MERRILL LYNCH
HEALTHCARE
FUND, INC.
FUND LOGO
Annual Report
April 30, 1997
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.
Statements and other information herein are as dated and are
subject to change.
<PAGE>
Merrill Lynch
Healthcare Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH HEALTHCARE FUND, INC.
Worldwide
Iinvestments
As Of 4/30/97
Ten Largest Holdings Percent of
Represented in the Portfolio Net Assets
Warner-Lambert Co. 8.0%
Bristol-Myers Squibb Co. 7.0
Novartis AG (Registered) 4.9
Baxter International, Inc. 4.6
Johnson & Johnson Co. 3.7
Sepracor Inc. 3.6
Becton Dickinson & Company 3.4
Cardinal Health, Inc. 3.2
Lilly (Eli) and Co. 3.1
Pfizer, Inc. 2.9
<PAGE>
Breakdown of Securities Percent of
By Country Net Assets
United States 74.1%
Switzerland 5.7
Germany 5.1
United Kingdom 5.0
Japan 2.4
Finland 2.2
Sweden 1.9
Denmark 0.2
Israel 0.1
Industries Represented Percent of
In the Portfolio Net Assets
Pharmaceutical--Consumer 24.2%
Medical Specialties 23.6
Pharmaceutical--Prescription 20.1
Health Care Cost Containment 15.5
Pharmaceutical--Diversified 7.2
Biotechnology 5.0
Diagnostics 1.1
Important Tax
Information
(unaudited)
<TABLE>
The following information summarizes all per share distributions
paid by Merrill Lynch Healthcare Fund, Inc. during its taxable year
ended April 30, 1997.
<CAPTION>
Record Payable Domestic Qualifying Domestic Non-Qualifying Total Long-Term
Date Date Ordinary Income Ordinary Income Ordinary Income Capital Gains
<S> <C> <C> <C> <C> <C>
Class A Shares: 12/16/96 12/24/96 $0.019684 $0.320213 $0.339897 $0.299912
Class B Shares: 12/16/96 12/24/96 $0.016853 $0.274160 $0.291013 $0.299912
Class C Shares: 12/16/96 12/24/96 $0.017025 $0.276970 $0.293995 $0.299912
Class D Shares: 12/16/96 12/24/96 $0.018927 $0.307909 $0.326836 $0.299912
<PAGE>
The domestic qualifying ordinary income qualifies for the dividends
received deduction for corporations.
Please retain this information for your records.
DEAR SHAREHOLDER
Fiscal Year in Review
For the 12 months ended April 30, 1997, total returns for Merrill
Lynch Healthcare Fund, Inc.'s Class A, Class B, Class C and Class D
Shares were +8.55%, +7.44%, +7.28% and +8.11%, respectively. (Fund
results do not reflect 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--8 of this
report to shareholders.)
In the United States, the fiscal year ended April 30, 1997 was
characterized by the outperformance of large-capitalization
pharmaceutical and medical device companies relative to smaller
capitalization biotechnology, medical technology, and healthcare
service-oriented companies. In an economic climate of subdued
inflation and interest rates, investors favored the visible,
predictable and sustainable earnings growth rates of the healthcare
product companies. The faster review of new drugs by the Food & Drug
Administration (FDA) continued to be a key component of superlative
sales and earnings growth. Even the negative impact of the US
dollar's strength on the earnings of multinational pharmaceutical
companies was shrugged off by investors, although there were
intermittent pullbacks because of currency-related concerns.
There were also periods when share prices of large-capitalization
healthcare issues came under pressure when investors perceived that
they would be vulnerable if the rate of inflation increased and
interest rates continued to rise. These concerns proved to be short-
lived. Investors renewed their enthusiasm for stocks of large-
capitalization healthcare companies, and superior performance
resumed by fiscal year-end. The ongoing consolidation in the global
healthcare sector also continued to provide downside support.
During the fiscal year, Merrill Lynch Healthcare Fund, Inc. focused
investments in large-capitalization pharmaceutical companies in the
United States. This focus strongly contributed to investment returns
for the fiscal year. The Fund's international investments, primarily
in Europe, generally had positive returns but did not perform as
well as those in the United States.
<PAGE>
Despite our larger-capitalization focus, we retained positions in
selected medical technology, biotechnology and medical cost-
containment companies. Although these investments generally made a
less-meaningful contribution to the Fund's investment returns for
the fiscal year, we continue to believe that over the longer term
the smaller capitalization holdings will provide attractive returns
as they develop breakthrough treatments or new services. For
example, Fund investment Coulter Pharmaceuticals, Inc. discovered,
and is currently conducting clinical trials for, a new drug to treat
non-Hodgkin's lymphoma. The drug has demonstrated unprecedented high
response rates in early-stage studies and offers hope as a therapy
for this deadly and presently untreatable form of cancer.
