MERRILL LYNCH
HEALTHCARE
FUND, INC.
FUND LOGO
Quarterly Report
July 31, 1998
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.
Merrill Lynch
Healthcare Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH HEALTH CARE 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
Jordan C. Schreiber, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President
Gerald M. Richard, Treasurer
Philip M. Mandel, Secretary
Custodian
The Chase Manhattan Bank
Global Securities Services
4 Chase MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
Merrill Lynch Healthcare Fund, Inc., July 31, 1998
DEAR SHAREHOLDER
For the three-month period ended July 31, 1998, Merrill Lynch
Healthcare Fund, Inc.'s Class A, Class B, Class C and Class D
Shares had total returns of +1.41%, +1.18%, +1.01% and +1.23%,
respectively. (Fund performance does not reflect sales charges,
and would be lower if sales charges were included. Complete
performance information can be found on pages 4 and 5 of this report
to shareholders.)
Investment Environment
Worldwide capital markets in the quarter ended July 31, 1998 were
negatively impacted by the ongoing Asian financial crisis. The sharp
contraction in business activity in the Asian countries had begun to
threaten US and European economic growth. At the same time, the US
dollar's strength continued, especially relative to the Asian
currencies, as global investors sought the relatively safe haven of
US dollar-denominated investments.
As a result of these events, few US and European industry groups
were able to maintain their earnings growth rates. Accordingly,
those few companies with intact sales and earnings growth attracted
investor interest, and their shares rose to historically high
valuation levels. Large-capitalization pharmaceutical and medical
technology companies in the United States were prominent among those
stocks that outperformed the stock market in general. However, as
the July quarter closed, there were even fewer issues favored by
investors, even within the healthcare sector, as a general market
pullback developed in the United States and other major equity
markets.
In this investment climate, our strategy for Merrill Lynch
Healthcare Fund, Inc. was to seek to balance our emphasis on large-
capitalization issues with increased representation in less richly
valued mid-capitalization healthcare companies with reasonable
growth rates and prospects. At the same time, we maintained lesser
positions in smaller biotechnology and medical technology companies
with exceptional long-term earnings growth potential.
During the three-month period, consolidation continued in the
healthcare sector. Fund holding R.P. Scherer Corporation is to be
acquired by Cardinal Health, Inc., another Fund holding. DePuy, Inc.
is to be acquired by Johnson & Johnson. The latter two companies are
also Fund holdings.
Significant portfolio additions during the period included Pharmacia
& Upjohn, Inc., which successfully launched a new drug for treatment
of incontinence, a condition afflicting many elderly people. We also
added QLT Photo-Therapeutics, Inc., a Canadian biotechnology company
that has developed a unique therapy to halt the progression of age-
related macular degeneration (AMD), a condition that causes
blindness. Over two million people worIdwide have the severe form of
AMD, the leading cause of blindness in the elderly. Some 200,000 new
cases are diagnosed annually in North America alone, according to
QLT PhotoTherapeutics, and no satisfactory treatment exists for the
majority of these patients. QLT PhotoTherapeutics is moving the
treatment through the worldwide regulatory process very rapidly.
In Conclusion
While capital market turbulence and Asian economic crisis dominate
the headlines, important new medical discoveries and developments
are being made. In addition,the use of modern and increasingly
effective pharmaceuticals and medical devices is broadening
throughout the world. New scientific concepts are being translated
into useful products that may improve the quality and longevity of
life. Merrill Lynch Healthcare Fund, Inc. endeavors to participate
in many of these developments. The Fund seeks to balance the
potential of less-seasoned scientifically based companies with the
current commercial returns generated by more established companies
that have substantial capital and organizational resources.
Therefore, despite the challenges of the current investment
environment, we continue to view the future of investing in the
healthcare sector with exhilaration and optimism.
We thank you for your investment in Merrill Lynch Healthcare Fund,
Inc., and we look forward to reviewing our outlook and strategy with
you again in our next report to shareholders.
