SEC Company Response from AQR Funds (CIK 0001444822) — Aug 11, 2022
AQR Funds (CIK 0001444822)
Date: Aug. 11, 2022 · CIK: 0001444822 · Accession: 0001193125-22-218722
AI Filing Summary & Sentiment
File numbers found in text: 333-153445
Letter
VIA EDGAR Ms. Samantha Brutlag Securities and Exchange Commission 100 F Street, N.E. Washington, DC 20549
Dear Ms. Brutlag:
On behalf of the AQR Managed Futures Strategy Fund and AQR Managed Futures Strategy HV Fund (each, a “Fund” and together, the “Funds”), each a series of AQR Funds (the “Trust”), we transmit for filing the Funds’ responses to the telephonic comments provided by you on behalf of the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) on Monday, July 18, 2022, regarding Post-Effective Amendment No. 144 to the Trust’s Registration Statement on Form N-1A (the “Registration Statement”) filed with the Commission on June 3, 2022, the effectiveness of which was delayed until August 19, 2022 by Post-Effective Amendment No. 145 to the Registration Statement filed with the Commission on July 29, 2022. The Staff’s comments are described below and have been summarized to the best of our understanding. We have discussed the Staff’s comments with representatives of the Funds. The Funds’ responses to the Staff’s comments are set out immediately under the restated comment. Unless otherwise indicated, defined terms used herein have the meanings set out in the Registration Statement.
Comment 1
Please file a redline with all future filings. Please send a redline via email to the Staff as well.
Response
The Funds will file a redline with all future filings to the extent the redline can be filed confidentially and will send a redline to the Staff via email.
Comment 2
Principal Investment Strategies. It appears that investing in equities and common stock is new to the Funds’ strategies, please specify capitalization ranges and add capitalization risk, if needed.
Response
The Funds have invested in derivatives that provide exposure to equities, including common stock, since their respective inception dates. The Funds’
BEIJING BRUSSELS HONG KONG HOUSTON LONDON LOS ANGELES NEW YORK PALO ALTO SÃO PAULO TOKYO
Simpson Thacher & Bartlett LLP
Ms. Samantha Brutlag
- -
Securities and Exchange Commission
August 11, 2022
equity exposures, which are only a subset of each Fund’s overall portfolio, are not limited by market capitalization. Each Fund has added disclosure to its prospectus indicating that it may have exposure to equity securities of companies of any market capitalization. The SAI identifies “Mid-Cap Securities Risk” on page 33 of the Statement of Additional Information (“SAI”) and “Small-Cap Securities Risk” on page 37 of the SAI as being potential risks of investing in each Fund. Given each Fund’s exposure to investments in multiple asset classes, and the fact that these categories of equity securities are a subset within the equities asset class, neither Fund deems it necessary to add either risk factor to its Summary Prospectus.
Comment 3
Principal Risks of Investing in the Fund. Please add a volatility futures risk. Please explain what volatility futures are in the risk factor.
Response
Each Fund has added disclosure on the risks of volatility futures to the Risk Factors section in its Summary Prospectuses.
Comment 4
Virtual Currency Futures. Please remove references to all virtual currency futures other than bitcoin futures. The Staff expects that the Funds’ exposure to bitcoin will be limited to futures that trade on a U.S.-registered exchange. Please revise the Funds’ disclosure to clarify that the bitcoin futures referenced are limited to those traded on the Chicago Mercantile Exchange (“CME”). Please supplementally inform the Staff how much exposure the Funds expect to seek in CME bitcoin futures.
Response
The Funds have updated all references from “virtual currency” futures or derivatives to “bitcoin futures.” The Funds have also added disclosure to their SAI that the bitcoin futures references are limited to those traded on the CME. Given the various futures exposures for each Fund, bitcoin will only be one out of many reference assets underlying the futures contracts in which each Fund invests. However, the Funds do not have a set exposure limit in bitcoin futures nor are they seeking to provide specific amounts of bitcoin futures exposure. The amount of bitcoin exposure each Fund has will depend on a variety of market and other factors, and may be long or short depending on market conditions. Each Fund confirms that it will not concentrate in bitcoin within the meaning of the 1940 Act.
Comment 5
Please supplementally inform the Staff whether the Funds have a plan to limit their size to ensure that they can meet liquidity demands or that they do not plan to become so large as to require more liquidity to meet potential redemptions than the market can provide, given that market liquidity and capacity constraints based on CME-imposed position limits remain an area of focus for the Staff.
