others. Indeed, the challenges of reducing risk into a single definition were previously highlighted in
1995, when the Commission issued a release requesting comment on how to improve risk disclosure for
investment companies, including ways to increase the comparability of fund risk levels.’ In reviewing the
responses from investors and the mutual fund industry, the Commission acknowledged that investors
have a wide range of definitions of risk. The Commission subsequently adopted a requirement that a
fund’s prospectus include a bar chart to graphically illustrate the variability in the fund’s returns, thereby
providing some indication of the risks of investing in the fund. We believe that the investing public
should be reviewing the bar chart and other risk disclosures in the prospectus rather than relying on
marketing materials for risk information.

For reasons already stated above, the Commission should not impose detailed and prescriptive
requirements for target date fund marketing materials. Fund families should have the flexibility to present
risk information in the manner they deem most helpful and understandable, taking into consideration the
intended audience and the context in which the information will be used.

4. Target date fund naming convention

The Commission should eliminate the proposed requirement that a target date fund cite its asset
allocation at the target date (or in the case of a fund that has already passed its target date, the current
asset allocation) adjacent to the initial use of the fund’s name. All of the funds within the same glide path
will typically have the same asset allocation at their target date. For example, American Funds 2055
Target Date Retirement Fund and American Funds 2050 Target Date Retirement Fund will have the same
asset allocation once they reach their respective target dates but the latter becomes more conservative
sooner in the glide path. In addition, such disclosure could be taken to imply that the fund guarantees a
fixed asset allocation. This could add to investor confusion rather than aid in their understanding.
Furthermore, such prominence may give undue emphasis to the fund’s asset allocation at its target date
and cause investors not to give proper consideration to other information such as the fund’s current
allocation and overall investment objectives, fees and expenses and the overall glide path.

5. Prospectus disclosure requirements

We support the Commission not amending prospectus disclosure requirements for target date
funds. A target date fund is currently required to disclose its investment objective, principal investment
strategies, principal risks in investing and its fees and expenses. We believe this provides the right mix of
information that is material to target date fund investors.

6. Amendments to fee disclosure requirements for target date funds

The Commission has broadly requested comments on any aspect of the recommendations of the
Investor Advisory Committee. Recommendation 5 of the Committee encourages the Commission to
amend the fee disclosure requirements for target date funds to provide better information about the likely
impact of fund fees on total accumulations over the expected holding period of the investment. We
believe that since investment amounts, holding periods, and the timing of contributions before retirement
and withdrawals after retirement can vary, any such disclosure could be potentially confusing and/or
misleading. In addition, we do not believe that this type of fee disclosure should be required in target date
fund marketing materials. The fee table in the prospectus (which reflects the costs of a $10,000
investment in a fund over 1, 3, 5 or 10 years) adequately provides a standardized formula to compare the
costs of investing in a target date fund with the costs of investing in another mutual fund. As previously

2 See Investment Company Act Release No. 20974 (March 29,1995).
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We believe that the reasoning of the Commission to move away from prescriptive requirements for
investment company marketing materials in 1979 remains valid today.

In addition, we note that the federal securities laws do not currently have any requirements
specific to target date fund marketing materials. We urge the Commission not to create advertising rules
that target one type of mutual fund based on investment objective or type of investor. A return to the day
of the “Statement of Policy” is not warranted. This level of regulation over fund advertising could result
in a protracted regulatory review process for marketing materials. It could also inhibit the creation of
innovative marketing materials that could enhance investor understanding of target date funds. We
believe that the antifraud rules under federal securities regulations, FINRA advertising rule, Department
of Labor fiduciary regulations and FINRA review of marketing materials provide sufficient protection for
investors from misleading presentations.

2. Asset allocation table, chart or graph

As mentioned above, we do not believe it is necessary to impose additional disclosure
requirements specific to target date fund marketing materials. However, we do believe that a glide path
illustration can be an effective way to communicate the key features of a target date fund to investors,
particularly the fact that the fund’s asset allocation automatically becomes more conservative over time.
In addition, a glide path provides investors with both the short-term and long-term views of their
investment mix (importantly, the fund’s current target asset allocation, its projected allocation upon
reaching the target date and projected allocation changes after the target date.) For these reasons, we
include a glide path illustration in the prospectus for the Series. We believe that any mutual fund that
similarly has a glide path illustration in its prospectus should not be required to include an asset allocation
table, chart or graph in its marketing materials.