Two significant product developments highlighted the fiscal year and
enhanced the share price performance of some key Fund holdings.
First, Bristol-Myers Squibb Co. underwrote a study that for the
first time linked the use of lipid-reducing drugs, successful in
lowering cholesterol, with an improvement in the survival rate of
heart disease patients. The study's results boosted sales of lipid-
reducing drugs. The share price of Bristol-Myers Squibb rose in
response to the sales gains generated by the study. However, Warner-
Lambert Co. and Pfizer, Inc. benefited the most from this study.
Warner-Lambert developed Lipitor, a new potent cholesterol-lowering
agent, and licensed Pfizer as co-marketer. Lipitor is dramatically
gaining market share. The Fund has positions in Bristol-Myers
Squibb, Warner-Lambert and Pfizer, and benefited from their strong
performances.
Second, as noted in our last report to shareholders, the FDA
approved Rezulin for sale in the United States. The approval of this
breakthrough treatment for insulin-dependent diabetes benefited
shares of Sankyo Company, Ltd. from Japan, which discovered Rezulin,
as well as its collaborators, Warner-Lambert Co. in the United
States and Glaxo Wellcome PLC in Europe. The Fund has investments in
all of these companies, and their performances also benefited the
Fund's performance for the fiscal year.
Detracting from the Fund's performance for the fiscal year were
constrained share prices for several of the Fund's European
holdings, such as Astra AB. Investors have begun to discount less-
robust earnings growth for Astra when the patent for the company's
key drug, Losec, expires in 2002. Several of the Fund's smaller-
capitalization holdings also lagged the healthcare sector's
performance as they awaited clinical study results and there was
little news to sustain investor interest. This group of companies
included: Vical, Inc., which has developed gene delivery systems;
Conceptus Inc., which is a pioneer in fertility enhancement through
specialty catheter development; and IDEC Pharmaceuticals
Corporation, which is studying the usefulness of its proprietary
monoclonal antibody as a cancer treatment.
<PAGE>
Portfolio Matters
There was considerable stock market volatility during the quarter
ended April 30, 1997. Investor sentiment fluctuated between concerns
of an overheated, inflationary economy and expectations of a
slowdown in business activity. In this uncertain environment, we
continued to stress large-capitalization healthcare issues in the
portfolio. When making new investments, we focused on highly liquid
stocks with greater profitability potential, including selected
health maintenance organizations (HMOs). For example, we believe
that in the near term, at least, the outlook for United Healthcare
Corporation and Aetna Inc. have improved based on prospects for
higher premiums and greater control of medical expenses.
Looking ahead, profitability of small to mid-capitalization
healthcare companies may improve as they introduce new and important
drugs and therapies. Prospects for improving share prices of these
companies become even brighter if inflationary pressures remain
contained and greater investor confidence leads to willingness to
assume more risk. Therefore, as we continue to emphasize large-
capitalization, highly liquid issues, we are maintaining investments
in selected smaller-capitalization healthcare issues.
In Conclusion
We thank you for your continued investment in Merrill Lynch Health-
care Fund, Inc., and we look forward to serving your financial 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>
May 28, 1997
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
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. (There is no initial
sales charge for automatic share conversions.)
* 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 representation
of future performance. Figures shown in the "Average Annual Total
Return" tables as well as the total returns and cumulative total
returns in the "Performance Summary" tables assume reinvestment of
all dividends and capital gains distributions at net asset value on
the ex-dividend date. Investment return and principal value of
shares will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Dividends paid to each class
of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<PAGE>
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:
4/87 4/97
ML Healthcare Fund, Inc.++--
Class A Shares* $ 9,475 $24,737
S&P 500 Index++++ $10,000 $37,572
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** 4/97
ML Healthcare Fund, Inc.++--
Class B Shares* $10,000 $24,502
S&P 500 Index++++ $10,000 $36,216
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** 4/97
ML Healthcare Fund, Inc.++--
Class C Shares* $10,000 $16,065
ML Healthcare Fund, Inc.++--
Class D Shares* $ 9,475 $15,173
S&P 500 Index++++ $10,000 $18,286
<PAGE>
<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.
Past performance is not predictive of future performance.
Average Annual
Total Return+++
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 3/31/97 + 4.20% - 1.27%
Five Years Ended 3/31/97 +10.62 + 9.43
2/01/90++ through 3/31/97 +12.18 +11.34
Ten Years Ended 3/31/97 +10.04 + 9.45
<FN>
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
++On February 1, 1990, Merrill Lynch Asset Management, L.P. became
the sole investment adviser.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 3/31/97 + 3.04% - 0.59%
Five Years Ended 3/31/97 + 9.48 + 9.48
2/01/90++ through 3/31/97 +11.03 +11.03
Inception (10/21/88) through 3/31/97 +10.93 +10.93
<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, L.P. became
the sole investment adviser.
