MERRILL LYNCH
HEALTHCARE
FUND, INC.
FUND LOGO
Annual Report
April 30, 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
Terry K. Glenn, President and Director
Donald Cecil, Director
Roland M. Machold, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Arthur Zeikel, Director
Edward D. Zinbarg, Director
Jordan C. Schreiber, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Robert Harris, 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
Philip M. Mandel, Secretary of Merrill Lynch Healthcare Fund, Inc.
has recently retired. His colleagues at Merrill Lynch Asset
Management, L.P. join the Fund's Board of Directors in wishing Mr.
Mandel well in his retirement.
Merrill Lynch Healthcare Fund, Inc., April 30, 1999
DEAR SHAREHOLDER
The environment for US healthcare stocks was volatile during the
quarter ended April 30, 1999. The quarter began well, with large-
capitalization pharmaceutical stocks (which comprise approximately
75% of the market capitalization of the US healthcare sector)
advancing in line with the rest of the stock market in February.
However, as the quarter progressed, investor interest broadened as
modestly valued cyclical companies gained favor based on expecta-
tions of a stronger economy and global recovery. The predictable
and more moderate earnings growth of pharmaceutical companies was
valued at the peak level of the past two decades and discounted
much of the favorable news. However, investor sentiment shifted
and share prices of large cap pharmaceutical stocks declined during
the month of April. Healthcare service companies performed somewhat
better as companies began to renew annual contracts at higher
premiums. At the same time, there were some positive signs from
smaller-capitalization healthcare issues, including biotechnology
companies.
The volatility in the healthcare sector is reflected in Merrill
Lynch Healthcare Fund, Inc.'s performance during the quarter. The
Fund's Class A, Class B, Class C and Class D Shares had total
returns of -5.86%, -6.20%, -5.99% and -5.96%, respectively, for the
quarter ended April 30, 1999. (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--6 of this report to
shareholders.)
In March, large cap healthcare stocks were at their highest relative
valuations in more than 25 years. The collapse of these valuation
premiums in April reflected the shift in investor interest to
cyclical sectors. Moreover, investors became concerned about price
controls that could result from a restructuring of the Medicare
program. An issue of particular interest that remains to be solved
is payment for outpatient drugs that are not currently covered by
Medicare. We expect that this will be a political issue going into
the 2000 presidential election. Although expanding the Medicare
program to cover these outpatient drugs would create pricing
pressures for pharmaceutical companies, we expect that they would
be at least partially offset by increased sales volume.
In addition to potential pricing pressures, investors also began to
anticipate that patent expiration and fewer new blockbuster drugs
would moderate earnings growth for pharmaceutical companies over
the next several years. However, we believe that the outlook is
not as bleak as recent stock price performance suggests. Although
earnings growth rates for US pharmaceutical companies are likely to
decelerate over the next five years, we believe that they will still
be attractive. In addition, the flow of new drugs should continue,
although there are likely to be fewer major new drug introductions
than we have seen in the past several years. Furthermore, we believe
that investors are ignoring the potential for further consolidations
within the global healthcare sector and the positive effects that
would result.
During the April quarter, we increased investments in healthcare
service companies in the United States. We also expanded investments
outside of the United States in response to the difficulties
experienced by US pharmaceutical stocks. An easing of regulatory
issues led us to add to our investments in Japan. For example, we
established a position in Fujisawa Pharmaceutical Ltd., a leading
company that has a new drug that minimizes rejection in kidney
transplants. In Europe, we invested in William Demant Holding
A/S, a Danish company that is one of the leaders in hearing aid
technology. We expect that the company will benefit from increased
demand by the aging world population. In Canada, we increased our
investment in QLT PhotoTherapeutics Inc., a biotechnology company
that discovered and is now developing a laser/drug regimen to treat
a leading cause of blindness. The clinical results of this regimen
are very promising.
Fiscal Year in Review
For the year ended April 30, 1999, total returns for the Fund's
Class A, Class B, Class C and Class D Shares were +12.01%, +10.79%,
+10.82% and +11.69%, respectively. Benefiting the Fund's total
return over most of the fiscal year was our focus on US healthcare
issues as well as the portfolio's significant investments in
companies that discover and market healthcare products as opposed to
healthcare service providers.
We began the fiscal year with most of the Fund's investments in
large-capitalization pharmaceutical companies. However, as overall
stock market performance drove pharmaceutical share prices to
historically high valuation levels over the course of the year, we
shifted investments to mid-capitalization, more niche-oriented
companies. As a result, the Fund's total return benefited from
investments such as Bausch & Lomb Incorporated, ALZA Corporation,
VISX, Incorporated, Sepracor Inc., AmeriSource Health Corporation
and Bergen Brunswick Corporation. On the other hand, our remaining
large cap US pharmaceutical investments were a drag on performance
as the fiscal year drew to a close.