Response
Each Fund does not currently anticipate that the liquidity of bitcoin futures contracts will have a negative impact on the ability of the Fund to achieve its investment objective or meet redemption requests. Like other futures contracts that the Funds invest in, investing in bitcoin futures carries certain risks that could impact the Funds’ ability to meet redemption requests.
Simpson Thacher & Bartlett LLP
Ms. Samantha Brutlag
- -
Securities and Exchange Commission
August 11, 2022
However, the Fund already has policies in place to seek to ensure that liquidity demands can be met.
Comment 6
Please address in the Summary Prospectus the impact of high margins on bitcoin futures contracts on the Funds’ ability to achieve their targeted exposure.
Response
The Funds direct the Staff’s attention to the “Bitcoin Futures Risk” on pages 7 and 15 of each Funds’ Summary Prospectus and the paragraph that states:
The initial margin for bitcoin futures are set by the exchange as a percentage of the value of the contract and may be up to 100% of the value of the contract. Futures commission merchants (“FCMs”) may also impose margin rates that are higher than those imposed by the exchanges, once again up to 100% of the value of the contract. The volatility in the prices of the underlying virtual currency therefore can lead to significant and sudden increases in margin requirements. Further, FCMs may restrict trading in virtual currency derivatives and the exchanges on which the bitcoin futures are traded may, with little or no warning, impose trading halts. Any such restrictions or halts would restrict the Adviser’s ability to exit a bitcoin futures position during a period of increased volatility.
Comment 7
Please discuss in the Summary Prospectus the impact of CME position limits and accountability levels of bitcoin futures contracts on the Funds’ ability to pursue their investment strategies and any implications for the Funds’ ability to meet the requirements of the Investment Company Act of 1940, as amended (the “1940 Act”), and the rules promulgated thereunder.
Response
The Funds do not believe the CME position limits or accountability levels of bitcoin futures contracts will have any unique implications for the Fund’s ability to pursue its investment strategies or to meet the requirements of the 1940 Act and the rules thereunder. The Funds already include disclosure on the risks of speculative position limits in the Statutory Prospectus and SAI.
Comment 8
Please disclose any unique rollover risks associated with bitcoin futures and include such disclosure in the Summary Prospectus.
Response
The Funds believe that rollover risks are not unique to bitcoin futures contracts and that such risks are consistent with the rollover risks of other commodities futures contracts, for example. As a cash-settled instrument, in the unlikely event that the Fund is unable to roll over held contracts the fund can hold the contract to expiry. The Funds’ SAI has been updated to discuss rollover risks in greater detail.
Comment 9
Please discuss in the Summary Prospectus the potential differences between returns based on the price of bitcoin versus bitcoin futures. For example, please discuss potential differences due to divergence in prices or potential costs associated with futures investing, if applicable.
Simpson Thacher & Bartlett LLP
Ms. Samantha Brutlag
- -
Securities and Exchange Commission
August 11, 2022
Response
The Funds have added the following language to the “Bitcoin Futures Risk” on pages 7 and 15 of each Funds’ Summary Prospectus:
The price of bitcoin futures contracts is based on a number of factors, including the supply of and the demand for bitcoin futures contracts. Market conditions and expectations, position limits, collateral requirements, and other factors each can impact the supply of and demand for bitcoin futures contracts. Typically, demand paired with supply constraints and other factors have caused bitcoin futures to trade at a premium to a “spot” price of bitcoin. Additional demand, including demand resulting from the purchase, or anticipated purchase, of futures contracts by the Fund or other entities may increase that premium, perhaps significantly. It is not possible to predict whether or how long such conditions will continue. To the extent the Fund sells futures contracts at a premium and the premium increases, the value of an investment in the Fund also should be expected to decline.
Comment 10
Long Bitcoin Futures. Please describe how you would expect the Funds to perform during significant market downturns, such as those occurring on May 19, 2021 and September 7, 2021. Please also describe the impact on the Funds’ operations.
Response
The Funds’ operations during significant market downturns, such as those occurring on May 19, 2021 and September 7, 2021, would be minimally impacted. The volatility the Funds currently intend to allocate to bitcoin futures positions is minimal in the context of the volatility in the Funds’ entire portfolios. This leads the impact of significant market downturns in any one reference asset to tend to be small on the Funds as a whole.
