ARK Early Stage Disruptors Portfolio Series 5

Under normal circumstances, the Trust will invest at least 80% of the value of its assets in companies that the Sponsor believes are early stage disruptors. “Disruptors” are leading innovative companies that stimulate substantial growth or create new markets while also disrupting existing sectors. An innovative company is one that introduces a technologically enabled new product or service that the Sponsor believes may change an industry by creating simplicity and accessibility, while possibly driving down costs. An early stage disruptor is either: 1) a newer public company that the Sponsor believes is a disruptor company and has the potential for future long-term growth, or 2) a company that has introduced a technologically enabled product or service that is in the early stages of development and has the potential for future long-term growth.

The Trust will invest in securities that the Sponsor believes are early stage disruptors that are involved in at least one of the following five innovation platforms: DNA sequencing, robotics, energy storage, artificial intelligence and blockchain technology. Each innovation platform has associated transformative technologies and while the Trust may be exposed to some of the associated transformative technologies, the Trust may not have exposure to all of them. The associated transformative technologies for the innovation platforms are:

• DNA sequencing – immunotherapy, gene editing and sequencing technology
• Robotics – adaptive robotics, 3D printing and reusable rockets
• Energy storage – autonomous mobility and battery systems
• Artificial intelligence – Neural networks, mobile connected devices, cloud computing and internet of things
• Blockchain technology – blockchain and frictionless value transfer

The Trust does not invest directly in cryptocurrencies or invest indirectly in cryptocurrencies through derivative instruments or other investment vehicles, such as exchange-traded funds or other funds, that seek to track the price movements of one or more cryptocurrencies. Therefore, the Trust is not expected to track the price movements of any cryptocurrencies. Additionally, the Trust will not invest in initial coin offerings.

The Sponsor has selected ARK Investment Management LLC (“ARK”) to serve as the Trust’s as portfolio consultant. ARK will recommend securities for the portfolio that it believes possess the potential to achieve the Trust’s investment objective and follow the Trust’s principal investment strategies.

The Trust will invest in U.S.-traded equities, which may include the common stocks of U.S. and non-U.S. companies or American Depositary Receipts (“ADRs”). The non-U.S. equities may include the securities of companies located in emerging markets. The Trust may invest in companies of any market capitalization but will be significantly invested in small- and mid-capitalization companies. As a result of this strategy, the Trust is concentrated in the health care sector and invests significantly in the information technology sector.

The Sponsor, with the assistance of ARK, selects companies that it believes are early stage disruptors. When recommending securities, ARK identifies five innovation platforms that it believes are transforming multiple sectors through the convergence and adoption of technology and enabling long-term investment opportunities around disruptive innovation: DNA sequencing, robotics, energy storage, artificial intelligence and blockchain technology. To identify securities within these innovation platforms, ARK utilizes top-down and bottom-up investment analyses.

Top-Down Analysis:

ARK’s investment process initially uses top-down research to define the investment universe of securities. By anticipating and quantifying multi-year value-chain transformations, typically caused by technologically enabled disruptive innovation, ARK believes it can identify securities that may be able to capitalize on opportunities. Multi-year value-chain transformations are multi-year changes to a business model that encompasses the full range of activities needed to create a product or service. To understand quickly changing innovation
themes, ARK employs an open research strategy to gather information, both helping to define and refine its internal research process.

Using this information in an iterative fashion, ARK’s analysts work with the Directors of Research and CIO to “size” and “re-size” the opportunities. As a result of extensive and iterative research steps, ARK anticipates and
quantifies multi-year value-chain transformations and market opportunities. ARK models cost-curves and calculates elasticity of demand to identify entry points for tech-enabled disruption.

Through this process, specific companies percolate to the top as best positioned to benefit from the identified investment premise, at which point ARK begins its bottom-up process. 

