Opinion
on the Financial Statements
We
have audited the accompanying statement of assets and liabilities, including the schedule of investments, of GAMCO Natural Resources,
Gold & Income Trust (the “Fund”) as of December 31, 2022, the related statement of operations for the year ended
December 31, 2022, the statement of changes in net assets attributable to common shareholders for each of the two years in the
period ended December 31, 2022, including the related notes, and the financial highlights for each of the five years in the period
ended December 31, 2022 (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Fund as of December 31, 2022, the results of its operations
for the year then ended, the changes in its net assets attributable to common shareholders for each of the two years in the period
ended December 31, 2022, and the financial highlights for each of the five years in the period ended December 31, 2022 in conformity
with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on
the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and
the PCAOB.
We
conducted our audits of these financial statements in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud.
Our
audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles
used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.
Our procedures included confirmation of securities owned as of December 31, 2022, by correspondence with the custodian and brokers;
when replies were not received from the brokers, we performed other auditing procedures. We believe that our audits provide a
reasonable basis for our opinion.
/s/PricewaterhouseCoopers
LLP
New
York, New York
March 1, 2023
We
have served as the auditor of one or more investment companies in the Gabelli Fund Complex since 1986.
GAMCO
Natural Resources, Gold & Income Trust
Additional
Fund Information (Unaudited)
Delaware
Statutory Trust Act – Control Share Acquisitions
The
Fund is organized as a Delaware statutory trust and thus is subject to the control share acquisition statute contained in Subchapter
III of the Delaware Statutory Trust Act (the DSTA Control Share Statute). The DSTA Control Share Statute applies to any closed-end
investment company organized as a Delaware statutory trust and listed on a national securities exchange, such as the Fund. The
DSTA Control Share Statute became automatically applicable to the Fund on August 1, 2022.
The
DSTA Control Share Statute defines “control beneficial interests” (referred to as “control shares” herein)
by reference to a series of voting power thresholds and provides that a holder of control shares acquired in a control share acquisition
has no voting rights under the Delaware Statutory Trust Act (DSTA) or the Fund’s Governing Documents (as used herein, “Governing
Documents” means the Fund’s Agreement and Declaration of Trust and By-Laws, together with any amendments or supplements
thereto, including any Statement of Preferences establishing a series of preferred shares) with respect to the control shares
acquired in the control share acquisition, except to the extent approved by the Fund’s shareholders by the affirmative vote
of two–thirds of all the votes entitled to be cast on the matter, excluding all interested shares (generally, shares held
by the acquiring person and their associates and shares held by Fund insiders).
The
DSTA Control Share Statute provides for a series of voting power thresholds above which shares are considered control shares.
Whether one of these thresholds of voting power is met is determined by aggregating the holdings of the acquiring person as well
as those of his, her or its “associates.” These thresholds are:
| ● | 10%
or more, but less than 15% of all voting power; |
| ● | 15%
or more, but less than 20% of all voting power; |
| ● | 20%
or more, but less than 25% of all voting power; |
| ● | 25%
or more, but less than 30% of all voting power; |
| ● | 30%
or more, but less than a majority of all voting power; or |
| ● | a
majority or more of all voting power. |
Under
the DSTA Control Share Statute, once a threshold is reached, an acquirer has no voting rights with respect to shares in excess
of that threshold (i.e., the “control shares”) until approved by a vote of shareholders, as described above, or otherwise
exempted by the Fund’s Board of Trustees. The DSTA Control Share Statute contains a statutory process for an acquiring person
to request a shareholder meeting for the purpose of considering the voting rights to be accorded control shares. An acquiring
person must repeat this process at each threshold level.
Under
the DSTA Control Share Statute, an acquiring person’s “associates” are broadly defined to include, among others,
relatives of the acquiring person, anyone in a control relationship with the acquiring person, any investment fund or other collective
investment vehicle that has the same investment adviser as the acquiring person, any investment adviser of an acquiring person
that is an investment fund or other collective investment vehicle and any other person acting or intending to act jointly or in
concert with the acquiring person.
Voting
power under the DSTA Control Share Statute is the power (whether such power is direct or indirect or through any contract, arrangement,
understanding, relationship or otherwise) to directly or indirectly exercise or direct the exercise of the voting power of shares
of the Fund in the election of the Fund’s Trustees (either
GAMCO
Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
generally
or with respect to any subset, series or class of trustees, including any Trustees elected solely by a particular series or class
of shares, such as the preferred shares). Thus, Fund preferred shares, including the Series A Preferred Shares, acquired in excess
of the above thresholds would be considered control shares with respect to the preferred share class vote for two Trustees.
Any
control shares of the Fund acquired before August 1, 2022 are not subject to the DSTA Control Share Statute; however, any further
acquisitions on or after August 1, 2022 are considered control shares subject to the DSTA Control Share Statute.
The
DSTA Control Share Statute requires shareholders to disclose to the Fund any control share acquisition within 10 days of such
acquisition, and also permits the Fund to require a shareholder or an associate of such person to disclose the number of shares
owned or with respect to which such person or an associate thereof can directly or indirectly exercise voting power. Further,
the DSTA Control Share Statute requires a shareholder or an associate of such person to provide to the Fund within 10 days of
receiving a request therefor from the Fund any information that the Fund’s Trustees reasonably believe is necessary or desirable
to determine whether a control share acquisition has occurred.
The
DSTA Control Share Statute permits the Fund’s Board of Trustees, through a provision in the Fund’s Governing Documents
or by Board action alone, to eliminate the application of the DSTA Control Share Statute to the acquisition of control shares
in the Fund specifically, generally, or generally by types, as to specifically identified or unidentified existing or future beneficial
owners or their affiliates or associates or as to any series or classes of shares. The DSTA Control Share Statute does not provide
that the Fund can generally “opt out” of the application of the DSTA Control Share Statute; rather, specific acquisitions
or classes of acquisitions may be exempted by the Fund’s Board of Trustees, either in advance or retroactively, but other
aspects of the DSTA Control Share Statute, which are summarized above, would continue to apply. The DSTA Control Share Statute
further provides that the Board of Trustees is under no obligation to grant any such exemptions.
The
foregoing is only a summary of the material terms of the DSTA Control Share Statute. Shareholders should consult their own counsel
with respect to the application of the DSTA Control Share Statute to any particular circumstance.
GAMCO
Natural Resources, Gold & Income Trust
Additional
Fund Information (Unaudited)
SUMMARY
OF FUND EXPENSES
The
following table shows the Fund’s expenses as a percentage of net assets attributable to common shares. All expenses of the
Fund are borne, directly or indirectly, by the common shareholders. The table is based on the capital structure of the Fund as
of December 31, 2022. The purpose of the table and example below is to help you understand all fees and expenses that you, as
a holder of common shares, would bear directly or indirectly.
| Shareholder Transaction Expenses |
|
| Sales Load (as a percentage
of offering price) |
-(a) |
| Offering Expenses Borne by the Fund |
|
| (as a percentage of
offering price) |
-(a) |
| Dividend Reinvestment Plan Fees |
None(b) |
| |
|
| Annual Expenses (as a percentage
of net assets attributable to common shares) |
|
Percentages
of Net Assets
Attributable to Common Shares |
| Management Fees |
|
1.27% (c) |
| Interest on Borrowed Funds |
|
-% (d) |
| Other Expenses |
|
0.61%
(e) |
| Total Annual Expenses |
|
1.88% |
| Dividends on Preferred Shares |
|
1.41% |
| Total Annual Expenses and Dividends on Preferred |
|
3.29%(c) |
| (a) | If
common shares are sold to or through underwriters or dealer managers, a prospectus or
prospectus supplement will set forth any applicable sales load and the estimated offering
expense borne by the Fund. |
| (b) | Shareholders
participating in the Fund’s Automatic Dividend Reinvestment Plan do not incur any
additional fees. However, shareholders participating in the Voluntary Cash Purchase Plan
that elect to make additional cash purchases under the Voluntary Cash Purchase Plan would
pay a $0.75 per share fee, plus a pro rata share of the brokerage commissions. |
| (c) | The
Investment Adviser’s fee is an annual rate of 1.00% of the Fund’s average
weekly net assets. The value of the Fund’s average weekly net assets shall be deemed
to be the average weekly value of the Fund’s total assets minus the sum of the
Fund’s liabilities (such liabilities do not include the aggregate liquidation preference
of any outstanding preferred shares and accumulated dividends, if any, on those shares
and the outstanding principal amount of any debt securities the proceeds of which were
used for investment purposes, plus accrued and unpaid interest thereon). Consequently,
if the Fund has preferred shares outstanding, the investment management fees and other
expenses as a percentage of net assets attributable to common shares may be higher than
if the Fund does not utilize a leveraged capital structure. |
| (d) | The
Fund has no current intention of borrowing from a lender or issuing notes. |
GAMCO
Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
| (e) | “Other
Expenses” are based on estimated amounts for the current year ended December 31,
2022. |
Example
The
following example illustrates the expenses you would pay on a $1,000 investment in common shares, assuming a 5% annual portfolio
total return.*
| | |
1 Year | |
3 Year | |
5 Year | |
10 Year |
| Total Expenses Incurred | |
$33 | |
$102 | |
$172 | |
$359 |
| * | The
example should not be considered a representation of future expenses. The example is
based on total Annual Expenses and Dividends on Preferred Shares shown in the table above
and assumes that the amounts set forth in the table do not change and that all distributions
are reinvested at net asset value. Actual expenses may be greater or less than those
assumed. Moreover, the Fund’s actual rate of return may be greater or less than
the hypothetical 5% return shown in the example. |
The
example includes Dividends on Preferred Shares. If Dividends on Preferred Shares were not included in the example calculation,
the expenses for the 1-, 3-, 5- and 10-year periods in the table above would be as follows (based on the same assumptions as above):
$19, $59, $102, and $221.
The
Fund’s common shares are listed on the NYSE under the trading or “ticker” symbol “GNT.” The
Fund’s Series A Preferred shares are listed on the NYSE under the symbol “GNT Pr A.” The Fund’s
common shares have historically traded at a discount to the Fund’s net asset value. Over the past ten years, the
Fund’s common shares have traded at a premium to net asset value as high as 11.89% and a discount as low as (33.42)%.
Any additional series of fixed rate preferred shares or subscription rights issued in the future pursuant to a Prospectus
Supplement by the Fund would also likely be listed on the NYSE.
The
following table sets forth for the quarters indicated, the high and low sale prices on the NYSE per share of our common shares
and the net asset value and the premium or discount from net asset value per share at which the common shares were trading, expressed
as a percentage of net asset value, at each of the high and low sale prices provided.
GAMCO
Natural Resources, Gold & Income Trust
Additional
Fund Information (Continued) (Unaudited)
| | |
|
| |
|
| |
|
|
| | |
Market Price | |
Corresponding
Net Asset
Value
(“NAV”) Per
Share
| |
Corresponding
Premium or
Discount as a %
of
NAV
|
| Quarter Ended | |
High | |
Low | |
High | |
Low | |
High | |
Low |
| March 31, 2021 | |
$5.34 | |
$4.89 | |
$6.18 | |
$5.67 | |
(13.59)% | |
(13.75)% |
| June 30, 2021 | |
$5.96 | |
$5.09 | |
$6.38 | |
$5.90 | |
(6.58)% | |
(13.72)% |
| September 30, 2021 | |
$5.58 | |
$5.02 | |
$6.08 | |
$5.67 | |
(8.22)% | |
(11.46)% |
| December 31, 2021 | |
$5.57 | |
$5.07 | |
$6.15 | |
$5.80 | |
(9.43)% | |
(12.58)% |
| March 31, 2022 | |
$5.80 | |
$5.13 | |
$6.49 | |
$5.94 | |
(11.40)% | |
(13.60)% |
| June 30, 2022 | |
$5.82 | |
$4.69 | |
$6.67 | |
$5.46 | |
(13.00)% | |
(14.10)% |
| September 30, 2022 | |
$4.93 | |
$4.15 | |
$5.68 | |
$4.90 | |
(13.20)% | |
(15.30)% |
| December 31, 2022 | |
$5.13 | |
$4.24 | |
$5.94 | |
$5.09 | |
(13.60)% | |
(16.70)% |
The
last reported price for our common shares on December 31, 2022 was $5.12 per share. As of December 31, 2022, the net asset value
per share of the Fund’s common shares was $5.95. Accordingly, the Fund’s common shares traded at a discount to net
asset value of (13.95)% on December 31, 2022.
Outstanding
Securities
The
following information regarding the Fund’s authorized shares is as of December 31, 2022.
| Title of Class | |
Amount Authorized | |
Amount Held
by
Fund for its Account | |
Amount Outstanding
Exclusive of
Amount Held by Fund |
| Common Shares | |
Unlimited | |
— | |
18,055,618 |
| Series A Cumulative Preferred Shares | |
1,200,000 | |
— | |
1,167,963 |
Unresolved
SEC Staff Comments
The
Fund does not believe that there are any material unresolved written comments, received 180 days or more before December 31, 2022
from the Staff of the SEC regarding any of the Fund’s periodic or current reports under the Securities Exchange Act of 1934
or the Investment Company Act of 1940, or its registration statement.
GAMCO
Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
Selected
data for a common share of beneficial interest outstanding throughout each year:
| | |
Year Ended December 31, |
| | |
2017 | | |
2016 | | |
2015 | | |
2014 | | |
2013 | |
| Operating Performance: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net asset value, beginning of year | |
$ | 7.14 | | |
$ | 6.49 | | |
$ | 8.75 | | |
$ | 10.91 | | |
$ | 13.93 | |
| Net investment income | |
| 0.05 | | |
| 0.01 | | |
| 0.02 | | |
| 0.02 | | |
| 0.06 | |
| Net realized and unrealized gain/(loss) on
investments, securities sold short, written options, and foreign currency transactions | |
| 0.59 | | |
| 1.47 | | |
| (1.44 | ) | |
| (1.10 | ) | |
| (1.58 | ) |
| Total from investment operations | |
| 0.64 | | |
| 1.48 | | |
| (1.42 | ) | |
| (1.08 | ) | |
| (1.52 | ) |
| Distributions to Preferred Shareholders: (a) | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net investment income | |
| (0.01 | ) | |
| — | | |
| — | | |
| — | | |
| — | |
| Total distributions to preferred shareholders | |
| (0.01 | ) | |
| — | | |
| — | | |
| — | | |
| — | |
| Distributions to Common Shareholders: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net investment income | |
| (0.06 | ) | |
| (0.03 | ) | |
| (0.01 | ) | |
| (0.02 | ) | |
| (0.06 | ) |
| Return of capital | |
| (0.54 | ) | |
| (0.81 | ) | |
| (0.83 | ) | |
| (1.06 | ) | |
| (1.44 | ) |
| Total distributions to common shareholders | |
| (0.60 | ) | |
| (0.84 | ) | |
| (0.84 | ) | |
| (1.08 | ) | |
| (1.50 | ) |
| Fund Share Transactions: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Increase/(Decrease) in net asset value from common share transactions | |
| 0.00 | (b) | |
| 0.01 | | |
| 0.00 | (b) | |
| — | | |
| (0.00 | )(b) |
| Offering costs for preferred shares charged
to paid-in capital | |
| (0.06 | ) | |
| — | | |
| — | | |
| — | | |
| — | |
| Total fund share transactions | |
| (0.06 | ) | |
| 0.01 | | |
| 0.00 | (b) | |
| — | | |
| (0.00 | )(b) |
| Net
Asset Value, End of Year | |
$ | 7.11 | | |
$ | 7.14 | | |
$ | 6.49 | | |
$ | 8.75 | | |
$ | 10.91 | |
| NAV total return† | |
| 8.29 | % | |
| 23.53 | % | |
| (17.57 | )% | |
| (11.25 | )% | |
| (11.22 | )% |
| Market value, end of year | |
$ | 6.71 | | |
$ | 6.67 | | |
$ | 5.73 | | |
$ | 8.07 | | |
$ | 10.02 | |
| Investment total return†† | |
| 9.59 | % | |
| 31.52 | % | |
| (19.98 | )% | |
| (10.48 | )% | |
| (16.78 | )% |
| Ratios to Average Net Assets and Supplemental
Data: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net assets including
liquidation value of preferred shares, end of year (in 000’s) | |
$ | 178,668 | | |
| — | | |
| — | | |
| — | | |
| — | |
| Net assets attributable to common shares, end of year (in 000’s) | |
$ | 148,668 | | |
$ | 149,032 | | |
$ | 135,914 | | |
$ | 184,118 | | |
$ | 229,675 | |
| Ratio of net investment income to average net assets attributable
to common shares before preferred distributions | |
| 0.74 | % | |
| 0.20 | % | |
| 0.21 | % | |
| 0.22 | % | |
| 0.51 | % |
| Ratio of operating expenses to average net assets attributable to
common shares(c) | |
| 1.38 | %(d) | |
| 1.37 | %(d)(e) | |
| 1.36 | %(d) | |
| 1.25 | % | |
| 1.22 | % |
| Ratio of operating expenses to average net assets including liquidation
value of preferred shares(c) | |
| 1.33 | %(d) | |
| — | | |
| — | | |
| — | | |
| — | |
| Portfolio turnover rate | |
| 237.9 | % | |
| 183.0 | % | |
| 58.0 | % | |
| 101.5 | % | |
| 81.5 | % |
GAMCO
Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
Selected
data for a common share of beneficial interest outstanding throughout each year:
| | |
| | |
| | |
| | |
| | |
| |
| | |
Year Ended December 31, | |
| | |
2017 | | |
2016 | | |
2015 | | |
2014 | | |
2013 | |
| Cumulative Preferred Shares: | |
| | |
| | |
| | |
| | |
| |
| 5.200% Series A Preferred(f) | |
| | | |
| | | |
| | | |
| | | |
| | |
| Liquidation value, end of period (in 000’s) | |
$ | 30,000 | | |
| — | | |
| — | | |
| — | | |
| — | |
| Total shares outstanding (in 000’s) | |
| 1,200 | | |
| — | | |
| — | | |
| — | | |
| — | |
| Liquidation preference per share | |
$ | 25.00 | | |
| — | | |
| — | | |
| — | | |
| — | |
| Average market value(g) | |
$ | 24.92 | | |
| — | | |
| — | | |
| — | | |
| — | |
| Asset coverage per share | |
$ | 148.89 | | |
| — | | |
| — | | |
| — | | |
| — | |
| Asset Coverage | |
| 596 | % | |
| — | | |
| — | | |
| — | | |
| — | |
| † | Based
on net asset value per share, adjusted for reinvestment of distributions at the net asset value per share on the ex-dividend dates. |
| †† | Based
on market value per share, adjusted for reinvestment of distributions at prices obtained under the Fund’s dividend reinvestment
plan. |
| (a) | Calculated
based on average common shares outstanding on record dates throughout the period. |
| (b) | Amount
represents less than $0.005 per share. |
| (c) | Ratio
of operating expenses excluding interest and dividend expense and service fees on securities
sold short to average net assets for the years ended December 31, 2017 and the 2016 was
1.36% and 1.36%, respectively. For the years ended December 31, 2015, 2014, and 2013,
the effect on the expense ratios was minimal. |
| (d) | The
Fund received credits from a designated broker who agreed to pay certain Fund operating
expenses. For the years ended December 31, 2017, 2016, and 2015, there was no impact
on the expense ratios. |
| (e) | For
the year ended December 31, 2016, the ratio of operating expenses to average net assets
excluded dividend expense and service fees on securities sold short. Including dividend
expense and service fees on securities sold short, for the year ended December 31, 2016,
the ratio of operating expenses to average net assets would have been 1.39%. |
| (f) | The
5.200% Series A was initially issued October 26, 2017. |
| (g) | Based
on weekly prices. |
CHANGES
OCCURRING DURING THE PRIOR FISCAL PERIOD
The
following information is a summary of certain changes during the most recent fiscal year ended December 31, 2022. This information
may not reflect all of the changes that have occurred since you purchased shares of the Fund.
During
the Fund’s most recent fiscal year, there were no material changes to the Fund’s investment objectives or policies
that have not been approved by shareholders or in the principal risk factors associated with an investment in the Fund.
On
August 17, 2022, the Board of Trustees of the Fund approved and adopted Amendment No. 1 (“Amendment No. 1”) to the
Fund’s By-Laws, as filed with the Securities and Exchange Commission on August 24, 2022 as an exhibit to Post-Effective
Amendment No. 2 to the Fund’s Registration Statement on Form N-2. Pursuant to Amendment No. 1:
| ● | the
vote necessary to elect one or more trustees is a majority of the shares outstanding and entitled to vote in a Contested Election
and a plurality of the shares present and entitled to vote in all other cases. The Fund’s By-Laws generally define a “Contested
Election” as any election of trustees in which the number of persons nominated for election as trustees by shares entitled
to vote for such trustees in |
GAMCO
Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
accordance
with the Fund’s By-Laws exceeds the number of trustees to be elected by shares entitled to vote for such trustees.
INVESTMENT
OBJECTIVES AND POLICIES
Investment Objectives and Policies
The
Fund’s primary investment objective is to provide a high level of current income from interest, dividends and option premiums.
The Fund’s secondary investment objective is to seek capital appreciation consistent with the Fund’s strategy and
its primary objective.
To
meet the objective of providing a high level of current income, the Fund intends to invest in income producing securities such
as equity securities, convertible securities and other securities and earn short-term gains from a strategy of writing covered
call options on equity securities in its portfolio. The Fund will seek dividend income through investments in equity securities
such as common stock or convertible preferred stock. The Fund will seek interest income through investments in convertible or
corporate bonds.
Under
normal market conditions, the Fund will attempt to achieve its objectives by investing at least 80% of its assets, which includes
the amount of any borrowings for investment purposes, in securities of companies principally engaged in the natural resources
and gold industries. The Fund will invest at least 25% of its assets in the securities of companies principally engaged in the
natural resources industry, which includes companies principally engaged in the exploration, production or distribution of natural
resources, such as metals (including both precious metals—such as silver and platinum—and base (i.e., non-precious)
metals—such as copper, lead, nickel and zinc), paper, food, agriculture, forestry products, water, gas, oil, sustainable
energy and other commodities as well as related transportation companies and equipment manufacturers (“Natural Resources
Companies”). Related transportation companies and equipment manufacturers, such as agriculture transportation vehicles and
farm equipment manufacturers, are vital components of the natural resource industry and are therefore included within the definition
of Natural Resources Companies. The Fund will invest at least 25% of its assets in the securities of companies principally engaged
in the gold industry, which includes companies principally engaged in the exploration, mining, fabrication, processing, distribution
or trading of gold or the financing, managing, controlling or operating of companies engaged in “gold-related” activities
(“Gold Companies”). Companies principally engaged in the financing, managing, controlling or operating of companies
engaged in “gold-related” activities include companies that own or receive royalties on the production of gold; such
companies are vital components of the gold industry and are therefore included within the definition of Gold Companies.
The
Fund may invest without limitation in the securities of domestic and foreign issuers. The Fund expects that its assets will usually
be invested in several countries. To the extent that the natural resources and gold industries are concentrated in any given geographic
region, such as Europe, North America, Latin America or Asia, a relatively high proportion of the Fund’s assets may be invested
in that particular region.
Principally
engaged, as used in this Annual Report, means a company that derives at least 50% of its revenues or earnings from or devotes
at least 50% of its assets to the indicated businesses.
GAMCO
Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
Equity
securities may include common stocks, preferred stocks, convertible securities, warrants, depositary receipts and equity interests
in trusts and other entities. Other Fund investments may include investment companies, including exchange traded funds, securities
of issuers subject to reorganization or other risk arbitrage investments, certain derivative instruments, debt (including obligations
of the U.S. government) and money market instruments.
As
part of its investment strategy, the Fund intends to provide current income from short-term gains earned through an option strategy
which will normally consist of writing (selling) call options on equity securities in its portfolio (“covered calls”),
but may, in amounts up to 15% of the Fund’s assets, consist of writing uncovered call options on securities not held by
the Fund and indices comprised of Natural Resources Companies or Gold Companies or exchange-traded funds comprised of such issuers
and writing put options on securities of Natural Resource Companies or Gold Companies. When the Fund sells a call option, it generates
current income from short-term gains in the form of the premium paid by the buyer of the call option, but the Fund forgoes the
opportunity to participate in any increase in the value of the underlying equity security above the exercise price of the option.
When the Fund sells a put option, it generates current income from short-term gains in the form of the premium paid by the buyer
of the put option, but the Fund will have the obligation to buy the underlying security at the exercise price if the price of
the security decreases below the exercise price of the option. Any premiums received by the Fund from writing options may result
in short-term capital gains.
The
Fund may invest up to 20% of its assets in “convertible securities,” i.e., securities (bonds, debentures, notes, stocks
and other similar securities) that are convertible into common stock or other equity securities, and “income securities,”
i.e., nonconvertible debt or equity securities having a history of regular payments or accrual of income to holders.
Under
normal market conditions, the Fund may invest up to 35% of its assets in fixed-income securities. Short-term discounted Treasury
Bills or certain short-term securities of U.S. government sponsored instrumentalities are not subject to this limitation. The
Fund has no requirements as to maturity or duration of its fixed-income investments, and the Fund does not target any particular
average duration or average maturity. The average duration and average maturity of the Fund’s fixed-income investments is
expected to vary. The Fund may invest up to 25% of its assets in “junk bonds” such as convertible debt securities
(which generally are rated lower than investment grade) and fixed-income securities that are rated lower than investment grade,
or not rated but of similar quality as determined by the Investment Adviser.
In
selecting securities for the Fund, the Investment Adviser will use a bottom-up, value approach. The Investment Adviser will
primarily focus on company-specific criteria rather than on political, economic or other country-specific factors.
No
assurance can be given that the Fund will achieve its investment objectives. The Fund’s investment objectives and its policies
of investing at least 25% of its assets in normal circumstances in Natural Resources Companies and in Gold Companies are fundamental
policies that cannot be changed without the affirmative vote of a majority, as defined in the 1940 Act, of the outstanding voting
securities (voting together as a single class) of the Fund (which for this purpose and under the 1940 Act means the lesser of
(i) 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are represented or (ii) more than
50% of the outstanding shares). If the Fund issues and has outstanding preferred shares, the affirmative vote of the holders
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Additional Fund Information (Continued) (Unaudited)
of
a majority, as defined in the 1940 Act, of the outstanding preferred shares of the Fund voting as a separate class (which for
this purposes and under the 1940 Act means the lesser of (i) 67% of the preferred shares, as a single class, represented at a
meeting at which more than 50% of the Fund’s outstanding preferred shares are represented or (ii) more than 50% of the outstanding
preferred shares) would also be required to change a fundamental policy. Unless specifically stated as such, no other policy of
the Fund is fundamental and each policy may be changed by the Board without shareholder approval and the Fund will provide notice
to shareholders of material changes. The Fund’s policy to invest at least 80% of its total assets in in securities of companies
principally engaged in the natural resources and gold industries may be changed by the Board; however, if this policy changes,
the Fund will provide shareholders at least 60 days’ written notice before implementation of the change in compliance with
SEC rules.
The
percentage and ratings limitations stated herein apply only at the time of investment and are not considered violated as a result
of subsequent changes to the value, or downgrades to the ratings, of the Fund’s portfolio investments.
Gabelli
Funds, LLC, a New York limited liability company, with offices at One Corporate Center, Rye, New York 10580-1422, serves as the
investment adviser to the Fund.
Investment
Methodology of the Fund
In
selecting securities for the Fund, the Investment Adviser normally considers the following factors, among others:
●
the industry of the issuer of a security;
●
the ability of the Fund to generate current income from short-term gains from writing covered call options on such securities;
●
the interest or dividend income generated by the securities;
● the potential for capital appreciation of the securities;
●
the prices of the securities relative to other comparable securities;
●
whether the securities are entitled to the benefits of call protection or other protective covenants;
●
the existence of any anti-dilution protections or guarantees of the security; and
●
the number and size of investments of the portfolio as to issuers.
The
Investment Adviser’s investment philosophy with respect to selecting investments in the gold industry and the natural resources
industries is to emphasize quality and value, as determined by such factors as asset quality, balance sheet leverage, management
ability, reserve life, cash flow, and commodity hedging exposure. In addition, in making stock selections, the Investment Adviser
looks for securities that it believes may have a superior yield as well as capital gains potential.
Certain
Investment Practices
Natural
Resources Industries Concentration. Under normal market conditions, the Fund will invest at least 25% of its assets in Natural
Resources Companies. “Natural Resources Companies” are those that are principally engaged in the exploration, production
or distribution of natural resources, such as metals (including both precious metals—such as silver and platinum—and
base (i.e., non-precious) metals—such as copper, lead,
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nickel
and zinc), paper, food and agriculture, forestry products, gas, oil and other commodities as well as related transportation companies
and equipment manufacturers. Related transportation companies and equipment manufacturers, such as agriculture transportation
vehicles and farm equipment manufacturers, are vital components of the natural resource industry and are therefore included within
the definition of Natural Resources Companies.
