MERRILL LYNCH
HEALTHCARE
FUND, INC.
FUND LOGO
Quarterly Report
July 31, 1995
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
principal value of shares will fluctuate so that shares, when
redeemed, may be worth more or less than their original cost.
<PAGE>
Merrill Lynch
Healthcare Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
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
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, New York 11245
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, Florida 32246-6484
(800) 637-3863
<PAGE>
DEAR SHAREHOLDER
In our last report to shareholders, we noted that there was a
favorable investment environment for the healthcare product sector,
such as pharmaceuticals, hospital supplies, and medical devices.
Slow economic growth in the United States, Europe and Japan, along
with subdued inflation, provided a positive climate that continued
in the July quarter. High inflation would be an anathema to this
industry as the ability to raise prices is quite limited. At the
same time, the healthcare sector is contra-cyclical and is largely
unaffected by economic growth factors.
On average, the annual earnings growth rate for US-based product
healthcare companies has stabilized in the 7%--9% range. The
regulatory process has been improved, so that new product
development time should be cut and costs reduced. Based on our 1996
earnings per share estimates, valuations of large-capitalization US
pharmaceutical companies are reasonable, in our opinion.
Price/earnings ratios of US pharmaceutical companies based on 1996
estimates are on a par with that of the Standard & Poor's 500 Index.
In view of this industry group's earnings predictability, valuations
have customarily been at a premium to that of market indexes.
Presently, the investment environment for healthcare service compa-
nies--primarily health maintenance organizations (HMOs)--is less
positive. Intense competitive pressures have impacted revenues
(premiums), and costs--primarily medical expenses--have risen.
Profit margins have narrowed. Congressional debate regarding Federal
budget deficit reduction is now underway, with Medicare and Medicaid
reform a major factor in the deliberations. Our expectation is that
beneficiaries of the government programs will be given incentives to
join managed care organizations. While healthcare service companies
should gain a multitude of new enrollees, the profit potential in
the expected highly competitive and increasingly constrained climate
remains to be seen. Overall, the aggregate impact on many healthcare
service areas is likely to be negative.
With these changes in mind, we emphasized physician management
companies in the United States, such as PhyCor Inc., a new position,
and Inphynet Medical Management, Inc. These physician management
groups contract with HMOs, hospitals and other managed care groups
to provide physician members with corporate services that enhance
practitioner efficiency. They also bolster doctors' bargaining power
as they negotiate with large managed-care entities. Physician
management companies represent a rapidly growing segment of the
healthcare service market. With a lower market penetration than
HMOs, they represent substantial growth potential.
<PAGE>
With indications that the US dollar has stabilized and with the
superior values offered by selected European conglomerates with
important healthcare businesses, we increased investment
participation in this area. For example, we initiated a position in
Bayer AG. In the past several years, Bayer has increased its
healthcare activities through the acquisitions of Marion Merrell Dow
and Sterling Drug. The company has well-known consumer brands such
as Alka-Seltzer and Bayer Aspirin, as well as important prescription
antibiotics and cardiovascular medications.
In Conclusion
With the attractive investment opportunities available among US and
European pharmaceutical companies, as well as in physician
management companies in the United States, the Fund had a relatively
low 4.0% cash position at the end of the July quarter.
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.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Jordan C. Schreiber)
Jordan C. Schreiber
Vice President and
Portfolio Manager
August 11, 1995
<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
maintenance 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 "Average Annual Total Return," "Recent Performance
Results" and "Performance Summary" tables on pages 4--6. Data for
Class C and Class D Shares are also presented in the "Aggregate
Total Return" and "Recent Performance Results" tables on page 4.
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 July 31, 1995 and
for Class C and Class D Shares for the since inception and 3-month
periods ended July 31, 1995. All data in this table assume
imposition of the actual total expenses incurred by each class of
shares during the relevant period.
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.