Bottom-Up Analysis:

After identifying the investment universe, ARK scores the potential investments based on the following six key metrics by inputting the values into a proprietary scoring system to quantify the companies:

1. Company, People and Culture – Assess a company’s goals and processes by examining characteristics such as, but not limited to, how the company uses its resources, the company’s product and profits, the quality of its employees and the company’s mission statement and values.
2. Execution of Objectives – Assess whether a company meets or exceeds its objectives and compare its performance in relation to its peers.
3. Moat or Barriers to Entry – Assess the degree in which a company has a reason that prevents competitors from compromising that company’s business model.
4. Product and Service Leadership – Assess the degree that a product is disruptive and a leader in its category.
5. Valuation: 5-Year Projected Return – Assess a company’s projected revenue and share price over the next five years.
6. Thesis Risk – Measure the probability that the evaluations of a company’s metrics are incorrect or that the assessed outcome may not occur.

The fifth metric (i.e., a 5-year return) requires building out a revenue model for each company in the portfolio over the next five years. These models incorporate the company’s unit volume growth, cost declines, market
adoption and penetration, share count growth, and future multiples, arriving ultimately at a projected increased per share price five years from the current date.

From this analysis, ARK suggests a portfolio of securities that it believes consists of early stage disruptors that present the best risk-reward opportunities.

ARK Investment Management LLC

ARK Investment Management LLC is a federally registered investment adviser and privately held investment firm with $23.7 billion assets under management as of March 31, 2023. Specializing in thematic investing in disruptive innovation, the firm is rooted in over 40 years of experience in identifying and investing in innovations that should change the way the world works. Through its open research process, ARK identifies companies that it believes are leading and benefiting from cross-sector innovations such as robotics, energy storage, DNA sequencing, artificial intelligence, and blockchain technology.

As with all investments, you may lose some or all of your investment in the Trust. No assurance can be given that the Trust’s investment objective will be achieved. The Trust also might not perform as well as you expect. This can happen for reasons such as these:

