Hedging Transactions Risk:
The
Adviser
from time to time employs various hedging techniques. The success of the Fund’s hedging strategy
will be subject to the
Adviser’s
ability to correctly assess the degree of correlation between the performance of the instruments used in the
hedging strategy and the performance of the investments in the portfolio being hedged. Since the characteristics of many securities change as markets change or time passes, the success of the Fund’s hedging strategy will also be subject to the
Adviser’s
ability to continually recalculate, readjust, and execute hedges in an efficient and timely manner. For a variety of reasons, the
Adviser
may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Such imperfect
correlation may prevent the Fund from achieving the intended hedge or expose the Fund to risk of loss. In addition, it is not possible to hedge fully or perfectly against any risk, and hedging entails its own costs.
High Portfolio Turnover Risk:
To the extent that the Fund makes invesments on a shorter-term basis, the Fund may as a result trade more frequently and incur higher levels of brokerage fees and commissions, and may cause higher levels of current tax
liability to shareholders in the Fund.
Investment in Other Investment Companies
Risk:
As with other investments, investments in other investment companies, including exchange-traded funds ("ETFs"), are subject to market and selection risk. In addition, if the Fund acquires shares of investment
companies, shareholders bear both their proportionate share of expenses in the Fund (including management and advisory fees) and, indirectly, the expenses of the investment companies. The Fund may invest in money market
mutual funds
. An investment in a money market
mutual fund
is
not insured or guaranteed by a Federal Deposit Insurance Corporation or any other government agency. Although such funds seek to preserve the value of the Fund’s investment at $1.00 per share, it is possible to lose money by investing in a
money market
mutual fund
.
Leverage Risk:
As part of the Fund’s principal investment strategy, the Fund will make investments in futures contracts, forward contracts and other derivative instruments. The futures contracts, forward contracts and
certain other derivatives provide the economic effect of financial leverage by creating additional investment exposure, as well as the potential for greater loss. If the Fund uses leverage through purchasing derivative instruments, the Fund has the
risk of capital losses that exceed the net assets of the Fund. The net asset value of the Fund employing leverage will be more volatile and sensitive to market movements. Leverage may involve the creation of a liability that requires the Fund to pay
interest.
Manager Risk:
If the Fund’s portfolio managers make poor investment decisions, it will negatively affect the Fund’s investment performance.
Market Risk:
Market risk is the risk that the markets on which the Fund’s investments trade will increase or decrease in value. Prices may fluctuate widely over short or extended periods in response to company, market or
economic news. Markets also tend to move in cycles, with periods of rising and falling prices. If there is a general decline in the securities and other markets, your investment in the Fund may lose value, regardless of the individual results of the
securities and other instruments in which the Fund invests.
Mid Cap Securities Risk:
The prices of securities of mid cap companies generally are more volatile than those of large capitalization companies and are more likely to be adversely affected than large cap companies by changes in earnings results
and investor expectations or poor economic or market conditions, including those experienced during a recession.
Model and Data Risk:
Given the complexity of the investments and strategies of the Fund, the
Adviser
relies heavily on quantitative models
(both proprietary models developed by the
Adviser
, and those supplied by third parties) and information and data supplied by third parties
(“Models and Data”). Models and Data are used to construct sets of transactions and investments, to provide risk management insights, and to assist in hedging the Fund’s investments.
When Models and Data prove to be
incorrect or incomplete, any decisions made in reliance thereon expose the Fund to potential risks. Similarly, any hedging based on faulty Models and Data may prove to be unsuccessful. Some of the models used by the
Adviser
for the Fund are predictive in nature. The use of predictive models has inherent risks. Because predictive models are usually constructed based on historical data supplied by third parties, the success
of relying on such models may depend heavily on the accuracy and reliability of the supplied historical data.
All models rely on correct market data
inputs. If incorrect market data is entered into even a well-founded model, the resulting information will be incorrect. However, even if market data is input correctly, “model prices” will often differ substantially from market prices,
especially for instruments with complex characteristics, such as derivative instruments.
Small Cap Securities Risk:
Investments in the stocks of companies with smaller market capitalizations involve higher risks in some respects than do investments in stocks of larger companies. For example, prices of such stocks are often more
volatile than prices of large-capitalization stocks. In addition, due to thin trading in some such stocks, an investment in these stocks may be more illiquid (
i.e.,
harder to sell) than that of larger capitalization stocks. Smaller capitalization companies also fail more often than larger companies and may have more limited management and financial resources than larger
companies.
Volatility Risk:
The Fund may have investments that appreciate or decrease significantly in value over short periods of time. This may cause the Fund’s net asset value per share to experience significant increases or declines in
value over short periods of time.
Performance Information
The performance information below
shows summary performance information for the Fund in a bar chart and an average annual
total returns
table. The information shows you how the Fund’s performance has varied year by year and provides some
indication of the risks of investing in the Fund.
The Fund’s past performance (before
and after taxes), as provided by the bar chart and performance table that follows, is not an indication of future results.
Updated information on the Fund’s performance, including its current
NAV
per share, can be obtained by visiting http://www.aqrfunds.com.