Based on Commission staff analysis of registration 
statements filed with the Commission.
    \16\ Of the nine largest target date fund families representing 
approximately 93% of assets under management in target date funds, 
the period of time between the target date and the landing point is 
0 years for one fund family, 7 years for one fund family, 7-10 years 
for one fund family, 10 years for one fund family, 10-15 years for 
two fund families, 20 years for one fund family, 25 years for one 
fund family, and 30 years for one fund family. The largest families 
were determined based on Commission staff analysis of data as of 
March 31, 2010, obtained from Morningstar Direct.
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    Since the inception of target date funds in the mid-1990s, assets 
held by these funds have grown considerably. Today, assets of target 
date funds registered with the Commission total approximately $270 
billion.\17\ Target date funds received approximately $43 billion in 
net new cash flow during 2009, $42 billion during 2008, and $56 billion 
during 2007, compared to $22 billion in 2005 and $4 billion in 
2002.\18\
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    \17\ Based on Commission staff analysis of data as of March 31, 
2010, obtained from Morningstar Direct.
    \18\ See 2010 Fact Book, supra note 11, at 173 (Table 50).
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    Recently, target date funds have become more prevalent in 401(k) 
plans as a result of the designation of these funds as a qualified 
default investment alternative (``QDIA'') by the Department of Labor 
pursuant to the Pension Protection Act of 2006.\19\ The QDIA 
designation provides liability protection for an employer who sponsors 
a defined contribution plan and places contributions of those plan 
participants who have not made an investment choice into a target date 
fund or other QDIA.\20\ According to one study, 70% of U.S. employers 
surveyed now use target date funds as their default investment.\21\
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    \19\ See Default Investment Alternatives Under Participant 
Directed Individual Account Plans, 72 FR 60452, 60452-53 (Oct. 24, 
2007) (``QDIA Adopting Release''). Under the Pension Protection Act, 
the Department of Labor was directed to adopt regulations that 
``provide guidance on the appropriateness of designating default 
investments that include a mix of asset classes consistent with 
capital preservation or long-term capital appreciation, or a blend 
of both.'' Pension Protection Act of 2006, Public Law 109-280.
    \20\ See QDIA Adopting Release, supra note 19, 72 FR at 60452-
53. As an alternative to a target date fund as a QDIA, Department of 
Labor regulations permit a plan sponsor to select a ``balanced 
fund'' that is consistent with a target level of risk appropriate 
for participants of the plan as a whole or a ``managed account'' 
that operates similarly to a target date fund. 29 CFR 2550.404c-
5(e)(4)(ii)-(iii).
    \21\ Margaret Collins, Target-Date Retirement Funds May Miss 
Mark for Unsavvy Savers, Bloomberg (Oct. 15, 2009) (citing a Mercer, 
Inc. study of more than 1,500 companies).
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B. Recent Concerns About Target Date Funds

    Market losses incurred in 2008, coupled with the increasing 
significance of target date funds in 401(k) plans,\22\ have given rise 
to a number of concerns about target date funds. In particular, 
concerns have been raised regarding how target date funds are named and 
marketed.
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    \22\ See Investment Company Institute, The U.S. Retirement 
Market, Third Quarter 2009, at 31 (Feb. 2010) (approximately 67% of 
assets held by target date funds as of September 30, 2009, were 
attributable to defined contribution plans).
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    Target date funds that were close to reaching their target date 
suffered significant losses in 2008, and there was a wide variation in 
returns among target date funds with the same target date.\23\ 
Investment losses for funds with a target date of 2010 averaged nearly 
24% in 2008, ranging between approximately 9% and 41% \24\ (compared to 
losses for the Standard & Poor's 500 Index (``S&P 500''), the Nasdaq 
Composite Index (``Nasdaq Composite''), and the Wilshire 5000 Total 
Market Index (``Wilshire 5000'') of approximately 37%, 41%, and 37%, 
respectively).\25\ By contrast, in 2009, returns for 2010 target date 
funds ranged between approximately 7% and 31%, with an average return 
of approximately 22% \26\ (compared to returns for the S&P 500, Nasdaq 
Composite, and Wilshire 5000 of approximately 26%, 44%, and 28%,

[[Page 35922]]

respectively).\27\ Although the 2009 returns were positive, the 
differences between 2008 and 2009 returns demonstrate significant 
volatility. In addition, 2009 returns, like 2008 returns, reflect 
significant variability among funds with the same target date.
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    \23\ See, e.g., Gail MarksJarvis, Missing Their Marks; Target 
Date Funds Took Too Many Risks for 401(k) Investors Nearing 
Retirement, Chicago Tribune (Mar. 22, 2009); Mark Jewell, Not All 
Target-Date Funds Are Created Equal, Associated Press (Jan. 15, 
2009).
    \24\ Based on Commission staff analysis of data obtained from 
Morningstar Direct. See also Pamela Yip, Losing Sight of Retirement 
Goals; Target-Date Mutual Funds Aren't Always on the Mark, Dallas 
Morning News (May 11, 2009) (reviewing 2008 performance of target 
date funds); Robert Powell, Questions Arise on Target-Date Funds 
after Dismal 2008, MarketWatch (Feb. 4, 2009) (same).
    \25\ See S&P 500 monthly and annual returns, available at http://www.standardandpoors.com/indices/market-attributes/en/us; Nasdaq 
Composite Index performance data, available at http://www.nasdaq.com/aspx/dynamic_charting.aspx?symbol=IXIC&selected=IXIC; and Wilshire Index 
Calculator, available at http://www.wilshire.com/Indexes/calculator/.
    \26\ Based on Commission staff analysis of data obtained from 
Morningstar Direct.
    \27\ See supra note 25.
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    While the variations in returns among target date funds with the 
same target date can be explained by a number of factors, one key 
factor is the use of different asset allocation models by different 
funds, with the result that target date funds sharing the same target 
date have significantly different degrees of exposure to more volatile 
asset classes, such as stocks.\28\ Equity exposure has ranged from 
approximately 25% to 65% at the target date and from approximately 20% 
to 65% at the landing point.\29\ We note that opinions differ on what 
an optimal glide path should be.\30\ An optimal glide path for one 
investor may not be optimal for another investor with the same 
retirement date, with the optimal glide path depending, among other 
things, on an investor's appetite for certain types of risk, other 
investments, retirement and labor income, expected longevity, and 
savings rate.
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    \28\ See 2009 Morningstar Paper, supra note 11, at 6-9.
    \29\ Based on Commission staff analysis of registration 
statements filed with the Commission.
    \30\ See, e.g., statement of Joseph C. Nagengast, Target Date 
Analytics LLC, at 2 (May 22, 2009), available at http://www.sec.gov/comments/4-582/4582-3.pdf (stating that ``the glide path must be 
designed to provide for a predominance of asset preservation as the 
target date nears and arrives''); Josh Cohen, Russell Investments, 
Twelve Observations on Target Date Funds, at 2 (Apr. 2008), 
available at http://www.dol.gov/ebsa/pdf/cmt-06080910.pdf (arguing 
against high equity allocations at the target date). But see Anup K. 
Basu and Michael E. Drew, Portfolio Size Effect in Retirement 
Accounts: What Does It Imply for Lifecycle Asset Allocation Funds, 
35 J. Portfolio Mgmt. 61, 70 (Spring 2009) (suggesting that ``the 
growing size of the plan participant's contributions in later years 
calls for aggressive asset allocation--quite the opposite of the 
strategy currently followed by lifecycle asset allocation funds''); 
Joint Hearing Transcript, supra note 12, at 103 (testimony of Seth 
Masters, Chief Investment Officer for Blend Strategies and Defined 
Contributions, AllianceBernstein) (stating that the objective of 
target date funds should not be to minimize risk and volatility 
nearing retirement, but rather to minimize the risk that 
participants will run out of money in retirement).
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    In June 2009, the Commission and the Department of Labor held a 
joint hearing on target date funds.\31\ Representatives of a wide range 
of constituencies participated at the hearing, including investor 
advocates, employers who sponsor 401(k) plans, members of the financial 
services industry, and academics. Some participants at the hearing 
spoke of the benefits of target date funds (for example, as a means to 
permit investors to diversify their holdings and prepare for 
retirement), but a number raised concerns, particularly regarding 
investor understanding of the risks associated with, and the 
differences among, target date funds. Some of these concerns revolved 
around the naming conventions of target date funds and the manner in 
which target date funds are marketed.
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    \31\ See Joint Hearing Transcript, supra note 12.
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    One concern raised at the hearing was the potential for a target 
date fund's name to contribute to investor misunderstanding about the 
fund. Target date fund names generally include a year, such as 2010. 
The year is intended as the approximate year of an investor's 
retirement, and an investor may use the date contained in the name to 
identify a fund that appears to meet his or her retirement needs.\32\ 
This naming convention, however, may contribute to investor 
misunderstanding of target date funds.\33\ Investors may not 
understand, from the name, the significance of the target date in the 
fund's management or the nature of the glide path up to and after that 
date. For example, investors may expect that at the target date, most, 
if not all, of their fund's assets will be invested conservatively to 
provide a pool of assets for retirement needs.\34\ They also may 
mistakenly assume that funds that all have the same date in their name 
are managed according to a uniform asset allocation strategy.\35\
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    \32\ See, e.g., statement of Karrie McMillan, General Counsel, 
Investment Company Institute, at Target Date Fund Joint Hearing 
(June 18, 2009) (``McMillan statement''), available at http://www.dol.gov/ebsa/pdf/ICI061809.pdf, at 6-7 (stating that the 
expected retirement date that is used in target date fund names is a 
point in time to which investors easily can relate).
    \33\ See, e.g., Joint Hearing Transcript, supra note 12, at 65 
(testimony of Marilyn Capelli-Dimitroff, Chair, Certified Financial 
Planner Board of Standards, Inc.) (stating that target date funds 
may be ``fundamentally misleading'' to investors because they can be 
managed in ways that are inconsistent with reasonable expectations 
created by the names).
    \34\ See id. at 87 (testimony of David Certner, Legislative 
Counselor and Legislative Policy Director, AARP) (hypothesizing that 
investors who were looking at 2010 target date funds were ``thinking 
something much more conservative than maybe the theoretical notions 
of what the payouts are going to be over a longer lifetime 
period'').
    \35\ See id. at 272 (testimony of Ed Moore, President, Edelman 
Financial Services) (asserting that the practice of funds referring 
to themselves by year is misleading because each fund is permitted 
to create its own asset allocation in the absence of industry 
standards regarding portfolio management and construction).
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    Another concern raised at the hearing was the degree to which the 
marketing materials provided to 401(k) plan participants and other 
investors in target date funds may have contributed to a lack of 
understanding by investors of those funds and their associated 
investment strategies and risks. A number of hearing participants 
expressed concern regarding target date fund marketing. For example, 
one participant stated that ``there are significant problems with how 
[target date funds] are presently marketed,'' and that ``what is 
lacking is clear and understandable information on the investment 
strategy and potential risks associated with that strategy.'' \36\ 
Another participant cited a survey that her organization had conducted, 
which involved showing a composite description of target date funds 
derived from actual marketing materials to survey subjects, the 
majority of whom perceived that those materials made ``a promise that 
[did] not, in fact, exist.'' \37\ According to that participant, some 
of the survey respondents who reviewed the marketing materials thought 
that target date funds made various promises, such as ``funds at the 
time of retirement,'' a ``secure investment with minimal risks,'' 
similarity to ``a guaranteed investment'' during a market downturn, or 
``a comfortable retirement.'' \38\
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    \36\ Id. at 153 (testimony of Mark Wayne, National Association 
of Independent Retirement Plan Advisors).
    \37\ Id. at 178 (testimony of Jodi DiCenzo, Behavioral Research 
Associates). A copy of the survey results is available at http://www.sec.gov/comments/4-582/4582-1a.pdf.
    \38\ Id.
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    Our staff has reviewed a sample of target date fund marketing 
materials and found that the materials often characterized target date 
funds as offering investors a simple solution for their retirement 
needs. The materials typically presented a list of funds with different 
target dates and invited investors to choose the fund that most closely 
matches their anticipated retirement date. Even though the marketing 
materials for target date funds often included some information about 
associated risks, they often accompanied this disclosure with slogan-
type messages or other catchphrases encouraging investors to conclude 
that they can simply choose a fund without any need to consider their 
individual circumstances or monitor the fund over time.
    The simplicity of the messages presented in these marketing 
materials at times belies the fact that asset allocation strategies 
among target date fund managers differ and that investments that are 
appropriate for an investor depend not only on his or her retirement 
date, but on other factors, including appetite for certain types of

[[Page 35923]]

risk, other investments, retirement and labor income, expected 
longevity, and savings rate. The investor is, in effect, relying on the 
fund manager's asset allocation model, which may or may not be 
appropriate for the particular investor. The model's assumptions could 
be inappropriate for an investor either from the outset or as a result 
of a change in economic or other circumstances, such as job loss, 
unexpected expenditures that lead to decreased contributions, or 
serious illness affecting life expectancy.
    As a first step to address potential investor misunderstanding of 
target date funds, the Commission recently posted on its investor 
education Web site a brochure explaining target date funds and matters 
that an investor should consider before investing in a target date 
fund.\39\ Today, we are proposing to take another step to address the 
concerns that have been raised. We are proposing amendments to rule 482 
under the Securities Act and rule 34b-1 under the Investment Company 
Act that, if adopted, would require a target date fund that includes 
the target date in its name to disclose the fund's asset allocation at 
the target date immediately adjacent to (or, in a radio or television 
advertisement, immediately following) the first use of the fund's name 
in marketing materials. We are also proposing amendments to rule 482 
and rule 34b-1 that, if adopted, would require enhanced disclosure in 
marketing materials for a target date fund regarding the fund's glide 
path and asset allocation at the landing point, as well as the risks 
and considerations that are important when deciding whether to invest 
in a target date fund. Finally, we are proposing amendments to rule 156 
under the Securities Act that, if adopted, would provide additional 
guidance regarding statements in marketing materials for target date 
funds and other investment companies that could be misleading. The 
amendments that we are proposing in this release are intended to 
address the concerns that have been raised regarding the potential for 
investor misunderstanding to arise from target date fund names and 
marketing materials.
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    \39\ See Investor Bulletin: Retirement Funds (May 6, 2010), 
available at http://www.sec.gov/investor/alerts/tdf.htm and http://investor.gov/investor-bulletin-target-date-retirement-funds/?preview=true&preview_id=1154&preview_nonce =908a042f2f/. This 
brochure is also posted on the Department of Labor's Web site and is 
available at http://www.dol.gov/ebsa/pdf/TDFInvestorBulletin.pdf.
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II. Discussion

A. Content Requirements for Target Date Fund Marketing Materials

    We are proposing to amend our rules governing investment company 
marketing materials to address concerns regarding target date fund 
names and information presented in target date fund marketing 
materials. To address concerns that a target date fund's name may 
contribute to investor misunderstanding about the fund, we are 
proposing to require marketing materials for a target date fund that 
includes the target date in its name to disclose, together with the 
first use of the fund's name, the asset allocation of the fund at the 
target date.
    We are also proposing to require enhanced disclosures to address 
concerns regarding the degree to which the marketing materials provided 
to 401(k) plan participants and other investors in target date funds 
may have contributed to a lack of understanding by investors of those 
funds and their associated strategies and risks. First, we are 
proposing amendments that would require target date fund marketing 
materials that are in print or delivered through an electronic medium 
to include a table, chart, or graph depicting the fund's glide path, 
together with a statement that, among other things, would highlight the 
fund's asset allocation at the landing point. Radio and television 
advertisements would be required to disclose the fund's asset 
allocation at the landing point. Second, we are proposing amendments 
that would require a statement that a target date fund should not be 
selected based solely on age or retirement date, that a target date 
fund is not a guaranteed investment, and that a target date fund's 
stated asset allocations may be subject to change. These enhanced 
disclosure requirements would apply to all target date funds, including 
those that do not include a date in their names, except that the 
landing point disclosures for radio and television advertisements would 
apply only to target date funds that include a date in their names.
1. Background and Scope of Proposed Amendments
    Rule 482 under the Securities Act permits investment companies to 
advertise information prior to delivery of a statutory prospectus.\40\ 
Rule 482 advertisements are ``prospectuses'' under Section 10(b) of the 
Securities Act.\41\ As a result, a rule 482 advertisement need not be 
preceded or accompanied by a statutory prospectus.\42\ Rule 34b-1 under 
the Investment Company Act prescribes the requirements for supplemental 
sales literature (i.e., sales literature that is preceded or 
accompanied by the statutory prospectus).\43\ We are proposing to amend 
rules 482 and 34b-1 to require enhanced disclosures to be made in 
target date fund marketing materials, whether or not those materials 
are preceded or accompanied by a fund's statutory prospectus.\44\
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    \40\ ``Statutory prospectus'' refers to the prospectus required 
by Section 10(a) of the Securities Act [15 U.S.C. 77j(a)]. In 2009, 
the Commission adopted rule amendments that, for mutual fund 
securities, permit certain statutory prospectus delivery obligations 
under the Securities Act to be satisfied by sending or giving key 
information in the form of a summary prospectus. See Investment 
Company Act Release No. 28584 (Jan. 13, 2009) [74 FR 4546 (Jan. 26, 
2009)] (amending rule 498 under the Securities Act).
    \41\ 15 U.S.C. 77j(b).
    \42\ Under the Securities Act, the term ``prospectus'' generally 
is defined broadly to include any communication that offers a 
security for sale. See Section 2(a)(10) of the Securities Act [15 
U.S.C. 77b(a)(10)]. Section 5(b)(1) of the Securities Act [15 U.S.C. 
77e(b)(1)] makes it unlawful to use interstate commerce to transmit 
any prospectus relating to a security with respect to which a 
registration statement has been filed unless the prospectus meets 
the requirements of Section 10 of the Securities Act [15 U.S.C. 
77j]. Because a rule 482 advertisement is a prospectus under Section 
10(b), a rule 482 advertisement need not be preceded or accompanied 
by a statutory prospectus to satisfy the requirements of Section 
5(b)(1).
    \43\ 17 CFR 270.34b-1. Under Section 2(a)(10)(a) of the 
Securities Act [15 U.S.C. 77b(a)(10)(a)], a communication sent or 
given after the effective date of the registration statement is not 
deemed a ``prospectus'' if it is proved that prior to or at the same 
time with such communication a statutory prospectus was sent or 
given to the person to whom the communication was made.
    \44\ The proposed amendments would apply to any investment 
company registered under Section 8 of the Investment Company Act [15 
U.S.C. 80a-8] or separate series of a registered investment company 
that meets the proposed definition of target date fund.
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    We are proposing that the amendments apply to advertisements and 
supplemental sales literature that place a more than insubstantial 
focus on one or more target date funds.\45\ Under the proposal, whether 
advertisements or supplemental sales literature place a more than 
insubstantial focus on one or more target date funds would depend on 
the particular facts and circumstances. Our intention in proposing the 
``more than insubstantial focus'' test is to cover a broad range of 
materials. Materials that relate exclusively to one or more target date 
funds would be covered. Some materials that cover a broad range of 
funds, such as a bound volume of fact sheets that include target date 
funds or a Web site that includes Web pages for target date funds, also 
would be covered because they include information about

