MERRILL LYNCH
HEALTHCARE
FUND, INC.
FUND LOGO
Annual Report
April 30, 1996
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 Com-
pany's current prospectus. Past performance results
shown in this report should not be considered a repre-
sentation of future performance. Investment return
and principal value of shares will fluctuate so that
shares, when redeemed, may be worth more or less
than their original cost. Statements and other infor-
mation herein are as dated and are subject to change.
<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
<PAGE>
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
Worldwide
Investments
As of 4/30/96
Ten Largest Holdings Percent of
Represented in the Portfolio Net Assets
Ciba-Geigy AG (Registered) 6.3%
Healthcare Compare Corp. 4.9
Sandoz AG (Registered) 4.8
Hoechst AG 4.6
American Home Products
Corporation 4.3
Pfizer, Inc. 3.3
Amgen, Inc. 2.9
Warner-Lambert Co. 2.9
Genzyme Corp. 2.8
Astra AB 'B' Free 2.8
Breakdown of Percent of
Securities by Country Net Assets
United States 61.6%
Switzerland 13.2
Germany 5.8
France 3.3
Sweden 2.8
Ireland 2.4
Japan 2.4
United Kingdom 1.7
Israel 0.9
Canada 0.4
Finland 0.3
<PAGE>
Industries Represented Percent of
In the Portfolio Net Assets
Pharmaceutical--Prescription 22.0%
Medical Specialties 17.3
Pharmaceutical--Consumer 16.0
Health Care Cost Containment 14.9
Pharmaceutical--Diversified 14.0
Biotechnology 8.9
Diagnostics 1.7
Important
Tax Information
(unaudited)
The following information summarizes all per share distributions
paid by Merrill Lynch Healthcare Fund, Inc. during the taxable year
ended April 30, 1996.
<TABLE>
<CAPTION>
Record Payable Domestic Qualifying Domestic Non-Qualifying Total Long-Term
Date Date Ordinary Income Ordinary Income Ordinary Income Capital Gains
<S> <S> <C> <C> <C> <C>
12/15/95 12/26/95 $0.004629 $0.094679 $0.099308 $0.096999
</TABLE>
The domestic qualifying ordinary income qualifies for the dividends
received deduction for corporations.
Please retain this information for your records.
<PAGE>
DEAR SHAREHOLDER
During the quarter ended April 30,
1996, US healthcare stocks generally
underperformed. Total returns for
Merrill Lynch Healthcare Fund, Inc.'s
Class A, Class B, Class C and Class D
Shares were +2.13%, +1.97%, +1.96%
and +2.19%, respectively. (Results
shown do not reflect sales charges
and would be lower if sales charges
were included. Complete performance
data, including average annual total
returns, can be found on pages 4--8
of this report to shareholders.) In-
vestor attention shifted away from
US-based multinational companies to
smaller-capitalization issues and
cyclical stocks as a stronger US dollar
negatively impacted the multina-
tionals' earnings growth. However,
an important favorable development
during the period was the faster
decision-making by the Food and
Drug Administration (FDA) on new
drug and device marketing applica-
tions. Another key element was the
continued global trend toward con-
solidation of healthcare companies.
Under pressure from Republican
Party critics, the FDA processed new
drug approvals in record time, espe-
cially for life-threatening diseases
such as cancer and AIDS. This more
expeditious approval process benefits
the pharmaceutical and medical
device companies by lowering devel-
opment costs and bringing new
revenue sources on line more quickly.
With the proposed merger of two
Swiss pharmaceutical giants, Ciba-
Geigy AG and Sandoz AG, as well as
the announced Aetna Insurance Com-
pany takeover of US Healthcare, Inc.,
the worldwide consolidation trend
continued. (The Fund owns shares of
both Ciba-Geigy AG and Sandoz AG.)
<PAGE>
We anticipate ongoing mergers and
acquisitions in all geographic areas
and healthcare industries over the
longer term. The focus of many
healthcare companies is on establish-
ing a global presence and discovering
new products to stay ahead of the
worldwide effort to contain health-
care costs. The rapid increase of the
elderly in the developed world's
population assures the growth in
demand for healthcare products and
services, and also places pressure on
governments to ensure that health-
care is delivered in an efficient,
affordable and equitable manner.
Fiscal Year In Review
Merrill Lynch Healthcare Fund, Inc.'s
fiscal year ended April 30, 1996, was
the third in a row in which a major
overhaul of the US healthcare system
was considered and subsequently
postponed for political reasons.
Unlike prior years, this time it was
the Republican Party, rather than the
Clinton Administration, that failed to
muster support to enact healthcare
legislation. After reviewing the events
of the past three years, we have
concluded that incremental change,
rather than full-scale reform, will be
the most likely way that changes will
be made in the US healthcare system.
Since the Medicare Trust Fund may
be depleted in 2001 (or possibly
earlier), only five years from now, we
anticipate post-election legislative
action regardless of the outcome of
the US presidential election.