In Conclusion
We thank you for your investment in Merrill Lynch Healthcare Fund,
Inc., and look forward to serving your financial needs throughout
the Fund's new fiscal year and beyond.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President
(Jordan C. Schreiber)
Jordan C. Schreiber
Senior Vice President and
Portfolio Manager
June 1, 1999
After more than 20 years of service, Arthur Zeikel recently retired
as Chairman of Merrill Lynch Asset Management, L.P. (MLAM). Mr.
Zeikel served as President of MLAM from 1977 to 1997 and as Chairman
since December 1997. Mr. Zeikel is one of the country's most
respected leaders in asset management and presided over the growth
of Merrill Lynch's asset management business. During his tenure,
client assets under management grew from $300 million to over $500
billion. Mr. Zeikel will remain on Merrill Lynch Healthcare Fund,
Inc.'s Board of Directors. We are pleased to announce that Terry K.
Glenn has been elected President and Director of the Fund. Mr. Glenn
has held the position of Executive Vice President of MLAM since
1983.
Mr. Zeikel's colleagues at MLAM join the Fund's Board of Directors
in wishing him well in his retirement from Merrill Lynch and are
pleased that he will continue as a member of the Fund's Board of
Directors.
Merrill Lynch Healthcare Fund, Inc., April 30, 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, ay 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 and Class B Shares compared to growth of an
investment in the S&P 500 Index. Beginning and ending values are:
4/89 4/99
ML Healthcare Fund, Inc.++--
Class A Shares* $ 9,475 $38,775
ML Healthcare Fund, Inc.++--
Class B Shares $10,000 $36,905
S&P 500 Index++++ $10,000 $56,110
A line graph depicting thhe 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** 4/99
ML Healthcare Fund, Inc.++--
Class C Shares $10,000 $25,398
ML Healthcare Fund, Inc.++--
Class D Shares $ 9,475 $24,395
S&P 500 Index++++ $10,000 $31,449
[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 3/31/99 +20.50% +14.17%
Five Years Ended 3/31/99 +22.72 +21.40
2/01/90++ through 3/31/99 +16.09 +15.41
Ten Years Ended 3/31/99 +15.92 +15.30
[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 3/31/99 +19.31% +15.31%
Five Years Ended 3/31/99 +21.44 +21.44
2/01/90++ through 3/31/99 +14.90 +14.90
Ten Years Ended 3/31/99 +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 3/31/99 +19.08% +18.08%
Inception (10/21/94) through 3/31/99 +24.55 +24.55
[FN]
*Maximum contingent sales charge is 1% and is reduced to 0% after 1
year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Class D Shares* Sales Charge Sales Charge**
Year Ended 3/31/99 +20.11% +13.81%
Inception (10/21/94) through 3/31/99 +24.91 +23.40
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
+++See Important Note on page 6.
Merrill Lynch Healthcare Fund, Inc., April 30, 1999
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, Inc.--Class A Shares* +12.01% -5.86% +309.20%
ML Healthcare Fund, Inc.--Class B Shares* +10.79 -6.20 +269.04
ML Healthcare Fund, Inc.--Class C Shares* +10.82 -5.99 +153.98
ML Healthcare Fund, Inc.--Class D Shares* +11.69 -5.96 +157.45
<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 4/30/99 and Class C & Class D
Shares, from 10/21/94 to 4/30/99.