[[Page 35924]]

target date funds that is more than insubstantial. We do not, however, 
intend to cover materials that may not be primarily focused on 
marketing target date funds to investors (e.g., a complete list of each 
fund within a fund complex, together with its performance), but that 
are nonetheless considered advertisements or supplemental sales 
literature under rules 482 and 34b-1.
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    \45\ Proposed rules 482(b)(5)(ii), (iii), (iv), and (v); 
proposed rule 34b-1(c).
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    For purposes of the proposed amendments, a ``target date fund'' 
would be defined as an investment company that has an investment 
objective or strategy of providing varying degrees of long-term 
appreciation and capital preservation through a mix of equity and fixed 
income exposures that changes over time based on an investor's age, 
target retirement date, or life expectancy.\46\ This definition is 
intended to encompass target date funds that are marketed as retirement 
savings vehicles and that have given rise to the concerns described in 
this release.
---------------------------------------------------------------------------

    \46\ Proposed rule 482(b)(5)(i)(A); proposed rule 34b-1(c).
---------------------------------------------------------------------------

    The proposed definition is intended to ensure that the proposed 
amendments would apply to all funds that hold themselves out to 
investors as target date funds, including those that qualify under the 
Department of Labor's QDIA regulations. The proposed definition is 
similar to the description of a target date fund provided in the 
Department of Labor's QDIA regulations.\47\ However, we are not 
proposing to apply certain eligibility criteria of a QDIA, namely, that 
a target date fund apply generally accepted investment theories, be 
diversified so as to minimize the risk of large losses, and change its 
asset allocations and associated risk levels over time with the 
objective of becoming more conservative with increasing age. Because we 
believe that investors in any fund that holds itself out as a target 
date fund would benefit from the disclosures that we are proposing, 
regardless of whether the fund is eligible for QDIA status, the 
proposed definition is not limited only to those funds that meet the 
more restricted criteria required for QDIA status and the resulting 
liability protection for plan sponsors. In addition, unlike the 
Department of Labor's description, the proposed definition refers to a 
fund's investment objective or strategy, rather than how the fund is 
``designed.'' While we believe that these two concepts generally are 
equivalent, we are proposing that the definition refer to the fund's 
``investment objective or strategy'' because funds are required to 
disclose their investment objectives and strategies in their statutory 
prospectuses.\48\
---------------------------------------------------------------------------

    \47\ See 29 CFR 2550.404c-5(e)(4)(i) (defining as a permissible 
QDIA ``an investment fund product or model portfolio that applies 
generally accepted investment theories, is diversified so as to 
minimize the risk of large losses and that is designed to provide 
varying degrees of long-term appreciation and capital preservation 
through a mix of equity and fixed income exposures based on the 
participant's age, target retirement date (such as normal retirement 
age under the plan) or life expectancy. Such products and portfolios 
change their asset allocations and associated risk levels over time 
with the objective of becoming more conservative (i.e., decreasing 
risk of losses) with increasing age.'').
    \48\ See Items 2, 4, and 9 of Form N-1A.
---------------------------------------------------------------------------

    We request comment on the scope of the proposed amendments and, in 
particular, on the following issues:
     Does the proposed definition of ``target date fund'' cover 
the types of funds that should be subject to the proposal, or should we 
modify the definition in any way? The proposed definition requires that 
a target date fund have both equity and fixed income exposures. Is this 
condition too restrictive? For example, could a fund market itself as a 
target date fund, yet not include equity exposure and/or fixed income 
exposure, and therefore not be subject to the proposed amendments? 
Would the proposed definition cover types of funds other than target 
date funds that are designed to meet retirement goals? If so, is this 
appropriate or should the definition be modified? Should our proposal 
cover any fund with a date in its name?
     We are proposing that the amendments apply to marketing 
materials that place a more than insubstantial focus on one or more 
target date funds. Is this limitation appropriate, or should any or all 
of the proposed amendments apply to all marketing materials that 
include any reference to a target date fund? Should specific types of 
materials be exempted from the rule? If so, how should this exemption 
be defined? Is the ``more than insubstantial focus'' standard 
sufficiently clear in this context or should it be modified? Is there 
an alternative standard that would satisfy the Commission's objectives 
and be easier to apply? Should the Commission provide further guidance 
on facts and circumstances that would cause marketing materials to be 
considered to place a more than insubstantial focus on one or more 
target date funds? If so, what should this guidance be?
2. Use of Target Dates in Fund Names
    We are proposing to require a target date fund that includes the 
target date in its name to disclose, together with the first use of the 
fund's name, the asset allocation of the fund at the target date.\49\ 
This proposed requirement would apply to advertisements and 
supplemental sales literature that place a more than insubstantial 
focus on one or more target date funds. This proposal is intended to 
convey information about the allocation of the fund's assets at the 
target date and reduce the potential for names that include a target 
date to contribute to investor misunderstanding of target date funds. 
For example, if a target date fund remains significantly invested in 
equity securities at the target date, the proposed disclosure would 
help to reduce or eliminate incorrect investor expectations that the 
fund's assets will be invested in a more conservative manner at that 
time.
---------------------------------------------------------------------------

    \49\ Based on Commission staff analysis of data obtained from 
Morningstar Direct, the Commission staff believes that all funds 
operating as target date funds currently contain a date in their 
names.
---------------------------------------------------------------------------

    The proposal would amend rule 482 under the Securities Act and rule 
34b-1 under the Investment Company Act to require that an advertisement 
or supplemental sales literature that places a more than insubstantial 
focus on one or more target date funds, and that uses the name of a 
target date fund that includes a date (including a year), must disclose 
the percentage allocations of the fund among types of investments 
(e.g., equity securities, fixed income securities, and cash and cash 
equivalents) as follows: (1) An advertisement, or supplemental sales 
literature, that is submitted for publication or use prior to the date 
that is included in the name would be required to disclose the target 
date fund's intended asset allocation at the date that is included in 
the name and must clearly indicate that the percentage allocations are 
as of the date in the name; and (2) an advertisement, or supplemental 
sales literature, that is submitted for publication or use on or after 
the date that is included in the name would be required to disclose the 
target date fund's actual asset allocation as of the most recent 
calendar quarter ended prior to the submission of the advertisement for 
publication or use and must clearly indicate that the percentage 
allocations are as of that date.\50\
---------------------------------------------------------------------------

    \50\ Proposed rule 482(b)(5)(iii); proposed rule 34b-1(c).
---------------------------------------------------------------------------

    As described in the preceding paragraph, for target date fund 
advertisements and supplemental sales literature that are submitted for 
publication or use on or after the target date, we are proposing to 
require disclosure of the target date fund's current asset allocation, 
rather than the fund's intended target date asset allocation. We 
believe that after the

[[Page 35925]]

target date has been reached, the fund's asset allocation at the target 
date is of limited relevance to investors and may be confusing or 
misleading if disclosed prominently with the name. However, we believe 
that disclosure of the current asset allocation is important to prevent 
investors from wrongly concluding that the fund is invested more 
conservatively than is the case. The rule, as proposed, would require 
disclosure of the actual current asset allocation when the target date 
that is included in the name, which may be a year, has been reached. As 
a result, the rule would require the current allocation to be used 
beginning on January 1 of the target date year even if the fund reaches 
its target date allocation later in the year. We believe that this is 
appropriate because investors who have reached their retirement year 
may retire at any point in that year, so that the current allocation 
may be more relevant than the intended allocation later in the year.
    Under the proposal, the required disclosure regarding the asset 
allocation must appear immediately adjacent to (or, in a radio or 
television advertisement, immediately following) the first use of the 
fund's name. Furthermore, the disclosure would be required to be 
presented in a manner reasonably calculated to draw investor attention 
to the information.\51\
---------------------------------------------------------------------------

    \51\ Id. The requirement that the target date asset allocation 
be presented in a manner reasonably calculated to draw investor 
attention to the information is the same presentation requirement 
that applies to certain legends required in advertisements and 
supplemental sales literature delivered through an electronic 
medium. See rule 482(b)(5); rule 34b-1. We do not believe that the 
presentation requirements set forth in current rule 482(b)(5) for 
certain legends required in print advertisements and supplemental 
sales literature (e.g., type size and style) would be appropriate 
for the proposed target date asset allocation disclosure. For 
example, if the name of the target date fund in an advertisement is 
presented in a very large type size, but the major portion of the 
advertisement is presented in significantly smaller type size, rule 
482(b)(5) would permit the use of the smaller type size, which may 
not be sufficient to attract investor attention.
---------------------------------------------------------------------------

    Our proposal would amend rules 482 and 34b-1 to address the use of 
target date fund names that include the target date. We emphasize that 
investors should not rely on a fund's name as the sole source of 
information about the fund's investments and risks. A fund's name, like 
any other single item of information about the fund, cannot provide 
comprehensive information about the fund. In the case of target date 
funds, the fund's name provides no information about the asset 
allocation or portfolio composition. However, target date fund names 
are designed to be significant to investors when selecting a fund.\52\ 
For that reason, the Commission is proposing amendments to rules 482 
and 34b-1 that are intended to address the potential of target date 
fund names to confuse or mislead investors regarding the allocation of 
a fund's assets at its target date.
---------------------------------------------------------------------------

    \52\ See, e.g., McMillan statement, supra note 32, at 6-7 
(stating that the expected retirement date that is used in target 
date fund names is a point in time to which investors easily can 
relate).
---------------------------------------------------------------------------

    Under the proposal, a fund's intended asset allocation at the 
target date (or, for periods on and after the target date, a fund's 
actual asset allocation as of the most recent calendar quarter) would, 
in essence, serve to alert investors to the existence of investment 
risk associated with the fund at and after the target date. In 
proposing the amendments, we do not intend to suggest that the asset 
allocation, by itself, is a complete guide to the investment strategies 
or risks of a fund at and after the target date. Rather, the asset 
allocation may help counterbalance any misimpression that a fund is 
necessarily conservatively managed at the target date or thereafter or 
that all funds with the same target date are similarly managed. There 
could be other ways of pursuing this goal that could result in more 
concise disclosure and perhaps simpler categorizations and computations 
by funds. These could include requiring marketing materials to disclose 
some, but not all, of a target date fund's asset allocation, such as 
the equity allocation,\53\ the cash and cash equivalent allocation,\54\ 
or the non-cash allocation.\55\ We have proposed requiring disclosure 
of the entire asset allocation because we believe that this disclosure 
may convey better information about investment risk than alternatives 
that disclose only part of the asset allocation, but we request comment 
on the alternatives.
---------------------------------------------------------------------------

    \53\ Although the equity allocation may not be a precise proxy 
for investment risk, it has been observed that past performance for 
2010 target date funds has generally, but not universally, followed 
the equity allocations. See Josh Charlson et al., Morningstar 
Target-Date Series Research Paper: 2010 Industry Survey, at 9 (Mar. 
15, 2010).
    \54\ By including only the cash and cash equivalent allocation, 
investors would be alerted to the percentage allocation of the 
investments with the least investment risk.
    \55\ Inclusion of the non-cash allocation would alert investors 
to the percentage allocation of investments that have more 
investment risk than cash and cash equivalents.
---------------------------------------------------------------------------

    The proposal does not prescribe either the asset classes to be used 
in disclosing a target date fund's asset allocation or the methodology 
for calculating the percentage allocations. Instead, each target date 
fund will determine which asset classes to present and the methodology 
for calculating the percentage allocations. The purpose of the proposal 
is to address the potential of target date fund names to confuse or 
mislead investors by conveying some information about the fund's asset 
allocation at and after the target date. While we recognize that it is 
useful for investors to be able to compare target date funds and 
request comment on what additional requirements would best facilitate 
this, our goal in this proposal is not to prescribe a single metric 
that can be used by investors to compare target date funds and select 
among them. For this reason, and because asset allocation models are 
subject to continuing refinement and development (such as the 
introduction of exposure to additional asset classes in order to 
increase diversification), at this time we are not proposing to 
prescribe either the specific asset classes to be used in disclosing 
the asset allocation or the specific methodology for calculating the 
percentage allocations. However, we request comment on whether such 
requirements would be useful to investors. We note that current target 
date fund prospectuses typically use asset classes such as ``equity,'' 
``fixed income,'' and ``cash and cash equivalents.'' \56\ If the rule 
is adopted as proposed, we would expect that many target date funds 
would use these asset classes in making the required disclosure.
---------------------------------------------------------------------------

    \56\ Based on Commission staff analysis of registration 
statements filed with the Commission.
---------------------------------------------------------------------------

    Although we are not proposing required categories or calculation 
methodologies, we emphasize that, as with any disclosure contained in 
advertisements and supplemental sales literature, the disclosure of the 
asset allocation would be subject to the antifraud provisions of the 
federal securities laws.\57\ Compliance with the specific requirements 
of rule 482 and rule 34b-1 does not relieve an investment company of 
any liability under the antifraud provisions of the federal securities 
laws.\58\ Moreover, rule 482 advertisements are also subject to Section 
12(a)(2) of the Securities Act, which imposes liability for materially 
false or misleading statements in a

[[Page 35926]]

prospectus or oral communication, subject to a reasonable care 
defense.\59\
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    \57\ See, e.g., Section 17(a) of the Securities Act [15 U.S.C. 
77q]; Section 10(b) of the Securities Exchange Act of 1934 [15 
U.S.C. 78j(b)]; Section 34(b) of the Investment Company Act [15 
U.S.C. 80a-33].
    \58\ See Investment Company Act Release No. 26195 (Sept. 29, 
2003) [68 FR 57760, 57762 (Oct. 6, 2003)] (emphasizing that 
advertisements under rule 482 and supplemental sales literature 
under rule 34b-1 are subject to the antifraud provisions of the 
federal securities laws).
    \59\ See id. (stating that when ``we initially proposed rule 482 
in 1977, we indicated that rule 482 advertisements would be subject 
to [S]ection 12(a)(2) of the Securities Act and the antifraud 
provisions of the federal securities laws'' and noting that 
``[s]ince then we have reiterated that compliance with the `four 
corners' of rule 482 does not alter the fact that funds * * * are 
subject to the antifraud provisions of the federal securities laws 
with respect to fund advertisements'').
---------------------------------------------------------------------------

    The proposal requires disclosure of the asset allocation among 
``types of investments.'' While many target date funds invest 
indirectly in underlying asset classes by investing in other investment 
companies,\60\ we would not consider it sufficient for a target date 
fund to disclose percentage allocations to investments in types of 
investment companies. Instead, by ``types of investments,'' we mean the 
underlying asset classes in which the target date fund invests, whether 
directly or through other funds. For example, a target date fund that 
is subject to the proposed rule would be required to disclose its 
percentage allocation to equity securities, rather than to equity 
funds. We believe this approach would provide better information 
because investment companies are not required to be fully invested in 
one type of investment.\61\
---------------------------------------------------------------------------

    \60\ Based on Commission staff analysis of registration 
statements filed with the Commission.
    \61\ For example, a fund whose name suggests that it focuses its 
investments in equity securities must have a policy to invest, under 
normal circumstances, at least 80% of its net assets, plus the 
amount of any borrowing for investment purposes, in equity 
securities. Rule 35d-1(a)(2)(i) under the Investment Company Act [17 
CFR 270.35d-1(a)(2)(i)].
---------------------------------------------------------------------------

    Target date fund prospectuses today typically disclose specific 
percentage allocations to various asset classes at the target date. 
While fund prospectuses sometimes note that there may be small 
variations from those percentages, they do not typically disclose broad 
ranges of potential percentage allocations.\62\ If the proposal were 
adopted, we would not view it as inconsistent with the rule for a fund 
to disclose a range of potential percentages that is consistent with 
its prospectus disclosures. We would not expect the ranges disclosed to 
be broad ranges of percentage allocations, nor would we expect ranges 
to replace the specific percentage allocations disclosed in the 
prospectus. Moreover, it would be inconsistent with the rule and 
potentially misleading for a fund to include a range, with the intent 
of investing only at one end of the range. In addition, representations 
about ranges of potential percentage allocations may be misleading if 
funds deviate materially from the stated ranges.
---------------------------------------------------------------------------

    \62\ Based on Commission staff review of prospectuses filed with 
the Commission.
---------------------------------------------------------------------------

