MERRILL LYNCH
HEALTHCARE
FUND, INC.
FUND LOGO
Annual Report
April 30, 1995
Officers and Directors
Arthur Zeikel, President and Director
Donald Cecil, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Edward D. Zinbarg, 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
4 Chase MetroTech Center, 18th Floor
Brooklyn, NY 11245
<PAGE>
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
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
current prospectus. Past performance results shown in
this report should not be considered a representation
of future performance. Investment return and prin-
cipal 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
MERRILL LYNCH HEALTHCARE FUND, INC.
Worldwide
Investments
As of 4/30/95
Percent Breakdown of Percent of
Securities by Country Net Assets
United States 60.8%
Switzerland 6.3
Netherlands 4.5
Ireland 3.7
Sweden 3.4
United Kingdom 3.4
India 2.1
Denmark 1.1
<PAGE>
Industries Represented Percent of
In the Portfolio Net Assets
Pharmaceutical--Diversified 24.7%
Medical Specialties 22.3
Pharmaceutical--Prescription 19.9
Health Care Cost Containment 13.5
Biotechnology 2.8
Diagnostics 2.1
Ten Largest Holdings Percent of
Represented in the Portfolio Net Assets
Medtronic, Inc. 6.0%
Homedco Group, Inc. 4.9
AKZO N.V. 4.5
Ciba-Geigy AG (Registered) 4.4
Elan Corporation PLC (ADR) 3.7
Puritan-Bennett Corp. 3.6
EP Technologies, Inc. 3.6
Merck & Co., Inc. 3.6
American Home Products
Corporation 3.0
IVAX Corp. 3.0
Important
Tax Information
All of the ordinary income distributions paid to shareholders
of record on July 6, 1994 for Merrill Lynch Healthcare Fund,
Inc. qualifies for the dividends received deduction for
corporations. Additionally, there were no long-term capital
gains distributions paid by the Company during the year.
Please retain this information for your records.
<PAGE>
DEAR SHAREHOLDER
Within the healthcare sector, a major
development that occurred during the
quarter ended April 30, 1995 was the
continued weakness of the US dollar,
especially relative to the Japanese
yen and the German Deutschemark.
US dollar weakness enhanced the
earnings performance of US-based
multinational pharmaceutical com-
panies by approximately 3%--4%,
while the earnings of foreign-based
competitors with US operations
declined by the same amount.
Another important development was
the decline in share prices for man-
aged care companies, especially for
health maintenance organizations
(HMOs), that occurred late in the
April quarter. At the same time,
premium rates of HMOs and other
healthcare service providers are flat
to down, while medical costs, espe-
cially physicians' fees and hospital
rates, have been rising since the
beginning of 1995. As a result, profit
margins are being pressured and a
"price war" threatens to break out. In
mid-April US Healthcare Corp., a lead-
ing HMO, announced that it would
aggressively seek to increase market
share through rate reductions as
necessary. We expect this profit pres-
sure on HMOs to last over an extended
period. As a result, we lowered Merrill
Lynch Healthcare Fund, Inc.'s port-
folio position in the healthcare service
sector during the April quarter, elimi-
nating positions in HMOs.
Proceeds from the sale of HMOs were
invested in selected European com-
panies such as Ciba-Geigy AG, a
Swiss-based healthcare conglomerate,
that also has an industrial component
that should benefit from a resurgence
in European economic activity as
German-linked interest rates decline.
Another new holding in Europe is
Denmark-based Novo Nordisk A/S, a
maker of insulin for diabetics as well
as industrial enzymes. We also expect
Novo Nordisk to benefit from an
increase in industrial activity.
<PAGE>
The April quarter was also marked by
further political pressure on the Food
and Drug Administration to expedite
the new drug approval process. Among
the prime beneficiaries of regulatory
change are companies manufacturing
medical devices. For example,
Medtronic, Inc., the Fund's largest
holding, received two significant
new product approvals in March: the
Jewel implantable defibrillator, and
Thera, a more automated pacemaker
line. Both approvals came many
months sooner than expected. The
Jewel is the smallest defibrillator to
be approved in the United States and
is simpler to implant than conven-
tional models, since it can be placed
in the pleural cavity instead of in the
abdomen. This convenience dra-
matically reduces the expense as
well as the trauma of this procedure
largely through shorter hospitaliza-
tion periods.
Congress is presently deliberating
the cost of Medicare and Medicaid in
the context of Federal budget deficit
reduction. We believe there is an
increasing possibility that a major
restructuring of these governmental
healthcare programs will be neces-
sary to insure their financial solvency.
However, there is probably not
enough time left to enact legislation
before the Presidential primary
elections in early 1996. In our view,
it is also likely that the outcome of
the 1996 Presidential election will
determine the nature of healthcare
program changes that could come in
1997. Over the next two years, we
expect much encouragement and
incentives to persuade the elderly
and the poor to join managed care
organizations in order to lower
healthcare expenditures. Therefore,
healthcare reform is likely to con-
tinue to be a high-profile subject in
debates on major social, economic
and political concerns.
<PAGE>
Fiscal Year in Review
For the 12-month period ended April
30, 1995, Merrill Lynch Healthcare
Fund Inc.'s Class A and Class B Shares
had total returns of +6.47% and
+5.29%, respectively, compared to a
+17.37% total return for the unman-
aged Standard & Poor's 500 Composite
Index. Class C and Class D Shares had
total returns of +4.89% and +3.05%,
respectively, since inception on
October 21, 1994 through April 30,
1995. (Fund results do not assume the
deduction of sales charges and would
be lower if sales charges were included.
Complete performance information,
including average annual total returns,
can be found on pages 4, 5, 6 and 7 of
this report to shareholders.)
The 12 months ended April 30, 1995
represented a transition period for
the healthcare sector in the United
States. The period began with the
large-capitalization pharmaceutical
companies threatened by potentially
negative national healthcare reform
proposals, with the industry's pricing
policies under scrutiny. Many pharma-
ceutical companies responded to the
pressure by agreeing to limit drug
price increases to the inflation rate.