Principally
engaged, as used in this Annual Report, means a company that derives at least 50% of its revenues or earnings or devotes at least
50% of its assets to natural resources or gold related activities, as the case may be.
Gold
Industry Concentration. Under normal market conditions the Fund will invest at least 25% of its assets in Gold Companies.
“Gold Companies” are those that are principally engaged in the exploration, mining, fabrication, processing, distribution
or trading of gold, or the financing, managing, controlling or operating of companies engaged in “gold-related” activities.
Companies principally engaged in the financing, managing, controlling or operating of companies engaged in “gold-related”
activities include companies that own or receive royalties on the production of gold; such companies are vital components of the
gold industry and are therefore included within the definition of Gold Companies. The Fund’s investments in Gold Companies
will generally be in the common equity of Gold Companies, but the Fund may also invest in other securities of Gold Companies,
such as preferred stocks, securities convertible into common stocks, and securities such as rights and warrants that have common
stock characteristics. The Fund will not invest in gold bullion and therefore the Fund’s performance will not track directly
the price of gold.
In
selecting investments in Gold Companies for the Fund, the Investment Adviser will focus on stocks that are undervalued, but which
appear to have favorable prospects for growth. Factors considered in this determination will include capitalization per ounce
of gold production, capitalization per ounce of recoverable reserves, quality of management and ability to create shareholder
wealth. Because most of the world’s gold production is outside of the United States, the Fund may have a significant portion
of its investments in Gold Companies in securities of foreign issuers, including those located in developed as well as emerging
markets. The percentage of Fund assets invested in particular countries or regions will change from time to time based on the
Investment Adviser’s judgment. Among other things, the Investment Adviser will consider the economic stability and economic
outlook of these countries and regions. See “Risk Factors and Special Considerations—Industry Risks.”
Covered
Calls and Other Option Transactions. The Fund intends to provide current income from short-term gains earned through an option
strategy which will normally consist of writing (selling) call options on equity securities in its portfolio (“covered calls”),
but may, in amounts up to 15% of the Fund’s assets, consist of writing uncovered call options on additional amounts of such
securities beyond the amounts held in its portfolio, on other securities not held in its portfolio and on indices comprised of
Natural Resources Companies or Gold Companies or on exchange traded funds comprised of such issuers and also may consist of writing
put options on securities of Natural Resources Companies or Gold Companies. Any premiums received by the Fund from writing options
may result in short-term capital gains. Writing a covered call is the selling of an option contract entitling the buyer to purchase
an underlying security that the Fund owns, while writing an uncovered call is the selling of such a contract entitling the buyer
to purchase a security the Fund does not own or in an amount in excess of the amount the Fund owns. When the Fund sells a call
option, it generates current income from short-term gains in the form of the premium paid by the buyer of the call option, but
the Fund forgoes the opportunity
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Additional Fund Information (Continued) (Unaudited)
to
participate in any increase in the value of the underlying equity security above the exercise price of the option. The writer
of the call option has the obligation, upon exercise of the option, to deliver the underlying security or currency upon payment
of the exercise price during the option period.
A
put option is the reverse of a call option, giving the buyer the right, in return for a premium, to sell the underlying security
to the writer, at a specified price, and obligating the writer to purchase the underlying security from the holder at that price.
When the Fund sells a put option, it generates current income from short-term gains in the form of the premium paid by the buyer
of the put option, but the Fund will have the obligation to buy the underlying security at the exercise price if the price of
the security decreases below the exercise price of the option.
If
the Fund has written a call option, it may terminate its obligation by effecting a closing purchase transaction. This is accomplished
by purchasing a call option with the same terms as the option previously written. However, once the Fund has been assigned an
exercise notice, the Fund will be unable to effect a closing purchase transaction. Similarly, if the Fund is the holder of an
option, it may liquidate its position by effecting a closing sale transaction. This is accomplished by selling an option with
the same terms as the option previously purchased. There can be no assurance that either a closing purchase or sale transaction
can be effected when the Fund so desires.
The
Fund will realize a profit from a closing transaction if the price of the transaction is less than the premium it received from
writing the option, or is more than the premium it paid to purchase the option; the Fund will realize a loss from a closing transaction
if the price of the transaction is more than the premium it received from writing the option, or is less than the premium it paid
to purchase the option. Since call option prices generally reflect increases in the price of the underlying security, any loss
resulting from the repurchase of a call option may also be wholly or partially offset by unrealized appreciation of the underlying
security. Other principal factors affecting the market value of a put or a call option include supply and demand, interest rates,
the current market price and price volatility of the underlying security and the time remaining until the expiration date of the
option. Gains and losses on investments in options depend, in part, on the ability of the Investment Adviser to predict correctly
the effect of these factors. The use of certain options transactions cannot serve as a complete hedge since the price movement
of securities underlying certain options will not necessarily follow the price movements of the portfolio securities that may
be subject to the hedge.
An
option position may be closed out only on an exchange that provides a secondary market for an option with the same terms or in
a private transaction. Although the Fund will generally purchase or write options for which there appears to be an active secondary
market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option. In such event,
it might not be possible to effect closing transactions in particular options, in which case the Fund would have to exercise its
options in order to realize any profit and would incur brokerage commissions upon the exercise of call options and upon the subsequent
disposition of underlying securities for the exercise of put options.
Although
the Investment Adviser will attempt to take appropriate measures to minimize the risks relating to the Fund’s writing and
purchasing of put and call options, there can be no assurance that the Fund will succeed in any option-writing program it undertakes.
Uncovered
Calls. The Fund may also write uncovered call options or put options.
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Foreign
Securities. The Fund may invest in securities principally traded in securities markets outside the United States. Foreign
investments may be affected favorably or unfavorably by changes in currency rates and in exchange control regulations. There may
be less publicly available information about a foreign company than about a U.S. company, and foreign companies may not be subject
to accounting, auditing and financial reporting standards and requirements comparable to those applicable to U.S. companies. Securities
of some foreign companies may be less liquid or more volatile than securities of U.S. companies, and foreign brokerage commissions
and custodian fees are generally higher than in the United States. Investments in foreign securities may also be subject to other
risks different from those affecting U.S. investments, including local political or economic developments, expropriation or nationalization
of assets and imposition of withholding taxes on dividend or interest payments.
American
Depositary Receipts. The Fund may invest in American Depositary Receipts (“ADRs”). Such investment may entail
certain risks similar to foreign securities. ADRs are certificates representing an ownership interest in a security or a pool
of securities issued by a foreign issuer and deposited with the depositary, typically a bank, and held in trust for the investor.
The economies of many of the countries in which the issuer of a security underlying an ADR principally engages in business may
not be as developed as the United States’ economy and may be subject to significantly different forces. Political or social
instability, expropriation or confiscatory taxation, and limitations on the removal of funds or other assets could adversely affect
the value of the Fund’s investments in such securities. The value of the securities underlying ADRs could fluctuate as exchange
rates change between U.S. dollars and the currency of the country in which the foreign company is located. In addition, foreign
companies are not registered with the SEC and are generally not subject to the regulatory controls imposed on United States issuers
and, as a consequence, there is generally less publicly available information about foreign companies than is available about
domestic companies. Foreign companies are not subject to uniform accounting, auditing and financial reporting standards, practices
and requirements comparable to those applicable to domestic companies.
Emerging
Market Countries. The risks described above for foreign securities, including the risks of nationalization and expropriation
of assets, are typically increased to the extent that the Fund invests in companies headquartered in developing, or emerging market,
countries. Investments in securities of companies headquartered in such countries may be considered speculative and subject to
certain special risks. The political and economic structures in many of these countries may be in their infancy and developing
rapidly, and such countries may lack the social, political and economic characteristics of more developed countries. Certain of
these countries have in the past failed to recognize private property rights and have at times nationalized and expropriated the
assets of private companies. Some countries have inhibited the conversion of their currency to another. The currencies of certain
emerging market countries have experienced devaluation relative to the U.S. dollar, and future devaluations may adversely affect
the value of the Fund’s assets denominated in such currencies. Some emerging market countries have experienced substantial
rates of inflation for many years. Continued inflation may adversely affect the economies and securities markets of such countries.
In addition, unanticipated political or social developments may affect the value of the Fund’s investments in these countries
and the availability of the Fund of additional investments in these countries. The small size, limited trading volume and relative
inexperience of the securities markets in these countries may make the Fund’s investments in such countries illiquid and
more volatile than investments in more developed countries, and the Fund may be required to establish special custodial or other
arrangements before making investments in these countries. There may be
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Additional Fund Information (Continued) (Unaudited)
little
financial or accounting information available with respect to companies located in these countries, and it may be difficult as
a result to assess the value or prospects of an investment in such companies.
Restricted
and Illiquid Securities. The Fund may invest in securities that are illiquid. Illiquid securities include securities legally
restricted as to resale, such as commercial paper issued pursuant to Section 4(a)(2) of the Securities Act and securities eligible
for resale pursuant to Rule 144A thereunder. Section 4(a)(2) and Rule 144A securities may, however, be treated as liquid by the
Investment Adviser pursuant to procedures adopted by the Board, which require consideration of factors such as trading activity,
availability of market quotations and number of dealers willing to purchase the security. If the Fund invests in Rule 144A securities,
the level of portfolio illiquidity may be increased to the extent that eligible buyers become uninterested in purchasing such
securities.
It
may be difficult to sell such securities at a price representing the fair value until such time as such securities may be sold
publicly. Where registration is required, a considerable period may elapse between a decision to sell the securities and the time
when it would be permitted to sell. Thus, the Fund may not be able to obtain as favorable a price as that prevailing at the time
of the decision to sell. The Fund may also acquire securities through private placements under which it may agree to contractual
restrictions on the resale of such securities. Such restrictions might prevent their sale at a time when such sale would otherwise
be desirable.
Income
Securities. Income securities include (i) fixed income securities such as bonds, debentures, notes, preferred stock, short-term
discounted Treasury Bills or certain securities of the U.S. government sponsored instrumentalities, as well as money market open-end
funds that invest in those securities, which, in the absence of an applicable exemptive order, will not be affiliated with the
Investment Adviser, and (ii) common stocks of issuers that have historically paid periodic dividends. Fixed income securities
obligate the issuer to pay to the holder of the security a specified return, which may be either fixed or reset periodically in
accordance with the terms of the security. Fixed income securities generally are senior to an issuer’s common stock and
their holders generally are entitled to receive amounts due before any distributions are made to common shareholders. Common stocks,
on the other hand, generally do not obligate an issuer to make periodic distributions to holders.
The
market value of fixed income securities, especially those that provide a fixed rate of return, may be expected to rise and fall
inversely with interest rates and in general is affected by the credit rating of the issuer, the issuer’s performance and
perceptions of the issuer in the market place. The market value of callable or redeemable fixed income securities may also be
affected by the issuer’s call and redemption rights. In addition, it is possible that the issuer of fixed income securities
may not be able to meet its interest or principal obligations to holders. Further, holders of non-convertible fixed income securities
do not participate in any capital appreciation of the issuer.
The
Fund may also invest in obligations of government sponsored instrumentalities. Unlike non-U.S. government securities, obligations
of certain agencies and instrumentalities of the U.S. government, such as the Government National Mortgage Association, are supported
by the “full faith and credit” of the U.S. government; others, such as those of the Export-Import Bank of the U.S.,
are supported by the right of the issuer to borrow from the U.S. Treasury; others, such as those of the Federal National Mortgage
Association, are supported by the discretionary authority of the U.S. government to purchase the agency’s obligations; and
still others, such as those of the Student Loan Marketing Association, are supported only by the credit of the instrumentality.
No
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Additional Fund Information (Continued) (Unaudited)
assurance
can be given that the U.S. government would provide financial support to U.S. government sponsored instrumentalities if it is
not obligated to do so by law.
The
Fund also may invest in common stock of issuers that have historically paid periodic dividends or otherwise made distributions
to common shareholders. Unlike fixed income securities, dividend payments generally are not guaranteed and so may be discontinued
by the issuer at its discretion or because of the issuer’s inability to satisfy its liabilities. Further, an issuer’s
history of paying dividends does not guarantee that it will continue to pay dividends in the future. In addition to dividends,
under certain circumstances the holders of common stock may benefit from the capital appreciation of the issuer.
Common
stocks represent the residual ownership interest in the issuer and holders of common stock are entitled to the income and increase
in the value of the assets and business of the issuer after all of its debt obligations and obligations to preferred shareholders
are satisfied. Common stocks generally have voting rights. Common stocks fluctuate in price in response to many factors including
historical and prospective earnings of the issuer, the value of its assets, general economic conditions, interest rates, investor
perceptions and market liquidity.
Non-Investment
Grade Securities. The Fund may invest up to 25% of its assets in securities rated below investment grade by recognized
statistical rating agencies, such as convertible debt securities (which generally are rated lower than investment grade) and fixed-income
securities that are rated lower than investment grade, or not rated but of similar quality as determined by the Investment Adviser.
These securities, which may be preferred shares or debt, are predominantly speculative and involve major risk exposure to adverse
conditions. Securities that are rated lower than “BBB” by S&P, or lower than “Baa” by Moody’s
or unrated securities considered by the Investment Adviser to be of comparable quality, are commonly referred to by the financial
press as “junk bonds” or “high yield” securities.
Generally,
such non-investment grade securities and unrated securities of comparable quality offer a higher current yield than is offered
by higher rated securities, but also (i) will likely have some quality and protective characteristics that, in the judgment of
the rating organizations, are outweighed by large uncertainties or major risk exposures to adverse conditions and (ii) are predominantly
speculative with respect to the issuer’s capacity to pay interest and repay principal in accordance with the terms of the
obligation. The market values of certain of these securities also tend to be more sensitive to individual corporate developments
and changes in economic conditions than higher quality securities. In addition, such non-investment grade securities and comparable
unrated securities generally present a higher degree of credit risk. The risk of loss due to default by these issuers is significantly
greater because such non-investment grade securities and unrated securities of comparable quality generally are unsecured and
frequently are subordinated to the prior payment of senior indebtedness. In light of these risks, the Investment Adviser, in evaluating
the creditworthiness of an issue, whether rated or unrated, will take various factors into consideration, which may include, as
applicable, the issuer’s operating history, financial resources and its sensitivity to economic conditions and trends, the
market support for the facility financed by the issue, the perceived ability and integrity of the issuer’s management and
regulatory matters.
In
addition, the market value of securities in non-investment grade categories is more volatile than that of higher quality securities,
and the markets in which such lower grade or unrated securities are traded are more limited than those in which higher rated securities
are traded. The existence of limited markets may make it more
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difficult
for the Fund to obtain accurate market quotations for purposes of valuing its portfolio and calculating its net asset value. Moreover,
the lack of a liquid trading market may restrict the availability of securities for the Fund to purchase and may also have the
effect of limiting the ability of the Fund to sell securities at their fair value to respond to changes in the economy or the
financial markets.
Non-investment
grade and unrated securities of comparable quality also present risks based on payment expectations. If an issuer calls the obligation
for redemption (often a feature of fixed income securities), the Fund may have to replace the security with a lower yielding security,
resulting in a decreased return for investors. Also, as the principal value of bonds moves inversely with movements in interest
rates, in the event of rising interest rates the value of the securities held by the Fund may decline proportionately more than
a portfolio consisting of higher rated securities. Investments in zero coupon bonds may be more speculative and subject to greater
fluctuations in value due to changes in interest rates than bonds that pay interest currently. Interest rates have risen in recent
months, and the risk that they may continue to do so is pronounced. Any interest rate increases in the future could cause the
value of the Fund to decrease. Recently, inflation levels have been at their highest point in nearly 40 years and the Federal
Reserve has begun an aggressive campaign to raise certain benchmark interest rates in an effort to combat inflation. As inflation
increases, the real value of the Fund’s common stock and distributions therefore may decline.
The
Fund may purchase securities of companies that are experiencing significant financial or business difficulties, including companies
involved in bankruptcy or other reorganization and liquidation proceedings. Although such investments may result in significant
financial returns to the Fund, they involve a substantial degree of risk. The level of analytical sophistication, both financial
and legal, necessary for successful investments in issuers experiencing significant business and financial difficulties is unusually
high. There can be no assurance that the Fund will correctly evaluate the value of the assets collateralizing its investments
or the prospects for a successful reorganization or similar action. In any reorganization or liquidation proceeding relating to
a portfolio investment, the Fund may lose all or part of its investment or may be required to accept collateral with a value less
than the amount of the Fund’s initial investment.
As
part of its investments in non-investment grade securities, the Fund may invest not more than 5% of the total assets of the Fund
in securities of issuers in default. The Fund will make an investment in securities of issuers in default only when the Investment
Adviser believes that such issuers will honor their obligations or emerge from bankruptcy protection and the value of these securities
will appreciate. By investing in securities of issuers in default, the Fund bears the risk that these issuers will not continue
to honor their obligations or emerge from bankruptcy protection or that the value of the securities will not appreciate.
In
addition to using statistical rating agencies and other sources, the Investment Adviser will also perform its own analysis of
issuers in seeking investments that it believes to be underrated (and thus higher yielding) in light of the financial condition
of the issuer. Its analysis of issuers may include, among other things, current and anticipated cash flow and borrowing requirements,
value of assets in relation to historical cost, strength of management, responsiveness to business conditions, credit standing
and current anticipated results of operations. In selecting investments for the Fund, the Investment Adviser may also consider
general business conditions, anticipated changes in interest rates and the outlook for specific industries.
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Subsequent
to its purchase by the Fund, an issue of securities may cease to be rated or its rating may be reduced. In addition, it is possible
that statistical rating agencies might change their ratings of a particular issue to reflect subsequent events on a timely basis.
Moreover, such ratings do not assess the risk of a decline in market value. None of these events will require the sale of the
securities by the Fund, although the Investment Adviser will consider these events in determining whether the Fund should continue
to hold the securities.
Fixed
income securities, including non-investment grade securities and comparable unrated securities, frequently have call or buy-back
features that permit their issuers to call or repurchase the securities from their holders, such as the Fund. If an issuer exercises
these rights during periods of declining interest rates, the Fund may have to replace the security with a lower yielding security,
thus resulting in a decreased return for the Fund.
The
market for non-investment grade and comparable unrated securities has at various times, particularly during times of economic
recession, experienced substantial reductions in market value and liquidity. Past recessions have adversely affected the value
of such securities as well as the ability of certain issuers of such securities to repay principal and pay interest thereon or
to refinance such securities. The market for those securities could react in a similar fashion in the event of any future economic
recession.
Temporary
Defensive Investments. When a temporary defensive posture is believed by the Investment Adviser to be warranted (“temporary
defensive periods”), the Fund may without limitation hold cash or invest all or a portion of its assets in money market
instruments and repurchase agreements in respect of those instruments. The money market instruments in which the Fund may invest
are obligations of the U.S. government, its agencies or instrumentalities; commercial paper rated “A-1” or higher
by S&P or “Prime-1” by Moody’s; and certificates of deposit and bankers’ acceptances issued by domestic
branches of U.S. banks that are members of the Federal Deposit Insurance Corporation. During temporary defensive periods, the
Fund may also invest to the extent permitted by applicable law in shares of money market mutual funds. Money market mutual funds
are investment companies and the investments in those companies by the Fund are in some cases subject to certain fundamental investment
restrictions and applicable law. As a shareholder in a mutual fund, the Fund will bear its ratable share of its expenses, including
management fees, and will remain subject to payment of the fees to the Investment Adviser, with respect to assets so invested.
The Fund may find it more difficult to achieve its investment objectives during temporary defensive periods.
When
Issued, Delayed Delivery Securities and Forward Commitments. The Fund may enter into forward commitments for the purchase
or sale of securities, including on a “when issued” or “delayed delivery” basis, in excess of customary
settlement periods for the type of security involved. In some cases, a forward commitment may be conditioned upon the occurrence
of a subsequent event, such as approval and consummation of a merger, corporate reorganization or debt restructuring, i.e., a
when, as and if issued security. When such transactions are negotiated, the price is fixed at the time of the commitment, with
payment and delivery taking place in the future, generally a month or more after the date of the commitment. While it will only
enter into a forward commitment with the intention of actually acquiring the security, the Fund may sell the security before the
settlement date if it is deemed advisable. Securities purchased under a forward commitment are subject to market fluctuation,
and no interest (or dividends) accrues to the Fund prior to the settlement date.
Short
Sales. The Fund may make short sales as a form of hedging to offset potential declines in long positions in the same or
similar securities, including short sales of securities in the Fund’s portfolio at the time of sale
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(shorting
“against the box”). The short sale of a security is considered a speculative investment technique. At the time of
the sale, the Fund will own, or have the immediate and unconditional right to acquire at no additional cost, identical or similar
securities or establish a hedge against a security of the same issuer which may involve additional cost, such as an “in
the money” warrant.
Short
sales “against the box” are subject to special tax rules, one of the effects of which may be to accelerate the recognition
of income by the Fund. Other than with respect to short sales against the box, the Fund will limit short sales of securities to
not more than 5% of the Fund’s assets. When the Fund makes a short sale, it must deliver the security to the broker-dealer
through which it made the short sale in order to satisfy its obligation to deliver the security upon conclusion of the sale.
If
the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed
security, the Fund will incur a loss; conversely, if the price declines, the Fund will realize a capital gain. Any gain will be
decreased, and any loss will be increased, by the transaction costs incurred by the Fund, including the costs associated with
providing collateral to the broker-dealer (usually cash, U.S. government securities or other highly liquid debt securities). Although
the Fund’s gain is limited to the price at which it sold the security short, its potential loss is theoretically unlimited.
Repurchase
Agreements. Repurchase agreements may be seen as loans by the Fund collateralized by underlying debt securities. Under
the terms of a typical repurchase agreement, the Fund would acquire an underlying debt obligation for a relatively short period
(usually not more than one week) subject to an obligation of the seller to repurchase, and the Fund to resell, the obligation
at an agreed price and time. This arrangement results in a fixed rate of return to the Fund that is not subject to market fluctuations
during the holding period. The Fund bears a risk of loss in the event that the other party to a repurchase agreement defaults
on its obligations and the Fund is delayed in or prevented from exercising its rights to dispose of the collateral securities,
including the risk of a possible decline in the value of the underlying securities during the period in which it seeks to assert
these rights. The Investment Adviser, acting under the supervision of the Board, reviews the creditworthiness of those banks and
dealers with which the Fund enters into repurchase agreements to evaluate these risks and monitors on an ongoing basis the value
of the securities subject to repurchase agreements to ensure that the value is maintained at the required level. The Fund will
not enter into repurchase agreements with the Investment Adviser or any of its affiliates.
Registered
Investment Companies. The Fund may invest in registered investment companies in accordance with the 1940 Act to the extent
consistent with the Fund’s investment objectives, including exchange traded funds that concentrate in investments in securities
of companies in the natural resources or gold industries. The 1940 Act generally prohibits the Fund from investing more than 5%
of its assets in any one other investment company or more than 10% of its assets in all other investment companies. However, many
exchange-traded funds are exempt from these limitations.
Investment
Restrictions. The Fund has adopted certain investment restrictions as fundamental policies of the Fund. Under the 1940
Act, a fundamental policy may not be changed without the vote of a majority, as defined in the 1940 Act, of the outstanding voting
securities of the Fund (voting together as a single class subject to class approval rights of any preferred shares).
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
Portfolio
Turnover. The Fund will buy and sell securities to accomplish its investment objectives. The investment policies of the
Fund, including its strategy of writing covered call options on securities in its portfolio, may lead to frequent changes in investments,
particularly in periods of rapidly fluctuating interest or currency exchange rates, and are expected to result in portfolio turnover
that is higher than that of many investment companies, may initially be higher than 100% and may result in the Fund paying higher
commissions than many investment companies.
Portfolio
turnover generally involves some expense to the Fund, including brokerage commissions or dealer mark-ups and other transaction
costs on the sale of securities and reinvestment in other securities. The portfolio turnover rate is computed by dividing the
lesser of the amount of the securities purchased or securities sold by the average monthly value of securities owned during the
year (excluding securities whose maturities at acquisition were one year or less). Higher portfolio turnover may decrease the
after-tax return to individual investors in the Fund to the extent it results in a decrease of the long-term capital gains portion
of distributions to shareholders.
The
Fund’s portfolio turnover rate for the fiscal years ended December 31, 2021 and 2022 was 109% and 121%, respectively.
Leverage
As
provided in the 1940 Act and subject to certain exceptions, the Fund may issue senior securities (which may be stock, such as
preferred shares, and/or securities representing debt) so long as its total assets, less certain ordinary course liabilities,
exceeds 300% of the amount of the debt outstanding and exceeds 200% of the amount of preferred shares and debt outstanding. Any
such preferred shares may be convertible in accordance with the SEC staff guidelines, which may permit the Fund to obtain leverage
at attractive rates.
The
use of leverage magnifies the impact of changes in net asset value, which means that, all else being equal, the use of leverage
results in outperformance on the upside and underperformance on the downside. In addition, if the cost of leverage exceeds the
return on the securities acquired with the proceeds of leverage, the use of leverage will diminish rather than enhance the return
to the Fund. The use of leverage generally increases the volatility of returns to the Fund. Such volatility may increase the likelihood
of the Fund having to sell investments in order to meet its obligations to make distributions on the preferred shares or principal
or interest payments on debt securities, or to redeem preferred shares or repay debt, when it may be disadvantageous to do so.
The Fund’s use of leverage may require it to sell portfolio investments at inopportune times in order to raise cash to redeem
preferred shares or otherwise de-leverage so as to maintain required asset coverage amounts or comply with any mandatory redemption
terms of any outstanding preferred shares. See “Risk Factors and Special Considerations—Special Risks to Holders of
Common Shares—Leverage Risk.”
In
the event the Fund had both outstanding preferred shares and senior securities representing debt at the same time, the Fund’s
obligations to pay dividends or distributions and, upon liquidation of the Fund, liquidation payments in respect of its preferred
shares would be subordinate to the Fund’s obligations to make any principal and/or interest payments due and owing with
respect to its outstanding senior debt securities. Accordingly, the Fund’s issuance of senior securities representing debt
would have the effect of creating special risks for the Fund’s preferred shareholders that would not be present in a capital
structure that did not include such securities.
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
Subject
to the requirements of Rule 18f-4 under the 1940 Act (“Rule 18f-4”), the Fund may enter into derivative transactions
including transactions that have economic leverage embedded in them. Rule 18f-4 defines “derivatives transactions”
as (1) any swap, security-based swap, futures contract, forward contract, option, any combination of the foregoing, or any similar
instrument, under which a fund is or may be required to make any payment or delivery of cash or other assets during the life of
the instrument or at maturity or early termination, whether as margin or settlement payment or otherwise; and (2) any short sale
borrowing. Derivatives transactions entered into by the Fund in compliance with Rule 18f-4 will not be considered senior securities
for purposes of computing the asset coverage requirements described above. Economic leverage exists when the Fund achieves the
right to a return on a capital base that exceeds the investment which the Fund has contributed to the instrument achieving a return.
Derivative transactions that the Fund may enter into and the risks associated with them are described elsewhere in this Annual
Report. The Fund cannot assure you that investments in derivative transactions that have economic leverage embedded in them will
result in a higher return on its common shares.
If
the Fund enters into any reverse repurchase agreement or similar financing transactions obligating the Fund to make future payments,
the Fund must either treat all such transactions as derivatives transactions for all purposes under Rule 18f-4 or otherwise comply
with the asset coverage requirements described above and combine the aggregate amount of indebtedness associated with all such
transactions with the aggregate amount of any other senior securities representing indebtedness when calculating the Fund’s
asset coverage ratio limit requirements. The asset coverage requirements under section 18 of the 1940 Act and the limits and conditions
imposed by Rule 18f-4 may limit or restrict portfolio management.
Derivative
Instruments
The
Fund may also utilize other types of derivative instruments primarily for hedging or risk management purposes. These instruments
include futures, forward contracts, options on such contracts and interest rate, total return and other kinds of swaps.
Options.
The Fund may, from time to time, subject to guidelines of the Board and the limitations set forth this Annual Report, purchase
or sell (i.e., write) options on securities, securities indices and foreign currencies which are listed on a national securities
exchange or in the over-the-counter (“OTC”) market, as a means of achieving additional return or of hedging the value
of the Fund’s portfolio.
A
call option is a contract that gives the holder of the option the right to buy from the writer of the call option, in return for
a premium, the security or currency underlying the option at a specified exercise price at any time during the term of the option.
The writer of the call option has the obligation, upon exercise of the option, to deliver the underlying security or currency
upon payment of the exercise price during the option period.
A
put option is a contract that gives the holder of the option the right, in return for a premium, to sell to the seller the underlying
security at a specified price. The seller of the put option has the obligation to buy the underlying security upon exercise at
the exercise price.