</TABLE>
[FN]
+++Important Note:
Prior to April 27, 1992, Merrill Lynch Healthcare Fund, Inc. was
known as Sci/Tech Holdings, Inc. and contained, in addition to a
healthcare portfolio, a portfolio of technology securities. The data
on pages 4-6 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 4/30/99
Total Return++
ML Healthcare Fund, Inc. Class A Shares +408.17%
ML Healthcare Fund, Inc. Class B Shares +372.79
[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 3/31/99 +19.98% +19.27%
[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 3/31/99 +19.06% +19.06%
[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>
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>
Canada Medical Specialties 150,000 ++QLT PhotoTherapeutics Inc. $ 4,002,237 $ 6,814,904 1.3%
Investments in Canada 4,002,237 6,814,904 1.3
United Biotechnology 200,000 ++Abgenix, Inc 2,661,875 2,887,500 0.6
States 100,000 ++Amgen Inc. 3,839,065 6,137,500 1.2
200,000 ++Aphton Corporation 3,874,626 2,425,000 0.5
95,000 ++Aurora Biosciences Corporation 768,471 570,000 0.1
40,000 ++COR Therapeutics, Inc. 445,000 465,000 0.1
450,000 ++Cell Genesys, Inc. 2,964,852 2,250,000 0.4
130,000 ++Centocor, Inc. 5,452,463 5,744,375 1.1
350,000 ++Coulter Pharmaceutical, Inc. 6,187,874 7,000,000 1.4
350,000 ++Emisphere Technologies, Inc. 5,741,333 3,325,000 0.7
100,000 ++Enzon, Inc. 1,115,030 1,287,500 0.3
300,000 ++Genentech, Inc. 20,141,504 25,387,500 5.0
90,000 ++IDEC Pharmaceuticals Corporation 2,949,064 4,545,000 0.9
40,000 ++Immunex Corporation 1,421,608 3,810,000 0.8
40,000 ++MedImmune, Inc. 1,014,625 2,205,000 0.4
40,000 ++Protein Design Labs, Inc. 1,262,148 617,500 0.1
7,500 ++Vertex Pharmaceuticals Incorporated 193,872 158,438 0.0
------------ ------------ ------
60,033,410 68,815,313 13.6
Health Care Cost 40,000 Aetna Inc. 3,307,076 3,507,500 0.7
Containment 700,000 ++AmeriSource Health Corporation
(Class A) 19,127,940 19,381,250 3.8
40,000 Bergen Brunswig Corporation (Class A) 1,150,212 760,000 0.2
367,000 Cardinal Health, Inc. 14,281,873 21,951,188 4.3
210,000 ++CareMatrix Corporation 4,360,964 3,570,000 0.7
100,000 Columbia/HCA Healthcare Corporation 1,914,060 2,468,750 0.5
50,000 ++Foundation Health Systems, Inc.
(Class A) 583,337 690,625 0.1
200,000 ++HEALTHSOUTH Corporation 3,037,540 2,687,500 0.5
100,000 McKesson HBOC, Inc. 7,040,071 3,500,000 0.7
133,800 United Wisconson Services, Inc. 1,102,567 786,075 0.2
------------ ------------ ------
55,905,640 59,302,888 11.7
Healthcare-- 500,000 IMS Health Incorporated 14,168,743 15,000,000 3.0
Information 50,000 ++Medaphis Corporation 332,812 173,437 0.0
75,000 ++Medical Manager Corporation 2,741,482 2,137,500 0.4
50,000 ++Synetic, Inc. 2,435,537 4,721,875 0.9
------------ ------------ ------
19,678,574 22,032,812 4.3
</TABLE>
Merrill Lynch Healthcare Fund, Inc., April 30, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (continued)
<CAPTION>
NORTH AMERICA Shares Value Percent of
(concluded) Industries Held Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
United Medical 285,000 Bausch & Lomb Incorporated $ 16,671,015 $ 21,375,000 4.2%
States Specialties 400,000 Becton, Dickinson and Company 13,692,206 14,875,000 2.9
(concluded) 50,000 Fresenius Medical Care AG (ADR)* 1,012,168 900,000 0.2
30,000 ++ILEX Oncology, Inc. 307,500 262,500 0.1
300,000 ++Ocular Sciences, Inc. 7,203,131 9,150,000 1.8
225,000 QLTPhotoTherapeutics Inc. 8,554,357 10,279,687 2.0
220,000 ++Serologicals Corporation 3,699,531 1,636,250 0.3
51,810 ++Summit Technology, Inc. 673,173 900,199 0.2
165,000 ++Syncor International Corporation 4,834,219 4,692,187 0.9
50,000 ++Total Renal Care Holdings, Inc. 563,440 693,750 0.1
270,000 ++VISX, Incorporated 5,977,112 34,762,500 6.9
------------ ------------ ------
63,187,852 99,527,073 19.6
Medical Technology 100,000 ++Boston Scientific Corporation 3,356,065 4,256,250 0.8
250,000 C.R. Bard, Inc. 10,401,604 12,250,000 2.4
100,000 ++Datascope Corp. 2,706,380 2,825,000 0.6
200,000 ++Guidant Corporation 4,984,133 10,737,500 2.1