<PAGE>
% Return % Return
Class C Shares* Without CDSC With CDSC**
Year Ended 3/31/97 + 3.10% + 2.20%
Inception (10/21/94) through 3/31/97 +20.41 +20.41
<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 3/31/97 + 3.88% - 1.58%
Inception (10/21/94) through 3/31/97 +20.25 +17.63
<FN>
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
+++See Important Note on page 8.
PERFORMANCE DATA (continued)
</TABLE>
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month
4/30/97 1/31/97 4/30/96 % Change % Change
<S> <C> <C> <C> <C> <C>
Class A Shares $5.05 $5.15 $5.27 +1.79%(1) -1.94%
Class B Shares 4.40 4.50 4.67 +0.93(1) -2.22
Class C Shares 4.40 4.50 4.68 +0.71(1) -2.22
Class D Shares 4.89 5.00 5.13 +1.44(1) -2.20
Class A Shares--Total Return +8.55(2) -1.94
Class B Shares--Total Return +7.44(3) -2.22
Class C Shares--Total Return +7.28(4) -2.22
Class D Shares--Total Return +8.11(5) -2.20
<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 $0.300 per share capital
gains distributions.
(2)Percent change includes reinvestment of $0.340 per share ordinary
income dividends and $0.300 per share capital gains distributions.
(3)Percent change includes reinvestment of $0.291 per share ordinary
income dividends and $0.300 per share capital gains distributions.
(4)Percent change includes reinvestment of $0.294 per share ordinary
income dividends and $0.300 per share capital gains distributions.
(5)Percent change includes reinvestment of $0.327 per share ordinary
income dividends and $0.300 per share capital gains distributions.
</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
1995 3.46 4.98 0.097 0.099 +49.85
1996 4.98 4.92 0.300 0.340 +11.91
1/1/97--4/30/97 4.92 5.05 -- -- + 2.64
------- ------
Total $11.782 Total $3.947
Cumulative total return as of 4/30/97: +337.43%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures 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
1996 4.43 4.30 0.300 0.291 +10.69
1/1/97--4/30/97 4.30 4.40 -- -- + 2.33
------ ------
Total $7.865 Total $3.259
Cumulative total return as of 4/30/97: +145.02%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures 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
1996 4.43 4.30 0.300 0.294 +10.76
1/1/97--4/30/97 4.30 4.40 -- -- + 2.33
------ ------
Total $0.397 Total $0.393
Cumulative total return as of 4/30/97: +60.65%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures do not reflect deduction of any sales charge; results
would be lower if sales charge was deducted.
</TABLE>
+++See Important Note on page 8.
<PAGE>
PERFORMANCE DATA (concluded)
<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
1996 4.85 4.78 0.300 0.327 +11.78
1/1/97--4/30/97 4.78 4.89 -- -- + 2.30
------ ------
Total $0.397 Total $0.426
Cumulative total return as of 4/30/97: +60.14%**
<FN>
*Figures may include short-term capital gains distributions.
**Figures 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 below 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, L.P. became the sole
investment adviser.
<PAGE>
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 2/01/90 to 4/30/97++
%Change % Change
<S> <C> <C>
Class A Shares--Total Return +8.55% +214.92%
Class B Shares--Total Return +7.44 +199.27
<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.
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included.
</TABLE>
Average Annual
Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 3/31/97 + 4.20% - 1.27%
2/01/90++ through 3/31/97 +17.00 +16.13
[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.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 3/31/97 + 3.04% - 0.59%
2/01/90++ through 3/31/97 +16.20 +16.20
[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>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
MIDDLE Shares Value Percent of
EAST Industries Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Israel Pharmaceutical-- 10,000 Teva Pharmaceuticals Industries,
Diversified Inc. (ADR)* $ 395,000 $ 502,500 0.1%
Total Investments in the Middle East 395,000 502,500 0.1
NORTH
AMERICA
United Biotechnology 140,000 ++Aphton Corp. 3,037,750 1,960,000 0.6
States 50,000 ++Arris Pharmaceutical Corp. 744,063 537,500 0.2
100,000 ++Biochem Pharma, Inc. 2,430,000 1,787,500 0.5
80,000 ++Centocor, Inc. 2,528,534 2,250,000 0.7
250,000 ++Coulter Pharmaceuticals, Inc. 3,000,000 1,968,750 0.6
195,000 ++Emisphere Technologies Inc. 2,508,753 2,827,500 0.8
20,000 ++IDEC Pharmaceuticals Corporation 517,500 355,000 0.1
412,000 ++Magainin Pharmaceuticals, Inc. 4,267,913 2,987,000 0.9
30,000 ++Neurex Corp. 501,876 330,000 0.1
30,000 ++Protein Design Labs, Inc. 967,719 750,000 0.2
90,000 ++Vical, Inc. 1,582,500 945,000 0.3
------------ ------------ ------
22,086,608 16,698,250 5.0
Diagnostics 127,500 ++Dianon Systems, Inc. 1,246,878 1,099,687 0.3
75,000 ++Diatide, Inc. 637,500 450,000 0.1
147,000 ++NeoPath, Inc. 2,558,250 2,296,875 0.7
------------ ------------ ------
4,442,628 3,846,562 1.1
Health Care Cost 100,000 Aetna Inc. 8,000,652 9,112,500 2.7
Containment 230,000 Allegiance Corporation 4,761,492 5,088,750 1.5
200,000 Bergen Brunswig Corp. 6,447,630 6,825,000 2.0
200,000 Cardinal Health, Inc. 10,260,201 10,650,000 3.2
110,000 ++Healthcare Compare Corp. 4,781,969 4,743,750 1.4
15,500 McKesson Corporation 696,930 1,121,812 0.3
150,000 ++Medpartners, Inc. 3,299,493 2,737,500 0.8
50,000 ++Pacificare Health Systems Inc.