<PAGE>
PERFORMANCE DATA (continued)
Average Annual
Total Return+++
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 6/30/95 +24.20% +17.68%
2/01/90++ through 6/30/95 + 9.12 + 8.03
Five Years Ended 6/30/95 + 7.18 + 6.03
Ten Years Ended 6/30/95 +11.42 +10.82
[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 6/30/95 +23.01% +19.01%
2/01/90++ through 6/30/95 + 7.97 + 7.97
Five Years Ended 6/30/95 + 6.06 + 6.06
Inception (10/21/88) through 6/30/95 + 8.42 + 8.42
[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 6/30/95 +12.54% +11.54%
[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 6/30/95 +10.80% +4.99%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month
7/31/95 4/30/95 7/31/94++ % Change++ % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $4.33 $3.81 $3.31 +30.82% +13.65%
Class B Shares 3.88 3.43 3.01 +28.90 +13.12
Class C Shares 3.89 3.43 3.27 +18.96 +13.41
Class D Shares 4.22 3.72 3.61 +16.90 +13.44
Class A Shares--Total Return +30.82 +13.65
Class B Shares--Total Return +28.90 +13.12
Class C Shares--Total Return +18.96 +13.41
Class D Shares--Total Return +16.90 +13.44
<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).
</TABLE>
<PAGE>
<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--7/31/95 3.46 4.33 -- -- +25.14
------- ------
Total $11.385 Total $3.508
Cumulative total return as of 7/31/95: +218.03%**
<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**
<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--7/31/95 3.13 3.88 -- -- +23.96
------ ------
Total $7.468 Total $2.869
<PAGE>
Cumulative total return as of 7/31/95: +81.08%**
<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.
+++See Important Note on page 6.
</TABLE>
PERFORMANCE DATA (concluded)
+++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 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 6/30/95 +24.20% +17.68%
2/01/90++ through 6/30/95 +15.37 +14.23
[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, computations are based upon management's estimates of the
healthcare portfolio.
<PAGE>
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 6/30/95 +23.01% +19.01%
2/01/90++ through 6/30/95 +14.67 +14.67
[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.
Recent
Performance
Results
12 Month 2/01/90 to 7/31/95++
%Change % Change
Class A Shares--Total Return +30.82% +128.95%
Class B Shares--Total Return +28.90 +121.17
[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.
<PAGE>
<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 40,000 Amgen, Inc. $ 3,508,752 $ 3,395,000 1.9%
States
Diagnostics 560,000 Meris Laboratories, Inc. 4,722,934 2,660,000 1.5
Health Care Cost 230,000 Apria Healthcare Group, Inc. (a) 6,067,190 7,360,000 4.2
Containment 100,000 Caremark International, Inc. 2,065,998 2,037,500 1.1
175,000 Columbia/HCA Healthcare Corporation 7,332,675 8,575,000 4.8
115,000 Inphynet Medical Management, Inc. 1,895,900 2,415,000 1.4
85,000 Lincare Holdings, Inc. 2,403,750 2,932,500 1.7
70,000 OrNda Healthcorp. 1,154,875 1,373,750 0.8
5,000 Pacific Physician Services, Inc. 73,750 78,750 0.0
96,500 PhyCor Inc. 3,039,750 3,908,250 2.2
70,000 Tenet Healthcare Corp. 1,155,700 1,067,500 0.6
------------ ------------ ------
25,189,588 29,748,250 16.8
Medical Specialties 30,000 Baxter International, Inc. 841,720 1,117,500 0.6
