DIREXION FUNDS SUBADVISORY AGREEMENT
This Subadvisory Agreement is made as
of January 1, 2010 (the “Effective Date”), between Xxxxxxxx Asset Management,
LLC, a New York limited liability corporation (the “Adviser”), and IPOX®
Capital Management, LLC (the “Subadviser”).
WHEREAS, the Adviser serves as the
investment adviser to the Direxion Long/Short IPO Fund (the “Fund”), which is a
series of the Direxion Funds (the “Trust”), a Massachusetts business trust
registered as an open-end management investment company under the Investment
Company Act of 1940, as amended (“1940 Act”);
WHEREAS, the Adviser’s contract with
the Fund allows it to delegate certain investment advisory services to other
parties; and
WHEREAS, the Adviser desires to retain
the Subadviser to perform certain investment subadvisory services for the Fund,
and the Subadviser is willing to perform such services;
NOW, THEREFORE, in consideration of the
promises and mutual covenants herein contained, and intending to be legally
bound hereby, it is agreed between the parties hereto as follows:
1. Services to be Rendered by
the Subadviser to the Fund.
(a) Investment
Program. Subject to the control and supervision of the Board
of Trustees of the Trust and the Adviser, the Subadviser shall, at its expense
and on a regular basis, provide continuous investment advice and security
selection for the Fund. The Adviser shall implement the Subadviser’s investment
decisions for the Fund by placing all brokerage orders for the purchase and sale
of securities selected by the Subadviser. The Adviser and Subadviser
shall consult regularly regarding this investment process.
In the performance of its duties, the
Subadviser will act in the best interests of the Fund and will comply with (i)
applicable laws and regulations, including, but not limited to, the 1940 Act and
the Investment Advisers Act of 1940, as amended (“Advisers Act”), and the rules
under each, (ii) the terms of this Agreement, (iii) the stated investment
objective, policies and restrictions of the Fund, as stated in the then-current
Form N-1A Registration Statement of the Fund (“Registration Statement”), (iv)
the Trust’s compliance procedures and other policies, procedures or guidelines
as the Board or the Adviser reasonably may establish from time to time, (v) the
provisions of the Internal Revenue Code of 1986, as amended (“Code”), applicable
to “regulated investment companies” (as defined in Section 851 of the Code), as
from time to time in effect, and (vi) the reasonable written instructions of the
Adviser. The Adviser shall be responsible for providing the
Subadviser with current copies of the materials specified in Subsections
(a)(iii) and (iv) of this Section 1(a). The Adviser shall provide the
Subadviser with prior written notice of any material change to the Registration
Statement that would affect the Subadviser’s management of the
Fund.
(b) Expenses. The
Subadviser, at its expense, will furnish all necessary facilities and personnel,
including salaries, expenses and fees of any personnel required for them to
faithfully perform their duties under this Agreement and administrative
facilities, including bookkeeping, and all equipment necessary for the efficient
conduct of the Subadviser’s duties under this Agreement. However, the
Subadviser shall not be obligated to pay any expenses of the Adviser, the Fund,
or the Trust, including without limitation, interest and taxes, brokerage
commissions and other costs in connection with the purchase or sale of
securities or other investment instruments for the Fund and custodian fees and
expenses.
(c) Valuation. Securities
traded on a national securities exchange or The Nasdaq Stock Market for which
market quotes are readily available are valued on each day the New York Stock
Exchange is open for business. For those securities held by the Fund
for which market quotes are not readily available, the Subadviser, at its
expense and in accordance with procedures and methods established by the Board,
which may be amended from time to time, will provide assistance to the Adviser,
or other applicable service providers for the Trust and the Fund, in determining
the fair value of such securities, including providing market price information
relating to these assets of the Fund.
