MERRILL LYNCH
HEALTHCARE
FUND, INC.
FUND LOGO
Quarterly Report
January 31, 1999
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
Roland M. Machold, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Edward D. Zinbarg, Director
Terry K. Glenn, Executive Vice President
Philip L. Kirstein, Senior Vice President
Jordan C. Schreiber, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Philip M. Mandel, Secretary
Gerald M. Richard, Treasurer and Norman R. Harvey, Senior Vice
President of Merrill Lynch Healthcare Fund, Inc. have recently
retired. Their colleagues at Merrill Lynch Asset Management, L.P.
join the Fund's Board of Directors in wishing Mr. Richard and Mr.
Harvey well in their retirements.
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., January 31, 1999
DEAR SHAREHOLDER
Investment Environment
In 1998, stock and bond market volatility reflected shifting
investor perceptions regarding global economic prospects. In the
last few months of the year, investor optimism gave way to
expectations of deteriorating corporate profits and signs of a
weakening economy, partly because of concerns about the impact of
the Russian and Brazilian economies. Subsequently, stronger-than-
expected economic results dimmed prospects for further Federal
Reserve Board monetary policy easings in the near future, even as
inflationary pressures are virtually nonexistent.
Portfolio Matters
For the quarter ended January 31, 1999, Merrill Lynch Healthcare
Fund, Inc.'s Class A, Class B, Class C and Class D Shares had total
investment returns of +19.54%, +19.40%, +19.10% and +19.64%, respect-
ively. (Fund results do 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.)
The healthcare sector--most notably biotechnology and large-
capitalization US pharmaceutical stocks--performed well during the
January quarter. Large cap pharmaceutical companies registered mid-
teens earnings per share growth rates, predominantly reflecting unit
growth, not higher product pricing. After several years of superior
performance, current lofty valuations largely reflect the steady
earnings growth rates of the pharmaceutical companies. The European
pharmaceutical industry is highlighted by higher valuations based on
consolidation. France's Sanofi S.A. and Synthelabo S.A., the second-
largest and third-largest pharmaceutical manufacturers in that
market, respectively, plan to merge, as do Zeneca Group PLC of the
United Kingdom and Astra AB of Sweden. Investor speculation is
rampant regarding future consolidation in the European
pharmaceutical industry.
As large cap pharmaceutical stock valuations rose during the January
quarter, we began to increase emphasis on mid cap companies with
strong earnings growth and more reasonable price/earnings ratios by
adding to existing holdings. For example, during the January quarter
we added to our position in ALZA Corporation, the pioneer drug
delivery company. ALZA has embarked on a vertical integration
strategy; that is, to market and manufacture its unique drug
products, rather than simply develop and out-license them. The
intent of this strategy is to derive much broader profit margins
rather than be limited to royalty income. After three years of
effort, the company is launching its first product, a drug to treat
urinary incontinence. We believe that the prospects for this new
product are excellent in this largely unserved market. During the
January quarter, we also increased the Fund's investment in Forest
Laboratories, Inc., which has successfully introduced its anti-
depressant drug, Celexa.
During the January quarter, Fund holding Monsanto Company reported
initial success with its launch of Celebrex, which is as effective
as current therapies for rheumatoid arthritis and osteoarthritis,
but has far fewer side effects. Another Fund holding, Pfizer Inc.,
is a co-marketer of Celebrex.
In Conclusion
Overall, our investments continue to focus on healthcare product
companies--such as pharmaceutical, medical technology and bio-
technology companies--rather than the healthcare services area.
Biotechnology companies continue to progress toward commercialization
of new products, with more companies operating, or soon to be
operating, at profitable levels. For example, biotechnology companies
are notably at the forefront in introducing new medications that
focus on treating afflictions of the elderly. We view this area
as particularly important as the world's population ages. In
contrast, healthcare service-oriented companies--such as hospitals
and nursing homes--are largely dependent upon government policy
and are vulnerable to political considerations. 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 upcoming annual report to shareholders.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
Executive Vice President
(Jordan C. Schreiber)
Jordan C. Schreiber
Senior Vice President and
Portfolio Manager
March 4, 1999
Merrill Lynch Healthcare Fund, Inc., January 31, 1999
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 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.