However, the Commission should reexamine the proposed approach of requiring funds to
disclose asset allocation by types of securities as opposed to types of underlying funds. Fund families
should have the flexibility to design marketing materials and present asset allocation information in the
most helpful and understandable manner, taking into consideration the intended audience and context in
which the information will be used. For example, we believe that a target date fund glide path that uses
the investment objectives of the underlying funds (for example, growth, growth-and-income, equity-
income/balanced and bond) can facilitate investor understanding as it best aligns the investment strategy
with investor objectives of growth, income and conservation of capital. As discussed earlier, we believe
that granting fund families with flexibility in designing their marketing materials is consistent with the
intention behind the current regulatory framework for advertising. Additionally, we believe that the
current rules and regulations, as well as FINRA reviews of marketing materials, provide sufficient
protection for investors from misleading asset allocation presentations.

3. Risk-based glide path

Although we agree that providing risk information to investors, plan sponsors and financial
advisors is very important, we believe that this information is sufficiently covered by the prospectus. In
addition, the Commission should not mandate the use of a glide path illustration based on a standardized
measure of risk as the discussion of risks cannot be reduced into a simple illustration. The concept of
“risk” is complex and changes depending on an investor’s objectives and time horizons. Any attempt to
distill the various forms of risk into a single chart could be confusing and unhelpful, particularly for the
type of investors who are either defaulting into the target date funds or inclined to use these funds due to
their perceived simplicity and convenience as an investment option. It could also be dangerously
misleading as it could cause an investor to improperly focus on one dimension of risk and ignore all

4


stated, we do not believe that the Commission should impose overly prescriptive requirements on
marketing materials, which could serve to overshadow the prospectus as the primary offering document.
Furthermore, target date funds should not be treated differently from other mutual funds with regard to
marketing materials.

We truly appreciate the opportunity to comment on the release and hope that the Commission’s
efforts in this area truly result in requirements that help investors better understand target date funds. If
you have any questions regarding our comments, please feel free to contact either of the undersigned or
Maria Manotok at (213) 615 0200.

Sincerely,
Mechaed Downer
Michael J. Downer

President and Principal Executive Officer,
American Funds Target Date Retirement Series

(243) wih

James B. Lovelace

Senior Vice President and Principal Investment
Officer, American Funds Target Date
Retirement Series and Member of the Portfolio

Oversight Committee
(213) 615 0947

ce: The Hon. Mary Jo White, Chairman
The Hon. Luis A. Aguilar, Commissioner
The Hon. Daniel M. Gallagher, Commissioner
The Hon. Kara M. Stein, Commissioner
The Hon. Michael S. Piwowar, Commissioner
Norm Champ, Director, Division of Investment Management


Pi

Capital Research

and Management Company
CAPITAL 333 South Hope Street
GROUP Los Angeles, California 90071-1406

thecapitalgroup.com

June 9, 2014

Ms. Elizabeth M. Murphy

Secretary

United States Securities and Exchange Commission
100 F Street, NE

Washington, DC 20549-1090

Re: File Number S7-12-10

Dear Ms. Murphy:

We appreciate the opportunity to comment on the Commission's release seeking comments and
suggestions on how to enhance disclosures in target date fund marketing materials. We support the
Commission's initiative to deliver only the most understandable and relevant information to investors to
assist them in making informed investment decisions.

Capital Research and Management Company serves as investment adviser to the American Funds,
one of the oldest mutual fund families in the nation. Our fund offerings include the American Funds
Target Date Retirement Series (the “Series”), launched on February 1, 2007. The Series consists of 10
funds, with retirement dates ranging from 2010 to 2055 in 5-year increments. As of May 31, 2014, the
Series had over $21 billion in net assets. The Series strives to achieve an appropriate balance of three
critical objectives of investors throughout their lifetime: growth, income and conservation of capital.
With this goal in mind, each fund in the Series is invested in a diversified blend of underlying American
Funds, which may include growth, growth-and-income, equity-income and balanced, and bond funds.
Each fund in the Series is designed for investors who plan to retire in, or close to, the year designated in
the fund’s name. The funds in the Series are actively managed for 30 years past retirement, which allows
investors to use a single fund for their entire lives.

The funds in the Series are managed by a Portfolio Oversight Committee, consisting of a team of
veteran investment professionals with diverse backgrounds and an average of 26 years of investment
experience. The Committee develops the allocation approach and selects the underlying American Funds
in which each fund in the Series invests. It meets regularly to monitor the results of the Series and review
various target date fund analyses.

We believe that target date funds have become critical in helping investors save for a more secure
retirement. Importantly, they provide an efficient way for investors to invest in a diversified portfolio of
assets that is automatically rebalanced over time to match evolving needs, thereby reducing the risks


inherent in non-diversified portfolios and eliminating the need for an investor to repeatedly rebalance his
or her own portfolio.