<PAGE>
Total returns for the fiscal year of the
Fund's Class A, Class B, Class C and
Class D Shares were strongly positive:
+44.01%, +42.46%, +42.76% and
+43.74%, respectively. During the
fiscal year, US healthcare stocks per-
formed well although the perform-
ance ebbed during the last fiscal
quarter. Early in the fiscal year, the
primary impetus to the positive per-
formance was the conclusion that the
Clinton Administration's healthcare
proposal would not be enacted. As
the year progressed, investor interest
continued to focus on healthcare
shares as stock prices recovered from
deeply undervalued levels. Health
maintenance organizations (HMOs)
and other healthcare service compa-
nies' share prices rose in response to
the Republican healthcare platform
which placed reliance on managed
care (HMOs primarily) as the cost-
containment gatekeepers. The health-
care service group outperformed, only
to stumble in the April 1996 quarter
as a backlash developed over concerns
about the quality of healthcare deliv-
ered. Intense competition, low pre-
miums, and higher medical expenses
- --as sicker patients were added to
HMO membership rolls--further
undermined the shares of this group.
As the service companies lagged the
market, a speculative wave enveloped
smaller company shares, especially
those of biotechnology, medical tech-
nology and diagnostics companies,
during the second half of the fiscal
year. Valuations of these emerging
growth companies have risen dramati-
cally to what we judge to be insup-
portable levels in many cases.
European and Japanese healthcare
companies, predominately large-
capitalization issues, underperformed
their US counterparts during the fis-
cal year. Slower growth economies in
Europe and Japan, less-ebullient
stock markets, and higher interest
rates accounted for this performance
disparity.
<PAGE>
Throughout the fiscal year, the Fund
emphasized investments in healthcare
product companies, such as phar-
maceutical, medical technology and
biotechnology companies, with
a lesser percentage of investments
committed to healthcare service pro-
viders (such as HMOs, physician
practice management companies and
nursing homes). This strategy bene-
fited the Fund's performance since,
as noted above, during most of the
year US healthcare product compa-
nies were the strongest performers in
the healthcare sector. In contrast,
healthcare service companies in the
United States were impacted nega-
tively by the political crosscurrents
surrounding proposed healthcare
reform.
As the fiscal year drew to a close, it
appeared to some investors that the
US economy had gained momentum,
which raised concerns about infla-
tion and higher interest rates in the
minds of investors. If the economy is
poised for a rebound, cyclical and
economy-sensitive companies would
lead the stock market, at least in the
near term. However, if signs of eco-
nomic strength were only temporary,
then a different set of industry groups,
including the healthcare sector, would
benefit from a slow-growth economy.
Our response to this uncertainty was
to adopt a more defensive investment
strategy. While we continue to favor
healthcare product companies, we
gradually shifted investments to Euro-
pean and Japanese healthcare com-
panies. Large holdings outside of the
United States included Swiss-based
Ciba-Geigy AG, Sandoz AG, and Roche
Holdings AG, and Swedish pharmaceu-
tical maker Astra AB.
We also have made significant invest-
ments in two Japanese drug compa-
nies, Sankyo Company, Ltd. and Eisai
Co., Ltd. Sankyo discovered Noscal,
a unique compound that enables dia-
betics to utilize insulin more effec-
tively. Noscal is likely to be launched
in Japan in several months, and is
licensed to Warner-Lambert Co. in
the United States and Glaxo Wellcome,
PLC in Europe. Eisai Co. Ltd., a new
Fund holding, has created and de-
veloped a drug to slow the deterior-
ation caused by Alzheimer's disease.
The drug, Aridase, is licensed to
Pfizer, Inc., and we anticipate its
launch in the United States in 1997.
<PAGE>
In Conclusion
There continue to be exciting
new developments in healthcare.
Companies are now focusing their
research on the treatment of serious
illnesses such as cancer and Alz-
heimer's disease, for which there
are currently no therapies. The tools
of this new product research now
include such technologies as gene
therapy and molecular design, which
were not available as recently as two
years ago. We are highly encouraged
by these innovative activities, and
believe that they will result in attrac-
tive new investment opportunities
within the healthcare sector.
We thank you for your continued
investment in Merrill Lynch Health-
care Fund, Inc., and we look forward
to serving your investment needs
throughout the Fund's new fiscal
year and beyond.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Jordan C. Schreiber)
Jordan C. Schreiber
Vice President and Portfolio Manager
<PAGE>
June 6, 1996
PERFORMANCE DATA
About Fund
Performance
Investors are 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 main-
tenance 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).
None of the past results shown should be considered a represen-
tation 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 appli-
cable to each class, which are deducted from the income available
to be paid to shareholders.
<PAGE>
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month
4/30/96 1/31/96 4/30/95 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $5.27 $5.16 $3.81 +41.13%(1) +2.13%
Class B Shares 4.67 4.58 3.43 +39.27(1) +1.97
Class C Shares 4.68 4.59 3.43 +39.56(1) +1.96
Class D Shares 5.13 5.02 3.72 +40.79(1) +2.19
Class A Shares--Total Return +44.01(2) +2.13
Class B Shares--Total Return +42.46(2) +1.97
Class C Shares--Total Return +42.76(2) +1.96
Class D Shares--Total Return +43.74(2) +2.19
<FN>
*Investment results shown do not reflect sales charges;
results shown would be lower if a sales charge was included.
(1)Percent change includes reinvestment of $0.097 per share
capital gains distributions.
(2)Percent change includes reinvestment of $0.099 per share
ordinary income dividends and $0.097 per share capital
gains distributions.
