UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-4282
Name of Fund: Merrill Lynch Natural Resources Trust
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President, Merrill Lynch
Natural Resources Trust, 800 Scudders Mill Road, Plainsboro, NJ 08536.
Mailing address: P.O. Box 9011, Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 07/31/04
Date of reporting period: 08/01/03 - 01/31/04
Item 1 - Report to Shareholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Natural Resources Trust
Semi-Annual Report
January 31, 2004
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch Natural Resources Trust
Portfolio Information as of January 31, 2004
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
Murphy Oil Corporation ............................................... 4.8%
EnCana Corp. ......................................................... 4.4
EOG Resources, Inc. .................................................. 3.5
Devon Energy Corporation ............................................. 3.4
Apache Corporation ................................................... 2.9
BJ Services Company .................................................. 2.5
Aluminum Corporation of China Limited (ADR) .......................... 2.2
Exxon Mobil Corporation .............................................. 2.1
ChevronTexaco Corporation ............................................ 1.7
Suncor Energy, Inc. .................................................. 1.6
- --------------------------------------------------------------------------------
Percent of
Geographic Allocation Net Assets*
- --------------------------------------------------------------------------------
United States ........................................... 54.4%
Canada .................................................. 25.0
France .................................................. 2.7
China ................................................... 2.2
Australia ............................................... 1.5
Italy ................................................... 1.4
South Africa ............................................ 1.1
Hong Kong ............................................... 1.1
Germany ................................................. 0.5
Brazil .................................................. 0.4
United Kingdom .......................................... 0.4
- --------------------------------------------------------------------------------
* Total may not equal 100%.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this website
http://www.icsdelivery.com/live and follow the instructions. When you visit this
site, you will obtain a personal identification number (PIN). You will need this
PIN should you wish to update your e-mail address, choose to discontinue this
service and/or make any other changes to the service. This service is not
available for certain retirement accounts at this time.
2 MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004
A Letter From the President
Dear Shareholder
In my 35 years in the asset management business, 2003 was among the more
memorable. The year, which opened with geopolitical turmoil, unrelenting
economic uncertainty and a dismal continuation of a three-year equity market
slump, vigorously reversed course in the months that followed.
As we entered 2004, the equity markets maintained their positive momentum from
year-end 2003. For the six-month and 12-month periods ended January 31, 2004,
the Standard & Poor's (S&P) 500 Index returned +15.23% and +34.57%,
respectively. In the fixed income markets, investors willing to accept the
greatest risk were rewarded the most. The high yield market, for example,
provided a return of +12.07% over the past six months and +26.96% for the
12-month period ended January 31, 2004, as measured by the Credit Suisse First
Boston High Yield Index.
At this time, the major signposts indicate that we are seeing a shift from
economic growth fueled primarily by fiscal and monetary stimulus to a
broader-based, self-sustaining economic expansion. Gross domestic product
growth, which peaked at an annualized rate of 8.2% in the third quarter of 2003,
is estimated at a more sustainable 4% in the fourth quarter. That level of
growth is expected to repeat itself in the first quarter of 2004. For its part,
the Federal Reserve Board has reiterated its willingness to keep short-term
interest rates at current low levels to ensure the economy's strength.
Accompanying the increase in economic activity was an improvement in corporate
earnings. By the end of January, 298 of the S&P 500 companies had reported their
fourth-quarter results, and 67.4% of those exceeded expectations. In the
meantime, the American consumer, who continued to spend despite the faltering
economy, may get further incentive from another round of Federal tax refunds in
2004.
At Merrill Lynch Investment Managers, we believe the events and efforts of 2003
leave us with a much stronger economy and recent optimism suggests it is time
for investors to consider what can go right in 2004. We encourage you to revisit
your portfolio and your asset allocation strategy to ensure you are well
positioned to take advantage of the opportunities that lie ahead.
We thank you for trusting Merrill Lynch Investment Managers with your investment
assets, and we look forward to serving you in the months and years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Trustee
MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
The Trust outperformed the benchmark S&P 500 Index for the period mainly
because of strong performance from its positions in natural gas supply
companies.
How did the Trust perform during the period in light of the existing market
conditions?
For the six-month period ended January 31, 2004, Merrill Lynch Natural Resources
Trust's Class A, Class B, Class C and Class I Shares had total returns of
+19.85%, +19.42%, +19.43% and +20.00%, respectively. (Fund results shown do not
reflect sales charges and would be lower if sales charges were included.
Complete performance information can be found on pages 6 and 7 of this report to
shareholders.) For the same period, the Trust's unmanaged benchmark, the
Standard & Poor's (S&P) 500 Index, returned +15.23%, and its comparable Lipper
category of Natural Resources Funds had an average return of +24.57%. (Funds in
this Lipper category invest primarily in natural resources stocks.)
The Trust's outperformance of the S&P 500 Index is attributed primarily to an
overweight position in the natural gas supply subsector. Stocks in this area
benefited as natural gas prices generally rose during the period.
Detracting from performance, particularly relative to the Lipper Natural
Resources Funds peer group, were low returns from our equity holdings in the oil
service sector, where earnings lagged expectations due to restrained spending by
the energy industry despite high oil and gas prices. In addition, share prices
of metals and mining stocks soared during the period, and those funds focused on
these sectors generally outperformed more diversified natural resources funds.
While energy stocks languished, a strong rally in mining shares helped propel
many of the pure materials-oriented funds in the Lipper group.
What changes were made to the portfolio during the period?
We continued to invest in gas-leveraged exploration and production companies in
the United States and Canada. In the United States, we added to our holdings in
Energy Partners, Ltd. and Burlington Resources Inc. In Canada, we initiated
positions in Ketch Resources Ltd. and StarPoint Energy Ltd. and added to our
existing holding in Atlas Energy Ltd. We also established a position in Nexen
Inc., a senior Canadian independent company that has diversified away from Yemen
and now has promising exploration prospects in the Gulf of Mexico and the
Alberta oil sands.
In an effort to gain exposure to the materials sector, we purchased Canico
Resource Corp., which we believe has positive nickel prospects. We also added
Northern Orion Resources Inc., given its copper and gold production potential.
We reduced our position in Celanese AG, a global industrial chemicals company,
following its acquisition bid from the Blackstone Group LP. We sold our shares
in Agnico-Eagle Mines Limited following the company's continued operating and
production problems at its LaRonde mine. We trimmed our positions in Impact
Energy Inc. and Olympia Energy Inc. given their lower-than-expected gas
production growth. We also sold Cequel Energy Inc. following the stock's strong
performance.
