UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
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 - 07/31/04
Item 1 - Report to Stockholders
[LOGO] Merrill Lynch Investment Managers www.mlim.ml.com
Merrill Lynch
Natural Resources Trust
Annual Report
July 31, 2004
[LOGO] Merrill Lynch Investment Managers
Merrill Lynch Natural Resources Trust
Portfolio Information as of July 31, 2004
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
Murphy Oil Corporation .............................................. 5.2%
EnCana Corp. ........................................................ 4.4
EOG Resources, Inc. ................................................. 4.2
Devon Energy Corporation ............................................ 3.5
Apache Corporation .................................................. 3.0
BJ Services Company ................................................. 2.7
Exxon Mobil Corporation ............................................. 2.0
Talisman Energy Inc. ................................................ 1.7
Burlington Resources Inc. ........................................... 1.7
ConocoPhillips ...................................................... 1.7
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Sector Representation of Percent of
Equity Holdings Net Assets
- --------------------------------------------------------------------------------
Energy .............................................................. 79.6%
Materials ........................................................... 11.3
Utilities ........................................................... 1.4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Percent of
Geographic Allocation Net Assets*
- --------------------------------------------------------------------------------
United States ....................................................... 58.5%
Canada .............................................................. 24.1
France .............................................................. 2.6
China ............................................................... 1.5
Australia ........................................................... 1.3
Italy ............................................................... 1.3
Hong Kong ........................................................... 1.1
South Africa ........................................................ 1.1
United Kingdom ...................................................... 0.4
Brazil .............................................................. 0.4
- --------------------------------------------------------------------------------
* Total may not equal 100%.
Availability of Quarterly Schedule of Investments
The Trust files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Trust's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Trust's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
The Trust 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 Web
site 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 JULY 31, 2004
A Letter From the President
Dear Shareholder
The year is more than half behind us, and it seems appropriate to take a step
back and put 2004 into context. In recent months, the Federal Reserve Board (the
Fed) has taken center stage as it shifts away from its long-accommodative
monetary stance. In a much-anticipated move, the Fed raised the Federal Funds
rate 25 basis points (.25%) on June 30, representing the first interest rate
increase in four years. Shortly after period-end, the Fed announced an
additional 25 basis point interest rate hike, bringing the target short-term
interest rate to 1.50% -- still low by historical standards. The Fed has been
very deliberate in telegraphing its intention to take a "measured" approach to
interest rate increases in order to avoid upsetting the economy or the financial
markets. Still, the Fed has stated that it may move more aggressively if
inflation and economic growth accelerate more than anticipated.
While inflation has moved up on a cyclical basis, this is an indication that the
Fed has been successful in avoiding deflation -- just as it set out to do a year
ago. The challenge now is to normalize interest rates in order to keep inflation
within acceptable limits. The futures curve currently projects further increases
in short-term interest rates before year-end.
In addition to the Fed policy change, the financial markets recently have had to
grapple with a tense geopolitical environment, higher oil prices and the worry
and anticipation that accompanies a presidential election. Notwithstanding these
concerns, equities were due for a pause given that the Standard & Poor's 500
(S&P 500) Index rose nearly 50% between its March 2003 low and the highs of
early 2004. Under the circumstances, the market decline in recent months has
been minor. For the six-month and 12-month periods ended July 31, 2004, the S&P
500 Index returned -1.78% and +13.17%, respectively. Supporting the stock
market, despite the aforementioned uncertainties, was continued strong corporate
earnings growth. Company reports have continued to surprise investors, in many
cases still exceeding consensus earnings forecasts.
As always, our investment professionals are closely monitoring the markets, the
economy and the overall environment in an effort to make well-informed decisions
for the portfolios they manage. Our goal is to provide shareholders with
competitive returns, while always keeping one eye on managing the unavoidable
risk inherent in investing.
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 JULY 31, 2004 3
[LOGO] Merrill Lynch Investment Managers
A Discussion With Your Fund's Portfolio Manager
The Trust significantly outperformed the benchmark S&P 500 Index for the
fiscal year, benefiting primarily from strong fundamentals in the energy sector.
How did Merrill Lynch Natural Resources Trust perform during the fiscal year in
light of the existing market conditions?
For the 12-month period ended July 31, 2004, Merrill Lynch Natural Resources
Trust's Class A, Class B, Class C and Class I Shares posted total returns of
+37.18%, +36.16%, +36.18% and +37.51%, respectively. (Trust 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 - 8 of this report to
shareholders.) For the same period, the Trust's benchmark, the Standard & Poor's
500 (S&P 500) Index, returned +13.17%, and its comparable Lipper category of
Natural Resources Funds had an average return of +41.16%. (Funds in this Lipper
category invest at least 65% of their equity assets in natural resources
stocks.)
The Trust's holdings are diversified across several natural resources
subsectors. As a result, its performance lagged the Lipper Natural Resources
Funds category average, as the Lipper group includes funds that invest only in
companies in specific industries, such as energy services and energy-focused
funds, which generally outperformed diversified natural resources funds. The
Trust's overweight in natural gas stocks also detracted somewhat from
performance, as natural gas prices declined toward the end of the 12-month
period because of lower demand for electricity generation due to mild spring and
summer temperatures. Crude oil prices rose significantly in the spring and
summer of 2004, topping $40 per barrel late in the period. Rising oil demand,
particularly from China and other emerging markets, has pushed world oil
production to record levels, and limited spare capacity remains to handle any
disruptions to production. The Trust's emphasis on companies in the energy
equipment and services and the exploration and production subsectors provided
for attractive returns compared to the S&P 500 Index, which measures the
performance of the broader stock market. Among the 10 industries in the S&P 500
Index, the returns of the energy and materials sectors ranked first and fourth,
respectively, over the past 12 months.
Individual stocks that contributed meaningfully to relative performance were BJ
Services Co., Smith International Inc., National Oilwell Inc. and Technip S.A.
(all in the energy equipment and services subsector) and two oil and gas stocks,
Murphy Oil Corp. and EOG Resources Inc., which rose after the companies'
drilling efforts resulted in the discovery of new sources of oil and natural
gas.
Conversely, stock selection in energy equipment and services detracted from
performance versus the benchmark, although the negative impact was negligible
compared to the positive attribution provided by our overweighting in this
sector.
What changes were made to the portfolio during the year?
We continue to position the Trust to benefit from the very tight
supply-and-demand dynamics in the North American natural gas market, and from
increased oil and gas drilling activity that we believe will result from
capacity constraints in the oil and gas market. Toward the end of the period, we
initiated positions in three natural gas exploration and production companies in
Canada. Natural gas production has declined nearly 3% over the past year. Given
the supply constraints, we believe there is the potential for price spikes
during the upcoming winter heating season, and we maintain the Trust's emphasis
in this sector.