Comment 11
Short Bitcoin Futures. Please describe how you would expect the Funds to perform during significant daily upturns in the price of bitcoin and bitcoin futures such as October 15, 2019. Please also describe the impact on the Funds’ operations.
Response
The Funds’ operations during significant market downturns, such as those occurring on October 15, 2019, would be minimally impacted. The volatility the Funds currently intend to allocate to bitcoin futures positions is very minimal in the context of the volatility in the Funds’ entire portfolios. This leads the impact of significant market upturns in any one reference asset to tend to be small on the Funds as a whole.
Comment 12
Please explain the Funds’ strategies with respect to the rollover of bitcoin futures contracts, including contract month, that the Funds plan to invest in and generally how and when the Funds expect to roll the contract. If the Funds cannot provide disclosure, please supplementally explain.
Response
The Funds’ direct the Staff’s attention to page 39 of the SAI, the second paragraph under “Bitcoin Futures,” which states:
Simpson Thacher & Bartlett LLP
Ms. Samantha Brutlag
- -
Securities and Exchange Commission
August 11, 2022
The market for bitcoin futures may be less developed, and potentially less liquid and more volatile, than more established futures markets. Exchange-specified collateral for bitcoin futures is substantially higher than for most other futures contracts, and collateral may be set as a percentage of the value of the contract, which means that collateral requirements for long positions can increase if the price of the contract rises. While the bitcoin futures market has grown substantially since the futures commenced trading, there can be no assurance that it will continue to grow. This may increase the chance that a Fund will experience increased trading costs when it sells bitcoin futures that are near expiration and purchases bitcoin futures that are further from expiration (a process known as “rolling”).
Comment 13
Please ensure that all of the following elements are included in the Funds’ bitcoin risk disclosure:
• Volatility and potential for loss
• Lack of regulation of the underlying market
• 51% attack
• Bitcoin Whales potential for concentrated ownership
• Impact of forks
• Theft and hacking
Response
The Funds believe that the current disclosure currently addresses volatility and potential for loss and lack of regulation of the underlying market in the “Bitcoin Futures Risk.” The Funds have added the following paragraph to the risk factor in the Statutory Prospectus to address the additional elements:
Bitcoin is a relatively new financial innovation and the market for bitcoin futures is subject to rapid price swings, changes and uncertainty. The further development of the network involved in maintaining the ledger of bitcoin ownership and the acceptance and use of bitcoin are subject to a variety of factors that are difficult to evaluate. The slowing, stopping or reversing of the development of the Bitcoin Network or the acceptance of bitcoin may adversely affect the price of bitcoin. The Bitcoin Network is a peer-to-peer payment network that operates on a cryptographic protocol. Bitcoin is subject to the risk of fraud, theft, manipulation or security failures, operational or other problems that impact bitcoin trading venues. Specifically, the nature of the assets held at bitcoin trading venues make them appealing targets for hackers and a number of bitcoin trading venues have been victims of cybercrimes and other fraudulent activity. Additionally, if one or a coordinated group of miners were to gain control of 51% of the Bitcoin Network, they would have the ability to manipulate transactions, halt payments and fraudulently obtain bitcoin. A significant portion of bitcoin is held by a small number of
Simpson Thacher & Bartlett LLP
Ms. Samantha Brutlag
- -
Securities and Exchange Commission
August 11, 2022
holders sometimes referred to as “whales”. These holders have the ability to manipulate the price of bitcoin. Unlike the exchanges for more traditional assets, such as equity securities and futures contracts, bitcoin and bitcoin trading venues are largely unregulated. As a result of the lack of regulation, individuals or groups may engage in fraud or market manipulation and investors may be more exposed to the risk of theft, fraud and market manipulation than when investing in more traditional asset classes. Legal or regulatory changes may negatively impact the operation of the Bitcoin Network or restrict the use of bitcoin. The realization of any of these risks could result in a decline in the acceptance of bitcoin and consequently a reduction in the value of bitcoin, bitcoin futures, and the Fund. Finally, the creation of a “fork” may result in significant and unexpected declines in the value of bitcoin, bitcoin futures, and the Fund. A fork occurs when some users and miners adopt a change while others do not and that change is not compatible with the existing software. This results in the creation of new separate digital assets. Forks can adversely affect the price and liquidity of bitcoin, and therefore, the value of an investment in the Fund.
Comment 14
Please supplementally discuss how the Fund would value its bitcoin futures positions if the CME halted the trading of bitcoin futures due to price limits or otherwise.