</TABLE>
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:
4/86 4/96
ML Healthcare Fund Inc.++--
Class A Shares* $ 9,475 $26,059
S&P 500 Index++++ $10,000 $37,999
<PAGE>
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** 4/96
ML Healthcare Fund, Inc.++--
Class B Shares* $10,000 $22,804
S&P 500 Index++++ $10,000 $28,938
A line graph depicting the growth of an investment in the Fund's
Class C Shares and Class D Shares compared to growth of an investment
in the S&P 500 Index. Beginning and ending values are:
10/21/94** 4/96
ML Healthcare Fund, Inc.++--
Class C Shares* $10,000 $14,975
ML Healthcare Fund, Inc.++--
Class D Shares* $ 9,475 $14,034
S&P 500 Index++++ $10,000 $14,612
[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.
Average Annual
Total Return++++
<PAGE>
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 3/31/96 +46.75% +39.04%
2/01/90++ through 3/31/96 +13.53 +12.54
Five Years Ended 3/31/96 +13.55 +12.33
Ten Years Ended 3/31/96 +11.67 +11.07
[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 3/31/96 +45.51% +41.51%
2/01/90++ through 3/31/96 +12.38 +12.38
Five Years Ended 3/31/96 +12.40 +12.40
Inception (10/21/88) through 3/31/96 +12.02 +12.02
[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.
% Return % Return
Class C Shares* Without CDSC With CDSC**
Year Ended 3/31/96 +45.08% +44.08%
Inception (10/21/94) through 3/31/96 +34.02 +34.02
[FN]
*Maximum contingent sales charge is 1% and is reduced to 0% after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Class D Shares* Sales Charge Sales Charge**
Year Ended 3/31/96 +46.54% +38.85%
Inception (10/21/94) through 3/31/96 +33.04 +28.16
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<PAGE>
[FN]
+++See Important Note on page 7.
PERFORMANCE DATA (continued)
<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
1995 3.46 4.98 0.097 0.099 +49.85
1/1/96--4/30/96 4.98 5.27 -- -- + 5.82
------- ------
Total $11.482 Total $3.607
Cumulative total return as of 4/30/96: +303.00%**
<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
1995 3.13 4.43 0.097 0.099 +48.09
1/1/96--4/30/96 4.43 4.67 -- -- + 5.42%
------ ------
Total $7.565 Total $2.968
Cumulative total return as of 4/30/96: +128.04%**
<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>
Performance
Summary--
Class C Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 3.27 $ 3.13 -- -- - 4.28%
1995 3.13 4.43 $0.097 $0.099 +48.09
1/1/96--4/30/96 4.43 4.68 -- -- + 5.64
------ ------
Total $0.097 Total $0.099
Cumulative total return as of 4/30/96: +49.75%**
<PAGE>
<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.
</TABLE>
<TABLE>
Performance
Summary--
Class D Shares
<CAPTION>
Net Asset Value Capital Gains Dividends
Period Covered Beginning Ending Distributed Paid* % Change**
<S> <C> <C> <C> <C> <C>
10/21/94--12/31/94 $ 3.61 $ 3.39 -- -- - 6.09%
1995 3.39 4.85 $0.097 $0.099 +49.12
1/1/96--4/30/96 4.85 5.13 -- -- + 5.77
------ ------
Total $0.097 Total $0.099
Cumulative total return as of 4/30/96: +48.12%**
<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.
</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 4-7 include the performance of the technology
portfolio which is no longer part of the Fund. Set forth on page 8
are performance data which, for the period before April 27, 1992,
include 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.
<PAGE>
PERFORMANCE DATA (concluded)
Average Annual
Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 3/31/96 +46.75% +39.04%
2/01/90++ through 3/31/96 +19.22 +18.19
[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 3/31/96 +45.51% +41.51%
2/01/90++ through 3/31/96 +18.48 +18.48
[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, computa-
tions are based upon management's estimates of the healthcare portfolio.
<PAGE>
<TABLE>
Recent
Performance
Results
<CAPTION>
12 Month 2/01/90 to 4/30/96++
% Change % Change
<S> <C> <C>
Class A Shares--Total Return +44.01% +190.12%
Class B Shares--Total Return +42.46 +178.53
<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.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
MIDDLE Value Percent of
EAST Industries Shares Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Israel Pharmaceutical-- 80,000 Teva Pharmaceuticals Industries,
Diversified Inc. (ADR)* $ 3,067,500 $ 3,580,000 0.9%
Investments in Israel 3,067,500 3,580,000 0.9
Total Investments in the Middle East 3,067,500 3,580,000 0.9
NORTH
AMERICA
Canada Biotechnology 15,000 ++Biochem Pharma, Inc. 496,407 680,625 0.2
Medical Specialties 159,000 ++ISG Technologies, Inc. 787,206 701,007 0.2
Investments in Canada 1,283,613 1,381,632 0.4
United Biotechnology 195,000 ++Amgen, Inc. 11,808,758 11,188,125 2.9
States 100,000 ++Emisphere Technologies Inc. 975,690 1,325,000 0.4
190,000 ++Genzyme Corp. 13,460,640 10,687,500 2.8
80,000 ++Gilead Sciences Inc. 2,124,875 2,440,000 0.6
125,000 ++Imclone Systems, Inc. 1,506,250 1,656,250 0.4
80,000 ++Matrix Pharmaceutical Inc. 1,074,375 2,080,000 0.6
125,000 ++Neurex Corp. 2,843,750 2,906,250 0.8
135,000 ++PerSeptive Biosystems, Inc. 1,186,250 928,125 0.2
------------ ------------ ------
34,980,588 33,211,250 8.7