We also established positions in several oil service and production companies
late in the period. New holdings included Transocean Inc., a deepwater driller,
and Varco International, Inc., an oil equipment manufacturer.
We sold our positions in several Canadian oil and gas production companies that
had appreciated after the companies announced they would convert into income
trusts. While income trusts offer attractive yields, production growth is
limited and the trust structure includes some liability provisions that could
make unitholders legally responsible for the actions of the trust. We also sold
Canadian Superior Energy, Inc. following the company's disappointing exploration
results for a major project off of Canada's east coast.
4 MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004
How would you characterize the Trust's position at the close of the period?
Given minimal spare global oil production capacity, we maintain the Trust's
focus on oil and gas production companies, as we believe current valuations
reflect oil and gas prices that are below those prevailing in the commodity
markets. The North American natural gas sector also continues to be one of our
prime areas of investment, as there has been minimal additional production
despite increased drilling activity. At the end of the period, natural gas
prices remained above $5 per thousand cubic feet despite benign summer weather
conditions. We believe gas prices have the potential to rise further if there is
increased heating demand resulting from below-normal temperatures during the
upcoming winter months.
As of July 31, 2004, approximately 92% of the Trust's net assets was invested in
stocks and 8% in cash equivalents. Nearly 80% of net assets was in
energy-related companies, and roughly 9% was invested in precious metals and
diversified metals and mining companies.
Robert M. Shearer
Vice President and Portfolio Manager
August 17, 2004
MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004 5
[LOGO] Merrill Lynch Investment Managers
Performance Data
About Fund Performance
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 gain distributions, if any, 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 July 31, 2004 Total Return Total Return Total Return
===================================================================================================
ML Natural Resources Trust Class A Shares* +14.46% +37.18% +113.93%
- ---------------------------------------------------------------------------------------------------
ML Natural Resources Trust Class B Shares* +14.02 +36.16 +101.23
- ---------------------------------------------------------------------------------------------------
ML Natural Resources Trust Class C Shares* +14.03 +36.18 + 98.03
- ---------------------------------------------------------------------------------------------------
ML Natural Resources Trust Fund Class I Shares* +14.59 +37.51 +123.21
- ---------------------------------------------------------------------------------------------------
S&P 500(R) Index** - 1.78 +13.17 +186.30/+180.31
- ---------------------------------------------------------------------------------------------------
* 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.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
6 MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004
Performance Data (continued)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Trust's Class A Shares
and Class C Shares compared to growth of an investment in the S&P 500 Index.
Values are from October 21, 1994 to July 2004:
10/21/94** 7/95 7/96 7/97 7/98 7/99
ML Natural Resources Trust+--
Class A Shares* $ 9,475 $ 9,942 $10,345 $12,172 $ 8,868 $10,868
ML Natural Resources Trust+--
Class C Shares* $10,000 $10,426 $10,760 $12,564 $ 9,073 $11,041
7/00 7/01 7/02 7/03 7/04
ML Natural Resources Trust+--
Class A Shares* $11,928 $13,577 $12,784 $14,776 $20,270
ML Natural Resources Trust+--
Class C Shares* $12,018 $13,571 $12,687 $14,541 $19,803
10/31/94 7/95 7/96 7/97 7/98 7/99
S&P 500 Index++ $10,000 $12,347 $14,393 $21,897 $26,120 $31,397
7/00 7/01 7/02 7/03 7/04
S&P 500 Index++ $34,215 $29,312 $22,386 $24,768 $28,031
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
** Commencement of operations.
+ The Trust invests primarily in equity securities of domestic and foreign
companies with substantial natural resource assets.
++ 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.
Past performance is not predictive of future performance.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class A Shares*
================================================================================
One Year Ended 7/31/04 +37.18% +29.98%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/04 +13.28 +12.06
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 7/31/04 + 8.09 + 7.50
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
================================================================================
Class C Shares*
================================================================================
One Year Ended 7/31/04 +36.18% +35.18%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/04 +12.39 +12.39
- --------------------------------------------------------------------------------
Inception (10/21/94)
through 7/31/04 + 7.24 + 7.24
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 1% and is reduced to 0% after
one year.
** Assuming payment of applicable contingent deferred sales charge.
MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004 7
[LOGO] Merrill Lynch Investment Managers
Performance Data (concluded)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Trust's Class B Shares
and Class I Shares compared to growth of an investment in the S&P 500 Index.
Values are from July 1994 to July 2004:
7/94 7/95 7/96 7/97 7/98
ML Natural Resources Trust+--
Class B Shares* $10,000 $10,595 $10,941 $12,770 $ 9,225
ML Natural Resources Trust+--
Class I Shares* $ 9,475 $10,143 $10,583 $12,483 $ 9,113
7/99 7/00 7/01 7/02 7/03 7/04
ML Natural Resources Trust+--
Class B Shares* $11,223 $12,211 $13,791 $12,889 $14,779 $20,123
ML Natural Resources Trust+--
Class I Shares* $11,201 $12,319 $14,056 $13,274 $15,381 $21,149
7/94 7/95 7/96 7/97 7/98
S&P 500 Index++ $10,000 $12,611 $14,700 $22,365 $26,678
7/99 7/00 7/01 7/02 7/03 7/04
S&P 500 Index++ $32,068 $34,946 $29,938 $22,864 $25,298 $28,630
* Assuming maximum sales charge, transaction costs and other operating
expenses, including advisory fees.
+ The Trust invests primarily in equity securities of domestic and foreign
companies with substantial natural resource assets.
++ 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.
Past performance is not predictive of future performance.
Average Annual Total Return
Return Return
Without CDSC With CDSC**
================================================================================
Class B Shares*
================================================================================
One Year Ended 7/31/04 +36.16% +32.16%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/04 +12.39 +12.14
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/04 + 7.24 + 7.24
- --------------------------------------------------------------------------------
* Maximum contingent deferred sales charge is 4% and is reduced to 0% after
six years.