A
call option is “covered” if the Fund owns the underlying instrument covered by the call or has an absolute and immediate
right to acquire that instrument without additional cash consideration (or for additional cash consideration held in a segregated
account by its custodian) upon conversion or exchange of other instruments
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
held
in its portfolio. A call option is also covered if the Fund holds a call option on the same instrument as the call option written
where the exercise price of the call option held is (i) equal to or less than the exercise price of the call option written or
(ii) greater than the exercise price of the call option written if the difference is maintained by the Fund in cash, U.S. government
securities or other high-grade short-term obligations in a segregated account with its custodian. A call option is “uncovered”
if the underlying security covered by the call is not held by the Fund. A put option is “covered” if the Fund maintains
cash or other liquid securities with a value equal to the exercise price in a segregated account with its custodian, or else holds
a put option on the same instrument as the put option written where the exercise price of the put option held is equal to or greater
than the exercise price of the put option written.
If
the Fund has written an option, it may terminate its obligation by effecting a closing purchase transaction. This is accomplished
by purchasing an option of the same series as the option previously written. However, once the Fund has been assigned an exercise
notice, the Fund will be unable to effect a closing purchase transaction. Similarly, if the Fund is the holder of an option it
may liquidate its position by effecting a closing sale transaction. This is accomplished by selling an option of the same series
as the option previously purchased. There can be no assurance that either a closing purchase or sale transaction can be effected
when the Fund so desires.
The
Fund will realize a profit from a closing transaction if the price of the transaction is less than the premium received from writing
the option, or is more than the premium paid to purchase the option; the Fund will realize a loss from a closing transaction if
the price of the transaction is more than the premium received from writing the option, or is less than the premium paid to purchase
the option. Since call option prices generally reflect increases in the price of the underlying security, any loss resulting from
the repurchase of a call option may also be wholly or partially offset by unrealized appreciation of the underlying security,
and any gain resulting from the repurchase of a call option may also be wholly or partially offset by unrealized depreciation
of the underlying security. Other principal factors affecting the market value of a put or a call option include supply and demand,
interest rates, the current market price and price volatility of the underlying security and the time remaining until the expiration
date of the option. Gains and losses on investments in options depend, in part, on the ability of the Investment Adviser to correctly
predict the effect of these factors. The use of options cannot serve as a complete hedge since the price movement of securities
underlying the options will not necessarily follow the price movements of the portfolio securities subject to the hedge.
An
option position may be closed out only on an exchange that provides a secondary market for an option of the same series or in
a private transaction. Although the Fund will generally purchase or write only those options for which there appears to be an
active secondary market, there is no assurance that a liquid secondary market on an exchange will exist for any particular option.
In such event it might not be possible to effect closing transactions in particular options, in which case the Fund would have
to exercise its options in order to realize any profit and would incur brokerage commissions upon the exercise of call options
and upon the subsequent disposition of underlying securities for the exercise of put options. If the Fund, as a covered call option
writer, is unable to effect a closing purchase transaction in a secondary market, it will not be able to sell the underlying security
until the option expires or it delivers the underlying security upon exercise, or otherwise covers the position.
To
the extent that the Fund purchases options pursuant to a hedging strategy, the Fund will be subject to the following additional
risks. If a put or call option purchased by the Fund is not sold when it has remaining value,
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
and
if the market price of the underlying security remains equal to or greater than the exercise price (in the case of a put), or
remains less than or equal to the exercise price (in the case of a call), the Fund will lose its entire investment in the option.
Where
a put or call option on a particular security is purchased to hedge against price movements in that or a related security, the
price of the put or call option may move more or less than the price of the security. If restrictions on exercise are imposed,
the Fund may be unable to exercise an option it has purchased. If the Fund is unable to close out an option that it has purchased
on a security, it will have to exercise the option in order to realize any profit, or the option may expire worthless.
Options
on Securities Indices. The Fund may purchase and sell securities index options. One effect of such transactions may be
to hedge all or part of the Fund’s securities holdings against a general decline in the securities market or a segment of
the securities market. Options on securities indices are similar to options on stocks except that, rather than the right to take
or make delivery of stock at a specified price, an option on a securities index gives the holder the right to receive, upon exercise
of the option, an amount of cash if the closing level of the securities index upon which the option is based is greater than,
in the case of a call option, or less than, in the case of a put option, the exercise price of the option.
The
Fund’s successful use of options on indices depends upon its ability to predict the direction of the market and is subject
to various additional risks. The correlation between movements in the index and the price of the securities being hedged against
is imperfect and the risk from imperfect correlation increases as the composition of the Fund diverges from the composition of
the relevant index. Accordingly, a decrease in the value of the securities being hedged against may not be wholly offset by a
gain on the exercise or sale of a securities index put option held by the Fund.
Futures
Contracts and Options on Futures. The Fund may enter into futures contracts or options on futures contracts. It is anticipated
that these investments, if any, will be made by the Fund primarily for the purpose of hedging against changes in the value of
its portfolio securities and in the value of securities it intends to purchase. Such investments will only be made if they are
economically appropriate to the reduction of risks involved in the management of the Fund. In this regard, the Fund may enter
into futures contracts or options on futures for the purchase or sale of securities indices or other financial instruments including,
but not limited to, U.S. government securities.
A
“sale” of a futures contract (or a “short” futures position) means the assumption of a contractual obligation
to deliver the securities underlying the contract at a specified price at a specified future time. A “purchase” of
a futures contract (or a “long” futures position) means the assumption of a contractual obligation to acquire the
securities underlying the contract at a specified price at a specified future time. Certain futures contracts, including stock
and bond index futures, are settled on a net cash payment basis rather than by the sale and delivery of the securities underlying
the futures contracts.
No
consideration will be paid or received by the Fund upon the purchase or sale of a futures contract. Initially, the Fund will be
required to deposit with the broker an amount of cash or cash equivalents equal to approximately 1% to 10% of the contract amount
(this amount is subject to change by the exchange or board of trade on which the contract is traded and brokers or members of
such board of trade may charge a higher amount). This amount is known as the “initial margin” and is in the nature
of a performance bond or good faith deposit on the
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
contract.
Subsequent payments, known as “variation margin,” to and from the broker will be made daily as the price of the index
or security underlying the futures contract fluctuates. At any time prior to the expiration of the futures contract, the Fund
may elect to close the position by taking an opposite position, which will operate to terminate its existing position in the contract.
An
option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in a futures
contract at a specified exercise price at any time prior to the expiration of the option. Upon exercise of an option, the delivery
of the futures position by the writer of the option to the holder of the option will be accompanied by delivery of the accumulated
balance in the writer’s futures margin account attributable to that contract, which represents the amount by which the market
price of the futures contract exceeds, in the case of a call, or is less than, in the case of a put, the exercise price of the
option on the futures contract. The potential loss related to the purchase of an option on futures contracts is limited to the
premium paid for the option (plus transaction costs). Because the value of the option purchased is fixed at the point of sale,
there are no daily cash payments by the purchaser to reflect changes in the value of the underlying contract; however, the value
of the option does change daily and that change would be reflected in the net assets of the Fund.
Futures
and options on futures entail certain risks, including, but not limited to, the following: no assurance that futures contracts
or options on futures can be offset at favorable prices; possible reduction of the yield of the Fund due to the use of hedging;
possible reduction in value of both the securities hedged and the hedging instrument; possible lack of liquidity due to daily
limits on price fluctuations; imperfect correlation between the contracts and the securities being hedged; and losses from investing
in futures transactions that are potentially unlimited.
Limitations
on the Purchase and Sale of Futures Contracts, Certain Options, and Swaps. Subject Subject to the guidelines of the Board,
the Fund may engage in “commodity interest” transactions (generally, transactions in futures, certain options, certain
currency transactions, and certain types of swaps) only for bona fide hedging or other permissible transactions in accordance
with the rules and regulations of the Commodity Futures Trading Commission (“CFTC”). Pursuant to amendments by the
CFTC to Rule 4.5 under the Commodity Exchange Act (“CEA”), the Investment Adviser has filed a notice of exemption
from registration as a “commodity pool operator” with respect to the Fund. The Fund and the Investment Adviser are
therefore not subject to registration or regulation as a commodity pool operator under the CEA. In addition, certain trading restrictions
are applicable to the Fund as a result of this status. These trading restrictions permit the Fund to engage in commodity interest
transactions that include (i) “bona fide hedging” transactions, as that term is defined and interpreted by the CFTC
and its staff, without regard to the percentage of the Fund’s assets committed to margin and options premiums and (ii) non-bona
fide hedging transactions, provided that the Fund does not enter into such non-bona fide hedging transactions if, immediately
thereafter, either (a) the sum of the amount of initial margin deposits on the Fund’s existing futures positions or swaps
positions and option or swaption premiums would exceed 5% of the market value of the Fund’s liquidating value, after taking
into account unrealized profits and unrealized losses on any such transactions, or (b) the aggregate net notional value of the
Fund’s commodity interest transactions would not exceed 100% of the market value of the Fund’s liquidating value,
after taking into account unrealized profits and unrealized losses on any such transactions. In addition to meeting one of the
foregoing trading limitations, the Fund may not market itself as a commodity pool or otherwise as a vehicle for trading in the
futures, options or swaps markets. Therefore, in order to claim the Rule 4.5 exemption, the Fund
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
is
limited in its ability to invest in commodity futures, options, and certain types of swaps (including securities futures, broad
based stock index futures, and financial futures contracts). As a result, the Fund is more limited in its ability to use these
instruments than in the past, and these limitations may have a negative impact on the ability of the Investment Adviser to manage
the Fund, and on the Fund’s performance. If the Investment Adviser was required to register as a commodity pool operator
with respect to the Fund, compliance with additional registration and regulatory requirements would increase Fund expenses. Other
potentially adverse regulatory initiatives could also develop.
Swaps.
The Fund may enter into total rate of return, credit default or other types of swaps and related derivatives for the purpose
of hedging and risk management. These transactions generally provide for the transfer from one counterparty to another of certain
risks inherent in the ownership of a financial asset such as a common stock or debt instrument. Such risks include, among other
things, the risk of default and insolvency of the obligor of such asset, the risk that the credit of the obligor or the underlying
collateral will decline or the risk that the common stock of the underlying issuer will decline in value. The transfer of risk
pursuant to a derivative of this type may be complete or partial, and may be for the life of the related asset or for a shorter
period. These derivatives may be used as a risk management tool for a pool of financial assets, providing the Fund with the opportunity
to gain or reduce exposure to one or more reference securities or other financial assets (each, a “Reference Asset”)
without actually owning or selling such assets in order, for example, to increase or reduce a concentration risk or to diversify
a portfolio. Conversely, these derivatives may be used by the Fund to reduce exposure to an owned asset without selling it.
Because
the Fund would not own the Reference Assets, the Fund may not have any voting rights with respect to the Reference Assets, and
in such cases all decisions related to the obligors or issuers of the Reference Assets, including whether to exercise certain
remedies, will be controlled by the swap counterparties.
Total
rate of return swap agreements are contracts in which one party agrees to make periodic payments to another party based on the
change in market value of the assets underlying the contract, which may include a specified security, basket of securities or
securities indices during the specified period, in return for periodic payments based on a fixed or variable interest rate or
the total return from other underlying assets.
A
credit default swap consists of an agreement between two parties in which the “buyer” agrees to pay to the “seller”
a periodic stream of payments over the term of the contract and the seller agrees to pay the buyer the par value (or other agreed-upon
value) of a referenced debt obligation upon the occurrence of a credit event with respect to the issuer of the referenced debt
obligation. Generally, a credit event means bankruptcy, failure to pay, obligation acceleration or modified restructuring. The
Fund may be either the buyer or seller in a credit default swap. As the buyer in a credit default swap, the Fund would pay to
the counterparty the periodic stream of payments. If no default occurs, the Fund would receive no benefit from the contract. As
the seller in a credit default swap, the Fund would receive the stream of payments but would be subject to exposure on the notional
amount of the swap, which it would be required to pay in the event of a credit event with respect to the issuer of the referenced
debt obligation. Accordingly, if the Fund sells a credit default swap (or a credit default index swap), it intends at all times
to segregate or designate on its books and records liquid assets in an amount at least equal to the notional amount of the swap
(i.e., the cost of payment to the buyer if a credit event occurs).
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
The
Fund may also enter into equity contract for difference swap transactions for the purpose of increasing the income of the Fund.
In an equity contract for difference swap, a set of future cash flows is exchanged between two counterparties. One of these cash
flow streams will typically be based on a reference interest rate combined with the performance of a notional value of shares
of a stock. The other will be based on the performance of the shares of a stock. Depending on the general state of short-term
interest rates and the returns on the Fund’s portfolio securities at the time an equity contract for difference swap transaction
reaches its scheduled termination date, there is a risk that the Fund will not be able to obtain a replacement transaction or
that the terms of the replacement will not be as favorable as on the expiring transaction.
Total
rate of return swaps and similar derivatives are subject to many risks, including the possibility that the market will move in
a manner or direction that would have resulted in gain for the Fund had the swap or other derivative not been utilized (in which
case it would have been better had the Fund not engaged in the hedging transactions), the risk of imperfect correlation between
the risk sought to be hedged and the derivative transactions utilized, the possible inability of the counterparty to fulfill its
obligations under the swap and potential illiquidity of the hedging instrument utilized, which may make it difficult for the Fund
to close out or unwind one or more hedging transactions.
Total
rate of return swaps and related derivatives are a relatively recent development in the financial markets. Consequently,
there are certain legal, tax and market uncertainties that present risks in entering into such arrangements.
There
is currently little or no case law or litigation characterizing total rate of return swaps or related derivatives, interpreting
their provisions, or characterizing their tax treatment. In addition, additional regulations and laws may apply to these types
of derivatives that have not previously been applied. There can be no assurance that future decisions construing similar provisions
to those in any swap agreement or other related documents or additional regulations and laws will not have an adverse effect on
the Fund that utilizes these instruments.
RISK
FACTORS AND SPECIAL CONSIDERATIONS
Investors
should consider the following risk factors and special considerations associated with investing in the Fund:
General
Risks
Market
Risk. The market price of securities owned by the Fund may go up or down, sometimes rapidly or unpredictably. Securities
may decline in value due to factors affecting securities markets generally or particular industries represented in the securities
markets. The value of a security may decline due to general market conditions which are not specifically related to a particular
company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes
in interest or currency rates, adverse changes to credit markets or adverse investor sentiment generally. The value of a security
may also decline due to factors which affect a particular industry or industries, such as labor shortages or increased production
costs and competitive conditions within an industry. During a general downturn in the securities markets, multiple asset classes
may decline in value simultaneously. Equity securities generally have greater price volatility than fixed income securities. Credit
ratings downgrades may also negatively affect securities held
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
by
the Fund. Even when markets perform well, there is no assurance that the investments held by the Fund will increase in value along
with the broader market.
In
addition, market risk includes the risk that geopolitical and other events will disrupt the economy on a national or global level.
For instance, war, terrorism, market manipulation, government defaults, government shutdowns, political changes or diplomatic
developments, public health emergencies (such as the spread of infectious diseases, pandemics and epidemics) and natural/environmental
disasters can all negatively impact the securities markets, which could cause the Fund to lose value. These events could reduce
consumer demand or economic output, result in market closures, travel restrictions or quarantines, and significantly adversely
impact the economy. The current contentious domestic political environment, as well as political and diplomatic events within
the United States and abroad, such as the U.S. government’s inability at times to agree on a long-term budget and deficit
reduction plan, has in the past resulted, and may in the future result, in a government shutdown, which could have an adverse
impact on the Fund’s investments and operations. Additional and/or prolonged U.S. federal government shutdowns may affect
investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a
significant degree. Governmental and quasi-governmental authorities and regulators throughout the world have previously responded
to serious economic disruptions with a variety of significant fiscal and monetary policy changes, including, but not limited to,
direct capital infusions into companies, new monetary programs and dramatically lower interest rates. An unexpected or sudden
reversal of these policies, or the ineffectiveness of these policies, could increase volatility in securities markets, which could
adversely affect the Fund’s investments. Any market disruptions could also prevent the Fund from executing advantageous
investment decisions in a timely manner. To the extent that the Fund focuses its investments in a region enduring geopolitical
market disruption, it will face higher risks of loss, although the increasing interconnectivity between global economies and financial
markets can lead to events or conditions in one country, region or financial market adversely impacting a different country, region
or financial market. Thus, investors should closely monitor current market conditions to determine whether the Fund meets their
individual financial needs and tolerance for risk.
Current
market conditions may pose heightened risks with respect to the Fund’s investment in income producing securities. Recently,
central banks such as the Federal Reserve Bank have been raising interest rates to combat the rate of inflation. There is a risk
that additional increases in interest rates or a prolonged period of rising interest rates may cause the economy to enter a recession.
Additional interest rate increases in the future could cause the value of the Fund’s assets to decrease. In addition, inflation
has recently reached its highest levels in decades. As such, the markets for income producing securities may experience heightened
levels of interest rate, volatility and liquidity risk.
Exchanges
and securities markets may close early, close late or issue trading halts on specific securities or generally, which may result
in, among other things, the Fund being unable to buy or sell certain securities or financial instruments at an advantageous time
or accurately price its portfolio investments.
Interest
Rate Risk Generally. The primary risk associated with dividend-and interest-paying securities is interest rate risk. A
decrease in interest rates will generally result in an increase in the investment value of such securities, while increases in
interest rates will generally result in a decline in the investment value of such securities. This effect is generally more pronounced
for fixed rate securities than for securities whose income rate is periodically reset.
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
General
interest rate fluctuations may have a substantial negative impact on the Fund’s investments, the value of the Fund and the
Fund’s rate of return. A reduction in the interest or dividend rates on new investments relative to interest or dividend
rates on current investments could also have an adverse impact on the Fund’s net investment income. An increase in interest
rates could decrease the value of any investments held by the Fund that earn fixed interest or dividend rates, including debt
securities, convertible securities, preferred stocks, loans and high-yield bonds, and also could increase interest or dividend
expenses, thereby decreasing net income. Interest rates have risen over the past year and the chance that they will continue to
rise is pronounced.
The
magnitude of these fluctuations in the market price of bonds and other income- or dividend-paying securities is generally greater
for those securities with longer maturities. Fluctuations in the market price of the Fund’s investments will not affect
interest income derived from instruments already owned by the Fund, but will be reflected in the Fund’s net asset value.
The Fund may lose money if short-term or long-term interest rates rise sharply in a manner not anticipated by Fund management.
To the extent the Fund invests in securities that may be prepaid at the option of the obligor, the sensitivity of such securities
to changes in interest rates may increase (to the detriment of the Fund) when interest rates rise. Moreover, because rates on
certain floating rate securities typically reset only periodically, changes in prevailing interest rates (and particularly sudden
and significant changes) can be expected to cause some fluctuations in the net asset value of the Fund to the extent that it invests
in floating rate securities. These basic principles of bond prices also apply to U.S. government securities. A security backed
by the “full faith and credit” of the U.S. government is guaranteed only as to its stated interest rate and face value
at maturity, not its current market price. Just like other income- or dividend-paying securities, government-guaranteed securities
will fluctuate in value when interest rates change.
The
Fund’s use of leverage will tend to increase the Fund’s interest rate risk. The Fund may invest in variable and floating
rate instruments, which generally are less sensitive to interest rate changes than longer duration fixed rate instruments but
may decline in value in response to rising interest rates if, for example, the rates at which they pay interest do not rise as
much, or as quickly, as market interest rates in general. Conversely, variable and floating rate instruments generally will not
increase in value if interest rates decline. The Fund also may invest in inverse floating rate securities, which may decrease
in value if interest rates increase, and which also may exhibit greater price volatility than fixed rate obligations with similar
credit quality. To the extent the Fund holds variable or floating rate instruments, a decrease (or, in the case of inverse floating
rate securities, an increase) in market interest rates will adversely affect the income received from such securities, which may
adversely affect the net asset value of the Fund’s common shares.
Recently,
central banks such as the Federal Reserve Bank have been increasing interest rates in an effort to slow the rate of inflation.
There is a risk that increased interest rates may cause the economy to enter a
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
recession.
Any such recession would negatively impact the Fund and the investments held by the Fund. These impacts may include:
| ● | severe
declines in the Fund’s net asset values; |
| ● | inability
of the Fund to accurately or reliably value its portfolio; |
| ● | inability
of the Fund to pay any dividends or distributions; |
| ● | inability
of the Fund to maintain its status as a registered investment company (“RIC”) under the Internal Revenue Code of 1986,
as amended (the “Code”); |
| ● | declines
in the value of the Fund’s investments; |
| ● | increased
risk of default or bankruptcy by the companies in which the Fund invests; |
| ● | increased
risk of companies in which the Fund invests being unable to weather an extended cessation of normal economic activity and thereby
impairing their ability to continue functioning as a going concern; and |
| ● | limited
availability of new investment opportunities. |
Inflation
Risk. Inflation risk is the risk that the value of assets or income from investments will be worth less in the
future as inflation decreases the value of money. Recently, inflation has increased to its highest level in decades, and the
Federal Reserve has been raising the federal funds rate in response. Inflation rates may change frequently and significantly
as a result of various factors, including unexpected shifts in the domestic or global economy and changes in economic
policies, and the Fund’s investments may not keep pace with inflation, which may result in losses to Fund shareholders.
As inflation increases, the real value of the Fund’s shares and dividends may decline. In addition, during any periods
of rising inflation, interest rates of any debt securities held by the Fund would likely increase, which would tend to
further reduce returns to shareholders. This risk is greater for fixed-income instruments with longer maturities.
Total
Return Risk. The Fund utilizes several investment management techniques in an effort to generate positive total return.
The risks of these techniques, such as option writing, leverage, concentration in certain industries, and investing in emerging
markets, are described in the following paragraphs. Taken together these and other techniques represent a risk that the Fund will
experience a negative total return even in market environments that are generally positive and that the Fund’s returns,
both positive and negative, may be more volatile than if the Fund did not utilize these investment techniques.
Industry
Risk. The Fund’s investments will be concentrated in the natural resources and gold industries. Because the Fund
is concentrated in these industries, it may present more risks than if it were broadly diversified over numerous industries and
sectors of the economy. A downturn in the natural resources or gold industries would have a larger impact on the Fund than on
an investment company that does not concentrate in such industries.
The
Fund invests in equity securities of Natural Resources Companies. A downturn in the indicated natural resources industries
would have a larger impact on the Fund than on an investment company that does not invest significantly in such industries. Such
industries can be significantly affected by the supply of and demand for the indicated commodities and related services, exploration
and production spending, government regulations, world events and economic conditions. For example, the COVID-19 pandemic drastically
reduced the demand
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
for
various natural resources, including oil, and drastically increased the price volatility of natural resources and companies within
the natural resources industry. A new or extended period of reduced (or negative) prices may significantly lengthen the time that
companies within the natural resources industries would need to recover after a stabilization of prices. The metals (including
both precious metals—such as silver and platinum—and base (i.e., non-precious) metals—such as copper, lead,
nickel and zinc), paper, food and agriculture, forestry products, water, gas, oil, sustainable energy and other commodities industries
can be significantly affected by events relating to international political developments, the success of exploration projects,
commodity prices, and tax and government regulations. The stock prices of Natural Resources Companies, some of which prior to
the COVID-19 pandemic had experienced substantial price increases, may also experience greater price volatility than other types
of common stocks. The impact of COVID-19 on securities issued by Natural Resources Companies was dramatic beginning in February
2020 and ultimately culminating in near-panic selling though the middle of March 2020. Securities issued by Natural Resources
Companies are sensitive to changes in the prices of, and in supply and demand for, the indicated commodities. The value of securities
issued by Natural Resources Companies may be affected by changes in overall market movements, changes in interest rates, or factors
affecting a particular industry or commodity, such as weather, embargoes, tariffs, policies of commodity cartels and international
economic, political and regulatory developments. The Investment Adviser’s judgments about trends in the prices of these
securities and commodities may prove to be incorrect. It is possible that the performance of securities of Natural Resources Companies
may lag the performance of other industries or the broader market as a whole.
The
Fund also invests in equity securities of Gold Companies. Equity securities of Gold Companies may experience greater volatility
than companies not involved in the gold industry. Investments related to gold are considered speculative and are affected by a
variety of worldwide economic, financial and political factors. The price of gold may fluctuate sharply, which has experienced
substantial increases since August, 2020, but which also may be subject to substantial decreases, over short periods of time due
to changes in inflation or expectations regarding inflation in various countries, the availability of supplies of gold, changes
in industrial and commercial demand, gold sales by governments, central banks or international agencies, investment speculation,
monetary and other economic policies of various governments and government restrictions on private ownership of gold. In times
of significant inflation or great economic uncertainty, Gold Companies have at times outperformed securities markets generally.
However, in times of stable economic growth, traditional equity and debt investments could offer greater appreciation potential
and the value of gold and the prices of equity securities of Gold Companies may be adversely affected, which could in turn affect
the Fund’s returns. Some Gold Companies hedge, to varying degrees, their exposure to declines in the price of gold. Such
hedging limits a Gold Company’s ability to benefit from future rises in the price of gold. The Investment Adviser’s
judgments about trends in the prices of securities of Gold Companies may prove to be incorrect. It is possible that the performance
of securities of Gold Companies may lag the performance of other industries or the broader market as a whole.
Supply
and Demand Risk. A decrease in the production of or exploration of, gold, metals (including both precious metals—such
as silver and platinum—and base (i.e., non-precious) metals—such as copper, lead, nickel and zinc), paper, food and
agriculture, forestry products, gas, oil and other commodities or a decrease in the volume of such commodities available for transportation,
mining, processing, storage or distribution may adversely impact the financial performance of the Fund’s investments. Production
declines and volume decreases could
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
be
caused by various factors, including catastrophic events affecting production, depletion of resources, labor difficulties, environmental
proceedings, increased regulations, equipment failures and unexpected maintenance problems, import supply disruption, increased
competition from alternative energy sources or commodity prices.
For
example, the COVID-19 pandemic increased price and demand volatility for various natural resources, including oil, and companies
within the natural resources industry, as demand drastically reduced at the height of the pandemic and significantly increased
as the pandemic subsided. A similar or renewed and extended period of price and demand volatility, including reduced (or negative)
prices, may significantly lengthen the time that companies within the natural resources industries would need to recover after
a stabilization of prices. Such volatility may be further magnified by the differing approaches to energy policy in the United
States, including increased incentives for the exploration and production of alternative energy and climate-related programs,
revocation of federal permits for, and public opposition to, natural gas pipelines, such as the cross-border operation permit
for the Keystone XL Pipeline and other policy decisions that favor alternative energy sources. The extension of these policies,
or the adoption of similar policies, could adversely affect the financial performance of gas transmission and distribution companies.
Prolonged changes in climatic conditions can also have a significant impact on both the revenues and expenses of a gas utility.
Future
declines in demand for the indicated commodities could also adversely affect the financial performance of Natural Resources Companies
and Gold Companies over the long term. Factors which could lead to a decline in demand include economic recession or other adverse
economic conditions, higher fuel taxes or governmental regulations, increases in fuel economy, consumer shifts to the use of alternative
fuel sources, changes in commodity prices, or weather.
Depletion
and Exploration Risk. Many Natural Resources Companies and Gold Companies are either engaged in the production or
exploration of particular commodities or are engaged in transporting, storing, distributing and processing such commodities.
To maintain or increase their revenue level, these companies or their customers need to maintain or expand their reserves
through exploration of new sources of supply, the development of existing sources, acquisitions, or long-term contracts to
acquire reserves. The financial performance of Natural Resources Companies and Gold Companies may be adversely affected if
they, or the companies to whom they provide products or services, are unable to cost effectively acquire additional products
or reserves sufficient to replace the natural decline.
Regulatory
Risk. Natural Resources Companies and Gold Companies may be subject to extensive government regulation in virtually every
aspect of their operations, including how facilities are constructed, maintained and operated, environmental and safety controls,
and in some cases the prices they may charge for the products and services they provide. Various governmental authorities have
the power to enforce compliance with these regulations and the permits issued under them, and violators are subject to administrative,
civil and criminal penalties, including civil fines, injunctions or both. Stricter laws, regulations or enforcement policies could
be enacted in the future, which would likely increase compliance costs and may adversely affect the financial performance of Natural
Resources Companies and Gold Companies.
Commodity
Pricing Risk. The operations and financial performance of Natural Resources Companies and Gold Companies may be directly
affected by the prices of the indicated commodities, especially those Natural Resources Companies and Gold Companies for whom
the commodities they own are significant assets.
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
Commodity
prices fluctuate for several reasons, including changes in market and economic conditions, levels of domestic production, impact
of governmental regulation and taxation, the availability of transportation systems and, in the case of oil and gas companies
in particular, conservation measures and the impact of weather. Volatility of commodity prices, which may lead to a reduction
in production or supply, may also negatively affect the performance of Natural Resources Companies and Gold Companies which are
solely involved in the transportation, processing, storing, distribution or marketing of commodities. Volatility of commodity
prices may also make it more difficult for Natural Resources Companies and Gold Companies to raise capital to the extent the market
perceives that their performance may be directly or indirectly tied to commodity prices.