Profitability was also pressured by the
increased use of generic drugs and
HMO use of pharmaceutical formu-
laries that dictate to physicians which
medicines may be prescribed. In
addition, there was the threat of
mandated therapeutic substitution
initiated by managed care providers,
in which a chemically different drug
may be substituted for another,
regardless of patent status, if it may
treat the same condition in a more
cost-effective manner.
<PAGE>
As the year progressed, the Clinton
Administration's healthcare plan
failed to gain legislative support.
Meanwhile, the industry redirected
its strategy with a focus on market
share rather than on profitability.
Companies cut costs vigorously,
divested less-profitable product lines,
and undertook various forms of
consolidation.
As the more favorable outlook for the
healthcare sector evolved, Merrill
Lynch Healthcare Fund, Inc. altered
its strategy. The Fund had limited its
exposure to the large-capitalization
US-based pharmaceutical and hospi-
tal supply companies that were most
threatened by the Clinton Adminis-
tration's healthcare reform proposals.
Therefore, earlier in the fiscal year,
we emphasized investments in health-
care service providers stressing cost-
containment and efficiency, such as
HMOs, pharmaceutical benefit organi-
zations, and health data companies.
During this period the Fund also
had an increased exposure to foreign-
based companies, both those oper-
ating in more benign regulatory
environments, and conglomerates
likely to benefit from economic
recoveries in Europe and Japan.
As the fiscal year progressed, the
large-capitalization healthcare sector
in the United States stabilized with
a lessening of political pressures,
corporate consolidations, and intense
cost-cutting that has helped to sup-
port profitability. In this environment,
we switched the Fund's investment
focus back to the United States and
to pharmaceutical companies. This
strategy enhanced the Fund's per-
formance, particularly as equity
investors continue to favor large-
capitalization issues. As discussed,
late in the April quarter we under-
took another strategic change and
liquidated the Fund's remaining HMO
holdings and shifted assets to other
healthcare service companies in fields
such as physician management and
respiratory therapy. This movement
also helped to enhance total return
as share prices for HMOs declined.
<PAGE>
In Conclusion
While the debate about healthcare
reform continues in the United States,
dramatic scientific developments con-
tinue. For example, Cozaar, developed
by Fund holding Merck & Co., Inc.,
was approved in the United States,
the United Kingdom and other major
markets during the quarter. Cozaar is
an advance in hypertension treatment
over current therapy, since it evi-
dences fewer side effects that might
otherwise lead patients to discontinue
needed therapy. In addition, new
genetic discoveries are announced
almost daily. Consolidation worldwide
also continues unabated, such as the
recently completed acquisition of
Wellcome PLC by Glaxo PLC in the
United Kingdom.
In short, revolutionary change in all
aspects of the worldwide healthcare
sector continues at an accelerated
pace. Such change presents invest-
ment opportunity. Throughout the
Fund's new fiscal year, we will con-
tinue to seek to position the portfolio
to benefit from the dynamic trends
within the healthcare sector
worldwide.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Jordan C. Schreiber)
Jordan C. Schreiber
Vice President and Portfolio Manager
May 30, 1995
<PAGE>
PROXY RESULTS
During the six-month period ended April 30, 1995, Merrill Lynch
Healthcare Fund, Inc. shareholders voted on the following proposals.
Proposals 1, 2 and 4 were approved at a special shareholders'
meeting on September 28, 1994. Proposal 3 was passed at a special
shareholders' meeting on January 31, 1995. The description of each
proposal and number of shares voted are as follows:
<TABLE>
<CAPTION>
Shares Voted Shares Voted
For Without Authority
<S> <S> <C> <C>
1. To elect the Fund's Board of Directors: Donald Cecil 34,994,492 714,897
Edward H. Meyer 34,994,340 715,049
Charles C. Reilly 34,994,492 714,897
Richard R. West 34,994,492 714,897
Arthur Zeikel 34,993,258 716,131
<CAPTION>
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C>
2. To select Deloitte & Touche LLP as the Fund's independent auditors. 34,755,179 256,639 697,571
3. To approve certain changes to the Fund's fundamental investment restrictions. 19,213,439 1,050,929 999,119
4. To amend the Fund's articles of incorporation to implement the Merrill Lynch
Select Pricing SM System. 32,235,302 1,850,773 1,623,314
<PAGE>
PERFORMANCE DATA
About Fund
Performance
Since October 21, 1994, investors have been able to purchase shares
of the Fund through the Merrill Lynch Select Pricing SM System,
which offers four pricing alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account mainte-
nance fees. Class A Shares are available only to eligible investors.
* Class B Shares are subject to a maximum contingent deferred
sales charge of 4% if redeemed during the first year, decreasing 1%
each year thereafter to 0% after the fourth year. 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 D Shares after approximately 8 years.
* 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.
* Class D Shares incur a maximum initial sales charge of 5.25%
and an account maintenance fee of 0.25% (but no distribution fee).
Performance data for the Fund's Class A and Class B Shares are
presented in the "Total Return Based on a $10,000 Investment",
"Performance Summary," "Recent Performance Results" and "Average
Annual Total Return" tables on pages 5-7. Data for Class C and
Class D Shares, are also presented in the "Recent Performance
Results" and "Aggregate Total Return" tables on pages 5 and 7.
The "Recent Performance Results" table shows investment results
before the deduction of any sales charges for Class A and Class B
Shares for the 12-month and 3-month periods ended April 30, 1995
and for Class C and Class D Shares for the since inception and
3-month periods ended April 30, 1995. All data in this table
assume imposition of the actual total expenses incurred by each
class of shares during the relevant period.
<PAGE>
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. 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.
