The investment objective of the Fund is primarily income and secondarily capital appreciation.
The Denali Structured Return Strategy Fund seeks to provide investors with income and capital appreciation through direct and indirect investments in income-producing assets, primarily comprising private credit, combined with a small investment (1%–3% of total assets) in call option spreads on the S&P 500 Index.
Income-generating investments may be publicly traded or privately offered and typically make interest, dividend, or other periodic payments, distributions, and/or accruals. The Fund utilizes the income from the diversified pool of income-generating investments to systematically purchase quarterly S&P 500 call option spreads, providing defined exposure to potential market gains from the S&P 500 Index.
Each quarter, the Fund resets its exposure with the goal of harvesting any realized equity upside. The Fund is structured as a continuously offered, nondiversified interval fund. The Fund offers daily subscriptions and will offer to make quarterly repurchases at NAV (net asset value).
The third quarter of 2025 marked another strong stretch for U.S. large caps, led by resilient earnings, moderating inflation, and investor optimism around artificial intelligence. The S&P 500 climbed a little over 8% during the quarter, bringing its year-to-date1 total return to nearly 15%. That performance extended a rally that began after the April sell-off, when tariff headlines briefly rattled markets. From those early April lows, the index has now risen more than 35% and notched 28 all-time highs by the end of September. September alone was one of the strongest in nearly three decades, underscoring how investor sentiment has swung from caution to confidence.
Momentum once again centered on mega-cap technology companies. Apple, Nvidia, Microsoft, Amazon, Alphabet, Meta, and Tesla—often dubbed the “Magnificent Seven”—continued to dominate index returns. Collectively, these firms accounted for roughly 42% of the S&P 500’s year-to-date1 gains and more than half of its price appreciation. Despite that leadership, breadth improved modestly, with more than 300 of the 500 index constituents in positive territory through the quarter. The equal-weighted S&P 500 lagged its cap-weighted counterpart by just over three percentage points, a sign that leadership remains concentrated.
By the end of September, the S&P 500 traded around 23 times forward earnings (P/E ratio2)—roughly one-third above its long-term average near 17 times. The top 10 stocks commanded multiples close to 30 times, about 45%1 above their historical norms, and now represent more than 40% of the entire index’s market capitalization.
Source: World PE Ratio Data (January 1871 – September 2025)
That concentration has left some investors uneasy, even as fundamentals remain solid. GDP growth held near 4% in the second quarter, inflation moderated, and the Federal Reserve’s September rate cut reinforced expectations for a softer policy stance heading into year-end.
During the quarter, the S&P 500 gained 8.12%, while the Denali Structured Return Strategy Fund returned 5.01%1. As designed, Denali captured its full upside potential for the period through its ~5% capped3 S&P 500 call spread. This marked the second consecutive quarter in which the Fund reached its cap, resulting in modest underperformance relative to the broader market during a strong rally.
While that cap limited participation in the market’s sharp move higher, it also reinforces how the strategy is designed to behave. Earlier this year, when the market was negative, Denali’s structure helped limit losses. The Fund finished nearly flat at –0.27% in Q1. Over the past two quarters, the trade-off has been clear: seeking downside risk mitigation in down markets comes at the cost of some participation during strong rallies. That “cost,” so far, has been roughly 9% underperformance relative to the S&P 500 over the past six months.
*Inception date of March 12, 2024 | net of fees
One of Denali’s biggest advantages is its ability to reset both the lower and upper strike levels—effectively the strategy’s floor and cap—each quarter, as defined in the Fund’s prospectus. For this quarter, Denali has established a 6,685–7,020 S&P 500 call spread4, providing approximately 5% of upside equity potential from the starting level.
The underlying private credit portfolio continues to expand across new strategy partners and asset types, further diversifying exposure and limiting concentration in any single segment of the market.
As always, we’re grateful for the trust you place in our team. We remain confident in Denali’s approach—seeking to generate steady income through disciplined, rules-based market participation—and mindful of both the risks and opportunities ahead.
Sources:
CNBC Fear & Greed Index
World PE Ratio Data
Ycharts
AIInvest
1All returns are as of 9/30/2025 and are net of fees
2P/E (Price-to-Earnings) Ratio: measure of how much investors are willing to pay for a company’s earnings. Calculated by dividing the market price by earnings per share
3The Fund's purchases of call spreads are intended to allow the Fund to participate in increases in the S&P 500® Index up to approximately 5% during the term of the call spread.
4Call Option Spreads: The Adviser uses call option spreads to capture a portion of positive equity market returns without exposing the Fund to significant equity market losses. Call options can expire worthless in a flat or down equity market, but are not further linked to equity losses. By using a call spread strategy, the Fund does not hold the constituents of the S&P 500® Index and therefore is not exposed to equity market losses beyond the net cost of the call options. The Adviser anticipates investing in call spreads on a quarterly basis by investing primarily in call options with three-month maturities and strike prices that are near (within one percent above) the then-current level of the S&P 500® Index while writing the same amount of call options with three-month maturities and strike prices that are approximately 5% higher than the then-current level of the index. The Fund's purchases of call spreads are intended to allow the Fund to participate in increases in the S&P 500® Index up to approximately 5°/o during the term of the call spread. The purchased call options are commonly referred to as being at-the-money if the strike price is at the then-current level of the index, or out-of-the money if the strike price is above the then-current level of the index. The Adviser considers relative call prices when fine tuning the strike prices selected. The Fund's Adviser attempts to use strike prices of purchased and written options that will result in a net cost to the Fund of approximately one and a half to three percent of total assets. The Adviser may purchase over-the-counter options, but only from counterparties it considers credit worthy. The Adviser considers a counterparty credit worthy if rated at least Baa3 by Moody's or at least BBB by S&P, or if unrated, determined by the Adviser to be of similar credit quality.
An investment in the Fund’s shares is subject to risks. The value of the Fund’s investments will increase or decrease based on changes in the prices of the investments it holds. This will cause the value of the Fund’s shares to increase or decrease. You could lose money by investing in the Fund. By itself, the Fund does not constitute a complete investment program. Before investing in the Fund, you should consider carefully the following risks the Fund faces, together with the other information contained in the prospectus.
Since the Fund is non-diversified, it is subject to higher reduction of capital and volatility than a fund more proportionately allocated among a large number of securities. An investment in the Fund involves risk. The Fund is new with no significant operating history by which to evaluate its potential performance. There can be no assurance that the Fund’s strategy will be successful. The Fund may use leverage in its investments by “borrowing.” The use of leverage increases both risk of loss and profit potential.
The Fund may invest a portion of its assets in securities that have speculative characteristics, e.g., lower-rated or unrated debt commonly referred to as “high yield bonds” or “junk bonds.” The Fund will invest in call option spreads that may expire worthless and fail to provide participation in positive equity market returns.
Investors should consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus contains this and other important information about the investment company. For a prospectus or summary prospectus with this and other important information about the Fund, please visit the Documents section at www.LSfunds.com/DNLIX or call 1-800-632-4027. Read the prospectus carefully before investing.
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