MERRILL LYNCH
HEALTHCARE
FUND, INC.
FUND LOGO
Annual Report
April 30, 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 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
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
Merrill Lynch Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
Merrill Lynch Healthcare Fund, Inc., April 30, 1998
DEAR SHAREHOLDER
For the three-month period ended April 30, 1998, Merrill Lynch
Healthcare Fund, Inc.'s Class A, Class B, Class C and Class D Shares
had total returns of +11.66%, +11.59%, +11.56% and +11.73%,
respectively. (Fund performance does 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--6 of this report to shareholders.)
Investment Environment
The quarter ended April 30, 1998 was positive for most capital
markets worldwide, despite periods of volatility. In the United
States, sentiment toward stock and bond prices fluctuated between
concern that the slowdown in Asian economic growth would lead to a
sharp decline in US business activity and a deflationary
environment, while during other periods, US investors appeared to
expect that the positive trends of a moderately expanding economy,
declining unemployment, enhanced productivity and corporate profits
growth would continue. To date, there have been only a few signs
that Asia's troubles are influencing US economic activity. In
Europe, the major event was greater progress toward achieving
European Monetary Union, although concerns have arisen that interest
rates may have to be increased to curtail inflationary pressures.
As 1998 progresses, it is likely that investor focus will remain on
developments in Asia. For those economies that continue to expand,
investors will watch for signs that inflation is still not a threat.
Evidence of ongoing, noninflationary gross domestic product growth
should continue to exert a positive influence on the capital markets
worldwide.
Portfolio Matters
Our primary investment strategy was unchanged during the April
quarter: to focus the majority of investments worldwide on large-
capitalization holdings. The quarter was highlighted by dramatic
developments in the pharmaceutical industry, which benefited the
share prices of many of the Fund's investments. Heading the list of
developments is the enormously successful new product launch of
Pfizer, Inc.'s Viagra for treatment of male impotence. Viagra
already is on track to become the most heavily prescribed drug in
world pharmaceutical history. Pfizer is the Fund's largest holding.
Other Fund holdings also benefited from important new product
introductions during the quarter. This included Merck & Co., Inc.'s
Propecia, a prescription hair growth drug. Merck also launched
Singlaire, a new asthma drug, which, uniquely, is approved for use
in children, who are the prime sufferers of this respiratory
ailment. Eli Lilly and Company introduced Evista, a post-menopausal
prescription drug treatment for women to prevent the onset of
osteoporosis. Evista also may minimize the risk of breast cancer
that is associated with estrogen replacement therapy, the
traditional treatment for osteoporosis.
At the end of the April quarter, an extraordinary medical
development was announced which, although in an early animal study
phase, may have a profound impact in the future. Dr. Judah Folkman,
a Harvard University Medical School researcher, and his team
developed a pharmacological means of cancer control in mice. Bristol-
Myers Squibb Company, a Fund investment, has the marketing and
production rights to one of the two drugs used in the Folkman study.
Clinical studies will be underway within the next 18 months to
determine if these astounding results may be obtainable in humans.
We have also invested in smaller companies that are engaged in
promising cancer diagnosis and treatment. These include Ilex
Oncology Inc., a clinical research organization that specializes in
cancer, and Coulter Pharmaceuticals, Inc. and IDEC Pharmaceuticals
Corporation, both having developed very promising compounds for
treatment of early stage lymphoma, a particularly virulent form of
cancer.
Fiscal Year in Review
For the fiscal year ended April 30, 1998, the Fund's Class A, Class
B, Class C and Class D Shares had total investment returns of
+44.06%, +42.60%, +42.66% and +43.95%, respectively. Our strategy of
focusing investments in large-capitalization healthcare companies
benefited performance in the slow-growth, low-inflation environment
that prevailed throughout the fiscal year. In addition, our
significant weighting in the US stock market (78.6% of net assets as
of April 30, 1998) further enhanced performance, especially in light
of the strong relative performance of US stocks compared to their
Asian and European counterparts and the stringent healthcare cost-
containment pressures in Japan. The major negative impact on
performance came from two mergers of pharmaceutical distributors
that had been proposed but were disallowed by the Federal Trade
Commission. The impact of this decision fell upon Cardinal Health,
Inc., Bergen Brunswig Corporation, McKesson Corporation and
AmeriSource Health Corporation. All but Bergen Brunswig are Fund
holdings.