Total Return
Based on a
$10,000
Investment++++
A line graph depicting the growth of an investment in the Fund's
Class A shares compared to growth of an investment in the S&P 500
Index. Beginning and ending values are:
4/85 4/95
ML Healthcare Fund, Inc.++--
Class A Shares* $ 9,475 $26,239
S&P 500 Index++++ $10,000 $39,844
A line graph depicting the growth of an investment in the Fund's
Class B Shares compared to growth of an investment in the S&P 500
Index. Beginning and ending values are:
10/21/88** 4/95
ML Healthcare Fund, Inc.++
Class B Shares* $10,000 $16,008
S&P 500 Index++++ $10,000 $22,235
<FN>
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of Operations.
++ML Healthcare Fund, Inc. invests worldwide primarily in
equity securities of companies that, in the opinion of
management, derive or are expected to derive a substantial
portion of their sales from products and services in
healthcare.
++++This unmanaged broad-based Index is comprised of common stocks.
+++See important Note on page 7.
<PAGE>
Average Annual
Total Return+++
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 3/31/95 + 5.65% +0.10%
2/01/90++ through 3/31/95 + 8.03 +6.91
Five Years Ended 3/31/95 + 8.35 +7.18
Ten Years Ended 3/31/95 +10.54 +9.95
<FN>
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
++On February 1, 1990, Merrill Lynch Asset Management became the sole
investment adviser.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 3/31/95 +4.40% +0.53%
2/01/90++ through 3/31/95 +6.91 +6.91
Five Years Ended 3/31/95 +7.23 +7.23
Inception (10/21/88) through 3/31/95 +7.57 +7.57
<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.
Aggregate
Total Return
% Return % Return
Class C Shares* Without CDSC With CDSC**
Inception (10/21/94) through 3/31/95 +5.20% +4.20%
<FN>
*Maximum contingent sales charge is 1% and is reduced to 0% after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
<PAGE>
% Return Without % Return With
Class D Shares* Sales Charge Sales Charge**
Inception (10/21/94) through 3/31/95 +3.05% -2.36%
<FN>
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
+++See Important Note on page 7.
PERFORMANCE DATA (concluded)
</TABLE>
<TABLE>
Performance
Summary--
Class A Shares+++
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <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
1994 3.91 3.46 0.266 -- - 4.30
1/1/95-4/30/95 3.46 3.81 -- -- +10.12
------- ------
Total $11.385 Total $3.508
Cumulative total return as of 4/30/95: +179.83%**
<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>
<PAGE>
<TABLE>
Performance
Summary--
Class B Shares+++
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <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
1994 3.59 3.13 0.266 -- - 4.99
1/1/95-4/30/95 3.13 3.43 -- -- + 9.58
------ ------
Total $7.468 Total $2.869
Cumulative total return as of 4/30/95: +60.08%**
<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.
</TABLE>
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month
4/30/95 1/31/95 4/30/94++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $3.81 $3.61 $3.87 +6.47%(1) +5.54%
Class B Shares 3.43 3.25 3.55 +5.29(1) +5.54
Class C Shares 3.43 3.26 3.27 +4.89 +5.21
Class D Shares 3.72 3.52 3.61 +3.05 +5.68
Class A Shares--Total Return +6.47(1) +5.54
Class B Shares--Total Return +5.29(1) +5.54
Class C Shares--Total Return +4.89 +5.21
Class D Shares--Total Return +3.05 +5.68
<PAGE>
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
++Investment results shown for Class C and Class D Shares are
since inception (10/21/94).
(1)Percent change includes reinvestment of $0.266 per share capital
gains distributions.
</TABLE>
[FN]
+++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 5
and 6 and the table above include the performance of the technology
portfolio which is no longer part of the Fund. Set forth below are
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.
Average Annual
Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 3/31/95 + 5.65% + 0.10%
2/01/90++ through 3/31/95 +14.53 +13.34
[FN]
*Maximum sales charge is 5.25%.
**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.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 3/31/95 + 4.40% + 0.53%
2/01/90++ through 3/31/95 +13.87 +13.87
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0% after
4 years.
**Assuming payment of applicable contingent deferred sales charge.
++Due to the inability 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.
<PAGE>
Recent
Performance
Results 12 Month 2/01/90 to 4/30/95++
% Change % Change
Class A Shares--Total Return +6.47%(1) +101.46%
Class B Shares--Total Return +5.29(1) + 95.52
[FN]
++Due to the inability 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>
SCHEDULE OF INVESTMENTS
<CAPTION>
NORTH Value Percent of
AMERICA Industries Shares Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United States Biotechnology 50,000 ++Amgen, Inc. $ 2,987,500 $ 3,631,250 2.3%
120,000 ++BioCryst Pharmaceuticals, Inc. 780,000 735,000 0.5
------------ ------------ ------
3,767,500 4,366,250 2.8
Diagnostics 5,000 Diagnostic Products Corp. 180,350 193,750 0.1
560,000 ++Meris Laboratories, Inc. (a) 4,722,934 2,520,000 1.6