Sincerely,
(Arthur Zeikel)
Arthur Zeikel
President
(Jordan C. Schreiber)
Jordan C. Schreiber
Senior Vice President and
Portfolio Manager
August 27, 1998
Merrill Lynch Healthcare Fund, Inc., July 31, 1998
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 "Recent Performance
Results" and "Average Annual Total Return" tables assume
reinvestment of all dividends and capital gains distributions at net
asset value on the exdividend 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.
<TABLE>
Recent
Performance
Results*
<CAPTION>
Ten Years/
12 Month 3 Month Since Inception
Total Return Total Return Total Return
<S> <C> <C> <C>
ML Healthcare Fund, Inc.--Class A Shares +23.50% +1.41% +279.45%
ML Healthcare Fund, Inc.--Class B Shares +22.20 +1.18 +253.54
ML Healthcare Fund, Inc.--Class C Shares +22.17 +1.01 +131.49
ML Healthcare Fund, Inc.--Class D Shares +23.07 +1.23 +133.34
<FN>
*Investment results shown do not reflect sales charges; results
shown would be lower if a sales charge was included. Total
investment returns are based on changes in net asset values for the
periods shown, and assume reinvestment of all dividends and capital
gains distributions at net asset value on the ex-dividend date. The
Fund's inception dates are:Class A Shares, ten years ended 7/31/98;
Class B Shares, 10/21/88; and Class C and Class D Shares, 10/21/94.
</TABLE>
Average Annual
Total Return+++
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 6/30/98 +24.36% +17.83%
Five Years Ended 6/30/98 +20.27 +18.98
2/01/90++ through 6/30/98 +15.47 +14.74
Ten Years Ended 6/30/98 +14.22 +13.61
[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 6/30/98 +23.02% +19.06%
Five Years Ended 6/30/98 +19.08 +19.08
2/01/90++ through 6/30/98 +14.28 +14.28
Inception (10/21/88) through 6/30/98 +13.76 +13.76
[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.
% Return % Return
Class C Shares* Without CDSC With CDSC**
Year Ended 6/30/98 +23.31% +22.32%
Inception (10/21/94) through 6/30/98 +25.13 +25.13
[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 6/30/98 +24.14% +17.62%
Inception (10/21/94) through 6/30/98 +25.33 +23.52
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
+++Important Note:
Prior to April 27, 1992, Merrill Lynch Healthcare Fund, Inc. was
known as Sci/Tech Holdings, Inc. and contained, in addition to a
healthcare portfolio, a portfolio of technology securities. The data
on pages 4 and 5 include the performance of the technology portfolio
which is no longer part of the Fund. Set forth below are performance
data which, for the period before April 27, 1992, 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.
Performance
Results*
2/01/90 to 7/31/98++
Total Return
ML Healthcare Fund Class A Shares +360.07%
ML Healthcare Fund Class B Shares +331.81
[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.
Average Annual
Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
2/01/90++ through 6/30/98 +19.69% +18.93%
[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**
2/01/90++ through 6/30/98 +18.79% +18.79%
[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.