In Conclusion
As the industrial world's population ages, cancer, Alzheimer's
disease, congestive heart failure, osteoporosis, stroke and other
presently untreatable conditions of the elderly become increasingly
important. Merrill Lynch Healthcare Fund, Inc. has focused on
companies engaged in the management and treatment of these
conditions. Important scientific advances are now being made. We
believe that the Fund is well-positioned to benefit from the
commercialization of these developments.
We thank you for your investment in Merrill Lynch Healthcare 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
Senior Vice President and
Portfolio Manager
May 26, 1998
Merrill Lynch Healthcare Fund, Inc., April 30, 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 "Average Annual Total
Return" 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.
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:
4/88 4/98
ML Healthcare Fund, Inc.++--
Class A Shares* $ 9,475 $34,531
S&P 500 Index++++ $10,000 $56,616
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** 4/98
ML Healthcare Fund, Inc.++--
Class B Shares* $10,000 $34,940
S&P 500 Index++++ $10,000 $51,218
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 $22,918
ML Healthcare Fund, Inc.++--
Class D Shares* $ 9,475 $21,841
S&P 500 Index++++ $10,000 $25,815
[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+++
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 3/31/98 +42.98% +35.48%
Five Years Ended 3/31/98 +20.63 +19.33
2/01/90++ through 3/31/98 +15.56 +14.80
Ten Years Ended 3/31/98 +13.82 +13.21
[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 3/31/98 +41.43% +37.43%
Five Years Ended 3/31/98 +19.37 +19.37
2/01/90++ through 3/31/98 +14.37 +14.37
Inception (10/21/88) through 3/31/98 +13.82 +13.82
[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 3/31/98 +41.50% +40.50%
Inception (10/21/94) through 3/31/98 +26.19 +26.19
[FN]
*Maximum contingent sales charge is 1% and is reduced to 0% after 1
year.
**Assuming payment of applicable contingent deferred sales charge.
[FN]
+++See Important Note on page 6.
% Return Without % Return With
Class D Shares* Sales Charge Sales Charge**
Year Ended 3/31/98 +42.51% +35.02%
Inception (10/21/94) through 3/31/98 +26.33 +24.37
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch Healthcare Fund, Inc., April 30, 1998
PERFORMANCE DATA (concluded)
<TABLE>
Recent
Performance
Results*
<CAPTION>
12 Month 3 Month Ten Years/Since Inception
Total Return Total Return Total Return
<S> <C> <C> <C>
ML Healthcare Fund Class A Shares +44.06% +11.66% +264.41%
ML Healthcare Fund Class B Shares +42.60 +11.59 +249.40
ML Healthcare Fund Class C Shares +42.66 +11.56 +129.18
ML Healthcare Fund Class D Shares +43.95 +11.73 +130.51
<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 ten-year/inception dates are: Class A Shares, ten years ended
4/30/98; Class B Shares, 10/21/88; and Class C and Class D Shares,
10/21/94.
<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--6 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 4/30/98++
Total Return
ML Healthcare Fund Class A Shares +353.68%
ML Healthcare Fund Class B Shares +326.75
<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 3/31/98 +19.91% +19.12%
<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 3/31/98 +19.03% +19.03%
<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.