(d) Reports and Availability of
Personnel. The Subadviser, at its expense, shall render to the
Board and the Adviser such periodic and special reports as the Board and the
Adviser reasonably may request with respect to matters relating to the duties of
the Subadviser set forth herein. The Subadviser, at its expense, will
make available to the Board and the Adviser at reasonable times its Fund
managers and other appropriate personnel in order to review investment policies
of the Fund and to consult with the Board and the Adviser regarding the
investment affairs of the Fund, including economic, statistical and investment
matters relevant to the Subadviser’s duties hereunder.
(e) Compliance
Matters. The Subadviser, at its expense, will provide the
Adviser with such compliance reports and certifications relating to its duties
under this Agreement and the federal securities laws as may be agreed upon by
such parties from time to time. The Subadviser also shall: (i)
cooperate with and provide reasonable assistance to the Adviser, the Fund’s
administrator, the Fund’s custodian, the Fund’s transfer agent and pricing
agents and all other agents and representatives of the Fund, the Trust and the
Adviser; (ii) keep all such persons fully informed as to such matters as they
may reasonably deem necessary to the performance of their obligations to the
Fund, the Trust and the Adviser; (iii) provide prompt responses to reasonable
requests made by such persons; and (iv) maintain any appropriate interfaces with
each so as to promote the efficient exchange of information.
(f) Books and
Records. The Subadviser will maintain for the Fund all books
and records required to be maintained by the Fund pursuant to the 1940 Act and
the rules and regulations promulgated thereunder insofar as such records relate
to the investment decisions of the Fund. The Adviser retains
responsibility for maintaining the Fund’s books and records insofar as such
records relate to the placement and execution of orders on behalf of the
Fund. Pursuant to Rule 31a-3 under the 1940 Act, the Subadviser
agrees that: (i) all records it maintains for the Fund are the
property of the Fund; (ii) it will surrender promptly to the Fund or the Adviser
any such records upon the Fund’s or the Adviser’s request; and (iii) it will
preserve for the periods prescribed by Rule 31a-2 under the 1940 Act the records
it maintains for the Fund. Notwithstanding subsection (ii) above, the
Subadviser may maintain copies of such records, without limitation, to comply
with its record keeping obligations.
2
2. Compensation. The Adviser shall
pay to the Subadviser as compensation for the Subadviser’s services rendered
pursuant to this Agreement a subadvisory fee as set forth in Schedule A, which
schedule can be modified upon agreement by the Adviser and Subadviser from time
to time, subject to the appropriate approvals required by the 1940
Act. Such fees shall be paid by the Adviser (and not by the
Fund). Such fees shall be payable for each month within 15 business
days after the end of such month. If the Subadviser shall serve for
less than the whole of a month, the compensation as specified shall be prorated
based on the number of calendar days during which this Agreement is in effect
during such month, and the fee shall be computed based upon the average daily
net assets of the Fund for such days.
3. Representations And
Warranties.
(a) Subadviser. The
Subadviser represents and warrants to the Adviser that: (i) the
retention of the Subadviser by the Adviser as contemplated by this Agreement is
authorized by the Subadviser's governing documents; (ii) the execution, delivery
and performance of this Agreement does not violate any obligation by which the
Subadviser or its property is bound, whether arising by contract, operation of
law or otherwise; (iii) this Agreement has been duly authorized by appropriate
action of the Subadviser and when executed and delivered by the Subadviser will
be a legal, valid and binding obligation of the Subadviser, enforceable against
the Subadviser in accordance with its terms, subject, as to enforcement, to
applicable bankruptcy, insolvency and similar laws affecting creditors’ rights
generally and to general equitable principles (regardless of whether enforcement
is sought in a proceeding in equity or law); (iv) the Subadviser is registered
as an investment adviser under the Advisers Act; (v) the Subadviser has adopted
a written code of ethics complying with the requirements of Rule 17j-1 under the
1940 Act and that the Subadviser and certain of its employees, officers and
members are subject to reporting requirements thereunder and, accordingly,
agrees that it shall, on a timely basis, furnish a copy of such code of ethics
to the Adviser; (vi) the Subadviser has adopted written compliance policies and
