Correspondence 0000894189-24-000960 from Denali Structured Return Strategy Fund (CIK 0002000182)
Denali Structured Return Strategy Fund (CIK 0002000182)
Date: Feb. 9, 2024 · CIK: 0002000182 · Accession: 0000894189-24-000960
AI Filing Summary & Sentiment
File numbers found in text: 333-275771, 811-23918
Referenced dates: December 18, 2023
Letter
Office of Disclosure and Review U.S. Securities & Exchange Commission 100 F Street, N.E. Washington, DC 20549 Re: Denali Structured Return Strategy Fund File Nos. 333-275771; 811-23918
Dear Mr. Bellacicco:
On behalf of the Denali Structured Return Strategy Fund (the "Fund" or "Registrant"), this letter responds to the comments that you provided on behalf of the staff of the Securities and Exchange Commission (the "Staff") by letter dated December 18, 2023, with respect to the registration statement of the Fund on Form N-2 (the "Registration Statement") as well as telephonic follow up comments provided on January 31, 2024. Please find below the Registrant's responses to those comments, which the Registrant has authorized Thompson Hine LLP to make on its behalf. A marked version of the prospectus is attached to aid in the Staff's review. The Registrant anticipates filing an amended Form N-2 in the near future (perhaps in about one week) with a request for acceleration of effectiveness to follow shortly after.
GENERAL
Comment #1. We note that portions of the registration statement are incomplete. A full financial review (e.g., seed financial statements, auditor's report, consent) must be performed prior to declaring the registration statement effective. We may have additional comments on such portions when you complete them in a pre-effective amendment, on disclosures made in response to this letter, on information supplied supplementally, or on exhibits added in any amendment.
Response. The Registrant acknowledges that the SEC staff may have additional comments upon review of the then-supplied financial statements and related information as well as revised disclosures.
Comment #2. Please tell us if you have presented any test-the-waters materials to potential investors in connection with this offering. If so, we may request such materials.
Response. The Registrant has not presented any test the waters materials to potential investors.
Comment #3. Please advise us if you expect to submit an exemptive application in connection with your registration statement.
Response. The Registrant has not and has no plans to submit an exemptive application or no-action request in connection with the registration statement.
Comment #4. Please add page numbers to the prospectus and statement of additional information.
Response. The Registrant has added page numbers to the prospectus and statement of additional information.
PROSPECTUS
PROSPECTUS SUMMARY – Investment Policies and Strategies
Comment #5. The first sentence in this section states the Fund seeks to achieve its investment objectives "through a modest investment in call option spreads on a large capitalization U.S. equity index."
a.Please add disclosure clarifying what the Fund means by "modest."
b.Please disclose the large capitalization U.S. equity index that the Fund plans to use as the reference asset for the options in which it plans to invest.
Response.
a.The Registrant has revised disclosures to clarify that the Fund means approximately one and a half to three percent of total assets when referring to "modest."
b.The Registrant had originally included the S&P 500® Index in the working draft of the N-2, but became concerned that such a specific reference would lead to possible action for trademark infringement or a request for a large licensing fee from the owner of the S&P 500® Index. Consequently, the Registrant had used "large capitalization U.S. equity index" with the expectation that most investors will assume or understand this to be a reference to the S&P 500® Index. However, the Registrant has reverted to using the S&P 500® Index.
Comment #6. The first paragraph in this section states "Rather than buy an asset at a specified price, the Fund may accept a cash settlement equal to the difference between the asset's price and the strike price." Please clarify when such a situation would occur. Please also clarify whether the Fund will know at the time that it purchases the option that it will receive such cash settlement (assuming the option is exercised).
Response. The Registrant has added additional disclosures to clarify when options are cash settled and when they are delivered and to note that the Fund will know at the time of purchase which type of option is involved.
Comment #7. The final paragraph of this section states that the Fund anticipates investing in call options with strike prices "that are near the then-current level" of the reference index (emphasis added). Please clarify what the Fund means by "near," as that term is ambiguous. Specifically, will the Fund purchase call options that are in-the-money, at-the-money or out-of-the-money? If this may vary, please disclose how the Fund determines the desired strike price.
Response. The Registrant has made the requested additions.