</TABLE>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
NORTH Shares Value Percent of
AMERICA Industries Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United States Biotechnology 20,000 ++Affymetrix, Inc. $ 510,000 $ 622,500 0.2%
150,000 ++Aphton Corp. 3,184,625 2,081,250 0.5
20,000 ++COR Therapeutics, Inc. 349,376 376,250 0.1
100,000 ++Centocor, Inc. 4,072,463 4,206,250 1.1
255,000 ++Coulter Pharmaceuticals, Inc. 3,092,500 7,267,500 1.8
280,000 ++Emisphere Technologies Inc. 4,511,956 4,672,500 1.2
54,000 ++Genentech, Inc. 3,329,074 3,739,500 0.9
30,000 ++Gilead Sciences, Inc. 1,138,750 1,140,000 0.3
50,000 ++Guilford Pharmaceuticals Inc. 1,086,875 993,750 0.2
30,000 ++Human Genome Sciences, Inc. 1,222,500 1,087,500 0.3
30,000 ++IDEC Pharmaceuticals
Corporation 753,750 1,068,750 0.3
25,000 ++Ligand Pharmaceuticals
Incorporated 360,312 362,500 0.1
100,000 ++Magainin Pharmaceuticals, Inc. 612,500 587,500 0.1
95,000 ++Nanogen Inc. 1,045,000 878,750 0.2
30,000 ++Neurex Corporation 559,689 894,375 0.2
60,000 ++Protein Design Labs, Inc. 1,890,844 1,878,750 0.5
------------ ------------ ------
27,720,214 31,857,625 8.0
Diagnostics 425,000 ++NeoPath, Inc. 7,073,832 5,923,438 1.5
Health Care Cost 120,000 Allegiance Corporation 2,718,950 5,475,000 1.4
Containment 133,500 ++AmeriSource Health Corporation
(Class A) 6,832,102 7,275,750 1.8
160,000 Cardinal Health, Inc. 9,023,331 15,400,000 3.8
106,600 ++Cerner Corporation 2,701,578 3,171,350 0.8
50,000 Columbia/HCA Healthcare
Corporation 1,653,000 1,646,875 0.4
110,000 ++Concentra Managed Care, Inc. 2,993,550 3,396,250 0.8
100,000 ++HEALTHSOUTH Corporation 2,999,660 3,018,750 0.8
180,000 McKesson Corporation 7,118,366 12,723,750 3.2
180,000 ++Medaphis Corporation 1,562,813 1,631,250 0.4
42,500 ++Synetic, Inc. 2,037,500 2,616,406 0.7
130,000 ++Tenet Healthcare Corp. 3,188,878 4,866,875 1.2
50,000 United Healthcare Corporation 3,531,440 3,512,500 0.9
300,000 ++Walsh International, Inc. 3,377,689 4,387,500 1.1
------------ ------------ ------
49,738,857 69,122,256 17.3
</TABLE>
Merrill Lynch Healthcare Fund, Inc., April 30, 1998
<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 States Medical 10,000 ++Alliance Pharmaceutical Corp. $ 79,375 $ 76,563 0.0%
(concluded) Specialties 70,000 ++Arterial Vascular
Engineering, Inc. 3,088,160 2,471,875 0.6
30,000 Bausch & Lomb Incorporated 1,415,550 1,483,125 0.4
98,100 Becton Dickinson & Company 4,558,518 6,830,213 1.7
100,000 ++Boston Scientific Corporation 6,118,572 7,231,250 1.8
30,000 C.R. Bard, Inc. 864,673 1,074,375 0.3
140,000 ++Clintrials Research Inc. 988,437 726,250 0.2
240,000 ++Conceptus, Inc. 2,694,124 750,000 0.2
100,000 DePuy, Inc. 2,425,775 3,100,000 0.8
150,000 Guidant Corporation 5,742,748 10,031,250 2.5
100,000 ++Ilex Oncology Inc. 1,200,000 1,250,000 0.3
90,000 ++InControl, Inc. 1,213,908 472,500 0.1
70,000 Medtronic, Inc. 1,348,116 3,683,750 0.9
150,000 ++Novoste Corporation 3,949,063 3,712,500 0.9
62,500 ++Ocular Sciences, Inc. 1,660,000 1,742,188 0.4
400,000 ++Optical Sensors, Incorporated 3,984,376 1,550,000 0.4
170,000 ++Parexel International
Corporation 5,630,001 5,695,000 1.4
40,000 ++Quintiles Transnational Corp. 1,957,500 1,977,500 0.5
235,000 ++ReSound Corporation 1,525,147 1,483,438 0.4
127,500 ++VISX, Incorporated 3,144,063 5,625,937 1.4
------------ ------------ ------
53,588,106 60,967,714 15.2
Pharmaceutical-- 135,000 Warner-Lambert Co. 18,753,437 25,540,312 6.4