Finally, in recognition of an improving economy, we modestly increased the
portfolio's cyclical exposure with purchases of several metals and gold
production companies.
4 MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004
How would you characterize the Trust's position at the close of the period?
We continued to position the Trust to benefit from the very tight
supply-and-demand dynamics in the North American natural gas markets. Gas
production in both the United States and Canada appeared to decline in 2003,
despite a resurgence in gas-drilling activity. Given that the solutions to the
natural gas supply problem are at least two to three years away, we believe
investments in gas producers and oil service companies leveraged to gas drilling
activity will provide attractive returns. Even with milder weather conditions,
the price of natural gas failed to break below the mid $4 per thousand cubic
feet level, and modest cold weather sent it back above $7 per thousand cubic
feet. We believe a hot summer or normal-to-cold winter will lead to continued
strength in natural gas prices.
As of January 31, 2004, 90.7% of the Trust's net assets was invested in stocks
and 9.3% in cash equivalents. More than 85% of the portfolio's stock investments
were in energy-related companies, with the remaining equity holdings primarily
in metals, forest products and precious metals companies.
Robert M. Shearer
Vice President and Portfolio Manager
February 20, 2004
MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004 5
[LOGO] Merrill Lynch Investment Managers
Performance Data
About Fund Performance
Effective April 14, 2003, Class A Shares were redesignated Class I Shares and
Class D Shares were redesignated Class A Shares. Investors are able to purchase
shares of the Trust through multiple pricing alternatives:
o Class A Shares incur a maximum initial sales charge of 5.25% and an
account maintenance fee of 0.25% (but no distribution fee).
o Class B Shares are subject to a maximum contingent deferred sales charge
of 4% declining to 0% after six years. All Class B Shares purchased prior
to June 1, 2001 will maintain the four-year schedule. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to Class A
Shares after approximately eight years. (There is no initial sales charge
for automatic share conversions.)
o Class C Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. In addition, Class C Shares are subject to a 1%
contingent deferred sales charge if redeemed within one year of purchase.
o Class I Shares incur a maximum initial sales charge (front-end load) of
5.25% and bear no ongoing distribution or account maintenance fees. Class
I Shares are available only to eligible investors.
None of the past results shown should be considered a representation of future
performance. Current performance may be lower or higher than the performance
data quoted. Refer to www.mlim.ml.com to obtain more current performance
information. Performance results do not reflect the deduction of taxes that a
shareholder would pay on fund distributions or the redemption of fund shares.
Figures shown in each of the following tables assume reinvestment of all
dividends and capital gains distributions at net asset value on the ex-dividend
date. Investment return and principal value of shares will fluctuate so that
shares, when redeemed, may be worth more or less than their original cost.
Dividends paid to each class of shares will vary because of the different levels
of account maintenance, distribution and transfer agency fees applicable to each
class, which are deducted from the income available to be paid to shareholders.
Recent Performance Results
10-Year/
6-Month 12-Month Since Inception
As of January 31, 2004 Total Return Total Return Total Return
===================================================================================================
ML Natural Resources Trust Class A Shares* +19.85% +31.94% +86.91%
- ---------------------------------------------------------------------------------------------------
ML Natural Resources Trust Class B Shares* +19.42 +30.93 +72.11
- ---------------------------------------------------------------------------------------------------
ML Natural Resources Trust Class C Shares* +19.43 +30.95 +73.66
- ---------------------------------------------------------------------------------------------------
ML Natural Resources Trust Fund Class I Shares* +20.00 +32.33 +91.06
- ---------------------------------------------------------------------------------------------------
Standard & Poor's 500 Index** +15.23 +34.57 +181.31/+185.40
- ---------------------------------------------------------------------------------------------------
* Investment results shown do not reflect sales charges; results would be
lower if a sales charge was included. Total investment returns are based
on changes in net asset values for the periods shown, and assume
reinvestment of all dividends and capital gains distributions at net asset
value on the ex-dividend date. The Trust's 10-year/since inception periods
are 10 years for Class B & Class I Shares and from 10/21/94 for Class A &
Class C Shares.
** This unmanaged Index covers the 500 industrial, utility, transportation
and financial companies of the U.S. markets (mostly NYSE issues),
representing about 75% of NYSE market capitalization and 30% of NYSE
issues. Ten-year/since inception total returns are for 10 years and from
10/21/94, respectively.
6 MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004
Performance Data (concluded)
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 1/31/04 +31.94% +25.01%
- --------------------------------------------------------------------------------
Five Years Ended 1/31/04 +16.77 +15.52
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 1/31/04 + 6.97 + 6.35
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 1/31/04 +30.93% +26.93%
- --------------------------------------------------------------------------------
Five Years Ended 1/31/04 +15.86 +15.64
- --------------------------------------------------------------------------------
Ten Years Ended 1/31/04 + 5.58 + 5.58
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
Return Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 1/31/04 +30.95% +29.95%
- --------------------------------------------------------------------------------
Five Years Ended 1/31/04 +15.87 +15.87
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 1/31/04 + 6.13 + 6.13
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
- --------------------------------------------------------------------------------
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 1/31/04 +32.33% +25.38%
- --------------------------------------------------------------------------------
Five Years Ended 1/31/04 +17.07 +15.81
- --------------------------------------------------------------------------------
Ten Years Ended 1/31/04 + 6.69 + 6.11
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004 7
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments
Value Percent of
Country Industry* Shares Held Common Stocks (in U.S. dollars) Net Assets
==================================================================================================================================
Australia Metals & Mining 153,800 Alumina Limited $ 662,500 0.4%
120,000 Newcrest Mining Limited 1,038,377 0.7
153,800 + WMC Resources Limited 610,998 0.4
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Australia 2,311,875 1.5