We believe that target date funds have greatly benefitted certain retirement plan investors by
providing a systematic age-based method of asset allocation. Since target date fund offerings are a
relatively recent development, which was spurred by the Pension Protection Act, this is an increasingly
active area of research and innovation. In addition, investors’ understanding of these fund offerings is still
developing. We are devoting considerable resources to educating and informing investors, and so are
other fund providers.

Our comments on the release include the following, all of which are discussed in greater detail
below:

¢ The Commission should avoid creating detailed and overly prescriptive requirements
specific to target date fund marketing materials. This is inconsistent with the intention
behind the current regulatory framework and could lead to: (a) the prospectus being
overshadowed as the primary offering document, (b) the creation of advertising rules that
target one type of mutual fund based on investment objective or type of investor, (c) a
protracted regulatory review process for target date fund marketing materials and (d) a
chilling effect on the creation of innovative marketing materials that could enhance
investor understanding of target date funds.

e We believe that any mutual fund that has a glide path illustration in its prospectus should
not be required to include an asset allocation table, chart or graph in its marketing
materials. Fund families should have flexibility in presenting asset allocation information,
including the use of types or objectives of underlying funds rather than types of securities
or standard asset classes.

e The Commission should not mandate the use of a glide path illustration based on a
standardized measure of risk as the discussion of risks is complex and cannot be reduced
into a simple illustration.

e The Commission should eliminate the proposed requirement that a target date fund cite
its asset allocation at the target date (or in the case of a fund that has already passed its
target date, the current asset allocation) adjacent to the initial use of the fund’s name.
This could be confusing for investors since all funds in the glide path typically have the
same asset allocation at the target date. Additionally, it could cause the investor to give
undue emphasis to the fund’s asset allocation at a single point in time, either the target
date or current, rather than give consideration to the entire glide path and other key
factors.

e We support the Commission not amending prospectus disclosure requirements for target
date funds.

e Disclosures regarding the likely impact of fund fees on total accumulations over the
expected holding period of the investment should not be mandated since investment
amounts, holding periods and the timing of contributions before retirement and
withdrawals after retirement can vary. Any such disclosure could be potentially


confusing and/or misleading. The current fee table in target date fund prospectuses is
sufficient to facilitate investor understanding of costs.

1. Scope of proposed amendments

The Commission requests comments on whether the rules governing investment company
marketing materials should be amended to require additional disclosures to specifically address concerns
regarding investor understanding of target date funds. We agree that investors and employers selecting
target date funds for their retirement plans should understand the key features of the funds. However, we
strongly believe that the prospectus or summary prospectus is, and should remain, the primary offering
document for all mutual funds, including target date funds. The additional advertising disclosures
proposed by the Commission could cause marketing materials to overshadow the prospectus in
importance and deter, rather than enhance, investor understanding.

Furthermore, we believe that overly prescriptive requirements could undo the progress made by
the Commission in developing a successful framework for advertising. Except as it pertains to
performance advertising, the regulatory framework for investment company marketing materials is
purposefully based on general standards to avoid inhibiting the development and use of more helpful and
understandable presentations. As you are aware, the current framework was once preceded by a detailed
Commission Statement of Policy (“Statement”) on investment company marketing material.' After
nearly three decades of administering the Statement, the Commission requested comment on the
Statement’s usefulness. Based on the industry’s responses and its own review, the Commission withdrew
the Statement, stating that:

“The Statement was intended merely to provide some guidance to the
public about what the Commission and the staff thought might be
misleading in investment company sales literature. It explicitly neither
prescribes the content of sales literature nor proscribes presentations
which are not covered by the Statement provided that they are not
misleading. Nevertheless, in practice the Statement has taken on the
character of a comprehensive and mandatory rule... [T]he staff has
experienced significant burdens in administering the Statement. These
developments have had unintended and adverse consequences. On the
one hand, the Statement has operated to limit the flexibility of investment
companies in advertising. Yet, at the same time, some may have been led
to believe that use of a format which is included in the Statement or the
failure of the staff to object to a particular representation created a "safe
harbor."... What is or is not misleading in sales literature may depend
greatly on the totality of the circumstances, including the context in
which it is used and the sophistication of the investor. The Commission
doubts the feasibility of developing mechanical or technical guidelines to
define what is or is not misleading in sales literature in all circumstances.
Rather the Commission believes that the fundamental responsibility for
protecting investors from misleading sales literature resides with those
who prepare and use it.”

" See Investment Company Act Release No. 1503 (August 14, 1950).
? See Investment Company Act Release No. 10621 (March 8,1979).

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