(Preferred) 4,036,875 4,006,250 1.2
100,000 ++Tenet Healthcare Corp. 2,177,660 2,600,000 0.8
100,000 United Healthcare Corporation 5,084,050 4,862,500 1.5
33,000 ++Walsh International, Inc. 285,000 284,625 0.1
------------ ------------ ------
49,831,952 52,032,687 15.5
</TABLE>
<PAGE>
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
NORTH AMERICA Shares Value Percent of
(concluded) Industries Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Medical 170,000 Bard (C.R.), Inc. $ 4,897,364 $ 5,397,500 1.6%
States Specialties 325,000 Baxter International, Inc. 13,256,699 15,559,375 4.6
(concluded) 250,000 Becton Dickinson & Company 11,017,723 11,500,000 3.4
50,000 ++Boston Scientific Corp. 1,779,750 2,412,500 0.7
200,000 ++Conceptus Inc. 2,345,999 1,950,000 0.6
100,000 Guidant Corp. 6,380,600 6,825,000 2.0
100,000 ++Ilex Oncology Inc. 1,200,000 1,225,000 0.4
75,000 ++InControl, Inc. 1,071,875 665,625 0.2
165,000 ++KeraVision, Inc. 2,727,505 1,320,000 0.4
80,000 Medtronic, Inc. 3,084,113 5,540,000 1.7
410,000 ++Optical Sensors, Inc. 4,727,813 2,972,500 0.9
75,000 ++Photoelectron Corp. 637,500 328,125 0.1
600,000 ++ReSound Corp. 6,292,805 2,400,000 0.7
40,000 Stryker Corporation 1,245,000 1,305,000 0.4
25,000 ++Ultrafem Inc. 526,290 375,000 0.1
155,000 ++VISX, Incorporated 3,827,500 3,487,500 1.0
70,000 ++VidaMed, Inc. 909,584 481,250 0.2
------------ ------------ ------
65,928,120 63,744,375 19.0
Pharmaceutical-- 30,000 American Home Products
Consumer Corporation 1,664,229 1,987,500 0.6
360,000 Bristol-Myers Squibb Co. 19,746,251 23,580,000 7.0
200,000 Johnson & Johnson Co. 8,583,879 12,250,000 3.7
275,000 Warner-Lambert Co. 15,402,083 26,950,000 8.0
------------ ------------ ------
45,396,442 64,767,500 19.3
Pharmaceutical-- 20,000 Collagen Corporation 415,700 330,000 0.1
Diversified 100,000 Schering-Plough Corp. 7,252,119 8,000,000 2.4
------------ ------------ ------
7,667,819 8,330,000 2.5
Pharmaceutical-- 50,000 ++ALZA Corp. 1,289,040 1,462,500 0.4
Prescription 120,000 Lilly (Eli) and Co. 7,559,100 10,545,000 3.1
25,000 Merck & Co., Inc. 1,713,270 2,262,500 0.7
100,000 Pfizer, Inc. 6,933,237 9,600,000 2.9
202,500 ++SangStat Medical Corp. 6,667,346 3,442,500 1.0
620,000 ++Sepracor Inc. 15,386,245 12,012,500 3.6
------------ ------------ ------
39,548,238 39,325,000 11.7
<PAGE>
Total Investments in North America 234,901,807 248,744,374 74.1
PACIFIC
BASIN
Japan Pharmaceutical-- 170,000 Sankyo Company, Ltd. 4,043,277 4,555,845 1.4
Prescription 150,000 Takeda Chemical Industries, Ltd. 3,334,637 3,464,176 1.0
Total Investments in the Pacific
Basin 7,377,914 8,020,021 2.4
WESTERN
EUROPE
Denmark Pharmaceutical-- 6,000 Novo Nordisk A/S (Class B) 460,157 593,663 0.2
Prescription
Investments in Denmark 460,157 593,663 0.2
Finland Pharmaceutical-- 200,000 Orion-yhtymae OY (Class B) 6,124,796 7,501,154 2.2
Diversified
Investments in Finland 6,124,796 7,501,154 2.2
Germany Medical 40,000 Fresenius AG (Preferred) 6,773,477 8,996,420 2.7