** Assuming payment of applicable contingent deferred sales charge.
Return Without Return With
Sales Charge Sales Charge**
================================================================================
Class I Shares*
================================================================================
One Year Ended 7/31/04 +37.51% +30.29%
- --------------------------------------------------------------------------------
Five Years Ended 7/31/04 +13.56 +12.34
- --------------------------------------------------------------------------------
Ten Years Ended 7/31/04 + 8.36 + 7.78
- --------------------------------------------------------------------------------
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
8 MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004
Disclosure of Expenses
Shareholders of this Trust may incur the following charges: (a) expenses related
to transactions, including sales charges, redemption fees and exchange fees; and
(b) operating expenses including advisory fees, distribution fees including
12(b)-1 fees, and other Trust expenses. The following example (which is based on
a hypothetical investment of $1,000 invested on February 1, 2004 and held
through July 31, 2004) is intended to assist shareholders both in calculating
expenses based on an investment in the Trust and in comparing these expenses
with similar costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during the
period covered by this report, shareholders can divide their account value by
$1,000 and then multiply the result by the number in the first line under the
heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Trust's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Trust and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders ongoing
costs only and do not reflect any transactional expenses, such as sales charges,
redemption fees, or exchange fees. Therefore, the second table is useful in
comparing ongoing expenses only, and will not help shareholders determine the
relative total expenses of owning different funds. If these transactional
expenses were included, shareholder expenses would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value February 1, 2004
February 1, 2004 July 31, 2004 to July 31, 2004
=================================================================================================================
Actual
=================================================================================================================
Class A $1,000 $1,144.60 $ 6.58
- -----------------------------------------------------------------------------------------------------------------
Class B $1,000 $1,140.20 $10.67
- -----------------------------------------------------------------------------------------------------------------
Class C $1,000 $1,140.30 $10.67
- -----------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,145.90 $ 5.24
=================================================================================================================
Hypothetical (5% annual return before expenses)**
=================================================================================================================
Class A $1,000 $1,018.80 $ 6.19
- -----------------------------------------------------------------------------------------------------------------
Class B $1,000 $1,014.96 $10.05
- -----------------------------------------------------------------------------------------------------------------
Class C $1,000 $1,014.96 $10.05
- -----------------------------------------------------------------------------------------------------------------
Class I $1,000 $1,020.04 $ 4.94
- -----------------------------------------------------------------------------------------------------------------
* For each class of the Trust, expenses are equal to the annualized expense
ratio for the class (1.23% for Class A, 2.00% for Class B, 2.00% for Class
C and .98% for Class I), multiplied by the average account value over the
period, multiplied by 182/365 (to reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by multiplying
the number of days in the most recent fiscal half-year divided by 365.
MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004 9
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments
Value
Country Industry* Shares Held Common Stocks (in U.S. dollars)
====================================================================================================================================
Australia--1.3% Metals & Mining--1.3% 153,800 Alumina Limited $ 558,995
120,000 Newcrest Mining Limited 1,194,992
153,800 WMC Resources Limited 560,072
------------
2,314,059
----------------------------------------------------------------------------------------------------------
Total Common Stocks in Australia 2,314,059
====================================================================================================================================
Brazil--0.4% Metals & Mining--0.4% 12,000 Companhia Vale do Rio Doce (ADR) (a) 646,800
----------------------------------------------------------------------------------------------------------
Total Common Stocks in Brazil 646,800
====================================================================================================================================
Canada--24.1% Canadian Independents--17.9% 225,000 +Atlas Energy Ltd. 580,700
455,000 +Blizzard Energy Inc. 619,676
42,400 Canadian Natural Resources Ltd. 1,411,738
120,000 +Clear Energy Inc. 334,086
201,000 +Compton Petroleum Corporation 1,202,370
136,000 +Crew Energy Inc. 593,529
58,453 +Cyries Energy Inc. 264,336
219,500 +Devlan Exploration Inc. 495,485
173,661 EnCana Corp. 7,696,488
38,800 Husky Energy Inc. 842,272
118,000 +Ketch Resources Ltd. 1,105,418
28,600 Nexen Inc. 1,100,745
21,000 Niko Resources Ltd. 600,451
47,500 +Paramount Resources Ltd. 597,950
23,600 Penn West Petroleum Ltd. 1,189,944
50,800 Petro-Canada 2,371,813
79,453 +ProEx Energy Ltd. 352,726
210,918 +Rider Resources Ltd. 660,210
483,000 +StarPoint Energy Ltd. 1,722,664
97,800 Suncor Energy, Inc. 2,824,352
256,500 +TUSK Energy Inc. 883,950
129,600 Talisman Energy Inc. 3,076,659
236,788 +Thunder Energy Inc. 1,222,247
------------
31,749,809
----------------------------------------------------------------------------------------------------------
Gold Mines--0.2% 165,000 +Crystallex International Corporation 403,499
----------------------------------------------------------------------------------------------------------
Metals & Mining--3.1% 29,100 Alcan Inc. 1,152,942
33,000 Barrick Gold Corporation 631,196
48,000 +Canico Resource Corp. 477,472
354,500 +Eldorado Gold Corporation 880,248
65,400 +Glamis Gold Ltd. 1,040,790
211,000 +Northern Orion Resources Inc. 462,009
47,800 Placer Dome Inc. 761,059
------------
5,405,716
----------------------------------------------------------------------------------------------------------
Oil & Gas Drilling--2.0% 453,100 +Drillers Technology Corp. 337,524
50,500 Ensign Resource Service Group, Inc. 836,347
41,500 +Precision Drilling Corporation 2,060,948
7,300 +Precision Drilling Corporation 363,029
------------
3,597,848
----------------------------------------------------------------------------------------------------------
Oil & Gas Services & 106,300 +Tesco Corporation 959,020
Equipment--0.5%
----------------------------------------------------------------------------------------------------------
Paper--0.4% 51,400 Domtar, Inc. 667,156
----------------------------------------------------------------------------------------------------------
Total Common Stocks in Canada 42,783,048
==========================================================================================================
10 MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004
Schedule of Investments (continued)
Value
Country Industry* Shares Held Common Stocks (in U.S. dollars)
====================================================================================================================================
China--1.5% Metals & Mining--1.5% 52,300 Aluminum Corporation of China
Limited (ADR) (a) $ 2,730,060
----------------------------------------------------------------------------------------------------------
Total Common Stocks in China 2,730,060
====================================================================================================================================
