The primary investment objective of the Fund is to seek the preservation of principal and to provide interest income reasonably obtained under prevailing market conditions and rates, consistent with seeking to maintain required liquidity.
The Fund may be appropriate for Participating Trusts and individual plan participants who seek little fluctuation in the value of their invested principal, a competitive interest rate, and a low level of overall risk.
Fund Trustee and Investment Manager
The trustee and investment manager for the Fund is Invesco Trust Company, a Texas trust company (the “Trustee” or “Investment Manager”).
The investment sub-advisor for the Fund is Invesco Advisers, Inc. Information concerning the sub-advisor can be found in its Form ADV filed with the Securities and Exchange Commission, available at www.sec.gov.
Barclays U.S. Treasury Bellwethers 3-Month Index (the "Index").
Current and prospective participating trusts are strongly encouraged to review the complete terms of the Declaration of Trust for additional details regarding the Fund and its operations. Further information regarding the Fund, including performance and portfolio holdings, can be found at www.InvescoTrustCompany.com.
The Fund is not guaranteed by Invesco, its subsidiaries or affiliates, including Invesco Advisers, Inc. The Fund is not insured by the FDIC or the Federal Reserve Bank, nor guaranteed by any governmental agency.
Principal Risks of Investing
The Fund is designed to preserve principal investment and provide a competitive level of interest income. However, when investing in a the Fund, you should consider the following risks:
Accounts of Affiliates of the Trustee. Affiliates of the Trustee and the Sub-Adviser may trade in securities at the same time as the Fund and, therefore, may potentially affect prices or available opportunities, but all accounts will be treated fairly, as required under the Sub-Adviser’s applicable trading policies.
Active Trading Risk. Active trading of portfolio securities may result in added expenses and a lower return.
Changing Fixed Income Market Conditions Risk. The current low interest rate environment was created in part by the U.S. Federal Reserve Board (“FRB”) and certain foreign central banks keeping the federal funds and equivalent foreign rates near, at or below zero. Increases in the federal funds and equivalent foreign rates may expose fixed income markets to heightened volatility and reduced liquidity for certain fixed income investments, particularly those with longer maturities. In addition, decreases in fixed income dealer market-making capacity may also potentially lead to heightened volatility and reduced liquidity in the fixed income markets. As a result, the value of the Fund’s investments and unit price may decline. Changes in central bank policies could also result in higher than normal withdrawals, which could potentially increase portfolio turnover and the Fund’s transaction costs.
Crediting Rate Risk. In some circumstances, the Fund’s yield may not reflect prevailing market interest rates. The basic function of the crediting rate formula used to determine the Fund’s yield is to amortize the gain or loss experience of the underlying portfolio over the duration of the contract, also known as “smoothing”. The formula’s components include portfolio duration, yield, market value and book value. An investment contract's crediting rate provides a fixed return for a period of time until the next rate reset. The use of the crediting rate formula and periodic reset schedule allow the portfolio’s return to track market interest rates on a lagged basis. A stable value portfolio’s yield is the weighted average of all of the investment contracts’ individual crediting rates and the yield on cash held by the stable value portfolio. It is possible that investment contract crediting rates will be reduced in the event of large withdrawals from the Fund.
Derivatives Risk. The value of a derivative instrument depends largely on (and is derived from) the value of an underlying security, currency, commodity, interest rate, index or other asset (each referred to as an underlying asset). In addition to risks relating to the un¬derlying assets, the use of derivatives may include other, possibly greater, risks, including counterparty, leverage and liquidity risks. Counterparty risk is the risk that the counterparty to the derivative contract will default on its obligation to pay the Fund the amount owed or otherwise perform under the derivative contract. Derivatives create leverage risk because they do not require payment up front equal to the economic exposure created by owning the derivative. As a result, an adverse change in the value of the underlying asset could result in the Fund sustaining a loss that is substantially greater than the amount invested in the derivative, which may make the Fund’s returns more volatile and increase the risk of loss. Derivative instruments may also be less liquid than more traditional investments and the Fund may be unable to sell or close out its derivative positions at a desirable time or price. This risk may be more acute under adverse market conditions, during which the Fund may be most in need of liquidating its derivative positions. Derivatives may also be harder to value and subject to changing government regulation that could impact the Fund’s ability to use certain derivatives or their cost. Also, derivatives used for hedging or to gain or limit exposure to a particular market segment may not provide the expected benefits, particularly during adverse market conditions.
