MERRILL
LYNCH
HEALTHCARE
FUND, INC.
FUND LOGO
Quarterly Report July 31, 1994
This report is not authorized for use as an offer of sale or
a solicitation of an offer to buy shares of the Company
unless accompanied or preceded by the Company's cur-
rent 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.
Merrill Lynch
Healthcare Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
<PAGE>
MERRILL LYNCH HEALTHCARE FUND, INC.
Officers and
Directors
Arthur Zeikel, President and Director
Donald Cecil, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Terry K. Glenn, Executive Vice President
Norman R. Harvey, Senior Vice President
Philip L. Kirstein, Senior Vice President
Donald C. Burke, Vice President
Jordan C. Schreiber, Vice President and Portfolio Manager
Gerald M. Richard, Treasurer
Robert Harris, Secretary
Custodian
The Chase Manhattan Bank, N.A.
Global Securities Services
Chase MetroTech Center
Brooklyn, New York 11245
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
<PAGE>
DEAR SHAREHOLDER
The quarter ended July 31, 1994
was a turbulent period for securi-
ties markets throughout the world.
The three months were marked
by a sharp weakening in the US
dollar in foreign exchange markets,
political upheaval in Japan, and
interest rate hikes in the United
States in an effort to head off
anticipated inflationary pressures.
As a result, market indexes world-
wide declined, with the exception
of Japan. In general, healthcare
issues underperformed even the
lackluster broader market averages
during the period. In Japan and
Europe, anticipated economic
recovery led to the outperform-
ance of cyclical groups relative
to non-economically sensitive
sectors such as healthcare. How-
ever, large-capitalization phar-
maceutical issues on a global
basis substantially outperformed
throughout most of the period
as investor interest focused on
liquidity and attractive relative
valuations. By the quarter's close,
share prices for smaller-capitali-
zation healthcare issues began
to improve.
<PAGE>
The rally for large-capitalization
pharmaceutical companies in the
United States, the United Kingdom
and Sweden was sparked by indica-
tions that the Clinton Administra-
tion's proposed healthcare reform
package seemed to lack political
support. As a result, buying
interest was created following a
two-year period of price declines,
during which valuations reached
exceptional levels. Late in the
quarter, smaller-capitalization
issues also rallied. Proposed and
anticipated consolidations buoyed
share prices for pharmaceutical
stocks. The bid by Roche Holdings
AG, a Fund investment, to acquire
Syntex Corp. at a substantial
premium triggered investor
interest as share prices for
other likely takeover prospects
rose as well.
Investment Strategy
In the United States, we continue
to emphasize healthcare service
providers such as health mainte-
nance organizations (HMOs),
pharmaceutical benefit organiza-
tions and health data companies.
In general, our investment focus
is on providers of healthcare cost-
containment and efficiency. We
view these companies as benefi-
ciaries of the strong movement
toward managed care, regardless
of political developments. Within
the small market capitalization
healthcare universe, we continue
to stress companies that serve
niche areas of the healthcare
market through unique technolo-
gies or innovative products and
consequently are less vulnerable
to generic and managed care pres-
sures. Outside of the United States,
we are targeting investments in
those companies with significant
exposure to recovering economies,
such as AKZO N.V. This company's
major chemical operations are
likely to benefit from a European
economic rebound.
<PAGE>
We believe that the investment
outlook for healthcare issues has
reached an important crossroads.
Over the longer term a more posi-
tive investment environment for
the healthcare sector may develop.
In the United States, it now appears
likely the Administration's original
proposal for universal healthcare
coverage could be scaled back to
such an extent that it will have
little impact on companies until
the next century. In fact, this
political development may be
positive for share prices, since
they already discount a worst-case
scenario for healthcare reform.
Nevertheless, we expect present
cost-containment trends to con-
tinue. We also expect further
penetration of managed care in
the US healthcare market. For
pharmaceutical makers, this is
likely to result in slowed sales,
greater price competition and
more emphasis on generic drugs.
In this climate, those companies
with the most innovative, cost-
effective as well as efficacious
and safe products and services
are likely to reap the greatest
economic benefit. It also seems
likely that consolidations within
the healthcare sector will continue.
<PAGE>
With this outlook, we currently
do not plan major changes in our
investment strategy. We continue
to favor innovative companies in
all facets of the healthcare sector.