==================================================================================================================================
Brazil Metals & Mining 12,000 Companhia Vale do Rio Doce (ADR) (a) 644,040 0.4
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Brazil 644,040 0.4
==================================================================================================================================
Canada Canadian Independents 225,000 + Atlas Energy Ltd. 706,930 0.5
21,200 + Canadian Natural Resources Ltd. 1,019,844 0.7
175,000 + Canadian Superior Energy, Inc. 477,488 0.3
141,300 + Cequel Energy Inc. 907,022 0.6
120,000 + Clear Energy Inc. 322,008 0.2
141,500 + Compton Petroleum Corporation 713,669 0.5
219,500 + Devlan Exploration Inc. 404,221 0.3
173,661 EnCana Corp. 6,732,888 4.4
38,800 Husky Energy Inc. 667,568 0.4
100,000 + Ketch Resources Ltd. 729,104 0.5
319,900 + Impact Energy Inc. 336,636 0.2
31,600 Nexen Inc. 1,163,385 0.8
21,000 Niko Resources Ltd. 505,111 0.3
85,900 + Olympia Energy Inc. 202,095 0.1
23,600 + Penn West Petroleum Ltd. 849,699 0.6
50,800 Petro-Canada 2,207,799 1.5
217,000 + Progress Energy Ltd. 2,120,415 1.4
210,918 + Rider Resources Ltd. 608,783 0.4
220,000 + StarPoint Energy Ltd. 694,528 0.5
97,800 Suncor Energy, Inc. 2,455,292 1.6
200,500 + TUSK Energy Inc. 614,883 0.4
43,200 Talisman Energy Inc. 2,298,978 1.5
165,700 + Thunder Energy Inc. 960,273 0.6
----------------------------
27,698,619 18.3
-----------------------------------------------------------------------------------------------------------------
Metals & Mining 29,100 Alcan Aluminium Ltd. 1,240,533 0.8
33,000 Barrick Gold Corporation 650,872 0.4
48,000 + Canico Resource Corp. 428,984 0.3
354,500 + Eldorado Gold Corporation 985,906 0.7
65,400 + Glamis Gold Ltd. 975,789 0.6
211,000 + Northern Orion Resources Inc. 472,625 0.3
47,800 Placer Dome Inc. 751,276 0.5
----------------------------
5,505,985 3.6
-----------------------------------------------------------------------------------------------------------------
Oil & Gas Drilling 453,100 + Drillers Technology Corp. 459,775 0.3
50,500 Ensign Resource Service Group, Inc. 860,140 0.6
41,500 + Precision Drilling Corporation 1,915,601 1.2
----------------------------
3,235,516 2.1
-----------------------------------------------------------------------------------------------------------------
Oil & Gas Services 106,300 + Tesco Corporation 906,075 0.6
& Equipment
-----------------------------------------------------------------------------------------------------------------
Paper 51,400 Domtar, Inc. 594,206 0.4
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Canada 37,940,401 25.0
==================================================================================================================================
China Metals & Mining 52,300 Aluminum Corporation of China Limited
(ADR) (a) 3,349,815 2.2
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in China 3,349,815 2.2
==================================================================================================================================
France Oil & Gas Exploration 24,200 Total Fina SA (ADR) (a) 2,136,860 1.4
& Production
-----------------------------------------------------------------------------------------------------------------
Oil & Gas Services 62,675 Technip-Coflexip SA (ADR) (a) 1,911,587 1.3
& Equipment
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in France 4,048,447 2.7
==================================================================================================================================
8 MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004
Schedule of Investments (continued)
Value Percent of
Country Industry* Shares Held Common Stocks (in U.S. dollars) Net Assets
==================================================================================================================================
Germany Chemicals 19,700 + Celanese AG $ 791,940 0.5%
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Germany 791,940 0.5
==================================================================================================================================
Hong Kong Oil & Gas Exploration 39,300 + CNOOC Limited (ADR) (a) 1,573,572 1.1
& Production
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Hong Kong 1,573,572 1.1
==================================================================================================================================
Italy Integrated Oil & Gas 7,400 ENI SpA (ADR) (a) 689,828 0.5
-----------------------------------------------------------------------------------------------------------------
Oil & Gas Drilling 158,800 Saipem SpA 1,323,729 0.9
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in Italy 2,013,557 1.4
==================================================================================================================================
South Africa Paper 128,500 Sappi Limited (ADR) (a) 1,709,050 1.1
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in South Africa 1,709,050 1.1
==================================================================================================================================
United Kingdom Integrated Oil & Gas 13,000 BP Amoco PLC (ADR) (a) 618,800 0.4
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in the United Kingdom 618,800 0.4
==================================================================================================================================
United States Chemicals 18,000 Praxair, Inc. 637,380 0.4
-----------------------------------------------------------------------------------------------------------------
Integrated Oil & Gas 30,987 ChevronTexaco Corporation 2,675,727 1.7
36,829 ConocoPhillips 2,426,294 1.6
76,828 Exxon Mobil Corporation 3,133,814 2.1
22,700 Marathon Oil Corporation 737,296 0.5
119,400 Murphy Oil Corporation 7,230,864 4.8
----------------------------
16,203,995 10.7
-----------------------------------------------------------------------------------------------------------------
Metals & Mining 22,900 Alcoa Inc. 782,722 0.5
17,400 Arch Coal, Inc. 480,588 0.4
32,900 CONSOL Energy Inc. 759,990 0.5
18,100 Newmont Mining Corporation 754,046 0.5
----------------------------
2,777,346 1.9
-----------------------------------------------------------------------------------------------------------------
Oil & Gas Drilling 64,200 ENSCO International Incorporated 1,829,700 1.2
43,622 GlobalSantaFe Corporation 1,190,881 0.8
45,900 Helmerich & Payne, Inc. 1,332,018 0.9
16,300 + Nabors Industries, Ltd. 717,200 0.5
60,000 + National-Oilwell, Inc. 1,542,600 1.0
43,700 + Noble Corporation 1,621,270 1.1
14,900 + Patterson-UTI Energy, Inc. 515,242 0.3
7,300 + Precision Drilling Corporation 338,209 0.2
82,000 + Rowan Companies, Inc. 1,876,160 1.2
----------------------------
10,963,280 7.2
-----------------------------------------------------------------------------------------------------------------
Oil & Gas Exploration 5,500 Anadarko Petroleum Corporation 274,450 0.2
& Production 112,560 Apache Corporation 4,331,309 2.9
39,297 Burlington Resources Inc. 2,151,118 1.4
55,000 Chesapeake Energy Corporation 685,300 0.4
24,394 + Cimarex Energy Co. 643,514 0.4
90,199 Devon Energy Corporation 5,092,636 3.4
117,400 EOG Resources, Inc. 5,318,220 3.5
84,000 + Energy Partners, Ltd. 1,151,640 0.8
45,800 + Forest Oil Corporation 1,138,130 0.7
23,922 Kerr-McGee Corporation 1,165,480 0.8
