Principal Investment Strategy
The Fund, under normal circumstances, invests at least 80% of its assets in the equity securities that comprise the MSCI Emerging Markets
Index
SM
(the Index) and/or financial instruments that, in
combination, provide leveraged and unleveraged exposure to the Index with the Fund creating long positions. The financial instruments in which the Fund may invest include exchange-traded funds (ETFs), stock index futures contracts,
options on stock index futures contracts, swap agreements and options on securities and on stock
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indices to produce economically leveraged investment results. On a day-to-day basis, the Fund may hold short-term debt instruments that have terms-to-maturity of less than 397 days and exhibit
high quality credit profiles, including U.S. government securities and repurchase agreements.
The term emerging market
refers to an economy that is in the initial stages of industrialization and has been historically marked by low per capita income and lack of capital market transparency, but appears to be implementing political and/or market reforms resulting in
greater capital market transparency, increased access for foreign investors and generally improved economic conditions. Emerging markets have the potential for significantly higher or lower rates of return and carry greater risks than more developed
economies.
The Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the
global emerging markets. As of September 30, 2012, the Index consisted of the following 21 emerging market country indices: Brazil, Chile, China, Columbia, Czech Republic, Egypt, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Morocco, Peru,
Philippines, Poland, Russia, South Africa, Taiwan, Thailand and Turkey.
The Fund may gain exposure to only a representative sample of
the securities in the Index that have aggregate characteristics similar to those of the Index. The Fund gains this exposure either by directly investing in the underlying securities of the Index or by investing in derivatives that provide exposure
to those securities. The Fund seeks to remain fully invested at all times consistent with its stated goal. At the close of the markets on the last trading day of each month, Rafferty positions the Funds portfolio so that its exposure to the
Index is consistent with the Funds investment objective. The impact of the Indexs movements during the month will affect whether the Funds portfolio needs to be re-positioned. For example, if the Index has risen over the course of
a given month, net assets of the Fund should rise, meaning that the Funds exposure will need to be increased. Conversely, if the Index has fallen over the course of a given month, net assets of the Fund should fall, meaning the Funds
exposure will need to be reduced. The Fund will concentrate its investment in a particular industry or group of industries to approximately the same extent as the Index is so concentrated.
The Fund is a non-diversified fund, meaning that a relatively high percentage of its assets may be invested in a limited number of
issuers of securities.
Principal Risks
An investment in the Fund entails risk. The Fund could lose money or its performance could trail that of other investment alternatives. Rafferty cannot guarantee that the Fund will achieve its objective. In
addition, the Fund presents some risks not traditionally associated with most mutual funds. It is important that investors closely review all of the risks listed below and understand how these risks interrelate before making an investment in the
Fund. Unprecedented recent turbulence in financial markets and reduced liquidity in equity, credit and fixed income markets may negatively affect many issuers worldwide, which could have an adverse effect on the Fund. There is the risk that you
could lose all or a portion of your money on your investment in the Fund.
Active and Frequent Trading Risk
The Fund may
engage in active and frequent trading, leading to increased portfolio turnover, higher transaction costs, and the possibility of increased net realized capital gains, including net short-term capital gains that will be taxable to shareholders as
ordinary income when distributed to them.
Adverse Market Conditions Risk
Because the Fund magnifies the performance of the
Index, the Funds performance will suffer during conditions in which the Index declines.
Advisers Investment Strategy
Risk
The Adviser utilizes a quantitative methodology to select investments for the Fund. Although this methodology is designed to correlate the Funds performance with the performance of the Index, there is no assurance that such
methodology will be successful and will enable the Fund to achieve its investment objective.
Counterparty Risk
The Fund
may invest in financial instruments involving counterparties for the purpose of attempting to gain exposure to a particular group of securities or asset class without actually purchasing those securities or investments, or to hedge a position. These
financial instruments may include swap agreements and structured notes. The use of swap agreements and structured notes involves risks that are different from those associated with ordinary portfolio securities transactions. For example, the Fund
bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. Swap agreements also may be considered to be illiquid. In addition, the Fund may enter
into swap agreements that involve a limited number of counterparties, which may increase the Funds exposure to counterparty credit risk. The Fund does not specifically limit its counterparty risk with respect to any single counterparty.