For example, EP Technologies,
Inc., a Fund holding, has developed
an ablation catheter used to treat
certain types of life-threatening
heart arrhythmias. In addition, we
have invested in large-capitaliza-
tion companies that are beginning
to position themselves to benefit
from a managed care environment,
such as Eli Lilly & Co., which is
acquiring PCS, McKesson Corp.'s
pharmaceutical benefit company.
On balance, to improve the liquid-
ity of the Fund's portfolio we
have increased our holdings in
larger companies. Healthcare cost-
containment remains an important
part of the portfolio, as exempli-
fied by companies such as Value
Health Inc., Systemed, Inc. and
Medaphis Corp. Both Value Health
and Systemed are independent
pharmaceutical benefit com-
panies, and Medaphis provides
efficient bookkeeping systems for
hospitals. Finally, if interest rates
in the United States continue to
increase and bolster the US dollar's
value in foreign exchange markets,
earnings for foreign-based multi-
national companies in which the
Fund has invested, such as Ciba-
Geigy AG and Roche Holdings,
AG, are likely to benefit.
In Conclusion
We thank you for your investment
in Merrill Lynch Healthcare
Fund, Inc., and we look forward to
reviewing our outlook and strategy
with you again in our next report
to shareholders.
<PAGE>
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Jordan C. Schreiber)
Jordan C. Schreiber
Vice President and
Portfolio Manager
August 16, 1994
PERFORMANCE DATA
None of the past results shown should 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.
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month
7/31/94 4/30/94 7/31/93 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $3.31 $3.87 $3.65 -1.93%(1) -7.50%(1)
Class B Shares 3.01 3.55 3.37 -2.67(1) -7.61(1)
Class A Shares--Total Return -1.93(1) -7.50(1)
Class B Shares--Total Return -2.67(1) -7.61(1)
<FN>
*Investment results shown for the 3-month and 12-month periods are before the deduction of any sales charges.
(1)Percent change includes reinvestment of $0.266 per share capital gains distributions.
</TABLE>
<PAGE>
<TABLE>
Average
Annual
Total Return+++
<CAPTION>
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
<S> <C> <C>
Year Ended 6/30/94 -3.16% -9.46%
2/01/90++ through 6/30/94 +5.96 +4.36
Five Years Ended 6/30/94 +7.35 +5.92
Ten Years Ended 6/30/94 +9.19 +8.46
<FN>
*Maximum sales charge is 6.5%.
**Assuming maximum sales charge.
++On February 1, 1990, Merrill Lynch Asset Management became the sole
investment adviser.
<CAPTION>
% Return % Return
Class B Shares* Without CDSC With CDSC**
<S> <C> <C>
Year Ended 6/30/94 -4.12% -7.95%
2/01/90++ through 6/30/94 +4.83 +4.83
Five Years Ended 6/30/94 +6.21 +6.21
Inception (10/21/88) through 6/30/94 +6.04 +6.04
<FN>
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
++On February 1, 1990, Merrill Lynch Asset Management became the sole
investment adviser.
</TABLE>
<PAGE>
<TABLE>
Performance
Summary--
Class A Shares+++
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<C> <C> <C> <C> <C> <C>
4/1/83-12/31/83 $ 9.15 $ 9.56 -- $0.120 + 5.85%
1984 9.56 8.83 $ 0.040 0.090 - 6.34
1985 8.83 10.65 -- 0.120 +22.16
1986 10.65 11.94 0.530 0.100 +17.86
1987 11.94 9.90 3.347 0.015 +10.24
1988 9.90 9.56 0.825 0.145 + 6.39
1989 9.56 9.09 1.422 0.068 +11.46
1990 9.09 7.29 0.832 0.489 - 6.19
1991 7.29 9.18 -- 1.320 +45.71
1992 9.18 4.03 4.123++ 1.028 + 6.92
1993 4.03 3.91 -- 0.013 - 2.63
1/1/94-7/31/94 3.91 3.31 0.266 -- - 8.45
------- ------
Total $11.385 Total $3.508
Cumulative total return as of 7/31/94: +143.11%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains distributions at net asset value on the ex-dividend
date, and do not include sales charge; results would be lower if sales charge was included.
++Figure includes a $0.879 and $3.089 return of capital on 4/22/92 and 4/27/92, respectively.