Catastrophe
Risk. The operations of Natural Resources Companies and Gold Companies are subject to many hazards inherent in the development
of energy infrastructure and the acquisition, exploration, production, mining, processing (including fractionating), refining,
transportation (including trans-loading), storage, servicing or marketing of natural resources, including, but not limited to,
crude oil, refined products, petrochemicals, natural gas, natural gas liquids, coal, metals and renewable energy sources, including
damage to production equipment, pipelines, storage tanks or related equipment and surrounding properties caused by hurricanes,
tornadoes, floods, fires and other natural disasters or by acts of terrorism; inadvertent damage from construction or other equipment;
leaks of natural gas, natural gas liquids, crude oil, refined petroleum products or other hydrocarbons; and fires and explosions.
These risks could result in substantial losses due to personal injury or loss of life, severe damage to and destruction of property
and equipment and pollution or other environmental damage, and might result in the curtailment or suspension of their related
operations. Not all Natural Resources Companies or Gold Companies are fully insured against all risks inherent to their businesses.
If a significant accident or event occurs that is not fully insured, it could adversely affect a Natural Resources Company’s
or Gold Company’s operations and financial condition. Recently, there have been physical and cyber terrorist attacks on
natural gas and oil pipelines, resulting in significant destruction to critical property and equipment, supply disruption and
the curtailment and suspension of certain Natural Resources Companies activities.
Climate
Change Risk. Climate change, and regulations intended to control its impact, may affect the value of the Fund’s
investments. The Fund’s current evaluation is that the near-term effects of climate change and climate change
regulation on the Fund’s investments are not material, but the Fund cannot predict the long-term impacts on the Fund or
its investments from climate change or related regulations. The Fund is subject to the special risks associated with climate
change. Weather may play a role in the cash flows of the Natural Resources Companies in which the Fund invests. Although many
of the companies in this sector can reasonably predict seasonal weather patterns, extreme weather conditions, such as those
that may result from climate change, many be unpredictable. The damage done by extreme weather could adversely affect the
financial condition of such companies. Additionally, new or strengthened regulations or legislation could increase the
operating costs and/or decrease the revenues of Natural Resources Companies.
Interest
Rate Risk for Natural Resources Companies and Gold Companies. The prices of the equity and debt securities of the Natural
Resources Companies and Gold Companies that the Fund holds in its portfolio are susceptible in the short term to decline when
interest rates rise. Rising interest rates could limit the capital appreciation of securities of certain investments because of
the increased availability of alternative investments with yields comparable to those investments. Rising interest rates could
adversely affect the financial performance of Natural Resources Companies and Gold Companies generally by increasing their cost
of capital. This may
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
reduce
their ability to execute acquisitions or expansion projects in a cost-effective manner. Interest rates have risen in recent months,
and the risk that they may continue to do so is pronounced.
Cyber
and Physical Security Risks. Natural Resources Companies have experienced sabotage to company infrastructure, property and
equipment, attempts to breach company operating systems and other similar incidents in the past, which have resulted in shutdowns
and/or disruptions in their operations. For example, in May 2021, a U.S. fuel pipeline operator was the target of a ransomware
attack, which resulted in the shutdown of a massive oil pipeline system that supplies the eastern United States. Recently, in
September 2022, several subsea explosions ruptured the Nord Stream I pipeline and one Nordstream II pipe, causing a substantial
disruption in the delivery of natural gases under the Baltic Sea. Several countries continue to investigate the incident, but
several, including Sweden, have concluded the explosions were caused by grievous sabotage.
Risks
Associated with Covered Calls and Other Option Transactions. There are several risks associated with transactions in options
on securities. For example, there are significant differences between the securities and options markets that could result in
an imperfect correlation between these markets, causing a given covered call option transaction not to achieve its objectives.
A decision as to whether, when and how to use covered calls (or other options) involves the exercise of skill and judgment, and
even a well-conceived transaction may be unsuccessful because of market behavior or unexpected events. The use of options may
require the Fund to sell portfolio securities at inopportune times or for prices other than current market values, may limit the
amount of appreciation the Fund can realize on an investment, or may cause the Fund to hold a security it might otherwise sell.
As the writer of a covered call option, the Fund forgoes, during the option’s life, the opportunity to profit from increases
in the market value of the security covering the call option above the exercise price of the call option, but has retained the
risk of loss should the price of the underlying security decline. Although such loss would be offset in part by the option premium
received, in a situation in which the price of a particular stock on which the Fund has written a covered call option declines
rapidly and materially or in which prices in general on all or a substantial portion of the stocks on which the Fund has written
covered call options decline rapidly and materially, the Fund could sustain material depreciation or loss in its net assets to
the extent it does not sell the underlying securities (which may require it to terminate, offset or otherwise cover its option
position as well). The writer of an option has no control over the time when it may be required to fulfill its obligation as a
writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in
order to terminate its obligation under the option and must deliver the underlying security at the exercise price.
There
can be no assurance that a liquid market will exist when the Fund seeks to close out an option position. Reasons for the absence
of a liquid secondary market for exchange-traded options include the following: (i) there may be insufficient trading interest;
(ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts,
suspensions or other restrictions may be imposed with respect to particular classes or series of options; (iv) unusual or unforeseen
circumstances may interrupt normal operations on an exchange; (v) the trading facilities of an exchange or the Options Clearing
Corporation (the “OCC”) may not be adequate to handle current trading volume; or (vi) the relevant exchange could,
for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular
class or series of options). If trading were discontinued, the secondary market on that exchange (or in that class or series of
options) would cease to exist. However, outstanding options on that exchange that had been issued by the OCC as a result of trades
on that exchange would continue to be exercisable in accordance with their terms.
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
The
Fund’s ability to terminate OTC options may be more limited than with exchange-traded options and may involve the risk that
counterparties participating in such transactions will not fulfill their obligations. If the Fund were unable to close out a covered
call option that it had written on a security, it would not be able to sell the underlying security unless the option expired
without exercise.
The
hours of trading for options may not conform to the hours during which the underlying securities are traded. To the extent that
the options markets close before the markets for the underlying securities, significant price and rate movements can take place
in the underlying markets that cannot be reflected in the options markets. Call options are marked to market daily and their value
will be affected by changes in the value of and dividend rates of the underlying common stocks, an increase in interest rates,
changes in the actual or perceived volatility of the stock market and the underlying common stocks and the remaining time to the
options’ expiration. Additionally, the exercise price of an option may be adjusted downward before the option’s expiration
as a result of the occurrence of certain corporate events affecting the underlying equity security, such as extraordinary dividends,
stock splits, merger or other extraordinary distributions or events. A reduction in the exercise price of an option would reduce
the Fund’s capital appreciation potential on the underlying security.
Limitation
on Covered Call Writing Risk. The number of covered call options the Fund can write is limited by the number of shares of
the corresponding common stock the Fund holds. Furthermore, the Fund’s covered call options and other options transactions
will be subject to limitations established by each of the exchanges, boards of trade or other trading facilities on which such
options are traded. These limitations govern the maximum number of options in each class which may be written or purchased by
a single investor or group of investors acting in concert, regardless of whether the options are written or purchased on the same
or different exchanges, boards of trade or other trading facilities or are held or written in one or more accounts or through
one or more brokers. As a result, the number of covered call options that the Fund may write or purchase may be affected by options
written or purchased by it and other investment advisory clients of the Investment Adviser. An exchange, board of trade or other
trading facility may order the liquidation of positions found to be in excess of these limits, and it may impose certain other
sanctions.
Risks
Associated with Uncovered Calls. There are special risks associated with uncovered option writing which expose the Fund
to potentially significant loss. As the writer of an uncovered call option, the Fund has no risk of loss should the price of the
underlying security decline, but bears unlimited risk of loss should the price of the underlying security increase above the exercise
price until the Fund covers its exposure. As with writing uncovered calls, the risk of writing uncovered put options is substantial.
The writer of an uncovered put option bears a risk of loss if the value of the underlying instrument declines below the exercise
price. Such loss could be substantial if there is a significant decline in the value of the underlying instrument.
For
combination writing, where the Fund writes both a put and a call on the same underlying instrument, the potential risk is unlimited.
If a secondary market in options were to become unavailable, the Fund could not engage in losing transactions and would remain
obligated until expiration or assignment.
Equity
Risk. Investing in the Fund involves equity risk, which is the risk that the securities held by the Fund will fall in
market value due to adverse market and economic conditions, perceptions regarding the industries in which the issuers of securities
held by the Fund participate and the particular circumstances and performance of particular companies whose securities the Fund
holds. An investment in the Fund represents an indirect
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
economic
stake in the securities owned by the Fund, which are for the most part traded on securities exchanges or in the OTC markets. The
market value of these securities, like other market investments, may move up or down, sometimes rapidly and unpredictably. The
net asset value of the Fund may at any point in time be less than the amount at the time the shareholder invested in the Fund,
even after taking into account any reinvestment of distributions.
Common
Stock Risk. Common stock of an issuer in the Fund’s portfolio may decline in price for a variety of reasons, including
if the issuer fails to make anticipated dividend payments because, among other reasons, the issuer of the security experiences
a decline in its financial condition. Common stock in which the Fund will invest is structurally subordinated as to income and
residual value to preferred stock, bonds and other debt instruments in a company’s capital structure, in terms of priority
to corporate income, and therefore will be subject to greater dividend risk than preferred stock or debt instruments of such issuers.
In addition, while common stock has historically generated higher average returns than fixed income securities, common stock has
also experienced significantly more volatility in those returns.
Distribution
Risk for Equity Income Portfolio Securities. In selecting equity income securities in which the Fund will invest, the
Investment Adviser will consider the issuer’s history of making regular periodic distributions (i.e., dividends) to its
equity holders. An issuer’s history of paying dividends or other distributions, however, does not guarantee that the issuer
will continue to pay dividends or other distributions in the future. The dividend income stream associated with equity income
securities generally is not guaranteed and will be subordinate to payment obligations of the issuer on its debt and other liabilities.
Accordingly, an issuer may forgo paying dividends on its equity securities. In addition, because in most instances issuers are
not obligated to make periodic distributions to the holders of their equity securities, such distributions or dividends generally
may be discontinued at the issuer’s discretion.
Preferred
Stock Risk. There are special risks associated with the Fund’s investing in preferred securities, including:
| ● | Deferral.
Preferred securities may include provisions that permit the issuer, at its discretion, to defer div-idends or distributions
for a stated period without any adverse consequences to the issuer. If the Fund owns a preferred security that is deferring its
dividends or distributions, the Fund may be required to report income for tax purposes although it has not yet received such income. |
| ● | Non-Cumulative
Dividends. Some preferred securities are non-cumulative, meaning that the dividends do not accumulate and need not ever be
paid. A portion of the portfolio may include investments in non-cumulative preferred securities, whereby the issuer does not have
an obligation to make up any arrearages to its shareholders. Should an issuer of a non-cumulative preferred security held by the
Fund determine not to pay dividends or distributions on such security, the Fund’s return from that security may |
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
be
adversely affected. There is no assurance that dividends or distributions on non-cumulative preferred securities in which the
Fund invests will be declared or otherwise made payable.
| ● | Subordination.
Preferred securities are subordinated to bonds and other debt instruments in an issuer’s capital structure in terms
of priority to corporate income and liquidation payments, and therefore will be subject to greater credit risk than more senior
debt security instruments. |
| ● | Liquidity.
Preferred securities may be substantially less liquid than many other securities, such as common stocks or U.S. government
securities. |
| ● | Limited
Voting Rights. Generally, preferred security holders (such as the Fund) have no voting rights with respect to the issuing
company unless preferred dividends have been in arrears for a specified number of periods, at which time the preferred security
holders may be entitled to elect a number of directors to the issuer’s board. Generally, once all the arrearages have been
paid, the preferred security holders no longer have voting rights. |
| ● | Special
Redemption Rights. In certain varying circumstances, an issuer of preferred securities may redeem the securities prior to
a specified date. For instance, for certain types of preferred securities, a redemption may be triggered by a change in U.S. federal
income tax or securities laws. A redemption by the issuer may negatively impact the return of the security held by the Fund. |
Foreign
Securities Risk. Because many of the world’s Natural Resources Companies and Gold Companies are located outside
of the United States, the Fund may have a significant portion of its investments in securities that are traded in foreign markets
and that are not subject to the requirements of the U.S. securities laws, markets and accounting requirements (“Foreign
Securities”). Investments in the securities of foreign issuers involve certain considerations and risks not ordinarily associated
with investments in securities of domestic issuers and such securities may be more volatile than those of issuers located in the
United States. Foreign companies are not generally subject to uniform accounting, auditing and financial standards and requirements
comparable to those applicable to U.S. companies. The governments of certain countries may prohibit or impose substantial restrictions
on foreign investments in their capital markets or in certain industries, and there may be greater levels of price volatility
in foreign markets. Foreign securities exchanges, brokers and listed companies may be subject to less government supervision and
regulation than exists in the United States. Dividend and interest income may be subject to withholding and other foreign taxes,
which may adversely affect the net return on such investments. There may be difficulty in obtaining or enforcing a court judgment
abroad, and it may be difficult to effect repatriation of capital invested in certain countries. With respect to certain countries,
there are risks of expropriation, confiscatory taxation, political or social instability or diplomatic developments that could
affect assets of the Fund held in foreign countries. The dividend income the Fund receives from foreign securities may not be
eligible for the special tax treatment applicable to qualified dividend income. Moreover, certain equity investments in foreign
issuers classified as passive foreign investment companies may be subject to additional taxation risk.
There
may be less publicly available information about a foreign company than a U.S. company, and foreign companies may not be subject
to accounting, auditing, and financial reporting standards and requirements comparable to or as uniform as those of U.S. companies.
Foreign Securities markets may have substantially less volume than U.S. securities markets and some foreign company securities
are less liquid and their prices more volatile than securities of otherwise comparable U.S. companies. A portfolio of Foreign
Securities may also
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
be
adversely affected by fluctuations in the rates of exchange between the currencies of different nations and by exchange control
regulations, as there is generally less government supervision and regulation of exchanges, brokers, and issuers than there is
in the U.S. The Fund might have greater difficulty taking appropriate legal action in non-U.S. courts and there may be less developed
bankruptcy laws. Non-U.S. markets also have different clearance and settlement procedures which in some markets have at times
failed to keep pace with the volume of transactions, thereby creating substantial delays and settlement failures that could adversely
affect the Fund’s performance. In addition, a portfolio that includes Foreign Securities can expect to have a higher expense
ratio because of the increased transaction costs on non-U.S. securities markets and the increased costs of maintaining the custody
of Foreign Securities.
Investments
in Foreign Securities will expose the Fund to the direct or indirect consequences of political, social or economic changes in
the countries that issue the securities or in which the issuers are located. Certain countries in which the Fund may invest have
historically experienced, and may continue to experience, high rates of inflation, high interest rates, exchange rate fluctuations,
large amounts of external debt, balance of payments and trade difficulties and extreme poverty and unemployment. Many of these
countries are also characterized by political uncertainty and instability. The cost of servicing external debt will generally
be adversely affected by rising international interest rates because many external debt obligations bear interest at rates which
are adjusted based upon international interest rates.
The
Fund also may purchase sponsored ADRs or U.S. dollar-denominated securities of foreign issuers. ADRs are receipts issued by U.S.
banks or trust companies in respect of securities of foreign issuers held on deposit for use in the U.S. securities markets. While
ADRs may not necessarily be denominated in the same currency as the securities into which they may be converted, many of the risks
associated with Foreign Securities may also apply to ADRs. In addition, the underlying issuers of certain depositary receipts,
particularly unsponsored or unregistered depositary receipts, are under no obligation to distribute shareholder communications
to the holders of such receipts, or to pass through to them any voting rights with respect to the deposited securities.
The
following provides more detail on certain pronounced risks with foreign investing:
Foreign
Currency Risk. The Fund may invest in companies whose securities are denominated or quoted in currencies other than U.S. dollars
or have significant operations or markets outside of the United States. In such instances, the Fund will be exposed to currency
risk, including the risk of fluctuations in the exchange rate between U.S. dollars (in which the Fund’s shares are denominated)
and such foreign currencies, the risk of currency devaluations and the risks of non-exchangeability and blockage. As non-U.S.
securities may be purchased with and payable in currencies of countries other than the U.S. dollar, the value of these assets
measured in U.S. dollars may be affected favorably or unfavorably by changes in currency rates and exchange control regulations.
Fluctuations in currency rates may adversely affect the ability of the Investment Adviser to acquire such securities at advantageous
prices and may also adversely affect the performance of such assets.
Certain
non-U.S. currencies, primarily in developing countries, have been devalued in the past and might face devaluation in the future.
Currency devaluations generally have a significant and adverse impact on the devaluing country’s economy in the short and
intermediate term and on the financial condition and results of companies’ operations in that country. Currency devaluations
may also be accompanied by significant declines in the values and liquidity of equity and debt securities of affected governmental
and private sector entities generally. To the
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
extent
that affected companies have obligations denominated in currencies other than the devalued currency, those companies may also
have difficulty in meeting those obligations under such circumstances, which in turn could have an adverse effect upon the value
of the Fund’s investments in such companies. There can be no assurance that current or future developments with respect
to foreign currency devaluations will not impair the Fund’s investment flexibility, its ability to achieve its investment
objectives or the value of certain of its foreign currency-denominated investments.
Tax
Consequences of Foreign Investing. The Fund’s transactions in foreign currencies, foreign currency-denominated debt
obligations and certain foreign currency options, futures contracts and forward contracts (and similar instruments) may give rise
to ordinary income or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned.
This treatment could increase or decrease the Fund’s ordinary income distributions to you, and may cause some or all of
the Fund’s previously distributed income to be classified as a return of capital. In certain cases, the Fund may make an
election to treat gain or loss attributable to certain investments as capital gain or loss.
EMU
and Redenomination Risk. As the European debt crisis progressed, the possibility of one or more Eurozone countries exiting
the European Monetary Union (“EMU”), or even the collapse of the Euro as a common currency, arose, creating significant
volatility at times in currency and financial markets generally. The effects of the collapse of the Euro, or of the exit of one
or more countries from the EMU, on the U.S. and global economies and securities markets are impossible to predict and any such
events could have a significant adverse impact on the value and risk profile of the Fund’s portfolio. Any partial or complete
dissolution of the EMU could have significant adverse effects on currency and financial markets, and on the values of the Fund’s
portfolio investments. If one or more EMU countries were to stop using the Euro as its primary currency, the Fund’s investments
in such countries may be redenominated into a different or newly adopted currency. As a result, the value of those investments
could decline significantly and unpredictably. In addition, securities or other investments that are redenominated may be subject
to foreign currency risk, liquidity risk and valuation risk to a greater extent than similar investments currently denominated
in Euros. To the extent a currency used for redenomination purposes is not specified in respect of certain EMU-related investments,
or should the Euro cease to be used entirely, the currency in which such investments are denominated may be unclear, making such
investments particularly difficult to value or dispose of. The Fund may incur additional expenses to the extent it is required
to seek judicial or other clarification of the denomination or value of such securities.
Emerging
Markets Risk. The considerations noted above in “Foreign Securities Risk” are generally intensified for investments
in emerging market countries. Emerging market countries typically have economic and political systems that are less fully developed,
and can be expected to be less stable than those of more developed countries. Investing in securities of companies in emerging
markets may entail special risks relating to potential political and economic instability and the risks of expropriation, nationalization,
confiscation or the imposition of restrictions on foreign investment, the lack of hedging instruments and restrictions on repatriation
of capital invested. Economies of such countries can be subject to rapid and unpredictable rates of inflation or deflation. Emerging
securities markets are substantially smaller, less developed, less liquid and more volatile than the major securities markets.
The limited size of emerging securities markets and limited trading volume compared to the volume of trading in U.S. securities
could cause prices to be erratic for reasons apart from factors that affect the quality of the securities. For example, limited
market size may cause prices to be unduly influenced
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Additional Fund Information (Continued) (Unaudited)
by
traders who control large positions. Adverse publicity and investors’ perceptions, whether or not based on fundamental analysis,
may decrease the value and liquidity of portfolio securities, especially in these markets. Other risks include high concentration
of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well
as a high concentration of investors and financial intermediaries; overdependence on exports, including gold and natural resources
exports, making these economies vulnerable to changes in commodity prices; overburdened infrastructure and obsolete or unseasoned
financial systems; environmental problems; less developed legal systems; and less reliable securities custodial services and settlement
practices. Certain emerging markets may also face other significant internal or external risks, including the risk of war and
civil unrest. For all of these reasons, investments in emerging markets may be considered speculative.
Eurozone
Risk. A number of countries in the EU have experienced, and may continue to experience, severe economic and financial difficulties,
increasing the risk of investing in the European markets. In particular, many EU nations are susceptible to economic risks associated
with high levels of debt, notably due to investments in sovereign debt of countries such as Greece, Italy, Spain, Portugal, and
Ireland. As a result, financial markets in the EU have been subject to increased volatility and declines in asset values and liquidity.
Responses to these financial problems by European governments, central banks, and others, including austerity measures and reforms,
may not work, may result in social unrest, and may limit future growth and economic recovery or have other unintended consequences.
Further defaults or restructurings by governments and others of their debt could have additional adverse effects on economies,
financial markets, and asset valuations around the world. Greece, Ireland, and Portugal have already received one or more “bailouts”
from other Eurozone member states, and it is unclear how much additional funding they will require or if additional Eurozone member
states will require bailouts in the future. One or more other countries may also abandon the euro and/or withdraw from the EU,
placing its currency and banking system in jeopardy. The impact of these actions, especially if they occur in a disorderly fashion,
is not clear but could be significant and far-reaching.
Brexit
Risk. On January 31, 2020, the United Kingdom officially withdrew from the EU, commonly referred to as “Brexit.”
Following a transition period, the United Kingdom and the EU signed a Trade and Cooperation Agreement (“UK/EU Trade Agreement”),
which came into full force on May 1, 2021 and set out the foundation of the economic and legal framework for trade between the
United Kingdom and the EU. As the UK/EU Trade Agreement is a new legal framework, the implementation of the UK/EU Trade Agreement
may result in uncertainty in its application and periods of volatility in both the United Kingdom and wider European markets.
The United Kingdom’s exit from the EU is expected to result in additional trade costs and disruptions in this trading relationship.
Furthermore, there is the possibility that either party may impose tariffs on trade in the future in the event that regulatory
standards between the EU and the UK diverge. The terms of the future relationship may cause continued uncertainty in the global
financial markets, and adversely affect the Fund.
In
particular, currency volatility may mean that our returns and the returns of our portfolio companies will be adversely affected
by market movements and may make it more difficult, or more expensive, for us to implement appropriate currency hedging. Potential
declines in the value of the British Pound and/or the euro against other currencies, along with the potential downgrading of the
United Kingdom’s sovereign credit rating, may also have an impact on the performance of any of our portfolio companies located
in the United Kingdom or Europe.
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Additional Fund Information (Continued) (Unaudited)
In
addition, certain European countries have experienced negative interest rates on certain fixed-income instruments. A negative
interest rate policy is an unconventional central bank monetary policy tool where nominal target interest rates are set with a
negative value (i.e., below zero percent) intended to help create self-sustaining growth in the local economy. Negative interest
rates may result in heightened market volatility and may detract from the Fund’s performance to the extent the Fund is exposed
to such interest rates. Among other things, these developments have adversely affected the value and exchange rate of the euro
and pound sterling, and may continue to significantly affect the economies of all EU countries, which in turn may have a material
adverse effect on the Fund’s investments in such countries, other countries that depend on EU countries for significant
amounts of trade or investment, or issuers with exposure to debt issued by certain EU countries.
To
the extent the Fund has exposure to European markets or to transactions tied to the value of the euro, these events could negatively
affect the value and liquidity of the Fund’s investments. All of these developments may continue to significantly affect
the economies of all EU countries, which in turn may have a material adverse effect on the Fund’s investments in such countries,
other countries that depend on EU countries for significant amounts of trade or investment, or issuers with exposure to debt issued
by certain EU countries.
Income
Risk. The income shareholders receive from the Fund is expected to be based primarily on income from short-term gains
that the Fund earns from its investment strategy of writing covered calls and dividends and other distributions received from
its investments. If the Fund’s covered call strategy fails to generate sufficient income from short-term gains or the distribution
rates or yields of the Fund’s holdings decrease, shareholders’ income from the Fund could decline.
Non-Investment
Grade Securities. The Fund may invest in below investment-grade securities, also known as “high-yield” securities
or “junk bonds.” These securities, which may be preferred stock or debt, are predominantly speculative and involve
major risk exposure to adverse conditions. Securities that are rated lower than “BBB” by S&P or lower than “Baa”
by Moody’s (or unrated securities of comparable quality) are referred to in the financial press as “junk bonds”
or “high yield” securities and generally pay a premium above the yields of U.S. government securities or securities
of investment grade issuers because they are subject to greater risks than these securities. These risks, which reflect their
speculative character, include the following:
●
greater volatility;
● greater credit risk and risk of default;
● potentially greater sensitivity to general economic or industry conditions;
● potential lack of attractive resale opportunities
(illiquidity); and
● additional expenses to seek recovery from issuers who default.
In
addition, the market value of securities in lower grade categories is more volatile than that of higher quality securities, and
the markets in which such lower grade or unrated securities are traded are more limited than those in which higher rated securities
are traded. The existence of limited markets may make it more difficult for the Fund to obtain accurate market quotations for
purposes of valuing its portfolio and calculating its net asset value. Moreover, the lack of a liquid trading market may restrict
the availability of securities for the Fund to purchase and may also have the effect of limiting the ability of the Fund to sell
securities at their fair value to respond to changes in the economy or the financial markets.
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Ratings
are relative, subjective and not absolute standards of quality. Securities ratings are based largely on the issuer’s historical
financial condition and the rating agencies’ analysis at the time of rating. Consequently, the rating assigned to any particular
security is not necessarily a reflection of the issuer’s current financial condition.
The
Fund may purchase securities of companies that are experiencing significant financial or business difficulties, including companies
involved in bankruptcy or other reorganization and liquidation proceedings. Although such investments may result in significant
financial returns to the Fund, they involve a substantial degree of risk. The level of analytical sophistication, both financial
and legal, necessary for successful investments in issuers experiencing significant business and financial difficulties is unusually
high. There can be no assurance that the Fund will correctly evaluate the value of the assets collateralizing its investments
or the prospects for a successful reorganization or similar action. In any reorganization or liquidation proceeding relating to
a portfolio investment, the Fund may lose all or part of its investment or may be required to accept collateral with a value less
than the amount of the Fund’s initial investment.
As
a part of its investments in non-investment grade securities, the Fund may invest in the securities of issuers in default. The
Fund invests in securities of issuers in default only when the Investment Adviser believes that such issuers will honor their
obligations and emerge from bankruptcy protection and that the value of such issuers’ securities will appreciate. By investing
in the securities of issuers in default, the Fund bears the risk that these issuers will not continue to honor their obligations
or emerge from bankruptcy protection or that the value of these securities will not otherwise appreciate.
In
addition to using statistical rating agencies and other sources, the Investment Adviser will also perform its own analysis of
issues in seeking investments that it believes to be underrated (and thus higher yielding) in light of the financial condition
of the issuer. Its analysis of issuers may include, among other things, current and anticipated cash flow and borrowing requirements,
value of assets in relation to historical cost, strength of management, responsiveness to business conditions, credit standing
and current anticipated results of operations. In selecting investments for the Fund, the Investment Adviser may also consider
general business conditions, anticipated changes in interest rates and the outlook for specific industries.
Subsequent
to its purchase by the Fund, an issue of securities may cease to be rated or its rating may be reduced. In addition, it is possible
that statistical rating agencies might change their ratings of a particular issue to reflect subsequent events on a timely basis.
Moreover, such ratings do not assess the risk of a decline in market value. None of these events will require the sale of the
securities by the Fund, although the Investment Adviser will consider these events in determining whether the Fund should continue
to hold the securities.
Fixed
income securities, including non-investment grade securities and comparable unrated securities, frequently have call or buy-back
features that permit their issuers to call or repurchase the securities from their holders, such as the Fund. If an issuer exercises
these rights during periods of declining interest rates, the Fund may have to replace the security with a lower yielding security,
thus resulting in a decreased return for the Fund.
The
market for non-investment grade and comparable unrated securities has at various times, particularly during times of economic
recession, experienced substantial reductions in market value and liquidity. Past recessions have adversely affected the ability
of certain issuers of such securities to repay principal and pay interest thereon. The market for those securities could react
in a similar fashion in the event of any future economic recession.
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Additional Fund Information (Continued) (Unaudited)
Interest
Rate Risk for Fixed Income Securities. The primary risk associated with fixed income securities is interest rate risk.
A decrease in interest rates will generally result in an increase in the value of a fixed income security, while increases in
interest rates will generally result in a decline in its value. This effect is generally more pronounced for fixed rate securities
than for securities whose income rate is periodically reset. Interest rates have risen in recent months, and the risk that they
may continue to do so is pronounced. See “—General Risks—Interest Rate Risks Generally.”
