MERRILL LYNCH
HEALTHCARE
FUND, INC.
FUND LOGO
Semi-Annual Report
October 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 HEALTH CARE FUND, INC.
Officers and
Directors
Terry K. Glenn, President and Director
Donald Cecil, Director
Edward H. Meyer, Director
Charles C. Reilly, Director
Richard R. West, Director
Arthur Zeikel, Director
Edward D. Zinbarg, Director
Robert C. Doll, Senior Vice President
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
Merrill Lynch Healthcare Fund, Inc., October 31, 1999
DEAR SHAREHOLDER
For the three-month period ended October 31, 1999, Merrill Lynch
Healthcare Fund, Inc.'s Class A, Class B, Class C and Class D Shares
had total returns of -5.74%, -6.09%, -5.87% and -5.68%,
respectively, as the unmanaged Standard & Poor's 500 Index had a
total return of +2.90%. The Fund's total returns declined during the
October quarter compared to the broader market's modest gain. (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.)
Investor Focus Shifts to Inflation
and Political Climate
We believe this decline reflects, in large part, investor concern
about potential Federal Reserve Board actions to preempt
inflationary pressures. In an inflationary environment,
pharmaceutical companies have much less flexibility in raising
prices than do companies with commodity-based products. Large-
capitalization drug stocks also faced the negative pressure of the
Clinton Administration's efforts to restructure Medicare that would
include an outpatient drug benefit. We expect Medicare restructuring
to be a prime issue in the upcoming election year. Despite
attractive fundamentals, we believe that this issue is likely to
constrain drug company share prices until resolution, probably in
2001. We expect the ultimate impact on drug companies to be only
modestly negative at worst and possibly favorable as increased drug
usage is likely to compensate for discounted prices.
Mid-capitalization and small-capitalization healthcare companies
also came under pressure as investors reacted to inflationary
concerns by selling stocks in young, relatively high multiple
companies.
Healthcare service companies also underperformed the broader market
because of investor concerns about proposed managed care legislation
that would permit litigation against health maintenance
organizations (HMOs) and, potentially, class action lawsuits. At the
same time, the fundamentals of this industry sub-sector are more
favorable than they have been in the past years. Premiums have been
increased while medical expenses have been better controlled.
The European healthcare sector followed the pattern of its US
counterpart and underperformed broad stock markets.
The biotechnology sector, which had a strong move upward early in
the October quarter, gave up nearly all of the gains seen since July
as several high profile biotechnology products either failed in
clinical trial or received disappointing reviews by Food and Drug
Administration advisory committees.
Portfolio Matters
During the October quarter, we maintained a balance of assets in the
portfolio with large-capitalization healthcare stocks representing
slightly more than half of the Fund's holdings. Mid-capitalization
companies in the medical specialty areas comprised a significant
position followed to a lesser extent by smaller-capitalization
companies. We took advantage of the attractive valuations to
initiate or add to positions in several well-positioned large-
capitalization healthcare stocks.
Specifically, we added to positions in Warner-Lambert Company,
Bristol-Myers Squibb Company and American Home Products Corporation
and initiated a position in Pharmacia and Upjohn, Inc. These
companies are benefiting from an improved new product pipeline or
recently launched products that we expect to produce accelerated
earnings growth. We also significantly increased the Fund's position
in Columbia/HCA Healthcare Corporation and added a position in Tenet
Healthcare Corporation. We believe that both of these hospital
management organizations are likely to benefit from revisions to the
Balanced Budget Act that would add back funding or eliminate further
reductions in hospital reimbursement under Medicare. We reduced the
Fund's exposure in the managed care sector, eliminating positions in
Foundation Health Systems, Inc., United Wisconsin Services, Inc. and
other situations where we judge future prospects to be less
optimistic.
Despite the near-term issues faced by the US healthcare sector, we
continue to view the long-term outlook very positively. Demographic
trends favor increased healthcare expenditures. Scientific advances
in genomics and the application of this knowledge to developing new
diagnostic tools and disease treatments are sparking an acceleration
of new drug discovery, which could fuel the exceptional long-term
growth we see for this sector.
In Conclusion
We thank you for your investment in Merrill Lynch Healthcare Fund,
Inc., and we look forward to reviewing our outlook and strategy with
you again in our next report to shareholders.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Jordan C. Schreiber)
Jordan C. Schreiber
Senior Vice President and
Portfolio Manager
December 9, 1999
To reduce shareholders' expenses, Merrill Lynch Healthcare Fund,
Inc. will no longer be printing and mailing quarterly reports to
shareholders. We will continue to provide you with reports on a semi-
annual and annual basis.