100,000 ++Sangstat Medical Corp. 700,000 575,000 0.4
------------ ------------ ------
5,603,284 3,288,750 2.1
Health Care Cost 100,000 Columbia/HCA Healthcare Corporation 4,308,800 4,200,000 2.7
Containment 135,000 ++Homedco Group, Inc. 7,146,878 7,661,250 4.9
140,000 ++Inphynet Medical Management, Inc. 2,251,749 2,240,000 1.4
125,000 ++Mariner Health Group, Inc. 2,312,500 1,796,875 1.2
30,000 ++Medaphis Corp. 410,500 1,702,500 1.1
100,000 ++OrNda Healthcorp. 1,643,125 1,737,500 1.1
55,000 ++Pyxis Corporation 1,278,127 1,093,125 0.7
30,000 ++Summit Care Corp. 597,400 600,000 0.4
------------ ------------ ------
19,949,079 21,031,250 13.5
<PAGE>v
Medical Specialties 50,000 Baxter International, Inc. 1,405,340 1,737,500 1.1
25,000 Becton, Dickinson & Company 1,287,750 1,393,750 0.9
100,000 ++Boston Scientific Corp. 2,690,663 2,725,000 1.8
160,000 Collagen Corporation 3,375,628 3,040,000 2.0
600,000 ++EP Technologies, Inc. (a) 4,317,502 5,625,000 3.6
78,900 ++Fresenius USA Inc. 550,530 808,725 0.5
125,000 Medtronic, Inc. 4,792,250 9,296,875 6.0
100,000 ++Ostex International, Inc. 950,000 875,000 0.6
230,000 Puritan-Bennett Corp. 5,335,624 5,635,000 3.6
219,467 ++Uromed Corp.++++ 1,000,005 1,381,270 0.9
------------ ------------ ------
25,705,292 32,518,120 21.0
Pharmaceutical-- 100,000 Abbott Laboratories 3,346,810 3,937,500 2.5
Diversified 60,000 American Home Products Corporation 4,024,225 4,627,500 3.0
180,000 IVAX Corp. 5,022,511 4,657,500 3.0
65,000 Johnson & Johnson Co. 3,885,050 4,225,000 2.7
37,100 Warner-Lambert Co. 2,877,254 2,958,725 1.9
------------ ------------ ------
19,155,850 20,406,225 13.1
Pharmaceutical-- 30,000 Lilly (Eli) & Co. 1,678,050 2,242,500 1.4
Prescription 130,000 Merck & Co., Inc. 5,006,554 5,573,750 3.6
50,000 Pfizer, Inc. 3,943,000 4,331,250 2.8
10,000 Schering-Plough Corp. 639,978 753,750 0.5
------------ ------------ ------
11,267,582 12,901,250 8.3
Investments in the United States 85,448,587 94,511,845 60.8
Total Investments in North America 85,448,587 94,511,845 60.8
PACIFIC
BASIN
India Pharmaceutical-- 150,000 Ranbaxy Laboratories Ltd. (GDR)* 2,987,300 3,300,000 2.1
Prescription
Investments in India 2,987,300 3,300,000 2.1
Total Investments in the Pacific Basin 2,987,300 3,300,000 2.1
<PAGE>
WESTERN
EUROPE
Denmark Pharmaceutical-- 17,000 Novo Nordisk A/S 1,754,411 1,755,707 1.1
Diversified
Investments in Denmark 1,754,411 1,755,707 1.1
Ireland Pharmaceutical-- 164,500 ++Elan Corporation PLC (ADR)** 5,819,813 5,819,187 3.7
Diversified
Investments in Ireland 5,819,813 5,819,187 3.7
Netherlands Pharmaceutical-- 60,000 AKZO N.V. 6,964,667 6,973,140 4.5
Prescription
Investments in the Netherlands 6,964,667 6,973,140 4.5
Sweden Medical Specialties 80,000 ++Elekta Instrument AB 'B' Free 1,571,372 2,002,118 1.3
Pharmaceutical-- 50,000 Astra AB 'B' Free 1,350,276 1,423,209 0.9
Prescription 100,000 Pharmacia Biotech AB (Class B) 1,670,411 1,883,861 1.2
------------ ------------ ------
3,020,687 3,307,070 2.1
Investments in Sweden 4,592,059 5,309,188 3.4
Switzerland Pharmaceutical-- 10,000 Ciba-Geigy AG (Registered) 6,681,526 6,859,143 4.4
Diversified 500 Roche Holdings AG 2,378,214 3,011,811 1.9
Investments in Switzerland 9,059,740 9,870,954 6.3
United Kingdom Pharmaceutical-- 20,000 SmithKline Beecham Corp. PLC (ADR)** 710,950 777,500 0.5
Diversified
Pharmaceutical-- 150,000 Glaxo PLC 3,434,125 3,543,750 2.3
Prescription 60,000 Zeneca Group PLC 876,094 872,781 0.6
------------ ------------ ------
4,310,219 4,416,531 2.9
Investments in the United Kingdom 5,021,169 5,194,031 3.4
Total Investments in Western Europe 33,211,859 34,922,207 22.4
<PAGE>
SHORT-TERM Face
SECURITIES Amount
<S> <C> <S> <C> <C> <C>
Commercial 6,714,000 Associates Corp. of North America,
Paper*** 5.90% due 5/01/1995 6,711,799 6,711,799 4.3
Matterhorn Capital Corp.:
1,397,000 5.98% due 5/16/1995 1,393,055 1,393,055 0.9
4,000,000 5.95% due 5/26/1995 3,982,150 3,982,150 2.6
------------ ------------ ------
12,087,004 12,087,004 7.8
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
SHORT-TERM
SECURITIES Face Value Percent of
(concluded) Amount Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
US Government & Federal Farm Credit Bank:
Agency $ 3,000,000 5.94% due 5/04/1995 $ 2,997,525 $ 2,997,525 1.9%
Obligations*** 11,000,000 5.86% due 5/24/1995 10,955,236 10,955,236 7.1
4,000,000 5.85% due 6/02/1995 3,977,900 3,977,900 2.6
2,000,000 Federal Home Loan Bank, 5.89%
due 5/22/1995 1,992,474 1,992,474 1.3
2,000,000 Federal National Mortgage Association,
5.86% due 5/09/1995 1,996,745 1,996,745 1.3
------------ ------------ ------
21,919,880 21,919,880 14.2
Total Investments in Short-Term
Securities 34,006,884 34,006,884 22.0
Total Investments $155,654,630 166,740,936 107.3
============
Liabilities in Excess of Other Assets (11,403,866) (7.3)
------------ ------
Net Assets $155,337,070 100.0%
============ ======
<FN>
*Global Depositary Receipt (GDR).
**American Depositary Receipt (ADR).
***Commercial Paper and certain US Government & Agency Obligations are traded
on a discount basis; the interest rates shown are the discount rates paid
at the time of purchase by the Company.