140,000 Medtronic, Inc. 5,320,616 10,071,250 2.0
50,000 ++Novoste Corporation 815,589 1,100,000 0.2
80,000 Stryker Corporation 2,930,424 4,895,000 1.0
------------ ------------ ------
30,514,811 46,135,000 9.1
Pharmaceutical-- 150,000 Bristol-Myers Squibb Company 8,874,250 9,534,375 1.9
Consumer 120,000 Warner-Lambert Company 7,292,814 8,152,500 1.6
------------ ------------ ------
16,167,064 17,686,875 3.5
Pharmaceutical-- 170,000 American Home Products Corporation 9,234,879 10,370,000 2.0
Diversified 125,000 ++Dura Pharmaceuticals, Inc. 1,710,937 1,500,000 0.3
475,000 Monsanto Company 19,686,759 21,493,750 4.2
80,000 Schering-Plough Corporation 2,882,400 3,865,000 0.8
------------ ------------ ------
33,514,975 37,228,750 7.3
Pharmaceutical-- 300,000 ++ALZA Corporation 13,968,827 10,068,750 2.0
Prescription 120,000 Eli Lilly and Company 8,370,950 8,835,000 1.8
250,000 ++Forest Laboratories, Inc. 10,123,659 11,125,000 2.2
40,000 ++Geltex Pharmaceuticals, Inc. 683,594 680,000 0.1
100,000 Merck & Co., Inc. 6,586,125 7,025,000 1.4
50,000 Pfizer Inc. 5,568,876 5,753,125 1.1
100,000 Pharmacia & Upjohn, Inc. 4,892,880 5,600,000 1.1
250,000 ++SangStat Medical Corporation 8,156,517 3,593,750 0.7
145,000 ++Sepracor Inc. 7,553,484 12,252,500 2.4
30,000 ++U.S. Bioscience, Inc. 278,656 322,500 0.1
------------ ------------ ------
66,183,568 65,255,625 12.9
Investments in the United States 345,185,894 415,984,336 82.0
Total Investments in North America 349,188,131 422,799,240 83.3
PACIFIC
BASIN/ASIA
Japan Pharmaceutical-- 100,000 Fujisawa Pharmacturical Co., Ltd. 1,762,001 1,643,606 0.3
Prescription 50,000 Yamanouchi Pharmaceutical Co., Ltd. 1,696,178 1,584,906 0.3
Total Investments in the Pacific
Basin/Asia 3,458,179 3,228,512 0.6
WESTERN
EUROPE
Denmark Medical Specialties 50,000 William Demant A/S 3,466,839 3,386,085 0.7
Investments in Denmark 3,466,839 3,386,085 0.7
Finland Pharmaceutical-- 39,400 Orion-Yhtyma OY 'B' 1,104,190 792,318 0.2
Diversified
Investments in Finland 1,104,190 792,318 0.2
France Pharmaceutical-- 40,000 Sanofi SA 6,981,669 6,278,429 1.2
Prescription
Investments in France 6,981,669 6,278,429 1.2
Ireland Pharmaceutical-- 150,000 ++Elan Corporation PLC (ADR)* 8,503,004 7,725,000 1.5
Prescription
Investments in Ireland 8,503,004 7,725,000 1.5
Sweden Pharmaceutical-- 150,000 ++OXiGENE, Inc. 2,176,812 1,528,125 0.3
Prescription
Investments in Sweden 2,176,812 1,528,125 0.3
Switzerland Pharmaceutical-- 4,000 Novartis AG (Registered Shares) 6,764,424 5,867,823 1.2
Consumer
Pharmaceutical-- 1,000 Roche Holding AG 11,896,277 11,785,574 2.3
Diversified
Investments in Switzerland 18,660,701 17,653,397 3.5
United Medical 600,000 ++SkyePharma PLC 756,303 647,220 0.1
Kingdom Specialties
Pharmaceutical-- 680,000 ++Shire Pharmaceuticals Group PLC 4,148,056 4,981,340 1.0
Diversified 502,314 SmithKline Beecham PLC 6,405,306 6,647,728 1.3
------------ ------------ ------
10,553,362 11,629,068 2.3
Pharmaceutical-- 100,000 AstraZeneca Group PLC 4,628,903 3,917,130 0.8
Prescription 120,000 Glaxo Wellcome PLC 3,652,474 3,551,016 0.7
------------ ------------ ------
8,281,377 7,468,146 1.5
Investments in the United Kingdom 19,591,042 19,744,434 3.9
Total Investments in Western Europe 60,484,257 57,107,788 11.3
</TABLE>
Merrill Lynch Healthcare Fund, Inc., April 30, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
SHORT-TERM Face Value Percent of
SECURITIES Amount Investments Cost (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C> <C>
Commercial $ 10,000,000 Gannett Company, 4.80% due 5/07/1999 $ 9,992,000 $ 9,992,000 2.0%
Paper**
15,722,000 General Motors Acceptance Corp., 4.94%
due 5/03/1999 15,717,685 15,717,685 3.1
Total Investments in Short-Term
Securities 25,709,685 25,709,685 5.1
Total Investments $438,840,252 508,845,225 100.3
============
Liabilities in Excess of Other Assets (1,359,606) (0.3)
------------ ------
Net Assets $507,485,619 100.0%
============ ======
<FN>
*American Depositary Receipts (ADR).