Consumer
Pharmaceutical-- 100,000 Bristol-Myers Squibb Company 6,230,398 10,587,500 2.6
Diversified 100,000 Monsanto Company 5,396,744 5,287,500 1.3
100,000 Schering-Plough Corp. 6,641,100 8,012,500 2.0
------------ ------------ ------
18,268,242 23,887,500 5.9
Pharmaceutical-- 100,000 ++ALZA Corp. 4,530,468 4,793,750 1.2
Prescription 149,000 ++Barr Laboratories, Inc. 5,289,500 6,043,812 1.5
100,000 ++Forest Laboratories, Inc. 2,244,500 3,618,750 0.9
280,000 Lilly (Eli) and Company 19,576,552 19,477,500 4.9
15,000 Merck & Co., Inc. 1,963,800 1,807,500 0.5
260,000 Pfizer, Inc. 13,605,618 29,591,250 7.4
250,000 ++SangStat Medical Corporation 8,156,517 8,437,500 2.1
120,000 ++Scherer (R.P.) Corporation 8,917,940 8,760,000 2.2
280,000 ++Sepracor Inc. 7,211,913 12,915,000 3.2
40,000 ++Watson Pharmaceuticals, Inc. 1,597,800 1,720,000 0.4
------------ ------------ ------
73,094,608 97,165,062 24.3
Investments in North America 248,237,296 314,463,907 78.6
WESTERN
EUROPE
Denmark Pharmaceutical-- 20,000 Novo Nordisk A/S (Class B) 2,430,923 3,244,855 0.8
Prescription
Investments in Denmark 2,430,923 3,244,855 0.8
Finland Health Care Cost 454,500 Tamro OYJ 3,495,250 3,255,372 0.8
Containment
Pharmaceutical-- 140,000 ++Orion-yhtymae OY (Class B) 3,660,185 4,345,271 1.1
Diversified
Investments in Finland 7,155,435 7,600,643 1.9
France Pharmaceutical-- 55,000 Synthelabo S.A. 7,050,270 8,278,036 2.1
Diversified
Investments in France 7,050,270 8,278,036 2.1
Germany Medical 20,000 Fresenius AG (Preferred) 3,503,625 4,799,331 1.2
Specialties 55,000 ++Fresenius Medical Care
AG (ADR)* 1,219,434 1,268,437 0.3
------------ ------------ ------
4,723,059 6,067,768 1.5
Pharmaceutical-- 30,000 BASF AG 1,362,942 1,336,120 0.3
Diversified
Investments in Germany 6,086,001 7,403,888 1.8
Ireland Pharmaceutical-- 105,000 ++Elan Corporation PLC (ADR)* 5,385,300 6,523,125 1.6
Prescription
Investments in Ireland 5,385,300 6,523,125 1.6
Sweden Biotechnology 45,000 ++Biora AB 520,478 677,650 0.2
Medical 30,000 Incentive AB (B Shares) 2,906,317 2,896,734 0.7
Specialties
Investments in Sweden 3,426,795 3,574,384 0.9
Switzerland Pharmaceutical-- 8,000 Novartis AG (Registered) 11,008,097 13,231,077 3.3
Consumer
Pharmaceutical-- 500 ++Roche Holding AG 5,769,232 5,070,023 1.3
Prescription
Investments in Switzerland 16,777,329 18,301,100 4.6
United Kingdom Pharmaceutical-- 625,000 ++Shire Pharmaceuticals Group PLC 3,594,686 4,563,372 1.1
Diversified 500,000 SmithKline Beecham PLC 6,442,390 5,956,402 1.5
------------ ------------ ------
10,037,076 10,519,774 2.6
Pharmaceutical-- 20,000 ++Zeneca Group PLC 587,827 860,796 0.2
Prescription
Investments in the
United Kingdom 10,624,903 11,380,570 2.8
Total Investments in
Western Europe 58,936,956 66,306,601 16.5
</TABLE>
Merrill Lynch Healthcare Fund, Inc., April 30, 1998
<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 $ 8,000,000 Countrywide Home Loans, Inc.,
Paper** 5.55% due 5/07/1998 $ 7,992,600 $ 7,992,600 2.0%
18,322,000 General Motors Acceptance
Corp., 5.56% due 5/01/1998 18,322,000 18,322,000 4.6
Total Investments in
Short-Term Securities 26,314,600 26,314,600 6.6
Total Investments $333,488,852 407,085,108 101.7
============
Liabilities in Excess of Other Assets (6,833,028) (1.7)
------------ ------
Net Assets $400,252,080 100.0%
============ ======
<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.
