LUFK Lufkin Industries, Inc. (MM)

ADDITIONAL INFORMATION REGARDING INVESTMENT TECHNIQUES AND POLICIES

Rafferty uses a number of investment techniques in an effort to achieve the stated goal for each Fund. For the Bull Fund, Rafferty attempts to magnify the returns of the Bull Fund’s index or benchmark for a calendar month. The Bear Fund is managed to provide returns inverse (or opposite) by a defined percentage to the return of the Bear Fund’s index or benchmark for a calendar month. Rafferty creates net “long” positions for the Bull Fund and net “short” positions for the Bear Fund. (Rafferty may create short positions in the Bull Fund and long positions in the Bear Fund even though the net exposure in the Bull Fund will be long and the net exposure in the Bear Fund will be short.) Long positions move in the same direction as their index or benchmark, advancing when the index or benchmark advances and declining when the index or benchmark declines. Short positions move in the opposite direction of the index or benchmark, advancing when the index or benchmark declines and declining when the index or benchmark advances.

In seeking to achieve the monthly investment objective of the Bull Fund and Bear Fund (collectively, the “Monthly Funds”), Rafferty uses statistical and quantitative analysis to determine the investments each Monthly Fund makes and the techniques it employs. Rafferty relies upon a pre-determined model to generate orders that result in repositioning each Monthly Fund’s investments in accordance with its monthly investment objective. Using this approach, Rafferty determines the type, quantity and mix of investment positions that it believes in combination should produce monthly returns consistent with a Monthly Fund’s objective. As a consequence, if a Monthly Fund is performing as designed, the return of the index or benchmark will dictate the return for that Monthly Fund. Each Monthly Fund pursues its investment objective regardless of market conditions and does not take defensive positions.

The Bull Fund generally may hold an optimized basket of securities that represents its benchmark index. The use of an optimized basket by the Fund, as compared to replicating the benchmark directly, is intended to maintain high correlation with, and similar aggregate characteristics ( e.g., market capitalization and industry weightings) to, the benchmark index. However, the use of an optimized basket may not track the benchmark as closely as a basket that replicates the benchmark in its entirety. Both the Bull and Bear Fund also may gain exposure to securities that are not included in the index or may overweight or underweight certain components of the index. In addition, each Fund is non-diversified, which means that it may invest in the securities of a limited number of issuers.

Each Monthly Fund has a clearly articulated goal which requires the Fund to seek economic exposure in excess of its assets ( i.e. , net assets plus borrowings for investment purposes). To meet its objectives, each Monthly Fund invests in some combination of financial instruments so that it generates economic exposure consistent with the Fund’s investment objective.

On the last business day of each calendar month, each Monthly Fund will position its portfolio to ensure that the Fund’s exposure to its benchmark is consistent with the Fund’s stated goals. The impact of market movements during the calendar month will determine whether the portfolio needs to be repositioned. If the target index rises from the beginning of a calendar month to the end of the calendar month, the Bull Fund’s net assets should rise, meaning the Fund’s exposure may need to be increased. Conversely, if the target index falls from the beginning of a calendar month to the end of the calendar month, the Bull Fund’s net assets should fall, meaning the Fund’s exposure may need to be reduced. If the target index rises from the beginning of a calendar month to the end of the calendar month, the Bear Fund’s net assets should fall, meaning the Fund’s exposure may need to be reduced. If the target index falls from the beginning of a calendar month to the end of the calendar month, the Bear Fund’s net assets should rise, meaning the Fund’s exposure may need to be increased. A Fund’s portfolio may also need to be changed to reflect changes in the composition of an index. Rafferty increases the Fund’s exposure when its assets rise and reduces the Fund’s exposure when its assets fall.

Each Monthly Fund is designed to provide calendar month leveraged investment returns, before fees and expenses, that are a multiple of the returns of its index or benchmark for the stated period. While Rafferty attempts to minimize any “tracking error” (the statistical measure of the difference between the investment results of a Fund and the performance of its index or benchmark), certain factors will cause a Monthly Fund’s investment results to vary from the stated objective. A Fund may have difficulty in achieving its calendar month target due to fees and expenses, high portfolio turnover, transaction costs, significant purchase and redemption activity by Fund shareholders and/or a temporary lack of liquidity in the markets for the securities held by the Fund.