(a)Investment in companies 5% or more of whose outstanding securities are held
by the Company (such companies are defined as "Affiliated Companies" in
section 2(a)(3) of the Investment Company Act of 1940) are as follows:
<PAGE>v
<CAPTION>
Net Share Dividend
Industry Affiliate Activity Net Cost Income
<S> <S> <C> <C> <C>
Diagnostics Meris Laboratories, Inc. 110,000 $400,140 --
Medical EP Technologies Inc. 70,000 670,000 --
Specialties
++Non-income producing security.
++++Restricted securities as to resale. The value of the Company's investment in
restricted securities was approximately $1,381,270, representing 0.9% of
net assets.
<CAPTION>
Acquisition Value
Issue Date Cost (Note 1a)
<S> <C> <C> <C>
Uromed Corp., Inc. 9/15/93 $1,000,005 $1,381,270
Total $1,000,005 $1,381,270
See Notes to Financial Statements.
</TABLE>
PORTFOLIO CHANGES (unaudited)
For the Quarter Ended April 30, 1995
Additions
Boston Scientific Corp.
Ciba-Geigy AG (Registered)
Diagnostic Products Corp.
Glaxo PLC
Homedco Group, Inc.
Inphynet Medical Management, Inc.
*Integrated Health Services
Johnson & Johnson Co.
Mariner Health Group, Inc.
Novo Nordisk A/S
OrNda Healthcorp.
Puritan-Bennett Corp.
SmithKline Beecham Corp. PLC (ADR)
Summit Care Corp.
*Upjohn Co.
Zeneca Group PLC
<PAGE>
Deletions
Allergan, Inc.
Aprogenex Inc.
Biomira Inc.
Biota Holdings, Ltd.
British Biotech PLC
British Biotech PLC (Warrants)
Cordis Corp.
Genelabs Technologies, Inc.
*Integrated Health Services
Kissei Pharmaceuticals Co., Ltd.
North American Vaccine Inc., NVX
Physician Corporation of America
RightCHOICE Managed Care, Inc.
Schering AG
Teva Pharmaceuticals Industries, Inc. (ADR)
United Healthcare Corp.
*Upjohn Co.
Ventritex, Inc.
[FN]
*Added and deleted in the same quarter.
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of April 30, 1995
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$155,654,630) (Note 1a) $166,740,936
Cash 4,406,479
Receivables:
Securities sold $ 2,877,187
Capital shares sold 667,091
Dividends 58,556 3,602,834
------------
Prepaid registration fees and other assets (Note 1f) 44,321
------------
Total assets 174,794,570
------------
<PAGE>
Liabilities: Payables:
Securities purchased 18,484,055
Capital shares redeemed 648,652
Investment adviser (Note 2) 115,737
Distributor (Note 2) 60,405 19,308,849
------------
Accrued expenses and other liabilities 148,651
------------
Total liabilities 19,457,500
------------
Net Assets: Net assets $155,337,070
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized $ 1,826,905
Consist of: Class B Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized 2,316,414
Class C Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized 52,899
Class D Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized 117,805
Paid-in capital in excess of par 140,796,894
Accumulated realized capital losses on investments and foreign currency transactions--net (875,322)
Unrealized appreciation on investments and foreign currency transactions--net 11,101,475
------------
Net assets $155,337,070
============
Net Asset Class A--Based on net assets of $69,649,556 and 18,269,048 shares outstanding $ 3.81
Value: ============
Class B--Based on net assets of $79,485,054 and 23,164,140 shares outstanding $ 3.43
============
Class C--Based on net assets of $1,816,306 and 528,991 shares outstanding $ 3.43
============
Class D--Based on net assets of $4,386,154 and 1,178,045 shares outstanding $ 3.72
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
For the Year Ended April 30, 1995
<S> <S> <C> <C>
Investment Interest and discount earned $ 1,042,753
Income Dividends (net of $34,511 foreign withholding tax) 1,031,286
(Notes 1d & ------------
& 1e): Total income 2,074,039
------------
Expenses: Investment advisory fees (Note 2) $ 1,323,449
Distribution fees--Class B (Note 2) 651,774
Transfer agent fees--Class B (Note 2) 272,220
Transfer agent fees--Class A (Note 2) 243,845
Printing and shareholder reports 202,767
Accounting services (Note 2) 108,303
Professional fees 99,512
Registration fees (Note 1f) 86,759
Custodian fees 43,890
Directors' fees and expenses 19,959
Transfer agent fees--Class D (Note 2) 5,283
Distribution fees--Class C (Note 2) 3,005
Account maintenance fees--Class D (Note 2) 2,385
Transfer agent fees--Class C (Note 2) 1,875
Pricing fees 1,529
Other 7,837
------------
Total expenses 3,074,392
------------
Investment loss--net (1,000,353)
------------
Realized & Realized loss from:
Unrealized Investments--net (819,447)
Gain (Loss) on Foreign currency transactions--net (108) (819,555)
Investments & ------------
Foreign Change in unrealized appreciation/depreciation on:
Currency Investments--net 9,758,139
Transactions Foreign currency transactions--net 17,137 9,775,276
- --Net (Notes ------------ ------------
1b, 1c, 1e Net realized and unrealized gain on investments and foreign currency transactions 8,955,721
& 3): ------------
Net Increase in Net Assets Resulting from Operations $ 7,955,368
============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended April 30,
Increase (Decrease) in Net Assets: 1995 1994
<S> <S> <C> <C>
Operations: Investment loss--net $ (1,000,353) $ (1,106,018)
Realized gain (loss) on investments and foreign currency transactions--net (819,555) 13,090,689
Change in unrealized appreciation/depreciation on investments and foreign currency
transactions--net 9,775,276 (4,130,488)
------------ ------------
Net increase in net assets resulting from operations 7,955,368 7,854,183
------------ ------------
Dividends & Investment income--net:
Distributions Class A -- (236,233)
to Realized gain on investments--net:
Shareholders Class A (4,761,771) --
(Note 1g): Class B (4,901,206) --
------------ ------------
Net decrease in net assets resulting from dividends and distributions to shareholders (9,662,977) (236,233)
------------ ------------
Capital Net increase in net assets derived from capital share transactions 22,599,545 30,228,261
Share ------------ ------------
Transactions
(Note 4):
Net Assets: Total increase in net assets 20,891,936 37,846,211
Beginning of year 134,445,134 96,598,923
------------ ------------
End of year $155,337,070 $134,445,134
============ ============
See Notes to Financial Statements.