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of April 30, 1998
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$333,488,852) (Note 1a) $407,085,108
Receivables:
Securities sold $ 4,415,796
Capital shares sold 1,060,543
Dividends 242,679 5,719,018
------------
Prepaid registration fees and other assets (Note 1f) 2,310,922
------------
Total assets 415,115,048
------------
Liabilities: Payables:
Securities purchased 8,782,338
Custodian bank (Note 1h) 4,546,271
Capital shares redeemed 815,896
Investment adviser (Note 2) 323,647
Distributor (Note 2) 189,624 14,657,776
------------
Accrued expenses and other liabilities 205,192
------------
Total liabilities 14,862,968
------------
Net Assets: Net assets $400,252,080
============
Net Assets Class A Shares of Common Stock, $0.10 par value, 100,000,000
Consist of: shares authorized $ 2,501,723
Class B Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 4,245,734
Class C Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 403,912
Class D Shares of Common Stock, $0.10 par value, 100,000,000
shares authorized 457,874
Paid-in capital in excess of par 278,389,652
Undistributed realized capital gains on investments and foreign
currency transactions--net 40,666,843
Unrealized appreciation on investments and foreign currency
transactions--net 73,586,342
------------
Net assets $400,252,080
============
Net Asset Class A--Based on net assets of $146,153,521 and
Value: 25,017,225 shares outstanding $ 5.84
============
Class B--Based on net assets of $208,520,228 and
42,457,344 shares outstanding $ 4.91
============
Class C--Based on net assets of $19,860,380 and
4,039,118 shares outstanding $ 4.92
============
Class D--Based on net assets of $25,717,951 and
4,578,740 shares outstanding $ 5.62
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Healthcare Fund, Inc., April 30, 1998
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended April 30, 1998
<S> <S> <C> <C>
Investment Dividends (net of $90,911 foreign withholding tax) $ 2,418,817
Income Interest and discount earned 1,243,600
(Notes 1d & 1e): ------------
Total income 3,662,417
------------
Expenses: Investment advisory fees (Note 2) $ 3,524,780
Account maintenance and distribution fees--Class B (Note 2) 1,856,344
Transfer agent fees--Class B (Note 2) 416,311
Transfer agent fees--Class A (Note 2) 250,046
Account maintenance and distribution fees--Class C (Note 2) 163,604
Printing and shareholder reports 143,179
Accounting services (Note 2) 77,706
Registration fees (Note 1f) 62,213
Custodian fees 57,947
Account maintenance fees--Class D (Note 2) 54,298
Transfer agent fees--Class D (Note 2) 41,805
Transfer agent fees--Class C (Note 2) 39,236
Directors' fees and expenses 37,000
Professional fees 34,218
Pricing fees 1,526
Other 14,697
------------
Total expenses 6,774,910
------------
Investment loss--net (3,112,493)
------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 85,163,070
(Loss) on Foreign currency transactions--net (212,792) 84,950,278
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 47,376,707
(Notes 1b, 1c, Foreign currency transactions--net 1,597 47,378,304
1e & 3): ------------ ------------
Net realized and unrealized gain on investments
and foreign currency transactions 132,328,582
------------
Net Increase in Net Assets Resulting from Operations $129,216,089
============
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: 1998 1997
<S> <S> <C> <C>
Operations: Investment loss--net $ (3,112,493) $ (1,169,690)
Realized gain on investments and foreign currency
transactions--net 84,950,278 49,178,658
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 47,378,304 (19,475,916)
------------ ------------
Net increase in net assets resulting from operations 129,216,089 28,533,052
------------ ------------
Distributions to Realized gain on investments--net:
Shareholders Class A (25,786,081) (16,194,846)
(Note 1g): Class B (41,357,421) (24,903,751)
Class C (3,451,735) (2,771,712)
Class D (4,384,072) (2,411,519)
------------ ------------
Net decrease in net assets resulting from
distributions to shareholders (74,979,309) (46,281,828)
------------ ------------
Capital Share Net increase (decrease) in net assets derived from
Transactions capital share transactions 10,381,155 (28,438,055)
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets 64,617,935 (46,186,831)
Beginning of year 335,634,145 381,820,976
------------ ------------
End of year $400,252,080 $335,634,145
============ ============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Healthcare Fund, Inc., April 30, 1998
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
The following per share data and ratios
have been derived from information provided
in the financial statements. Class A++
For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 5.05 $ 5.27 $ 3.81 $ 3.87 $ 3.59
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.02) .02 (.01) (.01) (.02)
Realized and unrealized gain on investments
and foreign currency transactions--net 2.02 .40 1.67 .22 .31
-------- -------- -------- -------- --------
Total from investment operations 2.00 .42 1.66 .21 .29
-------- -------- -------- -------- --------
Less dividends and distributions:
Investment income--net -- -- -- -- (.01)
Realized gain on investments--net (1.21) (.64) (.20) (.27) --
-------- -------- -------- -------- --------
Total dividends and distributions (1.21) (.64) (.20) (.27) (.01)
-------- -------- -------- -------- --------
Net asset value, end of year $ 5.84 $ 5.05 $ 5.27 $ 3.81 $ 3.87