• Securities prices can be volatile. The value of your investment may fall over time. Market value fluctuates in response to various factors. These can include stock market movements, purchases or sales of securities by the Trust, government policies, litigation, and changes in interest rates, inflation, the financial condition of the securities’ issuer or even perceptions of the issuer. Changes in legal, political, regulatory, tax and economic conditions may cause fluctuations in markets and securities prices, which could negatively impact the value of the Trust. Additionally, events such war, terrorism, natural and environmental disasters and the spread of infectious illnesses or other public health emergencies may adversely affect the economy, various markets and issuers. An outbreak of a novel form of coronavirus disease (“COVID-19”) was first detected in December 2019 and rapidly spread around the globe leading the World Health Organization to declare the COVID-19 outbreak a pandemic in March 2020 and resulting in major disruptions to economies and markets around the world. The complete economic impacts of COVID-19 are not yet fully known. The COVID-19 pandemic, or any future public health crisis, is impossible to predict and could result in adverse market conditions which may negatively impact the performance of the Trust and the Trust's ability to achieve its investment objectives. Units of the Trust are not deposits of any bank and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency.
• Share prices or dividend rates on the securities in the Trust may decline during the life of the Trust. There is no guarantee that share prices of the securities in the Trust will not decline and that the issuers of the securities will declare dividends in the future and, if declared, whether they will remain at current levels or increase over time.
• The Trust invests in early stage disruptors. Although the Trust’s investment strategy is designed to achieve the Trust’s investment objective, the strategy may not prove to be successful. The investment decisions may not produce the intended results and there is no guarantee that the investment objective will be achieved. Companies that may be capitalizing on disruptive innovation and developing technologies to displace older technologies or create new markets may not in fact do so. Companies that initially develop a novel technology may not be able to capitalize on the technology. Companies that develop disruptive technologies may face political or legal attacks from competitors, industry groups or local and national governments. These companies may also be exposed to risks applicable to sectors other than the disruptive innovation platform for which they are chosen, and the securities issued by these companies may underperform the securities of other companies that are primarily focused on a particular innovation platform. The Trust may invest in a company that does not currently derive any revenue from disruptive innovations or technologies, and there is no assurance that a company will derive any revenue from disruptive innovations or technologies in the future. A disruptive innovation or technology may constitute a small portion of a company’s overall business. As a result, the success of a disruptive innovation or technology may not affect the value of the equity securities issued by the company.
• The Trust is concentrated in the health care sector. As a result, the factors that impact the health care sector will likely have a greater effect on this Trust than on a more broadly diversified Trust. General risks of companies in the health care sector include extensive competition, generic drug sales, the loss of patent protection, product liability litigation and increased government regulation.
• The Trust invests significantly in the information technology sector. As a result, the factors that impact the information technology sector will likely have a greater effect on this Trust than on a more broadly diversified Trust. Companies involved in this sector must contend with rapid changes in technology, intense competition, government regulation and the rapid obsolescence of products and services. Furthermore, sector predictions may not materialize and the companies selected for the Trust may not represent the entire sector and may not participate in the overall sector growth.
• The Trust is concentrated in companies involved with DNA sequencing. As a result, the factors that impact this field will likely have a greater effect on this Trust than on a more broadly diversified Trust. DNA sequencing companies typically engage in significant amounts of spending on research and development, and there is no guarantee that the products or services produced by these companies will be successful. In addition, the field of DNA sequencing science could face increasing regulatory scrutiny in the future and the process of obtaining regulatory approvals may be long and costly. DNA sequencing companies typically face intense competition and potentially rapid product obsolescence. These companies are also heavily dependent on intellectual property rights and may be adversely affected by loss or impairment of those rights.
• The Trust is concentrated in companies involved with artificial intelligence. As a result, the factors that impact this field will likely have a greater effect on this Trust than on a more broadly diversified Trust. Artificial intelligence companies may have limited product lines, markets, financial resources or personnel and are subject to the risks of changes in business cycles, world economic growth, technological progress and government regulation. These companies face intense competition and potentially rapid product obsolescence. These companies are also heavily dependent on intellectual property rights, and challenges to or misappropriation of such rights could have a material adverse effect on such companies. Securities of artificial intelligence companies tend to be more volatile than securities of companies that rely less heavily on technology. Artificial intelligence companies typically engage in significant amounts of spending on research and development, and rapid changes to the field could have a material adverse effect on a company’s operating results.
• The Trust invests in U.S.-listed foreign securities and an American Depositary Receipt (“ADR”). The Trust’s investment in U.S.-listed foreign securities and an ADR presents additional risk. ADRs are issued by a bank or Trust company to evidence ownership of underlying securities issued by foreign corporations. Securities of foreign issuers present risks beyond those of domestic securities. More specifically, foreign risk is the risk that foreign securities will be more volatile than U.S. securities due to such factors as adverse economic, currency, political, social or regulatory developments in a country, including government seizure of assets, excessive taxation, limitations on the use or transfer of assets, the lack of liquidity or regulatory controls with respect to certain industries or differing legal and/or accounting standards.
• The Trust includes securities issued by small-capitalization and mid-capitalization companies. These securities customarily involve more investment risk than securities of large-capitalization companies. Small-capitalization and mid-capitalization companies may have limited product lines, markets or financial resources and may be more vulnerable to adverse general market or economic developments.
• The Trust may be susceptible to potential risks through breaches in cybersecurity. A breach in cybersecurity refers to both intentional and unintentional events that may cause the Trust to lose proprietary information, suffer data corruption or lose operational capacity. Such events could cause the Sponsor of the Trust to incur regulatory penalties, reputational damage, additional compliance costs associated with corrective measures and/or financial loss. In addition, cybersecurity breaches of the Trust’s third-party service providers, or issuers in which the Trust invests, can also subject the Trust to many of the same risks associated with direct cybersecurity breaches.
• The Trust is subject to risks arising from various operational factors and their service providers. Operational factors include, but not limited to, human error, processing and communication errors, errors of the Trust’s service providers, counterparties or other third-parties, failed or inadequate processes and technology or systems failures. Additionally, the Trust may be subject to the risk that a service provider may not be willing or able to perform their duties as required or contemplated by their agreements with the Trust. Although the Trust seeks to reduce these operational risks through controls and procedures, there is no way to completely protect against such risks.
• Inflation may lead to a decrease in the value of assets or income from investments.
• The Sponsor does not actively manage the portfolio. The Trust will generally hold, and may, when creating additional units, continue to buy, the same securities even though a security’s outlook, market value or yield may have changed.

See “Investment Risks” in Part A of the prospectus and “Risk Factors” in Part B of the prospectus for additional information.