Subject: File No. S7-12-10
From: Sharath Sury
Affiliation: Professor of Finance Economics

August 24, 2010


August 23, 2010

Elizabeth M. Murphy
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090

RE: Comments Regarding Investment Company Advertising: Target Date Retirement Fund Names and Marketing File Number S7-12-10

Dear Ms. Murphy:

I am delighted to have the opportunity to provide comments and recommendations on the Securities and Exchange Commission (the Commission) proposals regarding Investment Company advertising as it relates to target date names and marketing.

In summary, I am strongly in support efforts to improve clarity and provide meaningful disclosure in the area of target date funds. It appears that the Commissions proposals are a move in the right direction. Target date funds—also known in the investment community as lifecycle funds—have been marketed since at least the early 1990s.

Many firms that sponsor such funds are interested in providing a turnkey and passive solution for investors who seek a retirement solution without much active intervention. Such investors tend to favor an approach that is systematic and disciplined with a reasonable expectation of reaching specific goals by retirement or some other maturity date.

As a matter of best practice, every investor should adopt an Investment Policy Statement (IPS), that outlines specific goals and objectives, risk tolerance, income and distribution needs, tax characteristics, and other relevant information. Ideally, this IPS should serve as a guideline for the investor (or its representative) to make educated and disciplined choices regarding the nature and type of investments, suitable allocations, and income (cash flow) generation.

Understandably, not all investors have the expertise (or access to such expertise) to undertake an investment planning process that leads to an IPS. Some investors without an integrated IPS process tend to turn to target date funds as a way to meet the need to have a disciplined approach to retirement. Unfortunately, some of these investors incorrectly consider the target date fund to be a panacea. Indeed many investors wrongly assume that target date funds provide guarantees or automatically hedge against market dislocations. The experience of the past 24 months has served as a painful but necessary education that this is not always the case.

The rules proposed by the Commission should help toward clarifying the investment process related to target date funds. The Commission should seek to provide regulatory guidance to those funds that are specifically designed to meet retirement goals. To that end, target date funds may not always have a specific date in their name nor is every fund with a date in its name designed to be a lifecycle or retirement target date fund.

Moreover, the Commission is currently including only funds that span multiple asset classes (e.g., equities and fixed income) as target date funds. However, a target date fund can be constructed using only one asset class. For example, a dynamic portfolio of exclusively fixed income investments could be designed to meet certain target date objectives. Therefore, it is important to look to the objective of the fund and the nature of its offering.

For legitimate target date funds, the Commission should require enhanced disclosure in marketing materials. In particular, information related to the funds so called glide path and asset allocation at landing point should be included. Rule 482 and Rule 34b-1 provide for such disclosure. Specifically, the presentation requirements of Rule 482(b)5 are appropriate. The requirements should include a table, chart, and graph in the body of the presentation materials, in a manner substantially similar to that presented in the regulatory proposal. Standardization of the required data will greatly facilitate educated comparisons across funds.

It is well known that many target date funds invest in other funds (in essence, creating a fund of funds). From a purely economic perspective, it is important to have a mechanism in place to look through to the underlying asset classes. Target date funds, as a product of their due diligence, should already have the information necessary to compile this data. This can be especially useful if a fund invests in blended strategies (e.g., growth and income or all cap) where additional clarity would be meaningful and material. Of course, sub-asset class or style presentation requirements can present questions related to how much detail is necessary.

Sufficient depth should be presented to meet objective industry standards for style (growth, value, etc), capitalization (large cap, small cap), duration, and credit risks. As suggested in the proposal, investors should be provided with more information on the asset classes and/or styles, to include (among other things): long-term performance, risks, volatility, etc.

Finally, ranges for asset class, sub-asset class, or style designations should be considered. Given changing market conditions, it may be unreasonable to expect point estimates for asset allocations to be maintained. Many institutional and high net worth investors that utilize the IPS methodology subscribe to both ranges as well as limitations on those ranges. Where ranges on allocations are allowed, some investors suggest a tight range that is somehow related to the volatility of each underlying asset class. Others suggest an acceptable percentage fluctuation (e.g., a 10% threshold may translate into a 40% allocation having a +/- 4% range).

The Commissions undertakings in this regard are to be lauded and I look forward to further activity that ultimately informs, guides, and educates the investing public.

Respectfully Submitted,

Sharath M. Sury
Professor of Finance Economics