DEFA14A: Invesco QQQ Proposes Modernization, Lowering Expense Ratio

Invesco seeks shareholder approval to convert QQQ to an Open-End ETF, reducing its expense ratio by 10% and enhancing structural flexibility.

Summary

• Invesco QQQ TrustSM, Series 1 is soliciting shareholder votes for a Special Shareholders Meeting on December 5, 2025.
• The primary objective is to convert QQQ from its current Unit Investment Trust (UIT) structure to an Open-End Exchange Traded Fund (ETF) structure.
• Shareholders are asked to approve three proposals: amending governing instruments, electing individual trustees to replace the existing bank trustee, and approving an investment advisory agreement with Invesco.
• If all proposals are approved, QQQ's Total Expense Ratio (TER) will decrease from 0.20% to 0.18%, representing a 10% reduction in expenses.
• The conversion will also provide enhanced structural flexibility, allowing for potential securities lending and reduced cash drag through dividend reinvestment.
• Improved fund disclosure and reporting, including semi-annual shareholder reports and summary prospectuses, are also expected.
• The change is not anticipated to be a taxable event for shareholders or QQQ, nor will it alter QQQ's investment objective, performance history, or CUSIP.
• Approval of all three proposals requires a vote of 51% of QQQ's outstanding shares FOR the reclassification proposal.

Sentiment

Score: 8

Explanation: The filing outlines clear and tangible benefits for shareholders, including lower costs and enhanced structural flexibility, without negative tax implications or changes to the fund's core investment objective. The modernization aligns QQQ with current industry standards, which is a strong positive. The only minor concern is the potential for a delay in the effective date.

Positives

• Total Expense Ratio (TER) is expected to decrease from 0.20% to 0.18%, a 10% reduction in expenses for shareholders.
• Enhanced structural flexibility will allow QQQ to potentially participate in securities lending.
• The Open-End Fund structure will enable QQQ to reduce cash drag by reinvesting dividends, rather than distributing all dividends.
• Improved fund disclosure and reporting will provide shareholders with semi-annual reports and more concise summary prospectuses.
• The proposed change will not result in a tax realization event for shareholders or the fund.
• The fund's investment objective to track the Nasdaq-100 Index, performance history, and investment risks will remain unchanged.

Risks

• There are general risks involved with investing in ETFs, including the possible loss of money.
• ETFs are subject to risks similar to those of stocks, and investments focused in a particular sector, such as technology, are subject to greater risks and market volatility.
• The effective date of the conversion (currently planned for December 8, 2025) is subject to change if the shareholder meeting is postponed or adjourned to permit further solicitation of proxies.

Future Outlook

If shareholders approve the proposals, QQQ will operate with a modernized Open-End Fund structure, leading to lower costs, enhanced operational flexibility including potential securities lending and reduced cash drag, and improved disclosure and reporting for investors. The fund will continue to track the Nasdaq-100 Index without changes to its investment objective or tax implications for shareholders.

Management Comments

• We appreciate your patience and understanding in connection with the QQQ Special Shareholders Meeting to be held on December 5, 2025.
• It has been a long and tedious process, but the solicitation will be coming to an end in early December.
• We need your assistance in voting your shares to ensure we make it to the finish line.
• Because the vote requirement to pass the proposal to convert your fund from a UIT structure to an Open-End ETF is 51% of shares outstanding and there are millions of small unvoted investors, we need you to support QQQ and all your fellow shareholders who have overwhelmingly voted FOR all proposals.
• Please take advantage of your right to vote by signing, dating and mailing your proxy card in the postage paid return envelope or following the instructions on the proxy card to vote by internet or telephone.
• If the proposals pass, there will be increased Board oversight, and shareholders will get a 10% reduction in fees.

Industry Context

The ETF industry has significantly evolved since QQQ's launch in 1999, with nearly all modern ETFs structured as Open-End Funds. Currently, fewer than 10 of the oldest ETFs in the U.S. retain the Unit Investment Trust (UIT) structure. This proposal aims to modernize QQQ's structure to align with current industry best practices and provide enhanced benefits common to contemporary ETFs.

Comparison to Industry Standards

• QQQ's current Unit Investment Trust (UIT) structure is outdated, as nearly all ETFs today are structured as Open-End Funds.
• Fewer than 10 of the oldest ETFs in the U.S. still operate as UITs, indicating QQQ's proposed conversion aligns with the prevailing industry standard.
• The proposed Open-End Fund structure will allow QQQ to potentially participate in securities lending and reinvest dividends, features common in modern ETFs that enhance efficiency and reduce cash drag.

Management Changes

Corporate Governance

Related Party Transactions

• Approval of an investment advisory agreement between QQQ and Invesco Capital Management, LLC (Invesco), where Invesco will charge QQQ a unitary fee of 0.18% for managing the fund.

Stakeholder Impact

• Shareholders: Will benefit from lower expense ratios, enhanced structural flexibility (e.g., securities lending, dividend reinvestment), improved disclosure, and no tax realization event.
• Invesco Capital Management, LLC: Will become the formal investment advisor for QQQ, charging a unitary fee for its services.
• Existing Trustee (bank): Will be replaced by a slate of individual trustees, changing its role in the fund's governance.

Next Steps

• Shareholders of record as of August 15, 2025, must vote on the three proposals via internet, mail, or telephone by December 4, 2025.
• The Special Shareholders Meeting will be held on December 5, 2025.
• If all proposals are approved, QQQ is planned to become an Open-End Fund effective as of market open on Monday, December 8, 2025.

Key Dates

Recommendation

The proposed changes are unequivocally positive for existing and potential QQQ shareholders. A 10% reduction in the expense ratio directly enhances investor returns, while the modernization to an Open-End Fund structure provides greater operational flexibility and improved governance. These structural improvements, coupled with no adverse tax implications, make QQQ a more attractive investment vehicle within its existing mandate. A seasoned investor would view these changes as a strong positive catalyst, reinforcing a 'buy' or 'strong buy' recommendation for the fund.

Keywords

Invesco QQQ, ETF, Nasdaq-100 Index, Unit Investment Trust, Open-End Fund, Expense Ratio, Shareholder Vote, Proxy Statement, Fund Modernization, Corporate Governance