    We request comment on the proposed required disclosure of a target 
date fund's target date (or current) asset allocation, and, in 
particular, on the following issues:
     The proposed requirement to disclose the target date (or 
current) asset allocation together with the first use of a target date 
fund's name would apply only if the fund's name includes a date. Should 
the proposed requirement apply to all target date funds, including 
those that do not include a date as part of their name?
     For target date fund marketing materials that are 
submitted for publication or use prior to the target date, we are 
proposing to require disclosure of the fund's intended asset allocation 
at the target date. For materials that are submitted for publication or 
use on or after the target date, we are proposing to require disclosure 
of the fund's actual asset allocation as of the most recent calendar 
quarter ended prior to the submission of the materials. Is this 
appropriate? Should the proposed requirements apply only to marketing 
materials that are submitted for publication or use prior to the target 
date? Should marketing materials that are submitted for publication or 
use on or after the target date provide disclosure of the fund's asset 
allocation as of the target date, rather than the fund's actual asset 
allocation as of the most recent calendar quarter ended prior to the 
submission of the materials?
     Should we require disclosure of the current allocation 
beginning on January 1 of the target date year, or should we instead 
require disclosure of the intended target date allocation until the 
particular date within the target date year upon which the target date 
allocation is reached? Which of these approaches would be more helpful 
and less confusing to investors? Which of these approaches would be 
easier for funds to implement? Is there a different approach that we 
should consider in the fund's target date year?
     The proposal would require disclosure of the target date 
(or current) asset allocation of the fund to appear immediately 
adjacent to (or, in a radio or television advertisement, immediately 
following) the first use of the fund's name. Is this sufficient? For 
example, should this information be disclosed each time the fund's name 
appears or is used in marketing materials? Should this information be 
disclosed where the fund's name is presented most prominently (e.g., 
where the fund's name is written in the largest font size)? Should this 
information be disclosed in a location other than immediately adjacent 
to or immediately following the fund's name?
     Under the proposal, the fund's target date (or current) 
asset allocation would be required to be presented in a manner 
reasonably calculated to draw investor attention to the information. 
Are there other presentation alternatives that may better highlight 
this information for investors (e.g., requirements as to font size, 
type style, separate box, etc.)? Are any or all of the presentation 
requirements that currently apply to certain legends in written 
advertisements under rule 482(b)(5) more appropriate?
     Should we prescribe the specific format for the target 
date (or current) asset allocation disclosure in order to foster more 
effective communication? For example, should we require a table, chart, 
or graph?
     Should marketing materials for a target date fund that 
includes a date in its name, as proposed, be required to include the 
fund's allocation across all types of investments, or should target 
date fund marketing materials be required to disclose some, but not 
all, of the fund's asset allocation, such as the equity allocation, the 
cash and cash equivalent allocation, or the non-cash allocation? Would 
any of these approaches be more effective than the proposal at 
conveying investment risk at or after the target date? Alternatively, 
would any of the approaches confuse or mislead investors by conveying 
only a partial allocation or cause investors to rely excessively on 
information about their exposure to a particular asset class? Are any 
of these approaches and/or the proposal easier for funds to implement, 
for example, because the necessary asset categorizations or 
computations would be simpler? Are there allocations for other 
categories or sub-categories of investments that should be required to 
be disclosed in target date fund marketing materials?
     How effective is disclosure of the target date (or 
current) asset allocation in conveying level of investment risk and/or 
other information to investors and in preventing investors from being 
confused or misled? Do investors need other information along with 
allocation percentages in order to understand the significance of those 
percentages? For example, do they need information about the long-term 
performance, risks, and volatility of different asset classes? If so, 
how should this be conveyed (e.g., in marketing materials, 
prospectuses, educational materials, or through other means)? Should we 
require this

[[Page 35927]]

information to be provided by target date funds to investors?
     The proposal would require that a target date fund's 
target date (or current) asset allocation be disclosed together with 
the first use of the fund's name in marketing materials. Furthermore, 
the disclosure would be required to be presented in a manner that is 
reasonably calculated to draw investor attention to the information. 
What effect might this disclosure have on investor behavior? Is the 
proposed disclosure of a target date fund's asset allocation likely to 
be an effective way to reduce investor misunderstanding or confusion 
with respect to the fund's name? Would the proposed disclosure reduce 
investor overreliance on the fund's name? Will it improve investor 
understanding of a fund's investment strategy, portfolio construction, 
risk factors, and overall suitability as an investment? To what extent, 
if any, might the prominent disclosure of the asset allocation have the 
effect of conferring special significance on the information? Would the 
prominent disclosure of the asset allocation place appropriate 
significance on the information? Would investors instead place undue 
emphasis on a fund's target date (or current) asset allocation because 
of the prominence of the disclosure? How would investors' consideration 
of the target date (or current) asset allocation disclosure be affected 
by the proposed required disclosure of the glide path and landing point 
information described in Part II.A.3 below? Would this additional 
disclosure serve to prevent undue emphasis by investors on the target 
date (or current) asset allocation disclosure?
     Would our proposal encourage or discourage investors from 
seeking further information about a target date fund's glide path or 
other relevant information? For example, would investors examine the 
fund's entire glide path, which would also be required to be disclosed 
prominently in marketing materials under our proposals, as described in 
Part II.A.3 below? Would investors instead overemphasize the fund's 
target date or current allocation? Would investors rely more heavily on 
a target date fund's marketing materials if the target date or current 
asset allocation was included, and if so, would they be less likely to 
seek more information about the fund? To what extent might the special 
emphasis on asset allocation at the target date cause investors to 
prioritize investment risk at a particular moment in time over 
longevity risk, inflation risk, or other risks? Is additional 
disclosure required to focus attention on inflation and longevity 
risks? Do target date funds' current advertising practices, coupled 
with the fact that our advertising rules permit the inclusion of 
information about longevity and inflation risks, suggest that the 
Commission needs to require disclosure with respect to these risks, or 
would these risks be adequately addressed in fund marketing materials 
without the need for additional regulation? Is there any evidence that 
target date funds have failed, or are likely to fail, to provide 
adequate information about inflation and longevity risks absent 
regulation by the Commission?
     Is there additional disclosure, or a disclaimer, that 
could be provided in connection with the required asset allocation 
disclosure that could reduce the likelihood that investors might focus 
too much on asset allocation at the target date? For example, should 
the disclosure concerning a fund's target date (or current) asset 
allocation be accompanied by a cross-reference to the disclosure of 
risks and considerations relating to target date funds discussed in 
Part II.A.4 below? Would such a cross-reference reduce the possibility 
that an investor might overemphasize the target date asset allocation 
disclosure? What are the potential consequences for investors if they 
were to place too much emphasis on investment risk at the target date 
without giving appropriate consideration to longevity, inflation, or 
other risks? Is additional disclosure necessary to aid investors' 
evaluation of longevity, inflation, or other risks? If so, what 
disclosure should be required? Would the proposed asset allocation 
disclosure cause investors to seek professional advice? We would be 
particularly interested in any empirical data on investor behavior that 
would address these questions, including empirical data on how fund 
investors make investment decisions and the role of fund names in those 
decisions.
     To what extent might target date fund managers take steps 
in response to the proposed required disclosure of the target date (or 
current) asset allocation? For example, might target date fund managers 
change asset allocations at the target date as a result of the proposed 
required disclosure and its potential impact on investor behavior? 
Would fund managers provide additional disclosure about how to evaluate 
the asset allocation in order to address any possibility that investors 
may overemphasize the target date asset allocation because of the 
prominence of the disclosure? Would a fund manager's investment 
strategy, portfolio construction, selection of asset categories 
disclosed, and marketing change as a result of the proposal's required 
disclosure of target date (or current) asset allocation? For example, 
might fund managers compose the fund's fixed-income allocation 
differently to take on additional investment risk, in order to seek 
higher returns, while showing a lower equity allocation at or after the 
target date?
     Should the proposal be modified in any manner to address 
any impact that it may have on fund investor or manager behavior?
     Should we specify the particular categories of investments 
for which allocations must be shown and how these categories should be 
defined? If so, what should they be (e.g., equity securities, fixed 
income securities, and cash and cash equivalents)? Should these broad 
asset classes be further subdivided, such as based upon maturity and 
credit quality for fixed income securities, or capitalization and 
market type (e.g., domestic, foreign, and emerging market) for equity 
securities? How should the use of alternative investment strategies 
(e.g., hedging strategies) be reflected in the particular categories of 
investments for which allocations must be shown? Should we require 
funds to expressly disclose the use of leverage arising from borrowings 
or derivatives in their asset allocations? If so, how? Would specifying 
the particular categories of investments for which allocations must be 
shown result in greater comparability among target date funds?
     Should we attempt to enhance comparability among target 
date funds by prescribing a methodology for calculating a fund's 
percentage allocations at and after the target date? Are investors 
likely to attempt to compare target date (or current) asset allocations 
among target date funds and, if so, will they be able to make 
appropriate comparisons or will they be confused or misled if funds 
have used different methodologies? If we were to adopt a methodology, 
should the asset allocation percentages be calculated against a 
particular base (e.g., net assets, net assets plus the amount of 
borrowings for investment purposes, total assets, or total 
investments)? Depending on the base selected, could situations arise 
where a fund's aggregate asset allocation exceeds 100%, such as in 
situations where the fund engages in borrowing or invests in 
derivatives that involve leverage? Would this confuse or mislead 
investors? To what extent do target date funds, or their underlying 
funds, engage in borrowing or invest in derivatives that involve 
leverage? Under the proposal, would the disclosed target date (or 
current) asset allocations for funds that do and do not use leverage

[[Page 35928]]

be meaningful, or would they have any potential to confuse or mislead 
investors? Are there methodologies that could accurately convey to 
investors differences in investment risk between a fund that uses 
leverage, either through borrowing or investing in derivative 
instruments, and a fund that does not use leverage?
     If we do not specify the particular categories of 
investments or prescribe a methodology for calculating a fund's 
percentage allocations, would target date fund managers select the 
categories and methodologies in a manner that results in a high degree 
of correlation between the fund's investment risk implied by its asset 
allocation and its actual investment risk, or might they select 
categories and methodologies that result in disclosed allocations that 
do not accurately reflect investment risk? Would the prominence of the 
disclosure in marketing materials affect managers' behavior in 
selecting categories and methodologies? Would the flexibility to choose 
categories of investments and the methodology for calculating 
percentage allocations result in presentations that are materially 
misleading?
     Other than prescribing categories of investments or the 
methodology for calculating percentage allocations, are there other 
means to enhance comparability among target date and current asset 
allocations? To what extent should we seek to enhance comparability 
among these disclosures?
     Would permitting target date funds to include a range to 
be allocated to each class limit the effectiveness of the proposed 
amendments? For example, are there ranges that would be so broad that 
they would render the information conveyed essentially meaningless? 
Would permitting any range be problematic, regardless of how broad or 
narrow? Would permitting ranges result in the potential for abuse? 
Should there be limitations on the size of the range (e.g., 2%, 5%, or 
10%) or should a range not be permitted?
     The proposal focuses on the asset allocation at the target 
date because the target date is included in the fund's name. Should 
target date fund marketing materials be required to include the asset 
allocation as of the landing point in close proximity to the fund name, 
either in lieu of, or in addition to, the asset allocation as of the 
target date? Should target date fund marketing materials submitted for 
publication or use prior to the target date be required to include the 
asset allocation as of a current date either in lieu of, or in addition 
to, the asset allocation as of the target date?
     Is it appropriate and feasible to require a target date 
fund that invests in other funds to disclose its asset allocation at or 
after the target date in terms of types of investments (e.g., equity 
securities, fixed income securities, and cash and cash equivalents)? 
Should we instead require a target date fund that invests in other 
funds to base its asset allocation on the types of funds in which it 
invests (e.g., equity funds, fixed income funds, money market funds), 
either because this approach would provide better information to 
investors or would be simpler and more cost-effective for funds to 
implement? If so, how should funds be categorized? For example, in 
order to be characterized as an equity fund for this purpose, should a 
fund be required to invest 100% of its assets in equity securities or 
80% or some other percentage? Would this methodology result in 
overstatement or understatement of a particular type of investment, and 
could it lead to an inaccurate depiction of a target date fund's asset 
allocations?
     To what extent do fund investors understand the 
significance of asset allocation, including the relationship between 
asset allocation and investment risk, inflation risk, and longevity 
risk? Are there alternative means of providing investors with important 
information regarding target date funds in lieu of, or in addition to, 
requiring disclosure of the target date (or current) asset allocation? 
For example, should target date fund marketing materials be required to 
disclose a risk rating based on a scale or index (e.g., 1 through 5, 
with 1 being least risky) that could be compared to other target date 
funds? If so, how would such a scale or index be designed? Should the 
scale or index reflect only investment risk, or should it also take 
into account longevity and/or inflation risk?
     In addition to, or in lieu of, the proposed disclosure of 
the target date asset allocation, should there be additional disclosure 
immediately adjacent to a target date fund name indicating whether the 
glide path extends to the target date or through the life expectancy of 
the investor? If so, what would be the most effective way to concisely 
disclose such information? What are the ramifications to investor 
behavior of disclosing the date through which the glide path is 
managed?
     Should we require target date fund names, or disclosures 
immediately adjacent to those names, to provide more information to 
investors regarding a target date fund's landing point and/or asset 
allocations at the landing point? Should we, for example, require that 
any date used in the name of a target date fund be the landing point 
rather than the target date except in cases where the landing point and 
the target date are the same? What impact would this have? Would it, 
for example, make it easier for investors to compare target date funds 
and select an appropriate fund? Should we, instead, require narrative 
disclosure to accompany a target date fund name that indicates whether 
or not the fund reaches its most conservative allocation at the target 
date and, if not, when that point is reached?
     Are there additional, or different, amendments to rules 
482 and 34b-1 or any other rules that would effectively address the 
concerns relating to target date fund names? Section 35(d) of the 
Investment Company Act prohibits a registered investment company from 
using a name that the Commission finds by rule to be materially 
deceptive or misleading.\63\ In 2001, the Commission adopted rule 35d-1 
under the Investment Company Act to address certain categories of names 
that are likely to mislead an investor about an investment company's 
investments and risks.\64\ Should we require the target date asset 
allocation to be included as part of the fund's name, so that it would 
appear every time the name is used? Should we amend rule 35d-1 to 
prohibit the use of a date in target date fund names? Should we amend 
rule 35d-1 to only permit target date funds to use the landing point 
date in its name, rather than the target date? Should we require the 
target date asset allocation to appear adjacent to a fund's name in its 
statutory prospectus, summary prospectus, shareholder reports, or other 
required filings as well as in marketing materials?
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    \63\ 15 U.S.C. 80a-34(d).
    \64\ See Investment Company Act Release No. 24828 (Jan. 17, 
2001) [66 FR 8509 (Feb. 1, 2001)], as corrected by Investment 
Company Act Release No. 24828A (Mar. 8, 2001) [66 FR 14828 (Mar. 14, 
2001)].
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3. Asset Allocation Table, Chart, or Graph and Landing Point Allocation
    We are proposing amendments to rules 482 and 34b-1 to require that 
advertisements and supplemental sales literature that are in print or 
delivered through an electronic medium, and that place a more than 
insubstantial focus on one or more target date funds, include a 
prominent table, chart, or graph that clearly depicts the percentage 
allocations among types of investments (e.g., equity securities, fixed 
income securities, and cash and cash equivalents) over the entire life 
of the fund or funds at identified periodic intervals that are no 
longer than five

[[Page 35929]]

years in duration.\65\ The table, chart, or graph would also be 
required to clearly depict the percentage allocations among types of 
investments at the inception of the fund or funds, the target date, the 
landing point, and, in the case of an advertisement or supplemental 
sales literature that relates to a single target date fund, as of the 
most recent calendar quarter ended prior to the submission of the 
advertisement or supplemental sales literature for publication.\66\ The 
table, chart, or graph requirement would apply to all target date 
funds, including those that do not have dates in their names.
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    \65\ Proposed rule 482(b)(5)(iv); proposed rule 34b-1(c).
    \66\ Cf. rule 482(d)(3)(ii) (requiring any quotation of average 
annual total return contained in an advertisement to be current to 
the most recent calendar quarter ended prior to submission of the 
advertisement for publication).
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    The term ``target date'' is defined in the proposed amendments as 
any date, including a year, that is used in the name of a target date 
fund. If no date is used in the name, the ``target date'' is the date 
described in the fund's prospectus as the approximate date that an 
investor is expected to retire or cease purchasing shares of the 
fund.\67\ We are proposing to define the term ``landing point'' as the 
first date, including a year, at which the asset allocation of a target 
date fund reaches its final asset allocation among types of 
investments.\68\
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    \67\ Proposed rule 482(b)(5)(i)(B).
    \68\ Proposed rule 482(b)(5)(i)(C).
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    We are proposing periodic intervals of no longer than five years 
because the Commission staff has observed a number of presentations of 
target date fund glide paths in statutory prospectuses and marketing 
materials that use five-year intervals, and five-year intervals appear 
to be effective in conveying information about how the asset allocation 
changes over time. We considered other intervals, including longer 
intervals (such as ten years) and shorter intervals (such as one year). 
However, we are concerned that longer intervals may not provide enough 
information about how and when the asset allocation changes, while 
shorter intervals may produce a presentation that is cluttered and 
potentially confusing to investors.
    The proposed table, chart, or graph requirement is intended to 
ensure that investors who receive target date fund marketing materials 
also receive basic information about the glide path. If marketing 
materials relate to a single target date fund, the table, chart, or 
graph must clearly depict the actual percentage allocations among types 
of investments from the inception of the fund through the most recent 
calendar quarter ended prior to the submission of the materials for 
publication and the future intended percentage allocations of the fund. 
This requirement is intended to ensure that marketing materials that 
are focused on a single target date fund provide information about the 
fund's historical and intended future asset allocations. In addition, 
the table, chart, or graph must identify the periodic intervals and the 
inception date, target date, landing point, and most recent calendar 
quarter end using specific dates. In the case of single fund marketing 
materials, we believe that the use of specific dates, rather than the 
number of years before or after retirement, may be easier for investors 
to understand. Examples of presentations that may be appropriate for a 
single target date fund include the following:

[[Page 35930]]

[GRAPHIC] [TIFF OMITTED] TP23JN10.006

    If marketing materials relate to multiple target date funds with 
different target dates that all have the same pattern of asset 
allocations, the proposal would permit the materials to include either 
separate presentations for each fund that meet the requirements 
described in the preceding paragraph or a single table, chart, or graph 
that clearly depicts the intended percentage allocations of the funds 
among types of investments and that identifies the periodic intervals 
and other required points using numbers of years before and after the 
target date. This would be the case, for example, when a fund family 
advertises all of its target date funds in a single advertisement, and 
the target date funds all share a common glide path.\69\ We believe 
that this approach for advertisements focusing on multiple target date 
funds is appropriate because a generic table, chart, or graph 
illustrating the glide path for all of the funds may be able to 
effectively convey the asset allocation for each of the particular 
funds at various dates along the glide path. Examples of presentations 
of a generic table, chart, or graph that may be appropriate for a 
multiple fund advertisement are as follows:
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    \69\ For example, a fund family could have 2010, 2020, and 2030 
target date funds. All three would share a common glide path, but 
the 2020 fund would reach each point on the glide path 10 years 
after the 2010 fund, and the 2030 fund would reach each point on the 
glide path 20 years after the 2010 fund.