Further, there is a risk that no suitable counterparties are willing to enter into, or continue to enter into, transactions with the Fund and, as a result, the Fund may not be able to achieve its investment objective.
Currency Exchange Rate Risk
Changes in foreign currency exchange rates will affect the value of what the Fund owns and the Funds
share price. Generally, when the U.S. dollar rises in value against a foreign currency, an investment in that country loses value because that currency is worth fewer U.S. dollars. Devaluation of a currency by a countrys government or banking
authority also will have a significant impact on the value of any investments denominated in that currency. Currency markets generally are not as regulated as securities markets.
Depositary Receipt Risk
To the extent the Fund invests in stocks of foreign corporations, the Funds investment in such stocks
may also be in the form of depositary receipts or other securities convertible into securities of foreign issuers. Depositary receipts may be purchased through sponsored or unsponsored facilities. A sponsored facility is
established jointly by the issuer of the underlying security and a depositary, whereas a depositary may establish an unsponsored facility without participation by the issuer of the depositary security. Holders of unsponsored depositary receipts
generally bear all the costs of such facilities and the depositary of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through voting
rights to the holders of such receipts of the deposited securities. Fund investments in depositary receipts, which include American Depositary Receipts (ADRs), Global Depositary Receipts (GDRs) and European Depositary
Receipts (EDRs) are deemed to be investments in foreign securities for purposes of the Funds investment strategy.
Derivatives Risk
The Fund uses investment techniques, including investments in derivatives such as futures contracts, forward
contracts, options and swaps, which may be considered aggressive. Investments in such derivatives are
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subject to market risks that may cause their prices to fluctuate over time and may increase the volatility of the Fund. The use of derivatives may expose the Fund to additional risks that it
would not be subject to if it invested directly in the securities underlying those derivatives, such as counterparty risk and the risk that the derivatives may become illiquid. The use of derivatives may result in larger losses or smaller gains than
otherwise would be the case. In addition, the Funds investments in derivatives currently are subject to the following risks:
Futures and Forward Contracts.
There may be an imperfect correlation between the changes in market value of the securities held by the Fund and the prices of futures contracts. There may not be a liquid
secondary market for the futures contracts. Forward currency transactions include the risks associated with fluctuations in currency.
Hedging Risk.
If the Fund uses a hedging instrument at the wrong time or judges the market conditions incorrectly, the hedge might be unsuccessful, reduce the Funds investment return, or create a loss.
Options.
There may be an imperfect correlation between the prices of options and movements in the price of the
securities (or indices) hedged or used for cover which may cause a given hedge not to achieve its objective.
Swap
Agreements.
Interest rate swaps are subject to interest rate and credit risk. Total return swaps are subject to counterparty risk, which relate to credit risk of the counterparty and liquidity risk of the swaps themselves.
Early Close/Trading Halt Risk
An exchange or market may close or issue trading halts on specific securities, or the ability to buy or
sell certain securities or financial instruments may be restricted, which may result in the Fund being unable to buy or sell certain securities or financial instruments. In such circumstances, the Fund may be unable to rebalance its portfolio, may
be unable to accurately price its investments and/or may incur substantial trading losses.
Effects of Compounding and Market
Volatility Risk
The Fund does not attempt to, and should not be expected to, provide returns which are a multiple of the return of the Index for periods other than a calendar month. The Fund rebalances its portfolio on a calendar month
basis, increasing exposure in response to that calendar months gains or reducing exposure in response to that calendar months losses. This means that for a period longer than a calendar month, the pursuit of daily goals may result in
leveraged compounding. It also means that the return of an index over a period of time other than a calendar month multiplied by the Funds target (200%) generally will not equal the Funds performance over that same period.
As a result, over time, the cumulative percentage increase or decrease in the value of the Funds portfolio may diverge
significantly from the cumulative percentage increase or decrease in the multiple of the return of the Funds underlying index due to the compounding effect of losses and gains on the returns of the Fund. It also is expected that the
Funds use of leverage will cause the Fund to underperform the compounded return of two times its benchmark in a trendless or flat market.