</TABLE>
<TABLE>
Performance
Summary--
Class B Shares+++
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<C> <C> <C> <C> <C> <C>
10/21/88-12/31/88 $10.24 $ 9.55 $0.825 $0.089 + 2.22%
1989 9.55 9.07 1.422 0.006 +10.70
1990 9.07 7.19 0.832 0.455 - 7.42
1991 7.19 8.96 -- 1.291 +44.21
1992 8.96 3.72 4.123++ 1.028 + 5.46
1993 3.72 3.59 -- -- - 3.49
1/1/94-7/31/94 3.59 3.01 0.266 -- - 8.63
------ ------
Total $7.468 Total $2.869
Cumulative total return as of 7/31/94: +40.48%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures assume reinvestment of all dividends and capital gains distributions at net asset value on the ex-dividend
date, and do not reflect deduction of any sales charge; results would be lower if sales charge was deducted.
++Figure includes a $0.879 and $3.089 return of capital on 4/22/92 and 4/27/92, respectively.
+++Important Note:
Prior to April 27, 1992, Merrill Lynch Healthcare Fund, Inc. was known as Sci/Tech Holdings, Inc. and contained, in
addition to a healthcare portfolio, a portfolio of technology securities. The data on pages 4 and 5 include the
performance of the technology portfolio which is no longer part of the Fund. Set forth on the following page is
performance data which, for the period before April 27, 1992, includes only the performance of the healthcare
portfolio and a pro rata allocated portion of Sci/Tech Holdings, Inc.'s cash reserves. On February 1, 1990, Merrill
Lynch Asset Management became the sole investment adviser.
</TABLE>
PERFORMANCE DATA (concluded)
<TABLE>
Average
Annual
Total Return
<CAPTION>
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
<S> <C> <C>
Year Ended 6/30/94 - 3.16% - 9.46%
2/01/90++ through 6/30/94 +13.46 +11.74
<FN>
*Maximum sales charge is 6.5%.
**Assuming maximum sales charge.
++Due to the inability to completely isolate the performance of Sci/Tech
Holdings, Inc.'s technology portfolio from its healthcare portfolio, computa-
tions are based upon management's estimates of the healthcare portfolio.
<CAPTION>
% Return % Return
Class B Shares* Without CDSC With CDSC**
<S> <C> <C>
Year Ended 6/30/94 - 4.12% - 7.95%
2/01/90++ through 6/30/94 +12.86 +12.86
<FN>
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
</TABLE>
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 2/01/90 to 7/31/94++
% Change % Change
<S> <C> <C>
Class A Shares--Total Return -1.93%(1) +75.02%
Class B Shares--Total Return -2.67(1) +71.58
<FN>
++Due to the inablity to completely isolate the performance of Sci/Tech Holdings, Inc.'s technology portfolio from
its healthcare portfolio, computations are based upon management's estimates of the healthcare portfolio.
(1)Percent change includes reinvestment of $0.266 per share capital gains distributions.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
NORTH Percent of
AMERICA Industries Shares Held Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Biotechnology 150,000 BioCryst Pharmaceuticals, Inc. $ 975,000 $ 712,500 0.6%
States 40,000 Chiron Corp. 2,320,833 2,140,000 1.7
200,000 Genelabs Technologies, Inc. 450,000 500,000 0.4
5,000 Genentech, Inc. 173,740 251,250 0.2
95,000 Matrix Pharmaceuticals Inc. 890,625 878,750 0.7
100,000 Perseptive Biosystems, Inc. 1,657,188 1,225,000 1.0
345,000 Scios Nova, Inc. 4,008,528 2,113,125 1.7
------------ ------------ ------
10,475,914 7,820,625 6.3
Diagnostics 245,000 Aprogenex Inc. 2,175,949 2,358,125 1.9
450,000 Meris Laboratories, Inc. 4,322,794 2,081,250 1.7
140,000 Quidel Corp. 655,505 385,000 0.3
100,000 Sangstat Medical Corp. 700,000 575,000 0.5
------------ ------------ ------