Management Risk. The Fund is actively managed and depends heavily on the Investment Manager and Sub-Adviser’s judgment about markets, interest rates or the attractiveness, relative values, liquidity, or potential appreciation of particular investments made for the Fund’s portfolio. The Fund could experience losses if these judgments prove to be incorrect. Additionally, legislative, regulatory, or tax developments may adversely affect management of the Fund and, therefore, the ability of the Fund to achieve its investment objective.
Market Risk. The market values of the Fund’s investments, and therefore the value of the Fund’s units, will go up and down, sometimes rapidly or unpredictably. Market risk may affect a single issuer, industry or section of the economy, or it may affect the market as a whole. Individual bond prices tend to go up and down less dramatically than those of certain other types of investments, such as stocks. During a general downturn in the financial markets, multiple asset classes may decline in value. When markets perform well, there can be no assurance that specific investments held by the Fund will rise in value.
General Investment Risk. The business of the Fund is to invest in securities, including primarily U.S. fixed income securities, and to utilize certain investment techniques that involve various risks. The prices of Fund investments may be volatile and market movements are difficult to predict. In addition, the amount and timing of purchases and withdrawals may a have a negative impact on the Fund’s return. While the Investment Manager seeks to mitigate investment risks, there can be no assurance that individual plan participants or the participating trust will not incur losses. Individual plan participants should not subscribe to or invest in the Fund unless they can readily bear the consequences of such loss.
Wrap Contract Risk. Although the investment contracts are intended to reduce the vol¬atility of investing in fixed-income securities, the use of the investment contracts has its own risks. These risks include:
- The possibility of default by or deterioration in the creditworthiness of the investment contract provider;
- The possibility that the investment contract will no longer provide book value coverage as a result of a breach of the contract’s terms or the occurrence of certain events affecting a plan or its sponsor;
- The fact that costs incurred by the Fund to purchase the investment contracts will reduce the Fund’s return, possibly preventing the Fund from performing as well as other high quality fixed-income funds of comparable duration;
- The possibility that the Investment Manager will be unable to replace an investment contract, in the event that it is terminated, with an agreement having at least as favorable terms and/or costs;
- The risk that securities owned in the Fund may become impaired under the investment contracts and have to be sold or marked to market at a time when the securities’ value is especially low, thereby reducing the market value of the Fund;
- The risk that the Fund’s market value performance has a negative impact on the Fund’s crediting rate or the ratio between the market value and book value of the Fund portfolio such that the contract issuer may exercise certain rights to terminate the contract or direct the management of the Fund’s investments, which could materially impact the Fund’s performance; and
- The risk that greater use of separate account investment contracts creates greater exposure to the insurance companies issuing those contracts.
No Registration with the CFTC. Since the Fund may purchase, sell or trade exchange-traded futures contracts, options thereon, and other commodity interests, the Fund may be viewed as subject to regulation as a commodity pool under the U.S. Commodity Exchange Act and the rules of the CFTC. However, pursuant to CFTC Rule 4.5, the Trustee is exempt from having to register as a commodity pool operator with respect to the Fund. The Trustee has filed an exemption notice to effect the exemption and will comply with the requirements thereof. As a result, the Trustee, unlike a registered commodity pool operator, is not required to deliver a disclosure document or certified annual report to participating trusts. Nevertheless, all participating trusts will receive a copy of the Declaration of Trust as well as an annual report for the Fund. The Sub-Adviser, a registered commodity trading advisor under CFTC regulation, will provide commodity interest trading advice to the Fund as if it were exempt from registration as a commodity trading advisor with respect to the Fund pursuant to CFTC Regulation 4.14(a)(8)(i)(B).
Not FDIC Insured Risk. The investment is not a deposit or obligation of, or guaranteed or endorsed by, any bank and is not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other U.S. governmental agency.