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CORRESP 1 filename1.htm AQR Funds Simpson Thacher & Bartlett LLP 900 G STREET, NW WASHINGTON, D.C. 20001 TELEPHONE: FACSIMILE: +1-202-636-5502 Direct Dial Number +1-202-636-5806 E-mail Address ryan.brizek@stblaw.com VIA EDGAR August 11, 2022 Re: AQR Funds Securities Act File No. 333-153445 Investment Company Act File No. 81-22235 Post-Effective Amendment No. 144 Ms. Samantha Brutlag Securities and Exchange Commission 100 F Street, N.E. Washington, DC 20549 Dear Ms. Brutlag: On behalf of the AQR Managed Futures Strategy Fund and AQR Managed Futures Strategy HV Fund (each, a “Fund” and together, the “Funds”), each a series of AQR Funds (the “Trust”), we transmit for filing the Funds’ responses to the telephonic comments provided by you on behalf of the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) on Monday, July 18, 2022, regarding Post-Effective Amendment No. 144 to the Trust’s Registration Statement on Form N-1A (the “Registration Statement”) filed with the Commission on June 3, 2022, the effectiveness of which was delayed until August 19, 2022 by Post-Effective Amendment No. 145 to the Registration Statement filed with the Commission on July 29, 2022. The Staff’s comments are described below and have been summarized to the best of our understanding. We have discussed the Staff’s comments with representatives of the Funds. The Funds’ responses to the Staff’s comments are set out immediately under the restated comment. Unless otherwise indicated, defined terms used herein have the meanings set out in the Registration Statement. Comment 1 Please file a redline with all future filings. Please send a redline via email to the Staff as well. Response The Funds will file a redline with all future filings to the extent the redline can be filed confidentially and will send a redline to the Staff via email. Comment 2 Principal Investment Strategies. It appears that investing in equities and common stock is new to the Funds’ strategies, please specify capitalization ranges and add capitalization risk, if needed. Response The Funds have invested in derivatives that provide exposure to equities, including common stock, since their respective inception dates. The Funds’ BEIJING BRUSSELS HONG KONG HOUSTON LONDON LOS ANGELES NEW YORK PALO ALTO SÃO PAULO TOKYO Simpson Thacher & Bartlett LLP Ms. Samantha Brutlag - 2 - Securities and Exchange Commission August 11, 2022 equity exposures, which are only a subset of each Fund’s overall portfolio, are not limited by market capitalization. Each Fund has added disclosure to its prospectus indicating that it may have exposure to equity securities of companies of any market capitalization. The SAI identifies “Mid-Cap Securities Risk” on page 33 of the Statement of Additional Information (“SAI”) and “Small-Cap Securities Risk” on page 37 of the SAI as being potential risks of investing in each Fund. Given each Fund’s exposure to investments in multiple asset classes, and the fact that these categories of equity securities are a subset within the equities asset class, neither Fund deems it necessary to add either risk factor to its Summary Prospectus. Comment 3 Principal Risks of Investing in the Fund. Please add a volatility futures risk. Please explain what volatility futures are in the risk factor. Response Each Fund has added disclosure on the risks of volatility futures to the Risk Factors section in its Summary Prospectuses. Comment 4 Virtual Currency Futures. Please remove references to all virtual currency futures other than bitcoin futures. The Staff expects that the Funds’ exposure to bitcoin will be limited to futures that trade on a U.S.-registered exchange. Please revise the Funds’ disclosure to clarify that the bitcoin futures referenced are limited to those traded on the Chicago Mercantile Exchange (“CME”). Please supplementally inform the Staff how much exposure the Funds expect to seek in CME bitcoin futures. Response The Funds have updated all references from “virtual currency” futures or derivatives to “bitcoin futures.” The Funds have also added disclosure to their SAI that the bitcoin futures references are limited to those traded on the CME. Given the various futures exposures for each Fund, bitcoin will only be one out of many reference assets underlying the futures contracts in which each Fund invests. However, the Funds do not have a set exposure limit in bitcoin futures nor are they seeking to provide specific amounts of bitcoin futures exposure. The amount of bitcoin exposure each Fund has will depend on a variety of market and other factors, and may be long or short depending on market conditions. Each Fund confirms that it will not concentrate in bitcoin within the meaning of the 1940 Act. Comment 5 Please supplementally inform the Staff whether the Funds have a plan to limit their size to ensure that they can meet liquidity demands or that they do not plan to become so large as to require more liquidity to meet potential redemptions than the market can provide, given that market liquidity and capacity constraints based on CME-imposed position limits remain an area of focus for the Staff. Response Each Fund does not currently anticipate that the liquidity of