7,854,248 5,399,375 4.4
<PAGE>
Health Care Cost 110,000 Caremark International, Inc. 2,363,646 2,543,750 2.1
Containment 80,000 Columbia/HCA Healthcare Corporation 3,139,224 3,240,000 2.6
100,000 Coventry Corp. 5,129,084 3,350,000 2.7
50,000 Health Management Systems, Inc. 816,405 1,162,500 0.9
30,000 Medaphis Corp. 410,500 870,000 0.7
30,000 MedQuist, Inc. 210,000 202,500 0.2
5,000 Oxford Health Plans, Inc. 157,852 288,750 0.2
50,000 Pharmaceutical Marketing Services, Inc. 448,125 450,000 0.4
105,000 Physician Corporation of America 2,412,500 2,310,000 1.9
30,000 Pyxis Corporation 710,001 705,000 0.5
20,000 Quantum Health Resources, Inc. 718,125 655,000 0.5
30,000 Sierra Health Services, Inc. 900,999 787,500 0.6
250,000 Systemed, Inc. 1,320,000 1,656,250 1.3
40,000 Value Health Inc. 1,544,900 1,800,000 1.5
------------ ------------ ------
20,281,361 20,021,250 16.2
Medical Specialties 41,000 Argus Pharmaceuticals, Inc. 244,975 112,750 0.1
30,000 Arrow International, Inc. 737,875 592,500 0.5
200,000 Cordis Corp. 8,847,394 9,000,000 7.3
570,000 EP Technologies, Inc. 4,027,501 4,346,250 3.5
65,200 Fresenius USA Inc. 447,524 456,400 0.4
50,000 Medtronic, Inc. 3,390,500 4,456,250 3.6
100,000 North American Vaccine Inc., NVX 1,087,479 962,500 0.8
219,467 Uromed Corp. 1,000,004 895,425 0.7
75,000 Ventritex, Inc. 1,486,876 1,462,500 1.2
------------ ------------ ------
21,270,128 22,284,575 18.1
Pharmaceutical-- 250,000 Carter-Wallace, Inc. 6,300,617 3,906,250 3.2
Diversified 209,300 IVAX Corp. 5,847,883 3,505,775 2.8
65,000 Penederm Inc. 756,250 487,500 0.4
120,000 Warner-Lambert Co. 8,035,713 7,800,000 6.3
------------ ------------ ------
20,940,463 15,699,525 12.7
Pharmaceutical-- 50,000 Lilly (Eli) & Co. 2,618,350 2,431,250 2.0
Prescription 40,000 Merck & Co., Inc. 1,241,400 1,185,000 0.9
75,000 Pfizer, Inc. 4,717,500 4,650,000 3.8
40,000 Rhone-Poulenc Rorer, Inc. 1,375,124 1,400,000 1.1
175,000 Roberts Pharmaceutical Corporation 4,705,625 4,550,000 3.7
100,000 Schering-Plough 6,351,810 6,412,500 5.2
------------ ------------ ------
21,009,809 20,628,750 16.7
Investments in the United States 101,831,923 91,854,100 74.4
Total Investments in North America 101,831,923 91,854,100 74.4
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
PACIFIC BASIN/ Percent of
ASIA Industries Shares Held Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Australia Biotechnology 350,000 Biota Holdings, Ltd. $ 2,083,355 $ 2,146,214 1.7%
Investments in Australia 2,083,355 2,146,214 1.7
India Pharmaceutical-- 80,000 Ranbaxy Laboratories Ltd. (GDS)** 1,554,800 1,560,000 1.3
Prescription
Total Investments in India 1,554,800 1,560,000 1.3
Japan Pharmaceutical-- 25,000 Taisho Pharmaceutical Co., Ltd. 489,152 499,600 0.4
Diversified
Investments in Japan 489,152 499,600 0.4
Total Investments in the Pacific
Basin/Asia 4,127,307 4,205,814 3.4
WESTERN
EUROPE
France Pharmaceutical-- 40,000 Rhone-Poulenc SA (PIC) 1,092,681 977,573 0.8
Prescription
Investments in France 1,092,681 977,573 0.8
Nether- Pharmaceutical-- 68,000 AKZO N.V. 5,621,687 8,187,802 6.6
lands Prescription
Investments in the Netherlands 5,621,687 8,187,802 6.6
Sweden Medical Specialties 73,000 Elekta Instrument AB 'B' Free 1,447,109 1,545,273 1.2
Pharmaceutical-- 100,000 Astra AB "B Fria" 2,130,121 2,129,719 1.7
Prescription 100,000 Pharmacia Biotech AB (Class B) 1,668,204 1,523,072 1.3
------------ ------------ ------
3,798,325 3,652,791 3.0
Investments in Sweden 5,245,434 5,198,064 4.2
<PAGE>
Switzer- Pharmaceutical-- 8,000 Ciba-Geigy AG (Registered) 4,317,056 4,650,540 3.8