Specialties 40,000 Fresenius AG (Preferred) (Rights)
(a) 0 154,752 0.0
200,000 ++Fresenius Medical Care
AG (ADR)* 3,614,375 5,875,000 1.8
------------ ------------ ------
10,387,852 15,026,172 4.5
Pharmaceutical-- 20,000 Schering AG 1,817,429 1,917,080 0.6
Prescription
Investments in Germany 12,205,281 16,943,252 5.1
Sweden Medical 58,500 ++Biora AB 481,119 552,063 0.1
Specialties
Pharmaceutical-- 150,000 Astra AB 'B' Free (Ordinary) 6,522,053 5,958,681 1.8
Prescription
Investments in Sweden 7,003,172 6,510,744 1.9
Switzerland Pharmaceutical-- 12,500 Novartis AG (Registered) 14,275,809 16,479,973 4.9
Consumer
Pharmaceutical-- 300 Roche Holdings AG 2,520,588 2,535,642 0.8
Prescription
Investments in Switzerland 16,796,397 19,015,615 5.7
<PAGE>
United Pharmaceutical-- 500,000 SmithKline Beecham Corporation
Kingdom Diversified PLC (ADR)* 5,953,002 8,050,980 2.4
Pharmaceutical-- 30,000 Glaxo Wellcome PLC 361,210 590,974 0.2
Prescription 130,000 ++Pliva d.d. (GDR)** (b) 1,855,878 2,132,000 0.6
200,000 Zeneca Group PLC 5,005,386 6,054,272 1.8
------------ ------------ ------
7,222,474 8,777,246 2.6
Investments in the United Kingdom 13,175,476 16,828,226 5.0
Total Investments in Western Europe 55,765,279 67,392,654 20.1
</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 $6,919,000 General Motors Acceptance Corp.,
Paper*** 5.68% due 5/01/1997 $ 6,919,000 $ 6,919,000 2.0%
WCP Funding Inc.:
1,630,000 5.45% due 5/05/1997 1,629,013 1,629,013 0.5
7,000,000 5.58% due 6/10/1997 6,956,600 6,956,600 2.1
Total Investments in Short-Term
Securities 15,504,613 15,504,613 4.6
Total Investments $313,944,613 340,164,162 101.3
============
Liabilities in Excess of Other Assets (4,530,017) (1.3)
------------ ------
Net Assets $335,634,145 100.0%
============ ======
<FN>
*American Depositary Receipts (ADR).
**Global Depositary Receipts (GDR).
***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)The rights may be exercised until 5/19/1997
(b)The security may be offered and sold to "qualified institutional
buyers" under Rule 144A of the Securities Act of 1933.
<PAGE>
See Notes to Financial Statements.
PORTFOLIO CHANGES
For the Quarter Ended April 30, 1997
Additions
Aetna Inc.
Bard (C.R.), Inc.
Bergen Brunswig Corp.
Biochem Pharma, Inc.
Biora AB
Fresenius AG (Preferred) (Rights)
Guidant Corp.
IDEC Pharmaceuticals Corporation
Ilex Oncology Inc.
Pacificare Health Systems Inc. (Preferred)
*Pharmacia & Upjohn, Inc.
Schering AG
*Schering-Plough Corporation
*Sequus Pharmaceuticals
Takeda Chemical Industries, Ltd.
United Healthcare Corporation
Walsh International, Inc.
Deletions
Amgen, Inc.
Bayer AG
Creative BioMolecules, Inc.
Eisai Co. Ltd.
Endosonics Corp.
Genzyme Corp.
Hoechst AG
Instrumentarium Corp. (Group A)
Medi-Ject Corporation
Nellcor Puritan Bennett, Inc.
Neurogen Corporation
North American Vaccine Inc.
*Pharmacia &Upjohn, Inc.
Pharmacyclics Inc.
Rhone-Poulenc Rorer Inc.
Saint Jude Medical, Inc.
*Schering-Plough Corporation
*Sequus Pharmaceuticals
VOXEL
Visible Genetics Inc.