<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* +32.86% +19.54% +336.01%
ML Healthcare Fund, Inc.--Class B Shares* +31.80 +19.40 +293.83
ML Healthcare Fund, Inc.--Class C Shares* +31.52 +19.10 +170.17
ML Healthcare Fund, Inc.--Class D Shares* +32.70 +19.64 +173.78
<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/since inception periods are Class A & Class B Shares,
for the ten years ended 1/31/99 and Class C & Class D Shares, from
10/21/94 to 1/31/99.
</TABLE>
Average Annual
Total Return+++
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 12/31/98 +33.25% +26.25%
Five Years Ended 12/31/98 +22.57 +21.26
2/01/90++ through 12/31/98 +16.53 +15.82
Ten Years Ended 12/31/98 +15.94 +15.32
[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 12/31/98 +31.77% +27.77%
Five Years Ended 12/31/98 +21.32 +21.32
2/01/90++ through 12/31/98 +15.32 +15.32
Ten Years Ended 12/31/98 +14.74 +14.74
[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 12/31/98 +32.07% +31.07%
Inception (10/21/94) through 12/31/98 +26.17 +26.17
[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 12/31/98 +33.08% +26.10%
Inception (10/21/94) through 12/31/98 +26.50 +24.88
[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 1/31/99
Total Return++
ML Healthcare Fund, Inc. Class A Shares +439.80%
ML Healthcare Fund, Inc. Class B Shares +404.03
[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 12/31/98 +20.54% +19.81%
[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 12/31/98 +19.61% +19.61%
[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., January 31, 1999
<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 Medical Specialties 150,000 QLT PhotoTherapeutics Inc. $ 4,002,237 $ 6,029,801 1.2%
Investments in Canada 4,002,237 6,029,801 1.2
United Biotechnology 165,000 Abgenix, Inc 2,136,875 2,970,000 0.6
States 50,000 Agouron Pharmaceuticals, Inc. 1,736,250 2,965,625 0.6
50,000 Amgen Inc. 3,839,065 6,387,500 1.3
200,000 Aphton Corporation 3,874,626 3,100,000 0.6
100,000 Aurora Biosciences Corporation 812,190 837,500 0.2
80,000 Cell Genesys, Inc. 480,000 475,000 0.1
130,000 Centocor, Inc. 5,452,463 5,443,750 1.1
350,000 Coulter Pharmaceutical, Inc. 6,187,874 8,706,250 1.7
350,000 Emisphere Technologies, Inc. 5,741,333 5,184,375 1.0
50,000 Enzon, Inc. 322,343 721,875 0.1
300,000 Genentech, Inc. 20,141,504 24,412,500 4.8
65,000 IDEC Pharmaceuticals Corporation 1,735,314 3,241,875 0.6
30,000 Immunex Corporation 2,133,863 4,695,000 0.9
35,000 Ligand Pharmaceuticals Incorporated
(Class B) 496,562 446,250 0.1
40,000 MedImmune, Inc. 1,014,625 1,965,000 0.4
60,000 Protein Design Labs, Inc. 1,890,844 1,290,000 0.3
50,000 Vertex Pharmaceuticals Incorporated 1,322,187 1,575,000 0.3
------------ ------------ ------
59,317,918 74,417,500 14.7
Health Care Cost 200,000 Allegiance Corporation 2,270,250 9,025,000 1.8
Containment 300,000 AmeriSource Health Corporation
(Class A) 15,946,190 23,250,000 4.6
40,000 Bergen Brunswig Corporation
(Class A) 1,150,212 1,120,000 0.2
255,000 Cardinal Health, Inc. 12,236,874 18,854,062 3.7
100,000 CareMatrix Corporation 2,256,000 2,493,750 0.5
350,000 HEALTHSOUTH Corporation 6,528,053 4,746,875 0.9
220,000 McKesson HBOC, Inc. 11,804,186 16,527,500 3.3