</TABLE>
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A
For the For the
The following per share data and ratios Five-Month For the Eight-Month For the
have been derived from information provided Period Year Period Year
in the financial statements. For the Year Ended Ended Ended Ended
Ended April 30, April 30, Nov. 30, Nov. 30, March 31,
Increase (Decrease) in Net Asset Value: 1995++ 1994++ 1993 1992 1991 1990 1990
<S> <S> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 3.87 $ 3.59 $ 3.63 $ 9.19 $ 7.94 $ 9.13 $ 9.61
Operating -------- -------- -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.01) (.02) .02 -- .03 .05 .05
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .22 .31 (.06) .88 2.08 (.75) .96
-------- -------- -------- -------- -------- -------- --------
Total from investment operations .21 .29 (.04) .88 2.11 (.70) 1.01
-------- -------- -------- -------- -------- -------- --------
Less dividends and distributions:
Return of capital--net -- -- -- (3.97) -- -- --
Investment income--net -- (.01) -- -- (.03) (.08) (.07)
Realized gain on investments--net (.27) -- -- (2.47) (.83) (.41) (1.42)
-------- -------- -------- -------- -------- -------- --------
Total dividends and distributions (.27) (.01) -- (6.44) (.86) (.49) (1.49)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 3.81 $ 3.87 $ 3.59 $ 3.63 $ 9.19 $ 7.94 $ 9.13
======== ======== ======== ======== ======== ======== ========
Total Based on net asset value per share 6.47% 8.19% (1.10%) 10.96%+++ 29.44% (8.75%)+++ 11.36%
Investment ======== ======== ======== ======== ======== ======== ========
Return:**
Ratios to Expenses, net of reimbursement 1.79% 1.55% 1.85% 1.56%* 1.61% 1.77%* 1.55%
Average ======== ======== ======== ======== ======== ======== ========
Net Assets: Expenses 1.79% 1.55% 1.85% 1.56%* 1.61% 1.77%* 1.61%
======== ======== ======== ======== ======== ======== ========
Investment income (loss)--net (.21%) (.48%) .48% (.16%)* .27% .62%* .78%
======== ======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 69,650 $ 70,753 $ 63,528 $ 61,132 $125,979 $114,852 $140,635
Data: ======== ======== ======== ======== ======== ======== ========
Portfolio turnover 196.91% 133.58% 103.06% 147.63% 206.29% 159.11% 122.57%
======== ======== ======== ======== ======== ======== ========
<PAGE>
<CAPTION>
Class B
For the For the
The following per share data and ratios Five-Month For the Eight-Month For the
have been derived from information provided Period Year Period Year
in the financial statements. For the Year Ended Ended Ended Ended
Ended April 30, April 30, Nov. 30, Nov. 30, March 31,
Increase (Decrease) in Net Asset Value: 1995++ 1994++ 1993++ 1992++ 1991 1990 1990++
<S> <S> <C> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 3.55 $ 3.31 $ 3.38 $ 9.01 $ 7.84 $ 9.05 $ 9.57
Operating -------- -------- -------- -------- -------- -------- --------
Performance: Investment loss--net (.04) (.05) (.01) (.02) (.03) (.01) (.06)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .19 .29 (.06) .83 2.03 (.75) .97
-------- -------- -------- -------- -------- -------- --------
Total from investment operations .15 .24 (.07) .81 2.00 (.76) .91
-------- -------- -------- -------- -------- -------- --------
Less dividends and distributions:
Return of capital--net -- -- -- (3.97) -- -- --
Investment income--net -- -- -- -- -- (.04) (.01)
Realized gain on investments--net (.27) -- -- (2.47) (.83) (.41) (1.42)
-------- -------- -------- -------- -------- -------- --------
Total dividends and distributions (.27) -- -- (6.44) (.83) (.45) (1.43)
-------- -------- -------- -------- -------- -------- --------
Net asset value, end of period $ 3.43 $ 3.55 $ 3.31 $ 3.38 $ 9.01 $ 7.84 $ 9.05
======== ======== ======== ======== ======== ======== ========
Total Based on net asset value per share 5.29% 7.25% (2.07%) 10.26%+++ 28.30% (9.37%)+++ 10.23%
Investment ======== ======== ======== ======== ======== ======== ========
Return:**
Ratios to Expenses, excluding distribution fees and
Average net of reimbursement 1.85% 1.56% 1.89% 1.58%* 1.63% 1.82%* 1.60%
Net Assets: ======== ======== ======== ======== ======== ======== ========
Expenses, net of reimbursement 2.85% 2.56% 2.89% 2.58%* 2.63% 2.82%* 2.60%
======== ======== ======== ======== ======== ======== ========
Expenses 2.85% 2.56% 2.89% 2.58%* 2.63% 2.82%* 2.68%
======== ======== ======== ======== ======== ======== ========
Investment loss--net (1.29%) (1.52%) (.41%) (1.02%)* (.79%) (.36%)* (.31%)
======== ======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 79,485 $ 63,692 $ 33,071 $ 5,356 $ 6,007 $ 3,222 $ 2,412
Data: ======== ======== ======== ======== ======== ======== ========
Portfolio turnover 196.91% 133.58% 103.06% 147.63% 206.29% 159.11% 122.57%
======== ======== ======== ======== ======== ======== ========
<PAGE>
<CAPTION>
The following per share data and ratios have been derived For the Period
from information provided in the financial statements. October 21, 1994++++ to
April 30, 1995++
Increase (Decrease) in Net Asset Value: Class C Class D
<S> <S> <C> <C>
Per Share Net asset value, beginning of period $ 3.27 $ 3.61
Operating -------- --------
Performance: Investment loss--net (.04) (.02)
Realized and unrealized gain on investments and foreign currency transactions--net .20 .13
-------- --------
Total from investment operations .16 .11
-------- --------
Net asset value, end of period $ 3.43 $ 3.72
======== ========
Total Based on net asset value per share 4.89%+++ 3.05%+++
Investment ======== ========
Return:**
Ratios to Expenses, excluding account maintenance and distribution fees 2.28%* 2.19%*
Average ======== ========
Net Assets: Expenses 3.28%* 2.44%*
======== ========
Investment loss--net (2.13%)* (1.23%)*
======== ========
Supplemental Net assets, end of period (in thousands) $ 1,816 $ 4,386
Data: ======== ========
Portfolio turnover 196.91% 196.91%
======== ========
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Calculation is based on average number of shares outstanding during the period.