15,500 + Newfield Exploration Company 731,445 0.5
25,800 Noble Energy, Inc. 1,140,360 0.7
75,700 + Pioneer Natural Resources Company 2,416,344 1.6
50,300 Pogo Producing Company 2,006,970 1.3
39,700 Unocal Corporation 1,461,754 1.0
----------------------------
29,708,670 19.6
MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004 9
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (concluded)
Value Percent of
Country Industry* Shares Held Common Stocks (in U.S. dollars) Net Assets
==================================================================================================================================
United States Oil & Gas Services 97,300 + BJ Services Company $ 3,808,322 2.5%
(concluded) & Equipment 62,100 Baker Hughes Incorporated 2,178,468 1.4
27,600 + Cooper Cameron Corporation 1,150,920 0.8
91,000 + FMC Technologies, Inc. 2,239,510 1.5
32,800 + Grant Prideco, Inc. 446,080 0.3
27,000 Halliburton Company 814,050 0.5
23,700 + Lone Star Technology 389,628 0.3
82,500 + Oil States International, Inc. 1,259,775 0.8
24,600 Schlumberger Limited 1,505,028 1.0
47,000 + Smith International, Inc. 2,277,620 1.5
15,400 Tidewater Inc. 493,570 0.3
48,925 + Weatherford International Ltd. 1,972,656 1.3
----------------------------
18,535,627 12.2
-----------------------------------------------------------------------------------------------------------------
Refining, Marketing 29,200 Valero Energy Corporation 1,545,264 1.0
& Transportation
-----------------------------------------------------------------------------------------------------------------
Utilities 49,200 Equitable Resources, Inc. 2,159,388 1.4
-----------------------------------------------------------------------------------------------------------------
Total Common Stocks in the United States 82,530,950 54.4
=================================================================================================================
Total Common Stocks
(Cost--$92,444,173) 137,532,447 90.7
=================================================================================================================
Beneficial Interest/
Shares Held Short-Term Securities
=================================================================================================================
$13,916,057 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I (b) 13,916,057 9.2
$ 1,946,400 Merrill Lynch Liquidity Series, LLC
Money Market Series (b)(c) 1,946,400 1.3
648,800 Merrill Lynch Premier Institutional
Fund (b)(c) 648,800 0.4
-----------------------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$16,511,257) 16,511,257 10.9
==================================================================================================================================
Total Investments (Cost--$108,955,430) 154,043,704 101.6
Liabilities in Excess of Other Assets (2,376,802) (1.6)
----------------------------
Net Assets $151,666,902 100.0%
============================
* For Trust compliance purposes, "Industry" means any one or more of the
industry sub-classifications used by one or more widely recognized market
indexes or ratings group indexes, and/or as defined by Trust management.
This definition may not apply for purposes of this report, which may
combine such industry sub-classifications for reporting ease.
+ Non-income producing security.
(a) American Depositary Receipts (ADR).
(b) Investments in companies considered to be an affiliate of the Trust (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) are as follows:
Interest/
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $ 9,674,462 $ 48,378
Merrill Lynch Liquidity Series, LLC
Money Market Series $(4,638,883) $ 3,747
Merrill Lynch Premier Institutional Fund (3,741,389) $ 1,827
--------------------------------------------------------------------------
(c) Security was purchased with the cash proceeds from securities loans.
See Notes to Financial Statements.
10 MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004
Statement of Assets and Liabilities
As of January 31, 2004
=======================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------
Investments, at value (including securities loaned of $2,500,068)
(identified cost--$108,955,430) ................................ $154,043,704
Receivables:
Beneficial interest sold ..................................... $ 704,181
Dividends .................................................... 24,513
Interest ..................................................... 11,122
Securities lending--net ...................................... 715 740,531
-----------
Prepaid registration fees ....................................... 23,864
------------
Total assets .................................................... 154,808,099
------------
=======================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value ....................... 2,595,200
Payables:
Beneficial interest redeemed ................................. 202,047
Securities purchased ......................................... 157,894
Investment adviser ........................................... 88,754
Distributor .................................................. 57,834
Other affiliates ............................................. 39,155 545,684
-----------
Accrued expenses and other liabilities .......................... 313
------------
Total liabilities ............................................... 3,141,197
------------
=======================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------
Net assets ...................................................... $151,666,902
============
=======================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------
Class A Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .......................... $ 264,643
Class B Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .......................... 127,275
Class C Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .......................... 88,980
Class I Shares of beneficial interest, $.10 par value,
unlimited number of shares authorized .......................... 126,379
Paid-in capital in excess of par ................................ 116,849,943
Accumulated investment loss--net ................................ $ (373,201)
Accumulated realized capital losses on investments and
foreign currency transactions--net ............................. (10,505,572)
Unrealized appreciation on investments and foreign
currency transactions--net ..................................... 45,088,455
-----------
Total accumulated earnings--net ................................. 34,209,682
------------
Net Assets ...................................................... $151,666,902
============
=======================================================================================================================
Net Asset Value
- -----------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $66,803,047 and 2,646,425
shares of beneficial interest outstanding ...................... $ 25.24
============
Class B--Based on net assets of $31,142,228 and 1,272,751
shares of beneficial interest outstanding ...................... $ 24.47
============
Class C--Based on net assets of $21,497,431 and 889,801
shares of beneficial interest outstanding ...................... $ 24.16
============
Class I--Based on net assets of $32,224,196 and 1,263,795
shares of beneficial interest outstanding ...................... $ 25.50
============
See Notes to Financial Statements.
MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004 11
[LOGO] Merrill Lynch Investment Managers
Statement of Operations
For the Six Months Ended January 31, 2004
========================================================================================================================
Investment Income
- ------------------------------------------------------------------------------------------------------------------------
Dividends (net of $25,573 foreign withholding tax) .......... $ 579,183
Interest .................................................... 48,378
Securities lending--net ..................................... 5,574
-------------
Total income ................................................ 633,135
-------------
========================================================================================================================
Expenses
- ------------------------------------------------------------------------------------------------------------------------
Investment advisory fees .................................... $ 403,897
Account maintenance & distribution fees--Class B ............ 138,325
Account maintenance & distribution fees--Class C ............ 79,276
Account maintenance fees--Class A ........................... 77,700
Transfer agent fees--Class A ................................ 49,445
Accounting services ......................................... 44,743
Professional fees ........................................... 30,210
Trustees' fees and expenses ................................. 26,084
Printing and shareholder reports ............................ 26,054
Transfer agent fees--Class B ................................ 25,667
Registration fees ........................................... 24,575
Transfer agent fees--Class I ................................ 23,006
Transfer agent fees--Class C ................................ 14,703
Custodian fees .............................................. 10,588
Pricing fees ................................................ 1,508
Other ....................................................... 9,633
-------------
Total expenses .............................................. 985,414
-------------
Investment loss--net ........................................ (352,279)
-------------
========================================================================================================================
Realized & Unrealized Gain (Loss) on Investments & Foreign Currency Transactions--Net
- ------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments--net ......................................... 1,981,510
Foreign currency transactions--net ....................... (17,492) 1,964,018
-------------
Change in unrealized appreciation/depreciation on:
Investments--net ......................................... 22,002,285
Foreign currency transactions--net ....................... 1,832 22,004,117
-------------------------------
Total realized and unrealized gain on investments and foreign
currency transactions--net ................................. 23,968,135
-------------
Net Increase in Net Assets Resulting from Operations ........ $ 23,615,856
=============
See Notes to Financial Statements.
12 MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
January 31, July 31,
Increase (Decrease) in Net Assets: 2004 2003
========================================================================================================================
Operations
- ------------------------------------------------------------------------------------------------------------------------
Investment loss--net ........................................ $ (352,279) $ (387,282)
Realized gain (loss) on investments and foreign currency
transactions--net .......................................... 1,964,018 (3,957,602)
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net ..................... 22,004,117 19,395,897
-------------------------------
Net increase in net assets resulting from operations ........ 23,615,856 15,051,013
-------------------------------
========================================================================================================================
Beneficial Interest Transactions
- ------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets derived from beneficial
interest transactions ...................................... 12,358,249 (3,305,952)
-------------------------------
========================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ................................ 35,974,105 11,745,061
Beginning of period ......................................... 115,692,797 103,947,736
-------------------------------
End of period* .............................................. $ 151,666,902 $ 115,692,797
===============================
* Accumulated investment loss--net ....................... $ (373,201) $ (20,922)
===============================
See Notes to Financial Statements.
MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004 13
[LOGO] Merrill Lynch Investment Managers
Financial Highlights
Class A
---------------------------------------------------------
The following per share data and ratios have been derived For the Six For the Year Ended
from information provided in the financial statements. Months Ended July 31,+
January 31, ------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ............. $ 21.06 $ 18.22 $ 19.35 $ 17.00 $ 15.51
-------------------------------------------------------
Investment loss--net*** .......................... (.04) (.03) (.03) (.03) (.01)
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .......... 4.22 2.87 (1.10) 2.38 1.52
-------------------------------------------------------
Total from investment operations ................. 4.18 2.84 (1.13) 2.35 1.51
-------------------------------------------------------
Less dividends in excess of investment income--net -- -- -- -- (.02)
-------------------------------------------------------
Net asset value, end of period ................... $ 25.24 $ 21.06 $ 18.22 $ 19.35 $ 17.00
=======================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ............... 19.85%++ 15.59% (5.84%) 13.82% 9.75%
=======================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses ......................................... 1.26%* 1.38% 1.45% 1.37% 1.42%
=======================================================
Investment loss--net ............................. (.32%)* (.17%) (.14%) (.13%) (.05%)
=======================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ......... $66,803 $56,094 $52,946 $59,220 $52,366
=======================================================
Portfolio turnover ............................... 5.38% 18.26% 49.77% 40.08% 51.36%
=======================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
+ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
++ Aggregate total investment return.
See Notes to Financial Statements.
14 MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004
Financial Highlights (continued)
Class B
---------------------------------------------------------
The following per share data and ratios have been derived For the Six For the Year Ended
from information provided in the financial statements. Months Ended July 31,
January 31, ------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ............. $ 20.49 $ 17.87 $ 19.12 $ 16.93 $ 15.56
-------------------------------------------------------
Investment loss--net*** .......................... (.13) (.18) (.17) (.19) (.14)
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .......... 4.11 2.80 (1.08) 2.38 1.51
-------------------------------------------------------
Total from investment operations ................. 3.98 2.62 (1.25) 2.19 1.37
-------------------------------------------------------
Net asset value, end of period ................... $ 24.47 $ 20.49 $ 17.87 $ 19.12 $ 16.93
=======================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ............... 19.42%+ 14.66% (6.54%) 12.94% 8.80%
=======================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses ......................................... 2.04%* 2.16% 2.23% 2.16% 2.21%
=======================================================
Investment loss--net ............................. (1.10%)* (.96%) (.91%) (.93%) (.85%)
=======================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ......... $31,142 $23,829 $24,468 $35,525 $19,223
=======================================================
Portfolio turnover ............................... 5.38% 18.26% 49.77% 40.08% 51.36%
=======================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
+ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004 15
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (continued)
Class C
---------------------------------------------------------
The following per share data and ratios have been derived For the Six For the Year Ended
from information provided in the financial statements. Months Ended July 31,
January 31, ------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ............. $ 20.23 $ 17.65 $ 18.88 $ 16.72 $ 15.36
-------------------------------------------------------
Investment loss--net*** .......................... (.13) (.18) (.17) (.19) (.14)
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .......... 4.06 2.76 (1.06) 2.35 1.50
-------------------------------------------------------
Total from investment operations ................. 3.93 2.58 (1.23) 2.16 1.36
-------------------------------------------------------
Net asset value, end of period ................... $ 24.16 $ 20.23 $ 17.65 $ 18.88 $ 16.72
=======================================================
==================================================================================================================================
Total Investment Return**
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ............... 19.43%+ 14.62% (6.51%) 12.92% 8.85%
=======================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses ......................................... 2.04%* 2.16% 2.24% 2.17% 2.21%
=======================================================
Investment loss--net ............................. (1.13%)* (.96%) (.93%) (.99%) (.86%)
=======================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ......... $21,497 $11,789 $ 8,129 $ 9,050 $ 1,782
=======================================================
Portfolio turnover ............................... 5.38% 18.26% 49.77% 40.08% 51.36%
=======================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
+ Aggregate total investment return.
See Notes to Financial Statements.