France--2.6% Oil & Gas Exploration & 24,200 Total SA (ADR) (a) 2,355,870
Production--1.3%
----------------------------------------------------------------------------------------------------------
Oil & Gas Services & 62,675 Technip-Coflexip SA (ADR) (a) 2,199,893
Equipment--1.3%
----------------------------------------------------------------------------------------------------------
Total Common Stocks in France 4,555,763
====================================================================================================================================
Hong Kong--1.1% Oil & Gas Exploration & 39,300 CNOOC Limited (ADR) (a)(d) 1,887,579
Production--1.1%
----------------------------------------------------------------------------------------------------------
Total Common Stocks in Hong Kong 1,887,579
====================================================================================================================================
Italy--1.3% Integrated Oil & Gas--0.4% 7,400 ENI SpA (ADR) (a) 760,128
----------------------------------------------------------------------------------------------------------
Oil & Gas Drilling--0.9% 158,800 Saipem SpA 1,512,292
----------------------------------------------------------------------------------------------------------
Total Common Stocks in Italy 2,272,420
====================================================================================================================================
South Africa--1.1% Paper--1.1% 128,500 Sappi Limited (ADR) (a) 1,873,530
----------------------------------------------------------------------------------------------------------
Total Common Stocks in South Africa 1,873,530
====================================================================================================================================
United Kingdom--0.4% Integrated Oil & Gas--0.4% 13,000 BP Amoco PLC (ADR) (a) 732,680
----------------------------------------------------------------------------------------------------------
Total Common Stocks in the United
Kingdom 732,680
====================================================================================================================================
United States--58.5% Chemicals--0.4% 18,000 Praxair, Inc. 710,100
----------------------------------------------------------------------------------------------------------
Energy Equipment & Service--0.6% 45,000 +Varco International, Inc. 1,087,650
----------------------------------------------------------------------------------------------------------
Integrated Oil & Gas--11.1% 30,987 ChevronTexaco Corporation 2,963,907
37,629 ConocoPhillips 2,964,036
76,828 Exxon Mobil Corporation 3,557,136
25,700 Marathon Oil Corporation 968,119
119,400 Murphy Oil Corporation 9,234,396
------------
19,687,594
----------------------------------------------------------------------------------------------------------
Metals & Mining--2.9% 22,900 Alcoa Inc. 733,487
17,400 Arch Coal, Inc. 587,598
32,900 CONSOL Energy Inc. 1,179,136
18,100 Newmont Mining Corporation 732,507
33,600 Peabody Energy Corporation 1,887,648
------------
5,120,376
----------------------------------------------------------------------------------------------------------
Oil & Gas Drilling--7.5% 71,200 ENSCO International Incorporated 2,143,832
43,622 GlobalSantaFe Corporation 1,195,243
45,900 Helmerich & Payne, Inc. 1,162,188
33,300 +Nabors Industries, Ltd. 1,548,450
64,000 +National-Oilwell, Inc. 2,140,800
43,700 +Noble Corporation 1,692,064
29,800 Patterson-UTI Energy, Inc. 543,254
82,000 +Rowan Companies, Inc. 2,002,440
28,000 +Transocean Inc. 795,200
------------
13,223,471
----------------------------------------------------------------------------------------------------------
Oil & Gas Exploration & 5,500 Anadarko Petroleum Corporation 328,845
Production--21.0% 112,560 Apache Corporation 5,237,417
78,594 Burlington Resources Inc. 2,999,933
55,000 Chesapeake Energy Corporation 844,250
24,394 +Cimarex Energy Co. 793,537
90,199 Devon Energy Corporation 6,267,929
117,400 EOG Resources, Inc. 7,460,770
84,000 +Energy Partners, Ltd. 1,313,760
45,800 +Forest Oil Corporation 1,295,682
23,922 Kerr-McGee Corporation 1,255,905
15,500 +Newfield Exploration Company 915,585
MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004 11
[LOGO] Merrill Lynch Investment Managers
Schedule of Investments (concluded)
Value
Country Industry* Shares Held Common Stocks (in U.S. dollars)
====================================================================================================================================
United States Oil & Gas Exploration & 25,800 Noble Energy, Inc. $ 1,426,998
(concluded) Production (concluded) 75,700 Pioneer Natural Resources Company 2,728,985
50,300 Pogo Producing Company 2,232,314
39,700 Unocal Corporation 1,538,772
22,000 XTO Energy, Inc. 657,800
------------
37,298,482
----------------------------------------------------------------------------------------------------------
Oil & Gas Services & 97,300 BJ Services Company 4,831,918
Equipment--12.4% 62,100 Baker Hughes Incorporated 2,502,630
31,600 +Cooper Cameron Corporation 1,614,444
91,000 +FMC Technologies, Inc. 2,730,000
32,800 +Grant Prideco, Inc. 619,592
27,000 Halliburton Company 857,250
23,700 +Lone Star Technology 789,684
82,500 +Oil States International, Inc. 1,357,950
24,600 Schlumberger Limited 1,582,272
47,000 +Smith International, Inc. 2,739,160
48,925 +Weatherford International Ltd. 2,288,712
------------
21,913,612
----------------------------------------------------------------------------------------------------------
Refining, Marketing & 29,200 Valero Energy Corporation 2,187,664
Transportation--1.2%
----------------------------------------------------------------------------------------------------------
Utilities--1.4% 49,200 Equitable Resources, Inc. 2,522,976
----------------------------------------------------------------------------------------------------------
Total Common Stocks in the United
States 103,751,925
==========================================================================================================
Total Investments in Common Stocks
(Cost--$98,522,621)--92.3% 163,547,864
==========================================================================================================
Beneficial Interest Short-Term Securities
==========================================================================================================
$13,962,521 Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I (b) 13,962,521
96,000 Merrill Lynch Liquidity Series, LLC
Money Market Series (b)(c) 96,000
----------------------------------------------------------------------------------------------------------
Total Investments in Short-Term
Securities (Cost--$14,058,521)--7.9% 14,058,521
====================================================================================================================================
Total Investments (Cost--$112,581,142**)--100.2% 177,606,385
Liabilities in Excess of Other Assets--(0.2%) (389,599)
------------
Net Assets--100.0% $177,216,786
============
* 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. These
industry classifications are unaudited.
** The cost and unrealized appreciation/depreciation of investments as of
July 31, 2004, as computed for federal income tax purposes, were as
follows:
-------------------------------------------------------------------------
Aggregate cost ......................................... $112,725,027
============
Gross unrealized appreciation .......................... $ 65,429,627
Gross unrealized depreciation .......................... (548,269)
------------
Net unrealized appreciation ............................ $ 64,881,358
============
+ 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) were as follows:
--------------------------------------------------------------------------
Interest/
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $ 9,720,926 $118,201
Merrill Lynch Liquidity Series, LLC
Money Market Series $(6,489,283) $ 6,556
Merrill Lynch Premier Institutional Fund (4,390,189) $ 2,761
--------------------------------------------------------------------------
(c) Security was purchased with the cash proceeds from securities loans.
(d) Security, or a portion of security, is on loan.
See Notes to Financial Statements.