150,000 Tenet Healthcare Corporation 4,158,128 3,112,500 0.6
163,800 United Wisconson Services, Inc. 1,333,642 1,412,775 0.3
------------ ------------ ------
57,683,535 80,542,462 15.9
Healthcare-- 440,000 Cerner Corporation 11,460,647 10,752,500 2.1
Information 500,000 IMS Health Incorporated 14,168,743 18,312,500 3.6
200,000 Medaphis Corporation 1,693,210 825,000 0.2
100,000 Medical Manager Corporation 3,655,310 3,462,500 0.7
502,500 Pharmaceutical Marketing Services
Inc. 4,549,317 7,286,250 1.4
34,600 Synetic, Inc. 1,704,024 1,777,575 0.4
------------ ------------ ------
37,231,251 42,416,325 8.4
Medical 275,000 Bausch & Lomb Incorporated 16,070,790 16,878,125 3.3
Specialties 270,000 Becton, Dickinson and Company 8,937,912 9,652,500 1.9
200,000 C.R. Bard, Inc. 7,714,686 10,125,000 2.0
200,000 Guidant Corporation 4,984,133 11,787,500 2.3
140,000 Medtronic, Inc. 5,320,616 11,156,250 2.2
25,100 Novoste Corporation 323,947 702,800 0.1
300,000 Ocular Sciences, Inc. 7,203,131 6,862,500 1.4
100,000 PAREXEL International Corporation 2,937,501 2,600,000 0.5
50,000 QLT PhotoTherapeutics Inc. 830,807 2,006,250 0.4
50,000 Sabratek Corporation 806,250 1,012,500 0.2
250,000 SangStat Medical Corporation 8,156,517 6,812,500 1.3
30,000 St. Jude Medical, Inc. 864,081 781,875 0.2
80,000 Stryker Corporation 2,930,424 3,710,000 0.7
80,000 Syncor International Corporation 2,368,093 2,310,000 0.5
320,000 VISX, Incorporated 6,637,339 19,500,000 3.9
------------ ------------ ------
76,086,227 105,897,800 20.9
Pharmaceutical-- 50,000 Bristol-Myers Squibb Company 5,580,500 6,409,375 1.3
Consumer 120,000 Warner-Lambert Company 7,292,814 8,662,500 1.7
------------ ------------ ------
12,873,314 15,071,875 3.0
Pharmaceutical-- 125,000 American Home Products Corporation 6,614,677 7,335,937 1.4
Diversified 60,000 Copley Pharmaceutical, Inc. 548,750 585,000 0.1
125,000 Dura Pharmaceuticals, Inc. 1,710,937 1,804,688 0.3
475,000 Monsanto Company 19,686,759 22,592,188 4.5
80,000 Schering-Plough Corporation 2,882,400 4,360,000 0.9
------------ ------------ ------
31,443,523 36,677,813 7.2
Pharmaceutical-- 220,000 ALZA Corporation 9,772,376 11,123,750 2.2
Prescription 120,000 Eli Lilly and Company 8,370,950 11,242,500 2.2
250,000 Forest Laboratories, Inc. 10,123,659 11,546,875 2.3
50,000 Merck & Co., Inc. 6,586,125 7,337,500 1.4
50,000 Pfizer Inc. 5,568,876 6,431,250 1.3
100,000 Pharmacia & Upjohn, Inc. 4,892,880 5,750,000 1.1
260,000 Sepracor Inc. 10,328,301 29,867,500 5.9
------------ ------------ ------
55,643,167 83,299,375 16.4
Investments in the United States 330,278,935 438,323,150 86.5
Total Investments in North America 334,281,172 444,352,951 87.7
</TABLE>
Merrill Lynch Healthcare Fund, Inc., January 31, 1999
<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>
Finland Pharmaceutical-- 136,000 Orion-Yhtyma OY (Class B) $ 3,565,971 $ 3,063,506 0.6%
Diversified
Investments in Finland 3,565,971 3,063,506 0.6
Ireland Pharmaceutical-- 150,000 Elan Corporation PLC (ADR)* 8,503,004 10,125,000 2.0
Prescription
Investments in Ireland 8,503,004 10,125,000 2.0
Sweden Pharmaceutical-- 122,500 OXiGENE, Inc. 1,970,250 1,362,813 0.3
Prescription
Investments in Sweden 1,970,250 1,362,813 0.3
Switzerland Pharmaceutical-- 4,000 Novartis AG (Registered Shares) 6,764,424 7,484,325 1.4