Comment #8. The final paragraph of this section further states that, in addition to purchasing call options, the Fund will write call options "with strike prices that are approximately 5% higher than the then-current level" of the reference index. Please clarify whether the call options that the Fund writes will be in an amount and have expiration dates that correspond with call options that the Fund purchases.
Response. The Registrant has made the requested additions.
PROSPECTUS SUMMARY – Private Funds
Comment #9. The disclosure in this section states that the Fund seeks "to invest in private funds that principally invest in and manage portfolios of debt instruments." The disclosure in the "INVESTMENT OBJECTIVE, POLICIES AND STRATEGIES – Private Funds" section refers to Fund investments in hedge funds, private equity funds or venture capital funds. Please add disclosure to this summary section clarifying that the Fund may invest in hedge funds, private equity funds, or venture capital funds.
Response. The Registrant included hedge funds, private equity funds or venture capital funds as examples of common private funds. However, the Fund does not invest in these types of private funds and has made clarifying disclosure, which removes references to hedge funds, private equity funds or venture capital funds.
PROSPECTUS SUMMARY – Call Option Spreads
Comment #10. The first paragraph in this section states that "The Adviser considers relative call prices when fine tuning the strike prices selected."
a.Please clarify what the Fund means by "relative call prices."
b.Please also clarify what the Fund means by "fine tuning" strike prices.
Response.
a.The Registrant has added disclosure to clarify what the Fund means by "relative call prices."
b.The Registrant believes the added disclosure in a. above clarifies what the Fund means by "fine tuning" strike prices.
Comment #11. The final sentence of the first paragraph of this section notes that the Adviser may purchase over-the-counter options, "but only from counterparties it considers credit worthy." Please describe how the Adviser determines whether a counterparty is "credit worthy."
Response. The Registrant has added disclosure describing the adviser's determination of credit quality.
PROSPECTUS SUMMARY – Summary of Risks
Comment #12. A bullet point in this section refers to risks related to Master Limited Partnerships ("MLPs"). If the Fund plans to invest in MLPs as part of its principal investment strategy, please disclose this in the prospectus summary's "Investment Policies and Strategies" section.
Response. The Registrant has made the requested revision.
Comment #13. The seventh-to-last bullet point in this section discloses risks of the Fund's call option spreads. Please add disclosure indicating that, due to the call option spread strategy, the Fund will give up the opportunity to benefit from potential increases in the value of the index above the exercise prices of the call options it has written.
Response. The Registrant has made the requested revision.
INVESTMENT OBJECTIVE, POLICIES AND STRATEGIES – Call Option Spreads
Comment #14. The first sentence of this section states that "The Adviser uses call option spreads to capture a portion of positive equity market returns without exposing the Fund to significant equity market losses." Please add disclosure explaining how the call options spread strategy does not expose the Fund to significant equity market losses.
Response. The Registrant has added disclosure to clarify that the options can expire worthless in a flat or down equity market, but are not otherwise further linked to equity losses as the Fund does not hold the reference assets linked to the options.
Comment #15. The third sentence of this section states that "The Fund's purchases of call spreads are intended to allow the Fund to participate in increases in a large capitalization U.S. equity index up to approximately 5% during the term of the call spread." Please include similar disclosure in the prospectus summary section discussing call option spreads.
Response. The Registrant has made the requested revision.
ANTI-TAKEOVER PROVISIONS IN THE DECLARATION OF TRUST
Comment #16. The disclosure in this section discusses the requirement that shareholders wishing to bring a derivative suit against the Fund must first make a written demand on the Trustees requesting that the Trustees cause the Trust to file an action. Please also disclose the Declaration of Trust provision requiring that the demand shall be executed by or on behalf of no less than three complaining shareholders who together hold not less than ten percent (10%) of the outstanding shares of the affected Series or class, none of which shall be related to (by blood or by marriage) or otherwise affiliated with any other complaining Shareholder (other than as Shareholders of the Trust). See Article V, Section 6(a)(iii) of the Declaration of Trust.
Response. The Registrant has made the requested addition.
Comment #17. The disclosure in this section also states that "With the exception of claims arising under the federal securities laws, the Declaration of Trust provides that claims must be brought exclusively in a Delaware state court . . . ." However, the Declaration of Trust does not appear to include this carve out for claims arising under the federal securities laws. Please revise the Declaration of Trust to include such carve out.
