Liquid Strategies has restated previously issued financial statements for two of its interval funds after determining that accrued interest on certain credit investments had been incorrectly reflected as unrealized appreciation rather than interest income.
The corrections affect the Denali Structured Return Strategy Fund and Niagara Income Opportunities Fund and relate to their unaudited financial statements for the six-month period ended September 30, 2024. The original reports were filed with the Securities and Exchange Commission in December 2024.
The accounting issue involved accrued interest on certain credit investments that had been included in the carrying value of the investments rather than separately recorded as interest receivable. As a result, the funds understated interest income and net investment income while overstating unrealized appreciation. Importantly, the corrections did not change either fund’s total net assets or overall investment return for the period.
For the Denali Structured Return Strategy Fund, the adjustment shifted $488,758 from investment value to dividends and interest receivable. Restated interest income increased to approximately $1.07 million from the roughly $584,000 originally reported, while net investment income increased to approximately $990,000 from $501,000.
The change also affected Denali’s per-share and financial-highlight figures. Net investment income per share increased from $0.17 to $0.33, while the fund’s annualized ratio of net investment income to average net assets increased from 3.11% to 6.14%. At the same time, unrealized appreciation was reduced by an offsetting amount. Denali’s net assets of approximately $49.9 million and its total return of 11.24% for the six-month period were unchanged.
Niagara Income Opportunities Fund made a similar adjustment totaling approximately $858,000. Restated interest income increased to approximately $2.35 million from $1.49 million, while net investment income increased to approximately $1.94 million from $1.08 million. Net investment income per share increased from $0.23 to $0.36, and the annualized ratio of net investment income to average net assets increased from 4.32% to 6.92%.
Like Denali, Niagara’s overall economics were not affected by the correction. Its net asset value and 5.23% total return for the period remained unchanged. Instead, the restatement changed how the fund’s investment results were classified between income and unrealized appreciation.
The distinction is particularly relevant for income-oriented funds. Niagara’s investment objective focuses on current income generation through a portfolio of private and public credit investments, while Denali’s investment objective emphasizes income with capital appreciation as a secondary objective. Correctly distinguishing recurring interest income from changes in investment values can therefore provide investors and advisors with a clearer picture of how a fund is generating its returns.
Both funds have significant exposure to private credit and other investments requiring fair-value determinations. The original September 2024 filings show that Denali held approximately $22.4 million of Level 3 investments, while Niagara held approximately $32.3 million. Level 3 investments rely on significant unobservable inputs in determining fair value.
The restatements apply to the six-month period ended September 30, 2024. Despite the changes to the composition of investment returns, the corrections did not alter the funds’ reported net assets or total returns for the period.
Sources
- U.S. Securities and Exchange Commission — Denali Structured Return Strategy Fund, Amended Semiannual Report for the period ended September 30, 2024
- U.S. Securities and Exchange Commission — Denali Structured Return Strategy Fund, Original Semiannual Report for the period ended September 30, 2024
- U.S. Securities and Exchange Commission — Niagara Income Opportunities Fund, Original Semiannual Report for the period ended September 30, 2024
- Liquid Strategies — Niagara Income Opportunities Fund