12 MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004
Statement of Assets and Liabilities
As of July 31, 2004
===========================================================================================================================
Assets
- ---------------------------------------------------------------------------------------------------------------------------
Investments, in unaffiliated securities, at value (including
securities loaned of $96,060) (identified cost--$98,522,621) ... $ 163,547,864
Investments, in affiliated securities, at value (identified
cost--$14,058,521) ............................................. 14,058,521
Foreign cash (cost--$20) ........................................ 11
Receivables:
Beneficial interest sold ..................................... $ 223,093
Dividends .................................................... 50,988
Interest from affiliates ..................................... 12,094
Securities lending--net ...................................... 16 286,191
-------------
Prepaid expenses and other assets ............................... 24,945
-------------
Total assets .................................................... 177,917,532
-------------
===========================================================================================================================
Liabilities
- ---------------------------------------------------------------------------------------------------------------------------
Collateral on securities loaned, at value ....................... 96,000
Payables:
Beneficial interest redeemed ................................. 212,250
Securities purchased ......................................... 143,664
Investment adviser ........................................... 99,543
Distributor .................................................. 67,681
Other affiliates ............................................. 39,958 563,096
-------------
Accrued expenses ................................................ 41,650
-------------
Total liabilities ............................................... 700,746
-------------
===========================================================================================================================
Net Assets
- ---------------------------------------------------------------------------------------------------------------------------
Net assets ...................................................... $ 177,216,786
=============
===========================================================================================================================
Net Assets Consist of
- ---------------------------------------------------------------------------------------------------------------------------
Class A Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized .................................... $ 266,609
Class B Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized .................................... 126,874
Class C Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized .................................... 107,788
Class I Shares of beneficial interest, $.10 par value, unlimited
number of shares authorized .................................... 120,072
Paid-in capital in excess of par ................................ 119,649,526
Accumulated investment loss--net ................................ $ (26,699)
Accumulated realized capital losses on investments and foreign
currency transactions--net ..................................... (8,052,339)
Unrealized appreciation on investments and foreign currency
transactions--net .............................................. 65,024,955
-------------
Total accumulated earnings--net ................................. 56,945,917
-------------
Net Assets ...................................................... $ 177,216,786
=============
===========================================================================================================================
Net Asset Value
- ---------------------------------------------------------------------------------------------------------------------------
Class A--Based on net assets of $77,035,145 and 2,666,086 shares
of beneficial interest outstanding ............................. $ 28.89
=============
Class B--Based on net assets of $35,398,659 and 1,268,735 shares
of beneficial interest outstanding ............................. $ 27.90
=============
Class C--Based on net assets of $29,694,548 and 1,077,880 shares
of beneficial interest outstanding ............................. $ 27.55
=============
Class I--Based on net assets of $35,088,434 and 1,200,715 shares
of beneficial interest outstanding ............................. $ 29.22
=============
See Notes to Financial Statements.
MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004 13
[LOGO] Merrill Lynch Investment Managers
Statement of Operations
For the Year Ended July 31, 2004
===========================================================================================================================
Investment Income
- ---------------------------------------------------------------------------------------------------------------------------
Dividends (net of $84,558 foreign withholding tax) .............. $ 1,384,491
Interest from affiliates ........................................ 118,201
Securities lending--net ......................................... 9,317
-------------
Total income .................................................... 1,512,009
-------------
===========================================================================================================================
Expenses
- ---------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ........................................ $ 890,482
Account maintenance & distribution fees--Class B ................ 302,748
Account maintenance & distribution fees--Class C ................ 205,160
Account maintenance fees--Class A ............................... 166,306
Transfer agent fees--Class A .................................... 102,813
Accounting services ............................................. 97,856
Professional fees ............................................... 54,815
Transfer agent fees--Class B .................................... 54,282
Trustees' fees and expenses ..................................... 53,849
Registration fees ............................................... 50,184
Transfer agent fees--Class I .................................... 48,041
Printing and shareholder reports ................................ 47,060
Transfer agent fees--Class C .................................... 36,411
Custodian fees .................................................. 26,944
Pricing fees .................................................... 3,545
Other ........................................................... 30,810
-------------
Total expenses .................................................. 2,171,306
-------------
Investment loss--net ............................................ (659,297)
-------------
===========================================================================================================================
Realized & Unrealized Gain (Loss) on Investments & Foreign Currency Transactions--Net
- ---------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) from:
Investments--net ............................................. 4,417,251
Foreign currency transactions--net ........................... (35,238) 4,382,013
-------------
Change in unrealized appreciation/depreciation from:
Investments--net ............................................. 41,939,254
Foreign currency transactions--net ........................... 1,363 41,940,617
-------------------------------
Total realized and unrealized gain on investments and foreign
currency transactions--net ..................................... 46,322,630
-------------
Net Increase in Net Assets Resulting from Operations ............ $ 45,663,333
=============
See Notes to Financial Statements.
14 MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004
Statements of Changes in Net Assets
For the Year Ended
July 31,
-------------------------------
Increase (Decrease) in Net Assets: 2004 2003
===========================================================================================================================
Operations
- ---------------------------------------------------------------------------------------------------------------------------
Investment loss--net ............................................ $ (659,297) $ (387,282)
Realized gain (loss) on investments and foreign currency
transactions--net .............................................. 4,382,013 (3,957,602)
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net ............................. 41,940,617 19,395,897
-------------------------------
Net increase in net assets resulting from operations ............ 45,663,333 15,051,013
-------------------------------
===========================================================================================================================
Beneficial Interest Transactions
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets derived from beneficial
interest transactions .......................................... 15,860,656 (3,305,952)
-------------------------------
===========================================================================================================================
Net Assets
- ---------------------------------------------------------------------------------------------------------------------------
Total increase in net assets .................................... 61,523,989 11,745,061
Beginning of year ............................................... 115,692,797 103,947,736
-------------------------------
End of year* .................................................... $ 177,216,786 $ 115,692,797
===============================
* Accumulated investment loss--net ........................... $ (26,699) $ (20,922)
===============================
See Notes to Financial Statements.
MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004 15
[LOGO] Merrill Lynch Investment Managers
Financial Highlights
Class A
The following per share data and ratios have been derived ------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended July 31,
------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003+ 2002+ 2001+ 2000+
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ... $ 21.06 $ 18.22 $ 19.35 $ 17.00 $ 15.51
------------------------------------------------------------------
Investment loss--net** ............... (.06) (.03) (.03) (.03) (.01)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net ................... 7.89 2.87 (1.10) 2.38 1.52
------------------------------------------------------------------
Total from investment operations ..... 7.83 2.84 (1.13) 2.35 1.51
------------------------------------------------------------------
Less dividends in excess of investment
income--net ......................... -- -- -- -- (.02)
------------------------------------------------------------------
Net asset value, end of year ......... $ 28.89 $ 21.06 $ 18.22 $ 19.35 $ 17.00
==================================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ... 37.18% 15.59% (5.84%) 13.82% 9.75%
==================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................. 1.25% 1.38% 1.45% 1.37% 1.42%
==================================================================
Investment loss--net ................. (.23%) (.17%) (.14%) (.13%) (.05%)
==================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $77,035 $56,094 $52,946 $59,220 $52,366
==================================================================
Portfolio turnover ................... 10.96% 18.26% 49.77% 40.08% 51.36%
==================================================================
* Total investment returns exclude the effect of sales charges.