procedures reasonably designed to prevent violations of the Advisers Act and the
rules promulgated thereunder and the Subadviser agrees to provide: (a) from time
to time a copy and/or summary of such compliance policies and procedures and an
accompanying certification certifying that the Subadviser’s compliance policies
and procedures comply with the Advisers Act (b) a report of the annual review
determining the adequacy and effectiveness of the Subadviser’s compliance
policies and procedures; (c) the name of the Subadviser’s Chief Compliance
Officer to act as a liaison for compliance issues that may arise between the
Fund and the Subadviser; (vii) the Subadviser is not prohibited by the 1940 Act,
the Advisers Act or other law, regulation or order from performing the services
contemplated by this Agreement; (viii) the Subadviser will promptly notify the
Adviser of the occurrence of any event that would disqualify the Subadviser from
serving as investment subadviser of an investment company pursuant to Section
9(a) of the 1940 Act or otherwise; (ix) the Subadviser has provided the Adviser
with a copy of its Form ADV as most recently filed with the SEC and will furnish
a copy of all amendments to the Adviser at least annually; and (x) the
Subadviser will notify the Adviser of any “assignment” (as defined in the 0000
Xxx) of this Agreement or change of control of the Subadviser, as applicable,
and any changes in the key personnel who are the portfolio managers of the Fund,
in each case prior to or promptly after, such change.
3
(b) Adviser. The
Adviser represents and warrants to the Subadviser that: (i) the
retention of the Subadviser by the Adviser as contemplated by this Agreement is
authorized by the respective governing documents of the Trust and the Adviser;
(ii) the execution, delivery and performance of each of this Agreement and the
Advisory Agreement does not violate any obligation by which the Trust or the
Adviser or their respective property is bound, whether arising by contract,
operation of law or otherwise; (iii) each of this Agreement and the Advisory
Agreement has been duly authorized by appropriate action of the Trust and the
Adviser and when executed and delivered by the Adviser will be a legal, valid
and binding obligation of the Fund, the Trust and the Adviser, enforceable
against the Trust and the Adviser in accordance with its terms, subject, as to
enforcement, to applicable bankruptcy, insolvency and similar laws affecting
creditors’ rights generally and to general equitable principles (regardless of
whether enforcement is sought in a proceeding in equity or law); (iv) the
Adviser is registered as an investment adviser under the Advisers Act; (v) the
Adviser has adopted a written code of ethics complying with the requirements of
Rule 17j-1 under the 1940 Act and that the Adviser and certain of its employees,
officers and directors are subject to reporting requirements thereunder; (vi)
the Adviser is not prohibited by the 1940 Act, the Advisers Act or other law,
regulation or order from performing the services contemplated by this Agreement;
and (vii) the Adviser will promptly notify the Subadviser of the occurrence of
any event that would disqualify the Adviser from serving as investment manager
of an investment company pursuant to Section 9(a) of the 1940 Act or
otherwise.
4. Liability
of the Subadviser. In the absence of
(a) bad faith, negligence or willful misfeasance on the part of the Subadviser
in performance of its obligations and duties hereunder, (b) reckless disregard
by the Subadviser of its obligations and duties hereunder, or (c) a loss
resulting from a breach of the Subadviser’s fiduciary duty with respect to the
receipt of compensation for services (in which case any award of damages shall
be limited to the period and the amount set forth in Section 36(b)(3) of the
1940 Act), the Subadviser shall not be subject to any liability whatsoever to
the Adviser, the Fund, the Trust, or to any shareholder of the Fund, for any
error or judgment, mistake of law or any other act or omission in the course of,
or connected with, rendering services hereunder including, without limitation,
for any losses that may be sustained in connection with the Subadviser’s
investment decisions on behalf of the Fund. No provision of this
Section 4 is intended to create any rights whatsoever to any third parties,
including without limitation the shareholders of the Fund. However,
the Subadviser shall indemnify and hold harmless, as applicable, the Adviser,
the Fund, the Trust, its Trustees or any shareholder of the Fund from any and
all claims, losses, expenses, obligations and liabilities (including reasonable
attorneys fees) that arise or result from conduct specified in Subsections (a)
through (c) above.