Response. The Registrant has made the requested addition to the Declaration of Trust as underlined at the end of Section 11., as follows.
Section 11. Exclusive Delaware Jurisdiction. Each Trustee, each officer, each Shareholder and each Person beneficially owning an interest in a Share of the Trust (whether through a broker, dealer, bank, trust company or clearing corporation or an agent of any of the foregoing or otherwise), to the fullest extent permitted by law, including Section 3804(e) of the DSTA, (i) irrevocably agrees that any claims, suits, actions or proceedings arising out of or relating in any way to the Trust or its business and affairs, the DSTA, this Declaration of Trust or the By-Laws or asserting a claim governed by the internal affairs (or similar) doctrine (including, without limitation, any claims, suits, actions or proceedings to interpret, apply or enforce (A) the provisions of this Declaration of Trust or the By-Laws, or (B) the duties (including fiduciary duties), obligations or liabilities of the Trust to the Shareholders or the Trustees, or of officers or the Trustees to the Trust, to the Shareholders or each other, or (C) the rights or powers of, or restrictions on, the Trust, the officers, the Trustees or the Shareholders, or (D) any provision of the DSTA or other laws of the State of Delaware pertaining to trusts made applicable to the Trust pursuant to Section 3809 of the DSTA, or (E) any other instrument, document, agreement (including, without limitation, any investment management agreement) or certificate contemplated by any provision of the Act, the Declaration of Trust or the Bylaws relating in any way to the Trust or (F) the securities or antifraud laws of any international, national, state, provincial, territorial, local or other governmental or regulatory authority, including, in each case, the applicable rules and regulations promulgated thereunder (regardless, in every case, of whether such claims, suits, actions or proceedings (x) sound in contract, tort, fraud or otherwise, (y) are based on common law, statutory, equitable, legal or other grounds, or (z) are derivative or direct claims)), shall be exclusively brought, unless the Trust, in its sole discretion, consents in writing to an alternative forum, in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, any other court in the State of Delaware with subject matter jurisdiction, (ii) irrevocably submits to the exclusive jurisdiction of such courts in connection with any such claim, suit, action or proceeding, (iii) irrevocably agrees not to, and waives any right to, assert in any such claim, suit, action or proceeding that (A) it is not personally subject to the jurisdiction of such courts or any other court to which proceedings in such courts may be appealed, (B) such claim, suit, action or proceeding is brought in an inconvenient forum, or (C) the venue of such claim, suit, action or proceeding is improper, (iv) consents to process being served in any such claim, suit, action or proceeding by mailing, certified mail, return receipt requested, a
copy thereof to such party at the address in effect for notices hereunder, and agrees that such service shall constitute good and sufficient service of process and notice thereof; provided, nothing in clause (iv) hereof shall affect or limit any right to serve process in any other manner permitted by law, and (v) irrevocably waives any and all right to trial by jury in any such claim, suit, action or proceeding. This Article IX Section 11 shall not apply to claims arising under the federal securities laws.
PLAN OF DISTRIBUTION – Purchase Terms
Comment #18. The second sentence in this section states that the Fund is not subject to shareholder servicing fees. However, the Fund Expenses table includes a line item reflecting shareholder service fees of 0.15%. Please reconcile this discrepancy.
Response. The Registrant has corrected this discrepancy.
STATEMENT OF ADDITIONAL INFORMATION OTHER INFORMATION – Custodian
Comment #19. The disclosure in this section states that the Custodian also serves as the Fund's escrow agent. However, the "Securities Offered" section on the cover page of the prospectus states that no arrangements have been made to place monies received in an escrow account. Please confirm that the Fund does not have any escrow arrangement in place. If the Fund has an escrow arrangement in place, please revise the cover page accordingly and include in the prospectus the information required by Item 5.8 of Form N-2.
Response. The Registrant confirms there is no escrow arrangement in place and removed the erroneous reference to an escrow agent as follows.
The Custodian also serves as escrow agent to the Fund.
If you have any questions concerning this filing, please contact JoAnn M. Strasser at (614) 469-3265 or Parker Bridgeport at (614) 469-3238.