Further,
while longer term fixed rate securities may pay higher interest rates than shorter term securities, longer term fixed rate securities,
like fixed rate securities, also tend to be more sensitive to interest rate changes and, accordingly, tend to experience larger
changes in value as a result of interest rate changes. An increase in market interest rates will also generally result in a decrease
in the price of any of the Fund’s outstanding preferred shares.
U.S.
Government Securities and Credit Rating Downgrade Risk. The Fund may invest in direct obligations of the government of
the United States or its agencies. Obligations issued or guaranteed by the U.S. government, its agencies, authorities and instrumentalities
and backed by the full faith and credit of the U.S. guarantee only that principal and interest will be timely paid to holders
of the securities. These entities do not guarantee that the value of such obligations will increase, and, in fact, the market
values of such obligations may fluctuate. In addition, not all U.S. government securities are backed by the full faith and credit
of the United States; some are the obligation solely of the entity through which they are issued. There is no guarantee that the
U.S. government would provide financial support to its agencies and instrumentalities if not required to do so by law.
In
2011, S&P lowered its long-term sovereign credit rating on the U.S. to “AA+” from “AAA.” The downgrade
by S&P increased volatility in both stock and bond markets, resulting in higher interest rates and higher Treasury yields,
and increased the costs of all kinds of debt. Repeat occurrences of similar events could have significant adverse effects on the
U.S. economy generally and could result in significant adverse impacts on issuers of securities held by the Fund itself. The Investment
Adviser cannot predict the effects of similar events in the future on the U.S. economy and securities markets or on the Fund’s
portfolio. The Investment Adviser monitors developments and seeks to manage the Fund’s portfolio in a manner consistent
with achieving the Fund’s investment objectives, but there can be no assurance that it will be successful in doing so and
the Investment Adviser may not timely anticipate or manage existing, new or additional risks, contingencies or developments.
Special
Risks Related to Investment in Derivatives.
The
Fund may participate in derivative transactions. Such transactions entail certain execution, market, liquidity, hedging and tax
risks. Participation in the options or futures markets, in currency exchange transactions and in other derivatives transactions
involves investment risks and transaction costs to which the Fund would not be subject absent the use of these strategies. If
the Investment Adviser’s prediction of movements in the direction of the securities, foreign currency, interest rate or
other referenced instruments or markets is inaccurate, the consequences to the Fund may leave the Fund in a worse position than
if it had not used such strategies. Risks
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inherent
in the use of options, foreign currency, futures contracts and options on futures contracts, securities indices and foreign currencies
include:
| ● | dependence
on the Investment Adviser’s ability to predict correctly movements in the direction of the relevant measure; |
| ● | imperfect
correlation between the price of the derivative instrument and movements in the prices of the referenced assets; |
| ● | the
fact that skills needed to use these strategies are different from those needed to select portfolio securities; |
| ● | the
possible absence of a liquid secondary market for any particular instrument at any time; |
| ● | the
possible need to defer closing out certain positions to avoid adverse tax consequences; |
| ● | the
possible inability of the Fund to purchase or sell a security or instrument at a time that otherwise would be favorable for it
to do so, or the possible need for the Fund to sell a security or instrument at a disadvantageous time due to a need for the Fund
to comply with Rule 18f-4; and |
| ● | the
creditworthiness of counterparties. |
Options,
futures contracts, swaps contracts, and options thereon and forward contracts on securities and currencies may be traded on foreign
exchanges. Such transactions may not be regulated as effectively as similar transactions in the United States, may not involve
a clearing mechanism and related guarantees, and are subject to the risk of governmental actions affecting trading in, or the
prices of, foreign securities. The value of such positions also could be adversely affected by (i) other complex foreign political,
legal and economic factors, (ii) lesser availability than in the United States of data on which to make trading decisions, (iii)
delays in the ability of the Fund to act upon economic events occurring in the foreign markets during non-business hours in the
United States, (iv) the imposition of different exercise and settlement terms and procedures and margin requirements than in the
United States and (v) less trading volume. Exchanges on which options, futures, swaps and options on futures or swaps are traded
may impose limits on the positions that the Fund may take in certain circumstances.
Many
OTC derivatives are valued on the basis of dealers’ pricing of these instruments. However, the price at which dealers value
a particular derivative and the price which the same dealers would actually be willing to pay for such derivative should the Fund
wish or be forced to sell such position may be materially different. Such differences can result in an overstatement of the Fund’s
net asset value and may materially adversely affect the Fund in situations in which the Fund is required to sell derivative instruments.
Exchange-traded derivatives and OTC derivative transactions submitted for clearing through a central counterparty have become
subject to minimum initial and variation margin requirements set by the relevant clearinghouse, as well as possible margin requirements
mandated by the SEC or the CFTC. These regulators also have broad discretion to impose margin requirements on non-cleared OTC
derivatives. These margin requirements will increase the overall costs for the Fund.
While
hedging transactions can reduce or eliminate losses, they can also reduce or eliminate gains. Hedges are sometimes subject to
imperfect matching between the derivative and the underlying instrument, and there can be no assurance that the Fund’s hedging
transactions will be effective. Derivatives may also give rise to a form of leverage and may expose the Fund to greater risk and
increase its costs. Future CFTC or SEC rulemakings
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could
potentially further limit or completely restrict the Fund’s ability to use these instruments as a part of the
Fund’s investment strategy, increase the costs of using these instruments or make them less effective. Limits or
restrictions applicable to the counterparties with which the Fund engages in derivative transactions could also prevent the
Fund from using these instruments or affect the pricing or other factors relating to these instruments or may change the
availability of certain investments. New regulation may make derivatives more costly, may limit the availability of
derivatives, or may otherwise adversely affect the value or performance of derivatives.
Counterparty
Risk. The Fund will be subject to credit risk with respect to the counterparties to the derivative contracts purchased
by the Fund. If a counterparty becomes bankrupt or otherwise fails to perform its obligations under a derivative contract due
to financial difficulties, the Fund may experience significant delays in obtaining any recovery under the derivative contract
in bankruptcy or other reorganization proceeding. The Fund may obtain only a limited recovery or may obtain no recovery in such
circumstances.
The
counterparty risk for cleared derivatives is generally lower than for uncleared OTC derivative transactions since generally
a clearing organization becomes substituted for each counterparty to a cleared derivative contract and, in effect, guarantees
the parties’ performance under the contract as each party to a trade looks only to the clearing organization for
performance of financial obligations under the derivative contract. However, there can be no assurance that a clearing
organization, or its members, will satisfy its obligations to the Fund, or that the Fund would be able to recover the full
amount of assets deposited on its behalf with the clearing organization in the event of the default by the clearing
organization or the Fund’s clearing broker. In addition, cleared derivative transactions benefit from daily
marking-to-market and settlement, and segregation and minimum capital requirements applicable to intermediaries. Uncleared
OTC derivative transactions generally do not benefit from such protections. This exposes the Fund to the risk that a
counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute over the terms of
the contract (whether or not bona fide) or because of a credit or liquidity problem, thus causing the Fund to suffer a loss.
Such “counterparty risk” is accentuated for contracts with longer maturities where events may intervene to
prevent settlement, or where the Fund has concentrated its transactions with a single or small group of
counterparties.
Failure
of Futures Commission Merchants and Clearing Organizations Risk. The Fund may deposit funds required to margin open positions
in the derivative instruments subject to the CEA with a clearing broker registered as a “futures commission merchant”
(“FCM”). The CEA requires an FCM to segregate all funds received from customers with respect to any orders for the
purchase or sale of U.S. domestic futures contracts and cleared swaps from the FCM’s proprietary assets. Similarly, the
CEA requires each FCM to hold in a separate secure account all funds received from customers with respect to any orders for the
purchase or sale of foreign futures contracts and segregate any such funds from the funds received with respect to domestic futures
contracts. However, all funds and other property received by a clearing broker from its customers are held by the clearing broker
on a commingled basis in an omnibus account and may be invested by the clearing broker in certain instruments permitted under
the applicable regulation. There is a risk that assets deposited by the Fund with any swaps or futures clearing broker as margin
for futures contracts may, in certain circumstances, be used to satisfy losses of other clients of the Fund’s clearing broker.
In addition, the assets of the Fund may not be fully protected in the event of the clearing broker’s bankruptcy, as the
Fund would be limited to recovering only a pro rata share of all available funds segregated on behalf of the clearing broker’s
combined domestic customer accounts.
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Additional Fund Information (Continued) (Unaudited)
Similarly,
the CEA requires a clearing organization approved by the CFTC as a derivatives clearing organization to segregate all funds and
other property received from a clearing member’s clients in connection with domestic futures, swaps and options contracts
from any funds held at the clearing organization to support the clearing member’s proprietary trading. Nevertheless, with
respect to futures and options contracts, a clearing organization may use assets of a non-defaulting customer held in an omnibus
account at the clearing organization to satisfy payment obligations of a defaulting customer of the clearing member to the clearing
organization. As a result, in the event of a default or the clearing broker’s other clients or the clearing broker’s
failure to extend own funds in connection with any such default, the Fund would not be able to recover the full amount of assets
deposited by the clearing broker on its behalf with the clearing organization.
Swaps
Risk. Swap agreements are two-party contracts entered into primarily by institutional investors for periods ranging from
a few weeks to more than one year. In a standard “swap” transaction, two parties agree to exchange the returns (or
differentials in rates of return) earned or realized on particular predetermined investments or instruments. The gross returns
to be exchanged or “swapped” between the parties are calculated with respect to a “notional amount,” i.e.,
the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign
currency, or in a “basket” of securities representing a particular index. The “notional amount” of the
swap agreement is only a fictive basis on which to calculate the obligations that the parties to a swap agreement have agreed
to exchange.
Historically,
swap transactions have been individually negotiated non-standardized transactions entered into in the OTC markets and have not
been subject to the same type of government regulation as exchange-traded instruments. However, in the U.S., the Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) has made broad changes to the derivatives
market, granted significant new authority to the CFTC and the SEC to regulate derivatives (swaps and security-based swaps) and
participants in these markets. The Dodd-Frank Act is intended to regulate the derivatives market by requiring many derivative
transactions to be cleared and traded on an exchange, expanding entity registration requirements, imposing business conduct requirements
on dealers and requiring banks to move some derivatives trading units to a non-guaranteed affiliate separate from the deposit-taking
bank or divest them altogether. See “Risk Factors and Special Considerations—General Risks–Derivatives Regulation
Risk.”
Swap
agreements will tend to shift the Fund’s investment exposure from one type of investment to another. For example, if the
Fund agreed to pay fixed rates in exchange for floating rates while holding fixed-rate bonds, the swap would tend to decrease
the Fund’s exposure to long-term interest rates. Caps and floors have an effect similar to buying or writing options. Depending
on how they are used, swap agreements may increase or decrease the overall volatility of the Fund’s investments and its
share price and yield. The most significant factor in the performance of swap agreements is the change in the specific interest
rate, currency, or other factors that determine the amounts of payments due to and from the Fund. If a swap agreement calls for
payments by the Fund, the Fund must be prepared to make such payments when due.
The
Fund may enter into swap agreements that would calculate the obligations of the parties to the agreements on a “net”
basis. Consequently, the Fund’s obligations (or rights) under a swap agreement will generally be equal only to the net amount
to be paid or received under the agreement based on the relative values of the positions held by each party to the agreement (the
“net amount”). The Fund’s obligations under a swap agreement will be accrued daily (offset against any amounts
owing to the Fund) and any accrued but unpaid net amounts owed to
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a
swap counterparty will be covered by the maintenance of liquid assets in accordance with SEC staff positions on the subject.
The
Fund’s use of swap agreements may not be successful in furthering its investment objective, as the Investment Adviser may
not accurately predict whether certain types of investments are likely to produce greater returns than other investments. Moreover,
swap agreements involve the risk that the party with whom the Fund has entered into the swap will default on its obligation to
pay the Fund and the risk that the Fund will not be able to meet its obligations to pay the other party to the agreement. The
Fund may be able to eliminate its exposure under a swap agreement either by assignment or other disposition, or by entering into
an offsetting swap agreement with the same party or a similarly creditworthy party.
Futures
Contracts and Options on Futures. Futures and options on futures entail certain risks, including, but not limited to,
the following: no assurance that futures contracts or options on futures can be offset at favorable prices; possible reduction
of the yield of the Fund due to the use of hedging; possible reduction in value of both the securities hedged and the hedging
instrument; possible lack of liquidity due to daily limits on price fluctuations; imperfect correlation between the contracts
and the securities being hedged; and losses from investing in futures transactions that are potentially unlimited.
Options
Risk. To the extent that the Fund purchases options pursuant to a hedging strategy, the Fund will be subject to the following
additional risks. If a put or call option purchased by the Fund is not sold when it has remaining value, and if the market price
of the underlying security remains equal to or greater than the exercise price (in the case of a put), or remains less than or
equal to the exercise price (in the case of a call), the Fund will lose its entire investment in the option.
Where
a put or call option on a particular security is purchased to hedge against price movements in that or a related security, the
price of the put or call option may move more or less than the price of the security. If restrictions on exercise are imposed,
the Fund may be unable to exercise an option it has purchased. If the Fund is unable to close out an option that it has purchased
on a security, it will have to exercise the option in order to realize any profit or the option may expire worthless.
Short
Sales Risk. Short-selling involves selling securities which may or may not be owned and borrowing the same securities
for delivery to the purchaser, with an obligation to replace the borrowed securities at a later date. If the price of the security
sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will incur
a loss; conversely, if the price declines, the Fund will realize a capital gain. Any gain will be decreased, and any loss will
be increased, by the transaction costs incurred by the Fund, including the costs associated with providing collateral to the broker-dealer
(usually cash and liquid securities).Although the Fund’s gain is limited to the price at which it sold the security short,
its potential loss is theoretically unlimited.
Short-selling
necessarily involves certain additional risks. However, if the short seller does not own the securities sold short (an uncovered
short sale), the borrowed securities must be replaced by securities purchased at market prices in order to close out the short
position, and any appreciation in the price of the borrowed securities would result in a loss. Uncovered short sales expose the
Fund to the risk of uncapped losses until a position can be closed out due to the lack of an upper limit on the price to which
a security may rise. Purchasing securities to close out the short position can itself cause the price of the securities to rise
further, thereby exacerbating the
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loss.
There is the risk that the securities borrowed by the Fund in connection with a short-sale must be returned to the securities
lender on short notice. If a request for return of borrowed securities occurs at a time when other short-sellers of the security
are receiving similar requests, a “short squeeze” can occur, and the Fund may be compelled to replace borrowed securities
previously sold short with purchases on the open market at the most disadvantageous time, possibly at prices significantly in
excess of the proceeds received at the time the securities were originally sold short.
In
September 2008, in response to spreading turmoil in the financial markets, the SEC temporarily banned short selling in the stocks
of numerous financial services companies, and also promulgated new disclosure requirements with respect to short positions held
by investment managers. The SEC’s temporary ban on short selling of such stocks has since expired, but should similar restrictions
and/or additional disclosure requirements be promulgated, especially if market turmoil occurs, the Fund may be forced to cover
short positions more quickly than otherwise intended and may suffer losses as a result. Such restrictions may also adversely affect
the ability of the Fund to execute its investment strategies generally. Similar emergency orders were also instituted in non-U.S.
markets in response to increased volatility. The Fund’s ability to engage in short sales is also restricted by various regulatory
requirements relating to short sales.
Leverage
Risk. The Fund may use financial leverage for investment purposes. A leveraged capital structure would create special
risks not associated with unleveraged funds that have a similar investment objectives and policies. These include the possibility
of greater loss and the likelihood of higher volatility of the net asset value of the Fund and the asset coverage for any preferred
shares or debt outstanding. Such volatility may increase the likelihood of the Fund having to sell investments in order to meet
its obligations to make distributions on the preferred shares or principal or interest payments on debt securities, or to redeem
preferred shares or repay debt, when it may be disadvantageous to do so. The use of leverage magnifies both the favorable and
unfavorable effects of price movements in the investments made by the Fund. To the extent the Fund is leveraged in its investment
operations, the Fund will be subject to substantial risk of loss. The Fund cannot assure that borrowings or the issuance of preferred
shares or notes will result in a higher yield or return to the holders of the common shares. Also, to the extent the Fund utilizes
leverage, a decline in net asset value could affect the ability of the Fund to make common share distributions and such a failure
to make distributions could result in the Fund ceasing to qualify as a RIC under the Code. For more information regarding the
risks of a leverage capital structure to holders of the Fund’s common shares, see “Risk Factors and Special Considerations—Special
Risks to Holders of Common Shares—Leverage Risk.”
Market
Discount Risk. The Fund is a non-diversified, closed-end management investment company. Whether investors will realize
gains or losses upon the sale of additional securities of the Fund will depend upon the market price of the securities at the
time of sale, which may be less or more than the Fund’s net asset value per share or the liquidation value of any Fund preferred
shares issued. Since the market price of any additional securities the Fund may issue will be affected by such factors as the
Fund’s dividend and distribution levels (which are in turn affected by expenses), dividend and distribution stability, net
asset value, market liquidity, the relative demand for and supply of such securities in the market, general market and economic
conditions and other factors beyond the control of the Fund, we cannot predict whether any such securities will trade at, below
or above net asset value or at, below or above their public offering price or at, below or above their liquidation value, as applicable.
For example, common shares of closed-end funds often trade at a discount to their net
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asset
values and the Fund’s common shares may trade at such a discount. This risk may be greater for investors expecting to sell
their securities of the Fund soon after the completion of a public offering for such securities. The risk of a market price discount
from net asset value is separate and in addition to the risk that net asset value itself may decline. The Fund’s securities
are designed primarily for long-term investors, and investors in the shares should not view the Fund as a vehicle for trading
purposes.
Long
Term Objective; Not a Complete Investment Program. The Fund is intended for investors seeking long-term growth of capital.
The Fund is not meant to provide a vehicle for those who wish to play short-term swings in the stock market. An investment in
shares of the Fund should not be considered a complete investment program. Each shareholder should take into account the Fund’s
investment objectives as well as the shareholder’s other investments when considering an investment in the Fund.
Portfolio
Turnover Risk. The investment policies of the Fund, including its strategy of writing covered call options on securities
in its portfolio, may result in portfolio turnover that is higher than that of many investment companies. Increased portfolio
turnover rates will result in higher costs from brokerage commissions, dealer-mark-ups and other transaction costs and may also
may decrease the after-tax return to individual investors in the Fund to the extent it results in a decrease in the portion of
the Fund’s distributions that is attributable to long-term capital gain.
Management
Risk. The Fund is subject to management risk because it is an actively managed portfolio. The Investment Adviser will
apply investment techniques and risk analyses in making investment decisions for the Fund, but there can be no guarantee that
these will produce the desired results.
Non-Diversified
Status. The Fund is classified as a “non-diversified” investment company under the 1940 Act, which means the
Fund is not limited by the 1940 Act in the proportion of its assets that may be invested in the securities of a single issuer.
As a non-diversified investment company, the Fund may invest in the securities of individual issuers to a greater degree than
a diversified investment company. As a result, the Fund may be more vulnerable to events affecting a single issuer and therefore,
subject to greater volatility than a fund that is more broadly diversified. Accordingly, an investment in the Fund may present
greater risk to an investor than an investment in a diversified company.
Decision-Making
Authority Risk. Investors have no authority to make decisions or to exercise business discretion on behalf of the Fund,
except as set forth in the Fund’s governing documents. The authority for all such decisions is generally delegated to the
Board, who in turn, has delegated the day-to-day management of the Fund’s investment activities to the Investment Adviser,
subject to oversight by the Board.
Dependence
on Key Personnel. The Fund is dependent upon the expertise of Vincent Hugonnard-Roche as the sole option strategist on
the Fund’s portfolio management team. If the Fund were to lose the services of Mr. Roche, it could be temporarily adversely
affected until a suitable replacement could be found.
Market
Disruption and Geopolitical Risk. General economic and market conditions, such as interest rates, availability of credit,
inflation rates, economic uncertainty, supply chain disruptions, labor shortages, energy and other resource shortages, changes
in laws, trade barriers, currency exchange controls and national and international political circumstances (including governmental
responses to public health crises or the spread of infectious diseases), may have long-term negative effects on the U.S. and worldwide
financial markets and
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economy.
These conditions have resulted in, and in many cases continue to result in, greater price volatility, less liquidity, widening
credit spreads and a lack of price transparency, with many securities remaining illiquid and of uncertain value. Such market conditions
may adversely affect the Company, including by making valuation of some of the Fund’s securities uncertain and/or result
in sudden and significant valuation increases or declines in the Fund’s holdings.
Risks
resulting from any future debt or other economic crisis could also have a detrimental impact on the global economy, the
financial condition of financial institutions and the Fund’s business, financial condition and results of operation.
Market and economic disruptions have affected, and may in the future affect, consumer confidence levels and spending,
personal bankruptcy rates, levels of incurrence and default on consumer debt and home prices, among other factors. To the
extent uncertainty regarding the U.S. or global economy negatively impacts consumer confidence and consumer credit factors,
the Fund could be significantly and adversely affected. Downgrades to the credit ratings of major banks could result in
increased borrowing costs for such banks and negatively affect the broader economy. Moreover, Federal Reserve policy,
including with respect to certain interest rates, may also adversely affect the value, volatility and liquidity of dividend-
and interest-paying securities. Market volatility, rising interest rates and/or a return to unfavorable economic conditions
could impair the Fund’s ability to achieve its investment objectives.
The
occurrence of events similar to those in recent years, such as localized wars, instability, new and ongoing pandemics (such as
COVID-19), epidemics or outbreaks of infectious diseases in certain parts of the world, and catastrophic events such as fires,
floods, earthquakes, tornadoes, hurricanes and global health epidemics, terrorist attacks in the U.S. and around the world, social
and political discord, debt crises sovereign debt downgrades, increasingly strained relations between the U.S. and a number of
foreign countries, new and continued political unrest in various countries, the exit or potential exit of one or more countries
from the EU or the EMU, continued changes in the balance of political power among and within the branches of the U.S. government,
government shutdowns, among others, may result in market volatility, may have long-term effects on the U.S. and worldwide financial
markets, and may cause further economic uncertainties in the U.S. and worldwide.
In
particular, the consequences of the Russian military invasion of Ukraine, the impact on inflation and increased disruption to
supply chains and energy resources may impact the Fund’s portfolio companies, result in an economic downturn or recession
either globally or locally in the U.S. or other economies, reduce business activity, spawn additional conflicts (whether in the
form of traditional military action, reignited “cold” wars or in the form of virtual warfare such as cyberattacks)
with similar and perhaps wider ranging impacts and consequences and have an adverse impact on the Fund’s returns and net
asset values. In response to the conflict between Russia and Ukraine, the U.S. and other countries have imposed sanctions or other
restrictive actions against Russia, Russian-backed separatist regions in Ukraine, and certain banks, companies, government officials
and other individuals in Russia and Belarus. Any of the above factors, including sanctions, export controls, tariffs, trade wars
and other governmental actions, could have a material adverse effect on the Fund. The Fund has no way to predict the duration
or outcome of the situation, as the conflict and government reactions are rapidly developing and beyond the Fund’s control.
Prolonged unrest, military activities, or broad-based sanctions could have a material adverse effect on companies in which the
Fund invests. Such consequences also may increase such companies’ funding costs or limit their access to the capital markets.
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The
current political climate has intensified concerns about a potential trade war between China and the U.S., as each country
has imposed tariffs on the other country’s products. These actions may trigger a significant reduction in international
trade, the oversupply of certain manufactured goods, substantial price reductions of goods and possible failure of individual
companies and/or large segments of China’s export industry, which could have a negative impact on the Fund’s
performance. U.S. companies that source material and goods from China and those that make large amounts of sales in China
would be particularly vulnerable to an escalation of trade tensions. Uncertainty regarding the outcome of the trade tensions
and the potential for a trade war could cause the U.S. dollar to decline against safe haven currencies, such as the Japanese
yen and the euro. Events such as these and their consequences are difficult to predict and it is unclear whether further
tariffs may be imposed or other escalating actions may be taken in the future. Any of these effects could have a material
adverse effect on the Fund.
Economic
Events and Market Risk. Periods of market volatility remain, and may continue to occur in the future, in response to various
political, social and economic events both within and outside of the United States. These conditions have resulted in, and in
many cases continue to result in, greater price volatility, less liquidity, widening credit spreads and a lack of price transparency,
with many securities remaining illiquid and of uncertain value. Such market conditions may adversely affect the Fund, including
by making valuation of some of the Fund’s securities uncertain and/or result in sudden and significant valuation increases
or declines in the Fund’s holdings. If there is a significant decline in the value of the Fund’s portfolio, this may
impact the asset coverage levels for the Fund’s outstanding leverage.
Risks
resulting from any future debt or other economic crisis could also have a detrimental impact on the global economic recovery,
the financial condition of financial institutions and our business, financial condition and results of operation. Market and economic
disruptions have affected, and may in the future affect, consumer confidence levels and spending, personal bankruptcy rates, levels
of incurrence and default on consumer debt and home prices, among other factors. To the extent uncertainty regarding the U.S.
or global economy negatively impacts consumer confidence and consumer credit factors, our business, financial condition and results
of operations could be significantly and adversely affected. Downgrades to the credit ratings of major banks could result in increased
borrowing costs for such banks and negatively affect the broader economy. Moreover, Federal Reserve policy, including with respect
to certain interest rates, may also adversely affect the value, volatility and liquidity of dividend- and interest-paying securities.
Market volatility, rising interest rates and/or a return to unfavorable economic conditions could impair the Fund’s ability
to achieve its investment objectives.
Regulation
and Government Intervention Risk. Changes enacted by the current presidential administration could significantly impact
the regulation of financial markets in the U.S. Areas subject to potential change, amendment or repeal include trade and foreign
policy, corporate tax rates, energy and infrastructure policies, the environment and sustainability, criminal and social justice
initiatives, immigration, healthcare and the oversight of certain federal financial regulatory agencies and the Federal Reserve.
Certain of these changes can, and have, been effectuated through executive order. For example, the current administration has
taken steps to rejoin the Paris climate accord of 2015 and incentivize certain clean energy technologies, cancel the Keystone
XL pipeline, provide military support to Ukraine and change immigration enforcement priorities. Other potential changes that could
be pursued by the current presidential administration could include an increase in
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the
corporate income tax rate; changes to regulatory enforcement priorities; and spending on clean energy and infrastructure. It is
not possible to predict which, if any, of these actions will be taken or, if taken, their effect on the economy, securities markets
or the financial stability of the U.S. The Fund may be affected by governmental action in ways that are not foreseeable, and there
is a possibility that such actions could have a significant adverse effect on the Fund and the Fund’s ability to achieve
its investment objectives.
Additional
risks arising from the differences in expressed policy preferences among the various constituencies in the branches of the U.S.
government has led in the past, and may lead in the future, to short-term or prolonged policy impasses, which could, and has,
resulted in shutdowns of the U.S. federal government. U.S. federal government shutdowns, especially prolonged shutdowns, could
have a significant adverse impact on the economy in general and could impair the ability of issuers to raise capital in the securities
markets. Any of these effects could have a material adverse effect on the Fund’s net asset value.
In
addition, the rules dealing with the U.S. federal income taxation are constantly under review by persons involved in the legislative
process and by the IRS and the U.S. Treasury Department. The Tax Cuts and Jobs Act made substantial changes to the Code. Among
those changes were a significant permanent reduction in the generally applicable corporate tax rate, changes in the taxation of
individuals and other non-corporate taxpayers that generally but not universally reduce their taxes on a temporary basis subject
to “sunset” provisions, the elimination or modification of various previously allowed deductions (including substantial
limitations on the deductibility of interest and, in the case of individuals, the deduction for personal state and local taxes),
certain additional limitations on the deduction of net operating losses, certain preferential rates of taxation on certain dividends
and certain business income derived by non-corporate taxpayers in comparison to other ordinary income recognized by such taxpayers,
and significant changes to the international tax rules. In addition, on August 16, 2022, the Biden administration signed into
law the Inflation Reduction Act, which modifies key aspects of the Code, including by creating an alternative minimum tax on certain
corporations and an excise tax on stock repurchases by certain corporations. The effect of these and other changes is uncertain,
both in terms of the direct effect on the taxation of an investment in the Fund’s shares and their indirect effect on the
value of the Fund’s assets, Fund shares or market conditions generally.
In
addition, the U.S. government has proposed and adopted multiple regulations that could have a long-lasting impact on the Fund
and on the closed-end fund industry in general. The SEC’s final rules and amendments that modernize reporting and disclosure,
along with other potential upcoming regulations, including in respect of investment company names and other matters, could, among
other things, restrict the Fund’s ability to engage in transactions, and/or increase overall expenses of the Fund.
The
Fund may be affected by governmental action in ways that are not foreseeable, and there is a possibility that such actions could
have a significant adverse effect on the Fund and its ability to achieve its investment objective(s).