** Based on average shares outstanding.
+ Effective April 14, 2003, Class D Shares were redesignated Class A Shares.
See Notes to Financial Statements.
16 MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004
Financial Highlights (continued)
Class B
The following per share data and ratios have been derived ------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended July 31,
------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ... $ 20.49 $ 17.87 $ 19.12 $ 16.93 $ 15.56
------------------------------------------------------------------
Investment loss--net** ............... (.25) (.18) (.17) (.19) (.14)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net ................... 7.66 2.80 (1.08) 2.38 1.51
------------------------------------------------------------------
Total from investment operations ..... 7.41 2.62 (1.25) 2.19 1.37
------------------------------------------------------------------
Net asset value, end of year ......... $ 27.90 $ 20.49 $ 17.87 $ 19.12 $ 16.93
==================================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ... 36.16% 14.66% (6.54%) 12.94% 8.80%
==================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................. 2.02% 2.16% 2.23% 2.16% 2.21%
==================================================================
Investment loss--net ................. (1.00%) (.96%) (.91%) (.93%) (.85%)
==================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $35,399 $23,829 $24,468 $35,525 $19,223
==================================================================
Portfolio turnover ................... 10.96% 18.26% 49.77% 40.08% 51.36%
==================================================================
* Total investment returns exclude the effect of sales charges.
** Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004 17
[LOGO] Merrill Lynch Investment Managers
Financial Highlights (continued)
Class C
The following per share data and ratios have been derived ------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended July 31,
------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ... $ 20.23 $ 17.65 $ 18.88 $ 16.72 $ 15.36
------------------------------------------------------------------
Investment loss--net** ............... (.25) (.18) (.17) (.19) (.14)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net ................... 7.57 2.76 (1.06) 2.35 1.50
------------------------------------------------------------------
Total from investment operations ..... 7.32 2.58 (1.23) 2.16 1.36
------------------------------------------------------------------
Net asset value, end of year ......... $ 27.55 $ 20.23 $ 17.65 $ 18.88 $ 16.72
==================================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ... 36.18% 14.62% (6.51%) 12.92% 8.85%
==================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................. 2.02% 2.16% 2.24% 2.17% 2.21%
==================================================================
Investment loss--net ................. (1.01%) (.96%) (.93%) (.99%) (.86%)
==================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $29,695 $11,789 $ 8,129 $ 9,050 $ 1,782
==================================================================
Portfolio turnover ................... 10.96% 18.26% 49.77% 40.08% 51.36%
==================================================================
* Total investment returns exclude the effect of sales charges.
** Based on average shares outstanding.
See Notes to Financial Statements.
18 MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004
Financial Highlights (concluded)
Class I
The following per share data and ratios have been derived ------------------------------------------------------------------
from information provided in the financial statements. For the Year Ended July 31,
------------------------------------------------------------------
Increase (Decrease) in Net Asset Value: 2004 2003+ 2002+ 2001+ 2000+
==================================================================================================================================
Per Share Operating Performance
- ----------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ... $ 21.25 $ 18.34 $ 19.42 $ 17.02 $ 15.52
------------------------------------------------------------------
Investment income--net** ............. --++ .01 .02 .02 .03
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net ................... 7.97 2.90 (1.10) 2.38 1.51
------------------------------------------------------------------
Total from investment operations ..... 7.97 2.91 (1.08) 2.40 1.54
------------------------------------------------------------------
Less dividends in excess of investment
income--net ......................... -- -- -- -- (.04)
------------------------------------------------------------------
Net asset value, end of year ......... $ 29.22 $ 21.25 $ 18.34 $ 19.42 $ 17.02
==================================================================
==================================================================================================================================
Total Investment Return*
- ----------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ... 37.51% 15.87% (5.56%) 14.10% 9.98%
==================================================================
==================================================================================================================================
Ratios to Average Net Assets
- ----------------------------------------------------------------------------------------------------------------------------------
Expenses ............................. 1.00% 1.12% 1.20% 1.13% 1.16%
==================================================================
Investment income--net ............... .02% .07% .12% .09% .20%
==================================================================
==================================================================================================================================
Supplemental Data
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year (in thousands) $35,088 $23,981 $18,405 $21,305 $13,100
==================================================================
Portfolio turnover ................... 10.96% 18.26% 49.77% 40.08% 51.36%
==================================================================
* Total investment returns exclude the effect of sales charges.
** Based on average shares outstanding.
+ Effective April 14, 2003, Class A Shares were redesignated Class I Shares.
++ Amount is less than $.01 per share.
See Notes to Financial Statements.
MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004 19
[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 U.S. generally accepted accounting principles, which may require
the use of management accruals and estimates. Actual results may differ from
these estimates. 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.
20 MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004
Notes to Financial Statements (continued)
(b) 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.
(c) 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.
(d) 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.
(e) 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.
(f) Prepaid registration fees -- Prepaid registration fees are charged to
expense as the related shares are issued.
(g) Dividends and distributions -- Dividends and distributions paid by the Trust
are recorded on the ex-dividend dates.
(h) 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
MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004 21
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (continued)
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.
(i) Reclassifications -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year, $688,758 has been reclassified between paid-in capital in excess of par
and accumulated net investment loss and $35,238 has been reclassified between
accumulated net investment loss and accumulated net realized capital losses on
investments and foreign currency transactions as a result of permanent
differences attributable to net operating losses and foreign currency
transactions. These reclassifications have no effect on net assets or net asset
values per share.
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.
For the year ended July 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 ............................ $ 7,913 $105,433
Class I ............................ $ 117 $ 1,293
- --------------------------------------------------------------------------------
For the year ended July 31, 2004, MLPF&S received contingent deferred sales
charges of $38,365 and $5,626 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. For the year ended July 31, 2004, MLIM received
$4,009 in securities lending agent fees.
22 MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004
Notes to Financial Statements (continued)
In addition, MLPF&S received $3,103 in commissions on the execution of portfolio
security transactions for the Trust for the year ended July 31, 2004.
For the year ended July 31, 2004, the Trust reimbursed MLIM $2,938 for certain
accounting services.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of ML & Co., is
the Trust's transfer agent.