<PAGE>
<FN>
*Added and deleted in the same quarter.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of April 30, 1997
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$313,944,613) (Note 1a) $340,164,162
Foreign cash (Note 1b) 115
Receivables:
Securities sold $ 631,183
Dividends 623,111
Capital shares sold 402,099 1,656,393
------------
Prepaid registration fees and other assets (Note 1f) 30,462
------------
Total assets 341,851,132
------------
Liabilities: Payables:
Securities purchased 4,076,321
Capital shares redeemed 1,218,511
Investment adviser (Note 2) 274,906
Distributor (Note 2) 164,298 5,734,036
------------
Accrued expenses and other liabilities 482,951
------------
Total liabilities 6,216,987
------------
Net Assets: Net assets $335,634,145
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 2,406,371
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 4,045,969
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 403,784
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 374,317
Paid-in capital in excess of par 268,387,299
Undistributed realized capital gains on investments and foreign
currency transactions--net 33,808,367
Unrealized appreciation on investments and foreign currency
transactions--net 26,208,038
------------
Net assets $335,634,145
============
<PAGE>
Net Asset Class A--Based on net assets of $121,529,512 and 24,063,709
Value: shares outstanding $ 5.05
============
Class B--Based on net assets of $178,024,777 and 40,459,694
shares outstanding $ 4.40
============
Class C--Based on net assets of $17,761,804 and 4,037,836
shares outstanding $ 4.40
============
Class D--Based on net assets of $18,318,052 and 3,743,169
shares outstanding $ 4.89
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended April 30, 1997
<S> <S> <C> <C>
Investment Dividends (net of $200,042 foreign withholding tax) $ 5,117,908
Income Interest and discount earned 1,347,264
(Notes 1d & 1e): ------------
Total income 6,465,172
------------
Expenses: Investment advisory fees (Note 2) $ 3,764,088
Account maintenance and distribution fees--Class B (Note 2) 2,009,526
Transfer agent fees--Class B (Note 2) 585,024
Transfer agent fees--Class A (Note 2) 335,270
Account maintenance and distribution fees--Class C (Note 2) 216,019
Printing and shareholder reports 127,541
Custodian fees 108,657
Accounting services (Note 2) 103,336
Registration fees (Note 1f) 87,087
Professional fees 78,991
Transfer agent fees--Class C (Note 2) 66,485
Transfer agent fees--Class D (Note 2) 52,595
Account maintenance fees--Class D (Note 2) 52,139
Directors' fees and expenses 36,811
Pricing fees 232
Other 11,061
------------
Total expenses 7,634,862
------------
Investment loss--net (1,169,690)
------------
<PAGE>
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 49,414,402
(Loss) on Foreign currency transactions--net (235,744) 49,178,658
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (19,461,787)
(Notes 1b, 1c, Foreign currency transactions--net (14,129) (19,475,916)
1e & 3): ------------ ------------
Net realized and unrealized gain on investments and foreign
currency transactions 29,702,742
------------
Net Increase in Net Assets Resulting from Operations $ 28,533,052
============
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: 1997 1996
<S> <S> <C> <C>
Operations: Investment loss--net $ (1,169,690) $ (1,951,370)
Realized gain on investments and foreign currency transactions
--net 49,178,658 45,694,034
Change in unrealized appreciation/depreciation on investments and
foreign currency transactions--net (19,475,916) 34,582,479
------------ ------------
Net increase in net assets resulting from operations 28,533,052 78,325,143
------------ ------------
Distributions to Realized gain on investments--net:
Shareholders Class A (16,194,846) (4,033,407)
(Note 1g): Class B (24,903,751) (5,976,897)
Class C (2,771,712) (376,208)
Class D (2,411,519) (455,478)
------------ ------------
Net decrease in net assets resulting from distributions to
shareholders (46,281,828) (10,841,990)
------------ ------------
<PAGE>
Capital Share Net increase (decrease) in net assets derived from capital
Transactions share transactions (28,438,055) 159,000,753
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets (46,186,831) 226,483,906
Beginning of year 381,820,976 155,337,070
------------ ------------
End of year $335,634,145 $381,820,976
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios have
been derived from information provided in the Class A
financial statements.