Legislation
Risk. At any time after the date of this Annual Report, legislation may be enacted that could negatively affect the assets
of the Fund. Legislation or regulation may change the way in which the Fund itself is regulated. The Investment Adviser cannot
predict the effects of any new governmental regulation that may be implemented and there can be no assurance that any new governmental
regulation will not adversely affect the Fund’s ability to achieve its investment objective.
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Reliance
on Service Providers Risk. The Fund must rely upon the performance of service providers to perform certain functions,
which may include functions that are integral to the Fund’s operations and financial performance. Failure by any service
provider to carry out its obligations to the Fund in accordance with the terms of its appointment, to exercise due care and skill
or to perform its obligations to the Fund at all as a result of insolvency, bankruptcy or other causes could have a material adverse
effect on the Fund’s performance and returns to shareholders. The termination of the Fund’s relationship with any
service provider, or any delay in appointing a replacement for such service provider, could materially disrupt the business of
the Fund and could have a material adverse effect on the Fund’s performance and returns to shareholders.
Cyber
Security Risk. The Fund and its service providers are susceptible to cyber security risks that include, among other things,
theft, unauthorized monitoring, release, misuse, loss, destruction or corruption of confidential and highly restricted data; denial
of service attacks; unauthorized access to relevant systems, compromises to networks or devices that the Fund and its service
providers use to service the Fund’s operations; or operational disruption or failures in the physical infrastructure or
operating systems that support the Fund and its service providers. Cyber attacks are becoming increasingly common and more sophisticated,
and may be perpetrated by computer hackers, cyber-terrorists or others engaged in corporate espionage. Cyber attacks against or
security breakdowns of the Fund or its service providers may adversely impact the Fund and its stockholders, potentially resulting
in, among other things, financial losses; the inability of Fund stockholders to transact business and the Fund to process transactions;
inability to calculate the Fund’s NAV; violations of applicable privacy and other laws; regulatory fines, penalties, reputational
damage, reimbursement or other compensation costs; and/ or additional compliance costs. The Fund may incur additional costs for
cyber security risk management and remediation purposes. In addition, cyber security risks may also impact issuers of securities
in which the Fund invests, which may cause the Fund’s investment in such issuers to lose value. There have been a number
of recent highly publicized cases of companies reporting the unauthorized disclosure of client or customer information, as well
as cyberattacks involving the dissemination, theft and destruction of corporate information or other assets, as a result of failure
to follow procedures by employees or contractors or as a result of actions by third parties, including actions by terrorist organizations
and hostile foreign governments. Although service providers typically have policies and procedures, business continuity plans
and/or risk management systems intended to identify and mitigate cyber incidents, there are inherent limitations in such plans
and systems including the possibility that certain risks have not been identified. Furthermore, the Fund cannot control the cyber
security policies, plans and systems put in place by its service providers or any other third parties whose operations may affect
the Fund or its shareholders. There can be no assurance that the Fund or its service providers will not suffer losses relating
to cyber attacks or other information security breaches in the future.
Because
technology is consistently changing, new ways to carry out cyber attacks are always developing. Therefore, there is a chance that
some risks have not been identified or prepared for, or that an attack may not be detected, which puts limitations on the Fund’s
ability to plan for or respond to a cyber attack. In addition to deliberate cyber attacks, unintentional cyber incidents can occur,
such as the inadvertent release of confidential information by the Fund or its service providers. Like other funds and business
enterprises, the Fund and its service providers are subject to the risk of cyber incidents occurring from time to time.
Misconduct
of Employees and of Service Providers Risk. Misconduct or misrepresentations by employees of the Investment Adviser or
the Fund’s service providers could cause significant losses to the Fund. Employee
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misconduct
may include binding the Fund to transactions that exceed authorized limits or present unacceptable risks and unauthorized trading
activities, concealing unsuccessful trading activities (which, in any case, may result in unknown and unmanaged risks or losses)
or making misrepresentations regarding any of the foregoing. Losses could also result from actions by the Fund’s service
providers, including, without limitation, failing to recognize trades and misappropriating assets. In addition, employees and
service providers may improperly use or disclose confidential information, which could result in litigation or serious financial
harm, including limiting the Fund’s business prospects or future marketing activities. Despite the Investment Adviser’s
due diligence efforts, misconduct and intentional misrepresentations may be undetected or not fully comprehended, thereby potentially
undermining the Investment Adviser’s due diligence efforts. As a result, no assurances can be given that the due diligence
performed by the Investment Adviser will identify or prevent any such misconduct.
Deflation
Risk. Deflation risk is the risk that prices throughout the economy decline over time, which may have an adverse effect
on the market valuation of companies, their assets and their revenues. In addition, deflation may have an adverse effect on the
creditworthiness of issuers and may make issuer default more likely, which may result in a decline in the value of the Fund’s
portfolio.
Restricted
and Illiquid Securities Risk. Unregistered securities are securities that cannot be sold publicly in the United States
without registration under the Securities Act. An illiquid investment is a security or other investment that cannot be disposed
of within seven days in the ordinary course of business at approximately the value at which the Fund has valued the investment.
Unregistered securities often can be resold only in privately negotiated transactions with a limited number of purchasers or in
a public offering registered under the Securities Act. Considerable delay could be encountered in either event and, unless otherwise
contractually provided for, the Fund’s proceeds upon sale may be reduced by the costs of registration or underwriting discounts.
The difficulties and delays associated with such transactions could result in the Fund’s inability to realize a favorable
price upon disposition of unregistered securities, and at times might make disposition of such securities impossible. The Fund
may be unable to sell illiquid investments when it desires to do so, resulting in the Fund obtaining a lower price or being required
to retain the investment. Illiquid investments generally must be valued at fair value, which is inherently less precise than utilizing
market values for liquid investments, and may lead to differences between the price a security is valued for determining the Fund’s
net asset value and the price the Fund actually receives upon sale.
Investment
Companies. The Fund may invest in the securities of other investment companies, including exchange traded funds, to the
extent permitted by law. To the extent the Fund invests in the common equity of investment companies, the Fund will bear its ratable
share of any such investment company’s expenses, including management fees. The Fund will also remain obligated to pay management
fees to the Investment Adviser with respect to the assets invested in the securities of other investment companies. In these circumstances
holders of the Fund’s common shares will be in effect subject to duplicative investment expenses.
Investment
Dilution Risk The Fund’s investors do not have preemptive rights to any shares the Fund may issue in the future.
The Fund’s Declaration of Trust authorizes it to issue an unlimited number of shares. The Board may make certain amendments
to the Declaration of Trust. After an investor purchases shares, the Fund may sell additional shares or other classes of shares
in the future or issue equity interests in private offerings. To the extent the Fund issues additional equity interests after
an investor purchases its shares, such investor’s percentage ownership interest in the Fund will be diluted.
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Additional Fund Information (Continued) (Unaudited)
Legal,
Tax and Regulatory Risks. Legal, tax and regulatory changes could occur that may have material adverse effects on the
Fund. For example, the regulatory and tax environment for derivative instruments in which the Fund may participate is evolving,
and such changes in the regulation or taxation of derivative instruments may have material adverse effects on the value of derivative
instruments held by the Fund and the ability of the Fund to pursue its investment strategies.
We
cannot assure you what percentage of the distributions paid on the Fund’s shares, if any, will consist of tax-advantaged
qualified dividend income or long-term capital gains or what the tax rates on various types of income will be in future years.
To
qualify for the favorable U.S. federal income tax treatment generally accorded to RICs under the Code, the Fund must, among other
things, derive in each taxable year at least 90% of its gross income from certain prescribed sources and distribute for each taxable
year at least 90% of its “investment company taxable income.” Statutory limitations on distributions on the common
shares if the Fund fails to satisfy the 1940 Act’s asset coverage requirements could jeopardize the Fund’s ability
to meet such distribution requirements. While the Fund presently intends to purchase or redeem notes or preferred shares, if any,
to the extent necessary in order to maintain compliance with such asset coverage requirements, there can be no assurance that
such actions can be effected in time to meet the Code requirements. If for any taxable year the Fund does not qualify as a RIC,
all of its taxable income for that year (including its net capital gain) would be subject to tax at regular corporate rates without
any deduction for distributions to shareholders, and such distributions would be taxable as ordinary dividends to the extent of
the Fund’s current and accumulated earnings and profits.
Anti-Takeover
Provisions. The Agreement and Declaration of Trust and By-Laws of the Fund include provisions that could limit the ability
of other entities or persons to acquire control of the Fund or convert the Fund to an open-end fund. See also–“Delaware
Statutory Trust Act–Control Share Acquisitions.”
Special
Risks to Holders of Common Shares
Dilution
Risk. If the Fund determines to conduct a rights offering to subscribe for common shares, holders of common shares may
experience dilution of the aggregate net asset value of their common shares. Such dilution will depend upon whether (i) such shareholders
participate in the rights offering and (ii) the Fund’s net asset value per common share is above or below the subscription
price on the expiration date of the rights offering.
Shareholders
who do not exercise their subscription rights may, at the completion of such an offering, own a smaller proportional interest
in the Fund than if they exercised their subscription rights. As a result of such an offering, a shareholder may experience dilution
in net asset value per share if the subscription price per share is below the net asset value per share on the expiration date.
If the subscription price per share is below the net asset value per share of the Fund’s shares on the expiration date,
a shareholder will experience an immediate dilution of the aggregate net asset value of such shareholder’s shares if the
shareholder does not participate in such an offering and the shareholder will experience a reduction in the net asset value per
share of such shareholder’s shares whether or not the shareholder participates in such an offering. The Fund cannot state
precisely the extent of this dilution (if any) if the shareholder does not exercise such shareholder’s subscription rights
because the Fund does not know what the net asset value per share will be when the offer expires or what proportion of the subscription
rights will be exercised.
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Leverage
Risk. The Fund currently uses financial leverage for investment purposes by issuing preferred shares and is also permitted
to use other types of financial leverage, such as through the issuance of debt securities or additional preferred shares and borrowing
from financial institutions. As provided in the 1940 Act and subject to certain exceptions, the Fund may issue additional senior
securities (which may be stock, such as preferred shares, and/or securities representing debt) only if immediately after such
issuance the value of the Fund’s total assets, less certain ordinary course liabilities, exceeds 300% of the amount of the
debt outstanding and exceeds 200% of the amount of preferred shares and debt outstanding. As of December 31, 2022, the amount
of leverage represented approximately 21% of the Fund’s net assets.
The
Fund’s leveraged capital structure creates special risks not associated with unleveraged funds having a similar investment
objective and policies. These include the possibility of greater loss and the likelihood of higher volatility of the net asset
value of the Fund and the asset coverage for the preferred shares. Such volatility may increase the likelihood of the Fund having
to sell investments in order to meet its obligations to make distributions on the preferred shares or principal or interest payments
on debt securities, or to redeem preferred shares or repay debt, when it may be disadvantageous to do so. The Fund’s use
of leverage may require it to sell portfolio investments at inopportune times in order to raise cash to redeem preferred shares
or otherwise de-leverage so as to maintain required asset coverage amounts or comply with the mandatory redemption terms of any
outstanding preferred shares. The use of leverage magnifies both the favorable and unfavorable effects of price movements in the
investments made by the Fund. To the extent that the Fund employs leverage in its investment operations, the Fund is subject to
substantial risk of loss. The Fund cannot assure you that borrowings or the issuance of preferred shares or notes will result
in a higher yield or return to the holders of the common shares. Also, since the Fund utilizes leverage, a decline in net asset
value could affect the ability of the Fund to make common share distributions and such a failure to make distributions could result
in the Fund ceasing to qualify as a RIC under the Code.
Any
decline in the net asset value of the Fund’s investments would be borne entirely by the holders of common shares. Therefore,
if the market value of the Fund’s portfolio declines, the leverage will result in a greater decrease in net asset value
to the holders of common shares than if the Fund were not leveraged. This greater net asset value decrease will also tend to cause
a greater decline in the market price for the common shares. The Fund might be in danger of failing to maintain the required asset
coverage of its borrowings, notes or preferred shares or of losing its ratings on its notes or preferred shares or, in an extreme
case, the Fund’s current investment income might not be sufficient to meet the distribution or interest requirements on
the borrowings, preferred shares or notes. To counteract such an event, the Fund might need to liquidate investments in order
to fund a redemption or repayment of some or all of the borrowings, preferred shares or notes.
Preferred
Share and Note Risk. The issuance of preferred shares or notes causes the net asset value and market value of the common shares
to become more volatile. If the dividend rate on the preferred shares or the interest rate on the notes approaches the net rate
of return on the Fund’s investment portfolio, the benefit of leverage to the holders of the common shares would be reduced.
If the dividend rate on the preferred shares or the interest rate on the notes plus the management fee annual rate of 1.00% exceeds
the net rate of return on the Fund’s portfolio, the leverage will result in a lower rate of return to the holders of common
shares than if the Fund had not issued preferred shares or notes. If the Fund has insufficient investment income and gains, all
or a portion of the distributions to preferred shareholders or interest payments to note holders would come from
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the
common shareholders’ capital. Such distributions and interest payments reduce the net assets attributable to common shareholders
and do not reduce the principal due to noteholders on maturity or the liquidation preference to which preferred shareholders are
entitled. The Prospectus Supplement relating to any sale of preferred shares will set forth dividend rate on such preferred shares.
In
addition, the Fund would pay (and the holders of common shares will bear) all costs and expenses relating to the issuance and
ongoing maintenance of the preferred shares or notes, including the advisory fees on the incremental assets attributable to the
preferred shares or notes.
Holders
of preferred shares and notes may have different interests than holders of common shares and may at times have disproportionate
influence over the Fund’s affairs. As provided in the 1940 Act and subject to certain exceptions, the Fund may issue senior
securities (which may be stock, such as preferred shares, and/ or securities representing debt, such as notes) only if immediately
after such issuance the value of the Fund’s total assets, less certain ordinary course liabilities, exceeds 300% of the
amount of the debt outstanding and exceeds 200% of the amount of preferred shares and debt outstanding, which is referred to as
the “asset coverage” required by the 1940 Act. In the event the Fund fails to maintain an asset coverage of 100% for
any notes outstanding for certain periods of time, the 1940 Act requires that either an event of default be declared or that the
holders of such notes have the right to elect a majority of the Fund’s Trustees until asset coverage recovers to 110%. In
addition, holders of preferred shares, voting separately as a single class, have the right (subject to the rights of noteholders)
to elect two members of the Board at all times and in the event dividends become two full years in arrears would have the right
to elect a majority of the Trustees until such arrearage is completely eliminated. In addition, preferred shareholders have class
voting rights on certain matters, including changes in fundamental investment restrictions and conversion of the Fund to open-end
status, and accordingly can veto any such changes. Further, interest on notes will be payable when due as described in a Prospectus
Supplement and if the Fund does not pay interest when due, it will trigger an event of default and the Fund expects to be restricted
from declaring dividends and making other distributions with respect to common shares and preferred shares. Upon the occurrence
and continuance of an event of default, the holders of a majority in principal amount of a series of outstanding notes or the
trustee will be able to declare the principal amount of that series of notes immediately due and payable upon written notice to
the Fund. The 1940 Act also generally restricts the Fund from declaring distributions on, or repurchasing, common or preferred
shares unless notes have an asset coverage of 300% (200% in the case of declaring distributions on preferred shares). The Fund’s
common shares are structurally subordinated as to income and residual value to any preferred shares or notes in the Fund’s
capital structure, in terms of priority to income and payment in liquidation.
Restrictions
imposed on the declarations and payment of dividends or other distributions to the holders of the Fund’s common shares and
preferred shares, both by the 1940 Act and by requirements imposed by rating agencies, might impair the Fund’s ability to
maintain its qualification as a RIC for U.S. federal income tax purposes. While the Fund intends to redeem its preferred shares
or notes to the extent necessary to enable the Fund to distribute its income as required to maintain its qualification as a RIC
under the Code, there can be no assurance that such actions can be effected in time to meet the Code requirements.
Portfolio
Guidelines of Rating Agencies for Preferred Shares and/or Credit Facility. In order to obtain and maintain attractive credit
quality ratings for preferred shares or notes, the Fund must comply with investment quality, diversification and other guidelines
established by the relevant rating agencies. These guidelines could
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Additional Fund Information (Continued) (Unaudited)
affect
portfolio decisions and may be more stringent than those imposed by the 1940 Act. In the event that a rating on the Fund’s
preferred shares or notes is lowered or withdrawn by the relevant rating agency, the Fund may also be required to redeem all or
part of its outstanding preferred shares or notes, and the common shares of the Fund will lose the potential benefits associated
with a leveraged capital structure.
Impact
on Common Shares. Assuming that leverage will (1) be equal in amount to approximately 21% of the Fund’s total net assets
(the Fund’s amount of outstanding financial leverage as of December 31, 2022), and (2) charge interest or involve dividend
payments at a projected blended annual average leverage dividend or interest rate of 5.20%, then the total return generated by
the Fund’s portfolio (net of estimated expenses) must exceed approximately 1.16% of the Fund’s total net assets in
order to cover such interest or dividend payments and other expenses specifically related to leverage. Of course, these numbers
are merely estimates, used for illustration. Actual dividend rates, interest or payment rates may vary frequently and may be significantly
higher or lower than the rate estimated above. The following table is furnished in response to requirements of the SEC. It is
designed to illustrate the effect of leverage on common share total return, assuming investment portfolio total returns (comprised
of net investment income of the Fund, realized gains or losses of the Fund and changes in the value of the securities held in
the Fund’s portfolio) of -10%, -5%, 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures
and are not necessarily indicative of the investment portfolio returns experienced or expected to be experienced by the Fund.
The table further reflects leverage representing 21% of the Fund’s net assets (the Fund’s outstanding financial leverage
as of December 31, 2022), the Fund’s current projected blended annual average leverage dividend or interest rate of 5.20%
(the average dividend rate on the Fund’s outstanding financial leverage as of December 31, 2022), a base management fee
at an annual rate of 1.00% and estimated annual incremental expenses attributable to any outstanding preferred shares of approximately
0.06% of the Fund’s net assets attributable to common shares. These assumed investment portfolio returns are hypothetical
figures and are not necessarily indicative of the investment portfolio returns experienced or expected to be experienced by the
Fund.
| Assumed Return on Portfolio (Net of Expenses) | |
| (10 | )% | |
| (5 | )% | |
| 0 | % | |
| 5 | % | |
| 10 | % |
| Corresponding Return to Common Shareholder | |
| (14.42 | )% | |
| (8.06 | )% | |
| (1.70 | )% | |
| 4.66 | % | |
| 11.02 | % |
Common
share total return is composed of two elements—the common share distributions paid by the Fund (the amount of which is largely
determined by the taxable income of the Fund (including realized gains or losses) after paying interest on any debt and/or dividends
on any preferred shares) and unrealized gains or losses on the value of the securities the Fund owns. As required by SEC rules,
the table assumes that the Fund is more likely to suffer capital losses than to enjoy total return. For example, to assume a total
return of 0% the Fund must assume that the income it receives on its investments is entirely offset by expenses and losses in
the value of those investments.
Market
Discount Risk. As described above in “—General Risks—Market Discount Risk,” common shares of closed-end
funds often trade at a discount to their net asset values and the Fund’s common shares may trade at such a discount. This
risk may be greater for investors expecting to sell their common shares of the Fund
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
soon
after completion of a public offering. The common shares of the Fund are designed primarily for long-term investors and investors
in the shares should not view the Fund as a vehicle for trading purposes.
Special
Risks to Holders of Preferred Shares
Illiquidity
Prior to Exchange Listing. Prior to an offering, there will be no public market for any series of fixed rate preferred
shares. In the event any series of fixed rate preferred shares are issued, we expect to apply to list such shares on a national
securities exchange, which will likely be the NYSE. However, during an initial period, which is not expected to exceed 30 days
after the date of its initial issuance, such shares may not be listed on any securities exchange. During such period, the underwriters
may make a market in such shares, though they will have no obligation to do so. Consequently, an investment in such shares may
be illiquid during such period.
Market
Price Fluctuation. Fixed rate preferred shares may trade at a premium to or discount from liquidation value for various
reasons, including changes in interest rates, perceived credit quality and other factors.
Special
Risks to Holders of Notes
An
investment in our notes is subject to special risks. Our notes are not likely to be listed on an exchange or automated quotation
system. We cannot assure you that any market will exist for our notes or if a market does exist, whether it will provide holders
with liquidity. Broker-dealers that maintain a secondary trading market for the notes are not required to maintain this market,
and the Fund is not required to redeem notes if an attempted secondary market sale fails because of a lack of buyers. To the extent
that our notes trade, they may trade at a price either higher or lower than their principal amount depending on interest rates,
the rating (if any) on such notes and other factors.
Special
Risks of Notes to Holders of Preferred Shares
As
provided in the 1940 Act, and subject to compliance with the Fund’s investment limitations, the Fund may issue notes. In
the event the Fund were to issue such securities, the Fund’s obligations to pay dividends or make distributions and, upon
liquidation of the Fund, liquidation payments in respect of its preferred shares would be subordinate to the Fund’s obligations
to make any principal and interest payments due and owing with respect to its outstanding notes. Accordingly, the Fund’s
issuance of notes would have the effect of creating special risks for the Fund’s preferred shareholders that would not be
present in a capital structure that did not include such securities.
Special
Risks to Holders of Notes and Preferred Shares
Common
Share Repurchases. Repurchases of common shares by the Fund may reduce the net asset coverage of the notes and preferred
shares, which could adversely affect their liquidity or market prices.
Common
Share Distribution Policy. In the event the Fund does not generate a total return from dividends and interest received
and net realized capital gains in an amount at least equal to its distributions for a given year, the Fund expects that it would
return capital as part of its distribution. This would decrease the asset coverage per share with respect to the Fund’s
notes or preferred shares, which could adversely affect their liquidity or market prices.
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
For
the fiscal year ended December 31, 2022, the Fund made distributions of $0.36 per common share, approximately $0.336 per common
share which constituted a return of capital. The composition of each distribution is estimated based on earnings as of the record
date for the distribution. The actual composition of each distribution may change based on the Fund’s investment activity
through the end of the calendar year.
Credit
Quality Ratings. The Fund may obtain credit quality ratings for its preferred shares or notes; however, it is not required
to do so and may issue preferred shares or notes without any rating. If rated, the Fund does not impose any minimum rating necessary
to issue such preferred shares or notes. In order to obtain and maintain attractive credit quality ratings for preferred shares
or notes, if desired, the Fund’s portfolio must satisfy over-collateralization tests established by the relevant rating
agencies. These tests are more difficult to satisfy to the extent the Fund’s portfolio securities are of lower credit quality,
longer maturity or not diversified by issuer and industry.
These
guidelines could affect portfolio decisions and may be more stringent than those imposed by the 1940 Act. A rating (if any) by
a rating agency does not eliminate or necessarily mitigate the risks of investing in our preferred shares or notes, and a rating
may not fully or accurately reflect all of the securities’ credit risks. A rating (if any) does not address liquidity or
any other market risks of the securities being rated. A rating agency could downgrade the rating of our notes or preferred shares,
which may make such securities less liquid in the secondary market. If a rating agency downgrades the rating assigned to notes
or preferred shares, we may alter our portfolio or redeem the preferred securities or notes under certain circumstances.
Special
Risk to Holders of Subscription Rights
There
is a risk that changes in market conditions may result in the underlying common or preferred shares purchasable upon exercise
of the subscription rights being less attractive to investors at the conclusion of the subscription period. This may reduce or
eliminate the value of the subscription rights. Investors who receive subscription rights may find that there is no market to
sell rights they do not wish to exercise. If investors exercise only a portion of the rights, the number of common or preferred
shares issued may be reduced, and the common or preferred shares may trade at less favorable prices than larger offerings for
similar securities.
Additional
Investment Policies
Convertible
Securities. A convertible security is a bond, debenture, note, stock or other similar security that may be converted into
or exchanged for a prescribed amount of common stock or other equity security of the same or a different issuer within a particular
period of time at a specified price or formula. Before conversion, convertible securities have characteristics similar to non-convertible
debt securities in that they ordinarily provide a stream of income with generally higher yields than those of common stock of
the same or similar issuers. Convertible securities are senior in rank to common stock in an issuer’s capital structure
and, therefore, generally entail less risk than the issuer’s common stock, although the extent to which such risk is reduced
depends in large measure upon the degree to which the convertible security sells above its value as a fixed income security.
The
Fund believes that the characteristics of convertible securities make them appropriate investments for an investment company seeking
a high level of total return on its assets. These characteristics include the potential for capital appreciation if the value
of the underlying common stock increases, the relatively high yield received from dividend or interest payments as compared to
common stock dividends and decreased risks of decline in
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
value,
relative to the underlying common stock due to their fixed income nature. As a result of the conversion feature, however, the
interest rate or dividend preference on a convertible security is generally less than would be the case if the securities were
not convertible. During periods of rising interest rates, it is possible that the potential for capital gain on a convertible
security may be less than that of a common stock equivalent if the yield on the convertible security is at a level that causes
it to sell at a discount.
Every
convertible security may be valued, on a theoretical basis, as if it did not have a conversion privilege. This theoretical value
is determined by the yield it provides in comparison with the yields of other securities of comparable character and quality that
do not have a conversion privilege. This theoretical value, which may change with prevailing interest rates, the credit rating
of the issuer and other pertinent factors, often referred to as the “investment value,” represents the security’s
theoretical price support level.
“Conversion
value” is the amount a convertible security would be worth in market value if it were to be exchanged for the underlying
equity security pursuant to its conversion privilege. Conversion value fluctuates directly with the price of the underlying equity
security, usually common stock. If, because of low prices for the common stock, the conversion value is substantially below the
investment value, the price of the convertible security is governed principally by the factors described in the preceding paragraph.
If the conversion value rises near or above its investment value, the price of the convertible security generally will rise above
its investment value and, in addition, will sell at some premium over its conversion value. This premium represents the price
investors are willing to pay for the privilege of purchasing a fixed-income security with a possibility of capital appreciation
due to the conversion privilege. Accordingly, the conversion value of a convertible security is subject to equity risk, that is,
the risk that the price of an equity security will fall due to general market and economic conditions, perceptions regarding the
industry in which the issuer participates or the issuing company’s particular circumstances. If the appreciation potential
of a convertible security is not realized, its conversion value premium may not be recovered.
In
its selection of convertible securities for the Fund, the Investment Adviser will not emphasize either investment value or conversion
value, but will consider both in light of the Fund’s overall investment objectives.
The
Fund may convert a convertible security that it holds:
| ● | when
necessary to permit orderly disposition of the investment when a convertible security approaches maturity or has been called for
redemption; |
| ● | to
facilitate a sale of the position; |
| ● | if
the dividend rate on the underlying common stock increases above the yield on the convertible security; or |
| ● | whenever
the Investment Adviser believes it is otherwise in the best interests of the Fund. |
Convertible
securities are generally not investment grade, that is, not rated within the four highest categories by S&P and Moody’s.
To the extent that such convertible securities and other nonconvertible debt securities, which are acquired by the Fund consistent
with the factors considered by the Investment Adviser as described in this Annual Report, are rated lower than investment grade
or are not rated, there would be a greater risk as to the timely repayment of the principal of, and timely payment of interest
or dividends on, those securities. It is expected that not more than 25% of the Fund’s portfolio will consist of securities
rated CCC or lower by S&P or Caa or lower by Moody’s or, if unrated, would be of comparable quality as determined by
the Investment Adviser.
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
Those
securities and securities rated BB or lower by S&P or Ba or lower by Moody’s are often referred to in the financial
press as “junk bonds” and may include securities of issuers in default. “Junk bonds” are considered by
the rating agencies to be predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal,
and may involve major risk exposure to adverse conditions. Securities rated BBB by S&P or Baa by Moody’s, in the opinion
of the rating agencies, also have speculative characteristics. Securities need not meet a minimum rating standard in order to
be acceptable for investment by the Fund.
The
Fund’s investments in securities of issuers in default at the time of investment will be limited to not more than 5% of
the total assets of the Fund. Further, the Fund will invest in securities of issuers in default only when the Investment Adviser
believes that such issuers will emerge from bankruptcy (if applicable) and the value of such securities will appreciate. By investing
in securities of issuers in default the Fund bears the risk that such issuers will not emerge from bankruptcy (if applicable),
that the value of such securities will not appreciate and that such issuers may not be able to satisfy their obligations in the
future.
The
Fund has no independent limit on the amount of its net assets it may invest in unregistered and otherwise illiquid securities
and other investments. The current intention of the Investment Adviser is not to invest in excess of 15% of the Fund’s net
assets in illiquid convertible securities or income securities. Shareholders will be notified if the Investment Adviser changes
its intention. Investments in unregistered or otherwise illiquid securities entail certain risks related to the fact that they
cannot be sold publicly in the United States without registration under the Securities Act.