Each Monthly Fund invests significantly in swap agreements, forward contracts, reverse repurchase agreements, options, including futures contracts, options on futures contracts, exchange-traded funds (“ETFs”) and financial instruments such as options on securities and stock indices options, and caps, floors and collars. Rafferty uses these types of investments to produce economically “leveraged” investment results. Leveraging allows Rafferty to generate a greater positive or negative return than what would be generated on the invested capital without leverage, thus changing small market movements into larger changes in the value of the investments of a Fund.

Seeking calendar month leveraged investment results provides potential for greater gains and losses relative to benchmark performance. For instance, the Direxion Monthly 7-10 Year Treasury Bull 2X Fund seeks to provide, before fees and expenses, 200% of the calendar month total return of the NYSE 7-10 Year Treasury Bond Index. If the NYSE 7-10 Year Treasury Bond Index gains 2% in a given calendar month, the Direxion Monthly 7-10 Year Bull 2X Fund would be expected to gain approximately 4%. Conversely, if the NYSE 7-10 Year Treasury Bond Index declines 2% in a given calendar month, the Direxion Monthly 7-10 Year Treasury Bull Fund would be expected to lose 4%. However, for a period longer than one calendar month, the pursuit of calendar month goals may result in calendar month leveraged compounding, which means that the return of an index over a period of time greater than one calendar month multiplied by the Fund’s calendar month target ( e.g., 200%)

generally will not equal a Fund’s performance over that same period. As such, although federal regulations require that this prospectus include annualized performance and multi-year expense information for each Fund, investors should bear in mind that the Bull and Bear Fund seeks calendar month, and not annual, investment results. Consider the following examples:

Compounding Example 1 — Benchmark Lacks A Trend

Mary is considering investments in three Funds, Fund A, Fund B and Fund C. Fund A is a traditional index fund which seeks (before fees and expenses) to match the performance of the XYZ index. Fund B is a leveraged Fund and seeks calendar month leveraged investment results (before fees and expenses) that correspond to 200% of the calendar month performance of the XYZ index. Fund C is a leveraged Fund and seeks calendar month leveraged investment results (before fees and expenses) that correspond to –200% of the calendar month performance of the XYZ index.

In January, the XYZ index increases in value from $100 to $105, a gain of 5%. In February, the XYZ index declines from $105 back to $100, a loss of 4.76%. In the aggregate, the XYZ index has not moved.

An investment in Fund A would be expected to gain 5% in January and lose 4.76% in February to return to its original value. The following example assumes a $100 investment in Fund A when the index is also valued at $100:

The same $100 investment in Fund B, however, would be expected to gain 10% in January (200% of 5%) but decline 9.52% in February.

Although the percentage decline is smaller in February than the percentage gain in January, the loss is applied to a higher principal amount so the investment in Fund B has a loss even when the aggregate index value for the two-month period has not declined. (These calculations do not include the charges for expense ratio and the financing charges.)

Because the Fund C seeks leveraged inverse returns, the same $100 investment in the Fund C would be expected to lose 10% in January and then gain 9.52% in February.

Because the gain in February is multiplied by the already-diminished investment, the investment in Fund C does not make up its January losses even though the index has returned to its original value.

Compounding Example 2 — Benchmark Has A Clear Trend

Leveraged compounding will not always result in greater losses. If the index trends in one direction ( e.g. increases in value for two consecutive months), the compounded return will outperform the index’s cumulative performance multiplied by 200% or –200% (as applicable). For example, if the XYZ Index were to increase to $110 in February (instead of decline back to $100 as it had in the prior example), the resulting performance of Fund A, Fund B and Fund C would be as follows:

In the above example, the index’s cumulative performance was 10%, but Fund B gained slightly more than 20% (200% of 10%), due to the fact that February’s additional gains were applied to a higher investment amount. Additionally, although the index’s trend was adverse to Fund C’s performance in both months, the cumulative loss to the investment was less than 20%, due to the fact that February’s additional losses were applied to an already-lowered investment amount. Because the index trended in one direction, compounding improved the cumulative performance of both Fund B and Fund C.

This would also be true if the index trended in the other direction. However, in that instance, Fund C would outgain –200% of the index’s cumulative performance and Fund B’s losses would be slightly less than 200% of the index’s cumulative performance.