For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 1997++ 1996++ 1995++ 1994++ 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 5.27 $ 3.81 $ 3.87 $ 3.59 $ 3.63
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net .02 (.01) (.01) (.02) .02
Realized and unrealized gain (loss) on
investments and foreign currency transactions
--net .40 1.67 .22 .31 (.06)
-------- -------- -------- -------- --------
Total from investment operations .42 1.66 .21 .29 (.04)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- -- (.01) --
Realized gain on investments--net (.64) (.20) (.27) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.64) (.20) (.27) (.01) --
-------- -------- -------- -------- --------
Net asset value, end of year $ 5.05 $ 5.27 $ 3.81 $ 3.87 $ 3.59
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 8.55% 44.01% 6.47% 8.19% (1.10%)
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.40% 1.53% 1.79% 1.55% 1.85%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net .32% (.23%) (.21%) (.48%) .48%
======== ======== ======== ======== ========
<PAGE>
Supplemental Net assets, end of year (in thousands) $121,529 $132,083 $ 69,650 $ 70,753 $ 63,528
Data: ======== ======== ======== ======== ========
Portfolio turnover 125.94% 133.50% 196.91% 133.58% 103.06%
======== ======== ======== ======== ========
Average commission rate paid++++++ $ .0803 $ .0977 -- -- --
======== ======== ======== ======== ========
The following per share data and ratios have
been derived from information provided in the Class B++
financial statements.
For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1994 1993
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 4.67 $ 3.43 $ 3.55 $ 3.31 $ 3.38
Operating -------- -------- -------- -------- --------
Performance: Investment loss--net (.03) (.05) (.04) (.05) (.01)
Realized and unrealized gain (loss) on
investments and foreign currency transactions
--net .35 1.49 .19 .29 (.06)
-------- -------- -------- -------- --------
Total from investment operations .32 1.44 .15 .24 (.07)
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- -- -- --
Realized gain on investments--net (.59) (.20) (.27) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (.59) (.20) (.27) -- --
-------- -------- -------- -------- --------
Net asset value, end of year $ 4.40 $ 4.67 $ 3.43 $ 3.55 $ 3.31
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 7.44% 42.46% 5.29% 7.25% (2.07%)
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 2.44% 2.55% 2.85% 2.56% 2.89%
Net Assets: ======== ======== ======== ======== ========
Investment loss--net (.72%) (1.24%) (1.29%) (1.52%) (.41%)
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $178,025 $207,413 $ 79,485 $ 63,692 $ 33,071
Data: ======== ======== ======== ======== ========
Portfolio turnover 125.94% 133.50% 196.91% 133.58% 103.06%
======== ======== ======== ======== ========
Average commission rate paid++++++ $ .0803 $ .0977 -- -- --
======== ======== ======== ======== ========
<PAGE>
Class C++ Class D++
The following per share data and For the For the
ratios have been derived from Period Period
information provided in the Oct. 21, Oct. 21,
financial statements. For the Year 1994++++ to For the Year 1994++++ to
Ended April 30, April 30, Ended April 30, April 30,
Increase (Decrease) in Net Asset Value: 1997 1996 1995 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning
Operating period $ 4.68 $ 3.43 $ 3.27 $ 5.13 $ 3.72 $ 3.61
Performance: -------- -------- -------- -------- -------- --------
Investment loss--net (.04) (.05) (.04) --+++++ (.02) (.02)
Realized and unrealized gain on
investments and foreign currency
transactions--net .35 1.50 .20 .39 1.63 .13
-------- -------- -------- -------- -------- --------
Total from investment operations .31 1.45 .16 .39 1.61 .11
-------- -------- -------- -------- -------- --------
Less distributions from realized
gain on investments--net (.59) (.20) -- (.63) (.20) --
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 4.40 $ 4.68 $ 3.43 $ 4.89 $ 5.13 $ 3.72
======== ======== ======== ======== ======== ========
Total Investment Based on net asset value per share 7.28% 42.76% 4.89%+++ 8.11% 43.74% 3.05%+++
Return:** ======== ======== ======== ======== ======== ========
Ratios to Average Expenses 2.46% 2.52% 3.28%* 1.65% 1.75% 2.44%*
Net Assets: ======== ======== ======== ======== ======== ========
Investment income (loss)--net (.76%) (1.19%) (2.13%)* .06% (.44%) (1.23%)*
======== ======== ======== ======== ======== ========
Supplemental Net assets, end of period
Data: (in thousands) $ 17,762 $ 20,761 $ 1,816 $ 18,318 $ 21,564 $ 4,386
======== ======== ======== ======== ======== ========
Portfolio turnover 125.94% 133.50% 196.91% 125.94% 133.50% 196.91%
======== ======== ======== ======== ======== ========
Average commission rate paid++++++ $ .0803 $ .0977 -- $ .0803 $ .0977 --
======== ======== ======== ======== ======== ========
<PAGE>
<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.
++++++For 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.
The "Average Commission Rate Paid" includes commissions paid
in foreign currencies, which have been converted into US
dollars using the prevailing exchange rate on the date of
the transaction. Such conversions may significantly affect
the rate shown.
+++Aggregate total investment return.
+++++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
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 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 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.
* 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.
<PAGE>
* 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.
* 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
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend dates. Dividends from foreign securities where the ex-
dividend date may have passed are subsequently recorded when the
Company has determined 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.