Very truly yours,
Parker Bridgeport
Show Raw Text
CORRESP
1
filename1.htm
Denali SEC Response
VIA ELECTRONIC EDGAR FILING
(Correspondence Filing)
February 9, 2024
Christopher R. Bellacicco Attorney-Adviser
Office of Disclosure and Review
U.S. Securities & Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Re: Denali Structured Return Strategy Fund File Nos. 333-275771; 811-23918
Dear Mr. Bellacicco:
On behalf of the Denali Structured Return Strategy Fund (the "Fund" or "Registrant"), this letter responds to the comments that you provided on behalf of the staff of the Securities and Exchange Commission (the "Staff") by letter dated December 18, 2023, with respect to the registration statement of the Fund on Form N-2 (the "Registration Statement") as well as telephonic follow up comments provided on January 31, 2024. Please find below the Registrant's responses to those comments, which the Registrant has authorized Thompson Hine LLP to make on its behalf. A marked version of the prospectus is attached to aid in the Staff's review. The Registrant anticipates filing an amended Form N-2 in the near future (perhaps in about one week) with a request for acceleration of effectiveness to follow shortly after.
GENERAL
Comment #1. We note that portions of the registration statement are incomplete. A full financial review (e.g., seed financial statements, auditor's report, consent) must be performed prior to declaring the registration statement effective. We may have additional comments on such portions when you complete them in a pre-effective amendment, on disclosures made in response to this letter, on information supplied supplementally, or on exhibits added in any amendment.
Response. The Registrant acknowledges that the SEC staff may have additional comments upon review of the then-supplied financial statements and related information as well as revised disclosures.
Comment #2. Please tell us if you have presented any test-the-waters materials to potential investors in connection with this offering. If so, we may request such materials.
Response. The Registrant has not presented any test the waters materials to potential investors.
1
Comment #3. Please advise us if you expect to submit an exemptive application in connection with your registration statement.
Response. The Registrant has not and has no plans to submit an exemptive application or no-action request in connection with the registration statement.
Comment #4. Please add page numbers to the prospectus and statement of additional information.
Response. The Registrant has added page numbers to the prospectus and statement of additional information.
PROSPECTUS
PROSPECTUS SUMMARY – Investment Policies and Strategies
Comment #5. The first sentence in this section states the Fund seeks to achieve its investment objectives "through a modest investment in call option spreads on a large capitalization U.S. equity index."
a.Please add disclosure clarifying what the Fund means by "modest."
b.Please disclose the large capitalization U.S. equity index that the Fund plans to use as the reference asset for the options in which it plans to invest.
Response.
a.The Registrant has revised disclosures to clarify that the Fund means approximately one and a half to three percent of total assets when referring to "modest."
b.The Registrant had originally included the S&P 500® Index in the working draft of the N-2, but became concerned that such a specific reference would lead to possible action for trademark infringement or a request for a large licensing fee from the owner of the S&P 500® Index. Consequently, the Registrant had used "large capitalization U.S. equity index" with the expectation that most investors will assume or understand this to be a reference to the S&P 500® Index. However, the Registrant has reverted to using the S&P 500® Index.
Comment #6. The first paragraph in this section states "Rather than buy an asset at a specified price, the Fund may accept a cash settlement equal to the difference between the asset's price and the strike price." Please clarify when such a situation would occur. Please also clarify whether the Fund will know at the time that it purchases the option that it will receive such cash settlement (assuming the option is exercised).
Response. The Registrant has added additional disclosures to clarify when options are cash settled and when they are delivered and to note that the Fund will know at the time of purchase which type of option is involved.
2
Comment #7. The final paragraph of this section states that the Fund anticipates investing in call options with strike prices "that are near the then-current level" of the reference index (emphasis added). Please clarify what the Fund means by "near," as that term is ambiguous. Specifically, will the Fund purchase call options that are in-the-money, at-the-money or out-of-the-money? If this may vary, please disclose how the Fund determines the desired strike price.
Response. The Registrant has made the requested additions.
Comment #8. The final paragraph of this section further states that, in addition to purchasing call options, the Fund will write call options "with strike prices that are approximately 5% higher than the then-current level" of the reference index. Please clarify whether the call options that the Fund writes will be in an amount and have expiration dates that correspond with call options that the Fund purchases.