The effect of compounding becomes more pronounced on the Funds performance as the Index experiences volatility. The Indexs volatility rate is a statistical measure of the magnitude of fluctuations in
the returns of the Index. For information regarding the effects of volatility and index performance on the long-term performance of the Fund, see Additional Information Regarding Investment Techniques and Policies and Negative
Implications of Monthly Goals in Volatile Markets in the Funds full prospectus, and Special Note Regarding the Correlation Risks of the Funds in the Funds Statement of Additional Information. At higher rates of
volatility, there is a chance of near complete loss of value even if the Index is flat.
Holding an unmanaged position opens the investor
to the risk of market volatility adversely affecting the performance of the investment. The Fund is not appropriate for investors who do not intend to actively monitor and manage their portfolios. This table is intended to underscore the fact that
the Fund is designed as a trading vehicle for investors who intend to actively monitor and manage their portfolios.
To fully understand
the risks of market volatility on the Fund, see Negative Implications of Monthly Goals in Volatile Markets found in the statutory prospectus.
Emerging Markets Risk
Indirect investments in emerging markets instruments involve greater risks than investing in foreign instruments in general. Risks of investing in emerging market countries
include political or social upheaval, nationalization of businesses, restrictions on foreign ownership and prohibitions on the repatriation of assets and risks from an economys dependence on revenues from particular commodities or industries.
In addition, currency transfer restrictions, limited potential buyers for such instruments, delays and disruption in settlement procedures and illiquidity or low volumes of transactions may make exits difficult or impossible at times.
Equity Securities Risk
Investments in publicly issued equity securities and securities that provide exposure to equity securities,
including common stocks, in general are subject to market risks that may cause their prices to fluctuate over time. Fluctuations in the value of equity securities in which the Fund invests will cause the net asset value (NAV) of the Fund
to fluctuate.
Foreign Securities Risk
Indirectly investing in foreign instruments may involve greater risks than investing
in domestic instruments. As a result, a Funds returns and NAVs may be affected to a large degree by fluctuations in currency exchange rates, political, diplomatic or economic conditions and regulatory requirements in other countries. The laws
and accounting, auditing, and financial reporting standards in foreign countries typically are not as strict as they are in the U.S., and there may be less public information available about foreign companies.
Gain Limitation Risk
Rafferty will attempt to position the Funds portfolio to ensure that the Fund does not lose more than 90%
of its NAV in a given calendar month. The cost of such downside protection will be limitations on the Funds gains. As a consequence, the Funds portfolio may not be responsive to Index gains beyond 45% in a given calendar month. For
example, if the Index were to gain 50%, the Fund might be limited to a calendar month gain of 90% rather than 100%, which is 200% of the Index gain of 50%.
Geographic Concentration Risk
Investments in a particular country or geographic region may be particularly susceptible to political, diplomatic or economic conditions and regulatory requirements. As a
result, the Fund may be more volatile than a more geographically diversified fund.
Intra-Calendar Month Investment Risk
The Fund seeks 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 likely have more, or less, than 200% leveraged investment exposure to the Index, depending upon the movement of the Index from the
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end of the prior calendar month until the point of purchase. If the Index moves in value in a direction favorable to the Fund, the Funds net assets will rise by the same amount as the
Funds exposure. Conversely, if the Index moves in value in a direction adverse to the Fund, the Funds net assets will decline by the same amount as the Funds exposure. Since a Fund starts each month with exposure which is 200% of
its net assets, a change in both the exposure and the net assets of the Fund by the same absolute amount results in a change in the comparative relationship of the two. As an example (using simplified numbers), if the Fund had $100 in net assets at
the market close on the last trading day of the month, it would seek $200 of exposure to the next months Index performance. If the Index rose by 1% by mid-month, the exposure of the Fund will have risen by 1% to $202 and the net assets will
have risen by that $2 gain to $102. With net assets of $102 and exposure of $202, a purchaser at that point would be receiving 198% exposure of her investment instead of 200%.
Leverage Risk
If you invest in the Fund, you are exposed to the risk that a decline in the monthly performance of the Index will be leveraged. This means that your investment in the Fund will be
reduced by an amount equal to 2% for every 1% monthly decline, not including the cost of financing the portfolio and the impact of operating expenses, which would further lower your investment. The Fund could theoretically lose an amount greater
than its net assets in the event of an Index decline of more than 50%. Further, purchasing shares intra-calendar month may result in greater than 200% exposure to the performance of the Index if the Index declines between the end of the last
calendar month and the time the investor purchased Fund shares.