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[[Page 35931]]

[GRAPHIC] [TIFF OMITTED] TP23JN10.007

    If the proposal were adopted, a target date fund whose asset 
allocations may vary within a range (e.g., target date allocations of 
40%-50% equity securities, 40%-50% fixed income securities, 0%-10% cash 
and cash equivalents) should present the range in its table, chart, or 
graph. In the case of marketing materials that relate to a single 
target date fund, ranges, if applicable, should be shown for future 
periods, but could not be shown for past periods, because the fund 
would be required to show its actual allocations for past periods. As 
noted above, it would be inconsistent with the rule and potentially 
misleading for a target date fund to include ranges with the intent of 
investing only at one end of the ranges.\70\
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    \70\ See note 62 and discussion at accompanying paragraph.
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    We believe that it is important for target date funds to highlight 
certain key information about the glide path--that the asset allocation 
changes over time; that the asset allocation becomes fixed at the 
landing point, as well as the final allocation; and any discretion by 
the fund's adviser to modify the glide path shown. We believe that a 
target date fund's final asset allocation is important information for 
investors.\71\ Investors need to consider whether a particular target 
date fund's final allocation, and the date that the final allocation is 
reached, are consistent with the investor's goals.
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    \71\ See, e.g., Joint Hearing Transcript, supra note 12, at 154 
(testimony of Mark Wayne, National Association of Independent 
Retirement Plan Advisors) (discussing disclosure of the landing 
point for target date fund glide paths).
---------------------------------------------------------------------------

    For these reasons, we are proposing to require that the proposed 
table, chart, or graph be immediately preceded by a statement that 
helps explain the table, chart, or graph to investors in the case of 
advertisements and supplemental sales literature that (i) relate to a 
single target date fund and are submitted for publication prior to the 
landing point; or (ii) relate to multiple target date funds with 
different target dates that all have the same pattern of asset 
allocations. The statement would be required to include the following 
information: (i) The asset allocation changes over time; (ii) the 
landing point (or in the case of a table, chart, or graph for multiple 
target date funds, the number of years after the target date at which 
the landing point will be reached); an explanation that the asset 
allocation becomes fixed at the landing

[[Page 35932]]

point; and the intended percentage allocations among types of 
investments (e.g., equity securities, fixed income securities, and cash 
and cash equivalents) at the landing point; and (iii) whether, and the 
extent to which, the intended percentage allocations among types of 
investments may be modified without a shareholder vote. We are not 
proposing any particular presentation requirements for the statement 
because we propose to require the statement to immediately precede the 
table, chart, or graph, which must itself be prominent. For that 
reason, we believe that more specific presentation requirements, such 
as font size, are unnecessary.
    We are not proposing to require the explanatory statement in 
advertisements and supplemental sales literature that relate to a 
single target date fund that are submitted for publication on or after 
the landing point. Because the landing point will have already been 
reached, the disclosure that the asset allocation changes over time and 
the landing point disclosures will be of limited, if any, relevance to 
investors. However, the marketing materials would nonetheless be 
required to include a statement that advises an investor whether, and 
the extent to which, the intended percentage allocations among types of 
investments may be modified without a shareholder vote.\72\
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    \72\ Proposed rule 482(b)(5)(ii)(C); proposed rule 34b-1(c).
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    We are not proposing to apply the table, chart, or graph 
requirement or a similar requirement to radio or television 
advertisements because it appears to be difficult to convey this 
information effectively in those media and could result in the 
imposition of very substantial costs for additional advertising time. 
We believe, however, that investors who are attempting to determine 
whether a target date fund is an appropriate investment would consider 
the disclosure of the landing point and the fund's asset allocation at 
the landing point to be important information. Therefore, we are 
proposing to amend rules 482 and 34b-1 to require that a radio or 
television advertisement that is submitted for use prior to the landing 
point and that places a more than insubstantial focus on one or more 
target date funds, and that uses the name of a target date fund that 
includes a date (including a year), must disclose the landing point, an 
explanation that the allocation of the fund becomes fixed at the 
landing point, and the intended percentage allocations of the fund 
among types of investments (e.g., equity securities, fixed income 
securities, and cash and cash equivalents) at the landing point.\73\ We 
are limiting this disclosure to advertisements that relate to funds 
whose name includes a date because those advertisements would be 
required to contain the target date allocation,\74\ and we are 
concerned that investors understand that the target date allocation is 
not the final allocation. The proposed disclosure would be required to 
be given emphasis equal to that used in the major portion of the 
advertisement.\75\
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    \73\ Proposed rule 482(b)(5)(v). As discussed in Part II.A.4 
infra, radio and television advertisements that place a more than 
insubstantial focus on one or more target date funds must also 
include a statement that advises an investor whether, and the extent 
to which, the intended percentage allocation of the target date fund 
among types of investments may be modified without a shareholder 
vote. See proposed rule 482(b)(5)(ii)(C).
    \74\ See proposed rule 482(b)(5)(iii).
    \75\ See proposed rule 482(b)(6); proposed rule 34b-1(c). This 
is the same requirement that currently applies to certain legend-
type disclosures under rule 482(b)(5), which we propose to renumber 
as rule 482(b)(6).
---------------------------------------------------------------------------

    We are not proposing to require the landing point disclosures in 
radio and television advertisements that are submitted for use at and 
after the landing point. The reason is that those advertisements would 
be required to contain the fund's actual asset allocation as of the 
most recent calendar quarter, which should be the same as, or more 
relevant than, the fund's past asset allocation at the landing 
point.\76\
---------------------------------------------------------------------------

    \76\ See proposed rule 482(b)(5)(iii).
---------------------------------------------------------------------------

    We request comment on the proposed asset allocation table, chart, 
or graph and related narrative disclosure and, in particular, on the 
following:
     Is the proposed definition of ``target date'' appropriate? 
Should it be modified in any way? Do all target date funds use a target 
date in their names or prospectuses? Do any target date funds use an 
alternative to a specific target date in their names or prospectuses? 
For example, do some target date funds provide a range of years (e.g., 
2010-2014)? If so, should we modify the definition of ``target date'' 
to reflect this?
     As proposed, the amendments, with the exception of the 
amendments relating to radio and television advertisements that use the 
name of a target date fund that includes a date, would apply to all 
target date funds. Should any or all of the proposed amendments apply 
only to target date funds that include a date in their name? Should 
radio and television advertisements for target date funds be required 
to include the target date and/or landing point asset allocations, 
whether or not the fund name includes a date?
     Would the proposed table, chart, or graph requirement be 
helpful to investors? Should we prescribe the specific format of the 
table, chart, or graph in order to enhance comparability for investors? 
For example, would one form (e.g., graph) be more easily understandable 
by investors than another (e.g., table)? Should we try to enhance 
comparability among target date funds by prescribing a methodology for 
calculating a fund's percentage allocations? Should we specify the 
particular types of investments for which allocations must be shown in 
the table, chart, or graph and how these types should be defined? \77\
---------------------------------------------------------------------------

    \77\ We have raised a number of questions on methodology and 
types of investments in our request for comment in Part II.A.2 
regarding disclosure of asset allocation at the target date in 
proximity to fund names. Commenters are invited to address those 
questions on methodology and types of investments with respect to 
the table, chart, or graph as well.
---------------------------------------------------------------------------

     Should the table, chart, or graph be required to be 
prominent? Are there other presentation requirements that would be more 
appropriate?
     Should the table, chart, or graph, as proposed, be 
required in supplemental sales literature that is preceded or 
accompanied by a statutory prospectus, or is it unnecessary in those 
instances because sufficient information is contained in the 
prospectus?
     Are the differences in requirements for marketing 
materials that relate to a single target date fund and multiple target 
date funds appropriate, or should they be modified? Should the table, 
chart, or graph for a single target date fund be required to show the 
fund's actual historical asset allocations? Will the use of actual 
historical asset allocations be helpful or confusing to investors in 
cases where a fund has changed from its previous glide path? Should the 
table, chart, or graph for a single target date fund instead be 
permitted to show the current glide path that is common to all target 
date funds in a fund family? Would it be misleading for marketing 
materials for a single target date fund to omit the fund's historical 
asset allocations?
     Should the table, chart, or graph for a single target date 
fund be required to clearly depict the current asset allocation? Should 
we, as proposed, require the asset allocation as of the most recent 
calendar quarter ended prior to the submission of the marketing 
materials for publication? Are there any circumstances where we should 
permit the table, chart, or graph for a single target date fund to 
exclude asset allocations for past periods? If we

[[Page 35933]]

permit a single target date fund to exclude past asset allocations in 
any circumstances, should we nonetheless prohibit a fund from excluding 
past asset allocations if the marketing materials contain past 
performance information for the fund? Are past asset allocations 
helpful to allow an investor to assess the performance of the target 
date fund relative to the risk taken? Would disclosure of past 
performance information without disclosure of past asset allocations 
confuse or mislead investors?
     Is the proposed maximum five-year interval for the table, 
chart, or graph appropriate? Should it be shorter (e.g., 1 year or 3 
years) or longer (e.g., 10, 15, or 20 years)? Are there any periods for 
which intervals of shorter duration should be shown? For example, 
should the table, chart, or graph depict the five years before the 
target date and/or landing point using one-year intervals? Is it 
necessary to require any particular interval? Is it also appropriate to 
require asset allocations at the fund's inception, target date, and 
landing point, as proposed?
     Would the proposed required statement preceding the table, 
chart, or graph be helpful to investors? Is any of the information 
unnecessary? Is there additional information that should be required to 
be included in the proposed statement? Should we prescribe the 
particular content of the statement? What would be the clearest plain 
English format for the statement? Should any particular presentation 
requirements, such as font size or style, apply to the statement that 
is required to accompany the table, chart, or graph? Should we require 
marketing materials that relate to a single target date fund that are 
submitted for publication on or after the landing point to include the 
explanatory statement preceding the table, chart, or graph?
     We are proposing that radio and television advertisements 
provide information relating to the landing point. Should this 
information be required in marketing materials that are submitted for 
use on or after the landing point? Is there additional information that 
should be required to be included in radio and television 
advertisements? For example, is there a means of effectively 
communicating information comparable to that contained in the table, 
chart, or graph requirement in radio or television advertisements?
4. Disclosure of Risks and Considerations Relating to Target Date Funds
    We are proposing to amend rules 482 and 34b-1 to require target 
date fund advertisements and supplemental sales literature that place a 
more than insubstantial focus on one or more target date funds to 
include a statement that is intended to inform an investor regarding 
certain risks and considerations that are important when deciding 
whether to invest in a target date fund. Because of the importance of 
this information, we are proposing that the required statement be 
subject to the presentation requirements that currently apply to other 
important legend disclosures under rules 482 and 34b-1.\78\ In 
addition, because we believe that this disclosure would be pertinent to 
investors in all target date funds, including those that do not have a 
date in their names, the statement would be required in the marketing 
materials for all target date funds, regardless of whether a fund 
includes a date in its name.
---------------------------------------------------------------------------

    \78\ Proposed rule 482(b)(6); proposed rule 34b-1(c).
---------------------------------------------------------------------------

    First, the statement would be required to advise an investor to 
consider, in addition to his or her age or retirement date, other 
factors, including the investor's risk tolerance, personal 
circumstances, and complete financial situation.\79\ As described 
above, our staff has reviewed a sample of target date fund marketing 
materials and observed that these materials often characterize target 
date funds as offering investors a simple solution for their retirement 
needs, such as by inviting investors to choose the fund whose target 
date most closely matches their anticipated retirement date.\80\ In 
addition, the inclusion of a date in a target date fund's name, as is 
typically the case today, provides a mechanism by which an investor may 
identify a fund that appears to meet his or her retirement needs based 
simply on a retirement date. As a result, we believe that it is 
important to highlight the fact that the appropriateness of a target 
date fund investment depends not only on age or retirement date, but on 
other factors.
---------------------------------------------------------------------------

    \79\ Proposed rule 482(b)(5)(ii)(A); proposed rule 34b-1(c).
    \80\ See discussion supra Part I.B.
---------------------------------------------------------------------------

    Second, the statement would be required to advise an investor that 
an investment in the fund is not guaranteed and that it is possible to 
lose money by investing in the fund, including at and after the target 
date.\81\ Concerns have been raised about the degree to which marketing 
materials for target date funds may have contributed to a lack of 
understanding by investors of those funds and their associated 
investment strategies and risks. Investors may expect that at the 
target date, most, if not all, of their fund's assets will be invested 
conservatively to provide a pool of assets for retirement needs. Some 
marketing materials may be misperceived as promising minimal risks or a 
guaranteed investment.\82\ To address potential investor 
misunderstanding with respect to the safety of target date funds, 
particularly at and after an investor's retirement, the proposed 
amendments would require target date fund marketing materials to alert 
investors to the risk of loss.
---------------------------------------------------------------------------

    \81\ Proposed rule 482(b)(5)(ii)(B); proposed rule 34b-1(c).
    \82\ See notes 37-38 and discussion at accompanying text.
---------------------------------------------------------------------------

    Third, unless disclosed as part of the statement immediately 
preceding the table, chart, or graph that is required in marketing 
materials that are in print or delivered through an electronic medium, 
the statement would be required to advise an investor whether, and the 
extent to which, the intended percentage allocations of a target date 
fund among types of investments may be modified without a shareholder 
vote.\83\ Target date funds are designed to make it easier for 
investors to hold a diversified portfolio of assets that is rebalanced 
automatically among asset classes over time. A target date fund's 
disclosed intended asset allocations over time are a principal 
distinguishing feature of the fund. The proposed amendments are 
intended to inform investors of any flexibility that the fund and its 
investment adviser retain to modify allocations from time to time. We 
would note that, because a target date fund is, in essence, marketing 
the expertise of its manager in designing appropriate asset allocations 
over the long term, as a general matter, we would not expect target 
date funds to modify their glide paths frequently. In addition, we 
would expect that a manager would have a sound basis for any changes to 
a target date fund's glide path. Further, we would expect a target date 
fund's board of directors to monitor both the frequency and nature of 
the manager's exercise of its flexibility to modify the fund's glide 
path.\84\
---------------------------------------------------------------------------

    \83\ Proposed rule 482(b)(5)(ii)(C). See proposed rule 
482(b)(5)(iv)(C) (statement required to precede table, chart, or 
graph). See also note 71 and discussion at accompanying paragraph 
(discussion of statement required to precede table, chart, or 
graph).
    \84\ Cf. Independent Directors Council, Board Oversight of 
Target Retirement Date Funds (2010), available at http://www.ici.org/idc/idc_directors_resources/idc_public_other_publications/10_idc_trdf (suggesting that a target date fund board 
may want to ask questions about the adviser's flexibility to 
actively adjust asset allocation along the glide path to take into 
account market conditions, how frequently adjustments might be made, 
and criteria and limits for making adjustments).

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[[Page 35934]]

    We request comment generally on the proposed required statement 
regarding risks and considerations and, in particular, on the following 
issues:
     The proposed amendments apply to all target date funds. 
Should the proposed amendments apply only to target date funds that 
include a date in their name?
     Will the proposed required statement that is intended to 
inform an investor regarding important risks and considerations be 
effective? Should the proposed requirement be modified? Are any of the 
proposed disclosures not relevant or helpful in the case of some or all 
target date funds? Should additional disclosures be required? Should we 
prescribe the particular language of the statement?
     As proposed, the existing presentation requirements under 
rules 482 and 34b-1 would apply to the proposed new statement. Should 
they be modified in any way for this context?
     Are there additional rule amendments that would address 
any concerns regarding target date fund marketing materials? For 
example, should such materials disclose the past performance of the 
fund's asset allocation model or similar models? If this information 
should be disclosed, would this information be more appropriately 
included in prospectuses or shareholder reports?