Response. The Registrant has made the requested additions.
PROSPECTUS SUMMARY – Private Funds
Comment #9. The disclosure in this section states that the Fund seeks "to invest in private funds that principally invest in and manage portfolios of debt instruments." The disclosure in the "INVESTMENT OBJECTIVE, POLICIES AND STRATEGIES – Private Funds" section refers to Fund investments in hedge funds, private equity funds or venture capital funds. Please add disclosure to this summary section clarifying that the Fund may invest in hedge funds, private equity funds, or venture capital funds.
Response. The Registrant included hedge funds, private equity funds or venture capital funds as examples of common private funds. However, the Fund does not invest in these types of private funds and has made clarifying disclosure, which removes references to hedge funds, private equity funds or venture capital funds.
PROSPECTUS SUMMARY – Call Option Spreads
Comment #10. The first paragraph in this section states that "The Adviser considers relative call prices when fine tuning the strike prices selected."
a.Please clarify what the Fund means by "relative call prices."
b.Please also clarify what the Fund means by "fine tuning" strike prices.
Response.
a.The Registrant has added disclosure to clarify what the Fund means by "relative call prices."
b.The Registrant believes the added disclosure in a. above clarifies what the Fund means by "fine tuning" strike prices.
3
Comment #11. The final sentence of the first paragraph of this section notes that the Adviser may purchase over-the-counter options, "but only from counterparties it considers credit worthy." Please describe how the Adviser determines whether a counterparty is "credit worthy."
Response. The Registrant has added disclosure describing the adviser's determination of credit quality.
PROSPECTUS SUMMARY – Summary of Risks
Comment #12. A bullet point in this section refers to risks related to Master Limited Partnerships ("MLPs"). If the Fund plans to invest in MLPs as part of its principal investment strategy, please disclose this in the prospectus summary's "Investment Policies and Strategies" section.
Response. The Registrant has made the requested revision.
Comment #13. The seventh-to-last bullet point in this section discloses risks of the Fund's call option spreads. Please add disclosure indicating that, due to the call option spread strategy, the Fund will give up the opportunity to benefit from potential increases in the value of the index above the exercise prices of the call options it has written.
Response. The Registrant has made the requested revision.
INVESTMENT OBJECTIVE, POLICIES AND STRATEGIES – Call Option Spreads
Comment #14. The first sentence of this section states that "The Adviser uses call option spreads to capture a portion of positive equity market returns without exposing the Fund to significant equity market losses." Please add disclosure explaining how the call options spread strategy does not expose the Fund to significant equity market losses.
Response. The Registrant has added disclosure to clarify that the options can expire worthless in a flat or down equity market, but are not otherwise further linked to equity losses as the Fund does not hold the reference assets linked to the options.
Comment #15. The third sentence of this section states that "The Fund's purchases of call spreads are intended to allow the Fund to participate in increases in a large capitalization U.S. equity index up to approximately 5% during the term of the call spread." Please include similar disclosure in the prospectus summary section discussing call option spreads.
Response. The Registrant has made the requested revision.
4
ANTI-TAKEOVER PROVISIONS IN THE DECLARATION OF TRUST
Comment #16. The disclosure in this section discusses the requirement that shareholders wishing to bring a derivative suit against the Fund must first make a written demand on the Trustees requesting that the Trustees cause the Trust to file an action. Please also disclose the Declaration of Trust provision requiring that the demand shall be executed by or on behalf of no less than three complaining shareholders who together hold not less than ten percent (10%) of the outstanding shares of the affected Series or class, none of which shall be related to (by blood or by marriage) or otherwise affiliated with any other complaining Shareholder (other than as Shareholders of the Trust). See Article V, Section 6(a)(iii) of the Declaration of Trust.
Response. The Registrant has made the requested addition.
Comment #17. The disclosure in this section also states that "With the exception of claims arising under the federal securities laws, the Declaration of Trust provides that claims must be brought exclusively in a Delaware state court . . . ." However, the Declaration of Trust does not appear to include this carve out for claims arising under the federal securities laws. Please revise the Declaration of Trust to include such carve out.