land Diversified 150 Roche Holdings AG--PC 698,537 593,971 0.5
Investments in Switzerland 5,015,593 5,244,511 4.3
United Biotechnology 186,664 British Biotech PLC 1,098,364 1,022,149 0.8
Kingdom 20,000 British Biotech PLC (ADR)* 260,000 230,000 0.2
34,998 British Biotech PLC (Warrants) (a) 19,246 26,992 0.0
Investments in the United Kingdom 1,377,610 1,279,141 1.0
Total Investments in Western Europe 18,353,005 20,887,091 16.9
SHORT-TERM Face
SECURITIES Amount Commercial Paper***
<C> <S> <C> <C> <C>
$4,962,000 Associates Corp. of North America, 4.20%
due 8/01/1994 4,960,842 4,960,842 4.0
2,000,000 B.A.T. Capital Corp., 4.30% due 8/17/1994 1,995,700 1,995,700 1.6
5,000,000 Daimler-Benz AG, 4.33% due 8/18/1994 4,988,574 4,988,574 4.0
Federal Home Loan Bank:
8,000,000 4.34% due 8/11/1994 7,988,427 7,988,427 6.5
7,000,000 4.24% due 8/18/1994 6,984,335 6,984,335 5.7
Total Investments in Short-Term Securities 26,917,878 26,917,878 21.8
Total Investments $151,230,113 143,864,883 116.5
============
Liabilities in Excess of Other Assets (20,345,951) (16.5)
------------ ------
Net Assets $123,518,932 100.0%
============ ======
Net Asset
Value:
Class A--Based on net assets of $63,289,932 and 19,093,604 shares outstanding $ 3.31
============
Class B--Based on net assets of $60,229,000 and 20,032,504 shares outstanding $ 3.01
============
<PAGE>
<FN>
*American Depositary Receipt (ADR).
**Global Depositary Shares (GDS).
***Commercial Paper is traded on a discount basis; the interest rates shown
are the discount rates paid at the time of purchase by the Company.
(a)Warrants entitle the Company to purchase a predetermined number of
shares of Common Stock. The purchase price and number of shares are
subject to adjustment under certain conditions until the expiration date.
</TABLE>
PORTFOLIO CHANGES
For the Quarter Ended July 31, 1994
Additions
*Abbott Laboratories
Astra AB "B Fria"
Biota Holdings, Ltd.
British Biotech PLC
(Warrants)
Columbia/HCA Healthcare Corporation
Elekta Instrument AB 'B' Free
Fresenius USA Inc.
Genelabs Technologies, Inc.
*Johnson & Johnson
Lilly (Eli) & Co.
*McKesson Corp.
MedQuist, Inc.
Pfizer, Inc.
Pharmaceutical Marketing Services, Inc.
Physician Corporation of America
Pyxis Corporation
Ranbaxy Laboratories Ltd. (GDS)
Rhone-Poulenc Rorer, Inc.
Rhone-Poulenc SA (PIC)
Roberts Pharmaceutical Corporation
Schering-Plough
Ventritex, Inc.
<PAGE>
Deletions
*Abbott Laboratories
Aphton Corp.
Bio-Technology General Corp.
British Bio-Technology Group PLC (Rights)
HEALTHSOUTH Rehabilitation
Corporation
Integrated Health Services, Inc.
*Johnson & Johnson
Life Medical Sciences Inc.
Life Medical Sciences Inc. (Warrants)
*McKesson Corp.
Mid Atlantic Medical Services, Inc.
Sandoz AG (Registered)
Schering AG
Scimed Life Systems, Inc.
[FN]
*Added and deleted in the same quarter.
PORTFOLIO INFORMATION
Worldwide
Investments
As of 7/31/94
Percent Breakdown of Percent of
Securities by Country Net Assets
United States 74.4%
Netherlands 6.6
Switzerland 4.3
Sweden 4.2
Australia 1.7
India 1.3
United Kingdom 1.0
France 0.8
Japan 0.4
<PAGE>
Industries Represented Percent of
In the Portfolio Net Assets
Pharmaceutical--Prescription 28.4%
Medical Specialties 19.3
Pharmaceutical--Diversified 17.4
Health Care Cost Containment 16.2
Biotechnology 9.0
Diagnostics 4.4
Ten Largest Holdings Percent of
Represented in the Portfolio Net Assets
Cordis Corp. 7.3%
AKZO N.V. 6.6
Warner-Lambert Co. 6.3
Schering-Plough 5.2
Ciba-Geigy AG (Registered) 3.8
Pfizer, Inc. 3.8
Roberts Pharmaceutical
Corporation 3.7
Medtronic, Inc. 3.6
EP Technologies, Inc. 3.5
Carter-Wallace, Inc. 3.2
