Q:  What is the history and objective of the fund? A : As a dedicated provider of alternative investment strategies, Direxion launched the Long/Short Global IPO Mutual Fund as recently as March 2010 to offer investors an institutional-style access to investment opportunities in the global IPO market through a long/short active management of the initial lifecycle of the typical IPOs. The result is a non-correlating, liquid fund that offers potential diversification to any portfolio. Q:  When you say early life, what span do you generally have in mind and what type of investors should consider investing in it? A : When we say initial lifecycle, we track the IPO market through the first four years of its life in three distinct parts. As a buy and hold managed tactical fund, this fund is best suited for those investors who value a tactical approach but prefer to defer to others to develop and manage the investment strategy. Q:  What are the phases of the IPO life cycle and how important are they? A : In general, any IPO is priced significantly below market expectations, thus providing potential for capital appreciation on the first trading day and through the first few weeks of the offering. This is what we refer to as the first phase of the IPO. The second phase encompasses the period until year one, a time span when the issues selected are held in long positions that are expected to outperform. As there are no earnings reports, the market reacts to reports by analysts tracking these issues and they tend to perform accordingly. The third distinct phase is the period from year two to year four when the issues generally are found to underperform because of the results available for the first year performance. In this phase the issues selected are held in short positions. Q:  What is the fund’s investment objective? A : The fund’s investment objective is to seek capital appreciation through a risk-controlled portfolio. To achieve this objective the fund invests in IPOs and spin-offs using a combined long/short strategy developed by the sub-advisor, IPOX Capital Management LLC. Q:  Would you describe your investment strategy? A : The fund uses a methodology developed by IPOX Capital Management to establish a long/short portfolio made up of offerings and new equity issues. The fund will participate in selected IPOs to take advantage of the potential under-pricing feature of any IPO to attract investment. These investments can make up as much as 20% of the total portfolio and is designed to seek alpha opportunities. The positions that we purchase during the first year after the IPO date will be held as long positions. The universe comprises all those global IPO issues in both developed and emerging markets. Then, positions purchased after the first year are usually from established companies in the process of developing an earnings record and thus are held in short positions. In essence, the fund offers long/short neutral approach with a positive bias represented by the initial offerings in phase one, while providing ability to access IPOs across all sectors and nearly all regions. It also gives investors access to those IPO syndicates that are typically reserved for institutional investors only. Q:  Why should one invest in IPOs? A : IPOs are the lifeblood of the global equity capital markets, which bears a substantial economic significance. Investors may find IPOs to be attractive because they possess an opportunity for growth. They act as a separate asset class in the first few years, thus offering potential for growth along with diversification. Last but not least, the pipeline for IPOs on a global scale is large enough to provide a continual flow of opportunities for investors. Q:  How do you go about selecting stocks in your portfolio to achieve the strategy in the fund? A : We will participate in initial public offerings to take advantage of any potential under-pricing detected in the global IPO market. The fund maintains a near-neutral investment with a slight bias of up to 20% toward long positions when it participates in initial public offerings. The management team seeks to leverage the asymmetry in the information available in the early stages of the IPO life as the IPO could perform much better in the initial stages as opposed to the actual performance at a later stage. Q:  How do you select the IPOs for the long positions that you mentioned? A : The fund’s IPOs are selected on the basis of specific criteria like size, industry, fundamentals and earnings potential as per the research done by our sub-advisors. With this section we expect to add alpha to the overall performance of the fund. The positions are equally weighted and they can make up as much as 20% of the total portfolio. Q:  Are there any selection parameters for the long and short positions in the fund? A : The new issues that we expect to outperform in long positions are selected on the basis of institutional research and empirical data patterns. The fund will in no case purchase issues with less than $50 million in market cap and no single company can exceed 10% of the fund’s portfolio. When the position crosses over 5% of the portfolio, we also limit the ownership of that individual company to below 50%. The fund tends to be market capitalization weighted. New issues that are selected to underperform in short positions are made on the basis of market–related data, such as earnings per share, volatility and expected earnings as these start to be available after one year. The fund considers only those issues that have daily average equity turnover of more than $2 million. We will not short any issue that is less than $300 million in market capitalization and the portfolio tends in this case to be equally weighted. Q:  Is there any limitation to the total exposure in these two positions? A : The exposure in each case is 100% of the portfolio. If we want to have some $10-million exposure each in the long and short portions, we will have a counter party that writes the swap for us. They will provide the performance of the swap for the maturity of the contract, which is a way to obtain exposure to the IPOX Global Composite Index, a passive index developed by our sub-advisor, without actually buying each name. By using the one-to-one leverage swap we can have $10 million in both the long and short positions. So, apart from the 20% long positions that give us the alpha, we are market neutral. In the long positions we have a minimum of 30 stocks but limited to the index’s 130 stocks and in the short positions we have some 75 stocks with the same limits. The portfolio is rebalanced every month to take care of the weighting considering the appreciation or depreciation in the stocks. Q:  Generally, what are the countries you cover on the global scene? A : Even though we can go to any place in the world, as of now we cover only the North American region, Europe, and Asia, especially the Far East markets of China, Hong Kong, Japan and Singapore. Since this is a fledgling fund, we would go to areas like India after carefully considering the market potential. Q:  What is the correlation within these assets? A : Since they perform in just the reverse way to the broader market, we call them non-correlated assets as they have no correlation to the broader market. They do not perform in tandem with the market, with the long component designed to go up no matter what the market condition is. This is because the reason for these IPOs to trade higher has nothing to do with the overall market conditions. Q:  As passive managers you do not have to worry a lot about risks, but is there anything else that you consider equally important? A : The most obvious thing we need to ensure is that we can trade and get exposure as we are exposed to every stock in the index. It is also important for us to track the alpha component that we get from the 20% exposure to the long side. Furthermore, we need to maintain good relationships with major investment banks so that we get allocations in those hard-to-get offerings that are in great demand.