Liquidity Risk
Some securities held by the Fund, including
derivatives, may be difficult to sell or illiquid, particularly during times of market turmoil. Illiquid securities also may be difficult to value. If the Fund is forced to sell an illiquid security at an unfavorable time or at a price that is lower
than Raffertys judgment of the securitys true market value, the Fund may be forced to sell the security at a loss. Such a situation may prevent the Fund from limiting losses, realizing gains or achieving a high correlation with the
Index.
Market Risk
The Fund is subject to market risks that can affect the value of its shares. These risks include
political, regulatory, market and economic developments, including developments that impact specific economic sectors, industries or segments of the market.
Market Timing Activity Risk
Rafferty expects a significant portion of the assets of the Fund to come from professional money managers and investors who use the Fund as part of asset
allocation and market timing investment strategies. These strategies often call for frequent trading, which may lead to increased portfolio turnover, higher transaction costs, and the possibility of increased net realized capital
gains, including net short-term capital gains that will be taxable to shareholders as ordinary income when distributed to them.
Monthly Correlation Risk
There is no guarantee that the Fund will achieve its monthly target. The Fund may have difficulty achieving
its monthly target due to fees and expenses, high portfolio turnover, transaction costs, costs associated with the use of leveraged investment techniques, income items and accounting standards. The Fund may not have investment exposure to all
securities in its underlying Index, or its weighting of investment exposure to such stocks or industries may be different from that of the Index. In addition, the Fund may invest in securities or financial instruments not included in the underlying
Index. The Fund may be subject to large movements of assets into and out of the Fund, potentially resulting in the Fund being over- or under-exposed to its Index. Activities surrounding annual index reconstitutions and other index repositioning or
reconstitution events may hinder the Funds ability to meet its calendar month leveraged investment objective in that month. The Fund seeks to rebalance its portfolio monthly to keep leverage consistent with its calendar month leveraged
investment objective.
Non-Diversification Risk
The Fund is non-diversified, which means it invests a high percentage of
its assets in a limited number of securities. A non-diversified funds NAVs and total returns may fluctuate more or fall greater in times of weaker markets than a diversified mutual fund.
Regulatory Risk
The Fund is subject to the risk that a change in U.S. law and related regulations will impact the way the Fund
operates, increase the particular costs of the Funds operations and/or change the competitive landscape.
Risks of Investing in
Other Investment Companies (including ETFs)
Investments in the securities of other investment companies, including ETFs, may involve duplication of advisory fees and certain other expenses. By investing in another investment company or
ETF, the Fund becomes a shareholder thereof. As a result, Fund shareholders indirectly bear the Funds proportionate share of the fees and expenses paid by shareholders of the other investment company or ETF, in addition to the fees and
expenses Fund shareholders indirectly bear in connection with the Funds own operations. The Funds performance may be magnified positively or negatively by virtue of its investment in other investment companies. If the other investment
company or ETF fails to achieve its investment objective, the value of the Funds investment will decline, adversely affecting the Funds performance. In addition, closed-end investment company and ETF shares potentially may trade at a
discount or a premium and are subject to brokerage and other trading costs, which could result in greater expenses to a Fund. Finally, because the value of other investment company or ETF shares depends on the demand in the market, the Adviser may
not be able to liquidate a Funds holdings in those shares at the most optimal time, adversely affecting the Funds performance.
Tracking Error Risk
The Fund may have difficulty achieving its calendar month target due to fees and expenses, high portfolio
turnover, transaction costs and/or a temporary lack of liquidity in the markets for the securities held by the Fund. A failure to achieve a calendar month target may cause the Fund to provide returns for a longer period that are worse than expected.
In addition, even though the Fund may meet its calendar month target over a period of time, this will not necessarily produce the returns that might be expected in light of the returns of its index or benchmark for that period.
Valuation Time Risk
The Fund values its portfolio as of the close of regular trading on the New York Stock Exchange (NYSE)
(generally 4:00 PM Eastern time). In some cases, foreign market indices close before the NYSE opens or may not be open for business on the same calendar days as the Fund. As a result, the performance of the Fund that tracks a foreign market index
can vary from the performance of that index.
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