In developing a slew of new products to mark its organizational reinvention, Direxion Funds has changed its grip on commodities to escape tax penalties from the Internal Revenue Service.

Late last year, several firms offering funds that invested directly in commodities -- including Potomac, Direxion's previous incarnation -- learned they would have to adopt financial instruments complying with the IRS' definition of "qualifying income," or incur a tax burden that would effectively shut the funds down. The deadline for compliance is currently September 30.

As a result, the revamped Direxion Commodity Bull 2x Fund seeks to achieve 200 percent of the price performance of the Morgan Stanley Commodity Related Index -- which invests in businesses that deal in commodities, rather than commodities themselves. In a statement, president and CIO Daniel O'Neill said the other affected companies "may be forced to use financial instruments which are considerably more expensive than previous alternatives," suggesting Direxion's approach will prove cleaner and cheaper.

Previously, the firm's Commodity Bull Fund was not leveraged, but sought capital appreciation on an annual basis. In its new form, the fund includes an equal-weighted index of 20 stocks in industries like energy, non-ferrous metals, agriculture, and forestry.

 

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