5. Liability
of the Adviser. In the absence of
(a) bad faith, negligence or willful misfeasance on the part of the Adviser in
performance of its obligations and duties hereunder, (b) reckless disregard by
the Adviser of its obligations and duties hereunder, or (c) a loss resulting
from a breach of the Adviser’s fiduciary duty with respect to the receipt of
compensation for services (in which case any award of damages shall be limited
to the period and the amount set forth in Section 36(b)(3) of the 1940 Act), the
Adviser shall not be subject to any liability whatsoever to the Subadviser for
any error or judgment, mistake of law or any other act or omission in the course
of, or connected with, rendering services hereunder including, without
limitation, for any losses that may be sustained in connection with the
purchase, holding, redemption or sale of any security on behalf of the
Fund. No provision of this Section 5 is intended to create any rights
whatsoever to any third parties, including without limitation the shareholders
of the Fund. However, the Adviser shall indemnify and hold harmless
the Subadviser from any and all claims, losses, expenses, obligations and
liabilities (including reasonable attorneys fees) that arise or result from
conduct specified in Subsections (a) through (c) above.
4
6. Liability
of Trustees and Shareholders. Any obligations
of the Fund under this Agreement are not binding upon the Trustees or the
shareholders individually, but are binding only upon the assets and property of
the Fund.
7. Duration
and Termination of the Agreement. This Agreement
shall become effective upon its execution; provided, however, that this
Agreement shall not become effective unless it has first been approved in
accordance with 1940 Act requirements (and related rules and interpretations),
either by a vote of the Independent Trustees or the shareholders of the
Fund. This Agreement shall remain in full force and effect
continuously thereafter, except as follows:
|
(a)
|
By
vote of a majority of the (i) Independent Trustees, or (ii) outstanding
voting shares of the Fund, the Fund may at any time terminate this
Agreement, without the payment of any penalty, by providing not more than
60 days’ written notice delivered or mailed by registered mail, postage
prepaid, to the Adviser and the
Subadviser.
|
|
(b)
|
This
Agreement will terminate automatically, without the payment of any
penalty, unless within two years after its initial effectiveness and at
least annually thereafter, the continuance of the Agreement is
specifically approved by (i) the Board of Trustees or the shareholders of
the Fund by the affirmative vote of a majority of the outstanding shares
of the Fund, and (ii) a majority of the Independent Trustees, by vote cast
in person at a meeting called for the purpose of voting on such
approval. If the continuance of this Agreement is submitted to
the shareholders of the Fund for their approval and such shareholders fail
to approve such continuance as provided herein, the Subadviser may
continue to serve hereunder in a manner consistent with the 1940 Act and
the rules thereunder.
|
|
(c)
|
The
Adviser may at any time terminate this Agreement, without the payment of
any penalty, by not less than 60 days’ written notice delivered or mailed
by registered mail, postage prepaid, to the Subadviser, and the Subadviser
may at any time, without the payment of any penalty, terminate this
Agreement by not less than 90 days’ written notice delivered or mailed by
registered mail, postage prepaid, to the
Adviser.
|
|
(d)
|
This
Agreement automatically and immediately shall terminate, without the
payment of any penalty, in the event of its assignment or if the
Investment Advisory Agreement between the Adviser and the Fund shall
terminate for any reason.
|
5
|
(e)
|
Any
notice of termination served on the Subadviser by the Adviser shall be
without prejudice to the obligation of the Subadviser to complete
transactions already initiated or acted upon with respect to the
Fund.
|
Upon termination of this Agreement, the
duties of the Adviser delegated to the Subadviser under this Agreement
automatically shall revert to the Adviser.
8. Amendment
of Agreement. No provision of
this Agreement may be changed, waived, discharged or terminated orally, but only
by an instrument in writing signed by the party against whom enforcement of the
change, waiver, discharge or termination is sought. No material
amendment of this Agreement shall be effective until approved in the manner
required by the 1940 Act, any rules thereunder or any exemptive or other relief
granted by the SEC or its staff.