16 MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004
Financial Highlights (concluded)
Class I
----------------------------------------------------------
The following per share data and ratios have been derived For the Six For the Year Ended
from information provided in the financial statements. Months Ended July 31,+
January 31, -------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
===================================================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ............. $ 21.25 $ 18.34 $ 19.42 $ 17.02 $ 15.52
--------------------------------------------------------
Investment income (loss)--net*** ................. (.01) .01 .02 .02 .03
Realized and unrealized gain (loss) on investments
and foreign currency transactions--net .......... 4.26 2.90 (1.10) 2.38 1.51
--------------------------------------------------------
Total from investment operations ................. 4.25 2.91 (1.08) 2.40 1.54
--------------------------------------------------------
Less dividends in excess of investment income--net -- -- -- -- (.04)
--------------------------------------------------------
Net asset value, end of period ................... $ 25.50 $ 21.25 $ 18.34 $ 19.42 $ 17.02
========================================================
===================================================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ............... 20.00%++ 15.87% (5.56%) 14.10% 9.98%
========================================================
===================================================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses ......................................... 1.01%* 1.12% 1.20% 1.13% 1.16%
========================================================
Investment income (loss)--net .................... (.08%)* .07% .12% .09% .20%
========================================================
===================================================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ......... $32,224 $23,981 $18,405 $21,305 $13,100
========================================================
Portfolio turnover ............................... 5.38% 18.26% 49.77% 40.08% 51.36%
========================================================
* Annualized.
** Total investment returns exclude the effects of sales charges.
*** Based on average shares outstanding.
+ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004 17
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements
1. Significant Accounting Policies:
Merrill Lynch Natural Resources Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end
management investment company. The Trust's financial statements are prepared in
conformity with accounting principles generally accepted in the United States of
America, which may require the use of management accruals and estimates. These
unaudited financial statements reflect all adjustments, which are, in the
opinion of management, necessary to a fair statement of the results for the
interim period presented. All such adjustments are of a normal, recurring
nature. The Trust offers multiple classes of shares. Shares of Class A and Class
I are sold with a front-end sales charge. Shares of Class B and Class C may be
subject to a contingent deferred sales charge. All classes of shares have
identical voting, dividend, liquidation and other rights and the same terms and
conditions, except that Class A, Class B and Class C Shares bear certain
expenses related to the account maintenance of such shares, and Class B and
Class C Shares also bear certain expenses related to the distribution of such
shares. Each class has exclusive voting rights with respect to matters relating
to its account maintenance and distribution expenditures. Income, expenses
(other than expenses attributable to a specific class) and realized and
unrealized gains and losses on investments and foreign currency transactions are
allocated daily to each class based on its relative net assets. The following is
a summary of significant accounting policies followed by the Trust.
(a) Valuation of investments -- Equity securities that are held by the Trust
that are traded on stock exchanges or the Nasdaq National Market are valued at
the last sale price or official close price on the exchange, as of the close of
business on the day the securities are being valued or, lacking any sales, at
the last available bid price for long positions, and at the last available ask
price for short positions. In cases where equity securities are traded on more
than one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Trustees of the Trust.
Long positions traded in the over-the-counter ("OTC") market, Nasdaq Small Cap
or Bulletin Board are valued at the last available bid price or yield equivalent
obtained from one or more dealers or pricing services approved by the Board of
Trustees of the Trust. Short positions traded in the OTC market are valued at
the last available ask price. Portfolio securities that are traded both in the
OTC market and on a stock exchange are valued according to the broadest and most
representative market.
Options written are valued at the last sale price in the case of exchange-traded
options or, in the case of options traded in the OTC market, the last ask price.
Options purchased are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. Swap agreements are valued daily based upon quotations from
market makers. Financial futures contracts and options thereon, which are traded
on exchanges, are valued at their last sale price as of the close of such
exchanges. Obligations with remaining maturities of 60 days or less are valued
at amortized cost unless the Investment Adviser believes that this method no
longer produces fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The Trust
employs pricing services to provide certain securities prices for the Trust.
Securities and assets for which market quotations are not readily available are
valued at fair value as determined in good faith by or under the direction of
the Board of Trustees of the Trust, including valuations furnished by the
pricing services retained by the Trust, which may use a matrix system for
valuations. The procedures of a pricing service and its valuations are reviewed
by the officers of the Trust under the general supervision of the Trust's Board
of Trustees. Such valuations and procedures will be reviewed periodically by the
Board of Trustees of the Trust.
Generally, trading in foreign securities, as well as U.S. government securities
and money market instruments, is substantially completed each day at various
times prior to the close of business on the New York Stock Exchange ("NYSE").
The values of such securities used in computing the net asset value of the
Trust's shares are determined as of such times. Foreign currency exchange rates
also are generally determined prior to the close of business on the NYSE.
Occasionally, events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and the close of
business on the NYSE that may not be reflected in the computation of the Trust's
net asset value. If events (for example, a company announcement, market
volatility or a natural disaster) occur during such periods that are expected to
materially affect the value of such securities, those securities may be valued
at their fair value as determined in good faith by the Trust's Board of Trustees
or by the Investment Adviser using a pricing service and/or procedures approved
by the Trust's Board of Trustees.
18 MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004
Notes to Financial Statements (continued)
(b) Repurchase agreements -- The Trust invests in U.S. government securities
pursuant to repurchase agreements. Under such agreements, the counterparty
agrees to repurchase the security at a mutually agreed upon time and price. The
Trust takes possession of the underlying securities, marks to market such
securities and, if necessary, receives additional securities daily to ensure
that the contract is fully collateralized. If the counterparty defaults and the
fair value of the collateral declines, liquidation of the collateral by the
Trust may be delayed or limited.
(c) Derivative financial instruments -- The Trust may engage in various
portfolio investment strategies both to increase the return of the Trust and to
hedge, or protect, its exposure to interest rate movements and movements in the
securities markets. Losses may arise due to changes in the value of the contract
or if the counterparty does not perform under the contract.
o Forward foreign exchange contracts -- The Trust may enter into forward
foreign exchange contracts as a hedge against either specific transactions
or portfolio positions. The contract is marked-to-market daily and the
change in market value is recorded by the Trust as an unrealized gain or
loss. When the contract is closed, the Trust records a realized gain or
loss equal to the difference between the value at the time it was opened
and the value at the time it was closed.
o Options -- The Trust may purchase and write covered call options and put
options. When the Trust writes an option, an amount equal to the premium
received by the Trust is reflected as an asset and an equivalent
liability. The amount of the liability is subsequently marked to market to
reflect the current market value of the option written. When a security is
purchased or sold through an exercise of an option, the related premium
paid (or received) is added to (or deducted from) the basis of the
security acquired or deducted from (or added to) the proceeds of the
security sold. When an option expires (or the Trust enters into a closing
transaction), the Trust realizes a gain or loss on the option to the
extent of the premiums received or paid (or gain or loss to the extent the
cost of the closing transaction is less than or greater than the premiums
paid or received).