No Registration Under U.S. Federal or State Securities Laws. The Fund will not be registered with the SEC as an investment company under the Investment Company Act of 1940 (the “Investment Company Act”) in reliance upon an exemption from the Investment Company Act; therefore, the provisions of the Investment Company Act applicable to registered investment companies (i.e., mutual funds) are not applicable to the Fund. Units of the Fund are exempt from registration under U.S. federal securities laws and, accordingly, this Fund Description does not contain information that would otherwise be included if registration were required. Similar reliance has been placed on exemptions from securities registration and qualification requirements under applicable state securities laws. No assurance can be given that the offering currently qualifies or will continue to qualify under one or more exemptions due to, among other things, the manner of distribution, the existence of similar offerings in the past or in the future, or the retroactive change of any securities laws or regulation.
Debt Securities Risk. The prices of debt securities held by the Fund will be affected by changes in interest rates, the creditworthiness of the issuer and other factors. An increase in prevailing interest rates typically causes the value of existing debt securities to fall and often has a greater impact on longer-duration debt securities and higher quality debt securities. Falling interest rates will cause the Fund to reinvest the proceeds of debt securities that have been repaid by the issuer at lower interest rates. Falling interest rates may also reduce the Fund’s distributable income because interest payments on floating rate debt instruments held by the Fund will decline. The Fund could lose money on investments in debt securities if the issuer or borrower fails to meet its obligations to make interest payments and/or to repay principal in a timely manner. Changes in an issuer's financial strength, the market’s perception of such strength or in the credit rating of the issuer or the security may affect the value of debt securities. The Investment Manager or Sub-Adviser’s credit analysis may fail to anticipate such changes, which could result in buying a debt security at an inopportune time or failing to sell a debt security in advance of a price decline or other credit event.
Dollar Roll Transactions Risk. Dollar roll transactions occur in connection with TBA transactions and involve the risk that the market value of the securities the Fund is required to purchase may decline below the agreed upon purchase price of those securities. Dollar roll transactions add a form of leverage to the Fund’s portfolio, which may make the Fund’s returns more volatile and increase the risk of loss. In addition, dollar roll transactions may increase the Fund’s portfolio turnover, which may result in increased brokerage costs and may lower the Fund’s actual return.
Foreign Government Debt Risk. Investments in foreign government debt obligations (sometimes referred to as sovereign debt securities) involve certain risks in addition to those relating to foreign securities or debt securities generally. The issuer of the debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due in accordance with the terms of such debt, and the Fund may have limited recourse in the event of a default against the defaulting government. Without the approval of debt holders, some governmental debtors have in the past been able to reschedule or restructure their debt payments or declare moratoria on payments.
Foreign Securities and Credit Exposure Risk. U.S. dollar-denominated securities carrying foreign credit exposure may be affected by unfavorable political, economic or governmental developments that could affect payments of principal and interest. Furthermore, the Fund’s foreign investments may be adversely affected by political and social instability, changes in economic or taxation policies, difficulty in enforcing obligations, decreased liquidity or increased volatility. Foreign investments also involve the risk of the possible seizure, nationalization or expropriation of the issuer or foreign deposits (in which the Fund could lose its entire investments in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls.
Long-Term Investment. An investment in the Fund is suitable for long-term investors. Accordingly, the Fund should not be viewed as a short-term investment vehicle. Moreover, an investment in the Fund is not intended to provide a complete or balanced investment program. In addition, the Fund may be unable to easily convert its investments on a timely basis, without substantial reductions in the prices for which they were obtained, into cash or other more liquid assets to meet withdrawal requests.