<PAGE>
Diagnostics 21,100 Diagnostic Products Corporation 769,226 883,562 0.2
100,000 ++Epitope Inc. 1,450,124 1,850,000 0.5
163,000 ++NeoPath, Inc. 3,915,501 3,708,250 1.0
------------ ------------ ------
6,134,851 6,441,812 1.7
Health Care Cost 30,000 Cardinal Health, Inc. 1,888,050 1,882,500 0.5
Containment 220,000 Caremark International, Inc. 4,254,578 6,077,500 1.6
200,000 ++Coram Healthcare Corp. 1,047,500 1,025,000 0.3
100,000 ++FHP International Corporation 2,862,500 2,950,000 0.8
100,000 ++HEALTHSOUTH Corp. 3,376,616 3,712,500 1.0
400,000 ++Healthcare Compare Corp. 17,419,431 18,850,000 4.9
500,000 ++IBAH Inc. 3,213,385 4,312,500 1.1
60,000 ++Medaphis Corporation 1,344,250 2,760,000 0.7
60,000 ++Medpartners/Mullikin Inc. 1,761,059 1,732,500 0.5
30,000 Olsten Corporation (The) 801,150 911,250 0.2
70,000 ++OrNda HealthCorp. 1,154,875 1,925,000 0.5
107,500 ++Parexel International Corp. 3,355,963 5,240,625 1.4
150,000 ++Tenet Healthcare Corp. 2,690,814 3,075,000 0.8
200,000 ++Walsh International, Inc. (a) 2,839,250 2,450,000 0.6
------------ ------------ ------
48,009,421 56,904,375 14.9
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
NORTH
AMERICA Value Percent of
(concluded)Industries Shares Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Medical 200,000 Baxter International, Inc. $ 8,964,312 $ 8,850,000 2.3%
States Specialties 75,000 ++Boston Scientific Corp. 1,999,113 3,234,375 0.9
(concluded) 63,000 ++Cardiometrics, Inc. 504,000 385,875 0.1
100,000 ++Conceptus Inc. 1,400,000 1,887,500 0.5
225,000 ++Endosonics Corp. 3,294,739 3,853,125 1.0
250,000 ++Fresenius USA Inc. 4,277,159 5,000,000 1.3
62,500 ++InControl, Inc. 875,000 953,125 0.3
200,000 ++Integra Lifesciences Corp. 1,650,000 2,400,000 0.6
155,000 ++KeraVision, Inc. 2,578,755 2,441,250 0.6
35,000 ++Laser Industries Ltd. 386,288 538,125 0.1
100,000 Medtronic, Inc. 3,644,813 5,312,500 1.4
200,000 ++Nellcor Puritan Bennet, Inc. 10,953,980 9,750,000 2.6
95,000 ++Optical Sensors, Inc. 1,187,500 1,223,125 0.3
280,000 ++ReSound Corp. 3,240,312 3,430,000 0.9
35,000 ++Saint Jude Medical, Inc. 1,181,250 1,273,125 0.3
295,000 ++VISX, Incorporated 6,959,177 9,956,250 2.6
30,000 ++VOXEL 178,125 174,375 0.1
200,000 ++Ventritex, Inc. 3,590,630 3,100,000 0.8
------------ ------------ ------
56,865,153 63,762,750 16.7
<PAGE>
Pharmaceutical-- 155,000 American Home Products Corporation 14,613,673 16,352,500 4.3
Consumer 70,000 Johnson & Johnson Co. 4,475,526 6,475,000 1.7
100,000 Warner-Lambert Co. 11,062,498 11,175,000 2.9
------------ ------------ ------
30,151,697 34,002,500 8.9
Pharmaceutical-- 266,500 Collagen Corporation 5,191,481 5,396,625 1.4
Diversified 50,000 ++R.P. Scherer Corporation 1,999,850 1,975,000 0.5
------------ ------------ ------
7,191,331 7,371,625 1.9
Pharmaceutical-- 100,000 Lilly (Eli) & Co. 6,571,910 5,900,000 1.5
Prescription 70,000 Merck & Co., Inc. 4,399,825 4,235,000 1.1
180,000 Pfizer, Inc. 9,738,086 12,397,500 3.3
200,000 Pharmacia & Upjohn Inc. 8,098,880 7,650,000 2.0
30,000 Rhone-Poulenc Rorer Inc. 1,859,787 1,860,000 0.5
75,000 ++U.S. Bioscience, Inc. 749,288 1,406,250 0.4
------------ ------------ ------
31,417,776 33,448,750 8.8
Investments in the United States 214,750,817 235,143,062 61.6
Total Investments in North America 216,034,430 236,524,694 62.0
PACIFIC
BASIN
Japan Pharmaceutical-- 150,000 Eisai Co. Ltd. 2,888,996 2,969,871 0.8
Diversified
Pharmaceutical-- 250,000 Sankyo Company, Ltd. 5,712,923 6,073,649 1.6
Prescription
Investments in Japan 8,601,919 9,043,520 2.4
Total Investments in the Pacific Basin 8,601,919 9,043,520 2.4
WESTERN
EUROPE
<PAGE>
Finland Pharmaceutical-- 40,000 Orion-yhtymae OY (Class B) 1,227,607 1,098,538 0.3
Diversified
Investments in Finland 1,227,607 1,098,538 0.3
France Pharmaceutical-- 80,000 Sanofi SA 4,929,426 6,440,776 1.7
Diversified
Pharmaceutical-- 80,000 Synthelabo SA 5,026,754 6,226,084 1.6
Prescription
Investments in France 9,956,180 12,666,860 3.3
Germany Medical Specialties 10,000 Fresenius AG (Preferred) 1,576,828 1,545,988 0.4
Pharmaceutical-- 10,000 Bayer AG 3,187,142 3,215,916 0.8
Consumer
Pharmaceutical-- 51,800 Hoechst AG 16,277,430 17,422,100 4.6
Diversified
Investments in Germany 21,041,400 22,184,004 5.8
Ireland Pharmaceutical-- 140,000 ++Elan Corporation PLC (ADR)* 5,014,994 9,257,500 2.4
Diversified
Investments in Ireland 5,014,994 9,257,500 2.4
Sweden Pharmaceutical-- 240,000 Astra AB 'B' Free 8,890,264 10,583,039 2.8
Prescription
Investments in Sweden 8,890,264 10,583,039 2.8
Switzer- Pharmaceutical-- 20,800 Ciba-Geigy AG (Registered) 16,364,367 24,055,217 6.3
land Consumer
Pharmaceutical-- 1,000 Roche Holdings AG 6,459,518 7,837,079 2.1
Prescription 17,000 Sandoz AG (Registered) 13,608,094 18,500,803 4.8
------------ ------------ ------
20,067,612 26,337,882 6.9
Investments in Switzerland 36,431,979 50,393,099 13.2
<PAGE>
United Pharmaceutical-- 100,000 SmithKline Beecham Corporation PLC (ADR)* 4,789,313 5,400,000 1.4
Kingdom Diversified
Pharmaceutical-- 100,000 ++Glaxo Wellcome PLC 1,204,032 1,209,700 0.3
Prescription
Investments in the United Kingdom 5,993,345 6,609,700 1.7