Written and purchased options are non-income producing investments.
(d) Foreign currency transactions -- Transactions denominated in foreign
currencies are recorded at the exchange rate prevailing when recognized. Assets
and liabilities denominated in foreign currencies are valued at the exchange
rate at the end of the period. Foreign currency transactions are the result of
settling (realized) or valuing (unrealized) assets or liabilities expressed in
foreign currencies into U.S. dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on investments.
(e) Income taxes -- It is the Trust's policy to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required. Under the applicable
foreign tax law, a withholding tax may be imposed on interest, dividends, and
capital gains at various rates.
(f) Security transactions and investment income -- Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Dividends from foreign securities where the ex-dividend date may have passed are
subsequently recorded when the Trust has determined the ex-dividend dates.
Interest income is recognized on the accrual basis.
(g) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(h) Dividends and distributions -- Dividends and distributions paid by the Trust
are recorded on the ex-dividend dates.
MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004 19
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
(i) Securities lending -- The Trust may lend securities to financial
institutions that provide cash or securities issued or guaranteed by the U.S.
government as collateral, which will be maintained at all times in an amount
equal to at least 100% of the current market value of the loaned securities. The
market value of the loaned securities is determined at the close of business of
the Trust and any additional required collateral is delivered to the Trust on
the next business day. Where the Trust receives securities as collateral for the
loaned securities, it collects a fee from the borrower. The Trust typically
receives the income on the loaned securities but does not receive the income on
the collateral. Where the Trust receives cash collateral, it may invest such
collateral and retain the amount earned on such investment, net of any amount
rebated to the borrower. Loans of securities are terminable at any time and the
borrower, after notice, is required to return borrowed securities within five
business days. The Trust may pay reasonable finder's, lending agent,
administrative and custodial fees in connection with its loans. In the event
that the borrower defaults on its obligation to return borrowed securities
because of insolvency or for any other reason, the Trust could experience delays
and costs in gaining access to the collateral. The Trust also could suffer a
loss where the value of the collateral falls below the market value of the
borrowed securities, in the event of borrower default or in the event of losses
on investments made with cash collateral.
2. Investment Advisory Agreement and Transactions with Affiliates:
The Trust has entered into an Investment Advisory Agreement with Merrill Lynch
Investment Managers, L.P. ("MLIM"). The general partner of MLIM is Princeton
Services, Inc. ("PSI"), an indirect, wholly-owned subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co."), which is the limited partner. The Trust has also entered
into a Distribution Agreement and Distribution Plans with FAM Distributors, Inc.
("FAMD" or the "Distributor"), which is a wholly-owned subsidiary of Merrill
Lynch Group, Inc.
MLIM is responsible for the management of the Trust's portfolio and provides the
necessary personnel, facilities, equipment and certain other services necessary
to the operations of the Trust. For such services, the Trust pays a monthly fee
of .60%, on an annual basis, of the average daily value of the Trust's net
assets. MLIM has entered into a Sub-Advisory Agreement with Merrill Lynch Asset
Management U.K. Limited ("MLAM U.K."), an affiliate of MLIM, pursuant to which
MLAM U.K. provides investment advisory services to MLIM with respect to the
Trust. There is no increase in the aggregate fees paid by the Trust for these
services.
Pursuant to the Distribution Plans adopted by the Trust in accordance with Rule
12b-1 under the Investment Company Act of 1940, the Trust pays the Distributor
ongoing account maintenance and distribution fees. The fees are accrued daily
and paid monthly at annual rates based upon the average daily net assets of the
shares as follows:
- --------------------------------------------------------------------------------
Account Distribution
Maintenance Fee Fee
- --------------------------------------------------------------------------------
Class A ................................ .25% --
Class B ................................ .25% .75%
Class C ................................ .25% .75%
- --------------------------------------------------------------------------------
Pursuant to a sub-agreement with the Distributor, Merrill Lynch, Pierce, Fenner
& Smith Incorporated ("MLPF&S"), a subsidiary of ML & Co., also provides account
maintenance and distribution services to the Trust. The ongoing account
maintenance fee compensates the Distributor and MLPF&S for providing account
maintenance services to Class A, Class B and Class C shareholders. The ongoing
distribution fee compensates the Distributor and MLPF&S for providing
shareholder and distribution-related services to Class B and Class C
shareholders.
20 MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004
Notes to Financial Statements (continued)
For the six months ended January 31, 2004, FAMD earned underwriting discounts
and MLPF&S earned dealer concessions on sales of the Trust's Class A and Class I
Shares as follows:
- --------------------------------------------------------------------------------
FAMD MLPF&S
- --------------------------------------------------------------------------------
Class A ............................ $ 4,499 $53,122
Class I ............................ $ 51 $ 605
- --------------------------------------------------------------------------------
For the six months ended January 31, 2004, MLPF&S received contingent deferred
sales charges of $9,818 and $1,530 relating to transactions in Class B and C
Shares, respectively.
The Trust has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to MLPF&S or its
affiliates. Pursuant to that order, the Trust also has retained Merrill Lynch
Investment Managers, LLC ("MLIM, LLC"), an affiliate of MLIM, as the securities
lending agent for a fee based on a share of the returns on investment of cash
collateral. MLIM, LLC may, on behalf of the Trust, invest cash collateral
received by the Trust for such loans, among other things, in a private
investment company managed by MLIM or in registered money market funds advised
by MLIM or its affiliates. As of January 31, 2004, the Trust lent securities
with a value of $1,742,388 to MLPF&S or its affiliates. For the six months ended
January 31, 2004, MLIM, LLC received $2,272 in securities lending agent fees.
In addition, MLPF&S received $831 in commissions on the execution of portfolio
security transactions for the Trust for the six months ended January 31, 2004.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Trust's transfer agent.
For the six months ended January 31, 2004, the Trust reimbursed MLIM $1,296 for
certain accounting services.
Certain officers and/or trustees of the Trust are officers and/or directors of
MLIM, PSI, MLAM U.K., FDS, FAMD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended January 31, 2004 were $8,462,003 and $6,663,204, respectively.