Merrill Lynch Healthcare Fund, Inc., July 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
NORTH Shares Percent of
AMERICA Industries Held Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Canada Pharmaceutical-- 30,000 QLT PhotoTherapeutics, Inc. $ 499,849 $ 487,789 0.1%
Consumer
Investments in Canada 499,849 487,789 0.1
United States Biotechnology 150,000 Aphton Corp. 3,184,625 1,725,000 0.4
100,000 Aurora Biosciences Corp. 812,190 637,500 0.1
50,000 COR Therapeutics, Inc. 783,125 696,875 0.2
100,000 Centocor, Inc. 4,072,464 3,512,500 0.8
260,000 Coulter Pharmaceuticals, Inc. 3,412,500 6,792,500 1.6
300,000 Emisphere Technologies Inc. 4,799,613 3,000,000 0.7
125,000 Genentech, Inc. 8,204,428 8,632,813 2.1
50,000 Guilford Pharmaceuticals Inc. 1,086,875 818,750 0.2
20,000 Human Genome Sciences, Inc. 812,500 745,000 0.2
30,000 IDEC Pharmaceuticals Corporation 753,750 705,000 0.2
50,000 Immunex Corporation 3,558,373 3,512,500 0.8
30,000 Incyte Pharmaceuticals, Inc. 1,023,750 1,080,000 0.2
35,000 Ligand Pharmaceuticals
Incorporated 496,562 389,375 0.1
55,000 MedImmune, Inc. 2,792,187 3,231,250 0.8
30,000 Neurex Corporation 559,689 1,068,750 0.3
60,000 Protein Design Labs, Inc. 1,890,844 1,132,500 0.3
------------ ------------ ------
38,243,475 37,680,313 9.0
Diagnostics 20,200 NeoPath, Inc. 260,150 112,363 0.0
Health Care Cost 100,000 Allegiance Corporation 2,270,250 5,912,500 1.4
Containment 160,000 AmeriSource Health Corporation
(Class A) 8,722,452 12,180,000 2.9
30,000 Bergen Brunswig Corporation 1,379,601 1,590,000 0.4
160,000 Cardinal Health, Inc. 9,023,331 15,370,000 3.7
250,000 Cerner Corporation 6,817,644 7,093,750 1.7
100,000 Columbia/HCA Healthcare
Corporation 3,093,500 2,850,000 0.7
50,000 Concentra Managed Care, Inc. 1,330,315 1,146,875 0.3
100,000 HEALTHSOUTH Corporation 2,960,928 2,512,500 0.6
149,096 IMS Health Incorporated 6,248,773 9,365,092 2.2
180,000 McKesson Corporation 7,118,366 14,512,500 3.5
200,000 Medaphis Corporation 1,693,210 1,112,500 0.3
42,500 Synetic, Inc. 2,037,500 2,199,375 0.5
118,600 Tenet Healthcare Corp. 2,940,625 3,550,587 0.8
------------ ------------ ------
55,636,495 79,395,679 19.0
Medical 70,000 Arterial Vascular Engineering, Inc. 3,088,160 2,765,000 0.7
Specialties 40,000 Bausch & Lomb Incorporated 2,079,864 2,045,000 0.5
90,000 Becton Dickinson & Company 4,195,574 7,436,250 1.8
100,000 Boston Scientific Corporation 6,294,498 7,662,500 1.8
80,000 DePuy, Inc. 1,946,665 2,740,000 0.7
70,000 Guidant Corporation 2,679,719 5,201,875 1.2
85,000 Ilex Oncology Inc. 1,020,000 626,875 0.2
70,000 Medtronic, Inc. 1,348,116 4,335,625 1.0
150,000 Novoste Corporation 3,949,063 2,531,250 0.6
50,000 Ocular Sciences, Inc. 1,335,000 1,481,250 0.4
400,000 Optical Sensors, Incorporated 3,984,376 1,450,000 0.3
160,000 Parexel International Corporation 5,270,001 5,500,000 1.3
125,000 ReSound Corporation 701,405 601,562 0.1
80,000 VISX, Incorporated 2,002,642 5,000,000 1.2
------------ ------------ ------
39,895,083 49,377,187 11.8
Pharmaceutical-- 300,000 Warner-Lambert Co. 14,648,200 22,668,750 5.5
Consumer
Pharmaceutical-- 60,000 Abbott Laboratories 2,294,925 2,493,750 0.6
Diversified 60,000 American Home Products
Corporation 3,098,982 3,090,000 0.7
80,000 Bristol-Myers Squibb Company 8,867,300 9,115,000 2.2
90,000 Johnson & Johnson 6,949,161 6,952,500 1.7
100,000 Monsanto Company 5,396,744 5,662,500 1.4
100,000 Schering-Plough Corp. 6,641,100 9,675,000 2.3
------------ ------------ ------
33,248,212 36,988,750 8.9
Pharmaceutical-- 100,000 ALZA Corp. 4,530,468 3,887,500 1.0
Prescription 80,000 Allergan, Inc. 3,941,176 4,180,000 1.0