The Monthly Funds seek calendar month leveraged investment results and are not intended to be used by, and are not appropriate for, investors who do not intend to actively monitor and manage their portfolios. These Funds are very different from most mutual funds. First each Monthly Fund pursues monthly leveraged investment goals, which means that the Monthly Funds are riskier than alternatives that do not use leverage because the Funds magnify the performance of the benchmark of an investment. Second, the Bear Fund pursues investment goals which are inverse to the performance of its benchmark; a result opposite of most other mutual funds. Third, the Monthly Funds seek calendar month leveraged investment results. An investor who purchases shares on a day other than the last business day of a calendar month will generally receive more, or less, than 200% exposure to the target index from that point until the end of the month. The actual exposure is a function of the performance of the benchmark from the end of the prior calendar month and such investor should consult the Fund’s website to determine the then projected exposure before investing in the Fund. If a Monthly Fund’s shares are held through the end of a calendar month or months, the Fund’s performance is likely to deviate from the multiple of the benchmark performance for the longer period. This deviation will increase with higher index volatility and longer holding periods. As a consequence, investors should not plan to hold the funds unmonitored through the end of a month or for longer periods of time. Further, the return for investors that invest for periods less than a calendar month or for a period different than the calendar month may not be the product of the return of the index for such shorter period and the magnification point for the Fund. The Funds are not suitable for all investors.

For investments held through the end of a calendar month, volatility in the performance of the benchmark from month to month is the primary cause of any disparity between a Monthly Fund’s actual returns, the product of the Monthly Fund’s beta and the returns of the benchmark for such longer period. Volatility causes such disparity because it exacerbates the effects of compounding on a Monthly Fund’s returns. For example, consider the following three examples:

Example 1 — Benchmark Index Experiences Low Volatility

Mary invests $10.00 in a 2X Fund on the last day of Calendar Month 1. During Calendar Month 2, the Fund’s benchmark rises from 100 to 102, a 2% gain. Mary’s investment rises 4% to $10.40. Mary holds her investment through the end of Calendar Month 3, during which the Fund’s benchmark rises from 102 to 104, a gain of 1.96%. Mary’s investment rises to $10.81, a gain during Calendar Month 3 of 3.92%. For the two calendar month period since Mary invested in the Fund, the benchmark gained 4% although Mary’s investment increased by 8.1%. Because the benchmark index continued to trend upwards with low volatility, Mary’s return closely correlates to the 200% return of the return of the index for the period.

Example 2 — Benchmark Index Experiences High Volatility

Mary invests $10.00 in a 2X Fund on the last day of Calendar Month 1. During Calendar Month 2, the Fund’s benchmark rises from 100 to 110, a 10% gain, and Mary’s investment rises 20% to $12.00. Mary continues to hold her investment through the end of Calendar Month 3, during which the Fund’s benchmark declines from 110 to 90, a loss of 18.18%. Mary’s investment declines by 36.4%, from $12.00 to $7.64. For the two calendar month period since Mary invested in the Fund, the Fund’s benchmark index lost 10% while Mary’s investment decreased from $10 to $7.64, a 23.6% loss. The volatility of the benchmark affected the correlation between the benchmark index’s return for the two calendar month period and Mary’s return. In this situation, Mary lost more than two times the return of the benchmark index.

Example 3 — Intra Month Investment with Volatility

The examples above assumed that Mary purchased the Fund on the last day of the relevant calendar month and received exposure equal to 200% of her investment. If she made an investment on a subsequent day, she would have

received a beta determined by the performance of the benchmark from the end of the prior calendar month until the date of the purchase.

Mary invests $10.00 in a 2X Fund on the 5th day of Calendar Month 1. From the end of the prior calendar month until the day on which Mary invests, the index moves from 100 to 102, a 2% gain. In light of that gain, the Fund beta at the point at which Mary invests is 196%. During the remainder of Calendar Month 1, the Fund’s benchmark rises from 102 to 110, a gain of 7.84%, and Mary’s investment rises 15.4% (which is the benchmark gain of 7.84% multiplied by the 196% beta that she received) to $11.54. Mary continues to hold her investment through the end of Calendar Month 2, during which the Fund’s benchmark declines from 110 to 90, a loss of 18.18%. Mary’s investment declines by 36.4%, from $11.54 to $7.34. For the period of Mary’s investment, the Fund’s benchmark declined from 102 to 90, a loss of 11.76%, while Mary’s investment decreased from $10.00 to $7.34, a 26.6% loss. The volatility of the benchmark affected the correlation between the benchmark index’s return for the two calendar month period and Mary’s return. In this situation, Mary lost more than two times the return of the benchmark index. Mary was also hurt because she missed the first 2% move of the benchmark and had a beta of 196% for the remainder of Calendar Month 1.