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
year ended July 31, 2004 were $20,431,461 and $14,998,854, respectively.
4. Beneficial Interest Transactions:
Net increase (decrease) in net assets derived from beneficial interest
transactions was $15,860,656 and $(3,305,952) for the years ended July 31, 2004
and July 31, 2003, respectively.
Transactions in shares of beneficial interest for each class were as follows:
- -------------------------------------------------------------------------------
Class A Shares for the Year Dollar
Ended July 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 324,260 $ 8,175,586
Automatic conversion of shares ......... 103,263 2,585,349
------------------------------
Total issued ........................... 427,523 10,760,935
Shares redeemed ........................ (425,000) (10,666,609)
------------------------------
Net increase ........................... 2,523 $ 94,326
==============================
- -------------------------------------------------------------------------------
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 Year Dollar
Ended July 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 532,342 $ 12,913,698
Automatic conversion of shares ......... (106,535) (2,585,349)
Shares redeemed ........................ (319,871) (7,865,434)
------------------------------
Net increase ........................... 105,936 $ 2,462,915
==============================
- -------------------------------------------------------------------------------
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 Year Dollar
Ended July 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 628,770 $ 15,197,001
Shares redeemed ........................ (133,486) (3,272,094)
------------------------------
Net increase ........................... 495,284 $ 11,924,907
==============================
- -------------------------------------------------------------------------------
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 Year Dollar
Ended July 31, 2004 Shares Amount
- -------------------------------------------------------------------------------
Shares sold ............................ 520,684 $ 12,506,335
Shares redeemed ........................ (448,673) (11,127,827)
------------------------------
Net increase ........................... 72,011 $ 1,378,508
==============================
- -------------------------------------------------------------------------------
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
==============================
MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004 23
[LOGO] Merrill Lynch Investment Managers
Notes to Financial Statements (concluded)
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 year ended July 31, 2004.
6. Commitments:
At July 31, 2004, the Trust had entered into foreign exchange contracts under
which it had agreed to purchase foreign currency with an approximate value of
$143,000.
7. Distributions to Shareholders:
As of July 31, 2004, the components of accumulated earnings on a tax basis were
as follows:
- -----------------------------------------------------------------------------
Undistributed ordinary income--net ...................... $ --
Undistributed long-term capital gains--net .............. --
------------
Total undistributed earnings--net ....................... --
Capital loss carryforward ............................... (7,908,454)*
Unrealized gains--net ................................... 64,854,371**
------------
Total accumulated earnings--net ......................... $ 56,945,917
============
* On July 31, 2004, the Trust had a net capital loss carryforward of
$7,908,454, of which $3,030,200 expires in 2008 and $4,878,254 expires in
2011. This amount will be available to offset like amounts of any future
taxable gains.
** The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on wash sales, the
realization for tax purposes of unrealized gains on certain foreign
currency contracts and the deferral of post-October currency losses for
tax purposes.
24 MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees of
Merrill Lynch Natural Resources Trust:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Merrill Lynch Natural Resources Trust as of July
31, 2004, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Trust's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of July 31, 2004, by correspondence with the custodian and
brokers; where replies were not received from brokers, we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Merrill Lynch Natural Resources Trust as of July 31, 2004, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and its financial highlights for each of
the five years in the period then ended, in conformity with U.S. generally
accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
September 17, 2004
MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004 25
[LOGO] Merrill Lynch Investment Managers
Officers and Trustees (unaudited)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Interested Trustee
- ------------------------------------------------------------------------------------------------------------------------------------
Terry K. P.O. Box 9011 President 1999 to President of the Merrill Lynch Investment Managers, 125 Funds None
Glenn* Princeton, NJ and present L.P. ("MLIM")/Fund Asset Management, L.P. 160 Portfolios
08543-9011 Trustee and ("FAM")--Advised Funds since 1999; Chairman
Age: 63 1985 to (Americas Region) of MLIM from 2000 to 2002;
present Executive Vice President of FAM and MLIM (which
terms as used herein include their corporate
predecessors) from 1983 to 2002; President of FAM
Distributors, Inc. ("FAMD") from 1986 to 2002 and
Director thereof from 1991 to 2002; Executive Vice
President and Director of Princeton Services, Inc.
("Princeton Services") from 1993 to 2002; President
of Princeton Administrators, L.P. from 1989 to 2002;
Director of Financial Data Services, Inc. since 1985.
------------------------------------------------------------------------------------------------------------------------
* Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which MLIM
or FAM acts as investment adviser. Mr. Glenn is an "interested person," as described in the Investment Company Act, of
the Trust based on his present and former positions with MLIM, FAM, FAMD, Princeton Services and Princeton
Administrators, L.P. The Trustee's term is unlimited. Trustees serve until their resignation, removal, or death, or
until December 31 of the year in which they turn 72. As Trust President, Mr. Glenn serves at the pleasure of the Board
of Trustees.
====================================================================================================================================
Independent Trustees*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald W. P.O. Box 9095 Trustee 2002 to General Partner of The Burton Partnership, Limited 23 Funds ITC Delta-
Burton Princeton, NJ present Partnership (an Investment Partnership) since 1979; 36 Portfolios Com, Inc.;
08543-9095 Managing General Partner of The South Atlantic ITC Holding
Age: 60 Venture Funds since 1983; Member of the Investment Company,
Advisory Council of the Florida State Board of Inc.;
Administration since 2001. Knology,
Inc.; Main-
Ban corp,
N.A.; Pri-
Care, Inc.;
Sumbion,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
M. Colyer P.O. Box 9095 Trustee 1985 to James R. Williston Professor of Investment 24 Funds Cambridge
Crum Princeton, NJ present Management Emeritus, Harvard Business 37 Portfolios Bancorp
08543-9095 School since 1996; James R. Williston Professor
Age: 72 of Investment Management, Harvard Business
School from 1971 to 1996; Director of
Cambridge Bancorp.
- ------------------------------------------------------------------------------------------------------------------------------------
Laurie P.O. Box 9095 Trustee 1999 to Professor of Finance and Economics, Graduate 23 Funds None
Simon Princeton, NJ present School of Business, Columbia University since 36 Portfolios
Hodrick 08543-9095 1998; Associate Professor of Finance and
Age: 41 Economics, Graduate School of Business,
Columbia University from 1996 to 1998.
- ------------------------------------------------------------------------------------------------------------------------------------
David H. P.O. Box 9095 Trustee 2003 to Consultant with Putnam Investments since 1993 and 23 Funds None
Walsh Princeton, NJ present employed in various capacities therewith from 1973 36 Portfolios
08543-9095 to 1992; Director, the National Audubon Society
Age: 62 since 1998; Director, the American Museum of
Fly Fishing since 1997.