<PAGE>
(h) Reclassification--Generally accepted accounting principles
require that certain components of net assets be adjusted to reflect
permanent differences between financial and tax reporting.
Accordingly, current year's permanent book/tax differences of
$1,169,690 have been reclassified between undistributed net realized
capital gains and accumulated net investment loss. These
reclassifications have no effect on net assets or net asset values
per share.
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 compensation for its services to the Company, MLAM receives
monthly compensation at the annual rate of 1.0% of the average daily
net assets of the Company.
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 Distribution
Maintenance Fee 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.
<PAGE>
For the year ended April 30, 1997, MLFD earned underwriting
discounts and direct commissions 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 $1,883 $12,924
Class D $3,748 $73,273
For the year ended April 30, 1997, MLPF&S received contingent
deferred sales charges of $774,273 and $21,653 relating to
transactions in Class B and Class C Shares, respectively.
NOTES TO FINANCIAL STATEMENTS (concluded)
In addition, MLPF&S received $262,491 in commissions on the
execution of portfolio security transactions for the Company for the
year ended April 30, 1997.
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, PSI, MLFDS, MLFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended April 30, 1997 were $444,370,551 and
$511,406,302, respectively.
Net realized and unrealized gains (losses) as of April 30, 1997 were
as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $ 49,415,787 $ 26,219,549
Short-term investments (1,385) --
Foreign currency transactions (235,744) (11,511)
------------ -------------
Total $ 49,178,658 $ 26,208,038
============ =============
<PAGE>
As of April 30, 1997, net unrealized appreciation for Federal income
tax purposes aggregated $26,208,612, of which $49,710,014 related to
appreciated securities and $23,501,402 related to depreciated
securities. The aggregate cost of investments at April 30, 1997 for
Federal income tax purposes was $313,955,550.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(28,438,055) and $159,000,753 for the years ended
April 30, 1997 and April 30, 1996, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended April 30, 1997 Shares Amount
Shares sold 10,271,437 $ 53,025,059
Shares issued to shareholders in
reinvestment of distributions 2,905,181 14,002,973
------------ -------------
Total issued 13,176,618 67,028,032
Shares redeemed (14,159,809) (72,426,600)
------------ -------------
Net decrease (983,191) $ (5,398,568)
============ =============
Class A Shares for the Year Dollar
Ended April 30, 1996 Shares Amount
Shares sold 10,277,222 $ 49,677,305
Shares issued to shareholders in
reinvestment 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
============ =============
Class B Shares for the Year Dollar
Ended April 30, 1997 Shares Amount
<PAGE>
Shares sold 10,102,582 $ 46,333,840
Shares issued to shareholders in
reinvestment of distributions 5,243,741 22,076,148
------------ -------------
Total issued 15,346,323 68,409,988
Automatic conversion of shares (183,162) (837,767)
Shares redeemed (19,079,607) (86,243,719)
------------ -------------
Net decrease (3,916,446) $ (18,671,498)
============ =============
Class B Shares for the
Year Ended Dollar
April 30, 1996 Shares Amount
Shares sold 31,670,575 $ 137,932,842
Shares issued to shareholders in
reinvestment 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 C Shares for the Year Dollar
Ended April 30, 1997 Shares Amount
Shares sold 2,063,730 $ 9,385,246
Shares issued to shareholders in
reinvestment of distributions 595,804 2,508,333
------------ -------------
Total issued 2,659,534 11,893,579
Shares redeemed (3,061,290) (13,780,328)
------------ -------------
Net decrease (401,756) $ (1,886,749)
============ =============
Class C Shares for the
Year Ended Dollar
April 30, 1996 Shares Amount
Shares sold 4,706,948 $ 20,619,006
Shares issued to shareholders in
reinvestment 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
============ =============
<PAGE>
Class D Shares for the Year Dollar
Ended April 30, 1997 Shares Amount
Shares sold 4,556,042 $ 22,861,805
Shares issued to shareholders in
reinvestment of distributions 445,914 2,082,418
Automatic conversion of shares 164,859 837,767
------------ -------------
Total issued 5,166,815 25,781,990
Shares redeemed (5,626,624) (28,263,230)
------------ -------------
Net decrease (459,809) $ (2,481,240)
============ =============
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
reinvestment 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
============ =============
5. Commitments:
At April 30, 1997, the Company had entered into foreign exchange
contracts under which it had agreed to buy various foreign
currencies with an approximate value of $2,712,000.
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Healthcare Fund, Inc.:
<PAGE>
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, 1997, 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 each of the years in the five-year period
then ended. These financial statements and the financial highlights
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and the financial 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, 1997 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 statement presentation. We believe that our audits
provide a reasonable 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, 1997, 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
June 4, 1997
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
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