Response. The Registrant has made the requested addition to the Declaration of Trust as underlined at the end of Section 11., as follows.
Section 11. Exclusive Delaware Jurisdiction. Each Trustee, each officer, each Shareholder and each Person beneficially owning an interest in a Share of the Trust (whether through a broker, dealer, bank, trust company or clearing corporation or an agent of any of the foregoing or otherwise), to the fullest extent permitted by law, including Section 3804(e) of the DSTA, (i) irrevocably agrees that any claims, suits, actions or proceedings arising out of or relating in any way to the Trust or its business and affairs, the DSTA, this Declaration of Trust or the By-Laws or asserting a claim governed by the internal affairs (or similar) doctrine (including, without limitation, any claims, suits, actions or proceedings to interpret, apply or enforce (A) the provisions of this Declaration of Trust or the By-Laws, or (B) the duties (including fiduciary duties), obligations or liabilities of the Trust to the Shareholders or the Trustees, or of officers or the Trustees to the Trust, to the Shareholders or each other, or (C) the rights or powers of, or restrictions on, the Trust, the officers, the Trustees or the Shareholders, or (D) any provision of the DSTA or other laws of the State of Delaware pertaining to trusts made applicable to the Trust pursuant to Section 3809 of the DSTA, or (E) any other instrument, document, agreement (including, without limitation, any investment management agreement) or certificate contemplated by any provision of the Act, the Declaration of Trust or the Bylaws relating in any way to the Trust or (F) the securities or antifraud laws of any international, national, state, provincial, territorial, local or other governmental or regulatory authority, including, in each case, the applicable rules and regulations promulgated thereunder (regardless, in every case, of whether such claims, suits, actions or proceedings (x) sound in contract, tort, fraud or otherwise, (y) are based on common law, statutory, equitable, legal or other grounds, or (z) are derivative or direct claims)), shall be exclusively brought, unless the Trust, in its sole discretion, consents in writing to an alternative forum, in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, any other court in the State of Delaware with subject matter jurisdiction, (ii) irrevocably submits to the exclusive jurisdiction of such courts in connection with any such claim, suit, action or proceeding, (iii) irrevocably agrees not to, and waives any right to, assert in any such claim, suit, action or proceeding that (A) it is not personally subject to the jurisdiction of such courts or any other court to which proceedings in such courts may be appealed, (B) such claim, suit, action or proceeding is brought in an inconvenient forum, or (C) the venue of such claim, suit, action or proceeding is improper, (iv) consents to process being served in any such claim, suit, action or proceeding by mailing, certified mail, return receipt requested, a
5
copy thereof to such party at the address in effect for notices hereunder, and agrees that such service shall constitute good and sufficient service of process and notice thereof; provided, nothing in clause (iv) hereof shall affect or limit any right to serve process in any other manner permitted by law, and (v) irrevocably waives any and all right to trial by jury in any such claim, suit, action or proceeding. This Article IX Section 11 shall not apply to claims arising under the federal securities laws.
PLAN OF DISTRIBUTION – Purchase Terms
Comment #18. The second sentence in this section states that the Fund is not subject to shareholder servicing fees. However, the Fund Expenses table includes a line item reflecting shareholder service fees of 0.15%. Please reconcile this discrepancy.
Response. The Registrant has corrected this discrepancy.
STATEMENT OF ADDITIONAL INFORMATION OTHER INFORMATION – Custodian
Comment #19. The disclosure in this section states that the Custodian also serves as the Fund's escrow agent. However, the "Securities Offered" section on the cover page of the prospectus states that no arrangements have been made to place monies received in an escrow account. Please confirm that the Fund does not have any escrow arrangement in place. If the Fund has an escrow arrangement in place, please revise the cover page accordingly and include in the prospectus the information required by Item 5.8 of Form N-2.
Response. The Registrant confirms there is no escrow arrangement in place and removed the erroneous reference to an escrow agent as follows.
The Custodian also serves as escrow agent to the Fund.
If you have any questions concerning this filing, please contact JoAnn M. Strasser at (614) 469-3265 or Parker Bridgeport at (614) 469-3238.
Very truly yours,
Parker Bridgeport
Senior Counsel
Thompson Hine LLP
Attachment
6
4895-4115-4185.25 The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is