Merrill Lynch Healthcare Fund, Inc., October 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 exdividend date. Investment return and principal
value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Dividends paid to each
class of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
<TABLE>
Recent
Performance
Results*+++
<CAPTION>
Ten Years/
3 Month 12 Month Since Inception
As of October 31, 1999 Total Return Total Return Total Return
<S> <C> <C> <C>
ML Healthcare Fund, Inc.--Class A Shares -5.74% +11.90% +290.46%
ML Healthcare Fund, Inc.--Class B Shares -6.09 +10.71 +251.73
ML Healthcare Fund, Inc.--Class C Shares -5.87 +10.68 +151.06
ML Healthcare Fund, Inc.--Class D Shares -5.68 +11.63 +155.44
<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 ten years for Class A &
Class B Shares and from 10/21/94 for Class C & Class D Shares.
</TABLE>
Average Annual
Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 9/30/99 +12.59% + 6.68%
Five Years Ended 9/30/99 +21.04 +19.74
2/01/90++ through 9/30/99 +14.39 +13.75
Ten Years Ended 9/30/99 +13.99 +13.38
[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 9/30/99 +11.46% + 7.50%
Five Years Ended 9/30/99 +19.79 +19.79
2/01/90++ through 9/30/99 +13.22 +13.22
Ten Years Ended 9/30/99 +12.82 +12.82
[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 9/30/99 +11.44% +10.44%
Inception (10/21/94) through 9/30/99 +20.02 +20.02
[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 9/30/99 +12.56% + 6.65%
Inception (10/21/94) through 9/30/99 +20.46 +19.16
[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 10/31/99
Total Return++
ML Healthcare Fund, Inc. Class A Shares +405.30%
ML Healthcare Fund, Inc. Class B Shares +367.34
[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 9/30/99 +18.02% +17.36%
[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 9/30/99 +17.10% +17.10%
[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., October 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
NORTH Shares Percent of
AMERICA Industries Held Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
Canada Medical Specialties 450,000 ++QLT PhotoTherapeutics Inc. $19,040,625 4.0%
300,000 ++QLT PhotoTherapeutics Inc.
(US Registered Shares) 12,663,132 2.6
Total Investments in Canada 31,703,757 6.6
United States Biotechnology 200,000 ++Abgenix, Inc 8,850,000 1.8
120,000 ++Amgen Inc. 9,562,500 2.0
200,000 ++Aphton Corporation 2,525,000 0.5
50,000 ++Biogen, Inc. 3,703,125 0.8
40,000 ++COR Therapeutics, Inc. 807,500 0.2
132,500 ++Cell Genesys, Inc. 1,126,250 0.2
350,000 ++Coulter Pharmaceutical, Inc. 5,950,000 1.2
350,000 ++Emisphere Technologies, Inc. 4,375,000 0.9
41,100 ++Genentech, Inc. 5,990,325 1.3
30,000 ++Gilead Sciences, Inc. 1,895,625 0.4
90,000 ++IDEC Pharmaceuticals Corporation 10,451,250 2.2
80,000 ++Immunex Corporation 5,025,000 1.1
40,000 ++PathoGenesis Corporation 597,500 0.1
20,000 ++Protein Design Labs, Inc. 801,250 0.2
80,000 ++Trimeris, Inc. 1,420,000 0.3
----------- ------
63,080,325 13.2
Health Care Cost 700,000 ++AmeriSource Health Corporation (Class A) 10,500,000 2.2
Containment 200,000 Cardinal Health, Inc. 8,625,000 1.8
100,000 ++Caremark Rx, Inc. 487,500 0.1
500,000 Columbia/HCA Healthcare Corporation 12,062,500 2.6
200,000 ++Tenet Healthcare Corporation 3,887,500 0.8
----------- ------
35,562,500 7.5
Healthcare-- 60,000 ++CareInsite, Inc. 2,632,500 0.6
Information 166,100 ++Cerner Corporation 2,470,737 0.5
65,100 ++Gartner Group, Inc. (Class B) 610,313 0.1
500,000 IMS Health Incorporated 14,500,000 3.0
150,000 ++Medical Manager Corporation 7,509,375 1.6
----------- ------
27,722,925 5.8
Medical Specialties 285,000 Bausch & Lomb Incorporated 15,390,000 3.2
200,000 Baxter International Inc. 12,975,000 2.7
350,000 Becton, Dickinson and Company 8,881,250 1.9
100,000 ++ILEX Oncology, Inc. 1,393,750 0.3
150,000 ++Laser Vision Centers, Inc. 1,289,063 0.3
200,000 ++Martek Biosciences Corporation 1,525,000 0.3
