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The Denali Fund (NYSE:DNY) is traded on the New York Stock Exchange and was originally launched in September 2002. It regularly sells at a discount substantially in excess of 25% of its net asset value. DNY is part of a group of funds controlled by The Horejsi family. The fund has been going through a metamorphosis and its portfolio is radically changing. These changes seem interesting and even appealing, which is why I wish to write again about DNY.

As of October 31, 2011, the fund's capitalization was as follows:

Gross Assets $96,867,335
Auction Preferred Shares ($21,950,000)
Net Assets. $74,917,022

Although only moderately successful in performance, it has been making money and its tax situation is as follows:

Overdistributed Net Income ($38,620)
Accumulated Realized Gains $1,814,435
Unrealized Appreciation $18,255,887

Per share figures for the year ending October 31, 2011, were as follows:

Return on Net Asset Value 1.3%
Return on Market Value 0.4%
Gross Operating Expenses 2.64%
Net Investment Income 0.51%
Portfolio Turnover 7%

So far, this has been mundane and very average. It is their portfolio that is interesting. At one time, most of their assets were in cash and the shares of Berkshire Hathaway (NYSE:BRK.A) but this is changing. DNY is making very different and interesting investments. As of October 31, 2011, its seven (7) largest investment sectors were as follows:

Berkshire Hathaway 21.6%
Real Estate Investment Trusts 16.6%
Short Term Investments 11.1%
Ithan Creek Partners (a hedge fund) 10.3%
Auction Preferred Securities of Closed End Funds 9.7%
Closed-End Funds 8.8%
Johnson & Johnson (NYSE:JNJ) 5.7%

I know nothing of Ithan Creek Partners, but i do know that The Horejsi family has invested in it with First Opportunity Fund (OTCPK:FOFI) which they also control.

Except for the hedge Fund investment, the portfolio seems exceptionally mundane. The three closed end funds it has invested in are fairly stable (except for RMR Asia pacific which is in the midst of merging with its sister fund and tendering at net asset value for 20% of its outstanding shares). These funds are:

Cohen & Steers Infrastructure Fund

Flaherty & Crumrine/Claymore Total Return Fund

RMR Asia Pacific Real Estate Fund

The Auction Rate preferred Securities are also in mundane closed end funds, which are:

  • Advent Claymore Global Convertible Securities & Income Fund
  • Gabelli Dividend & Income Trust
  • TS&W/Claymore Tax Advantaged Balanced Fund
  • Western Asset Premier Bond Fund

I know nothing of the REIT investments and simply list them, in case you know more than I do:

  • LTC Properties
  • Ventas
  • Kiwi Income Property

CONCLUSION

This sounds like an interesting investment, for the following reasons:

1. Management has put its money where its mouth is and owns a large chunk of the fund

2. The assets appear to be fairly mundane and relatively safe

3. DNY has invested in interesting assets

4. I know nothing of the hedge fund but you are getting to buy in at a great discount.

Source: Denali: A Closed-End Fund In Transition