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 44.06% 8.55% 44.01% 6.47% 8.19%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 1.32% 1.40% 1.53% 1.79% 1.55%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net (.28%) .32% (.23%) (.21%) (.48%)
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $146,154 $121,529 $132,083 $ 69,650 $ 70,753
Data: ======== ======== ======== ======== ========
Portfolio turnover 115.99% 125.94% 133.50% 196.91% 133.58%
======== ======== ======== ======== ========
Average commission rate paid++++ $ .0775 $ .0803 $ .0977 -- --
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
++++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.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
<CAPTION>
The following per share data and ratios
have been derived from information provided
in the financial statements. Class B++
For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995 1994
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 4.40 $ 4.67 $ 3.43 $ 3.55 $ 3.31
Operating -------- -------- -------- -------- --------
Performance: Investment loss--net (.06) (.03) (.05) (.04) (.05)
Realized and unrealized gain on investments
and foreign currency transactions--net 1.72 .35 1.49 .19 .29
-------- -------- -------- -------- --------
Total from investment operations 1.66 .32 1.44 .15 .24
-------- -------- -------- -------- --------
Less distributions from realized
gain on investments--net (1.15) (.59) (.20) (.27) --
-------- -------- -------- -------- --------
Net asset value, end of year $ 4.91 $ 4.40 $ 4.67 $ 3.43 $ 3.55
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 42.60% 7.44% 42.46% 5.29% 7.25%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 2.35% 2.44% 2.55% 2.85% 2.56%
Net Assets: ======== ======== ======== ======== ========
Investment loss--net (1.31%) (.72%) (1.24%) (1.29%) (1.52%)
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $208,520 $178,025 $207,413 $ 79,485 $ 63,692
Data: ======== ======== ======== ======== ========
Portfolio turnover 115.99% 125.94% 133.50% 196.91% 133.58%
======== ======== ======== ======== ========
Average commission rate paid++++ $ .0775 $ .0803 $ .0977 -- --
======== ======== ======== ======== ========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
++++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.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Healthcare Fund, Inc., April 30, 1998
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
<CAPTION>
Class C++
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. 1994++++ to
For the Year Ended April 30, April 30,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 4.40 $ 4.68 $ 3.43 $ 3.27
Operating -------- -------- -------- --------
Performance: Investment loss--net (.06) (.04) (.05) (.04)
Realized and unrealized gain on investments
and foreign currency transactions--net 1.73 .35 1.50 .20
-------- -------- -------- --------
Total from investment operations 1.67 .31 1.45 .16
-------- -------- -------- --------
Less distributions from realized gain on
investments--net (1.15) (.59) (.20) --
-------- -------- -------- --------
Net asset value, end of period $ 4.92 $ 4.40 $ 4.68 $ 3.43
======== ======== ======== ========
Total Investment Based on net asset value per share 42.66% 7.28% 42.76% 4.89%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 2.36% 2.46% 2.52% 3.28%*
Net Assets: ======== ======== ======== ========
Investment loss--net (1.31%) (.76%) (1.19%) (2.13%)*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 19,860 $ 17,762 $ 20,761 $ 1,816
Data: ======== ======== ======== ========
Portfolio turnover 115.99% 125.94% 133.50% 196.91%
======== ======== ======== ========
Average commission rate paid++++++ $ .0775 $ .0803 $ .0977 --
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
++++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.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class D++
For the
Period
The following per share data and ratios have been derived Oct. 21,
from information provided in the financial statements. 1994++++ to
For the Year Ended April 30, April 30,
Increase (Decrease) in Net Asset Value: 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 4.89 $ 5.13 $ 3.72 $ 3.61
Operating -------- -------- -------- --------
Performance: Investment income (loss)--net (.03) --+++++ (.02) (.02)
Realized and unrealized gain on investments
and foreign currency transactions--net 1.95 .39 1.63 .13
-------- -------- -------- --------
Total from investment operations 1.92 .39 1.61 .11
-------- -------- -------- --------
Less distributions from realized gain on
investments--net (1.19) (.63) (.20) --
-------- -------- -------- --------
Net asset value, end of period $ 5.62 $ 4.89 $ 5.13 $ 3.72
======== ======== ======== ========
Total Investment Based on net asset value per share 43.95% 8.11% 43.74% 3.05%+++
Return:** ======== ======== ======== ========
Ratios to Average Expenses 1.56% 1.65% 1.75% 2.44%*
Net Assets: ======== ======== ======== ========
Investment income (loss)--net (.52%) .06% (.44%) (1.23%)*
======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 25,718 $ 18,318 $ 21,564 $ 4,386
Data: ======== ======== ======== ========
Portfolio turnover 115.99% 125.94% 133.50% 196.91%
======== ======== ======== ========
Average commission rate paid++++++ $ .0775 $ .0803 $ .0977 --
======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
++++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>
Merrill Lynch Healthcare Fund, Inc., April 30, 1998
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.