124,100 Barr Laboratories, Inc. 4,405,550 4,009,981 1.0
100,000 Forest Laboratories, Inc. 2,244,500 3,750,000 0.9
100,000 Lilly (Eli) and Company 7,168,500 6,725,000 1.6
250,000 Pfizer, Inc. 13,250,943 27,500,000 6.6
100,000 Pharmacia & Upjohn, Inc. 4,694,500 4,737,500 1.1
250,000 SangStat Medical Corporation 8,156,517 5,875,000 1.4
120,000 Scherer (R.P.) Corporation 8,917,940 10,912,500 2.6
400,000 Sepracor Inc. 13,843,790 21,600,000 5.2
40,000 Watson Pharmaceuticals, Inc. 1,597,800 1,805,000 0.4
------------ ------------ ------
72,751,684 94,982,481 22.8
Investments in the
United States 254,683,299 321,205,523 77.0
Total Investments in
North America 255,183,148 321,693,312 77.1
</TABLE>
Merrill Lynch Healthcare Fund, Inc., July 31, 1998
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
WESTERN Shares Percent of
EUROPE Industries Held Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Denmark Pharmaceutical-- 10,000 Novo Nordisk A/S (Class B) $ 1,329,802 $ 1,323,673 0.3%
Prescription
Investments in Denmark 1,329,802 1,323,673 0.3
Finland Health Care Cost 454,500 Tamro OY 3,495,250 2,943,163 0.7
Containment
Pharmaceutical-- 140,000 Orion-yhtymae OY (Class B) 3,660,185 4,299,802 1.0
Diversified
Investments in Finland 7,155,435 7,242,965 1.7
France Pharmaceutical-- 18,966 Synthelabo S.A. 2,477,793 2,932,526 0.7
Diversified
Investments in France 2,477,793 2,932,526 0.7
Germany Pharmaceutical-- 50,000 BASF AG 2,290,305 2,298,285 0.6
Diversified
Investments in Germany 2,290,305 2,298,285 0.6
Ireland Pharmaceutical-- 105,000 Elan Corporation PLC (ADR)* 5,385,300 7,560,000 1.8
Prescription
Investments in Ireland 5,385,300 7,560,000 1.8
Sweden Pharmaceutical-- 250,000 OXiGENE, Inc. 3,639,757 2,562,500 0.6
Prescription
Investments in Sweden 3,639,757 2,562,500 0.6
Switzerland Pharmaceutical-- 5,000 Novartis AG (Registered) 7,545,794 8,440,207 2.0
Consumer
Pharmaceutical-- 800 Roche Holding AG 8,972,654 8,621,500 2.1
Prescription
Investments in Switzerland 16,518,448 17,061,707 4.1
United Kingdom Medical 150,000 Nycomed-Amersham PLC 1,114,342 1,001,232 0.2
Specialties
Pharmaceutical-- 700,000 Shire Pharmaceuticals Group PLC 4,263,086 5,491,234 1.3
Diversified 40,000 Shire Pharmaceuticals Group
PLC (ADR)* 992,500 960,000 0.2
50,000 SmithKline Beecham PLC 641,208 581,598 0.2
------------ ------------ ------
5,896,794 7,032,832 1.7
Pharmaceutical-- 300,000 Glaxo Wellcome PLC 9,141,017 9,266,304 2.2
Prescription 60,000 Zeneca Group PLC 2,278,039 2,278,294 0.6
------------ ------------ ------
11,419,056 11,544,598 2.8
Investments in the
United Kingdom 18,430,192 19,578,662 4.7
Total Investments in
Western Europe 57,227,032 60,560,318 14.5
SHORT-TERM Face
SECURITIES Amount Investments
Commercial $16,658,000 General Motors Acceptance Corp.,
Paper** 5.69% due 8/03/1998 16,652,734 16,652,734 4.0
US Government 20,000,000 Federal Home Loan Mortgage Corp.,
Agency 5.48% due 8/13/1998 19,963,467 19,963,467 4.8
Obligations**
Total Investments in
Short-Term Securities 36,616,201 36,616,201 8.8
Total Investments $349,026,381 418,869,831 100.4
============
Liabilities in Excess of Other Assets (1,600,892) (0.4)
------------ ------
Net Assets $417,268,939 100.0%
============ ======
Net Asset Value: Class A--Based on net assets of $147,628,701
and 27,292,955 shares outstanding $ 5.41
============
Class B--Based on net assets of $216,683,594
and 48,508,343 shares outstanding $ 4.47
============
Class C--Based on net assets of $22,479,513
and 5,028,062 shares outstanding $ 4.47
============
Class D--Based on net assets of $30,477,131
and 5,883,659 shares outstanding $ 5.18
============
<FN>
*American Depositary Receipts (ADR).