200,000 ++Syncor International Corporation 7,312,500 1.5
292,500 ++VISX, Incorporated 18,281,250 3.9
----------- ------
67,047,813 14.1
Medical Technology 250,000 C.R. Bard, Inc. 13,484,375 2.8
100,000 ++Datascope Corp. 3,600,000 0.8
150,000 ++Guidant Corporation 7,406,250 1.6
280,000 Medtronic, Inc. 9,695,000 2.0
50,000 ++Novoste Corporation 856,250 0.2
150,000 Stryker Corporation 9,262,500 1.9
----------- ------
44,304,375 9.3
Pharmaceutical-- 400,000 Bristol-Myers Squibb Company 30,725,000 6.4
Consumer 250,000 Warner-Lambert Company 19,953,125 4.2
----------- ------
50,678,125 10.6
Pharmaceutical-- 250,000 American Home Products Corporation 13,062,500 2.8
Diversified 200,000 Monsanto Company 7,700,000 1.6
100,000 Schering-Plough Corporation 4,950,000 1.0
----------- ------
25,712,500 5.4
Pharmaceutical-- 80,000 Eli Lilly and Company 5,510,000 1.2
Prescription 250,000 ++Forest Laboratories, Inc. 11,468,750 2.4
50,000 Merck & Co., Inc. 3,978,125 0.8
120,000 Pfizer Inc. 4,740,000 1.0
100,000 Pharmacia & Upjohn, Inc. 5,393,750 1.1
400,000 ++SangStat Medical Corporation 8,650,000 1.8
80,000 ++Sepracor Inc. 6,650,000 1.4
----------- ------
46,390,625 9.7
Total Investments in the United States 360,499,188 75.6
Total Investments in North America 392,202,945 82.2
PACIFIC
BASIN/ASIA
Japan Pharmaceutical-- 70,000 Fujisawa Pharmacturical Co., Ltd. 1,752,350 0.4
Prescription 75,000 Kissei Pharmaceutical Co., Ltd. 1,438,711 0.3
156,000 Kyorin Pharmaceutical Co., Ltd. 5,670,823 1.2
100,000 Shionogi & Co., Ltd. 919,816 0.2
Total Investments in the Pacific Basin/Asia 9,781,700 2.1
WESTERN
EUROPE
Denmark Medical Specialties 50,000 William Demant A/S 4,063,489 0.9
Total Investments in Denmark 4,063,489 0.9
France Pharmaceutical-- 50,000 Rhone-Poulenc SA 2,794,596 0.6
Diversified
Pharmaceutical-- 100,000 ++Sanofi-Synthelabo SA 4,407,267 0.9
Prescription
Total Investments in France 7,201,863 1.5
Germany Medical Specialties 50,000 Fresenius Medical Care AG (ADR)* 1,165,625 0.2
Total Investments in Germany 1,165,625 0.2
</TABLE>
Merrill Lynch Healthcare Fund, Inc., October 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
WESTERN EUROPE Shares Value Percent of
(concluded) Industries Held Investments (Note 1a) Net Assets
<S> <S> <C> <S> <C> <C>
Ireland Pharmaceutical-- 80,000 ++Elan Corporation PLC (ADR)* $ 2,060,000 0.4%
Prescription
Total Investments in Ireland 2,060,000 0.4
Sweden Biotechnology 92,500 ++OXiGENE, Inc. 1,422,188 0.3
Total Investments in Sweden 1,422,188 0.3
Switzerland Pharmaceutical-- 1,000 Roche Holding AG 11,996,853 2.5
Diversified
Total Investments in Switzerland 11,996,853 2.5
United Medical Specialties 600,000 ++SkyePharma PLC 467,856 0.1
Kingdom Pharmaceutical-- 551,669 SmithKline Beecham PLC 7,100,059 1.5
Diversified
Pharmaceutical-- 123,547 Glaxo Wellcome PLC 3,642,553 0.8
Prescription
Total Investments in the United Kingdom 11,210,468 2.4
Total Investments in Western Europe 39,120,486 8.2
Total Long-Term Investments
(Cost--$368,091,116) 441,105,131 92.5
SHORT-TERM Face
SECURITIES Amount
Commercial $12,793,000 General Motors Acceptance Corp.,
Paper** 5.38% due 11/01/1999 12,789,176 2.7
10,000,000 Hertz Corporation, 5.31% due 12/02/1999 9,951,325 2.1
7,180,000 Metropolitan Life Insurance Company,
5.29% due 11/19/1999 7,158,899 1.5
5,000,000 Xerox Capital (Europe) PLC, 5.30%
due 12/07/1999 4,972,028 1.0
----------- ------
34,871,428 7.3
US Government 4,481,000 Federal Farm Credit Bank, 5.22%
Agency due 12/13/1999 4,452,411 1.0
Obligations** 2,068,000 Federal Home Loan Mortgage Corporation,
5.22% due 11/08/1999 2,065,301 0.4
6,517,712 1.4
Total Investments in Short-Term Securities
(Cost - $41,389,140) 41,389,140 8.7
Total Investments (Cost--$409,480,256) 482,494,271 101.2
Liabilities in Excess of Other Assets (5,500,599) (1.2)
------------ ------
Net Assets $476,993,672 100.0%
============ ======
<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.