Convertible
securities generally offer lower interest or dividend yields than non-convertible securities of similar quality. The market values
of convertible securities tend to decline as interest rates increase and, conversely, to increase as interest rates decline. In
the absence of adequate anti-dilution provisions in a convertible security, dilution in the value of the Fund’s holding
may occur in the event the underlying stock is subdivided, additional equity securities are issued for below market value, a stock
dividend is declared or the issuer enters into another type of corporate transaction that has a similar effect.
The
value of a convertible security is influenced by the value of the underlying equity security. Convertible debt securities and
preferred stocks may depreciate in value if the market value of the underlying equity security declines or if rates of interest
increase. In addition, although debt securities are liabilities of a corporation which the corporation is generally obligated
to repay at a specified time, debt securities, particularly convertible debt securities, are often subordinated to the claims
of some or all of the other creditors of the corporation.
Mandatory
conversion securities (securities that automatically convert into equity securities at a future date) may limit the potential
for capital appreciation and, in some instances, are subject to complete loss of invested capital. Other innovative convertibles
include “equity-linked” securities, which are securities or derivatives that may have fixed, variable, or no interest
payments prior to maturity, may convert (at the option of the holder or on a mandatory basis) into cash or a combination of cash
and equity securities, and may be structured to limit the potential for capital appreciation. Equity-linked securities may be
illiquid and difficult to value and may be subject to greater credit risk than that of other convertibles. Moreover, mandatory
conversion securities and equity-linked securities have increased the sensitivity of the convertible securities market to the
volatility of the equity markets and to the special risks of those innovations, which may include risks different from, and possibly
greater than, those associated with traditional convertible securities.
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
Preferred
stocks are equity securities in the sense that they do not represent a liability of the corporation. In the event of liquidation
of the corporation, and after its creditors have been paid or provided for, holders of preferred stock are generally entitled
to a preference as to the assets of the corporation before any distribution may be made to the holders of common stock. Debt securities
normally do not have voting rights. Preferred stocks may have no voting rights or may have voting rights only under certain circumstances.
Credit
Risk. Credit risk is the risk that an issuer will fail to pay interest or dividends and principal in a timely manner. Companies
that issue convertible securities may be small to medium-size, and they often have low credit ratings. In addition, the credit
rating of a company’s convertible securities is generally lower than that of its conventional debt securities. Convertible
securities are normally considered “junior” securities—that is, the company usually must pay interest on its
conventional debt before it can make payments on its convertible securities. Credit risk could be high for the Fund, because it
could invest in securities with low credit quality.
Interest
Rate Risk for Convertible Securities. The Fund may be subject to a greater risk of rising interest rates due to the current
period of rising interest rates and high inflation. The Federal Reserve has aggressively begun to raise interest rates which is
likely to drive down the prices of convertible securities held by the Fund. Convertible securities are particularly sensitive
to interest rate changes when their predetermined conversion price is much higher than the issuing company’s common stock.
See “—Fixed Income Securities Risks— Duration and Maturity Risk” and “—General Risks—Interest
Rate Risks Generally.”
Dilution
Risk for Convertible Securities. In the absence of adequate anti-dilution provisions in a convertible security, dilution in
the value of the Fund’s holding may occur in the event the underlying stock is subdivided, additional equity securities
are issued for below market value, a stock dividend is declared, or the issuer enters into another type of corporate transaction
that has a similar effect.
Synthetic
Convertible Securities. The Fund may also invest in “synthetic” convertible securities, which, for purposes
of its investment policies, the Fund considers to be convertible securities. A “synthetic” convertible security
may be created by the Fund or by a third party by combining separate securities that possess the two principal
characteristics of a traditional convertible security: an income producing component and a convertible component. Synthetic
convertible securities differ from convertible securities whose conversion privilege may be evidenced by warrants attached to
the security or acquired as part of a unit with the security. The income-producing component is achieved by investing in
non-convertible, income-producing securities such as bonds, preferred stocks and money market instruments. The convertible
component is achieved by investing in securities or instruments such as warrants or options to buy common stock at a certain
exercise price, or options on a stock index. Unlike a traditional convertible security, which is a single security having a
single market value, a synthetic convertible comprises two or more separate securities, each with its own market value.
Because the “market value” of a synthetic convertible security is the sum of the values of its income-producing
component and its convertible component, the value of a synthetic convertible security may respond differently to market
fluctuations than a traditional convertible security. The Fund also may purchase synthetic convertible securities created by
other parties, including convertible structured notes. Convertible structured notes are income-producing debentures linked to
equity. Convertible structured notes have the attributes of a convertible security; however, the issuer of the convertible
note (typically an investment bank), rather than the issuer of the underlying common stock into which the note is
convertible, assumes credit risk associated with the underlying investment and the Fund in turn assumes credit risk
associated with the issuer of the convertible note.
GAMCO
Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
The
value of a synthetic convertible instrument may respond differently to market fluctuations than a convertible security because
a synthetic convertible instrument is composed of two or more separate instruments, each with its own market value. In addition,
if the value of the underlying common stock or the level of the index involved in the convertible component falls below the exercise
price of the warrant or option, the warrant or option may lose all value. Synthetic convertible instruments created by other parties
have the same attributes of a convertible security; however, the issuer of the synthetic convertible instrument assumes the credit
risk associated with the investment, rather than the issuer of the underlying equity security into which the instrument is convertible.
The Fund remains subject to the credit risk associated with the counterparty creating the synthetic convertible instrument.
Forward
Foreign Currency Exchange Contracts. Subject to guidelines of the Board, the Fund may enter into forward foreign currency
exchange contracts to protect the value of its portfolio against uncertainty in the level of future currency exchange rates between
a particular foreign currency and the U.S. dollar or between foreign currencies in which its securities are or may be denominated.
The Fund may enter into such contracts on a spot (i.e., cash) basis at the rate then prevailing in the currency exchange market
or on a forward basis, by entering into a forward contract to purchase or sell currency. A forward contract on foreign currency
is an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days agreed upon by
the parties from the date of the contract at a price set on the date of the contract. Forward currency contracts (i) are traded
in a market conducted directly between currency traders (typically, commercial banks or other financial institutions) and their
customers, (ii) generally have no deposit requirements and (iii) are typically consummated without payment of any commissions.
The Fund, however, may enter into forward currency contracts requiring deposits or involving the payment of commissions.
The
dealings of the Fund in forward foreign currency exchange are limited to hedging involving either specific transactions or portfolio
positions. Transaction hedging is the purchase or sale of one forward foreign currency for another currency with respect to specific
receivables or payables of the Fund accruing in connection with the purchase and sale of its portfolio securities or its payment
of distributions and dividends. Position hedging is the purchase or sale of one forward foreign currency for another currency
with respect to portfolio security positions denominated or quoted in the foreign currency to offset the effect of an anticipated
substantial appreciation or depreciation, respectively, in the value of the currency relative to the U.S. dollar. In this situation,
the Fund also may, for example, enter into a forward contract to sell or purchase a different foreign currency for a fixed U.S.
dollar amount where it is believed that the U.S. dollar value of the currency to be sold or bought pursuant to the forward contract
will fall or rise, as the case may be, whenever there is a decline or increase, respectively, in the U.S. dollar value of the
currency in which its portfolio securities are denominated (this practice being referred to as a “cross-hedge”). In
hedging a specific transaction, the Fund may enter into a forward contract with respect to either the currency in which the transaction
is denominated or another currency deemed appropriate by the Investment Adviser. The amount the Fund may invest in forward currency
contracts is limited to the amount of its aggregate investments in foreign currencies.
The
use of forward currency contracts may involve certain risks, including the failure of the counterparty to perform its obligations
under the contract, and such use may not serve as a complete hedge because of an imperfect correlation between movements in the
prices of the contracts and the prices of the currencies hedged
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
or
used for cover. The Fund will only enter into forward currency contracts with parties that the Investment Adviser believes to
be creditworthy institutions.
Master
Limited Partnerships. The Fund may invest in master limited partnerships (“MLPs”), which are limited partnerships
or limited liability companies taxable as partnerships. MLPs may derive income and gains from the exploration, development, mining
or production, processing, refining, transportation (including pipelines transporting gas, oil, or products thereof), or the marketing
of any mineral or natural resources. MLPs generally have two classes of owners, the general partner and limited partners. When
investing in an MLP, the Fund intends to purchase publicly traded common units issued to limited partners of the MLP. The general
partner is typically owned by a major energy company, an investment fund, the direct management of the MLP or is an entity owned
by one or more of such parties. The general partner may be structured as a private or publicly traded corporation or other entity.
The general partner typically controls the operations and management of the MLP through an up to 2% equity interest in the MLP
plus, in many cases, ownership of common units and subordinated units. Limited partners own the remainder of the partnership,
through ownership of common units, and have a limited role in the partnership’s operations and management.
Options
on Foreign Currencies. Instead of purchasing or selling currency futures (as described below), the Fund may attempt to
accomplish similar objectives by purchasing put or call options on currencies or by writing put options or call options on currencies
either on exchanges or in OTC markets. A put option gives the Fund the right to sell a currency at the exercise price until the
option expires. A call option gives the Fund the right to purchase a currency at the exercise price until the option expires.
Both types of options serve to insure against adverse currency price movements in the underlying portfolio assets designated in
a given currency. The Fund’s use of options on currencies will be subject to the same limitations as its use of options
on securities described above. Currency options may be subject to position limits which may limit the ability of the Fund to fully
hedge its positions by purchasing the options.
As
in the case of interest rate futures contracts and options thereon, described below, the Fund may hedge against the risk of a
decrease or increase in the U.S. dollar value of a foreign currency denominated debt security which the Fund owns or intends to
acquire by purchasing or selling options contracts, futures contracts or options thereon with respect to a foreign currency other
than the foreign currency in which such debt security is denominated, where the values of such different currencies (vis-à-vis
the U.S. dollar) historically have a high degree of positive correlation.
Interest
Rate Futures Contracts and Options Thereon. The Fund may purchase or sell interest rate futures contracts to take advantage
of or to protect the Fund against fluctuations in interest rates affecting the value of debt securities which the Fund holds or
intends to acquire. For example, if interest rates are expected to increase, the Fund might sell futures contracts on debt securities,
the values of which historically have a high degree of positive correlation to the values of the Fund’s portfolio securities.
Such a sale would have an effect similar to selling an equivalent value of the Fund’s portfolio securities. If interest
rates increase, the value of the Fund’s portfolio securities will decline, but the value of the futures contracts to the
Fund will increase at approximately an equivalent rate thereby keeping the net asset value of the Fund from declining as much
as it otherwise would have. The Fund could accomplish similar results by selling debt securities with longer maturities and investing
in debt securities with shorter maturities when interest rates are expected to increase. However, since the futures
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
market
may be more liquid than the cash market, the use of futures contracts as a risk management technique allows the Fund to maintain
a defensive position without having to sell its portfolio securities.
Similarly,
the Fund may purchase interest rate futures contracts when it is expected that interest rates may decline. The purchase of futures
contracts for this purpose constitutes a hedge against increases in the price of debt securities (caused by declining interest
rates) which the Fund intends to acquire. Since fluctuations in the value of appropriately selected futures contracts should approximate
that of the debt securities that will be purchased, the Fund can take advantage of the anticipated rise in the cost of the debt
securities without actually buying them. Subsequently, the Fund can make its intended purchase of the debt securities in the cash
market and liquidate its futures position.
The
purchase of a call option on a futures contract is similar in some respects to the purchase of a call option on an individual
security. Depending on the pricing of the option compared to either the price of the futures contract upon which it is based or
the price of the underlying debt securities, it may or may not be less risky than ownership of the futures contract or underlying
debt securities. As with the purchase of futures contracts, when the Fund is not fully invested it may purchase a call option
on a futures contract to hedge against a market advance due to declining interest rates.
The
purchase of a put option on a futures contract is similar to the purchase of protective put options on portfolio securities. The
Fund will purchase a put option on a futures contract to hedge the Fund’s portfolio against the risk of rising interest
rates and consequent reduction in the value of portfolio securities.
The
writing of a call option on a futures contract constitutes a partial hedge against declining prices of the securities which are
deliverable upon exercise of the futures contract. If the futures price at expiration of the option is below the exercise price,
the Fund will retain the full amount of the option premium which provides a partial hedge against any decline that may have occurred
in the Fund’s portfolio holdings. The writing of a put option on a futures contract constitutes a partial hedge against
increasing prices of the securities that are deliverable upon exercise of the futures contract. If the futures price at expiration
of the option is higher than the exercise price, the Fund will retain the full amount of the option premium, which provides a
partial hedge against any increase in the price of debt securities that the Fund intends to purchase. If a put or call option
the Fund has written is exercised, the Fund will incur a loss which will be reduced by the amount of the premium it received.
Depending on the degree of correlation between changes in the value of its portfolio securities and changes in the value of its
futures positions, the Fund’s losses from options on futures it has written may to some extent be reduced or increased by
changes in the value of its portfolio securities.
Currency
Futures and Options Thereon. Generally, foreign currency futures contracts and options thereon are similar to the interest
rate futures contracts and options thereon discussed previously. By entering into currency futures and options thereon, the Fund
will seek to establish the rate at which it will be entitled to exchange U.S. dollars for another currency at a future time. By
selling currency futures, the Fund will seek to establish the number of dollars it will receive at delivery for a certain amount
of a foreign currency. In this way, whenever the Fund anticipates a decline in the value of a foreign currency against the U.S.
dollar, the Fund can attempt to “lock in” the U.S. dollar value of some or all of the securities held in its portfolio
that are denominated in that currency. By purchasing currency futures, the Fund can establish the number of dollars it will be
required to pay for a specified amount of a foreign currency in a future month. Thus, if the Fund intends to buy securities
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
in
the future and expects the U.S. dollar to decline against the relevant foreign currency during the period before the purchase
is effected, the Fund can attempt to “lock in” the price in U.S. dollars of the securities it intends to acquire.
The
purchase of options on currency futures will allow the Fund, for the price of the premium and related transaction costs it must
pay for the option, to decide whether or not to buy (in the case of a call option) or to sell (in the case of a put option) a
futures contract at a specified price at any time during the period before the option expires. If the Investment Adviser, in purchasing
an option, has been correct in its judgment concerning the direction in which the price of a foreign currency would move as against
the U.S. dollar, the Fund may exercise the option and thereby take a futures position to hedge against the risk it had correctly
anticipated or close out the option position at a gain that will offset, to some extent, currency exchange losses otherwise suffered
by the Fund. If exchange rates move in a way the Fund did not anticipate, however, the Fund will have incurred the expense of
the option without obtaining the expected benefit; any such movement in exchange rates may also thereby reduce rather than enhance
the Fund’s profits on its underlying securities transactions.
Securities
Index Futures Contracts and Options Thereon. Purchases or sales of securities index futures contracts are used for hedging
purposes to attempt to protect the Fund’s current or intended investments from broad fluctuations in stock or bond prices.
For example, the Fund may sell securities index futures contracts in anticipation of or during a market decline to attempt to
offset the decrease in market value of the Fund’s securities portfolio that might otherwise result. If such decline occurs,
the loss in value of portfolio securities may be offset, in whole or part, by gains on the futures position. When the Fund is
not fully invested in the securities market and anticipates a significant market advance, it may purchase securities index futures
contracts in order to gain rapid market exposure that may, in part or entirely, offset increases in the cost of securities that
the Fund intends to purchase. As such purchases are made, the corresponding positions in securities index futures contracts will
be closed out. The Fund may write put and call options on securities index futures contracts for hedging purposes.
Contingent
Convertible Securities. One type of convertible security in which the Fund may invest is contingent convertible securities,
sometimes referred to as “CoCos.” CoCos are a form of hybrid debt security issued by banking institutions that are
intended to either automatically convert into equity or have their principal written down upon the occurrence of certain “trigger
events,” which may include a decline in the issuer’s capital below a specified threshold level, increase in the issuer’s
risk weighted assets, the share price of the issuer falling to a particular level for a certain period of time and certain regulatory
events. CoCos’ unique equity conversion or principal write-down features are tailored to the issuing banking institution
and its regulatory requirements.
CoCos
are a newer form of instrument and the regulatory environment for these instruments continues to evolve. Because the market for
such securities is evolving, it is uncertain how the larger market for CoCos would react to a trigger event, coupon cancellation,
write-down of par value or coupon suspension (as described below) applicable to a single issuer. Following conversion of a CoCo,
because the common stock of the issuer may not pay a dividend, investors in such securities could experience reduced yields or
no yields at all.
Loss
Absorption Risk. CoCos have fully discretionary coupons. This means coupons can potentially be cancelled at the banking institution’s
discretion or at the request of the relevant regulatory authority in order to help the bank absorb losses. The liquidation value
of a CoCo may be adjusted downward to below the original par
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value
or written off entirely under certain circumstances. The write-down of the security’s par value may occur automatically
and would not entitle holders to institute bankruptcy proceedings against the issuer. In addition, an automatic write-down could
result in a reduced income rate if the dividend or interest payment associated with the security is based on the security’s
par value. Coupon payments may also be subject to approval by the issuer’s regulator and may be suspended in the event there
are insufficient distributable reserves. Due to uncertainty surrounding coupon payments, CoCos may be volatile and their price
may decline rapidly in the event that coupon payments are suspended.
Subordinated
Instruments. CoCos will, in the majority of circumstances, be issued in the form of subordinated debt instruments in order
to provide the appropriate regulatory capital treatment prior to a conversion. Accordingly, in the event of liquidation, dissolution
or winding-up of an issuer prior to a conversion having occurred, the rights and claims of the holders of the CoCos, such as the
Fund, against the issuer in respect of or arising under the terms of the CoCos shall generally rank junior to the claims of all
holders of unsubordinated obligations of the issuer. In addition, if the CoCos are converted into the issuer’s underlying
equity securities following a conversion event (i.e., a “trigger”), each holder will be subordinated due to their
conversion from being the holder of a debt instrument to being the holder of an equity instrument. Such conversion may be automatic.
Unpredictable
Market Value Fluctuate. The value of CoCos is unpredictable and will be influenced by many factors including, without limitation:
(i) the creditworthiness of the issuer and/or fluctuations in such issuer’s applicable capital ratios; (ii) supply and demand
for the CoCos; (iii) general market conditions and available liquidity; and (iv) economic, financial and political events that
affect the issuer, its particular market or the financial markets in general.
Traditional
Preferred Securities. Traditional preferred securities generally pay fixed or adjustable-rate dividends to investors and
generally have a “preference” over common stock in the payment of dividends and the liquidation of a company’s
assets. This means that a company must pay dividends on preferred stock before paying any dividends on its common stock. In order
to be payable, distributions on such preferred securities must be declared by the issuer’s board of directors. Income payments
on typical preferred securities currently outstanding are cumulative, causing dividends and distributions to accumulate even if
not declared by the board of directors or otherwise made payable. In such a case all accumulated dividends must be paid before
any dividend on the common stock can be paid. However, some traditional preferred stocks are non-cumulative, in which case dividends
do not accumulate and need not ever be paid. A portion of the portfolio may include investments in non-cumulative preferred securities,
whereby the issuer does not have an obligation to make up any arrearages to its shareholders. Should an issuer of a non-cumulative
preferred stock held by the Fund determine not to pay dividends on such stock, the amount of dividends the Fund pays may be adversely
affected. There is no assurance that dividends or distributions on the preferred securities in which the Fund invests will be
declared or otherwise made payable.
Preferred
shareholders usually have no right to vote for corporate directors or on other matters. Shares of preferred stock have a liquidation
value that generally equals the original purchase price at the date of issuance. The market value of preferred securities may
be affected by favorable and unfavorable changes impacting companies in which the Fund invests and by actual and anticipated changes
in tax laws, such as changes in corporate income tax rates or the “Dividends Received Deduction.” Because the claim
on an issuer’s earnings represented by preferred securities may become onerous when interest rates fall below the rate payable
on
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such
securities, the issuer may redeem the securities. Thus, in declining interest rate environments in particular, the Fund’s
holdings, if any, of higher rate-paying fixed rate preferred securities may be reduced and the Fund may be unable to acquire securities
of comparable credit quality paying comparable rates with the redemption proceeds.
Trust
Preferred Securities. The Fund may invest in trust preferred securities. Trust preferred securities are typically issued
by corporations, generally in the form of interest bearing notes with preferred securities characteristics, or by an affiliated
business trust of a corporation, generally in the form of beneficial interests in subordinated debentures or similarly structured
securities. The trust preferred securities market consists of both fixed and adjustable coupon rate securities that are either
perpetual in nature or have stated maturity dates.
Trust
preferred securities are typically junior and fully subordinated liabilities of an issuer and benefit from a guarantee that is
junior and fully subordinated to the other liabilities of the guarantor. In addition, trust preferred securities typically permit
an issuer to defer the payment of income for five years or more without triggering an event of default. Because of their subordinated
position in the capital structure of an issuer, the ability to defer payments for extended periods of time without default consequences
to the issuer, and certain other features (such as restrictions on common dividend payments by the issuer or ultimate guarantor
when full cumulative payments on the trust preferred securities have not been made), these trust preferred securities are often
treated as close substitutes for traditional preferred securities, both by issuers and investors. Trust preferred securities have
many of the key characteristics of equity due to their subordinated position in an issuer’s capital structure and because
their quality and value are heavily dependent on the profitability of the issuer rather than on any legal claims to specific assets
or cash flows.
Trust
preferred securities include but are not limited to trust originated preferred securities (“TOPRS®”); monthly
income preferred securities (“MIPS®”); quarterly income bond securities (“QUIBS®” ); quarterly
income debt securities (“QUIDS®”); quarterly income preferred securities (“QUIPSSM”); corporate trust
securities (“CORTS®”); public income notes (“PINES®”); and other trust preferred securities.
Trust
preferred securities are typically issued with a final maturity date, although some are perpetual in nature. In certain instances,
a final maturity date may be extended and/or the final payment of principal may be deferred at the issuer’s option for a
specified time without default. No redemption can typically take place unless all cumulative payment obligations have been met,
although issuers may be able to engage in open-market repurchases without regard to whether all payments have been paid.
Many
trust preferred securities are issued by trusts or other special purpose entities established by operating companies and are not
a direct obligation of an operating company. At the time the trust or special purpose entity sells such preferred securities to
investors, it purchases debt of the operating company (with terms comparable to those of the trust or special purpose entity securities),
which enables the operating company to deduct for tax purposes the interest paid on the debt held by the trust or special purpose
entity. The trust or special purpose entity is generally required to be treated as transparent for Federal income tax purposes
such that the holders of the trust preferred securities are treated as owning beneficial interests in the underlying debt of the
operating company. Accordingly, payments on the trust preferred securities are treated as interest rather than dividends for Federal
income tax purposes. The trust or special purpose entity in turn would be a holder of the operating company’s debt and would
have priority with respect to the operating company’s earnings
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and
profits over the operating company’s common shareholders, but would typically be subordinated to other classes of the operating
company’s debt. Typically a preferred share has a rating that is slightly below that of its corresponding operating company’s
senior debt securities.
Small
Capitalization Company Risk. The Fund may invest in the equity securities of small-cap and/or mid-cap companies.
Smaller
companies offer investment opportunities and additional risks. They may not be well known to the investing public, may not be
significantly owned by institutional investors and may not have steady earnings growth. These companies may have limited product
lines and markets, as well as shorter operating histories, less experienced management or a limited management group on which
they rely and more limited financial resources than larger companies. In addition, the securities of such companies may be more
vulnerable to adverse general market or economic developments, more volatile in price, have wider spreads between their bid and
ask prices and have significantly lower trading volumes than the securities of larger capitalization companies. As such, securities
of these smaller companies may be less liquid than those of larger companies, and may experience greater price fluctuations than
larger companies. In addition, small-cap or mid-cap company securities may not be widely followed by investors, which may result
in reduced demand.
As
a result, the purchase or sale of more than a limited number of shares of the securities of a smaller company may affect its market
price. The Investment Adviser may need a considerable amount of time to purchase or sell its positions in these securities, particularly
when other Investment Adviser-managed accounts or other investors are also seeking to purchase or sell them. Accordingly, the
Investment Adviser’s investment focus on the securities of smaller companies generally leads it to have a long-term investment
outlook of at least two years for a portfolio security.
The
securities of smaller capitalization companies generally trade in lower volumes and are subject to greater and more unpredictable
price changes than larger capitalization securities or the market as a whole. In addition, smaller capitalization securities may
be particularly sensitive to changes in interest rates, borrowing costs and earnings. Investing in smaller capitalization securities
requires a longer-term view.
Warrants
and Rights. The Fund may invest in warrants and rights (including those acquired in units or attached to other securities)
which entitle the holder to buy equity securities at a specific price for or at the end of a specific period of time. The Fund
will do so only if the underlying equity securities are deemed appropriate by the Investment Adviser for inclusion in the Fund’s
portfolio.
Investing
in rights and warrants can provide a greater potential for profit or loss than an equivalent investment in the underlying security,
and thus can be a riskier investment. The value of a right or warrant may decline because of a decline in the value of the underlying
security, the passage of time, changes in interest rates or in the dividend or other policies of the Fund whose equity underlies
the warrant, a change in the perception as to the future price of the underlying security, or any combination thereof. Rights
and warrants generally pay no dividends and confer no voting or other rights other than the right to purchase the underlying security.
Commodities-Linked
Equity Derivative Instrument Risk. The Fund may invest in structured notes that are linked to one or more underlying commodities.
Such structured notes provide exposure to the investment returns of physical commodities without actually investing directly in
physical commodities. Such structured
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notes
in which the Fund may invest are hybrid instruments that have substantial risks, including risk of loss of all or a significant
portion of their principal value. Because the payments on these notes are linked to the price change of the underlying commodities,
these investments are subject to market risks that relate to the movement of prices in the commodities markets. They may also
be subject to additional special risks that do not affect traditional equity and debt securities that may be greater than or in
addition to the risks of derivatives in general, including risk of loss of interest, risk of loss of principal, lack of liquidity
and risk of greater volatility.
Fixed
Income Securities Risks. Fixed income securities in which the Fund may invest are generally subject to the following risks:
Interest
Rate Risk. The market value of bonds and other fixed-income or dividend-paying securities changes in response to
interest rate changes and other factors. Interest rate risk is the risk that prices of bonds and other income- or
dividend-paying securities will increase as interest rates fall and decrease as interest rates rise. Interest rates have
risen in recent months, and the risk that they may continue to do so is pronounced. See “— General
Risks—Interest Rate Risks Generally.”.
Issuer
Risk. Issuer risk is the risk that the value of an income- or dividend-paying security may decline for a number of reasons
which directly relate to the issuer, such as management performance, financial leverage, reduced demand for the issuer’s
goods and services, historical and prospective earnings of the issuer and the value of the assets of the issuer.
Credit
Risk. Credit risk is the risk that one or more income- or dividend-paying securities in the Fund’s portfolio will decline
in price or fail to pay interest/distributions or principal when due because the issuer of the security experiences a decline
in its financial status. Credit risk is increased when a portfolio security is downgraded or the perceived creditworthiness of
the issuer deteriorates. To the extent the Fund invests in below investment grade securities, it will be exposed to a greater
amount of credit risk than a fund which only invests in investment grade securities. See “—Non-Investment Grade Securities.”
The degree of credit risk depends on the issuer’s financial condition and on the terms of the securities.
Reinvestment
Risk. Reinvestment risk is the risk that income from the Fund’s portfolio will decline if the Fund invests the proceeds
from matured, traded or called fixed income securities at market interest rates that are below the Fund portfolio’s current
earnings rate.
Duration
and Maturity Risk. The Fund has no set policy regarding portfolio maturity or duration of the fixed-income securities it may
hold. The Investment Adviser may seek to adjust the duration or maturity of the Fund’s fixed-income holdings based on its
assessment of current and projected market conditions and all other factors that the Investment Adviser deems relevant. In comparison
to maturity (which is the date on which the issuer of a debt instrument is obligated to repay the principal amount), duration
is a measure of the price volatility of a debt instrument as a result in changes in market rates of interest, based on the weighted
average timing of the instrument’s expected principal and interest payments. Specifically, duration measures the anticipated
percentage change in NAV that is expected for every percentage point change in interest rates. The two have an inverse relationship.
Duration
can be a useful tool to estimate anticipated price changes to a fixed pool of income securities associated with changes in interest
rates. For example, a duration of five years means that a 1% decrease in
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interest
rates will increase the NAV of the portfolio by approximately 5%; if interest rates increase by 1%, the NAV will decrease by 5%.
However, in a managed portfolio of fixed income securities having differing interest or dividend rates or payment schedules, maturities,
redemption provisions, call or prepayment provisions and credit qualities, actual price changes in response to changes in interest
rates may differ significantly from a duration-based estimate at any given time. Actual price movements experienced by a portfolio
of fixed income securities will be affected by how interest rates move (i.e., changes in the relationship of long-term interest
rates to short-term interest rates), the magnitude of any move in interest rates, actual and anticipated prepayments of principal
through call or redemption features, the extension of maturities through restructuring, the sale of securities for portfolio management
purposes, the reinvestment of proceeds from prepayments on and from sales of securities, and credit quality-related considerations
whether associated with financing costs to lower credit quality borrowers or otherwise, as well as other factors. Accordingly,
while duration maybe a useful tool to estimate potential price movements in relation to changes in interest rates, investors are
cautioned that duration alone will not predict actual changes in the net asset or market value of the Fund’s shares and
that actual price movements in the Fund’s portfolio may differ significantly from duration-based estimates.
