Collective investment trusts

Unlike mutual funds, CITs are exempt from the SEC investment company registration requirements. Therefore, CITs aren’t subject to the same fund registration fees and expenses as mutual funds, such as the requirement to produce a prospectus. They don’t charge 12b-1 fees or any fees in connection to the purchase or sale of units of funds. 

To qualify for this exemption, CITs are only available as investment vehicles within a qualified retirement plan, such as a 401(k) plan or pension plan. Since they aren’t available to the general public, they aren’t advertised. 

Because CIT investors are all institutional retirement plans, CITs generally keep much lower cash balances than retail mutual funds since retirement plan participants usually leave their money where it is longer and tolerate market fluctuations better than retail investors. At the same time, retirement plan cash flows tend to be rather predictable, mainly consisting of regularly scheduled contributions, withdrawals, and rebalance activity.

This predictability allows CIT portfolio managers to reduce cash flow volatility because they don’t have to raise cash to meet redemptions as often and can typically predict their cash flow needs in advance. Since cash balances are generally very low, more of an investor's contributions remain fully invested in the market rather than diluting performance by remaining as uninvested cash in a CIT. 

There is no prospectus or statement of additional information for Invesco’s CITs. Instead, the offering document for them is the declaration of trust, which contains a description of each fund and the provisions governing its operation. Each investing plan executes a standard participation agreement prior to investing, in which the plan represents that it’s eligible to invest in the CIT. The participation agreement also contains the fee schedule for the plan's fund investments.

The key difference between CITs and mutual funds is that CITs are exempt from the investment company registration requirements of the Investment Company Act of 1940 and the securities registration requirements of the Securities Act of 1933. These exemptions are available because collective investment trusts are not available to the general public. They can only be offered by a bank to certain qualified employee retirement plans. The reasoning is that qualified plans do not require the protection of registration because individual investors/plan participants are already protected through other fiduciaries. In addition to the trustee for the collective investment trusts, who acts as fiduciary for all fund investors, individual plan participants investing in the funds are also protected by an independent plan fiduciary, usually the plan sponsor. 

Since CITs are not registered investment companies (mutual funds), they don’t produce a prospectus. Instead, a CIT's governing document is its declaration of trust. Each plan sponsor receives a copy of the declaration of trust upon their initial investment into an Invesco CIT. 

Fund operating expenses, such as audit, custody, fund accounting, and transfer agency fees, are accrued and deducted daily from the total fund assets prior to striking the daily net asset value (NAV) for the fund and prior to calculating performance. Fund operating expenses are expressed as a ratio of total assets. The most recent audited expense ratios for Invesco’s CITs can be found in the annual reports. Quarterly unaudited expense ratios can be found on the fund fact sheets. The expenses on the funds are generally lower than those for mutual funds and decrease as fund assets grow.

One of the more well-known features of CITs is their ability to charge negotiable fees to their clients. Invesco’s CITs offer this type of pricing flexibility for most funds in Class A/C/T shares of a given fund. Additionally, Invesco’s CITs offer defined contribution-friendly, net of management fee pricing, with no revenue sharing or sub-transfer agent fees.

CITs are exempt from taxation under IRS Revenue Ruling 2011-1 since they can only be purchased by specific qualified retirement plans such as 401(k) and defined benefit plans.

Because CITs are only available as retirement plan investments, they don’t pay out dividends or capital gains. All income and earnings from the sale of securities are reinvested back into the fund with a resulting increase/decrease in share price. In other words, any profit or loss to the fund is reflected in the daily share price. The exception to this is stable value funds. To maintain a daily share price of $1 per share, all dividends for these funds accrue daily and are reinvested back into investor accounts on the last business day of each month as dividends.

Invesco’s CIT Class A/C/T share class investments represent our flexible pricing product offerings, where each investing plan can have its own custom fee schedule. For this reason, net asset values (NAVs) and performance for Class A/C/T shares of any Invesco CIT are calculated differently from those of mutual funds.

Since management fees vary for each plan, they must be charged outside the daily NAV. Therefore, the NAV of a Class A/C/T CIT does not reflect the deduction of investment management fees, although it does include fund expenses.

Returns for Class A/C/T shares are calculated using gross of fees or standard net of fees. Gross of fee fund performance is calculated before the deduction of management fees but after the deduction of fund operating expenses. Standard net of fee fund performance is calculated after the deduction of fund operating expenses and the standard investment management fee applicable to the fund. Individual plan performance will vary depending on the timing of contributions and withdrawals and the plan’s fee schedule. The monthly adjusted returns are compounded and then annualized to compute the long-term returns.

Net of fee returns, as provided by Invesco Trust Company for a fund’s Class A/C/T shares, are net of our standard management fee, which may not be the actual fee paid by the plan. The actual management fee varies for each plan based on the fee negotiated with the plan. This negotiated fee can fluctuate daily based on the various asset level breakpoints reached once the daily fee accrual is calculated for each plan.

However, any share class other than Class A/C/T within Invesco CITs has a fixed management fee. Therefore, the daily NAVs and net performance reflect the deduction of management fees for that class of shares for all investors.