- ------------------------------------------------------------------------------------------------------------------------------------
26 MERRILL LYNCH NATURAL RESOURCES TRUST JULY 31, 2004
Officers and Trustees (unaudited) (concluded)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name Address & Age Trust Served Principal Occupation(s) During Past 5 Years Trustee Trustee
====================================================================================================================================
Independent Trustees* (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Fred G. P.O. Box 9095 Trustee 1998 to Managing Director of FGW Associates since 1997; 23 Funds Watson
Weiss Princeton, NJ present Vice President, Planning, Investment and Devel- 36 Portfolios Pharma-
08543-9095 opment of Warner Lambert Co. from 1979 to 1997; ceuticals,
Age: 62 since 2000; Director of Michael J. Fox Foundation for Inc.
Parkinson's Research; Director of BTG International,
PLC (a global technology commercialization company)
since 2001.
------------------------------------------------------------------------------------------------------------------------
* The Trustee's term is unlimited. Trustees serve until their resignation, removal or death, or until December 31 of the
year in which they turn 72.
- ------------------------------------------------------------------------------------------------------------------------------------
Position(s) Length of
Held with Time
Name Address & Age Trust Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Trust Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof since 1999;
Burke Princeton, NJ President present Senior Vice President and Treasurer of Princeton Services since 1999; Vice
08543-9011 and 1999 to President of FAMD since 1999; Director of MLIM Taxation since 1990.
Age: 44 Treasurer present
- ------------------------------------------------------------------------------------------------------------------------------------
Robert C. P.O. Box 9011 Senior Vice 1999 to President of MLIM and member of the Executive Management Committee of ML & Co.,
Doll, Jr. Princeton, NJ President present Inc. since 2001; Global Chief Investment Officer and Senior Portfolio Manager of
08543-9011 MLIM since 1999; Chief Investment Officer of Equities at Oppenheimer Funds, Inc.
Age: 49 from 1990 to 1999 and Chief Investment Officer thereof from 1998 to 1999; Executive
Vice President of Oppenheimer Funds, Inc. from 1991 to 1999.
- ------------------------------------------------------------------------------------------------------------------------------------
Robert M. P.O. Box 9011 Vice 1997 to Managing Director of MLIM since 2000; Director (Equities) of MLIM from 1997
Shearer Princeton, NJ President present to 2000.
08543-9011
Age: 49
- ------------------------------------------------------------------------------------------------------------------------------------
Phillip S. P.O. Box 9011 Secretary 2003 to First Vice President of MLIM since 2001; Director (Legal Advisory) of MLIM from
Gillespie Princeton, NJ present 2000 to 2001; Vice President of MLIM from 1999 to 2000 and Attorney associated with
08543-9011 MLIM since 1998.
Age: 40
------------------------------------------------------------------------------------------------------------------------
* Officers of the Trust serve at the pleasure of the Board of Trustees.
- ------------------------------------------------------------------------------------------------------------------------------------
Further information about the Trust's Officers and Trustees is available in the Trust's Statement of Additional
Information, which can be obtained without charge by calling 1-800-MER-FUND.
- ------------------------------------------------------------------------------------------------------------------------------------
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 JULY 31, 2004 27
[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)
at www.mutualfunds.ml.com; and (3) on the Securities and Exchange Commission's
Web site at http://www.sec.gov. Information about how the Trust voted proxies
relating to securities held in the Trust's portfolio during the most recent
12-month period ended June 30 is available (1) at www.mutualfunds.ml.com and (2)
on the Securities and Exchange Commission's Web site at http://www.sec.gov.
Merrill Lynch Natural Resources Trust
Box 9011
Princeton, NJ
08543-9011
#10303 -- 7/04
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the
end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial officer
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge
upon request by calling toll-free 1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit
committee financial experts serving on its audit committee and (ii)
each audit committee financial expert is independent: (1) Donald W.
Burton, (2) M. Colyer Crum, (3) Laurie Simon Hodrick, (4) David H.
Walsh and (5) Fred G. Weiss.
The registrant's board of directors has determined that Laurie Simon
Hodrick and M. Colyer Crum qualify as financial experts pursuant to
Item 3(c)(4) of Form N-CSR.
Ms. Hodrick has a thorough understanding of generally accepted
accounting principals, financial statements, and internal controls and
procedures for financial reporting. Ms. Hodrick earned a Ph.D. in
economics and has taught courses in finance for over 15 years. Her
M.B.A.-level course centers around the evaluation and analysis of
firms' corporate financial statements. She has also taught in financial
analysts' training programs. Ms. Hodrick has also worked with several
prominent corporations in connection with the analysis of financial
forecasts and projections and analysis of the financial statements of
those companies, serving on the Financial Advisory Council of one of
these major corporations. She has also served as the Treasurer and
Finance Chair of a 501(c)(3) organization. Ms. Hodrick has published a
number of articles in leading economic and financial journals and is
the associate editor of two leading finance journals.
M. Colyer Crum also possesses a thorough understanding of generally
accepted accounting principals, financial statements, and internal
controls and procedures for financial reporting through a combination
of education and experience. Professor Crum was a professor of
investment management at the Harvard Business School for 25 years. The
courses taught by Professor Crum place a heavy emphasis on the analysis
of underlying company financial statements with respect to stock
selection and the analysis of credit risk in making loans. Professor
Crum has also served on a number of boards of directors and has served
on the audit committees, and in some cases chaired the audit committee,
for several major corporations and financial institutions. For two such
organizations, Professor Crum has performed extensive investment
analysis of financial statements in connection with investment
management decisions. From these experiences, he has gained significant
experience with the establishment of reserves and accounting policies,
differences between U.S. GAAP and Canadian GAAP and executive
compensation issues.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending July 31, 2004 - $25,600
Fiscal Year Ending July 31, 2003 - $25,000
(b) Audit-Related Fees - Fiscal Year Ending July 31, 2004 - $0
Fiscal Year Ending July 31, 2003 - $0
(c) Tax Fees - Fiscal Year Ending July 31, 2004 - $5,800
Fiscal Year Ending July 31, 2003 - $5,400
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending July 31, 2004 - $0
Fiscal Year Ending July 31, 2003 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending July 31, 2004 - $15,735,706
Fiscal Year Ending July 31, 2003 - $18,108,889
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $945,000, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable
Item 8 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
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 changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the second fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - See Item 2
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - 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: September 17, 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: September 17, 2004
By: /s/ Donald C. Burke
-----------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Natural Resources Trust
Date: September 17, 2004