**Commercial Paper is traded on a discount basis; the interest rates
shown reflect 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, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$438,840,252) (Note 1a) $508,845,225
Cash 469
Foreign cash (Note 1b) 26,908
Receivables:
Securities sold $ 3,708,716
Capital shares sold 1,734,026
Dividends 324,162 5,766,904
------------
Prepaid registration fees and other assets (Note 1f) 28,314
------------
Total assets 514,667,820
------------
Liabilities: Payables:
Securities purchased 4,749,144
Capital shares redeemed 1,435,394
Investment adviser (Note 2) 431,085
Distributor (Note 2) 253,628 6,869,251
------------
Accrued expenses and other liabilities 312,950
------------
Total liabilities 7,182,201
------------
Net Assets: Net assets $507,485,619
============
Net Assets Class A Shares of Common Stock, $0.10 par value,
Consist of: 100,000,000 shares authorized $ 3,140,390
Class B Shares of Common Stock, $0.10 par value,
250,000,000 shares authorized 5,635,389
Class C Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized 688,261
Class D Shares of Common Stock, $0.10 par value,
100,000,000 shares authorized 815,809
Paid-in capital in excess of par 409,517,272
Undistributed realized capital gains on investments
and foreign currency transactions--net 17,686,783
Unrealized appreciation on investments and foreign
currency transactions--net 70,001,715
------------
Net assets $507,485,619
============
Net Asset Class A--Based on net assets of $176,490,979 and
Value: 31,403,903 shares outstanding $ 5.62
============
Class B--Based on net assets of $256,000,122 and
56,353,886 shares outstanding $ 4.54
============
Class C--Based on net assets of $31,295,029 and
6,882,612 shares outstanding $ 4.55
============
Class D--Based on net assets of $43,699,489 and
8,158,091 shares outstanding $ 5.36
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Healthcare Fund, Inc., April 30, 1999
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended April 30, 1999
<S> <S> <C> <C>
Investment Dividends (net of $81,535 foreign withholding tax) $ 2,120,956
Income Interest and discount earned 1,440,363
(Notes 1d & 1e): ------------
Total income 3,561,319
------------
Expenses: Investment advisory fees (Note 2) $ 4,424,955
Account maintenance and distribution fees--Class B (Note 2) 2,269,899
Transfer agent fees--Class B (Note 2) 437,659
Transfer agent fees--Class A (Note 2) 263,954
Account maintenance and distribution fees--Class C (Note 2) 244,007
Accounting services (Note 2) 91,355
Account maintenance fees--Class D (Note 2) 85,344
Registration fees (Note 1f) 77,682
Printing and shareholder reports 77,295
Professional fees 72,611
Custodian fees 70,821
Transfer agent fees--Class D (Note 2) 57,007
Transfer agent fees--Class C (Note 2) 50,004
Directors' fees and expenses 42,548
Pricing fees 1,503
Other 8,831
------------
Total expenses 8,275,475
------------
Investment loss--net (4,714,156)
------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 52,023,883
(Loss) on Foreign currency transactions--net (184,005) 51,839,878
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net (3,591,283)
(Notes 1b, 1c, Foreign currency transactions--net 6,656 (3,584,627)
1e & 3): ------------ ------------
Net realized and unrealized gain on investments and
foreign currency transactions 48,255,251
------------
Net Increase in Net Assets Resulting from Operations $ 43,541,095
============
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: 1999 1998
<S> <S> <C> <C>
Operations: Investment loss--net $ (4,714,156) $ (3,112,493)
Realized gain on investments and foreign currency
transactions--net 51,839,878 84,950,278
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net (3,584,627) 47,378,304
------------ ------------
Net increase in net assets resulting from operations 43,541,095 129,216,089
------------ ------------
Distributions to Realized gain on investments--net:
Shareholders Class A (22,527,624) (25,786,081)
(Note 1g): Class B (38,560,945) (41,357,421)
Class C (4,031,344) (3,451,735)
Class D (4,985,869) (4,384,072)
------------ ------------
Net decrease in net assets resulting from distributions
to shareholders (70,105,782) (74,979,309)
------------ ------------
Capital Share Net increase in net assets derived from capital share
Transactions transactions 133,798,226 10,381,155
(Note 4): ------------ ------------
Net Assets: Total increase in net assets 107,233,539 64,617,935
Beginning of year 400,252,080 335,634,145
------------ ------------
End of year $507,485,619 $400,252,080