Total Investments in Western Europe 88,555,769 112,792,740 29.5
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
SHORT-TERM Face Value Percent of
SECURITIES Amount Investments Cost (Note 1a) Net Assets
<S> <C> <S> <C> <C> <C>
Commercial $ 12,182,000 Associates Corporation of North America,
Paper** 5.35% due 5/01/1996 $ 12,182,000 $ 12,182,000 3.2%
5,000,000 Transamerica Corporation, 5.32% due
5/14/1996 4,990,394 4,990,394 1.3
8,000,000 Windmill Funding Corporation, 5.30% due
5/28/1996 7,968,200 7,968,200 2.1
------------ ------------ ------
25,140,594 25,140,594 6.6
Total Investments in Short-Term Securities 25,140,594 25,140,594 6.6
Total Investments $341,400,212 387,081,548 101.4
============
Liabilities in Excess of Other Assets (5,260,572) (1.4)
------------ ------
Net Assets $381,820,976 100.0%
============ ======
<FN>
*American Depositary Receipts (ADR).
**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.
++Non-income producing security.
(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:
<CAPTION>
Net Share Dividend
Industry Affiliate Activity Net Cost Income
<S> <S> <C> <C> <C>
Healthcare Walsh International, 200,000 $2,839,250 --
Cost Inc.
Containment
<PAGE>
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of April 30, 1996
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$341,400,212) (Note 1a) $387,081,548
Cash 675,103
Foreign cash (Note 1b) 106
Receivables:
Securities sold $ 3,167,354
Capital shares sold 1,881,118
Dividends 243,864 5,292,336
------------
Prepaid registration fees and other assets (Note 1f) 31,578
------------
Total assets 393,080,671
------------
Liabilities: Payables:
Securities purchased 5,614,903
Capital shares redeemed 4,693,338
Investment adviser (Note 2) 330,783
Distributor (Note 2) 201,932 10,840,956
------------
Accrued expenses and other liabilities 418,739
------------
Total liabilities 11,259,695
------------
Net Assets: Net assets $381,820,976
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized $ 2,504,690
Consist of: Class B Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized 4,437,614
Class C Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized 443,959
Class D Shares of Common Stock, $0.10 par value, 100,000,000 shares authorized 420,298
Paid-in capital in excess of par 296,249,234
Undistributed realized capital gains on investments and foreign currency
transactions--net 32,081,227
Unrealized appreciation on investments and foreign currency transactions--net 45,683,954
------------
Net assets $381,820,976
============
<PAGE>
Net Asset Class A--Based on net assets of $132,082,857 and 25,046,900 shares outstanding $ 5.27
Value: ============
Class B--Based on net assets of $207,412,885 and 44,376,140 shares outstanding $ 4.67
============
Class C--Based on net assets of $20,761,603 and 4,439,592 shares outstanding $ 4.68
============
Class D--Based on net assets of $21,563,631 and 4,202,978 shares outstanding $ 5.13
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended April 30, 1996
<S> <S> <C> <C>
Investment Dividends (net of $140,890 foreign withholding tax) $ 2,109,795
Income (Notes Interest and discount earned 1,087,600
1d & 1e): -----------
Total income 3,197,395
-----------
Expenses: Investment advisory fees (Note 2) $ 2,441,908
Account maintenance and distribution fees--Class B (Note 2) 1,266,179
Transfer agent fees--Class B (Note 2) 412,494
Transfer agent fees--Class A (Note 2) 285,789
Registration fees (Note 1f) 159,630
Printing and shareholder reports 152,757
Account maintenance and distribution fees--Class C (Note 2) 83,101
Accounting services (Note 2) 77,879
Professional fees 77,826
Custodian fees 77,036
Transfer agent fees--Class D (Note 2) 29,702
Account maintenance fees--Class D (Note 2) 27,054
Transfer agent fees--Class C (Note 2) 25,981
Directors' fees and expenses 22,048
Pricing fees 191
Other 9,190
-----------
Total expenses 5,148,765
-----------
Investment loss--net (1,951,370)
-----------
<PAGE>
Realized & Realized gain (loss) from:
Unrealized Investments--net 45,832,335
Gain (Loss) Foreign currency transactions--net (138,301) 45,694,034
on Invest- -----------
ments & For- Change in unrealized appreciation/depreciation on:
eign Cur- Investments--net 34,595,030
rency Trans- Foreign currency transactions--net (12,551) 34,582,479
actions--Net ----------- -----------
(Notes 1b, Net realized and unrealized gain on investments and foreign currency transactions 80,276,513
1c, 1e & 3): -----------
Net Increase in Net Assets Resulting from Operations $78,325,143
===========
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended April 30,
Increase (Decrease) in Net Assets: 1996 1995
<S> <S> <C> <C>
Operations: Investment loss--net $ (1,951,370) $ (1,000,353)
Realized gain (loss) on investments and foreign currency transactions--net 45,694,034 (819,555)
Change in unrealized appreciation/depreciation on investments and foreign currency
transactions--net 34,582,479 9,775,276
------------ ------------
Net increase in net assets resulting from operations 78,325,143 7,955,368
------------ ------------
Distribu- Realized gain on investments--net:
butions to Class A (4,033,407) (4,761,771)
Shareholders Class B (5,976,897) (4,901,206)
(Note 1g) Class C (376,208) --
Class D (455,478) --
------------ ------------
Net decrease in net assets resulting from distributions to shareholders (10,841,990) (9,662,977)
------------ ------------
Capital Net increase in net assets derived from capital share transactions 159,000,753 22,599,545
Share Trans- ------------ ------------
actions
(Note 4):
<PAGE>
Net Assets: Total increase in net assets 226,483,906 20,891,936
Beginning of year 155,337,070 134,445,134
------------ ------------
End of year $381,820,976 $155,337,070
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A
For the
The following per share data and ratios Five-Month For the
have been derived from information provided Period Year
in the financial statements. Ended Ended
For the Year Ended April 30, April 30, Nov. 30,
Increase (Decrease) in Net Asset Value: 1996++ 1995++ 1994++ 1993 1992 1991
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 3.81 $ 3.87 $ 3.59 $ 3.63 $ 9.19 $ 7.94
Operating -------- -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.01) (.01) (.02) .02 .00 .03
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.67 .22 .31 (.06) .88 2.08
-------- -------- -------- -------- -------- --------
Total from investment operations 1.66 .21 .29 (.04) .88 2.11
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Return of capital--net -- -- -- -- (3.97) --
Investment income--net -- -- (.01) -- -- (.03)
Realized gain on investments--net (.20) (.27) -- -- (2.47) (.83)
-------- -------- -------- -------- -------- --------
Total dividends and distributions (.20) (.27) (.01) -- (6.44) (.86)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 5.27 $ 3.81 $ 3.87 $ 3.59 $ 3.63 $ 9.19
======== ======== ======== ======== ======== ========
Total Based on net asset value per share 44.01% 6.47% 8.19% (1.10%) 10.96%+++ 29.44%
Investment ======== ======== ======== ======== ======== ========
Return:**
Ratios to Expenses 1.53% 1.79% 1.55% 1.85% 1.56%* 1.61%
Average ======== ======== ======== ======== ======== ========
Net Assets: Investment income (loss)--net (.23%) (.21%) (.48%) .48% (.16%)* .27%
======== ======== ======== ======== ======== ========
<PAGE>
Supplemental Net assets, end of period (in thousands) $132,083 $ 69,650 $ 70,753 $ 63,528 $ 61,132 $125,979
Data: ======== ======== ======== ======== ======== ========
Portfolio turnover 133.50% 196.91% 133.58% 103.06% 147.63% 206.29%
======== ======== ======== ======== ======== ========
Average commission rate paid+++++ $ .0977 -- -- -- -- --
======== ======== ======== ======== ======== ========
<CAPTION>
Class B
For the
The following per share data and ratios Five-Month For the
have been derived from information provided Period Year
in the financial statements. Ended Ended
For the Year Ended April 30, April 30, Nov. 30,
Increase (Decrease) in Net Asset Value: 1996++ 1995++ 1994++ 1993++ 1992++ 1991
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 3.43 $ 3.55 $ 3.31 $ 3.38 $ 9.01 $ 7.84
Operating -------- -------- -------- -------- -------- --------
Performance: Investment loss--net (.05) (.04) (.05) (.01) (.02) (.03)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.49 .19 .29 (.06) .83 2.03
-------- -------- -------- -------- -------- --------
Total from investment operations 1.44 .15 .24 (.07) .81 2.00
-------- -------- -------- -------- -------- --------
Less dividends and distributions:
Return of capital--net -- -- -- -- (3.97) --
Investment income--net -- -- -- -- -- --
Realized gain on investments--net (.20) (.27) -- -- (2.47) (.83)
-------- -------- -------- -------- -------- --------
Total dividends and distributions (.20) (.27) -- -- (6.44) (.83)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 4.67 $ 3.43 $ 3.55 $ 3.31 $ 3.38 $ 9.01
======== ======== ======== ======== ======== ========
Total Based on net asset value per share 42.46% 5.29% 7.25% (2.07%) 10.26%+++ 28.30%
Investment ======== ======== ======== ======== ======== ========
Return:**
Ratios to Expenses 2.55% 2.85% 2.56% 2.89% 2.58%* 2.63%
Average Net ======== ======== ======== ======== ======== ========
Assets: Investment loss--net (1.24%) (1.29%) (1.52%) (.41%) (1.02%)* (.79%)
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $207,413 $ 79,485 $ 63,692 $ 33,071 $ 5,356 $ 6,007
Data: ======== ======== ======== ======== ======== ========
Portfolio turnover 133.50% 196.91% 133.58% 103.06% 147.63% 206.29%
======== ======== ======== ======== ======== ========
Average commission rate paid+++++ $ .0977 -- -- -- -- --
======== ======== ======== ======== ======== ========
<PAGE>
<CAPTION>
Class C Class D
For the For the
For the Period For the Period
The following per share data and ratios have been derived Year October 21, Year October 21,
from information provided in the financial statements. Ended 1994++++ Ended 1994++++
April 30, to April 30, April 30, to April 30,
Increase (Decrease) in Net Asset Value: 1996++ 1995++ 1996++ 1995++
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 3.43 $ 3.27 $ 3.72 $ 3.61
Operating ------------ ------------ ------------ ------------