Net realized gains (losses) for the six months ended January 31, 2004 and net
unrealized gains as of January 31, 2004 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains
- --------------------------------------------------------------------------------
Long-term investments ................... $ 1,981,510 $45,088,274
Foreign currency transactions ........... (17,492) 181
-------------------------------
Total ................................... $ 1,964,018 $45,088,455
===============================
As of January 31, 2004, net unrealized appreciation for Federal income tax
purposes aggregated $44,944,389, of which $46,435,073 related to appreciated
securities and $1,490,684 related to depreciated securities. At January 31,
2004, the aggregate cost of investments for Federal income tax purposes was
$109,099,315.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial interest
transactions was $12,358,249 and $(3,305,952) for the six months ended January
31, 2004 and for the year ended July 31, 2003, respectively.
MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004 21
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
Transactions in shares of beneficial interest for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Six Months Dollar
Ended January 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 177,413 $ 4,240,395
Automatic conversion of shares ......... 47,877 1,125,905
-------------------------------
Total issued ........................... 225,290 5,366,300
Shares redeemed ........................ (242,428) (5,759,903)
-------------------------------
Net decrease ........................... (17,138) $ (393,603)
===============================
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 138,975 $ 2,830,429
Automatic conversion of shares ......... 143,849 2,707,556
-------------------------------
Total issued ........................... 282,824 5,537,985
Shares redeemed ........................ (524,605) (10,249,796)
-------------------------------
Net decrease ........................... (241,781) $(4,711,811)
===============================
- -------------------------------------------------------------------------------
Class B Shares for the Six Months Dollar
Ended January 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 315,341 $ 7,292,217
Automatic conversion of shares ......... (49,301) (1,125,905)
Shares redeemed ........................ (156,087) (3,601,704)
-------------------------------
Net increase ........................... 109,953 $ 2,564,608
===============================
- -------------------------------------------------------------------------------
Class B Shares for the Year Dollar
Ended July 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 236,318 $ 4,638,243
Automatic conversion of shares ......... (147,051) (2,707,556)
Shares redeemed ........................ (295,500) (5,621,269)
-------------------------------
Net decrease ........................... (206,233) $(3,690,582)
===============================
- -------------------------------------------------------------------------------
Class C Shares for the Six Months Dollar
Ended January 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 356,311 $ 8,231,700
Shares redeemed ........................ (49,106) (1,115,821)
-------------------------------
Net increase ........................... 307,205 $ 7,115,879
===============================
- -------------------------------------------------------------------------------
Class C Shares for the Year Dollar
Ended July 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 271,682 $ 5,328,467
Shares redeemed ........................ (149,667) (2,818,647)
-------------------------------
Net increase ........................... 122,015 $ 2,509,820
===============================
- -------------------------------------------------------------------------------
Class I Shares for the Six Months Dollar
Ended January 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 404,252 $ 9,361,815
Shares redeemed ........................ (269,161) (6,290,450)
-------------------------------
Net increase ........................... 135,091 $ 3,071,365
===============================
- -------------------------------------------------------------------------------
Class I Shares for the Year Dollar
Ended July 31, 2003 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 827,251 $16,611,867
Shares redeemed ........................ (702,107) (14,025,246)
-------------------------------
Net increase ........................... 125,144 $ 2,586,621
===============================
5. Short-Term Borrowings:
The Trust, along with certain other funds managed by MLIM and its affiliates, is
a party to a $500,000,000 credit agreement with Bank One, N.A. and certain other
lenders. The Trust may borrow under the credit agreement to fund shareholder
redemptions and for other lawful purposes other than for leverage. The Trust may
borrow up to the maximum amount allowable under the Trust's current prospectus
and statement of additional information, subject to various other legal,
regulatory or contractual limits. The Trust pays a commitment fee of .09% per
annum based on the Trust's pro rata share of the unused portion of the credit
agreement. Amounts borrowed under the credit agreement bear interest at a rate
equal to, at each fund's election, the Federal Funds rate plus .50% or a base
rate as determined by Bank One, N.A. On November 28, 2003, the credit agreement
was renewed for one year under the same terms. The Trust did not borrow under
the credit agreement during the six months ended January 31, 2004.
22 MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004
Notes to Financial Statements (concluded)
6. Commitments:
At January 31, 2004, the Trust had entered into foreign exchange contracts under
which it had agreed to purchase foreign currency with an approximate value of
$32,000.
7. Capital Loss Carryforward:
On July 31, 2003, the Trust had a net capital loss carryforward of $11,963,613,
of which $7,085,359 expires in 2008 and $4,878,254 expires in 2011. This amount
will be available to offset like amounts of any future taxable gains.
Officers and Trustees
Terry K. Glenn, President and Trustee
Donald W. Burton, Trustee
M. Colyer Crum, Trustee
Laurie Simon Hodrick, Trustee
David H. Walsh, Trustee
Fred G. Weiss, Trustee
Robert C. Doll, Jr., Senior Vice President
Robert M. Shearer, Vice President and Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Phillip S. Gillespie, Secretary
Custodian
The Bank of New York
100 Church Street
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
MERRILL LYNCH NATURAL RESOURCES TRUST JANUARY 31, 2004 23
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Trust unless accompanied or preceded by the
Trust's current prospectus. Past performance results shown in this report should
not be considered a representation of future performance. Investment return and
principal value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Statements and other information
herein are as dated and are subject to change.
A description of the policies and procedures that the Trust uses to determine
how to vote proxies relating to portfolio securities is available (1) without
charge, upon request, by calling toll-free 1-800-MER-FUND (1-800-637-3863); (2)
on www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
website at http://www.sec.gov.
Merrill Lynch Natural Resources Trust
Box 9011
Princeton, NJ
08543-9011
#10303 -- 1/04
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Reserved
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Reserved
Item 9 - Submission of Matters to a Vote of Security Holders - Not Applicable
Item 10 - Controls and Procedures
10(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
10(b) - There were no significant changes in the registrant's internal controls
or in other factors that could significantly affect these controls
subsequent to the date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Item 11 - Exhibits attached hereto
11(a) - Not Applicable
11(b) - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Merrill Lynch Natural Resources Trust
By: /s/ Terry K. Glenn
------------------------------
Terry K. Glenn,
President of
Merrill Lynch Natural Resources Trust
Date: March 19, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Terry K. Glenn
------------------------------
Terry K. Glenn,
President of
Merrill Lynch Natural Resources Trust
Date: March 19, 2004
By: /s/ Donald C. Burke
------------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Natural Resources Trust
Date: March 19, 2004