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
PORTFOLIO INFORMATION
Worldwide
Investments
As of 10/31/99
Percent of
Ten Largest Holdings Net Assets
QLT PhotoTherapeutics Inc.* 6.6%
Bristol-Myers Squibb Company 6.4
Warner-Lambert Company 4.2
VISX, Incorporated 3.9
Bausch & Lomb Incorporated 3.2
IMS Health Incorporated 3.0
C.R. Bard, Inc. 2.8
American Home Products
Corporation 2.8
Baxter International Inc. 2.7
Columbia/HCA Healthcare
Corporation 2.6
[FN]
*Represents combined holdings.
Breakdown of Investments Percent of
By Country Net Assets
United States* 75.6%
Canada 6.6
Switzerland 2.5
United Kingdom 2.4
Japan 2.1
France 1.5
Denmark 0.9
Ireland 0.4
Sweden 0.3
Germany 0.2
[FN]
*Excludes short-term securities.
Industries Represented Percent of
In the Portfolio Net Assets
Medical Specialties 21.9%
Pharmaceutical--Prescription 13.9
Biotechnology 13.5
Pharmaceutical--Consumer 10.6
Pharmaceutical--Diversified 10.0
Medical Technology 9.3
Health Care Cost Containment 7.5
Healthcare--Information 5.8
Merrill Lynch Healthcare Fund, Inc., October 31, 1999
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of October 31, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$409,480,256) (Note 1a) $482,494,271
Cash 541
Foreign cash (Note 1b) 1,832,785
Receivables:
Securities sold $ 7,396,297
Capital shares sold 621,825
Dividends 224,656 8,242,778
------------
Prepaid registration fees and other assets (Note 1f) 33,704
------------
Total assets 492,604,079
------------
Liabilities: Payables:
Securities purchased 12,827,486
Capital shares redeemed 1,911,700
Investment adviser (Note 2) 457,306
Distributor (Note 2) 219,063 15,415,555
------------
Accrued expenses and other liabilities 194,852
------------
Total liabilities 15,610,407
------------
Net Assets: Net assets $476,993,672
============
Net Assets Class A Shares of Common Stock, $.10 par value, 100,000,000
Consist of: shares authorized $ 3,116,777
Class B Shares of Common Stock, $.10 par value, 250,000,000
shares authorized 5,385,984
Class C Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 712,015
Class D Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 863,394
Paid-in capital in excess of par 400,978,084
Accumulated investment loss--net (2,819,717)
Accumulated realized capital losses on investments and foreign
currency transactions--net (4,259,223)
Unrealized appreciation on investments and foreign currency
transactions--net 73,016,358
------------
Net assets $476,993,672
============
Net Asset Class A--Based on net assets of $168,838,546 and 31,167,771
Value: shares outstanding $ 5.42
============
Class B--Based on net assets of $232,882,776 and 53,859,841
shares outstanding $ 4.32
============
Class C--Based on net assets of $30,815,625 and 7,120,148
shares outstanding $ 4.33
============
Class D--Based on net assets of $44,456,725 and 8,633,941
shares outstanding $ 5.15
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended October 31, 1999
<S> <S> <C> <C>
Investment Dividends (net of $10,516 foreign withholding tax) $ 1,150,238
Income Interest and discount earned 759,627
(Notes 1d & 1e): ------------
Total income 1,909,865
------------
Expenses: Investment advisory fees (Note 2) $ 2,530,951
Account maintenance and distribution fees--Class B (Note 2) 1,258,613
Transfer agent fees--Class B (Note 2) 249,569
Account maintenance and distribution fees--Class C (Note 2) 161,993
Transfer agent fees--Class A (Note 2) 153,236
Account maintenance fees--Class D (Note 2) 56,267
Registration fees (Note 1f) 49,885
Printing and shareholder reports 49,522
Accounting services (Note 2) 46,095
Professional fees 42,231
Transfer agent fees--Class D (Note 2) 38,964
Transfer agent fees--Class C (Note 2) 34,350
Custodian fees 33,061
Directors' fees and expenses 19,130
Pricing fees 1,029
Other 4,686
------------
Total expenses 4,729,582
------------
Investment loss--net (2,819,717)
------------
Realized & Realized loss from:
Unrealized Gain Investments--net (3,660,993)
(Loss) on Foreign currency transactions--net (81,969) (3,742,962)