B. Antifraud Guidance

    Rule 156 under the Securities Act provides guidance on the types of 
information in investment company sales literature that could be 
misleading. It applies to all sales literature, whether or not those 
materials are preceded or accompanied by the fund's statutory 
prospectus.\85\ Under rule 156, whether a statement involving a 
material fact is misleading depends on an evaluation of the context in 
which it is made. Rule 156 outlines certain situations in which a 
statement could be misleading. These include certain general factors 
that could cause a statement to be misleading,\86\ as well as 
circumstances where representations about past or future investment 
performance \87\ and statements involving a material fact about the 
characteristics or attributes of an investment company \88\ could be 
misleading.
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    \85\ Rule 156(c) under the Securities Act [17 CFR 230.156(c)] 
defines ``sales literature'' to include ``any communication (whether 
in writing, by radio, or by television) used by any person to offer 
to sell or induce the sale of securities of any investment 
company.''
    \86\ A statement could be misleading because of (i) other 
statements being made in connection with the offer of sale or sale 
of the securities in question; (ii) the absence of explanations, 
qualifications, limitations, or other statements necessary or 
appropriate to make such statement not misleading; or (iii) general 
economic or financial conditions or circumstances. See rule 
156(b)(1) under the Securities Act [17 CFR 230.156(b)(1)].
    \87\ Representations about past or future investment performance 
could be misleading because of statements or omissions made 
involving a material fact, including situations where (i) portrayals 
of past income, gain, or growth of assets convey an impression of 
the net investment results achieved by an actual or hypothetical 
investment which would not be justified under the circumstances; and 
(ii) representations, whether express or implied, are made about 
future investment performance. See rule 156(b)(2) under the 
Securities Act [17 CFR 230.156(b)(2)].
    \88\ A statement involving a material fact about the 
characteristics or attributes of an investment company could be 
misleading because of (i) statements about possible benefits 
connected with or resulting from services to be provided or methods 
of operation which do not give equal prominence to discussion of any 
risks or limitations associated therewith; (ii) exaggerated or 
unsubstantiated claims about management skill or techniques, 
characteristics of the investment company or an investment in 
securities issued by the company, services, security of investment 
or funds, effects of government supervision, or other attributes; 
and (iii) unwarranted or incompletely explained comparisons to other 
investment vehicles or to indexes. See rule 156(b)(3) under the 
Securities Act [17 CFR 230.156(b)(3)].
---------------------------------------------------------------------------

    We are proposing to amend rule 156 to address certain statements 
suggesting that securities of an investment company are an appropriate 
investment. Marketing materials for target date funds often focus to a 
significant extent on the purpose for which (i.e., to meet retirement 
needs) and the investors for whom (i.e., investors of specified ages 
and retirement dates) the funds are intended. In light of the nature of 
target date fund marketing materials, and the concerns that have been 
raised about those materials, we are proposing to amend rule 156 to 
address statements that relate to the appropriateness of an investment. 
While target date funds are the immediate impetus for the proposed 
amendments to rule 156, the proposed amendments, like the current 
provisions of rule 156 would, if adopted, apply to all types of 
investment companies. This reflects our view that certain types of 
statements or representations have the potential to mislead investors, 
regardless of the type of investment company that is the subject of 
these statements.
    The proposed amendments to rule 156 would provide that a statement 
suggesting that securities of an investment company are an appropriate 
investment could be misleading in two circumstances. First, such a 
statement could be misleading because of the emphasis it places on a 
single factor, such as an investor's age or tax bracket, as the basis 
for determining that an investment is appropriate.\89\ Age and tax 
bracket are specified in the proposed rule language as examples of 
factors that could be overemphasized within sales literature, but this 
is not intended to suggest that they are the only factors whose 
overemphasis could cause sales literature to be misleading.
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    \89\ Proposed rule 156(b)(4)(i).
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    This proposed provision of the rule arises out of our recognition 
that while target date funds use investor ages and expected retirement 
dates as a mechanism by which an investor may identify a fund that 
appears to meet his or her retirement needs, undue emphasis on the 
single factor of age or retirement date could cause an investor to fail 
to consider other factors, such as the investor's particular financial 
situation, personal circumstances, and risk tolerance, that are 
important in selecting an appropriate investment.\90\ This could result 
in investor confusion, and, in some circumstances, could even result in 
an investor being misled. We have included tax bracket as an example of 
a factor that could be overemphasized by some investment companies, for 
example, tax-exempt funds or variable annuity issuers, and not because 
it has been emphasized by target date funds.
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    \90\ The models used for asset allocation in target date funds 
are based on additional factors and not solely on an investor's 
retirement date. For example, target date fund models may make 
certain assumptions about investors' contributions, salary 
increases, loans, and distributions that may vary widely across 
investors in the same age or retirement groups. See J.P. Morgan 
Asset Management, Ready! Fire! Aim? How Some Target Date Fund 
Designs are Missing the Mark on Providing Retirement Security to 
Those Who Need It Most at 7-9 (Oct. 2007), available at http://www.dol.gov/ebsa/pdf/TDFSupp6.pdf (observing that differences in 
these assumptions have a large impact on the assets projected to be 
available at retirement).
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    Second, a statement suggesting that securities of an investment 
company are an appropriate investment could be misleading under the 
proposed amendment because of representations, whether express or 
implied, that investing in the securities is a simple investment plan 
or that it requires little or no monitoring by the investor.\91\ While 
target date funds are designed to make it easier for investors to hold 
a diversified portfolio of assets that is rebalanced automatically 
among asset classes over time, the selection of an appropriate fund 
does not entail a simple decision. The fact that target date fund 
managers have adopted very different asset allocation strategies is 
itself indicative of the complexity involved in selecting an 
appropriate asset allocation and, as discussed in the preceding 
paragraph, the selection of

[[Page 35935]]

appropriate investments involves the consideration of multiple factors. 
Similarly, a decision to invest in an investment company of another 
type is not a simple decision, as it involves numerous considerations, 
including the investment objectives and strategies, costs, and risks of 
the fund and the investor's complete financial situation, personal 
circumstances, and risk tolerance.
---------------------------------------------------------------------------

    \91\ Proposed rule 156(b)(4)(ii).
---------------------------------------------------------------------------

    In addition, while a particular target date fund could be an 
appropriate investment at the time the fund was initially selected by 
the investor, this may change over time as, for example, the investor 
experiences changes in his or her life expectancy or other personal 
circumstances, financial condition, or risk tolerance. This is equally 
true of all types of investment companies. As a result, the Commission 
is concerned that representations that an investment in the securities 
of a target date fund or other investment company is a simple 
investment plan or requires little or no monitoring by the investor 
have the capacity to confuse and potentially to mislead investors. 
These representations may dissuade an investor from sufficient 
examination of the investment objectives and strategies, costs, and 
risks of a target date fund or other investment company and of the 
appropriateness of an initial or additional investment in the fund, 
given the investor's complete financial situation, personal 
circumstances, and risk tolerance. These representations may also 
dissuade an investor from monitoring an investment or conducting a 
periodic review and assessment of the fund's performance and continuing 
fit with the investor's objectives and changing life situation.
    We request comment on the proposed amendments to rule 156 and, in 
particular, on the following issues:
     Are the proposed amendments to rule 156 appropriate? 
Should the proposed amendments apply to all investment companies or 
only to target date funds? If the proposed amendments are not made 
applicable to all investment companies, are there types of funds other 
than target date funds (e.g., balanced or lifestyle funds), to which 
the proposed amendments should apply?
     Will the proposed amendments to rule 156 discourage 
marketing materials for target date funds and other funds that have the 
potential to confuse or mislead investors? Are there additional 
amendments to rule 156 that would help to emphasize the obligations 
under the antifraud provisions of funds and their underwriters and 
dealers and that would address concerns regarding target date fund 
marketing materials?
     Are there any factors, in addition to age and tax bracket, 
that should be included in the proposed amendments as examples of 
single factors that could be overemphasized in determining whether an 
investment is appropriate?

C. Technical and Conforming Amendments

    We are proposing technical and conforming amendments to rule 34b-1. 
We are proposing to remove references to paragraphs (a) and (b) of rule 
34b-1 in the introductory text and the note to introductory text to 
indicate, in a more straightforward manner, that the references are to 
the entirety of rule 34b-1.\92\ We are also proposing to revise the 
heading of the current note that follows paragraph (b) of rule 34b-1 to 
state explicitly that the note applies to paragraph (b). We are also 
proposing amendments to cross-references in rule 34b-1 to reflect the 
proposed redesignation of paragraph (b)(5) in rule 482 as paragraph 
(b)(6). In addition, we are proposing to replace the reference to 
``NASD Regulation, Inc.'' in the note to paragraph (h) of rule 482 with 
``Financial Industry Regulatory Authority, Inc.''
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    \92\ Paragraphs (a) and (b) are the only paragraphs of current 
rule 34b-1.
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D. Compliance Date

    If the proposed amendments to rules 482 and 34b-1 are adopted, the 
Commission expects to require target date fund advertisements and 
supplemental sales literature that are used 90 days or more after the 
effective date of the amendments to comply with the amendments. If the 
proposed amendments to rule 156 are adopted, the Commission expects 
that the amendments to rule 156 will take effect immediately upon the 
effective date of the amendments.
    The Commission requests comment on the proposed compliance dates. 
Are the proposed periods an appropriate transition period for 
compliance, or should they be shorter or longer? Should the Commission 
require compliance with rules 482 and 34b-1 based on the date that 
advertisements and supplemental sales literature are used or the date 
that advertisements and supplemental sales literature are submitted for 
publication, or should it require compliance on some other basis?

E. Request for Comments on Prospectus Disclosure Requirements

    The amendments that we are proposing address the concerns that have 
been raised regarding the potential for investor misunderstanding to 
arise from target date fund names and marketing materials. In this 
release, we are not proposing amendments to the prospectus disclosure 
requirements. A target date fund is currently required to disclose, 
among other things, its investment objective, principal investment 
strategies, including the particular type or types of investments in 
which the fund principally invests or will invest, the principal risks 
of investing in the fund, and its fees and expenses.\93\ Our staff has 
examined the prospectus disclosures made by a number of target date 
funds in their registration statements filed with the Commission and 
has observed that, pursuant to existing requirements, target date fund 
prospectuses generally disclose:
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    \93\ See Items 2, 3, 4, and 9 of Form N-1A [17 CFR 239.15A and 
274.11A].
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     A description of the glide path of the target date fund, 
often presented as a table or graph broken down by asset class, such as 
equity securities, fixed income securities, and cash and cash 
equivalents;
     The significance of specific points along the glide path, 
such as the target date used in the fund's name and the landing point, 
and any flexibility retained by the investment adviser to deviate from 
the glide path; and
     The specific risks attendant to investments in target date 
funds, such as the risk of loss up to and after the target date, and 
the risk of loss due to the absence of guarantees associated with the 
investment.
    We believe that these disclosures are material to target date fund 
investors and required to be disclosed as part of the discussion of a 
fund's principal investment strategies and principal investment risks. 
We are, however, concerned that there may be disclosures about target 
date funds that are important to investors and that are not required by 
our current prospectus and registration statement line item disclosure 
requirements, and we request comment on this matter.
    We request comment on prospectus disclosure requirements for target 
date funds and, in particular, on the following issues:
     Generally, Form N-1A, the registration form for mutual 
funds, does not prescribe separate requirements for different types of 
funds. Should Form N-1A be amended to provide specific requirements for 
target date funds? If so, what types of disclosures should be 
addressed?
     Should target date fund prospectuses and/or statements of 
additional information be expressly

[[Page 35936]]

required to disclose the fund's landing point? Should we expressly 
require disclosure as to whether the target date fund manager is 
managing the fund ``to'' the stated target date or ``through'' that 
date, e.g., based on life expectancy?
     Should target date fund prospectuses and/or statements of 
additional information be expressly required to disclose the underlying 
assumptions that led the target date fund manager to select the fund's 
current glide path? For example, should a target date fund prospectus 
or statement of additional information be required to disclose the 
manager's assumptions, such as assumptions about life expectancy, 
inflation, savings rate, other investments, retirement and labor 
income, and withdrawal rates, that were used in construction of its 
asset allocation glide path? Would this disclosure help an investor 
and/or the investor's financial adviser to determine whether a 
particular target date fund is appropriate for the investor? Would this 
disclosure assist investors by facilitating the ability of third party 
information providers to publish comparisons across target date funds? 
Would investors be able to make effective use of this information by 
themselves? Or would this disclosure confuse and/or overwhelm 
investors?
     Should a target date fund be expressly required to 
disclose in its prospectus or statement of additional information the 
flexibility retained by the target date fund manager to change the 
glide path in the future? Should a target date fund be expressly 
required to disclose in its prospectus or statement of additional 
information the number of times that it has previously changed its 
glide path and/or the number of times that target date funds in the 
same complex have previously changed their glide paths and the reasons 
for those changes?
     Should a target date fund be expressly required to 
disclose in its prospectus or statement of additional information the 
latitude it has to deviate from its stated glide path, the 
circumstances under which it may deviate from its stated glide path, 
past instances when it has deviated from its stated glide path, and the 
reasons for any past deviations?
     Should we expressly require disclosure in the prospectus 
or statement of additional information regarding the use of any 
commodities, derivatives, or other alternative investments by a target 
date fund? Should we expressly require disclosure regarding the effect 
of leverage on a target date fund's asset allocation, whether 
attributable to borrowing, derivative investments, or other sources?
     If we require new line item disclosures that are specific 
to target date funds, should these be included in the prospectus or the 
statement of additional information? If they should be in the 
prospectus, should they be required to be included in the summary 
section at the front of the prospectus and in the summary prospectus, 
if any, that a fund chooses to use under rule 498 under the Securities 
Act.\94\
---------------------------------------------------------------------------

    \94\ 17 CFR 230.498.
---------------------------------------------------------------------------

III. General Request for Comments

    The Commission requests comment on the amendments proposed in this 
release, whether any further changes to our rules or forms are 
necessary or appropriate to implement the objectives of our proposed 
amendments, and on other matters that might affect the proposals 
contained in this release.

IV. Paperwork Reduction Act

    Certain provisions of the proposed amendments contain ``collection 
of information'' requirements within the meaning of the Paperwork 
Reduction Act of 1995 (``PRA'').\95\ We are submitting the proposed 
collections of information to the Office of Management and Budget 
(``OMB'') for review in accordance with the PRA.\96\ The titles for the 
existing collections of information are: (1) ``Rule 482 under the 
Securities Act of 1933 Advertising by an Investment Company as 
Satisfying Requirements of Section 10''; and (2) ``Rule 34b-1 (17 CFR 
270.34b-1) under the Investment Company Act of 1940, Sales Literature 
Deemed to Be Misleading.'' \97\ An agency may not conduct or sponsor, 
and a person is not required to respond to, a collection of information 
unless it displays a currently valid OMB control number.
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    \95\ 44 U.S.C. 3501, et seq.
    \96\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
    \97\ Rule 156 does not contain ``collection of information'' 
requirements within the meaning of the PRA. The proposed amendments 
to rule 156 also do not involve a ``collection of information.''
---------------------------------------------------------------------------

    Rule 482 (OMB Control No. 3235-0565) was adopted pursuant to 
Section 10(b) of the Securities Act.\98\ Rule 34b-1 (OMB Control No. 
3235-0346) was adopted pursuant to Section 34(b) of the Investment 
Company Act.\99\ Rules 482 and 34b-1, including the proposed 
amendments, contain collection of information requirements. Rule 482 
permits a registered investment company to advertise information prior 
to delivery of a statutory prospectus. Rule 34b-1 prescribes the 
requirements for supplemental sales literature (i.e., sales literature 
that is preceded or accompanied by the statutory prospectus). 
Compliance with the rules is mandatory. Responses to the disclosure 
requirements will not be kept confidential.
---------------------------------------------------------------------------

    \98\ 15 U.S.C. 77j(b).
    \99\ 15 U.S.C. 80a-33(b).
---------------------------------------------------------------------------

    We are proposing amendments to rules 482 and 34b-1 that would apply 
to advertisements and supplemental sales literature that place a more 
than insubstantial focus on one or more target date funds. 
Specifically, we are proposing amendments to rules 482 and 34b-1 that 
would require a target date fund that includes the target date in its 
name to disclose the target date (or current) asset allocation of the 
fund immediately adjacent to (or, in a radio or television 
advertisement, immediately following) the first use of the fund's name 
in advertisements and supplemental sales literature. The Commission is 
also proposing amendments to rules 482 and 34b-1 that would require 
enhanced disclosure in advertisements and supplemental sales literature 
for a target date fund regarding the fund's glide path and asset 
allocation at the landing point, as well as the risks and 
considerations that are important when deciding whether to invest in a 
target date fund.
    The information required by the proposed amendments is primarily 
for the use and benefit of investors. The amendments that we are 
proposing in this release are intended to address concerns that have 
been raised regarding the potential for investor misunderstanding to 
arise from target date fund names and marketing materials. The 
additional information that would be required to be disclosed pursuant 
to the collection of information provisions of the proposed amendments 
would address these concerns regarding investor protection.
    The proposed amendments to rule 482 require: (i) For advertisements 
relating to a target date fund whose name includes a date, disclosure 
of the asset allocation of the fund at the target date (or for 
advertisements that are submitted for publication or use on or after 
the target date, a fund's actual asset allocation as of the most recent 
calendar quarter ended prior to the submission of the advertisement for 
publication or use); (ii) for print or electronic advertisements 
relating to a single target date fund, a table, chart, or graph that 
depicts the actual percentage allocation of the fund among types of 
investments from the inception of the fund through the most recent 
calendar quarter ended prior to the submission of the advertisement for 
publication and the future intended allocations of the fund;

[[Page 35937]]