Performance: Investment loss--net (.05) (.04) (.02) (.02)
Realized and unrealized gain (loss) on investments and
foreign currency transactions--net 1.50 .20 1.63 .13
------------ ------------ ------------ ------------
Total from investment operations 1.45 .16 1.61 .11
------------ ------------ ------------ ------------
Less distributions from realized gain on investments--net (.20) -- (.20) --
------------ ------------ ------------ ------------
Net asset value, end of period $ 4.68 $ 3.43 $ 5.13 $ 3.72
============ ============ ============ ============
Total Based on net asset value per share 42.76% 4.89%+++ 43.74% 3.05%+++
Investment ============ ============ ============ ============
Return:**
Ratios to Expenses 2.52% 3.28%* 1.75% 2.44%*
Average Net ============ ============ ============ ============
Assets: Investment loss--net (1.19%) (2.13%)* (.44%) (1.23%)*
============ ============ ============ ============
Supplemental Net assets, end of period (in thousands) $ 20,761 $ 1,816 $ 21,564 $ 4,386
Data: ============ ============ ============ ============
Portfolio turnover 133.50% 196.91% 133.50% 196.91%
============ ============ ============ ============
Average commission rate paid+++++ $ .0977 -- $ .0977 --
============ ============ ============ ============
<FN>
*Annualized.
**Total investment returns exclude the effect of sales loads.
++Calculation is based on the average number of shares
outstanding during the period.
++++Commencement of Operations.
+++Aggregate total investment return.
+++++The fiscal years beginning on or after September 1, 1995,
the Company is required to disclose its average commission
rate per share for purchases and sales of equity securities.
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 signifi-
cant accounting policies followed by the Company.
(a) Valuation of securities--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 quotations are not available are valued at fair value as
determined in good faith by or under the direction of the Company's
Board of Directors.
<PAGE>
(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.
(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 also purchase or
sell interest rate futures contracts and options on such futures
contracts 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 mar-
gin 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.
* 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 variations 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.
* Forward foreign exchange contracts--The Company is authorized
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>
* Options--The Company is authorized to write covered put and 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.
(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 transac-
tions 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 divi-
dends from foreign securities are recorded as soon as the Company
is informed of the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis. Real-
ized 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.
(h) Reclassification--Generally accepted accounting principles,
require that certain components of net assets be reclassified to
reflect permanent differences between financial reporting and tax
purposes. Accordingly, current year's permanent book/tax
differences of $1,951,370 and $55,875 have been reclassified
from accumulated net investment loss and paid-in capital in excess
of par, respectively, to undistributed net realized capital gains.
These reclassifications have no effect on net assets or net asset
values per share.
<PAGE>
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 Company 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 compensa-
tion for its services to the Company, MLAM receives monthly com-
pensation at the annual rate of 1.0% of the average daily net assets
of the Company.
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 MLAM reim-
burse the Company to the extent that expenses (excluding interest,
taxes, distribution fees, brokerage fees and commissions, and ex-
traordinary items) exceed 2.5% of the Company'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. MLAM's obligation to reimburse the Company is
limited to the amount of the investment advisory fee. No fee pay-
ment 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 Invest-
ment 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% --
<PAGE>
NOTES TO FINANCIAL STATEMENTS (concluded)
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.
For the year ended April 30, 1996, MLFD earned underwriting
discounts and direct commissions and MLPF&S earned dealer con-
cessions on sales of the Company's Class A and Class D Shares
as follows:
MLFD MLPF&S
Class A $ 2,062 $ 28,477
Class D $17,137 $244,507
For the year ended April 30, 1996, MLPF&S received contingent
deferred sales charges of $331,285 and $8,074 relating to trans-
actions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $234,328 in commissions on the
execution of portfolio security transactions for the Company for
the year ended April 30, 1996.