Consumer
Pharmaceutical-- 500 Roche Holding AG 5,517,610 6,512,857 1.3
Diversified
Investments in Switzerland 12,282,034 13,997,182 2.7
United Medical 600,000 SkyePharma PLC 756,303 783,329 0.2
Kingdom Specialties
Pharmaceutical-- 680,000 Shire Pharmaceuticals Group PLC 4,148,056 4,656,622 0.9
Diversified 500,147 SmithKline Beecham PLC 6,375,434 6,706,252 1.3
------------ ------------ ------
10,523,490 11,362,874 2.2
Pharmaceutical-- 302,614 Glaxo Wellcome PLC 9,216,733 10,108,018 2.0
Prescription
Investments in the United Kingdom 20,496,526 22,254,221 4.4
Total Investments in Western Europe 46,817,785 50,802,722 10.0
SHORT-TERM Face
SECURITIES Amount
Commercial $10,000,000 CSW Credit Inc., 4.82% due 2/03/1999 9,994,645 9,994,645 2.0
Paper** 15,328,000 General Motors Acceptance Corp.,
4.81% due 2/01/1999 15,323,904 15,323,904 3.0
US Government 20,000,000 Federal Home Loan Mortgage Corporation,
Agency Obligations** 4.75% due 2/11/1999 19,968,333 19,968,333 3.9
Total Investments in Short-Term
Securities 45,286,882 45,286,882 8.9
Total Investments $426,385,839 540,442,555 106.6
============
Liabilities in Excess of Other Assets (33,465,717) (6.6)
------------ ------
Net Assets $506,976,838 100.0%
============ ======
Net Asset Value: Class A--Based on net assets of $179,828,471 and
30,111,441 shares outstanding $ 5.97
============
Class B--Based on net assets of $256,361,822 and
52,971,598 shares outstanding $ 4.84
============
Class C--Based on net assets of $28,181,133 and
5,817,442 shares outstanding $ 4.84
============
Class D--Based on net assets of $42,605,412 and
7,480,152 shares outstanding $ 5.70
============
<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., January 31, 1999
PORTFOLIO CHANGES
For the Quarter Ended January 31, 1999
Additions
Abgenix, Inc
Cell Genesys, Inc.
Copley Pharmaceutical, Inc.
Dura Pharmaceuticals, Inc.
Medical Manager Corporation
QLT PhotoTherapeutics Inc.
*Quintiles Transnational Corp.
Sabratek Corporation
SkyePharma PLC
St. Jude Medical, Inc.
Syncor International Corporation
Synetic, Inc.
Deletions
Allergan, Inc.
Barr Laboratories, Inc.
Columbia/HCA Healthcare Corporation
Concentra Managed Care, Inc.
First Health Group Corp.
Guilford Pharmaceuticals Inc.
Human Genome Sciences, Inc.
Johnson & Johnson
*Quintiles Transnational Corp.
Sanofi S.A.
Zeneca Group PLC
[FN]
*Added and deleted in the same quarter.
PORTFOLIO INFORMATION
Worldwide
Investments
As of 1/31/99
Ten Largest Holdings Percent of
Represented in the Portfolio Net Assets
Sepracor Inc. 5.9%
Genentech, Inc. 4.8
AmeriSource Health Corporation
(Class A) 4.6
Monsanto Company 4.5
VISX, Incorporated 3.9
Cardinal Health, Inc. 3.7
IMS Health Incorporated 3.6
Bausch & Lomb Incorporated 3.3
McKesson HBOC, Inc. 3.3
Guidant Corporation 2.3
Breakdown of Securities Percent of
By Country Net Assets
United States* 86.5%
United Kingdom 4.4
Switzerland 2.7
Ireland 2.0
Canada 1.2
Finland 0.6
Sweden 0.3
[FN]
*Excludes short-term investments.
Industries Represented Percent of
In the Portfolio Net Assets
Medical Specialties 22.3%
Pharmaceutical-Prescription 20.7
Health Care Cost Containment 15.9
Biotechnology 14.7
Pharmaceutical-Diversified 11.3
Healthcare-Information 8.4
Pharmaceutical-Consumer 4.4