(iii) for print or electronic advertisements relating to multiple 
target date funds with different target dates that all have the same 
pattern of asset allocations, either separate presentations for each 
target date fund that meet the requirements of clause (ii) or a single 
table, chart, or graph that depicts the intended allocations of the 
funds among types of investments; (iv) for advertisements that relate 
to a single target date fund and are submitted for publication prior to 
the landing point or that relate to multiple target date funds with 
different target dates that all have the same pattern of asset 
allocations, a statement preceding the table, chart, or graph that 
explains the table, chart, or graph and provides certain information 
about the glide path and landing point; (v) enhanced disclosures 
relating to the landing point in radio and television advertisements 
that are submitted for use prior to the landing point for funds whose 
names include a target date; and (vi) statements alerting investors to 
certain risks and considerations relating to an investment in a target 
date fund. The proposed amendments to rule 34b-1 would apply the same 
requirements, other than those described in clause (v), to supplemental 
sales literature.
    The PRA burden estimates for the proposed amendments to rules 482 
and 34b-1 are based on the Commission staff's experience with the 
various types of investment companies registered with the Commission, 
including PRA burden estimates that the Commission has used for other 
requirements. The Commission estimates that there are approximately 357 
funds that are either a registered management investment company or a 
separate series of a registered management investment company that 
would fall within the proposed definition of ``target date fund'' for 
purposes of the proposed amendments to rules 482 and 34b-1.\100\ We 
believe that part of the PRA burden will be incurred on an initial one-
time basis and that part of the PRA burden will be ongoing.
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    \100\ This estimate is based on Commission staff analysis of 
data obtained from Morningstar Direct. The Commission staff believes 
that all funds that meet the proposed definition of a target date 
fund currently use a date in their names and would be subject to all 
of the proposed amendments to rules 482 and 34b-1.
---------------------------------------------------------------------------

    The Commission estimates that internal marketing personnel and 
compliance attorneys of a target date fund subject to the proposed 
amendments would spend, as an initial one time burden in order to 
comply with the proposed amendments, an average of 15 hours, consisting 
of: (1) One hour to prepare and review the fund's intended target date 
(or current) asset allocation disclosure; (2) 10 hours to prepare and 
review the table, chart, or graph that depicts the glide path of the 
fund, the statement preceding the table, chart, or graph, and the 
enhanced disclosures relating to the landing point in radio and 
television advertisements; and (3) four hours to prepare and review the 
statement alerting investors to certain risks and considerations 
relating to an investment in a target date fund. We estimate the 
initial one-time burden for all target date funds to comply with the 
proposed amendments to be approximately 5,355 hours.\101\ Because the 
disclosures proposed to be required under rules 482 and 34b-1 are the 
same, we believe that the hour burden associated with initial 
compliance would not be duplicated under both rules and do not believe 
that there would be any additional burden associated with rule 34b-1 
because the proposed amendments would not affect the level of review 
needed by funds to comply with rule 34b-1. Therefore, we have assigned 
the initial one-time burden to rule 482.
---------------------------------------------------------------------------

    \101\ 357 target date funds x 15 hours = 5,355 hours.
---------------------------------------------------------------------------

    We also estimate certain ongoing costs with respect to 
advertisements and supplemental sales literature associated with the 
proposed amendments to rules 482 and 34b-1. First, we anticipate that 
there will be ongoing costs associated with the proposed requirement 
that a target date fund submitting an advertisement or supplemental 
sales literature for publication or use on or after the date that is 
included in the fund's name must disclose, immediately adjacent to the 
fund's name, the fund's actual asset allocation as of the most recent 
calendar quarter ended prior to the submission of the advertisement. We 
estimate that internal marketing personnel and compliance attorneys of 
a target date fund subject to the proposed amendments would spend an 
average of one hour per response on an ongoing basis to update the 
asset allocations disclosed immediately adjacent to the fund's name.
    We estimate that 58,368 responses \102\ to rule 482 are filed 
annually by 3,540 registered investment companies offering 
approximately 16,225 funds, or approximately 3.6 responses per fund 
annually.\103\ Therefore, we estimate that the 357 target date funds 
would file 1,285 responses to rule 482 annually.\104\ Of these 
responses, we estimate that 15% would be responses submitted on or 
after the date that is included in the fund's name.\105\ In the first 
year, we estimate that the ongoing burden associated with the proposed 
requirement that a target date fund submitting an advertisement on or 
after the date that is included in the fund's name must disclose the 
fund's actual asset allocation as of the most recent calendar quarter 
ended would be 139 hours.\106\ In each subsequent year, we estimate 
that the ongoing burden associated with this requirement would be 193 
hours.\107\
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    \102\ The estimated number of responses to rule 482 is composed 
of 58,093 responses filed with the Financial Industry Regulatory 
Authority, Inc. (``FINRA'') and 275 responses filed with the 
Commission in 2009.
    \103\ 58,368 responses / 16,225 funds = 3.6 responses per fund.
    \104\ 357 funds x 3.6 responses per fund = 1,285 responses.
    \105\ Based on Commission staff analysis of data as of March 31, 
2010, obtained from Morningstar Direct, 47 target date funds contain 
a date in the name that is on or before the year 2010. This amounts 
to approximately 13% of the 357 target date funds (357 target date 
funds / 47 target date funds = 13%), which we have rounded up for 
purposes of our estimates to 15%.
    \106\ Because we have assumed in the first year that one 
response will not impose any burden beyond the initial one time 
burden of 15 hours, target date funds submitting an advertisement 
for publication on or after the date that is included in the fund's 
name would bear an ongoing burden of 1 hour with respect to the 
remaining 2.6 responses (357 target date funds x 0.15 x 1 hour x 2.6 
responses = 139 hours).
    \107\ In subsequent years, the ongoing cost burden for target 
date funds submitting an advertisement for publication on or after 
the date that is included in the fund's name would equal 193 hours 
(357 target date funds x 0.15 x 1 hour x 3.6 responses = 193 hours).
---------------------------------------------------------------------------

    With regard to rule 34b-1, we estimate that 11,544 \108\ responses 
are filed annually by 3,540 registered investment companies offering 
approximately 16,225 funds, or approximately 0.7 responses per fund 
annually.\109\ Therefore, we estimate that the 357 target date funds 
would file approximately 250 responses to rule 34b-1 annually.\110\ Of 
these responses, we estimate that 15% would be responses submitted on 
or after the date that is included in the fund's name.\111\ Therefore, 
we estimate that the ongoing annual burden associated with the 
requirement that a target date fund submitting supplemental sales 
literature on or after the date that is included in the fund's name 
must disclose the fund's actual asset allocation as of the

[[Page 35938]]

most recent calendar quarter ended would be approximately 37 
hours.\112\
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    \108\ The estimated number of responses to rule 34b-1 is 
composed of 10,904 responses filed with FINRA and 640 responses 
filed with the Commission in 2009.
    \109\ 11,544 responses / 16,225 funds = 0.7 responses per fund.
    \110\ 357 funds x 0.7 responses per fund = 250 responses.
    \111\ See supra note 105.
    \112\ We estimate that 15% of the 357 target date funds would be 
required to update the fund's actual asset allocation as of the most 
recent calendar quarter immediately adjacent to the fund's name and 
bear an ongoing burden of 1 hour with respect to the 0.7 average 
annual responses (357 target date funds x 0.15 x 1 hour x 0.7 
responses = 37 hours).
---------------------------------------------------------------------------

    Second, we further estimate that there will be ongoing costs 
associated with the requirement that, in advertisements and 
supplemental sales literature that relate to a single target date fund, 
the table, chart, or graph must clearly depict the actual percentage 
allocations among types of investments from the inception of the fund 
through the most recent calendar quarter ended prior to the submission 
of the materials for publication and the future intended percentage 
allocations of the fund. We estimate that internal marketing personnel 
and compliance attorneys of a target date fund subject to the proposed 
amendments would spend an average of two hours per response on an 
ongoing basis for single-fund advertisements and supplemental sales 
literature to comply with the proposed table, chart, or graph 
requirement.
    We estimate that the 357 target date funds would file 1,285 
responses to rule 482 annually.\113\ Of these responses, we estimate 
that 25% would be single fund advertisements and 75% would be multiple 
fund advertisements.\114\ In the first year, we estimate that the 
ongoing burden associated with the proposed table, chart, or graph 
requirement for single target date fund responses would be 464 
hours.\115\ In each subsequent year, we estimate that the ongoing 
burden associated with the proposed table, chart, or graph requirement 
for single target date fund advertisements would be 643 hours.\116\
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    \113\ 357 funds x 3.6 responses per fund = 1,285 responses.
    \114\ These estimates are based on the Commission staff's review 
of a sample of target date fund materials filed with FINRA.
    \115\ Because we have assumed in the first year that one 
response will not impose any burden beyond the initial one time 
burden of 15 hours, each of the 357 target date funds would bear an 
ongoing burden of 2 hours for single target date fund advertisements 
with respect to 25% of the remaining 2.6 responses (357 target date 
funds x 2 hours x 0.25 x 2.6 responses = 464 hours).
    \116\ In subsequent years, the ongoing cost burden for single 
target date fund advertisements would equal 643 hours (357 target 
date funds x 2 hours x 0.25 x 3.6 responses = 643 hours).
---------------------------------------------------------------------------

    Of the approximately 250 responses to rule 34b-1 annually, we also 
estimate that 25% would be single fund supplemental sales literature 
and 75% would be multiple fund supplemental sales literature.\117\ We 
estimate that the ongoing burden associated with the proposed table, 
chart, or graph requirement for single target date fund supplemental 
sales literature would be approximately 125 hours.\118\
---------------------------------------------------------------------------

    \117\ These estimates are based on the Commission staff's review 
of a sample of target date fund materials filed with FINRA.
    \118\ We estimate 357 target date funds would bear an ongoing 
burden of 2 hours for single target date fund supplemental sales 
literature with respect to 25% of the 0.7 average annual responses 
(357 target date funds x 2 hours x 0.25 x 0.7 responses = 125 
hours).
---------------------------------------------------------------------------

    Based on the foregoing estimates, the hour burden associated with 
the proposed amendments to rule 482 over three years would be 
approximately 7,630 hours.\119\ Because the PRA estimates represent the 
average burden over a three-year period, we estimate the average annual 
hour burden for target date funds to comply with the proposed 
amendments to rule 482 to be approximately 2,543 hours.\120\ The PRA 
burden associated with rule 482 is presently estimated to be 5.16 hours 
per response, for a total annual hour burden of 301,179 hours.\121\ 
Therefore, we estimate that if the proposed amendments to rule 482 are 
adopted, the total annual hour burden for all funds to comply with the 
requirements of rule 482 would be 303,722 hours,\122\ or 5.20 hours per 
response.\123\
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    \119\ We estimate that the total incremental hour burden 
associated with the proposed amendments to rule 482 over three years 
would be 7,630 hours (5,355 hours for initial compliance + 603 hours 
in year 1 (139 hours + 464 hours) + 836 hours in year 2 (193 hours + 
643 hours) + 836 hours in year 3 (193 hours + 643 hours) = 7,630 
hours).
    \120\ 7,630 hours / 3 years = 2,543 hours.
    \121\ 58,368 responses x 5.16 hours per response = 301,179 
hours.
    \122\ 301,179 hours + 2,543 hours = 303,722 hours.
    \123\ 303,722 hours / 58,368 responses = 5.20 hours per 
response.
---------------------------------------------------------------------------

    The PRA burden associated with rule 34b-1 is presently estimated to 
be 2.41 hours per response, which, when multiplied by our estimate of 
11,544 total annual responses to rule 34b-1, provides a total annual 
hour burden of 27,821 hours.\124\ Therefore, we estimate that if the 
proposed amendments to rule 34b-1 are adopted, the total annual hour 
burden for all funds to comply with the requirements of rule 34b-1 
would be 27,983 hours,\125\ or approximately 2.42 hours per 
response.\126\
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    \124\ 11,544 responses x 2.41 hours per response = 27,821 hours.
    \125\ 27,821 hours + 37 hours + 125 hours = 27,983 hours per 
year.
    \126\ 27,983 hours / 11,544 responses = 2.42 hours per response.
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    We anticipate that target date funds would also incur initial one 
time external costs, such as the costs of modifying and reformatting 
layouts and typesetting, and no ongoing external costs.\127\ We 
estimate that these initial external costs would be approximately 
$2,900 per target date fund,\128\ or $1,035,300 in the aggregate,\129\ 
which we have assigned to rule 482.
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    \127\ We believe that it is usual and customary for investment 
companies to periodically update and replace marketing materials. We 
have proposed a 90-day transition period for the proposed amendments 
to rules 482 and 34b-1 to minimize the burden on target date funds.
    \128\ This estimate is based on the estimate of $2,417 for 
external costs that we made in 2003 when we last amended rules 482 
and 34b-1. See Investment Company Act Release No. 26195 (Sept. 29, 
2003) [68 FR 57760, 57771 (Oct. 6, 2003)]. We have adjusted our 
estimate to account for an increase of 19.4% in the consumer price 
index between 2003 and 2009, based on Commission staff analysis of 
data obtained from the Bureau of Labor Statistics.
    \129\ 357 target date funds x $2,900 per target date fund = 
$1,035,300.
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Request for Comment
    Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comments to: (1) 
Evaluate whether the proposed collection of information is necessary 
for the proper performance of the functions of the agency, including 
whether the information will have practical utility; (2) evaluate the 
accuracy of the Commission's estimate of burden of the proposed 
collections of information; (3) determine whether there are ways to 
enhance the quality, utility, and clarity of the information to be 
collected; and (4) evaluate whether there are ways to minimize the 
burden of the collection of information on those who are to respond, 
including through the use of automated collection techniques or other 
forms of information technology. We request comment and supporting 
empirical data on our burden and cost estimates for the proposed 
amendments, including the external costs that target date funds may 
incur.
    Persons wishing to submit comments on the collection of information 
requirements of the proposed amendments should direct them to the 
Office of Management and Budget, Attention Desk Officer for the 
Securities and Exchange Commission, Office of Information and 
Regulatory Affairs, Washington, DC 20503 and should send a copy to 
Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 
F Street, NE., Washington, DC 20549-9303, with reference to File No. 
S7-12-10. Requests for materials submitted to OMB by the Commission 
with regard to these collections of information should be in writing, 
refer to File No. S7-12-10, and be submitted to the Securities and 
Exchange Commission, Office of Investor Education and Advocacy, 100 F 
Street, NE., Washington, DC 20549-0213. OMB is required to make a 
decision concerning the collections of information between 30 and 60 
days

[[Page 35939]]

after publication of this release. Consequently, a comment to OMB is 
best assured of having its full effect if OMB receives it within 30 
days after publication.

V. Cost/Benefit Analysis

    The Commission is sensitive to the costs and benefits imposed by 
its rules. The Commission is proposing amendments to rules 482 and 34b-
1 that would apply to advertisements and supplemental sales literature 
that place a more than insubstantial focus on one or more target date 
funds. Specifically, the Commission is proposing amendments to rules 
482 and 34b-1 that would require a target date fund that includes the 
target date in its name to disclose the target date (or current) asset 
allocation of the fund immediately adjacent to (or, in a radio or 
television advertisement, immediately following) the first use of the 
fund's name in advertisements and supplemental sales literature. The 
Commission is also proposing amendments to rules 482 and 34b-1 that 
would require enhanced disclosure in advertisements and supplemental 
sales literature for a target date fund regarding the fund's glide path 
and asset allocation at the landing point, as well as the risks and 
considerations that are important when deciding whether to invest in a 
target date fund. Finally, the Commission is proposing amendments to 
rule 156 that would provide additional guidance regarding statements in 
sales literature for target date funds and other investment companies 
that could be misleading.

