Morningstar Advisor - December/January 2010 - 27

Target-Date Rating People and Parent ratings count for two fifths of a series’ overall rating. Name Overall People Parent People and Parent How the ratings are composed. People Rating Top Top Above Avg Average Average Average Average Average Average Above Avg Below Avg Average Average Below Avg Above Avg Average Below Avg Average Average Average Parent Rating T. Rowe Price Retirement Series Vanguard Target Retirement Series American Funds Target Date Rtrmt Series American Century LIVESTRONG Series JPMorgan SmartRetirement Series TIAA-CREF Lifecycle Series Vantagepoint Milestone Series Wells Fargo Advantage DJ Target Date Series MFS Lifetime Series Fidelity Freedom Series Schwab Target Series John Hancock Lifecycle Series Massachusetts Mutual Life Insurance Co. ING Solution Series Fidelity Advisor Freedom Series AllianceBernstein Retirement Str Series Putnam RetirementReady Series DWS LifeCompass Series Principal LifeTime Series Oppenheimer LifeCycle Series Top Top Top Top Above Avg Above Avg Above Avg Above Avg Average Average Average Below Avg Below Avg Below Avg Below Avg Below Avg Below Avg Below Avg Below Avg Bottom Top Top Top Above Avg Above Avg Above Avg Above Avg Average Above Avg Below Avg Below Avg Above Avg Average Average Below Avg Below Avg Below Avg Bottom Bottom Below Avg Manager Incentives 25% Management 75% Transparency 25% Corporate Culture 50% Board Oversight 25% Regulatory History up to 25% Morningstar rated 20 target-date series. Morningstar ratings as of Sept. 30, 2009. financial incentives to serve shareholders well. Morningstar’s qualitative analysis of the management team draws on decades of individual fund analysis. Morningstar analysts have been following the funds featured in many of the target-date series for years, regularly interviewing the management teams and determining how well they have executed their investment strategies in a variety of market conditions. That experience puts the analysts in a good position to determine whether those managers tapped for the target-date series are likely to serve shareholders well over the long term. The management analysis may seem completely qualitative, but it is informed by some quantitative measures. We look at factors such as the fund managers’ tenure and retention rates. Funds sponsored by companies that have long tenures and high manager-retention rates are more likely to have the same target-date team in place over the next several years. Meanwhile, firms with relatively low retention rates may suffer future turmoil. Given the relative youth of target-date funds, there is little value in examining the length of manager tenure overseeing the various target-date series themselves. Evaluating the tenure of the managers of the series’ underlying funds, however, can be more telling. Another revealing data comparison is the asset-management firm’s five-year managerretention rate. To calculate the manager-retention rate, we look at managers named on the firm’s funds at the start of the year. Then, we see what percentage remained at year-end. The five-year manager-retention rate is the average retention rate over the past five calendar years through Dec. 31, 2008. Among the fund families offering the largest target-date series, there’s quite a range of experience, with the American Funds— which received a top People rating—the clear leader. For American’s underlying funds in a target-date series, the average manager tenure on an asset-weighted basis was 23 years. On the flip side, at less than three years, the lowest manager tenure was at DWS. DWS received a bottom People rating. DWS’ attempts to improve its fund management in recent years have led to many departures. It’s unclear whether the teams in place now will stay the course or whether turnover will continue. Performance Pays (Partially) Because target-date funds are designed to be long-term investments, it makes sense to have their managers focused on the long haul, too. Funds that pay managers to deliver MorningstarAdvisor.com 27

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Morningstar Advisor - December/January 2010

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