------------ ------------
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Healthcare Fund, Inc., April 30, 1999
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A++
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 5.84 $ 5.05 $ 5.27 $ 3.81 $ 3.87
Operating -------- -------- -------- -------- ---------
Performance: Investment income (loss)--net (.03) (.02) .02 (.01) (.01)
Realized and unrealized gain on investments
and foreign currency transactions--net .67 2.02 .40 1.67 .22
-------- -------- -------- -------- ---------
Total from investment operations .64 2.00 .42 1.66 .21
-------- -------- -------- -------- ---------
Less distributions from realized gain on
investments--net (.86) (1.21) (.64) (.20) (.27)
-------- -------- -------- -------- ---------
Net asset value, end of year $ 5.62 $ 5.84 $ 5.05 $ 5.27 $ 3.81
======== ======== ======== ======== =========
Total Investment Based on net asset value per share 12.01% 44.06% 8.55% 44.01% 6.47%
Return:* ======== ======== ======== ======== =========
Ratios to Average Expenses 1.27% 1.32% 1.40% 1.53% 1.79%
Net Assets: ======== ======== ======== ======== =========
Investment income (loss)--net (.46%) (.28%) .32% (.23%) (.21%)
======== ======== ======== ======== =========
Supplemental Net assets, end of year (in thousands) $176,491 $146,154 $121,529 $132,083 $ 69,650
Data: ======== ======== ======== ======== =========
Portfolio turnover 91.26% 115.99% 125.94% 133.50% 196.91%
======== ======== ======== ======== =========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS (continued)
<CAPTION>
Class B++
The following per share data and ratios have been derived
from information provided in the financial statements.
For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 4.91 $ 4.40 $ 4.67 $ 3.43 $ 3.55
Operating -------- -------- -------- -------- ---------
Performance: Investment loss--net (.07) (.06) (.03) (.05) (.04)
Realized and unrealized gain on investments
and foreign currency transactions--net .55 1.72 .35 1.49 .19
-------- -------- -------- -------- ---------
Total from investment operations .48 1.66 .32 1.44 .15
-------- -------- -------- -------- ---------
Less distributions from realized gain on
investments--net (.85) (1.15) (.59) (.20) (.27)
-------- -------- -------- -------- ---------
Net asset value, end of year $ 4.54 $ 4.91 $ 4.40 $ 4.67 $ 3.43
======== ======== ======== ======== =========
Total Investment Based on net asset value per share 10.79% 42.60% 7.44% 42.46% 5.29%
Return:* ======== ======== ======== ======== =========
Ratios to Average Expenses 2.29% 2.35% 2.44% 2.55% 2.85%
Net Assets: ======== ======== ======== ======== =========
Investment loss--net (1.49%) (1.31%) (.72%) (1.24%) (1.29%)
======== ======== ======== ======== =========
Supplemental Net assets, end of year (in thousands) $256,000 $208,520 $178,025 $207,413 $ 79,485
Data: ======== ======== ======== ======== =========
Portfolio turnover 91.26% 115.99% 125.94% 133.50% 196.91%
======== ======== ======== ======== =========
<FN>
*Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Healthcare Fund, Inc., April 30, 1999
<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: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 4.92 $ 4.40 $ 4.68 $ 3.43 $ 3.27
Operating -------- -------- -------- -------- ---------
Performance: Investment loss--net (.07) (.06) (.04) (.05) (.04)
Realized and unrealized gain on investments
and foreign currency transactions--net .55 1.73 .35 1.50 .20
-------- -------- -------- -------- ---------
Total from investment operations .48 1.67 .31 1.45 .16
-------- -------- -------- -------- ---------
Less distributions from realized gain on
investments--net (.85) (1.15) (.59) (.20) --
-------- -------- -------- -------- ---------
Net asset value, end of period $ 4.55 $ 4.92 $ 4.40 $ 4.68 $ 3.43
======== ======== ======== ======== =========
Total Investment Based on net asset value per share 10.82% 42.66% 7.28% 42.76% 4.89%+++
Return:** ======== ======== ======== ======== =========
Ratios to Average Expenses 2.30% 2.36% 2.46% 2.52% 3.28%*
Net Assets: ======== ======== ======== ======== =========
Investment loss--net (1.50%) (1.31%) (.76%) (1.19%) (2.13%)*
======== ======== ======== ======== =========
Supplemental Net assets, end of period (in thousands) $ 31,295 $ 19,860 $ 17,762 $ 20,761 $ 1,816
Data: ======== ======== ======== ======== =========
Portfolio turnover 91.26% 115.99% 125.94% 133.50% 196.91%
======== ======== ======== ======== =========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
++++Commencement of operations.