Duration
differs from maturity in that it takes into account a security’s yield, coupon payments and its principal payments in addition
to the amount of time until the security matures. As the value of a security changes over time, so will its duration. Prices of
securities with longer durations tend to be more sensitive to interest rate changes than securities with shorter durations. In
general, a portfolio of securities with a longer duration can be expected to be more sensitive to interest rate changes than a
portfolio with a shorter duration. Any decisions as to the targeted duration or maturity of any particular category of investments
will be made based on all pertinent market factors at any given time. The Fund may incur costs in seeking to adjust the portfolio
average duration or maturity. There can be no assurance that the Investment Adviser’s assessment of current and projected
market conditions will be correct or that any strategy to adjust duration or maturity will be successful at any given time.
LIBOR
Risk. The Fund may be exposed to financial instruments that are tied to the London Interbank Offered Rate (“LIBOR”)
to determine payment obligations, financing terms, hedging strategies or investment value. The Fund’s investments may pay
interest at floating rates based on LIBOR or may be subject to interest caps or floors based on LIBOR. The Fund may also obtain
financing at floating rates based on LIBOR. Derivative instruments utilized by the Fund may also reference LIBOR.
In
July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the
end of 2021. LIBOR can no longer be used to calculate new deals as of December 31, 2021. Since December 31, 2021, all sterling,
euro, Swiss franc and Japanese yen LIBOR settings and the one-week and two-month U.S. dollar LIBOR settings have ceased to be
published or are no longer representative, and after June 30, 2023, the overnight, one-month, three-month, six-month and 12-month
U.S. dollar LIBOR settings will cease to be published or will no longer be representative. Various financial industry groups have
begun planning for the transition away from LIBOR, but there are challenges to converting certain securities and transactions
to a new reference rate. Neither the effect of the LIBOR transition process nor its ultimate success can yet be known.
As
an alternative to LIBOR, the Financial Reporting Council, in conjunction with the Alternative Reference Rates Committee, a steering
committee comprised of large U.S. financial institutions recommended replacing U.S. dollar LIBOR with the Secured Overnight Financing
Rate (“SOFR”), a new index calculated by reference to
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short-term
repurchase agreements, backed by Treasury securities. Abandonment of, or modifications to, LIBOR could have adverse impacts on
newly issued financial instruments and any of our existing financial instruments which reference LIBOR. Given the inherent differences
between LIBOR and SOFR, or any other alternative benchmark rate that may be established, there are many uncertainties regarding
a transition from LIBOR, including, but not limited to, the need to amend all contracts with LIBOR as the referenced rate and
how this will impact the cost of variable rate debt and certain derivative financial instruments. In addition, SOFR or other replacement
rates may fail to gain market acceptance. Any failure of SOFR or alternative reference rates to gain market acceptance could adversely
affect the return on, value of and market for securities linked to such rates.
Neither
the effect of the LIBOR transition process nor its ultimate success can yet be known. The transition process might lead to increased
volatility and illiquidity in markets for, and reduce the effectiveness of, new hedges placed against, instruments whose terms
currently include LIBOR. While some existing LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available
by providing for an alternative rate-setting methodology, there may be significant uncertainty regarding the effectiveness of
any such alternative methodologies to replicate LIBOR. Not all existing LIBOR-based instruments may have alternative rate-setting
provisions and there remains uncertainty regarding the willingness and ability of issuers to add alternative rate-setting provisions
in certain existing instruments. Moreover, these alternative rate-setting provisions may not be designed for regular use in an
environment where LIBOR ceases to be published, and may be an ineffective fallback following the discontinuation of LIBOR.
On
March 15, 2022, President Biden signed into law the Consolidated Appropriations Act of 2022, which among other things,
provides for the use of interest rates based on SOFR in certain contracts currently based on LIBOR and a safe harbor from
liability for utilizing SOFR-based interest rates as a replacement for LIBOR. The elimination of LIBOR could have an adverse
impact on the market value of and/or transferability of any LIBOR-linked securities, loans, and other financial obligations
or extensions of credit held by or due to us or on our overall financial condition or results of operations.
Corporate
Bonds Risk. The market value of a corporate bond generally may be expected to rise and fall inversely with interest rates.
The market value of intermediate and longer-term corporate bonds is generally more sensitive to changes in interest rates than
is the market value of shorter term corporate bonds. The market value of a corporate bond also may be affected by factors directly
related to the issuer, such as investors’ perceptions of the creditworthiness of the issuer, the issuer’s financial
performance, perceptions of the issuer in the market place, performance of management of the issuer, the issuer’s capital
structure and use of financial leverage and demand for the issuer’s goods and services. Certain risks associated with investments
in corporate bonds are described elsewhere in this Annual Report, including above under “—Fixed Income Securities
Risks—Credit Risk,” “—Fixed Income Securities Risks—Interest Rate Risk,” “—General
Risks—Inflation Risk” and “—General Risks—Interest Rate Risk Generally.” There is a risk that
the issuers of corporate bonds may not be able to meet their obligations on interest or principal payments at the time called
for by an instrument. Corporate bonds of below investment grade quality are often high risk and have speculative characteristics
and may be particularly susceptible to adverse issuer-specific developments. Corporate bonds of below investment grade quality
are subject to the risks described under “—General Risks—Non-Investment Grade Securities.”
Investing
in Japan. There are special risks associated with investments in Japan. If the Funds invest in Japan, the value of the
Funds’ shares may vary widely in response to political and economic factors affecting companies
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in
Japan. Political, social or economic disruptions in Japan or in other countries in the region may adversely affect the values
of Japanese securities and thus the Funds’ holdings. Additionally, since securities in Japan are denominated and quoted
in yen, the value of the Funds’ Japanese securities as measured in U.S. dollars may be affected by fluctuations in the value
of the Japanese yen relative to the U.S. dollar. Japanese securities are also subject to the more general risks associated with
foreign securities.
Investing
in Latin America. The economies of Latin American countries have in the past experienced considerable difficulties, including
high inflation rates and high interest rates. The emergence of the Latin American economies and securities markets will require
continued economic and fiscal discipline that has been lacking at times in the past, as well as stable political and social conditions.
International economic conditions, particularly those in the United States, as well as world prices for oil and other commodities
may also influence the development of the Latin American economies.
Some
Latin American currencies have experienced steady devaluations relative to the U.S. dollar and certain Latin American countries
have had to make major adjustments in their currencies from time to time. In addition, governments of many Latin American countries
have exercised and continue to exercise substantial influence over many aspects of the private sector. Governmental actions in
the future could have a significant effect on economic conditions in Latin American countries, which could affect the companies
in which the Fund invests and, therefore, the value of the Fund’s shares. As noted, in the past, many Latin American countries
have experienced substantial, and in some periods extremely high, rates of inflation for many years. For companies that keep accounting
records in the local currency, inflation accounting rules in some Latin American countries require, for both tax and accounting
purposes, that certain assets and liabilities be restated on the company’s balance sheet in order to express items in terms
of currency of constant purchasing power. Inflation accounting may indirectly generate losses or profits for certain Latin American
companies. Inflation and rapid fluctuations in inflation rates have had, and could, in the future, have very negative effects
on the economies and securities markets of certain Latin American countries.
Substantial
limitations may exist in certain countries with respect to the Fund’s ability to repatriate investment income, capital or
the proceeds of sales of securities. The Fund could be adversely affected by delays in, or a refusal to grant, any required governmental
approval for repatriation of capital, as well as by the application to the Fund of any restrictions on investments.
Certain
Latin American countries have entered into regional trade agreements that are designed to, among other things, reduce barriers
between countries, increase competition among companies and reduce government subsidies in certain industries. No assurances can
be given that these changes will be successful in the long-term, or that these changes will result in the economic stability intended.
There is a possibility that these trade arrangements will not be fully implemented, or will be partially or completely unwound.
It is also possible that a significant participant could choose to abandon a trade agreement, which could diminish its credibility
and influence. Any of these occurrences could have adverse effects on the markets of both participating and non-participating
countries, including sharp appreciation or depreciation of participants’ national currencies and a significant increase
in exchange rate volatility, a resurgence in economic protectionism, an undermining of confidence in the Latin American markets,
an undermining of Latin American economic stability, the collapse or slowdown of the drive towards Latin American economic unity,
and/or reversion of the attempts to lower government debt and inflation rates that were introduced in anticipation of such trade
agreements. Such
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developments
could have an adverse impact on the Fund’s investments in Latin America generally or in specific countries participating
in such trade agreements.
Other
Latin American market risks include foreign exchange controls, difficulties in pricing securities, defaults on sovereign debt,
difficulties in enforcing favorable legal judgments in local courts and political and social instability. Legal remedies available
to investors in certain Latin American countries may be less extensive than those available to investors in the United States
or other foreign countries.
Investing
in Asia-Pacific Countries. In addition to the risks of investing in foreign securities and the risks of investing in
emerging markets, the developing market Asia-Pacific countries are subject to certain additional or specific risks. In many
of these markets, there is a high concentration of market capitalization and trading volume in a small number of issuers
representing a limited number of industries, as well as a high concentration of investors and financial intermediaries. Many
of these markets also may be affected by developments with respect to more established markets in the region such as in Japan
and Hong Kong. Brokers in developing market Asia-Pacific countries typically are fewer in number and less well capitalized
than brokers in the United States.
Many
of the developing market Asia-Pacific countries may be subject to a greater degree of economic, political and social instability
than is the case in the United States and Western European countries. Such instability may result from, among other things: (i)
authoritarian governments or military involvement in political and economic decision-making, including changes in government through
extra-constitutional means; (ii) popular unrest associated with demands for improved political, economic and social conditions;
(iii) internal insurgencies; (iv) hostile relations with neighboring countries; and (v) ethnic, religious and racial disaffection.
In addition, the governments of many of such countries, such as Indonesia, have a substantial role in regulating and supervising
the economy.
Another
risk common to most such countries is that the economy is heavily export oriented and, accordingly, is dependent upon international
trade. The existence of overburdened infrastructure and obsolete financial systems also presents risks in certain countries, as
do environmental problems. Certain economies also depend to a significant degree upon exports of primary commodities and, therefore,
are vulnerable to changes in commodity prices that, in turn, may be affected by a variety of factors.
The
rights of investors in developing market Asia-Pacific companies may be more limited than those of shareholders of U.S. corporations.
It may be difficult or impossible to obtain and/or enforce a judgment in a developing market Asia-Pacific country.
Some
developing Asia-Pacific countries prohibit or impose substantial restrictions on investments in their capital markets, particularly
their equity markets, by foreign entities. For example, certain countries may require governmental approval prior to investments
by foreign persons or limit the amount of investment by foreign persons in a particular company.
Risk
Arbitrage. Risk arbitrage investments are made in securities of companies for which a tender or exchange offer has been
made or announced and in securities of companies for which a merger, consolidation, liquidation or reorganization proposal has
been announced if, in the judgment of the Investment Adviser, there is a reasonable prospect of total return significantly greater
than the brokerage and other transaction expenses
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involved.
Risk arbitrage strategies attempt to exploit merger activity to capture the spread between current market values of securities
and their values after successful completion of a merger, restructuring or similar corporate transaction. Transactions associated
with risk arbitrage strategies typically involve the purchases or sales of securities in connection with announced corporate actions
which may include, but are not limited to, mergers, consolidations, acquisitions, transfers of assets, tender offers, exchange
offers, re-capitalizations, liquidations, divestitures, spin-offs and similar transactions. However, a merger or other restructuring
or tender or exchange offer anticipated by the Fund and in which it holds an arbitrage position may not be completed on the terms
contemplated or within the time frame anticipated, resulting in losses to the Fund.
In
general, securities which are the subject of such an offer or proposal sell at a premium to their historic market price immediately
prior to the announcement of the offer but may trade at a discount or premium to what the stated or appraised value of the security
would be if the contemplated transaction were approved or consummated. Such investments may be advantageous when the discount
significantly overstates the risk of the contingencies involved; significantly undervalues the securities, assets or cash to be
received by shareholders as a result of the contemplated transaction; or fails adequately to recognize the possibility that the
offer or proposal may be replaced or superseded by an offer or proposal of greater value. The evaluation of such contingencies
requires unusually broad knowledge and experience on the part of the Investment Adviser which must appraise not only the value
of the issuer and its component businesses as well as the assets or securities to be received as a result of the contemplated
transaction but also the financial resources and business motivation behind the offer and/or the dynamics and business climate
when the offer or proposal is in process. Since such investments are ordinarily short-term in nature, they will tend to increase
the turnover ratio of the Fund, thereby increasing its brokerage and other transaction expenses. Risk arbitrage strategies may
also involve short selling, options hedging and other arbitrage techniques to capture price differentials.
The
principal risk of such investments is that certain of such proposed transactions may be renegotiated, terminated or involve a
longer time frame than originally contemplated, in which case the Fund may realize losses. Such risk is sometimes referred to
as “merger arbitrage risk.” Among the factors that affect the level of risk with respect to the completion of the
transaction are the deal spread and number of bidders, the friendliness of the buyer and seller, the strategic rationale behind
the transaction, the existence of regulatory hurdles, the level of due diligence completed on the target company and the ability
of the buyer to finance the transaction. If the spread between the purchase price and the current price of the seller’s
stock is small, the risk that the transaction will not be completed may outweigh the potential return. If there is very little
interest by other potential buyers in the target company, the risk of loss may be higher than where there are back-up buyers that
would allow the arbitrageur to realize a similar return if the current deal falls through. Unfriendly management of the target
company or change in friendly management in the middle of a deal increases the risk that the deal will not be completed even if
the target company’s board has approved the transaction and may involve the risk of litigation expense if the target company
pursues litigation in an attempt to prevent the deal from occurring. The underlying strategy behind the deal is also a risk consideration
because the less a target company will benefit from a merger or acquisition, the greater the risk. There is also a risk that an
acquiring company may back out of an announced deal if, in the process of completing its due diligence of the target company,
it discovers something undesirable about such company. In addition, merger transactions are also subject to regulatory risk because
a merger transaction often must be approved by a regulatory body or pass governmental antitrust review. All of these factors affect
the timing and likelihood that the transaction will close. Even if the Investment
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
Adviser
selects announced deals with the goal of mitigating the risks that the transaction will fail to close, such risks may still delay
the closing of such transaction to a date later than the Fund originally anticipated, reducing the level of desired return to
the Fund.
In
recapitalizations, a corporation may restructure its balance sheet by selling specific assets, significantly leveraging other
assets and creating new classes of equity securities to be distributed, together with a substantial payment in cash or in debt
securities, to existing shareholders. In connection with such transactions, there is a risk that the value of the cash and new
securities distributed will not be as high as the cost of the Fund’s original investment or that no such distribution will
ultimately be made and the value of the Fund’s investment will decline. To the extent an investment in a company that has
undertaken a recapitalization is retained by the Fund, the Fund’s risks will generally be comparable to those associated
with investments in highly leveraged companies, generally including higher than average sensitivity to (i) short-term interest
rate fluctuations, (ii) downturns in the general economy or within a particular industry or (iii) adverse developments within
the company itself.
Merger
arbitrage positions are also subject to the risk of overall market movements. To the extent that a general increase or decline
in equity values affects the stocks involved in a merger arbitrage position differently, the position may be exposed to loss.
Finally,
merger arbitrage strategies depend for success on the overall volume of global merger activity, which has historically been cyclical
in nature. During periods when merger activity is low, it may be difficult or impossible to identify opportunities for profit
or to identify a sufficient number of such opportunities to provide balance among potential merger transactions. To the extent
that the number of announced deals and corporate reorganizations decreases or the number of investors in such transactions increases,
it is possible that merger arbitrage spreads will tighten, causing the profitability of investing in such transactions to diminish,
which will in turn decrease the returns to the Fund from such investment activity.
Loans
of Portfolio Securities. Consistent with applicable regulatory requirements and the Fund’s investment restrictions,
the Fund may lend its portfolio securities to securities broker-dealers or financial institutions, provided that such loans are
callable at any time by the Fund (subject to notice provisions described below), and are at all times collateralized by cash or
cash equivalents which are maintained at all times in an amount equal to at least 100% of the market value, determined daily,
of the loaned securities. The advantage of such loans is that the Fund continues to receive the income on the loaned securities
while at the same time earning interest on the cash amounts deposited as collateral, which will be invested in short-term highly
liquid obligations.
The
Fund will not lend its portfolio securities if such loans are not permitted by the laws or regulations of any state in which its
shares are qualified for sale. The Fund’s loans of portfolio securities will be collateralized in accordance with applicable
regulatory requirements, which means that “cash equivalents” accepted as collateral will be limited to securities
issued or guaranteed by the U.S. Government or its agencies or instrumentalities or irrevocable letters of credit issued by a
bank (other than the fund’s bank lending agent, if any, or a borrower of the Fund’s portfolio securities or any affiliate
of such bank or borrower) which qualifies as a custodian bank for an investment company under the 1940 Act. The Fund’s ability
to lend portfolio securities may be limited by rating agency guidelines (if any).
A
loan may generally be terminated by the borrower on one business day’s notice, or by the Fund at any time thereby requiring
the borrower to redeliver the borrowed securities within the normal and customary settlement
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
time
for securities transactions. If the borrower fails to deliver the loaned securities within the normal and customary settlement
time for securities transactions, the Fund could use the collateral to replace the securities while holding the borrower liable
for any excess of replacement cost over the value of the collateral pledged by the borrower. As with any extensions of credit,
there are risks of delay in recovery and in some cases even loss of rights in the collateral should the borrower of the securities
violate the terms of the loan or fail financially. However, these loans of portfolio securities will only be made to firms deemed
by the Investment Adviser to be creditworthy and when the income which can be earned from such loans justifies the attendant risks.
The Board will oversee the creditworthiness of the contracting parties on an ongoing basis. Upon termination of the loan, the
borrower is required to return the securities to the Fund. Any gain or loss in the market price during the loan period would inure
to the Fund.
The
risks associated with loans of portfolio securities are substantially similar to those associated with repurchase
agreements. Thus, if the counterparty to the loan petitions for bankruptcy or becomes subject to the United States Bankruptcy
Code, the law regarding the rights of the Fund is unsettled. As a result, under extreme circumstances, there may be a
restriction on the Fund’s ability to sell the collateral and the Fund would suffer a loss. Moreover, because the Fund
will reinvest any cash collateral it receives, as described above, the Fund is subject to the risk that the value of the
investments it makes will decline and result in losses to the Fund. These losses, in extreme circumstances such as the
2007-2009 financial crisis, could be substantial and have a significant adverse impact on the Fund and its shareholders. When
voting or consent rights which accompany loaned securities pass to the borrower, the Fund will follow the policy of calling
the loaned securities, to be delivered within one day after notice, to permit the exercise of such rights if the matters
involved would have a material effect on the Fund’s investment in such loaned securities. The Fund will pay reasonable
finder’s, administrative and custodial fees in connection with a loan of its securities, and may also pay fees to one
or more securities lending agents and/or pay other fees or rebates to borrowers.
Additional
Risks Relating to Derivative Investments
Derivatives
Regulation Risk. The Dodd-Frank Act has made broad changes to the derivatives market, granted significant new authority
to the CFTC and the SEC to regulate derivatives (swaps and security-based swaps) and participants in these markets. The Dodd-Frank
Act is intended to regulate the derivatives market by requiring many derivative transactions to be cleared and traded on an exchange,
expanding entity registration requirements, imposing business conduct requirements on dealers and requiring banks to move some
derivatives trading units to a non-guaranteed affiliate separate from the deposit-taking bank or divest them altogether. The CFTC
has implemented mandatory clearing and exchange-trading of certain derivatives contracts including many standardized interest
rate swaps and credit default index swaps. The CFTC continues to approve contracts for central clearing. Exchange-trading and
central clearing are expected to reduce counterparty credit risk by substituting the clearinghouse as the counterparty to a swap
and increase liquidity, but exchange-trading and central clearing do not make swap transactions risk-free. Uncleared swaps, such
as non-deliverable foreign currency forwards, are subject to certain margin requirements that mandate the posting and collection
of minimum margin amounts. This requirement may result in the Fund and its counterparties posting higher margin amounts for uncleared
swaps than would otherwise be the case. Certain rules require centralized reporting of detailed information about many types of
cleared and uncleared swaps. Reporting of swap data may result in
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
greater
market transparency, but may subject the Fund to additional administrative burdens, and the safeguards established to protect
trader anonymity may not function as expected.
In
addition, on October 28, 2020, the SEC adopted new regulations governing the use of derivatives by closed-end funds, which the
Fund was required to comply with as of August 19, 2022. As a result, the Fund is required to implement and comply with the Rule
18f-4 limits described previously under “Special Risks Related to Investment in Derivatives” on the amount of derivatives
the Fund can enter into, eliminate the asset segregation framework previously used to comply with Section 18 of the 1940 Act,
treat derivatives as senior securities so that a failure to comply with the limits would result in a statutory violation and require
the Fund, if the Fund’s use of derivatives is more than a limited specified exposure amount (10% of net assets), to establish
and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager. These requirements may
limit the ability of the Fund to invest in derivatives, engage in securities lending activities, short sales, reverse repurchase
agreements and similar financing transactions. Additionally, Rule 18f-4 and the SEC’s corresponding recission and withdrawal
of prior guidance and relief related to asset segregation and asset coverage requirements under section 18 of the 1940 Act may
affect the Fund’s ability to implement its investment strategy, pursue its investment objectives and may increase the cost
of the Fund’s investments.
Special
Risk Considerations Relating to Futures and Options Thereon. The Fund’s ability to establish and close out positions
in futures contracts and options thereon will be subject to the development and maintenance of liquid markets. Although the Fund
generally purchases or sells only those futures contracts and options thereon for which there appears to be a liquid market, there
is no assurance that a liquid market on an exchange will exist for any particular futures contract or option thereon at any particular
time. In the event no liquid market exists for a particular futures contract or option thereon in which the Fund maintains a position,
it will not be possible to effect a closing transaction in that contract or to do so at a satisfactory price and the Fund would
have to either make or take delivery under the futures contract or, in the case of a written option, wait to sell the underlying
securities until the option expires or is exercised or, in the case of a purchased option, exercise the option. In the case of
a futures contract or an option thereon which the Fund has written and which the Fund is unable to close, the Fund would be required
to maintain margin deposits on the futures contract or option thereon and to make variation margin payments until the contract
is closed.
Successful
use of futures contracts and options thereon and forward contracts by the Fund is subject to the ability of the Investment Adviser
to predict correctly movements in the direction of interest and foreign currency rates. If the Investment Adviser’s expectations
are not met, the Fund will be in a worse position than if a hedging strategy had not been pursued. For example, if the Fund has
hedged against the possibility of an increase in interest rates that would adversely affect the price of securities in its portfolio
and the price of such securities increases instead, the Fund will lose part or all of the benefit of the increased value of its
securities because it will have offsetting losses in its futures positions. In addition, in such situations, if the Fund has insufficient
cash to meet daily variation margin requirements, it may have to sell securities to meet the requirements. These sales may be,
but will not necessarily be, at increased prices which reflect the rising market. The Fund may have to sell securities at a time
when it is disadvantageous to do so.
Additional
Risks of Foreign Options, Futures Contracts, Options on Futures Contracts and Forward Contracts. Options, futures contracts
and options thereon and forward contracts on securities and currencies may be traded on foreign exchanges. Such transactions may
not be regulated as effectively as similar transactions
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
in
the United States, may not involve a clearing mechanism and related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities. The value of such positions also could be adversely affected by (i)
other complex foreign political, legal and economic factors, (ii) lesser availability than in the United States of data on which
to make trading decisions, (iii) delays in the Fund’s ability to act upon economic events occurring in the foreign markets
during non-business hours in the United States, (iv) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States and (v) less trading volume.
Exchanges
on which options, futures and options on futures are traded may impose limits on the positions that the Fund may take in certain
circumstances.
Risks
of Currency Transactions. Currency transactions are also subject to risks different from those of other portfolio transactions.
Because currency control is of great importance to the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be adversely affected by government exchange controls, limitations or restrictions
on repatriation of currency, and manipulation, or exchange restrictions imposed by governments. These forms of governmental action
can result in losses to the Fund if it is unable to deliver or receive currency or monies in settlement of obligations and could
also cause hedges it has entered into to be rendered useless, resulting in full currency exposure as well as incurring transaction
costs.
INVESTMENT
RESTRICTIONS
The
Fund operates under the following restrictions that constitute fundamental policies under the 1940 Act and that, except as
otherwise noted, cannot be changed without the affirmative vote of of a majority, as defined in the 1940 Act, of the
outstanding voting securities (voting together as a single class) of the Fund (which for this purpose and under the 1940 Act
means the lesser of (i) 67% of the shares represented at a meeting at which more than 50% of the outstanding shares are
represented or (ii) more than 50% of the outstanding shares). In addition, pursuant to the Statement of Preferences of the
Series A Preferred Shares, the affirmative vote of the holders of a majority, as defined in the 1940 Act, of the outstanding
preferred shares of the Fund voting as a separate class (which for this purpose and under the 1940 Act means the lesser of
(i) 67% of the preferred shares, as a single class, represented at a meeting at which more than 50% of the Fund’s
outstanding preferred shares are represented or (ii) more than 50% of the outstanding preferred shares) is also required to
change a fundamental policy. Except as otherwise noted, all percentage limitations set forth below apply immediately after a
purchase or initial investment and any subsequent change in any applicable percentage resulting from market fluctuations does
not require any action. The Fund may not:
(1)
other than with respect to its concentrations in Natural Resources Companies and Gold Companies, invest more than 25% of its total
assets, taken at market value at the time of each investment, in the securities of issuers in any particular industry. This restriction
does not apply to investments in U.S. government securities and investments in the gold and base industries and the natural resources
industries;
(2)
purchase commodities or commodity contracts if such purchase would result in regulation of the Fund as a commodity pool operator;
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Natural Resources, Gold & Income Trust
Additional Fund Information (Continued) (Unaudited)
(3)
purchase or sell real estate, provided the Fund may invest in securities and other instruments secured by real estate or interests
therein or issued by companies that invest in real estate or interests therein;
(4)
make loans of money or other property, except that (i) the Fund may acquire debt obligations of any type (including through extensions
of credit), enter into repurchase agreements and lend portfolio assets and (ii) the Fund may, up to 20% of the Fund’s total
assets, lend money or other property to other investment companies advised by the Investment Adviser pursuant to a common lending
program to the extent permitted by applicable law;
(5) borrow money, except to the extent permitted by applicable law;
(6) issue senior securities, except to the extent permitted by applicable law; or
(7)
underwrite securities of other issuers, except insofar as the Fund may be deemed an underwriter under applicable law in selling
portfolio securities; provided, however, this restriction shall not apply to securities of any investment company organized by
the Fund that are to be distributed pro rata as a dividend to its shareholders.
In
addition, the Fund’s investment objectives and its policies of investment of at least 25% of its assets in normal circumstances
in Natural Resources Companies and in Gold Companies are fundamental policies. Unless specifically stated as such, no policy of
the Fund is fundamental and each policy may be changed by the Board without shareholder approval. The percentage and ratings limitations
stated herein apply only at the time of investment and are not considered violated as a result of subsequent changes to the value,
or downgrades to the ratings, of the Fund’s portfolio investments.
The
Fund interprets investment restriction (1), above, to mean that the Fund will not concentrate its investments in a particular
industry, as that term is used in the 1940 Act, except that the Fund will concentrate its investments in (a) companies principally
engaged in the natural resources industry (defined in the Annual Report as “Natural Resources Companies”) and (b)
companies principally engaged in the gold industry (defined in the Annual Report as “Gold Companies”). The Fund considers
companies that could be viewed as principally engaged in the base (i.e., non-precious) metals industry as Natural Resources Companies
and thus as principally engaged in the natural resources industry. The SEC staff currently takes the position that investment
of 25% of more of a fund’s total assets in one or more issuers conducting their principal activities in the same industry
or group of industries constitutes concentration; this position forms the basis for the Fund’s fundamental policies of investment
of at least 25% of its assets in normal circumstances in Natural Resources Companies and in Gold Companies. The Fund also interprets
investment restriction (1) to permit investment without limit in the following: securities of the U.S. government and its agencies
or instrumentalities; tax-exempt securities of state, territory, possession or municipal governments and their authorities, agencies,
instrumentalities or political subdivisions; and repurchase agreements collateralized by any such obligations.
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Natural Resources, Gold & Income Trust
Additional Fund Information (Unaudited) (Continued)
MANAGEMENT
OF THE FUND