Fitch Affirms Preferred Share Rating of the Denali Fund at 'AAA'

Fitch Ratings has affirmed the 'AAA' rating assigned to the following preferred shares issued by The Denali Fund Inc. (NYSE: DNY), a closed-end fund co-advised by Boulder Investment Advisers LLC (BIA) and Stewart Investment Advisers (SIA):

--$21,950,000 of auction preferred shares (APS), series A, with a liquidation preference of $25,000 per share.

KEY RATING DRIVERS

The 'AAA' rating assignment reflects:

--Sufficient pro forma asset coverage provided to APS as calculated per the fund's asset coverage tests;

--The structural protections afforded by mandatory collateral maintenance and de-leveraging provisions in the event of asset coverage declines;

--The legal and regulatory parameters that govern the fund's operations;

--The capabilities of BIA & SIA as fund co-advisers.

FUND REORGANIZATION AND PLANNED REDEMPTION OF APS

Stockholders of DNY approved an agreement and plan of reorganization pursuant to which DNY will transfer all of its assets to Boulder Growth & Income Fund, Inc. (BIF) in exchange for shares of BIF, and BIF will assume all of the liabilities of the fund. The reorganization is expected to occur on or about March 20, 2015.

Prior to the reorganization, DNY is expected to redeem all outstanding APS. DNY APS holders will be paid the redemption price of the APS (i.e., $25,000 per share) plus any accrued but unpaid dividends. DNY will use cash on hand or borrowings from a bank line of credit to redeem the DNY APS. Fitch will continue to monitor DNY's performance until the final redemption of APS.

Redemption of the DNY ARPS is expected to be consummated within the few weeks prior to the closing date. At that time, DNY ARPS holders will be paid the redemption price of the ARPS (i.e., $25,000 per share) plus any accrued but unpaid dividends. DNY will use cash on hand or borrowings from a bank line of credit to redeem the DNY ARPS. Fitch will continue to monitor DNY's performance for with regard to 'AAA' rating guidelines up until the closing date and final redemption of APS.

FUND PROFILE

The Denali Fund Inc. is a non-diversified, closed-end management investment company, registered under the Investment Company Act of 1940, as amended, that commenced investment operations in September 2002. The fund's primary investment objective is achieving a total return consistent with dependable, but not assured, cash flow. The fund invests primarily in common stocks, including dividend-paying common stocks such as those issued by utilities, real estate investment trusts and closed-end registered investment companies. The fund also invests in fixed income securities such as U.S. government securities, preferred stocks, and bonds. The fund invests primarily in securities of U.S.-based companies and to a lesser extent in foreign equity securities and sovereign debt, in each case denominated in foreign currency.

At the time of the rating affirmation, common equity securities constituted 91% of the portfolio and a residual, non-participating interest in a limited partnership investment in one long-short equity fund represented approximately 4% of the portfolio. The remaining balance consisted of cash equivalents and foreign currency positions.

The fund has invested 28% of total assets in common stock of Berkshire Hathaway, Inc., which Fitch currently views as meeting the definition of a broadly diversified investment portfolio or holding company. As such, Fitch utilizes a higher maximum issuer concentration threshold at 20% for this exposure (in contrast to the maximum 10% threshold utilized for largest issuers per Fitch's criteria) when calculating Fitch total and net overcollateralization tests.

The fund has no restrictions on its ability to invest in foreign securities. Fitch notes that potential exchange rate risk associated with investments in foreign denominated securities is included as part of Fitch's assessment of the sufficiency of asset coverage available to rated APS.

FUND LEVERAGE

The fund employs leverage through its use of $21.95 million of APS and as of Oct. 31, 2014, the leverage amount was 16%.

ASSET COVERAGE

The fund's asset coverage ratio, as calculated in accordance with the Fitch total, and net OC tests (Fitch OC Tests) per the 'AAA' rating guidelines outlined in Fitch's applicable criteria, were in excess of 100%. This is the minimum threshold required under the terms of the APS.

The test calculates standardized asset coverage by applying haircuts to portfolio holdings based on perceived riskiness and diversification of the assets and measuring its ability to cover both on- and off-balance-sheet liabilities, if any, at the assigned 'AAA' stress level.

The fund's asset coverage ratio for the APS, as calculated in accordance with the 1940 Act, was in excess of the minimum asset coverage threshold of 200% required by the fund's governing documents (1940 Act Preferred Shares Asset Coverage).

In the event of breaches to any of the above thresholds, the fund is required to restore compliance per structural protections described below.

STRUCTURAL PROTECTIONS

Compliance with the Fitch OC and 1940 Act Preferred Shares Asset Coverage thresholds is tested periodically. The fund manager is expected to cure any breach by altering the composition of the portfolio toward assets with lower discount factors (for Fitch OC breaches), or by reducing leverage in a sufficient amount (for all other breaches) within 30 days.

For Fitch OC and 1940 Act Preferred Shares Asset Coverage, the maximum market value exposure (i.e. valuation, cure and redemption) that preferred shareholders would be exposed to before cure or redemption is approximately 60 business days.

THE FUND'S ADVISER

Boulder Investment Advisers, LLC and Stewart West Indies Trading Company, Ltd. (operating under the name Stewart Investment Advisers) act as the co-investment advisers to the fund. As of Dec. 31, 2014, the co-investment advisors along with Rocky Mountain Advisers, LLC, an affiliate, had approximately $1.26 billion of total assets under management.

RATINGS SENSITIVITIES

The rating assigned to the preferred shares may be sensitive to material changes in the leverage composition, portfolio credit quality or market risk of the fund, as described above. A material adverse deviation from Fitch guidelines for any key rating driver could cause the rating to be lowered by Fitch.

The fund has the ability to assume economic leverage through derivative transactions which may not be captured by the fund's Preferred Shares Basic Maintenance Amount. The fund does not currently engage in derivative activities for speculative purposes and does not envision engaging in material amounts of such activity in the future. Material derivative exposure in the future could have potential negative rating implications if it adversely affects asset coverage available to rated preferred shares.

For additional information about Fitch rating guidelines applicable to debt and preferred stock issued by closed-end funds, please review the criteria referenced below, which can be found on Fitch's web site at 'www.fitchratings.com'.

Additional information is available at 'www.fitchratings.com'.

The sources of information used to assess this rating were the public domain and BIA/SIA.

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Applicable Criteria and Related Research:

--'Rating Closed-End Fund Debt and Preferred Stock' (Sept. 4, 2014).

Applicable Criteria and Related Research:

Rating Closed-End Fund Debt and Preferred Stock

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=765528

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=966955

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