(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
financial 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.
* 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 call options
and purchase put and call 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.
(h) Custodian Bank--The Fund recorded an amount payable to the
Custodian Bank reflecting an overnight overdraft which resulted from
a timing difference of a foreign currency transaction settlement.
(i) 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
$3,112,493 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 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.
For the year ended April 30, 1998, 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 $ 940 $11,940
Class D $4,581 $65,128
For the year ended April 30, 1998, MLPF&S received contingent
deferred sales charges of $432,363 and $3,702 relating to
transactions in Class B and Class C Shares, respectively.
Merrill Lynch Healthcare Fund, Inc., April 30, 1998
NOTES TO FINANCIAL STATEMENTS (concluded)
In addition, MLPF&S received $233,975 in commissions on the
execution of portfolio security transactions for the Company for the
year ended April 30, 1998.
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, 1998, were $386,076,592 and
$462,494,857, respectively.
Net realized gains (losses) for the year ended April 30, 1998 and
net unrealized gains (losses) as of April 30, 1998 were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $ 85,162,833 $ 73,596,256
Short-term investments 237 --
Foreign currency transactions (212,792) (9,914)
------------- --------------
Total $ 84,950,278 $ 73,586,342
============= ==============
As of April 30, 1998, net unrealized appreciation for Federal income
tax purposes aggregated $73,463,300, of which $84,523,681 related to
appreciated securities and $11,060,381 related to depreciated
securities. The aggregate cost of investments at April 30, 1998 for
Federal income tax purposes was $333,621,808.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $10,381,155 and ($28,438,055) for the years ended
April 30, 1998 and April 30, 1997, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended April 30, 1998 Shares Amount
Shares sold 4,839,861 $ 26,553,000
Shares issued to shareholders in
reinvestment of distributions 4,346,016 22,534,271
------------ -------------
Total issued 9,185,877 49,087,271
Shares redeemed (8,232,361) (46,621,917)
------------ -------------
Net increase 953,516 $ 2,465,354
============ =============
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 B Shares for the Year Dollar
Ended April 30, 1998 Shares Amount
Shares sold 9,581,322 $ 44,669,370
Shares issued to shareholders in
reinvestment of distributions 8,250,682 36,413,087
------------ -------------
Total issued 17,832,004 81,082,457
Automatic conversion of shares (436,440) (2,043,674)
Shares redeemed (15,397,914) (74,477,766)
------------ -------------
Net increase 1,997,650 $ 4,561,017
============ =============
Class B Shares for the Year Dollar
Ended April 30, 1997 Shares Amount
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 C Shares for the Year Dollar
Ended April 30, 1998 Shares Amount
Shares sold 3,104,019 $ 14,240,150
Shares issued to shareholders in
reinvestment of distributions 707,594 3,124,538
------------ -------------
Total issued 3,811,613 17,364,688
Shares redeemed (3,810,331) (17,967,749)
------------ -------------
Net increase (decrease) 1,282 $ (603,061)
============ =============
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 D Shares for the Year Dollar
Ended April 30, 1998 Shares Amount
Shares sold 2,747,909 $ 14,310,519
Shares issued to shareholders in
reinvestment of distributions 765,310 3,821,348
Automatic conversion of shares 386,266 2,043,674
------------ -------------
Total issued 3,899,485 20,175,541
Shares redeemed (3,063,914) (16,217,696)
------------ -------------
Net increase 835,571 $ 3,957,845
------------ -------------
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)
============ =============
5. Commitments:
At April 30, 1998, the Company had entered into a foreign exchange
contract under which it had agreed to sell a foreign currency with
an approximate value of $1,111,000.
<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, 1998, 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, 1998 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, 1998, 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 9, 1998
</AUDIT-REPORT>
Merrill Lynch Healthcare Fund, Inc., April 30, 1998
<TABLE>
IMPORTANT TAX INFORMATION (unaudited)
The following information summarizes all per share distributions
paid by Merrill Lynch Healthcare Fund, Inc. during its taxable year
ended April 30, 1998.