A. Benefits

    While difficult to quantify, we believe the benefits to investors 
resulting from the proposed amendments would be significant given the 
approximately $270 billion in assets held by target date funds 
registered with the Commission.\130\
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    \130\ See supra note 17 and accompanying text.
---------------------------------------------------------------------------

    The proposed amendments to rules 482 and 34b-1 that would require a 
target date fund that includes the target date in its name to disclose 
the target date (or current) asset allocation of the fund immediately 
adjacent to (or, in a radio or television advertisement, immediately 
following) the first use of the fund's name in advertisements and 
supplemental sales literature are intended to convey information about 
the target date (or current) allocation of the fund's assets and reduce 
the potential for names that include a target date to contribute to 
investor misunderstanding of target date funds. For example, if a 
target date fund remains significantly invested in equity securities at 
the target date, the proposed disclosure would help to reduce or 
eliminate incorrect investor expectations that the fund's assets will 
be invested in a more conservative manner at that time.
    In the case of target date funds, the names are designed to be 
significant to investors when selecting a fund. The proposed amendments 
are intended to benefit investors by reducing the potential of target 
date fund names to confuse or mislead investors regarding the fund's 
target date (or current) asset allocation.
    The proposed amendments to rules 482 and 34b-1 are intended to 
benefit investors by requiring enhanced disclosure in advertisements 
and supplemental sales literature to provide investors basic 
information about the fund's glide path, in order to facilitate more 
informed investment decisions. Print and electronic marketing materials 
would be required to include a prominent table, chart, or graph that 
clearly depicts the percentage allocations of the fund among types of 
investments over the entire life of the target date fund. The proposed 
required statement preceding the table, chart, or graph would explain 
the table, chart, or graph and include the following information: (i) A 
statement that the fund's asset allocation changes over time; (ii) the 
landing point (or in the case of a table, chart, or graph for multiple 
target date funds, the number of years after the target date at which 
the landing point will be reached), an explanation that the allocation 
of the fund becomes fixed at the landing point, and the percentage 
allocations of the fund among types of investments (e.g., equity 
securities, fixed income securities, and cash and cash equivalents) at 
the landing point; and (iii) whether, and the extent to which, the 
intended percentage allocations of the fund among types of investments 
may be modified without a shareholder vote. The proposed table, chart, 
or graph requirement would present information regarding the glide path 
as a graphical illustration, which may benefit investors by providing 
the information in a manner that is likely to be more easily understood 
by investors than if the information were presented in narrative 
format. The proposed required statement preceding the table, chart, or 
graph may benefit investors by helping them to better understand the 
table, chart, or graph.
    While the proposed table, chart, or graph requirement would not 
apply to radio and television advertisements, we propose to require 
that radio or television advertisements that are submitted for use 
prior to the landing point, that place a more than insubstantial focus 
on one or more target date funds, and that use the name of a target 
date fund that includes a date (including a year) must disclose the 
landing point, an explanation that the allocation of the fund becomes 
fixed at the landing point, and the percentage allocations of the fund 
among types of investments (e.g., equity securities, fixed income 
securities, and cash and cash equivalents) at the landing point. This 
disclosure would benefit investors by alerting them that the target 
date allocation is not the final allocation.
    The proposed statement on risks and considerations that are 
important when deciding whether to invest in a target date fund would 
benefit investors who review marketing materials for target date funds 
by providing them with information that will help prevent several types 
of misunderstandings about target date funds. Target date fund 
marketing materials would be required to advise an investor to 
consider, in addition to his or her age or retirement date, other 
factors, including the investor's risk tolerance, personal 
circumstances, and complete financial situation. Marketing materials 
also would be required to advise an investor that an investment in the 
target date fund is not guaranteed and that it is possible to lose 
money by investing in the fund, including at and after the target date. 
Finally, marketing materials would be required to advise an investor 
whether, and the extent to which, the intended percentage allocations 
of a target date fund among types of investments may be modified 
without a shareholder vote. Better understanding of target date funds 
may result in investors making better informed decisions in line with 
their investment goals.
    In addition to the benefits discussed above, the proposed 
amendments to rules 482 and 34b-1 may enhance efficiency by making it 
easier for investors to make more informed investment decisions. This 
ability to make more informed investment decisions may also lead to 
increased competitiveness among target date funds. We also believe 
that, as a result of investors making better informed investment 
decisions, companies would be able to allocate resources more 
efficiently in line with preferences for risk and returns.
    We are proposing to amend rule 156 to provide that a statement in 
investment company sales literature that suggests that securities of an 
investment

[[Page 35940]]

company are an appropriate investment could be misleading because of 
the emphasis it places on a single factor, such as an investor's age or 
tax bracket, as the basis for determining that the investment is 
appropriate, or representations, whether express or implied, that 
investing in the securities is a simple investment plan or that it 
requires little or no monitoring by the investor. This proposal is 
intended to reduce the potential for certain types of statements or 
representations to mislead investors. Marketing materials for target 
date funds often focus to a significant extent on the purpose for which 
(i.e., to meet retirement needs) and the investors for whom (i.e., 
investors of specified ages and retirement dates) the funds are 
intended. In light of the nature of target date fund marketing 
materials, and the concerns that have been raised about those 
materials, we are proposing to amend rule 156 to address statements 
that relate to the appropriateness of an investment. While target date 
funds are the immediate impetus for the proposed amendments to rule 
156, the proposed amendments, like the current provisions of rule 156 
would, if adopted, apply to all types of investment companies. This 
reflects our view that certain types of statements or representations 
have the potential to mislead investors, regardless of the type of 
investment company that is the subject of these statements.

B. Costs

    Our proposed amendments to rules 482 and 34b-1 would require a 
target date fund that includes the target date in its name to disclose 
the target date (or current) asset allocation of the fund immediately 
adjacent to (or, in a radio or television advertisement, immediately 
following) the first use of the fund's name in advertisements and 
supplemental sales literature. The proposed amendments to rules 482 and 
34b-1 would also require enhanced disclosure in advertisements and 
supplemental sales literature for a target date fund regarding the 
fund's glide path and asset allocation at the landing point, as well as 
the risks and considerations that are important when deciding whether 
to invest in a target date fund.
    We believe that a target date fund would not incur significant 
costs in providing the disclosures required by rules 482 and 34b-1 
because that information should be readily available to the fund. We 
note that many target date funds already provide the required 
information in their prospectuses, such as a table, chart, or graph 
depicting the asset allocation over time.\131\ Furthermore, Commission 
staff observed in its review of a sample of marketing materials that 
some materials currently contain statements similar to those contained 
in the proposed amendments (i.e., advising an investor to consider, in 
addition to age or retirement date, other factors; that an investment 
in a target date fund is not guaranteed; and that it is possible to 
lose money by investing in a target date fund). As a result, we believe 
that the costs associated with the disclosure of the proposed required 
information will be limited.
---------------------------------------------------------------------------

    \131\ Based on Commission staff review of registration 
statements filed with the Commission.
---------------------------------------------------------------------------

    The Commission estimates that funds would incur one time initial 
costs in modifying their current marketing materials to meet the 
proposed disclosure requirements. For example, funds may have to modify 
and reformat their layouts and typesetting in order to convert existing 
marketing materials to meet the enhanced disclosure requirements of the 
amended rules. The Commission estimates that there are approximately 
357 target date funds that would be required to comply with the 
proposed amendments. Based on our PRA analysis, we estimate that the 
one time initial costs for each target date fund attributable to the 
proposed amendments would be approximately $3,825 in internal costs for 
marketing personnel and compliance attorneys to prepare and review the 
revised marketing materials \132\ and $2,900 in external costs for 
modifying and reformatting layouts, typesetting, and printing for new 
advertisements.\133\ We estimate that the aggregate initial one time 
costs imposed by the proposed amendments would be approximately $2.4 
million.\134\
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    \132\ With respect to our initial one time internal burden 
estimate of 15 hours, we estimate that marketing personnel will 
spend 10 hours to prepare the revised marketing materials and 
compliance attorneys will spend 5 hours to review the materials. See 
supra note 101 and discussion at accompanying paragraph. The hourly 
wage rate of $237 for a marketing manager and $291 for a compliance 
attorney is based on the salary information from the Securities 
Industry and Financial Markets Association, Report on Management & 
Professional Earnings in the Securities Industry 2009, modified to 
account for an 1800-hour work-year and multiplied by 5.35 to account 
for bonuses, firm size, employee benefits, and overhead. Therefore, 
the internal costs associated with this burden equals $3,825 per 
target date fund (10 hours x $237 per hour + 5 hours x $291 per hour 
= $3,825).
    \133\ See supra note 128 and accompanying text.
    \134\ $3,825 in internal costs per fund x 357 target date funds 
+ $2,900 in external costs per fund x 357 target date funds = 
$2,400,825.
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    The Commission also estimates that there will be ongoing costs 
associated with the proposed requirement that a target date fund 
submitting an advertisement or supplemental sales literature for 
publication or use on or after the date that is included in the fund's 
name must disclose, immediately adjacent to the fund's name, the fund's 
actual asset allocations as of the most recent calendar quarter ended 
prior to the submission of the advertisement or supplemental sales 
literature. Based on our PRA analysis, we estimate that the ongoing 
cost for each advertisement or supplemental sales literature piece for 
a target date fund that would be required to disclose the fund's actual 
asset allocation as of the most recent calendar quarter ended would be 
approximately $264 in costs for internal marketing personnel and 
compliance attorneys to prepare and review the revised marketing 
materials.\135\
---------------------------------------------------------------------------

    \135\ With respect to our ongoing internal burden estimate of 1 
hour per advertisement or supplemental sales literature piece for a 
target date fund that would be required to disclose the fund's 
actual asset allocation as of the most recent calendar quarter 
ended, we estimate that the marketing personnel will spend 0.5 hours 
to prepare the revised marketing materials and compliance personnel 
will spend 0.5 hours to review the marketing materials. For hourly 
wage rates, see supra note 132. Therefore, the internal costs 
associated with this burden equal $264 per response (0.5 hour x $237 
per hour + 0.5 hour x $291 per hour = $264).
---------------------------------------------------------------------------

    The Commission further estimates that target date funds would incur 
ongoing costs associated with the requirement that marketing materials 
that are focused on a single target date fund provide information about 
the fund's actual and intended asset allocations in the proposed table, 
chart, or graph. Based on our PRA analysis, we estimate that the 
ongoing costs for each single target date fund advertisement or 
supplemental sales literature piece attributable to the proposed table, 
chart, or graph requirement would be approximately $528 in costs for 
internal marketing personnel and compliance attorneys to prepare and 
review the revised marketing materials.\136\
---------------------------------------------------------------------------

    \136\ With respect to our ongoing internal burden estimate of 2 
hours per single target date fund marketing materials, we estimate 
that marketing personnel will spend 1 hour to prepare the revised 
marketing materials and compliance personnel will spend 1 hour to 
review the marketing materials. For hourly wage rates, see supra 
note 132. Therefore, the internal costs associated with this burden 
equal $528 per response (1 hour x $237 per hour + 1 hour x $291 per 
hour = $528).
---------------------------------------------------------------------------

    We do not anticipate that target date funds will incur any 
significant ongoing external costs in connection with the proposed 
amendments. While we anticipate that target date funds will bear 
external costs (such as the costs of modifying and reformatting 
layouts, typesetting, and printing for new marketing materials) in 
complying with

[[Page 35941]]

the proposed amendments, we believe that these costs would largely be 
borne as one time costs when target date funds initially comply with 
the proposed rule and not on an ongoing basis.
    In considering the proposed amendments to rules 482 and 34b-1, the 
Commission was mindful of ways to minimize costs. For example, with 
respect to the table, chart, or graph requirement for marketing 
materials that relate to multiple target date funds with different 
target dates that all have the same pattern of asset allocations, the 
proposal would permit the materials to include either separate 
presentations for each fund or a single generic table, chart, or graph 
illustrating the glide path for all the funds. In addition, our 
proposal to require target date fund marketing materials to include a 
prominent table, chart, or graph would not apply to radio and 
television advertisements because, among other things, we determined 
that it could result in the imposition of very substantial costs for 
additional advertising time. Our proposal permits more limited 
disclosure in a radio or television advertisement for a fund whose name 
includes a target date of the landing point, an explanation that the 
allocation of the fund becomes fixed at the landing point, and the 
percentage allocations of the fund among types of investments at the 
landing point.
    Rule 156 is an interpretive rule that provides guidance to 
investment companies regarding the applicability of the antifraud 
provisions of the federal securities laws. The proposed amendment to 
rule 156 would provide additional guidance regarding statements in 
sales literature for target date funds and other investment companies 
that could be misleading. Funds may incur some one-time costs in 
reviewing their marketing materials for consistency with the proposed 
interpretive guidance set forth in the amendments to rule 156. However, 
we expect such review to be largely incorporated into the review 
associated with complying with the proposed amendments to rules 482 and 
34b-1. As a result, we do not expect that significant costs would be 
associated with the review for compliance with rule 156. In addition, 
because we believe that investment companies already review their sales 
literature for misleading statements, we believe that the proposed 
amendment to rule 156 would not impose significant compliance costs on 
target date funds or other investment companies on an ongoing basis.
    We request comment on the nature and amount of our estimates of the 
costs of the additional disclosure that would be required if our 
proposals were adopted.

C. Request for Comments

    We request comments on all aspects of this cost-benefit analysis, 
including identification of any additional costs or benefits of, or 
suggested alternatives to, the proposed amendments. Commenters are 
requested to provide empirical data and other factual support for their 
views to the extent possible. In particular, we request comment on the 
following issues:
     Should any adjustments be made to our quantitative 
estimates of costs?
     If the proposed amendments are adopted, what changes in 
behavior by either investors or target date fund managers may result, 
and what would be the associated benefits and costs?
     Are there any additional costs that target date funds 
would likely incur with respect to their marketing materials in order 
to comply with the proposed amendments other than those mentioned in 
the cost-benefit analysis? For example, we have not identified any 
quantifiable ongoing external costs to comply with the proposed 
amendments. Are there quantifiable ongoing costs that a target date 
fund would likely incur to comply with the proposed amendments?

VI. Consideration of Burden on Competition and Promotion of Efficiency, 
Competition, and Capital Formation

    Section 23(a)(2) \137\ of the Securities Exchange Act of 1934 
(``Exchange Act'') \138\ requires the Commission, in adopting rules 
under the Exchange Act, to consider the impact that any new rule would 
have on competition and prohibits the Commission from adopting any rule 
that would impose a burden on competition not necessary or appropriate 
in furtherance of the purposes of the Exchange Act. Further, Section 
2(c) of the Investment Company Act,\139\ Section 2(b) of the Securities 
Act,\140\ and Section 3(f) of the Exchange Act \141\ require the 
Commission, when engaging in rulemaking that requires it to consider or 
determine whether an action is necessary or appropriate in the public 
interest, to consider, in addition to the protection of investors, 
whether the action will promote efficiency, competition, and capital 
formation.\142\
---------------------------------------------------------------------------

    \137\ 15 U.S.C. 78w(a)(2).
    \138\ 15 U.S.C. 78a et seq.
    \139\ 15 U.S.C. 80a-2(c).
    \140\ 15 U.S.C. 77b(b).
    \141\ 15 U.S.C. 78c(f).
    \142\ The Commission is proposing amendments to rule 34b-1 
pursuant to authority set forth in Sections 34(b) and 38(a) of the 
Investment Company Act. For a discussion of the effects of the 
proposed amendments to rule 34b-1 on efficiency, competition, and 
capital formation, see Parts IV, V, and VII.
---------------------------------------------------------------------------

    We are proposing amendments to rule 482 that would apply to 
advertisements that place a more than insubstantial focus on one or 
more target date funds. Specifically, we are proposing amendments to 
rule 482 that would require a target date fund that includes the target 
date in its name to disclose the target date (or current) asset 
allocation of the fund immediately adjacent to (or, in a radio or 
television advertisement, immediately following) the first use of the 
fund's name in advertisements. We are also proposing amendments to rule 
482 that would require enhanced disclosure in advertisements for a 
target date fund regarding the fund's glide path and asset allocation 
at the landing point, as well as the risks and considerations that are 
important when deciding whether to invest in a target date fund. 
Finally, we are proposing amendments to rule 156 that would provide 
additional guidance regarding statements in sales literature for target 
date funds and other investment companies that could be misleading.
    The proposed amendments may enhance efficiency by making it easier 
for investors to make more informed investment decisions. For example, 
if a target date fund remains significantly invested in equity 
investments at the target date, the proposed disclosure would help to 
reduce or eliminate incorrect investor expectations that the fund's 
assets will be invested in a more conservative manner at that time. The 
proposed amendments may also enhance efficiency by providing investors 
with readily available information about certain considerations and 
risks of the fund and the manner in which the fund's asset allocation 
may change over time. The proposed amendments to rule 156 regarding 
investment company sales literature would apply to all investment 
companies and may enhance efficiency by providing clearer guidance as 
to what may constitute misleading information in sales literature for 
target date funds and other investment companies.
    We anticipate that improving investors' ability to make informed 
investment decisions may also lead to increased competitiveness among 
target date funds. The transparency resulting from the enhanced 
disclosure in marketing materials may promote competition by promoting 
better informed decisions by investors who are considering target date 
funds along with

[[Page 35942]]

other types of investments. Increased transparency and investor 
awareness of target date fund asset allocations may also spur further 
innovation in the design of target date fund asset allocation models by 
fund sponsors due to enhanced competition. Finally, although target 
date funds may compete with similar non-investment company products 
that have similar investment objectives, we do not believe that the 
proposed amendments will significantly affect the competitiveness of 
target date funds in comparison with these other products.
    With respect to the proposed amendments to rule 156, we believe 
that the proposed amendments would not impose any burden on 
competition. We believe that the proposed amendments may improve 
investors' ability to make informed investment decisions, which thereby 
may lead to increased competition among target date funds. We believe 
that any costs that might be associated with compliance with the 
proposed amendments would be limited and, therefore, would not impose a 
burden on competition.
    We anticipate that the proposed amendments would have a positive 
impact on capital formation. As a result of investors making better 
informed investment decisions, companies would be able to allocate 
resources more efficiently in line with preferences for risk and return 
in the economy. We request comment on whether the proposed amendments, 
if adopted, would affect efficiency, competition, and capital 
formation. Commenters are requested to provide empirical data and other 
factual support for their views if possible.

VII. Initial Regulatory Flexibility Analysis

    This Initial Regulatory Flexibility Analysis has been prepared in 
accordance with the Regulatory Flexibility Act.\143\ It relates to the 
Commission's proposed rule amendments under the Securities Act, 
Exchange Act, and the Investment Company Act to our rules governing 
investment company advertisements and supplemental sales literature, 
which are intended to facilitate investor understanding of target date 
funds and reduce the potential for investors to be confused or misled.
---------------------------------------------------------------------------

    \143\ 5 U.S.C. 603 et seq.
---------------------------------------------------------------------------

A. Reasons for, and Objectives of, Proposed Amendments

    The Commission is proposing amendments to rules 482 and 34b-1 that 
would apply to advertisements and supplemental sales literature that 
place a more than insubstantial focus on one or more target date funds. 
Specifically, the Commission is proposing amendments to rules 482 and 
34b-1 that would require a target date fund that includes the target 
date in its name to disclose the target date (or current) asset 
allocation of the fund immediately adjacent to (or, in a radio or 
television advertisement, immediately following) the first use of the 
fund's name in advertisements and supplemental sales literature. The 
Commission is also proposing amendments to rules 482 and 34b-1 that 
would require enhanced disclosure in advertisements and supplemental 
sales literature for a target date fund regarding the fund's glide path 
and asset allocation at the landing point, as well as the risks and 
considerations that are important when deciding whether to invest in a 
target date fund. Finally, the Commission is proposing amendments to 
rule 156 that would provide additional guidance regarding statements in 
sales literature for target date funds and other investment companies 
that could be misleading.
    The proposed amendments to rules 482 and 34b-1 are intended to help 
address any potential investor misunderstanding that a target date fund 
may be invested more conservatively at the target date specified in its 
name or that every fund with the same target date in its name is 
managed in the same way. The proposed requirement to disclose the 
intended asset allocations of a target date fund at the target date 
(or, for periods on and after the target date, a fund's actual asset 
allocation as of the most recent calendar quarter) would, in essence, 
serve to alert investors to the existence of investment risk associated 
with the fund at and after the target date. The asset allocation may 
help counterbalance any misimpression that a fund is necessarily 
conservatively managed at the target date or that all funds with the 
same target date are similarly managed. The proposed table, chart, or 
graph requirement and landing point disclosure are intended to ensure 
that investors who receive target date fund marketing materials also 
receive basic information about the fund's glide path. The proposed 
amendments requiring disclosure of risks and considerations that are 
important when deciding whether to invest in a target date fund are 
intended to advise investors who review marketing materials for target 
date funds that a fund should not be selected based solely on age or 
retirement date, that a target date fund is not a guaranteed 
investment, and that a target date fund's stated asset allocation may 
be subject to change.
    The proposed amendments to rule 156 are intended to emphasize the 
potential for certain statements suggesting that securities of an 
investment company are an appropriate investment to mislead investors, 
in the context of target date funds or other investment companies.