+++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: 1999 1998 1997 1996 1995
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 5.62 $ 4.89 $ 5.13 $ 3.72 $ 3.61
Operating -------- -------- -------- -------- ---------
Performance: Investment loss--net (.04) (.03) --+++++ (.02) (.02)
Realized and unrealized gain on investments
and foreign currency transactions--net .64 1.95 .39 1.63 .13
-------- -------- -------- -------- ---------
Total from investment operations .60 1.92 .39 1.61 .11
-------- -------- -------- -------- ---------
Less distributions from realized gain on
investments--net (.86) (1.19) (.63) (.20) --
-------- -------- -------- -------- ---------
Net asset value, end of period $ 5.36 $ 5.62 $ 4.89 $ 5.13 $ 3.72
======== ======== ======== ======== =========
Total Investment Based on net asset value per share 11.69% 43.95% 8.11% 43.74% 3.05%+++
Return:** ======== ======== ======== ======== =========
Ratios to Average Expenses 1.52% 1.56% 1.65% 1.75% 2.44%*
Net Assets: ======== ======== ======== ======== =========
Investment income (loss)--net (.72%) (.52%) .06% (.44%) (1.23%)*
======== ======== ======== ======== =========
Supplemental Net assets, end of period (in thousands) $ 43,700 $ 25,718 $ 18,318 $ 21,564 $ 4,386
Data: ======== ======== ======== ======== =========
Portfolio turnover 91.26% 115.99% 125.94% 133.50% 196.91%
======== ======== ======== ======== =========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales loads.
++Based on average shares outstanding.
++++Commencement of operations.
+++Aggregate total investment return.
+++++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Healthcare Fund, Inc., April 30, 1999
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's financial
statements are prepared in accordance with generally accepted
accounting principles which may require the use of management
accruals and estimates. 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 or
purchased are valued at the last sale price in the case of exchange-
traded options. In the case of options traded in the over-the-
counter market, valuation is the last asked price (options written)
or the last bid price (options purchased). 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.
* 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) 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
$4,714,156 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 ("MLFD" or the "Distributor"), a division of
Princeton Funds Distributor, Inc. ("PFD"), which is 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 Incorporated ("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, 1999, MLFD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions on sales of the Company's Class A and Class D Shares as
follows:
MLFD MLPF&S
Class A $1,257 $ 13,897
Class D $8,207 $124,043
For the year ended April 30, 1999, MLPF&S received contingent
deferred sales charges of $352,702 and $12,116 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $139,696 in commissions on the
execution of portfolio security transactions for the Company for the
year ended April 30, 1999.
Merrill Lynch Healthcare Fund, Inc., April 30, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
Financial Data Services, Inc. ("FDS"), 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, FDS, PFD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the year ended April 30, 1999 were $430,006,580 and
$375,769,826, respectively.
Net realized gains (losses) for the year ended April 30, 1999 and
net unrealized gains (losses) as of April 30, 1999 were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $ 52,023,883 $ 70,004,973
Foreign currency transactions (184,005) (3,258)
------------ -------------
Total $ 51,839,878 $ 70,001,715
============ =============
As of April 30, 1999, net unrealized appreciation for Federal income
tax purposes aggregated $69,715,688, of which $97,190,970 related to
appreciated securities and $27,475,282 related to depreciated
securities. The aggregate cost of investments at April 30, 1999 for
Federal income tax purposes was $439,129,537.
4. Capital Share Transactions:
Net increase in net assets derived from capital share transactions
was $133,798,226 and $10,381,155 for the years ended April 30, 1999
and April 30, 1998, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended April 30, 1999 Shares Amount
Shares sold 8,643,632 $ 49,274,570
Shares issued to shareholders in
reinvestment of distributions 3,730,411 20,333,921
------------ -------------
Total issued 12,374,043 69,608,491
Shares redeemed (5,987,365) (33,558,968)
------------ -------------
Net increase 6,386,678 $ 36,049,523
============ =============
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 B Shares for the Year Dollar
Ended April 30, 1999 Shares Amount
Shares sold 21,649,771 $ 101,284,377
Shares issued to shareholders in
reinvestment of distributions 7,691,505 34,351,075
------------ -------------
Total issued 29,341,276 135,635,452
Automatic conversion of shares (1,158,996) (5,416,606)
Shares redeemed (14,285,738) (65,345,830)
------------ -------------
Net increase 13,896,542 $ 64,873,016
============ =============
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 C Shares for the Year Dollar
Ended April 30, 1999 Shares Amount
Shares sold 3,758,607 $ 17,612,224
Shares issued to shareholders in
reinvestment of distributions 818,791 3,659,161
------------ -------------
Total issued 4,577,398 21,271,385
Shares redeemed (1,733,904) (7,931,730)
------------ -------------
Net increase 2,843,494 $ 13,339,655
============ =============
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 D Shares for the Year Dollar
Ended April 30, 1999 Shares Amount
Shares sold 4,701,426 $ 25,678,950
Automatic conversion of shares 992,950 5,416,606
Shares issued to shareholders in
reinvestment of distributions 865,078 4,501,657
------------ -------------
Total issued 6,559,454 35,597,213
Shares redeemed (2,980,103) (16,061,181)
------------ -------------
Net increase 3,579,351 $ 19,536,032
============ =============
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
============ =============
5. Commitments:
At April 30, 1999, the Company had entered into foreign exchange
contracts under which it had agreed to sell various foreign
currencies with an approximate value of $727,000.