++++Commencement of Operations.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Healthcare Fund, Inc. (the "Company") is registered
under the Investment Company Act of 1940 as a non-diversified,
open-end management investment company. The Company offers
four classes of shares under the Merrill Lynch Select Pricing SM
System. Shares of Class A and Class D 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 B, Class C and
Class D 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.
The following is a summary of significant accounting policies
followed by the Company.
(a) Valuation of investments--Portfolio securities which are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business
on the day the securities are being valued or, lacking any sales,
at the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior
to the time of valuation. In cases where securities are traded
on more than one exchange, the securities are valued on the
exchange designated by or under the authority of the Board of
Directors as the primary market. Securities which are traded both
in the over-the-counter 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 over-the-
counter market, the last asked price. Options purchased are valued
at the last sale price in the case of exchange-traded options or,
in the case of options traded in the over-the-counter market, the
last bid price. Short-term securities are valued at amortized cost,
which approximates market value. Other investments, including
futures contracts and related options, are stated at market value.
Securities and assets for which market value quotations are not
available are valued at their fair value as determined in good faith
by or under the direction of the Company's Board of Directors.
(b) 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 US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates
on investments.
<PAGE>
(c) Derivative financial instruments--The Company may engage
in various portfolio strategies to seek to increase its return by
hedging its portfolio against adverse movements in the equity, debt
and currency markets. Losses may arise due to changes in the
value of the contract or if the counterparty does not perform
under the contract.
* Financial futures contracts--The Company may purchase or sell
interest rate futures contracts and options on such futures con-
tracts for the purpose of hedging the market risk on existing
securities or the intended purchase of securities. Futures contracts
are contracts for delayed delivery of securities at a specific future
date and at a specific price or yield. Upon entering into a contract,
the Company deposits and maintains as collateral such initial
margin as required by the exchange on which the transaction is
effected. Pursuant to the contract, the Company agrees to receive
from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are
known as variation margin and are recorded by the Company as
unrealized gains or losses. When the contract is closed, the
Company records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and
the value at the time it was closed.
* Options--The Company is authorized to write covered call options
and purchase put options. When the Company writes an option,
an amount equal to the premium received by the Company 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 Company enters
into a closing transaction), the Company 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 exceeds
the premium paid or received).
Written and purchased options are non-income producing
investments.
* Forward foreign exchange contracts--The Company is author-
ized to enter into forward foreign exchange contracts as a hedge
against either specific transactions or portfolio positions. Such
contracts are not entered on the Company's records. However, the
effect on operations is recorded from the date the Company enters
into such contracts. Premium or discount is amortized over the
life of the contracts.
<PAGE>
* Foreign currency options and futures--The Company may also
purchase or sell listed or over-the-counter foreign currency
options, foreign currency futures and related options on foreign
currency futures as a short or long hedge against possible varia-
tions in foreign exchange rates. Such transactions may be effected
with respect to hedges on non-US dollar denominated securities
owned by the Company, sold by the Company but not yet delivered,
or committed or anticipated to be purchased by the Company.
(d) Income taxes--It is the Company'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 trans-
actions are recorded on the dates the transactions are entered into
(the trade dates). Dividend income is recorded on the ex-dividend
date, except that if the ex-dividend date has passed, certain
dividends from foreign securities are recorded as soon as the
Fund is informed of the ex-dividend date. Interest income
(including amortization of discount) is recognized on the accrual
basis. Realized gains and losses on security transactions are
determined on the identified cost 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 Company are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and Transactions
with Affiliates:
The Company has entered into an Investment Advisory Agreement
with Merrill Lynch Asset Management, L.P. ("MLAM"). The general
partner of MLAM is Princeton Services, Inc. ("PSI"), an indirect
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."),
which is the limited partner. The Fund has also entered into a
Distribution Agreement and Distribution Plans with Merrill Lynch
Funds Distributor, Inc. ("MLFD" or "Distributor"), a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Company's
portfolio and provides, or arranges for affiliates to provide, the
administrative services necessary for the operation of the Company.
As compensation for its services to the Company, the Investment
Adviser receives monthly compensation at the annual rate of 1.0%
of the average daily net assets of the Company.
<PAGE>
Certain states in which shares of the Company are qualified for
sale impose limitations on the expenses of the Company. The most
restrictive annual expense limitation requires that the Investment
Adviser reimburse the Company to the extent that expenses
(excluding interest, taxes, distribution fees, brokerage fees and
commissions, and extraordinary items) exceed 2.5% of the Com-
pany's first $30 million of average daily net assets, 2.0% of the
Company's next $70 million of average daily net assets, and 1.5% of
the average daily net assets in excess thereof. The investment
adviser's obligation to reimburse the Company is limited to the
amount of the investment advisory fee. No fee payment will be
made to MLAM during any fiscal year which will cause such expenses
to exceed the most restrictive expense limitation at the time of
such payment.