B. Legal Basis

    The Commission is proposing amendments to rule 482 pursuant to 
authority set forth in Sections 5, 10(b), 19(a), and 28 of the 
Securities Act and Sections 24(g) and 38(a) of the Investment Company 
Act. The Commission is proposing amendments to rule 34b-1 pursuant to 
authority set forth in Sections 34(b) and 38(a) of the Investment 
Company Act. The Commission is proposing amendments to rule 156 
pursuant to authority set forth in Section 19(a) of the Securities Act 
and Sections 10(b) and 23(a) of the Exchange Act.

C. Small Entities Subject to the Rule

    For purposes of the Regulatory Flexibility Act, an investment 
company is a small entity if it, together with other investment 
companies in the same group of related investment companies, has net 
assets of $50 million or less as of the end of its most recent fiscal 
year.\144\ Approximately 158 registered investment companies meet this 
definition, but the Commission estimates that no target date funds meet 
this definition.\145\ The proposed amendments to rules 482 and 34b-1, 
if adopted, would apply to registered investment companies that are 
target date funds, and therefore we do not expect that they would 
affect any small entities. The proposed amendments to rule 156, if 
adopted, would apply to all investment companies and may affect the 158 
registered investment companies that are small entities, as well as 
investment companies that are small entities, but that are not subject 
to Investment Company Act registration

[[Page 35943]]

requirements, including 32 business development companies.\146\ Except 
for business development companies, we do not collect data to determine 
how many investment companies that are not subject to Investment 
Company Act registration requirements are small entities. Therefore, we 
are unable to determine the total number of small entities that would 
be affected by the proposed amendments to rule 156.
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    \144\ 17 CFR 230.157; 17 CFR 270.0-10.
    \145\ Commission staff determined that each target date fund is 
part of a group of related investment companies that had net assets 
of more than $50 million as of the end of its most recent fiscal 
year. The staff compiled a list of target date funds and aggregate 
net target date fund assets based on classifications by Morningstar 
Direct. To the extent that a group of related investment companies 
had aggregate net target date fund assets of $50 million or less as 
reported by Morningstar Direct, the staff reviewed the filings made 
with the Commission by the other related investment companies within 
that group to determine the aggregate net assets of the target date 
funds, together with other related investment companies.
    \146\ Examples of investment companies not subject to 
registration under Section 8 of the Investment Company Act include 
business development companies and employees' security companies.
---------------------------------------------------------------------------

D. Reporting, Recordkeeping, and Other Compliance Requirements

    We are proposing amendments to rules 482 and 34b-1 that would apply 
to advertisements and supplemental sales literature that place a more 
than insubstantial focus on one or more target date funds. 
Specifically, we are proposing amendments to rules 482 and 34b-1 that 
would require a target date fund that includes the target date in its 
name to disclose the target date (or current) asset allocation of the 
fund immediately adjacent to (or, in a radio or television 
advertisement, immediately following) the first use of the fund's name 
in advertisements and supplemental sales literature. We are also 
proposing amendments to rules 482 and 34b-1 that would require enhanced 
disclosure in advertisements and supplemental sales literature for a 
target date fund regarding the fund's glide path and asset allocation 
at the landing point, as well as the risks and considerations that are 
important when deciding whether to invest in a target date fund.
    The proposed amendments to rules 482 and 34b-1, if adopted, would 
apply to registered investment companies that are target date funds. As 
noted earlier, the Commission estimates that no target date funds are 
small entities. Therefore, we do not expect that the proposed 
amendments to rules 482 and 34b-1 would affect any small entities.
    We are also proposing amendments to rule 156 to provide additional 
guidance regarding statements in sales literature for target date funds 
and other investment companies that could be misleading. Because the 
proposed amendment to rule 156 is interpretive and provides guidance as 
to when sales literature could be misleading, we believe that the 
proposed amendment would not impose significant reporting, 
recordkeeping, or other compliance costs on target date funds or other 
investment companies.
    The Commission solicits comment on these estimates and the 
anticipated effect the proposed amendments would have on small 
entities.

E. Duplicative, Overlapping, or Conflicting Federal Rules

    The Commission believes that there are no federal rules that 
duplicate, overlap, or conflict with the proposed amendments.

F. Significant Alternatives

    The Regulatory Flexibility Act directs us to consider significant 
alternatives that would accomplish our stated objective, while 
minimizing any significant adverse impact on small issuers. In 
connection with the proposed amendments, the Commission considered the 
following alternatives: (i) The establishment of differing compliance 
or reporting requirements or timetables that take into account the 
resources available to small entities; (ii) the clarification, 
consolidation, or simplification of compliance and reporting 
requirements under the proposed amendments for small entities; (iii) 
the use of performance rather than design standards; and (iv) an 
exemption from coverage of the proposed amendments, or any part 
thereof, for small entities.
    The Commission believes at the present time that special compliance 
or reporting requirements for small entities, or an exemption from 
coverage for small entities, would not be appropriate or consistent 
with investor protection. The proposed amendments to rules 482 and 34b-
1, if adopted, would apply to registered investment companies that are 
target date funds. As noted earlier, the Commission estimates that no 
target date funds are small entities. Therefore, we do not expect that 
the proposed amendments to rules 482 and 34b-1 would affect any small 
entities.
    The proposed amendments to rule 156 would apply to all investment 
companies, including some that may be small entities, and would provide 
additional guidance in determining whether statements contained in 
sales literature are misleading. Different requirements for investment 
companies that are small entities may create an increased risk that 
investors would receive misleading information in sales literature 
about target date funds or other investment companies that are small 
entities. Therefore, we believe it is important for the proposed 
amendments to apply to all investment companies, regardless of size.
    We have endeavored through the proposed amendments to minimize the 
regulatory burden on all investment companies, including small 
entities, while meeting our regulatory objectives. We have endeavored 
to clarify, consolidate, and simplify the requirements applicable to 
all investment companies, including those that are small entities. 
Finally, we do not consider using performance rather than design 
standards to be consistent with investor protection in the context of 
requirements for investment company marketing materials.

G. Request for Comments

    The Commission encourages the submission of written comments with 
respect to any aspect of this analysis. Comment is specifically 
requested on the number of small entities that would be subject to the 
proposed amendments and the likely impact of the proposal on those 
small entities. Commenters are asked to describe the nature of any 
impact and provide empirical data supporting the extent of the impact. 
These comments will be considered in the preparation of the Final 
Regulatory Flexibility Analysis if the proposed amendments are adopted 
and will be placed in the same public file as comments on the proposed 
amendments themselves.

VIII. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996 (``SBREFA''),\147\ a rule is ``major'' if it results or is 
likely to result in:
---------------------------------------------------------------------------

    \147\ Public Law 104-21, Title II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more;
     A major increase in costs or prices for consumers or 
individual industries; or
     Significant adverse effects on competition, investment, or 
innovation.
    We request comment on whether our proposal would be a ``major 
rule'' for purposes of SBREFA. We solicit comment and empirical data 
on:
     The potential effect on the U.S. economy on an annual 
basis;
     Any potential increase in costs or prices for consumers or 
individual industries; and
     Any potential effect on competition, investment or 
innovation.

IX. Statutory Authority

    The Commission is proposing amendments to rule 156 pursuant to 
authority set forth in Section 19(a) of the Securities Act [15 U.S.C. 
77s(a)] and Sections 10(b) and 23(a) of the Exchange Act [15 U.S.C. 
78j(b) and 78w(a)]. The Commission is proposing amendments to rule 482 
pursuant to authority set

[[Page 35944]]

forth in Sections 5, 10(b), 19(a), and 28 of the Securities Act [15 
U.S.C. 77e, 77j(b), 77s(a), and 77z-3] and Sections 24(g) and 38(a) of 
the Investment Company Act [15 U.S.C. 80a-24(g) and 80a-37(a)]. The 
Commission is proposing amendments to rule 34b-1 pursuant to authority 
set forth in Sections 34(b) and 38(a) of the Investment Company Act [15 
U.S.C. 80a-33(b) and 80a-37(a)].

List of Subjects

17 CFR Part 230

    Advertising, Investment companies, Reporting and recordkeeping 
requirements, Securities.

17 CFR Part 270

    Investment companies, Reporting and recordkeeping requirements, 
Securities.

Text of Proposed Rule Amendments

    For the reasons set out in the preamble, the Commission proposes to 
amend Title 17, Chapter II, of the Code of Federal Regulations as 
follows.

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

    1. The authority citation for Part 230 continues to read in part as 
follows:

    Authority:  15 U.S.C. 77b, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 
77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78t, 78w, 
78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-30, and 80a-37, 
unless otherwise noted.
* * * * *
    2. Section 230.156 is amended by adding paragraph (b)(4) to read as 
follows:


Sec.  230.156  Investment company sales literature.

* * * * *
    (b) * * *
    (4) A statement suggesting that securities of an investment company 
are an appropriate investment could be misleading because of:
    (i) The emphasis it places on a single factor (such as an 
investor's age or tax bracket) as the basis for determining that the 
investment is appropriate; or
    (ii) Representations, whether express or implied, that investing in 
the securities is a simple investment plan or requires little or no 
monitoring by the investor.
* * * * *
    3. Section 230.482 is amended by:
    a. Redesignating paragraphs (b)(5) and (b)(6) as paragraphs (b)(6) 
and (b)(7);
    b. Adding new paragraph (b)(5);
    c. In newly redesignated paragraph (b)(6), revising the first and 
second references ``paragraphs (b)(1) through (b)(4)'' to read 
``paragraphs (b)(1) through (b)(4) and paragraph (b)(5)(ii)'';
    d. In newly redesignated paragraph (b)(6), revising the third 
reference ``paragraphs (b)(1) through (b)(4)'' to read ``paragraphs 
(b)(1) through (b)(4) and paragraphs (b)(5)(ii) and (v)''; and
    e. Revising the phrase ``NASD Regulation, Inc.'' in the note to 
paragraph (h) to read ``Financial Industry Regulatory Authority, Inc.''
    The addition reads as follows:


Sec.  230.482  Advertising by an investment company as satisfying 
requirements of Section 10.

* * * * *
    (b) * * *
    (5) Target date funds.
    (i) Definitions. For purposes of this section:
    (A) Target Date Fund means an investment company that has an 
investment objective or strategy of providing varying degrees of long-
term appreciation and capital preservation through a mix of equity and 
fixed income exposures that changes over time based on an investor's 
age, target retirement date, or life expectancy.
    (B) Target Date means any date, including a year, that is used in 
the name of a Target Date Fund or, if no date is used in the name of a 
Target Date Fund, the date described in the fund's prospectus as the 
approximate date that an investor is expected to retire or cease 
purchasing shares of the fund.
    (C) Landing Point means the first date, including a year, at which 
the asset allocation of a Target Date Fund reaches its final asset 
allocation among types of investments.
    (ii) An advertisement that places a more than insubstantial focus 
on one or more Target Date Funds must include a statement that:
    (A) Advises an investor to consider, in addition to age or 
retirement date, other factors, including the investor's risk 
tolerance, personal circumstances, and complete financial situation;
    (B) Advises an investor that an investment in the Target Date 
Fund(s) is not guaranteed and that it is possible to lose money by 
investing in the Target Date Fund(s), including at and after the Target 
Date; and
    (C) Unless disclosed pursuant to paragraph (b)(5)(iv)(C) of this 
section, advises an investor whether, and the extent to which, the 
intended percentage allocations of the Target Date Fund(s) among types 
of investments may be modified without a shareholder vote.
    (iii) An advertisement that places a more than insubstantial focus 
on one or more Target Date Funds, and that uses the name of a Target 
Date Fund that includes a date, including a year, must disclose the 
percentage allocations of the Target Date Fund among types of 
investments (e.g., equity securities, fixed income securities, and cash 
and cash equivalents) as follows: (1) An advertisement that is 
submitted for publication or use prior to the date that is included in 
the name must disclose the Target Date Fund's intended asset allocation 
at the date that is included in the name and must clearly indicate that 
the percentage allocations are as of the date in the name; and (2) an 
advertisement that is submitted for publication or use on or after the 
date that is included in the name must disclose the Target Date Fund's 
actual asset allocation as of the most recent calendar quarter ended 
prior to the submission of the advertisement for publication or use and 
must clearly indicate that the percentage allocations are as of that 
date. This information must appear immediately adjacent to (or, in a 
radio or television advertisement, immediately following) the first use 
of the Target Date Fund's name in the advertisement and must be 
presented in a manner reasonably calculated to draw investor attention 
to the information.
    (iv) A print advertisement or an advertisement delivered through an 
electronic medium that places a more than insubstantial focus on one or 
more Target Date Funds must include a prominent table, chart, or graph 
clearly depicting the percentage allocations of the Target Date Fund(s) 
among types of investments (e.g., equity securities, fixed income 
securities, and cash and cash equivalents) over the entire life of the 
Target Date Fund(s) at identified periodic intervals that are no longer 
than five years in duration and at the inception of the Target Date 
Fund(s), the Target Date, the Landing Point, and, in the case of an 
advertisement that relates to a single Target Date Fund, as of the most 
recent calendar quarter ended prior to the submission of the 
advertisement for publication. If the advertisement relates to a single 
Target Date Fund, the table, chart, or graph must clearly depict the 
actual percentage allocations among types of investments from the 
inception of the Target Date Fund through the most recent calendar 
quarter ended prior to the submission of the advertisement for 
publication, clearly depict the future intended percentage allocations 
among types of investments, and identify the periodic intervals and 
other required points using specific dates (which may include years, 
such as 2015 or 2020). If

[[Page 35945]]

the advertisement relates to multiple Target Date Funds with different 
Target Dates that all have the same pattern of asset allocations, the 
advertisement may include separate presentations for each Target Date 
Fund that meet the requirements of the preceding sentence or may 
include a single table, chart, or graph that clearly depicts the 
intended percentage allocations of the Target Date Funds among types of 
investments and identifies the periodic intervals and other required 
points using numbers of years before and after the Target Date. If the 
advertisement (1) relates to a single Target Date Fund and is submitted 
for publication prior to the Landing Point; or (2) relates to multiple 
Target Date Funds with different Target Dates that all have the same 
pattern of asset allocations, the table, chart, or graph must be 
immediately preceded by a statement explaining the table, chart, or 
graph that includes the following information:
    (A) The asset allocation changes over time;
    (B) The Landing Point (or in the case of a table, chart, or graph 
for multiple Target Date Funds, the number of years after the Target 
Date at which the Landing Point will be reached); an explanation that 
the asset allocation becomes fixed at the Landing Point; and the 
intended percentage allocations among types of investments (e.g., 
equity securities, fixed income securities, and cash and cash 
equivalents) at the Landing Point; and
    (C) Whether, and the extent to which, the intended percentage 
allocations among types of investments may be modified without a 
shareholder vote.
    (v) A radio or television advertisement that is submitted for use 
prior to the Landing Point and that places a more than insubstantial 
focus on one or more Target Date Funds, and that uses the name of a 
Target Date Fund that includes a date (including a year), must include 
a statement that includes the Landing Point, an explanation that the 
asset allocation becomes fixed at the Landing Point, and the intended 
percentage allocations of the fund among types of investments (e.g., 
equity securities, fixed income securities, and cash and cash 
equivalents) at the Landing Point.
* * * * *

PART 270--RULES AND REGULATIONS, INVESTMENT COMPANY ACT OF 1940

    4. The authority citation for Part 270 continues to read in part as 
follows:

    Authority: 15 U.S.C. 80a-1 et seq., 80a-34(d), 80a-37, and 80a-
39, unless otherwise noted.
* * * * *
    5. Section 270.34b-1 is amended by:
    a. Removing the language ``paragraphs (a) and (b) of'' in the 
introductory text and the note to introductory text;
    b. Revising the references ``paragraph (b)(5) of Sec.  230.482 of 
this chapter'' in paragraph (a) and paragraph (b)(1)(i) to read 
``paragraph (b)(6) of Sec.  230.482 of this chapter'';
    c. Revising the heading to the note following paragraph (b) to read 
``Note to paragraph (b)''; and
    d. Adding paragraph (c) at the end thereof.
    The addition reads as follows:


Sec.  270.34b-1  Sales literature deemed to be misleading.

* * * * *
    (c) Sales literature that places a more than insubstantial focus on 
one or more Target Date Funds (as defined in paragraph (b)(5)(i)(A) of 
Sec.  230.482 of this chapter) must contain the information required by 
paragraphs (b)(5)(ii), (iii), and (iv) of Sec.  230.482 of this 
chapter, presented in the manner required by those paragraphs and by 
paragraph (b)(6) of Sec.  230.482 of this chapter.

    By the Commission.

     Dated: June 16, 2010.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-15012 Filed 6-22-10; 8:45 am]
BILLING CODE 8010-01-P