The Funds are designed to be used by traders and active investors employing dynamic strategies. Such investors are expected to monitor and manage their portfolios frequently, and certainly at least monthly. The Funds should be utilized only by sophisticated investors who (a) understand the risks associated with the use of leverage, (b) understand the consequences of seeking calendar month leveraged investment results, (c) understand the risk of shorting, and (d) intend to actively monitor and manage their investments. Investors who do not understand the Funds or do not intend to actively manage their funds and monitor their investments should not buy the Funds. There is no assurance that the Funds will achieve their objectives and an investment in a Fund could lose money. No single Fund is a complete investment program.

Defensive Policy. Generally, each Monthly Fund pursues its investment objective regardless of market conditions and does not take defensive positions. As a consequence, a Monthly Fund will generally not adopt defensive positions by investing in cash or other instruments in anticipation of an adverse climate for its index or benchmark. However, if a Monthly Fund’s target index has moved dramatically in a particular direction and Rafferty believes a reversal is likely, Rafferty may attempt to hedge some portion of the Fund’s portfolio against such a reversal. Such hedging strategies include, but are not limited to, the purchase of put options to hedge against a decline in a Bull Fund’s portfolio and the purchase of call options to hedge against a decline in a Bear Fund’s portfolio. Hedging strategies will increase a Fund’s expenses, reduce net assets and reduce upside to some extent. To reduce the cost of such a hedging strategy, Rafferty may sell options, which will reduce a Fund’s upside if such options move against the Fund. In addition, because it may be difficult for a Fund to achieve its stated investment objective any time its assets fall below $2 million, Rafferty may invest the assets of any such Fund in short-term U.S. government securities until the level of net assets is sufficient to permit the desired investments. As a result, such Fund may not achieve its investment objective during this period. To find out if a Fund has sufficient assets to invest to attempt to meet its objective, you may call (800) 851-0511.

Market Volatility. Each Monthly Fund seeks to provide a return which is a multiple of the calendar month performance of its benchmark. No Monthly Fund attempts to, and no Monthly Fund should be expected to, provide returns which are a multiple of the return of the benchmark for periods other than a calendar month. Each Monthly Fund rebalances its portfolio on a calendar month basis, increasing exposure in response to that calendar month’s gains or reducing exposure in response to that calendar month’s losses.

Calendar month rebalancing will impair a Monthly Fund’s performance if the benchmark experiences volatility. For instance, a hypothetical 2X Bull Fund would be expected to lose 4% (as shown in the Table 1 below) if its benchmark provided no return over a one year period during which its benchmark experienced annualized volatility of 20%. A hypothetical 2X Bear Fund would be expected to lose 12% (as shown in the Table 1 below) if its benchmark provided no return over a one year period during which its benchmark experienced annualized volatility of 20%. If the benchmark’s annualized volatility were to rise to 40%, the hypothetical loss for a one year period for a Bull Fund widens to approximately 15% while the loss for a Bear Fund rises to 45%. At higher ranges of volatility, there is a chance of a near complete loss of Fund value even if the benchmark is flat. For instance, if annualized volatility of the benchmark is 90%, both a Bull and a Bear Fund targeted to the same benchmark would be expected to lose more than 76% and 99% respectively, of their value even if the cumulative benchmark return for the year was 0%. An index’s volatility rate is a statistical measure of the magnitude of fluctuations in the returns of an index.

The volatility rate for the NYSE 7-10 Year Treasury Bond Index over the twelve months ended March 31, 2013 is 4.70%. Since market volatility, like that experienced by the markets recently, has negative implications for Funds which rebalance on a calendar month basis, investors should be sure to monitor and manage their investments in the Funds, particularly in volatile markets. The negative implications of volatility can be combined with the recent volatility ranges to give investors some sense of the risks of holding the Funds for long periods. This information is intended to simply underscore the fact that the Funds that seek calendar month leveraged investment results are not intended to be used by, and are not appropriate for, investors who do not intend to actively monitor and manage their portfolios.

