DEFA14A: Invesco QQQ Seeks Modernization, Lower Fees

Invesco QQQ Trust proposes a structural change from a Unit Investment Trust to an Open-End Fund, aiming to lower fees and enhance flexibility.

Summary

• Shareholders are asked to approve three proposals to reclassify Invesco QQQ Trust from a Unit Investment Trust (UIT) to an Open-End Management Investment Company.
• The proposals include amending governing instruments, electing nine individual trustees to replace the current bank trustee, and approving an investment advisory agreement with Invesco Capital Management LLC.
• All three proposals must be approved for the changes to take effect.
• If approved, the Total Expense Ratio (TER) is expected to decrease from 0.20% to 0.18%, representing a 10% reduction in expenses and an estimated annual saving of $70 million for shareholders.
• The conversion will provide enhanced structural flexibility, allowing for potential securities lending and dividend reinvestment to reduce cash drag.
• Improved fund disclosure and reporting will include semi-annual shareholder reports and more concise summary prospectuses.
• The investment objective, tracking the Nasdaq-100 Index, performance history, buying/selling process, investment exposures, risks, and CUSIP will not change.
• The change is not expected to be a taxable event for shareholders or the Trust.
• The Special Meeting of Shareholders was adjourned and rescheduled for December 5, 2025, due to a lack of shareholder participation.

Sentiment

Score: 8

Explanation: The filing outlines significant positive changes for shareholders, including lower fees, enhanced flexibility, and improved transparency. While there was a delay in the shareholder meeting, the overall sentiment is strongly positive due to the clear benefits if the proposals pass.

Positives

• Total Expense Ratio (TER) will decrease from 0.20% to 0.18%, a 10% reduction in expenses.
• Estimated annual savings of $70 million for shareholders due to lower fees.
• Enhanced structural flexibility, including potential for securities lending.
• Ability to reduce cash drag by reinvesting dividends.
• Improved fund disclosure with semi-annual reports and summary prospectuses.
• No anticipated tax realization event for shareholders or the Trust.
• No change to QQQ's investment objective, performance history, or investment risks.

Negatives

• The Special Meeting of Shareholders was adjourned due to a lack of shareholder participation, indicating potential difficulty in securing the necessary votes.
• The proposed conversion will not occur unless all three proposals are approved, creating a dependency risk.

Risks

• Failure to obtain sufficient shareholder votes (51% of outstanding shares for Proposal 1) could prevent the modernization and associated benefits.
• The effective date of the change (December 8, 2025) is subject to change if the meeting is postponed or adjourned further.

Future Outlook

If shareholders approve all three proposals, Invesco QQQ Trust is expected to transition from a Unit Investment Trust to an Open-End Fund, effective December 8, 2025, leading to lower costs, enhanced structural flexibility, and improved disclosure. The fund will continue to track the Nasdaq-100 Index without changes to its investment objective or tax implications for shareholders.

Management Comments

• Invesco recommends that you vote FOR all three of the proposals.
• Every vote is important – this means your vote too. If shareholders fail to vote their proxies, the Trust may not receive enough votes to go forward with the December 5, 2025 shareholder meeting.
• Invesco believes these changes are in shareholders best interests.
• We are pleased to report we have seen strong shareholder participation and momentum in the proposals for the Special Shareholder Meeting for Invesco QQQ Trust, Series 1 (the Meeting), and votes cast are overwhelmingly in favor of the proposals.
• We are getting close to the needed vote totals, but to allow for additional time to get the vote, the Meeting has been adjourned until December 5, 2025 at 9:00 a.m. Central Time. This adjournment is typical for proposals like this, and your vote can help get these beneficial proposals across the finish line.

Industry Context

The proposed reclassification of Invesco QQQ from a Unit Investment Trust (UIT) to an Open-End Fund reflects a broader industry trend. While the UIT structure was common in the early days of ETFs (QQQ launched in 1999), nearly all modern ETFs are structured as Open-End Funds. This move aligns QQQ with contemporary industry standards, offering greater operational flexibility and cost efficiencies that have become expected in the competitive ETF landscape.

Comparison to Industry Standards

• QQQ's current UIT structure is outdated, with fewer than 10 ETFs in the US still operating under this model, compared to the vast majority structured as Open-End Funds.
• The proposed expense ratio of 0.18% for QQQ, while a reduction from 0.20%, should be compared to other large-cap growth or Nasdaq-100 tracking ETFs. For example, the Invesco Nasdaq 100 ETF (QQQM) already has an expense ratio of 0.15%, which is lower than the proposed QQQ fee.
• The enhanced structural flexibility, including securities lending and dividend reinvestment, brings QQQ in line with capabilities commonly found in modern open-end ETFs, allowing for better cash management and potential incremental returns.

Management Changes

Corporate Governance

Related Party Transactions

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

Stakeholder Impact

• Shareholders: Expected to benefit from lower costs (0.20% to 0.18% TER), enhanced structural flexibility (securities lending, dividend reinvestment), and improved disclosure (semi-annual reports, summary prospectuses). No tax realization event.
• Invesco Capital Management LLC: Will become the formal investment advisor, charging a unitary fee of 0.18%.
• Existing Trustee (Bank): Will be replaced by individual trustees.

Next Steps

• Shareholders to vote on three proposals via internet, phone, mail, or in-person.
• Proxy solicitor (Sodali & Co. Fund Solutions) will continue to contact shareholders to encourage voting.
• Special Meeting of Shareholders to be held on December 5, 2025.
• If all proposals are approved, QQQ will become an Open-End Fund effective December 8, 2025.

Key Dates

Recommendation

The proposed changes for Invesco QQQ Trust are overwhelmingly positive for shareholders, offering a clear reduction in the expense ratio from 0.20% to 0.18%, which translates to significant annual savings. The modernization to an Open-End Fund structure provides enhanced operational flexibility, including securities lending and dividend reinvestment, which can further benefit returns and reduce cash drag. These improvements align QQQ with current industry best practices for ETFs, making it a more competitive and efficient investment vehicle. While there was a delay in the shareholder vote, the benefits are substantial and directly improve shareholder value without altering the core investment strategy or creating a taxable event. This strategic enhancement makes QQQ a more attractive long-term holding.

Keywords

Invesco QQQ, ETF, Nasdaq-100 Index, Unit Investment Trust, Open-End Fund, Expense Ratio, Shareholder Meeting, Proxy Vote, Investment Company Act of 1940, Securities Lending, Dividend Reinvestment, Fund Modernization