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.
Momentum Style Risk:
Investing in or having exposure to securities with positive
momentum
entails investing in securities that have had
above-average recent returns. These securities may be more volatile than a broad cross-section of securities. In addition, there may be periods when the
momentum
style is out of favor, and during which the investment performance of a Fund using a
momentum
strategy may
suffer.
Small Cap Securities
Risk:
While the
Adviser
believes these investments may provide significant potential for appreciation,
they 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.
Swap Agreements Risk:
Swap agreements involve the risk that the party with whom the Fund has entered into the swap will default on its obligation to pay the Fund and the risk that the Fund will not be able to meet its obligations to pay the
other party to the agreement.
Value Style Risk:
Investing in or having exposure to “value” stocks presents the risk that the stocks may never reach what the
Adviser
believes are their full market values, either because the market fails to recognize what the
Adviser
considers to be the
companies’ true business values or because the
Adviser
misjudged those values. In addition, value stocks may fall out of favor with investors
and underperform growth stocks during given periods.
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.
A privately offered fund managed by the
Adviser
was reorganized into the Fund on August 28, 2009, the date the Fund commenced operations. This privately offered fund was organized in June 2004 and commenced operations in July 2004 and had an investment
objective, investment policies and restrictions that were, in all material respects, the same as those of the Fund. However, the privately offered fund was not registered as an investment company under the
1940
Act
. In addition, this privately offered fund was not subject to certain investment limitations, diversification requirements, liquidity requirements, and other restrictions imposed by the
1940 Act
and
the
Code
, which, if applicable, might have adversely affected its performance.
The Fund’s performance of the Class
Y Shares of the Fund for periods prior to August 28, 2009, the date the Fund commenced operations, is that of the privately offered fund. The privately offered fund’s total annual fund operating expenses during the periods presented were lower
than the Fund’s estimated total annual fund operating expenses for Class Y Shares. The Fund has restated the privately offered fund’s performance to reflect the Fund’s fees, estimated expenses and fee waivers/expense limitations of
Class Y Shares upon their initial offering.
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.