<CAPTION>
Domestic Domestic
Record Payable Qualifying Non-Qualifying Total Long-Term
Date Date Ordinary Income Ordinary Income Ordinary Income Capital Gains
<S> <C> <C> <C> <C> <C> <C>
Class A Shares 07/14/97 07/22/97 $0.038749 $0.277957 $0.316706 $0.242038*
12/12/97 12/22/97 $0.017384 $0.255151 $0.272535 $0.376340**
Class B Shares 07/14/97 07/22/97 $0.036438 $0.261379 $0.297817 $0.242038*
12/12/97 12/22/97 $0.015176 $0.222736 $0.237912 $0.376340**
Class C Shares 07/14/97 07/22/97 $0.035757 $0.256496 $0.292253 $0.242038*
12/12/97 12/22/97 $0.015093 $0.221529 $0.236622 $0.376340**
Class D Shares 07/14/97 07/22/97 $0.038160 $0.273727 $0.311887 $0.242038*
12/12/97 12/22/97 $0.016802 $0.246610 $0.263412 $0.376340**
<FN>
*All of this long-term capital gain distribution is subject to the
28% tax rate.
**Of this long-term capital gain distribution, 18.18% is subject to
the 28% tax rate and 81.82% is subject to the 20% tax rate.
The domestic qualifying ordinary income qualifies for the dividends
received deduction for corporations.
Please retain this information for your records.
</TABLE>
PORTFOLIO INFORMATION (unaudited)
Worldwide
Investments
As of 4/30/98
Ten Largest Holdings Percent of
Represented in the Portfolio Net Assets
Pfizer, Inc. 7.4%
Warner-Lambert Co. 6.4
Lilly (Eli) and Company 4.9
Cardinal Health, Inc. 3.8
Novartis AG (Registered) 3.3
Sepracor Inc. 3.2
McKesson Corporation 3.2
Bristol-Myers Squibb Company 2.6
Guidant Corporation 2.5
Scherer (R.P.) Corporation 2.2
Breakdown of Securities Percent of
By Country Net Assets
United States* 78.6%
Switzerland 4.6
United Kingdom 2.8
France 2.1
Finland 1.9
Germany 1.8
Ireland 1.6
Sweden 0.9
Denmark 0.8
[FN]
*Excludes short-term investments.
Industries Represented Percent of
In the Portfolio Net Assets
Pharmaceutical--Prescription 28.2%
Health Care Cost Containment 18.1
Medical Specialties 17.4
Pharmaceutical--Diversified 12.0
Pharmaceutical--Consumer 9.7
Biotechnology 8.2
Diagnostics 1.5
PORTFOLIO CHANGES (unaudited)
For the Quarter Ended April 30, 1998
Additions
Alliance Pharmaceutical Corp.
Arterial Vascular Engineering, Inc.
*Astra AB (ADR)
BASF AG
Barr Laboratories, Inc.
Bausch & Lomb Incorporated
*Biogen Inc.
Biora AB
COR Therapeutics, Inc.
Centocor, Inc.
Clintrials Research Inc.
Columbia/HCA Healthcare Corporation
*Creative Biomolecules Inc.
Guilford Pharmaceuticals Inc.
HEALTHSOUTH Corporation
*Incentive AB (A Shares)
Incentive AB (B Shares)
Ligand Pharmaceuticals Incorporated
Magainin Pharmaceuticals, Inc.
Monsanto Company
Nanogen, Inc.
Neurex Corporation
Novoste Corporation
Parexel International Corporation
*Pharmacia & Upjohn Inc.
Quintiles Transnational Corporation
*Sanofi S.A.
Scherer (R.P.) Corporation
Shire Pharmaceuticals Group PLC
Synetic, Inc.
Tamro OYJ
*Transgene S.A. (ADR)
United Healthcare Corporation
Watson Pharmaceuticals, Inc.
Deletions
AXYS Pharmaceuticals, Inc.
Acuson Corporation
American Home Products Corporation
*Astra AB (ADR)
Baxter International Inc.
Bergen Brunswig Corporation
Biochem Pharma Inc.
*Biogen Inc.
*Creative Biomolecules Inc.
Dianon Systems, Inc.
Diatide, Inc.
First Health Group Corp.
Glaxo Wellcome PLC
*Incentive AB (A Shares)
ONYX Pharmaceuticals, Inc.
*Pharmacia & Upjohn Inc.
*Sanofi S.A.
Sonus Pharmaceuticals, Inc.
*Transgene S.A. (ADR)
Vical, Inc.
Viropharma Inc.
[FN]
*Added and deleted in the same quarter.