Pursuant to the distribution plans (the "Distribution Plans")
adopted by the Company in accordance with Rule 12b-1 under
the Investment Company Act of 1940, the Company 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
Maintenance Fee Distribution Fee
Class B 0.25% 0.75%
Class C 0.25% 0.75%
Class D 0.25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a subsidiary of ML & Co.,
also provides account maintenance and distribution services to
the Company. The ongoing account maintenance fee compensates
the Distributor and MLPF&S for providing account maintenance
services to Class B, Class C and Class D 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.
NOTES TO FINANCIAL STATEMENTS (concluded)
For the year ended April 30, 1995, MLFD earned underwriting
discounts and MLPF&S earned dealer concessions on sales of the
Company's Class A and Class D Shares as follows:
MLFD MLPF&S
Class A $4,857 $81,092
Class D $1,835 $25,102
<PAGE>
For the six months ended April 30, 1995, MLPF&S received
contingent deferred sales charges of $209,909 and $151 relating
to transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $116,455 in commissions on the
execution of portfolio security transactions for the Company for
the year ended April 30, 1995.
Merrill Lynch Financial Data Services, Inc. ("FDS"), a wholly-
owned subsidiary of ML & Co., is the Company's transfer agent.
Accounting services are provided to the Company by MLAM at cost.
Certain officers and/or directors of the Company are officers and/or
directors of MLAM, MLPF&S, PSI, FDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term
securities, for the year ended April 30, 1995 were $255,464,208
and $224,601,899, respectively.
Net realized and unrealized gains (losses) as of April 30, 1995
were as follows:
Realized Unrealized
Losses Gains
Long-term investments $ (815,218) $ 11,086,306
Short-term investments (4,229) --
Foreign currency transactions (108) 15,169
----------- ------------
Total $ (819,555) $ 11,101,475
=========== ============
As of April 30, 1995, net unrealized appreciation for Federal
income tax purposes aggregated $11,085,681, of which $15,059,369
related to appreciated securities and $3,973,688 related to
depreciated securities. The aggregate cost of investments at
April 30, 1995 for Federal income tax purposes was $155,655,255.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $22,599,545 and $30,228,261 for the years ended April 30, 1995
and April 30, 1994, respectively.
Transactions in capital shares for each class were as follows:
<PAGE>
Class A Shares for the Year Dollar
Ended April 30, 1995 Shares Amount
Shares sold 5,713,906 $ 20,654,552
Shares issued to shareholders in
reinvestment of distributions 1,236,169 4,042,270
----------- ------------
Total issued 6,950,075 24,696,822
Shares redeemed (6,956,106) (25,023,035)
----------- ------------
Net decrease (6,031) $ (326,213)
=========== ============
Class A Shares for the Year Dollar
Ended April 30, 1994 Shares Amount
Shares sold 6,174,049 $ 23,817,331
Shares issued to shareholders in
reinvestment of dividends 52,729 194,042
----------- ------------
Total issued 6,226,778 24,011,373
Shares redeemed (5,667,645) (22,007,663)
----------- ------------
Net increase 559,133 $ 2,003,710
=========== ============
Class B Shares for the Year Dollar
Ended April 30, 1995 Shares Amount
Shares sold 14,768,466 $ 48,509,782
Shares issued to shareholders in
reinvestment of distributions 1,486,559 4,415,081
----------- ------------
Total issued 16,255,025 52,924,863
Automatic conversion of shares (334,825) (1,098,987)
Shares redeemed (10,719,834) (34,866,393)
----------- ------------
Net increase 5,200,366 $ 16,959,483
=========== ============
Class B Shares for the Year Dollar
Ended April 30, 1994 Shares Amount
Shares sold 13,579,944 $ 48,115,789
Shares redeemed (5,621,030) (19,891,238)
----------- ------------
Net increase 7,958,914 $ 28,224,551
=========== ============
<PAGE>
Class C Shares for the Period Dollar
Oct. 21, 1994++ to April 30, 1995 Shares Amount
Shares sold 584,554 $ 1,949,867
Shares redeemed (55,563) (184,106)
----------- ------------
Net increase 528,991 $ 1,765,761
=========== ============
[FN]
++Commencement of Operations.
Class D Shares for the Period Dollar
Oct. 21, 1994++ to April 30, 1995 Shares Amount
Shares sold 1,239,834 $ 4,397,052
Automatic conversion of shares 309,359 1,098,987
----------- ------------
Total issued 1,549,193 5,496,039
Shares redeemed (371,148) (1,295,525)
----------- ------------
Net increase 1,178,045 $ 4,200,514
=========== ============
[FN]
++Commencement of Operations.
5. Commitments:
At April 30, 1995, the Company had entered into forward foreign
exchange contracts under which it had agreed to buy various foreign
currencies with an approximate value of $12,351,000.
6. Capital Loss Carryforward:
At April 30, 1995, the Company had a capital loss carryforward
of approximately $819,000 all of which expires in 2003. This amount
will be available to offset like amounts of any future taxable gains.
<PAGE>
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Healthcare Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill
Lynch Healthcare Fund, Inc. as of April 30, 1995, the related
statements of operations for the year then ended and changes in
net assets for each of the years in the two year period then ended,
and the financial highlights for the periods presented. These
financial statements and the financial highlights are the respon-
sibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and the finan-
cial highlights based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements and the 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 at April 30, 1995 by correspondence with the
custodian and brokers. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial state-
ment presentation. We believe that our audits provide a reason-
able basis for our opinion.
In our opinion, such financial statements and financial highlights
present fairly, in all material respects, the financial position
of Merrill Lynch Healthcare Fund, Inc. as of April 30, 1995, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
May 31, 1995
</AUDIT-REPORT>