Merrill Lynch Financial Data Services, Inc. ("MLFDS"), 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, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term
securities, for the year ended April 30, 1996 were $454,084,136
and $305,143,238, respectively.
<PAGE>
Net realized and unrealized gains (losses) as of April 30, 1996
were as follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $ 45,831,771 $ 45,681,336
Short-term investments 564 --
Foreign currency transactions (138,301) 2,618
------------ ------------
Total $ 45,694,034 $ 45,683,954
============ ============
As of April 30, 1996, net unrealized appreciation for Federal
income tax purposes aggregated $45,490,015, of which $53,501,428
related to appreciated securities and $8,011,413 related to
depreciated securities. The aggregate cost of investments at
April 30, 1996 for Federal income tax purposes was $341,591,533.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $159,000,753 and $22,599,545 for the years ended April 30,
1996 and April 30, 1995, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the
Year Ended Dollar
April 30, 1996 Shares Amount
Shares sold 10,277,222 $ 49,677,305
Shares issued to shareholders in reinvest-
ment of distributions 737,767 3,519,148
------------ ------------
Total issued 11,014,989 53,196,453
Shares redeemed (4,237,137) (19,882,706)
------------ ------------
Net increase 6,777,852 $ 33,313,747
============ ============
<PAGE>
Class A Shares for the Year Dollar
Ended April 30, 1996 Shares Amount
Shares sold 5,713,906 $ 20,654,552
Shares issued to shareholders in reinvest-
ment 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 B Shares for the Year Dollar
Ended April 30, 1996 Shares Amount
Shares sold 31,670,575 $137,932,842
Shares issued to shareholders in reinvest-
ment of distributions 1,257,829 5,333,197
------------ ------------
Total issued 32,928,404 143,266,039
Automatic conversion of shares (274,090) (1,131,610)
Shares redeemed (11,442,314) (47,991,244)
------------ ------------
Net increase 21,212,000 $ 94,143,185
============ ============
Class B Shares for the Year Dollar
Ended April 30, 1996 Shares Amount
Shares sold 14,768,466 $ 48,509,782
Shares issued to shareholders in reinvest-
ment 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
============ ============
<PAGE>
Class C Shares for the Year Dollar
Ended April 30, 1996 Shares Amount
Shares sold 4,706,948 $ 20,619,006
Shares issued to shareholders in reinvest-
ment of distributions 81,297 344,700
------------ ------------
Total issued 4,788,245 20,963,706
Shares redeemed (877,644) (3,793,037)
------------ ------------
Net increase 3,910,601 $ 17,170,669
============ ============
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 Year Dollar
Ended April 30, 1996 Shares Amount
Shares sold 5,979,086 $ 28,807,012
Shares issued to shareholders in reinvest-
ment of distributions 85,423 396,362
Automatic conversion of shares 251,321 1,131,610
------------ ------------
Total issued 6,315,830 30,334,984
Shares redeemed (3,290,897) (15,961,832)
------------ ------------
Net increase 3,024,933 $ 14,373,152
============ ============
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.
<PAGE>
5. Commitments:
At April 30, 1996, the Company had entered into foreign exchange
contracts under which it had agreed to buy various foreign cur-
rencies with an approximate value of $979,000.
<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, 1996, 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, 1996 by correspondence with the
custodians 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, 1996, 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.
<PAGE>
Deloitte & Touche LLP
Princeton, New Jersey
June 6, 1996
</AUDIT-REPORT>
PORTFOLIO CHANGES
For the Quarter Ended April 30, 1996
Additions
Bayer AG
*Bristol-Myers Squibb Co.
Cardinal Health, Inc.
*Cardiothoracic Systems Inc.
Conceptus Inc.
Eisai Co. Ltd.
FHP International Corporation
Fresenius AG (Preferred)
Genzyme Corp.
Glaxo Wellcome PLC (ADR)
*Heartport, Inc.
Imclone Systems, Inc.
KeraVision, Inc.
Laser Industries Ltd.
Medpartners/Mullikin Inc.
Nellcor Puritan Bennett, Inc.
Neurex Corp.
Optical Sensors, Inc.
Orion-yhtymae OY (Class B)
*Pliva D.D. (GDR)
ReSound Corp.
Rhone-Poulenc Rorer Inc.
VOXEL
Walsh International, Inc.
<PAGE>
Deletions
Abbott Laboratories
Becton, Dickinson & Company
*Bristol-Myers Squibb Co.
*Cardiothoracic Systems Inc.
Columbia/HCA Healthcare Corporation
Elekta Instrument AB 'B' Free
*Heartport, Inc.
Hologic Inc.
IVAX Corp.
Inphynet Medical Management, Inc.
InStent, Inc.
Lunar Corporation
Meris Laboratories, Inc.
Novo Nordisk A/S (Class B)
Pacific Physician Services, Inc.
Pacificare Health Systems, Inc. (Class A)
Pacificare Health Systems, Inc. (Class B)
*Pliva D.D. (GDR)
Target Therapeutics, Inc.
Uromed Corp.
Uromed Corp. (Restricted)
[FN]
*Added and deleted in the same quarter.