9. Additional
Agreements.
|
(a)
|
Other Advisory
Agreements. The Subadviser and persons controlled by or
under common control with the Subadviser have and may have advisory,
management service or other agreements with other organizations and
persons, and may have other interests and businesses. Nothing
in this Agreement is intended to preclude such other business
relationships.
|
|
(b)
|
Access to
Information. The Subadviser shall, upon reasonable
notice, afford the Adviser at all reasonable times access to Subadviser's
officers, employees, agents and offices and to all its relevant books and
records and shall furnish the Adviser with all relevant financial and
other data and information with respect to the Fund and its investments as
requested; provided, however, that nothing contained herein shall obligate
the Subadviser to provide the Adviser with access to the books and records
of the Subadviser relating to any other accounts other than the
Fund.
|
(c) Confidentiality. The
Subadviser shall treat confidentially and as proprietary information of the
Trust and the Fund all records and information (including investment holdings
and activities of the Fund) relative to the Trust and the Fund and prior,
present or potential shareholders, and will not use such records and information
for any purpose other than performance of its responsibilities and duties
hereunder, except after prior notification to and approval in writing by the
Trust, which approval shall not be unreasonably withheld and may not be withheld
where the Subadviser may be exposed to civil or criminal contempt proceedings
for failure to comply, when requested to divulge such information by duly
constituted authorities, or when so requested by the
Trust. Notwithstanding the above, the Subadviser may
disclose: (i) the identity of the Trust and the Fund as part of any
representative list of clients of the Subadviser and the amount of fees paid
under this Agreement in response to inquiries relating to potential conflicts of
interest and/or in connection with marketing; (ii) the investment results and
other data of the Fund (without identifying the Fund or the Trust) in connection
with providing composite investment results of clients of the Subadviser; and
(iii) investments and transactions with respect to the Fund (without identifying
the Trust or the Fund) in connection with providing composite information of
clients of the Subadviser, provided that such disclosure will not be made in
such a manner that may reasonably have an adverse effect on the trading
activities of the Fund.
6
(d) Public
Announcements. No party shall issue any press release or
otherwise make any public statements with respect to the matters covered by this
Agreement without the prior written consent of the other parties hereto, which
consent shall not be unreasonably withheld; provided, however, that consent
shall not be required if, in the opinion of counsel, such disclosure is required
by law; provided further, however, that the party making such disclosure shall
provide the other parties hereto with as much prior written notice of such
disclosure as is practical under the circumstances.
(e) Notifications. The
Subadviser agrees that it will promptly notify the Adviser in the event that the
Subadviser or any of its affiliates is or expects to become the subject of an
administrative proceeding or enforcement action by the Commission or other
regulatory body with applicable jurisdiction.
(f) Insurance. The
Subadviser agrees to maintain errors and omissions or professional liability
insurance coverage in an amount that is reasonable in light of the nature and
scope of the Subadviser's business activities.
(g) Shareholder Meeting
Expenses. In the event that the Trust shall be required to
call a meeting of shareholders solely due to actions of the Subadviser,
including, without limitation, a change of control of the Subadviser, the
Subadviser shall bear all reasonable expenses associated with such shareholder
meeting.
10. Notices. All notices or
other communications given under this Agreement shall be made by guaranteed
overnight delivery, telecopy or certified mail; notice is effective when
received. Notice shall be given to the parties at the following
addresses:
Adviser:
Xxxxxxxx Asset Management LLC
00 Xxxxxxxxx Xxxxxx, 00xx
Xxxxx
Xxx Xxxx,
XX 00000
Facsimile
No.: (000) 000-0000
Attention: Xxxxxx X.