A Precautionary Note to Investors Regarding Dramatic Index Movement . The Bull Fund seeks calendar month exposure to its target index equal to 200% of its net assets while the Bear Fund seeks calendar month exposure to its target index equal to –200% of its net assets. As a consequence, a Fund could theoretically lose an amount greater than its net assets in the event of a movement of its target index in excess of 50% in a direction adverse to the Fund (meaning a decline in the value of the target index of the Bull Fund and a gain in the value of the target index for the Bear Fund). Rafferty will attempt to position each Fund’s portfolio to ensure that a Fund does not lose more than 90% of its net asset value (“NAV”) in a given calendar month. The cost of such downside protection will be symmetrical limitations on gains. If Rafferty successfully positions a Fund’s portfolio to provide such limits, a Fund’s portfolio and NAV will not be responsive to movements in its target index beyond 45% in a given calendar month, whether that movement is favorable or adverse to the Fund. For example, if the Bull Fund’s target index were to gain 50%, the Bull Fund might be limited to a calendar month gain of 90%, which corresponds to 200% of an index gain of 45%, rather than 200% of the index gain of 50%. Rafferty cannot be assured of similarly limiting a Fund’s losses and shareholders should not expect such protection. In short, the risk of total loss exists. In the event of a severe index movement which results in a limit on gains and losses, a Fund’s performance may be inconsistent with its stated investment objective.

The Projected Calendar Month Return of the Bull Fund. The Bull Fund seeks to provide a calendar month return that is a multiple of the calendar month return of a target index or benchmark. Doing so requires the use of leveraged investment techniques, which necessarily incur financing charges. For instance, the Direxion Monthly 7-10 Year Treasury Bull 2X Fund seeks exposure to its benchmark in an amount equal to 200% of its assets, meaning it uses leveraged investment techniques to seek exposure to the NYSE 7-10 Year Treasury Bond Index in an amount equal to 200% of its net assets. In light of the financing charges and the Bull Fund’s operating expenses, the expected return of the Bull Fund is equal to the gross expected return, which is the calendar month benchmark return multiplied by 200%, minus (i) financing charges incurred by the portfolio and (ii) calendar month operating expenses. For instance, if the NYSE 7-10 Year Treasury Bond Index returns 5% in a given calendar month, the gross expected return of the Direxion Monthly 7-10 Year Treasury Bull 2X Fund would be 10%, but the net expected return, which factors in the cost of financing the portfolio and the impact of operating expenses, would be lower. Each Fund will reposition its portfolio on the last business day of a calendar month. Therefore, if an investor purchases Fund shares on the last business day of a calendar month, the investor’s exposure to the target index of the Bull Fund would reflect 200% of the performance of the index during the next calendar month, subject to charges and expenses noted above, regardless whether the investor sells the shares during that calendar month.

The Projected Calendar Month Return of the Bear Fund. The Bear Fund seeks to provide a calendar month return which is a multiple of the inverse (or opposite) of the calendar month return of a target index or benchmark. To create the necessary exposure, the Bear Fund engages in short selling — borrowing and selling securities it does not own. The money that the Bear Fund receives from short sales — the short sale proceeds — is an asset of the Bear Fund that can generate income to help offset the Bear Fund’s operating expenses. However, the costs of creating short exposure, which may require the Fund’s counterparties to borrow and sell certain securities, may offset or outweigh such income. Each Fund will reposition its portfolio on the last business day of a calendar month. Therefore, if an investor purchases Fund shares on the last business day of a calendar month, the investor’s exposure to the target index of the Bear Fund would reflect 200% of the inverse performance of the index during the next calendar month, subject to charges and expenses noted above, regardless whether the investor sells the shares during that calendar month.