15,000 Becton, Dickinson & Company 772,650 883,125 0.5
100,000 Boston Scientific Corp. 2,690,663 3,650,000 2.1
260,000 Collagen Corporation 5,061,254 4,485,000 2.6
40,000 Cordis Corp. 2,772,724 2,870,000 1.6
600,000 EP Technologies, Inc. 4,317,502 6,300,000 3.6
80,000 Fresenius USA Inc. 561,596 1,070,000 0.6
200,000 InStent, Inc. 2,862,500 2,650,000 1.5
65,000 Medtronic, Inc. 4,485,863 5,330,000 3.0
150,000 Metra Biosystems, Inc. 1,900,000 2,737,500 1.5
50,000 Nellcor Inc. 2,282,717 2,600,000 1.5
30,000 Saint Jude Medical, Inc. 1,518,750 1,642,500 0.9
219,467 Uromed Corp. 1,000,005 1,801,275 1.0
------------ ------------ ------
31,067,944 37,136,900 21.0
Pharmaceutical-- 81,900 Allergan, Inc. 2,331,729 2,477,475 1.4
Consumer 60,000 American Home Products Corporation 4,337,350 4,740,000 2.7
65,000 Johnson & Johnson Co. 3,885,050 4,663,750 2.6
25,000 Procter & Gamble Co. 1,811,813 1,721,875 1.0
40,000 Rhone-Poulenc Rorer, Inc. 1,747,400 1,770,000 1.0
20,000 Schering-Plough Corp. 639,978 930,000 0.5
20,000 Warner-Lambert Co. 1,551,080 1,680,000 1.0
------------ ------------ ------
16,304,400 17,983,100 10.2
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
NORTH
AMERICA Percent of
(concluded) Industries Shares Held Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Pharmaceutical-- 100,000 Abbott Laboratories $ 3,346,810 $ 4,000,000 2.3%
States Diversified 180,000 IVAX Corp. 5,022,511 4,342,500 2.4
(concluded) 25,000 Teva Pharmaceuticals Industries,
Ltd. (ADR)* 838,750 990,625 0.6
------------ ------------ ------
9,208,071 9,333,125 5.3
Pharmaceutical-- 50,000 Forest Laboratories, Inc. 2,185,501 2,218,750 1.3
Prescription 30,000 Lilly (Eli) & Co. 1,678,050 2,347,500 1.3
150,000 Merck & Co., Inc. 5,887,754 7,743,750 4.4
100,000 Pfizer, Inc. 3,943,000 5,050,000 2.9
------------ ------------ ------
13,694,305 17,360,000 9.9
Investments in the United States 103,695,994 117,616,375 66.6
Total Investments in North America 103,695,994 117,616,375 66.6
PACIFIC
BASIN
Japan Pharmaceutical-- 30,000 Sankyo Company, Ltd. 709,856 708,769 0.4
Prescription
Investments in Japan 709,856 708,769 0.4
Total Investments in the
Pacific Basin 709,856 708,769 0.4
<PAGE>
WESTERN
EUROPE
Denmark Pharmaceutical-- 40,000 Novo Nordisk A/S 4,177,869 4,648,045 2.6
Diversified
Investments in Denmark 4,177,869 4,648,045 2.6
Germany Pharmaceutical-- 23,500 Bayer AG 5,811,519 6,326,989 3.6
Consumer
Investments in Germany 5,811,519 6,326,989 3.6
Ireland Pharmaceutical-- 250,000 Elan Corporation PLC (ADR)* 8,815,317 10,500,000 5.9
Diversified
Investments in Ireland 8,815,317 10,500,000 5.9
Netherlands Pharmaceutical-- 75,000 AKZO N.V. 8,722,181 9,887,553 5.6
Prescription
Investments in the Netherlands 8,722,181 9,887,553 5.6
Sweden Medical Specialties 80,000 Elekta Instrument AB 'B' Free 1,571,372 2,780,142 1.6
Pharmaceutical-- 100,000 Pharmacia Biotech AB (Class B) 1,670,411 2,390,071 1.3
Prescription
Investments in Sweden 3,241,783 5,170,213 2.9
Switzerland Pharmaceutical-- 12,000 Ciba-Geigy AG (Registered) 8,112,171 8,912,134 5.1
Consumer
Pharmaceutical-- 500 Roche Holdings AG 2,378,214 3,414,836 1.9
Diversified
Pharmaceutical-- 3,500 Sandoz AG (Registered) 2,416,875 2,437,674 1.4
Prescription
Investments in Switzerland 12,907,260 14,764,644 8.4