Mortgage- and Asset-Backed Securities Risk. Mortgage- and asset-backed securities, including collateralized debt obligations and collateralized mortgage obligations, are subject to prepayment or call risk, which is the risk that a borrower’s payments may be received earlier or later than expected due to changes in prepayment rates on underlying loans. This could result in the Fund reinvesting these early payments at lower interest rates, thereby reducing the Fund’s income. Mortgage- and asset-backed securities also are subject to extension risk, which is the risk that an unexpected rise in interest rates could reduce the rate of prepayments, causing the price of the mortgage- and asset-backed securities and the Fund’s share price to fall. An unexpectedly high rate of defaults on the mortgages held by a mortgage pool may adversely affect the value of mortgage-backed securities and could result in losses to the Fund. Privately issued mortgage-related securities are not subject to the same underwriting requirements as those with government or government-sponsored entity guarantees and, therefore, mortgage loans underlying privately issued mortgage-related securities may have less favorable collateral, credit risk or other underwriting characteristics, and wider variances in interest rate, term, size, purpose and borrower characteristics.
Multimanager Risk. Managers’ individual investing styles may not complement each other. This can result in both higher portfolio turnover and enhanced or reduced concentration in a particular region, country, industry, or investing style compared with an investment with a single manager.
Municipal Securities Risk. The risk of a municipal obligation generally depends on the financial and credit status of the issuer. Constitutional amendments, legislative enactments, executive orders, administrative regulations, voter initiatives, and the issuer’s regional economic conditions may affect the municipal security’s value, interest payments, repayment of principal and the Fund’s ability to sell the security. Failure of a municipal security issuer to comply with applicable tax requirements may make interest paid thereon taxable, resulting in a decline in the security’s value. In addition, there could be changes in applicable tax laws or tax treatments that reduce or eliminate the current federal income tax exemption on municipal securities or otherwise adversely affect the current federal or state tax status of municipal securities.
Risks Associated with Investing in an Investment Vehicle. The Fund may itself invest in a commingled investment vehicle or similar pooled investment fund. When it does so, the Fund is subject to the underlying risk of that investment vehicle’s portfolio securities.
Stable Value Credit Risk. The Fund will invest in fixed income securities, the repayment of which is dependent upon the financial strength of the issuer. There is a possibility that the issuers of these securities will be unable to meet the interest payments or repay the principal. This will reduce the return on the fixed income portfolio and in turn reduce the Fund’s crediting rate. The investment contracts do not cover defaults on fixed income securities in the portfolio, yet substantial defaults could cause the Fund’s crediting rate to fall below the 0% minimum stated in the investment contracts, meaning that participating trust or individual plan participants seeking to withdraw their units would not receive back the full amount paid for them. Credit risk is managed through credit research on individual securities conducted by the Sub-Adviser’s credit research group and through broad diversification in the holdings of the portfolio.
TBA Transactions Risk. TBA (“to be announced”) transactions are transactions in which the Fund buys or sells mortgage-backed securities on a forward commitment basis. They involve the risk of loss if the securities received are less favorable than what was anticipated by the Fund when entering into the TBA transaction, or if the counter-party fails to deliver the securities. The Fund cannot enter into a short sale of a TBA mortgage unless the Fund owns sufficient agency residential mortgage-backed securities deliverable into the short TBA position.
U.S. Government Obligations Risk. Obligations of U.S. Government agencies and authorities receive varying levels of support and may not be backed by the full faith and credit of the U.S. Government, which could affect the Fund’s ability to recover should they default. No assurance can be given that the U.S. Government will provide financial support to its agencies and authorities if it is not obligated by law to do so.
When Issued, Delayed Delivery and Forward Commitment Risks. When-issued and delayed delivery transactions subject the Fund to market risk because the value or yield of a security at delivery may be more or less than the purchase price or yield generally available when delivery occurs, and counterparty risk because the Fund relies on the buyer or seller, as the case may be, to consummate the transaction. These transactions also have a leveraging effect on the Fund because the Fund commits to purchase securities that it does not have to pay for until a later date, which increases the Fund’s overall investment exposure and, as a result, its volatility.
Zero Coupon or Pay-in-Kind Securities Risk. The value, interest rates, and liquidity of non-cash paying instruments, such as zero coupon and pay-in-kind securities, are subject to greater fluctuation than other types of securities. The higher yields and interest rates on pay-in-kind securities reflect the payment deferral and increased credit risk associated with such instruments and that such investments may represent a higher credit risk than loans that periodically pay interest.