The Projected Returns of the Monthly Funds for Intra-Calendar Month Purchases. The Monthly Funds seek calendar month leveraged investment results which should not be equated with seeking a leveraged goal for shorter than a calendar month. An investor who purchases shares on a day other than the last business day of a calendar month will generally receive more, or less, than 200% exposure to the target index, depending on the performance of the target index. If the target index moves in a direction favorable to the Monthly Fund, the investor will receive exposure to the target index less than 200%. Conversely, if the target index moves in a direction adverse to the Monthly Fund, the investor will receive exposure to the target index greater than 200%. Investors may consult the Funds’ website at any point during the month to determine how the current value of a Fund’s target index relates to the value of the target index at the end of the calendar month. Graph 1 below indicates how the exposure to the target index of an investment in the Bull 2X Fund would vary based upon a range of market movements if the investor purchases Fund shares after the last business day of the calendar month and before the last business day of the next calendar month. Graph 2 below indicates how the exposure to the target index of an investment in the Bear 2X Fund would vary based upon a range of market movements if the investor purchases Fund shares after the last business day of the calendar month and before the last business day of the next calendar month.

The graph and accompanying table below indicates exposure for the Bull 2X Fund after movements of the index after the beginning of the month. For instance, as indicated below, if an investor purchases shares in the Bull 2X Fund after the end of one calendar month and before the end of the next calendar month and the target index has gained 5% during that calendar month, the investor’s exposure would be 191% of the performance of the target index until the end of that calendar month. Conversely, if the target index has declined 5%, the investor’s exposure would be 211% of the performance of the target index until the end of that calendar month. If the Bull Fund’s target index moves sharply from its value at the end of the prior calendar month, an investor who purchases shares before the end of the next calendar month may receive exposure to the performance of the target index substantially in excess of 200% of a shareholder’s investment. For instance, as noted in Graph 1 below, if the target index declines 20%, the investor would not receive 200% exposure to the performance of the target index, but would instead receive 267% exposure to the performance of the target index.

Graph 1 — Intra-Period Exposure (Bull Fund)

The graph and accompanying table below indicates exposure for the Bear 2X Fund after movements of the index after the beginning of the month. For instance, as indicated below, if an investor purchases shares in the Bear 2X Fund after the end of one calendar month and before the end of the next calendar month and the target index has gained 5% during that calendar month, the

investor’s exposure would be –233% of the performance of the target index until the end of that calendar month. Conversely, if the target index has declined 5%, the investor’s exposure would be –173% of the performance of the target index until the end of that calendar month. If the Bear Fund’s target index moves sharply from its value at the end of the prior calendar month, an investor who purchases shares before the end of the next calendar month may receive exposure to the performance of the target index substantially in excess of –200% of a shareholder’s investment. For instance, as noted in Graph 2 below, if the target index gains 20%, the investor would not receive –200% exposure to the performance of the target index, but would instead receive –400% exposure to the performance of the target index.

Graph 2 — Intra-Period Exposure (Bear Fund)

The Projected Returns of Bull and Bear Funds for Shares Held Longer Than a Calendar Month. The Monthly Funds seek calendar month leveraged investment results which should not be equated with seeking a leveraged goal for longer than a calendar month. For instance, if the NYSE 7-10 Year Treasury Bond Index gains 10% during a year, the Direxion Monthly 7-10 Year Treasury Bull 2X Fund should not be expected to provide a return of 20% for the year even if it meets its calendar month target throughout the year. This is true because the pursuit of calendar month goals may result in calendar month leveraged compounding, which means that the return of an index over a period of time greater than one calendar month multiplied by 200%, in the case of the Bull Fund, or –200%, in the case of the Bear Fund, will not generally equal a Fund’s performance over that same period.

The following charts set out a range of hypothetical calendar month performances during a given calendar year of an index and demonstrate how changes in the index impact the Monthly Funds’ performance for each calendar month and cumulatively up to, and including, the entire calendar year. The charts are based on a hypothetical $100 investment in the Funds over a 12-month calendar period and do not reflect expenses of any kind.

The cumulative annual performance of the index in Table 3 is 5%. The hypothetical return of the Bull Fund for the calendar year is 2.28%, while the hypothetical return of the Bear Fund for the calendar year is –30.05%. The hypothetical return of the Bull Fund is 46% of the index return for the calendar year, while the hypothetical return of the Bear Fund is 601% of the index return for the calendar year. The volatility of the benchmark performance and the lack of a clear trend means that a Fund’s gain or losses are somewhat random and bear little relationship to the performance of the index for the year.