<PAGE>
United Pharmaceutical-- 20,000 SmithKline Beecham Corp. PLC (ADR)* 710,950 900,000 0.5
Kingdom Diversified
Pharmaceutical-- 80,000 Zeneca Group PLC 1,200,929 1,426,738 0.8
Prescription
Investments in the United Kingdom 1,911,879 2,326,738 1.3
Total Investments in Western
Europe 45,587,808 53,624,182 30.3
SHORT-TERM Face
SECURITIES Amount
Commercial Paper** $3,079,000 Associates Corp. of North America,
5.80% due 8/01/1995 3,079,000 3,079,000 1.7
US Government 3,000,000 Federal Farm Credit Bank, 5.61%
& Agency due 8/09/1995 2,996,260 2,996,260 1.7
Obligations** 1,040,000 Federal National Mortgage
Association, 5.60% due 8/14/1995 1,037,897 1,037,897 0.6
------------ ------------ ------
4,034,157 4,034,157 2.3
Total Investments in Short-Term
Securities 7,113,157 7,113,157 4.0
Total Investments $157,106,815 179,062,483 101.3
============
Liabilities in Excess of Other Assets (2,372,576) (1.3)
------------ ------
Net Assets $176,689,907 100.0%
============ ======
Net Asset Value: Class A--Based on net assets of $80,656,180 and
18,637,966 shares outstanding $ 4.33
============
Class B--Based on net assets of $87,321,234 and
22,479,214 shares outstanding $ 3.88
============
Class C--Based on net assets of $2,982,876 and
767,528 shares outstanding $ 3.89
============
Class D--Based on net assets of $5,729,617 and
1,356,679 shares outstanding $ 4.22
============
<PAGE>
<FN>
*American Depositary Receipts (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)Formerly Homedco Group, Inc.
</TABLE>
PORTFOLIO CHANGES
For the Quarter Ended July 31, 1995
Additions
Allergan, Inc.
Apria Healthcare Group, Inc.
Bayer AG
Caremark International, Inc.
Cordis Corp.
Forest Laboratories, Inc.
InStent, Inc.
Lincare Holdings, Inc.
Metra Biosystems, Inc.
Nellcor Inc.
*Oxford Health Plans, Inc.
Pacific Physician Services, Inc.
PhyCor Inc.
Procter & Gamble Co.
Rhone-Poulenc Rorer, Inc.
Saint Jude Medical, Inc.
Sandoz AG (Registered)
Sankyo Company, Ltd.
Tenet Healthcare Corp.
Teva Pharmaceuticals Industries Ltd. (ADR)
*United Healthcare Corp.
<PAGE>
Deletions
Astra AB 'B' Free
BioCryst Pharmaceuticals, Inc.
Diagnostic Products Corp.
Glaxo PLC
Mariner Health Group, Inc.
Medaphis Corp.
Ostex International, Inc.
*Oxford Health Plans, Inc.
Puritan-Bennett Corp.
Pyxis Corporation
Ranbaxy Laboratories Ltd. (GDR)
Sangstat Medical Corp.
Summit Care Corp.
*United Healthcare Corp.
[FN]
*Added and deleted in the same quarter.
PORTFOLIO INFORMATION
Worldwide
Investments
As of 7/31/95
Percent Breakdown of Percent of
Securities by Country Net Assets
United States 66.6%
Switzerland 8.4
Ireland 5.9
Netherlands 5.6
Germany 3.6
Sweden 2.9
Denmark 2.6
United Kingdom 1.3
Japan 0.4
<PAGE>
Industries Represented Percent of
In the Portfolio Net Assets
Medical Specialties 22.6%
Pharmaceutical--Prescription 19.4
Pharmaceutical--Consumer 18.9
Health Care Cost Containment 16.8
Pharmaceutical--Diversified 16.2
Biotechnology 1.9
Diagnostics 1.5
Ten Largest Holdings Percent of
Represented in the Portfolio Net Assets
Elan Corporation PLC (ADR) 5.9%
AKZO N.V. 5.6
Ciba-Geigy AG (Registered) 5.1
Columbia/HCA Healthcare
Corporation 4.8
Merck & Co., Inc. 4.4
Apria Healthcare Group, Inc. 4.2
Bayer AG 3.6
EP Technologies, Inc. 3.6
Medtronic, Inc. 3.0
Pfizer, Inc. 2.9