bitcoin futures contracts will have a negative impact on the ability of the Fund to achieve its investment objective or meet redemption requests. Like other futures contracts that the Funds invest in, investing in bitcoin futures carries certain risks that could impact the Funds’ ability to meet redemption requests. Simpson Thacher & Bartlett LLP Ms. Samantha Brutlag - 3 - Securities and Exchange Commission August 11, 2022 However, the Fund already has policies in place to seek to ensure that liquidity demands can be met. Comment 6 Please address in the Summary Prospectus the impact of high margins on bitcoin futures contracts on the Funds’ ability to achieve their targeted exposure. Response The Funds direct the Staff’s attention to the “Bitcoin Futures Risk” on pages 7 and 15 of each Funds’ Summary Prospectus and the paragraph that states: The initial margin for bitcoin futures are set by the exchange as a percentage of the value of the contract and may be up to 100% of the value of the contract. Futures commission merchants (“FCMs”) may also impose margin rates that are higher than those imposed by the exchanges, once again up to 100% of the value of the contract. The volatility in the prices of the underlying virtual currency therefore can lead to significant and sudden increases in margin requirements. Further, FCMs may restrict trading in virtual currency derivatives and the exchanges on which the bitcoin futures are traded may, with little or no warning, impose trading halts. Any such restrictions or halts would restrict the Adviser’s ability to exit a bitcoin futures position during a period of increased volatility. Comment 7 Please discuss in the Summary Prospectus the impact of CME position limits and accountability levels of bitcoin futures contracts on the Funds’ ability to pursue their investment strategies and any implications for the Funds’ ability to meet the requirements of the Investment Company Act of 1940, as amended (the “1940 Act”), and the rules promulgated thereunder. Response The Funds do not believe the CME position limits or accountability levels of bitcoin futures contracts will have any unique implications for the Fund’s ability to pursue its investment strategies or to meet the requirements of the 1940 Act and the rules thereunder. The Funds already include disclosure on the risks of speculative position limits in the Statutory Prospectus and SAI. Comment 8 Please disclose any unique rollover risks associated with bitcoin futures and include such disclosure in the Summary Prospectus. Response The Funds believe that rollover risks are not unique to bitcoin futures contracts and that such risks are consistent with the rollover risks of other commodities futures contracts, for example. As a cash-settled instrument, in the unlikely event that the Fund is unable to roll over held contracts the fund can hold the contract to expiry. The Funds’ SAI has been updated to discuss rollover risks in greater detail. Comment 9 Please discuss in the Summary Prospectus the potential differences between returns based on the price of bitcoin versus bitcoin futures. For example, please discuss potential differences due to divergence in prices or potential costs associated with futures investing, if applicable. Simpson Thacher & Bartlett LLP Ms. Samantha Brutlag - 4 - Securities and Exchange Commission August 11, 2022 Response The Funds have added the following language to the “Bitcoin Futures Risk” on pages 7 and 15 of each Funds’ Summary Prospectus: The price of bitcoin futures contracts is based on a number of factors, including the supply of and the demand for bitcoin futures contracts. Market conditions and expectations, position limits, collateral requirements, and other factors each can impact the supply of and demand for bitcoin futures contracts. Typically, demand paired with supply constraints and other factors have caused bitcoin futures to trade at a premium to a “spot” price of bitcoin. Additional demand, including demand resulting from the purchase, or anticipated purchase, of futures contracts by the Fund or other entities may increase that premium, perhaps significantly. It is not possible to predict whether or how long such conditions will continue. To the extent the Fund sells futures contracts at a premium and the premium increases, the value of an investment in the Fund also should be expected to decline. Comment 10 Long Bitcoin Futures. Please describe how you would expect the Funds to perform during significant market downturns, such as those occurring on May 19, 2021 and September 7, 2021. Please also describe the impact on the Funds’ operations. Response The Funds’ operations during significant market downturns, such as those occurring on May 19, 2021 and September 7, 2021, would be minimally impacted. The volatility the Funds currently intend to allocate to bitcoin futures positions is minimal in the context of the volatility in the Funds’ entire portfolios. This leads the impact of significant market downturns in any one reference asset to tend to be small on the Funds as a whole. Comment 11 Short Bitcoin Futures. Please describe how you would expect the Funds to perform during significant daily upturns in the price of bitcoin and bitcoin futures