X’Xxxxx
Subadviser: IPOX®
Capital Management, LLC
000 Xxxx Xxxxxxx
Xxxxxxxxx
Xxxxx 0000X
Xxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx
Xxxxxxxx
11. Definitions. For the purposes
of this Agreement, the terms “vote of a majority of the outstanding shares,”
“affiliated person,” “control,” “interested person” and “assignment” shall have
their respective meanings as defined in the 1940 Act and the rules thereunder
subject, however, to such exemptions as may be granted by the Securities and
Exchange Commission (“SEC”) under said Act; and references to annual approvals
by the Board of Trustees shall be construed in a manner consistent with the 1940
Act and the rules thereunder.
7
12. Governing
Law. This Agreement
shall be construed in accordance with the laws of the Commonwealth of
Massachusetts, without giving effect to the conflicts of laws principles
thereof, and in accordance with the 1940 Act. To the extent that the
applicable laws of the Commonwealth of Massachusetts conflict with the
applicable provisions of the 1940 Act, the latter shall control.
13. Severability. If any provision
of this Agreement shall be held or made invalid by a court decision, statute,
rule or otherwise, the remainder of this Agreement shall not be affected
thereby. This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors.
14. Counterparts. This Agreement
may be executed simultaneously in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
15. Entire
Agreement. This Agreement
states the entire agreement of the parties hereto, and is intended to be the
complete and exclusive statement of the terms hereof.
16. Miscellaneous. The captions in
this Agreement are included for convenience of reference only and in no way
define or delimit any of the provisions hereof or otherwise affect their
construction or effect. Where the effect of a requirement of the 1940
Act reflected in any provision of this Agreement is made less restrictive by a
rule, or order of the SEC, whether of special or general application, such
provision shall be deemed to incorporate the effect of such rule, or
order.
IN
WITNESS WHEREOF, Xxxxxxxx Asset Management, LLC and IPOX®
Capital Management, LLC have each caused this instrument to be signed on its
behalf by its duly authorized representative, all as of the day and year first
above written.
8
XXXXXXXX
ASSET MANAGEMENT, LLC
By:
Name: Xxxxxx
X. X’Xxxxx
Title: President
IPOX®
CAPITAL MANAGEMENT, LLC
By:
Name: Xxxxx
Xxxxxxxx
Title: Managing
Member
9
SCHEDULE
A
TO
THE
BETWEEN
XXXXXXXX
ASSET MANAGEMENT, LLC
AND
IPOX®
CAPITAL MANAGEMENT, LLC
As
compensation pursuant to Section 2 of the Subadvisory Agreement between Xxxxxxxx
Asset Management, LLC (the “Adviser”) and IPOX®
Capital Management, LLC (the “Subadviser”), the
Adviser shall pay the Subadviser a subadvisory fee (the “Monthly Fee”), computed
and paid monthly, at the following annual percentage rates of the average daily
net assets under management by the Subadviser:
0.25% on
assets up to $100 million;
0.30 % on
assets between $100 million and $200 million;
0.35% on
assets between $200 million and $300 million; and
0.40% on
assets over $300 million.
Provided, that for each calendar month
in which the subadvisory fee computed according to the above schedule (the
“Calculated Amount”) does not total $5,000 or greater, the Adviser shall pay the
Subadviser a flat fee totaling $5,000 for such month (the “Minimum Monthly
Amount”); and provided further, that for any calendar month in which (a) a
Cumulative Carryforward Amount (as defined below) shall exist and (b) a positive
difference between the Calculated Amount less the Minimum Monthly Amount (such
difference, the “Excess Amount”) shall exist, the Monthly Fee shall be reduced
(the amount of such reduction, the “Cumulative Carryforward Amount Reduction”)
in an amount equal to the lesser of the Excess Amount or the Cumulative
Carryforward Amount.
The
“Carryforward Amount” means, with respect to any calendar month, the positive
difference, if any, between the Minimum Monthly Amount less the Calculated
Amount.
The
“Cumulative Carryforward Amount” means, with respect to any calendar month, the
aggregate of the Carryforward Amounts for all prior calendar months less any
Cumulative Carryforward Amount Reductions applied to reduce the Monthly Fee in
prior calendar months.
A-1