<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, 1999, 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, 1999 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, 1999, 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 3, 1999
</AUDIT-REPORT>
Merrill Lynch Healthcare Fund, Inc., April 30, 1999
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, 1999.
<TABLE>
<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 7/21/1998 7/29/1998 $.009635 $.141415 $.151050 $.376184
12/11/1998 12/21/1998 -- -- -- $.334758
Class B Shares 7/21/1998 7/29/1998 $.008702 $.127714 $.136416 $.376184
12/11/1998 12/21/1998 -- -- -- $.334758
Class C Shares 7/21/1998 7/29/1998 $.008800 $.129165 $.137965 $.376184
12/11/1998 12/21/1998 -- -- -- $.334758
Class D Shares 7/21/1998 7/29/1998 $.009406 $.138057 $.147463 $.376184
12/11/1998 12/21/1998 -- -- -- $.334758
<FN>
*All long-term capital gain distributions paid by the Fund during
the fiscal year are subject to the 20% tax rate.
The domestic qualifying ordinary income qualifies for the dividends
received deduction for corporations.
</TABLE>
Please retain this information for your records.
PORTFOLIO CHANGES (unaudited)
For the Quarter Ended April 30, 1999
Additions
Aetna Inc.
AstraZeneca Group PLC
*Autonomous Technologies Corp.
Boston Scientific Corporation
COR Therapeutics, Inc.
Columbia/HCA Healthcare Corporation
Datascope Corp.
Foundation Health Systems, Inc. (Class A)
Fresenius Medical Care AG (ADR)
Fujisawa Pharmacturical Co., Ltd.
Geltex Pharmaceuticals, Inc.
ILEX Oncology, Inc.
*PSS World Medical, Inc.
*Quintiles Transnational Corp.
Sanofi SA
Serologicals Corporation
Summit Technology, Inc.
Total Renal Care Holdings, Inc.
U.S. Bioscience, Inc.
William Demant A/S
Yamanouchi Pharmaceutical Co., Ltd.
Deletions
Agouron Pharmaceuticals, Inc.
Allegiance Corporation
*Autonomous Technologies Corp.
Cerner Corporation
Copley Pharmaceutical, Inc.
Ligand Pharmaceuticals Incorporated
(Class B)
PAREXEL International Corporation
*PSS World Medical, Inc.
Pharmaceutical Marketing Services Inc.
*Quintiles Transnational Corp.
Sabratek Corporation
St. Jude Medical, Inc.
Tenet Healthcare Corporation
[FN]
*Added and deleted in the same quarter.
PORTFOLIO INFORMATION (unaudited)
Worldwide
Investments
As of 4/30/99
Ten Largest Holdings Percent of
Represented in the Portfolio Net Assets
VISX, Incorporated 6.9%
Genentech, Inc. 5.0
Cardinal Health, Inc. 4.3
Monsanto Company 4.2
Bausch & Lomb Incorporated 4.2
AmeriSource Health Corporation
(Class A) 3.8
QLT PhotoTherapeutics Inc.* 3.3
IMS Health Incorporated 3.0
Becton, Dickinson and Company 2.9
Sepracor Inc. 2.4
[FN]
*Includes combined holdings.
Breakdown of Securities Percent of
By Country Net Assets
United States* 82.0%
United Kingdom 3.9
Switzerland 3.5
Ireland 1.5
Canada 1.3
France 1.2
Denmark 0.7
Japan 0.6
Sweden 0.3
Finland 0.2
[FN]
*Excludes short-term investments.
Industries Represented Percent of
In the Portfolio Net Assets
Medical Specialties 21.5%
Pharmaceutical--Prescription 17.3
Biotechnology 13.6
Pharmaceutical--Diversified 12.1
Health Care Cost Containment 11.7
Medical Technology 9.1
Pharmaceutical--Consumer 4.7
Healthcare--Information 4.3