such as October 15, 2019. Please also describe the impact on the Funds’ operations. Response The Funds’ operations during significant market downturns, such as those occurring on October 15, 2019, would be minimally impacted. The volatility the Funds currently intend to allocate to bitcoin futures positions is very minimal in the context of the volatility in the Funds’ entire portfolios. This leads the impact of significant market upturns in any one reference asset to tend to be small on the Funds as a whole. Comment 12 Please explain the Funds’ strategies with respect to the rollover of bitcoin futures contracts, including contract month, that the Funds plan to invest in and generally how and when the Funds expect to roll the contract. If the Funds cannot provide disclosure, please supplementally explain. Response The Funds’ direct the Staff’s attention to page 39 of the SAI, the second paragraph under “Bitcoin Futures,” which states: Simpson Thacher & Bartlett LLP Ms. Samantha Brutlag - 5 - Securities and Exchange Commission August 11, 2022 The market for bitcoin futures may be less developed, and potentially less liquid and more volatile, than more established futures markets. Exchange-specified collateral for bitcoin futures is substantially higher than for most other futures contracts, and collateral may be set as a percentage of the value of the contract, which means that collateral requirements for long positions can increase if the price of the contract rises. While the bitcoin futures market has grown substantially since the futures commenced trading, there can be no assurance that it will continue to grow. This may increase the chance that a Fund will experience increased trading costs when it sells bitcoin futures that are near expiration and purchases bitcoin futures that are further from expiration (a process known as “rolling”). Comment 13 Please ensure that all of the following elements are included in the Funds’ bitcoin risk disclosure: • Volatility and potential for loss • Lack of regulation of the underlying market • 51% attack • Bitcoin Whales potential for concentrated ownership • Impact of forks • Theft and hacking Response The Funds believe that the current disclosure currently addresses volatility and potential for loss and lack of regulation of the underlying market in the “Bitcoin Futures Risk.” The Funds have added the following paragraph to the risk factor in the Statutory Prospectus to address the additional elements: Bitcoin is a relatively new financial innovation and the market for bitcoin futures is subject to rapid price swings, changes and uncertainty. The further development of the network involved in maintaining the ledger of bitcoin ownership and the acceptance and use of bitcoin are subject to a variety of factors that are difficult to evaluate. The slowing, stopping or reversing of the development of the Bitcoin Network or the acceptance of bitcoin may adversely affect the price of bitcoin. The Bitcoin Network is a peer-to-peer payment network that operates on a cryptographic protocol. Bitcoin is subject to the risk of fraud, theft, manipulation or security failures, operational or other problems that impact bitcoin trading venues. Specifically, the nature of the assets held at bitcoin trading venues make them appealing targets for hackers and a number of bitcoin trading venues have been victims of cybercrimes and other fraudulent activity. Additionally, if one or a coordinated group of miners were to gain control of 51% of the Bitcoin Network, they would have the ability to manipulate transactions, halt payments and fraudulently obtain bitcoin. A significant portion of bitcoin is held by a small number of Simpson Thacher & Bartlett LLP Ms. Samantha Brutlag - 6 - Securities and Exchange Commission August 11, 2022 holders sometimes referred to as “whales”. These holders have the ability to manipulate the price of bitcoin. Unlike the exchanges for more traditional assets, such as equity securities and futures contracts, bitcoin and bitcoin trading venues are largely unregulated. As a result of the lack of regulation, individuals or groups may engage in fraud or market manipulation and investors may be more exposed to the risk of theft, fraud and market manipulation than when investing in more traditional asset classes. Legal or regulatory changes may negatively impact the operation of the Bitcoin Network or restrict the use of bitcoin. The realization of any of these risks could result in a decline in the acceptance of bitcoin and consequently a reduction in the value of bitcoin, bitcoin futures, and the Fund. Finally, the creation of a “fork” may result in significant and unexpected declines in the value of bitcoin, bitcoin futures, and the Fund. A fork occurs when some users and miners adopt a change while others do not and that change is not compatible with the existing software. This results in the creation of new separate digital assets. Forks can adversely affect the price and liquidity of bitcoin, and therefore, the value of an investment in the Fund. Comment 14 Please supplementally discuss how the Fund would value its bitcoin futures positions if the CME halted the trading of bitcoin futures due to price limits or otherwise.