**Commercial Paper and certain US Government Agency Obligations are
traded on a discount basis; the interest rates shown reflect the
discount rates paid at the time of purchase by the Company.
</TABLE>
Merrill Lynch Healthcare Fund, Inc., July 31, 1998
PORTFOLIO CHANGES
For the Quarter Ended July 31, 1998
Additions
Abbott Laboratories
*Advanced Polymer Systems, Inc.
*Agouron Pharmaceuticals
Allergan, Inc.
American Home Products Corporation
*Amgen Inc.
Aurora Biosciences Corp.
Bergen Brunswig Corporation
*EntreMed Inc.
Glaxo Wellcome PLC
*ICONPLC(ADR)
IMS Health Incorporated
Immunex Corporation
Incyte Pharmaceuticals, Inc.
Johnson & Johnson
MedImmune, Inc.
*Nielson Media Research Inc.
Nycomed-Amersham PLC
OXiGENE, Inc.
Pharmacia & Upjohn, Inc.
QLT PhotoTherapeutics, Inc.
Shire Pharmaceuticals Group PLC (ADR)
*Vertex Pharmaceuticals Inc.
Deletions
*Advanced Polymer Systems, Inc.
Affymetrix, Inc.
*Agouron Pharmaceuticals
Alliance Pharmaceutical Corp.
*Amgen Inc.
Biora AB
C.R. Bard, Inc.
Clintrials Research Inc.
Conceptus, Inc.
*EntreMed Inc.
Fresenius AG (Preferred)
Fresenius Medical Care AG (ADR)
Gilead Sciences, Inc.
*ICONPLC(ADR)
Incentive AB (B Shares)
InControl, Inc.
Magainin Pharmaceuticals, Inc.
Merck & Co., Inc.
Nanogen Inc.
*Nielson Media Research Inc.
Quintiles Transnational Corp.
United Healthcare Corporation
*Vertex Pharmaceuticals Inc.
Walsh International, Inc.
[FN]
*Added and deleted in the same quarter.
PORTFOLIO INFORMATION
Worldwide
Investments
As of 7/31/98
Ten Largest Holdings Percent of
Represented in the Portfolio Net Assets
Pfizer, Inc. 6.6%
Warner-Lambert Co. 5.5
Sepracor Inc. 5.2
Cardinal Health, Inc. 3.7
McKesson Corporation 3.5
AmeriSource Health Corporation
(Class A) 2.9
Scherer (R.P.) Corporation 2.6
Schering-Plough Corp. 2.3
IMS Health Incorporated 2.2
Glaxo Wellcome PLC 2.2
Breakdown of Securities Percent of
By Country Net Assets
United States* 77.0%
United Kingdom 4.7
Switzerland 4.1
Ireland 1.8
Finland 1.7
France 0.7
Sweden 0.6
Germany 0.6
Denmark 0.3
Canada 0.1
[FN]
*Excludes short-term investments.
Industries Represented Percent of
In the Portfolio Net Assets
Pharmaceutical-Prescription 30.4%
Health Care Cost Containment 19.7
Pharmaceutical-Diversified 12.9
Medical Specialties 12.0
Biotechnology 9.0
Pharmaceutical-Consumer 7.6
Diagnostics 0.0