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net Investments--net 3,009,042
(Notes 1b, 1c, Foreign currency transactions--net 5,601 3,014,643
1e & 3): ------------ ------------
Net realized and unrealized loss on investments and foreign
currency transactions (728,319)
------------
Net Decrease in Net Assets Resulting from Operations $ (3,548,036)
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Healthcare Fund, Inc., October 31, 1999
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Six For the Year
Months Ended Ended
October 31, April 30,
Increase (Decrease) in Net Assets: 1999 1999
<S> <S> <C> <C>
Operations: Investment loss--net $ (2,819,717) $ (4,714,156)
Realized gain (loss) on investments and foreign
currency transactions--net (3,742,962) 51,839,878
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net 3,014,643 (3,584,627)
------------ ------------
Net increase (decrease) in net assets resulting from operations (3,548,036) 43,541,095
------------ ------------
Distributions to Realized gain on investments--net:
Shareholders Class A (5,572,543) (22,527,624)
(Note 1g): Class B (9,877,905) (38,560,945)
Class C (1,273,871) (4,031,344)
Class D (1,478,725) (4,985,869)
------------ ------------
Net decrease in net assets resulting from distributions
to shareholders (18,203,044) (70,105,782)
------------ ------------
Capital Share Net increase (decrease) in net assets derived from
Transactions capital share transactions (8,740,867) 133,798,226
(Note 4): ------------ ------------
Net Assets: Total increase (decrease) in net assets (30,491,947) 107,233,539
Beginning of period 507,485,619 400,252,080
------------ ------------
End of period $476,993,672 $507,485,619
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A++
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
October 31, For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 1999 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 5.62 $ 5.84 $ 5.05 $ 5.27 $ 3.81
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.01) (.03) (.02) .02 (.01)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.01) .67 2.02 .40 1.67
-------- -------- -------- -------- --------
Total from investment operations (.02) .64 2.00 .42 1.66
-------- -------- -------- -------- --------
Less distributions from realized
gain on investments--net (.18) (.86) (1.21) (.64) (.20)
-------- -------- -------- -------- --------
Net asset value, end of period $ 5.42 $ 5.62 $ 5.84 $ 5.05 $ 5.27
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (.56%)+++ 12.01% 44.06% 8.55% 44.01%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.27%* 1.27% 1.32% 1.40% 1.53%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net (.51%)* (.46%) (.28%) .32% (.23%)
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $168,838 $176,491 $146,154 $121,529 $132,083
Data: ======== ======== ======== ======== ========
Portfolio turnover 48.69% 91.26% 115.99% 125.94% 133.50%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Healthcare Fund, Inc., October 31, 1999
FINANCIAL HIGHLIGHTS (concluded)
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class B++
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
October 31, For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 1999 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 4.54 $ 4.91 $ 4.40 $ 4.67 $ 3.43
Operating -------- -------- -------- -------- --------
Performance: Investment loss--net (.03) (.07) (.06) (.03) (.05)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.01) .55 1.72 .35 1.49
-------- -------- -------- -------- --------
Total from investment operations (.04) .48 1.66 .32 1.44
-------- -------- -------- -------- --------
Less distributions from realized gain
on investments--net (.18) (.85) (1.15) (.59) (.20)
-------- -------- -------- -------- --------
Net asset value, end of period $ 4.32 $ 4.54 $ 4.91 $ 4.40 $ 4.67
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (1.15%)+++ 10.79% 42.60% 7.44% 42.46%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 2.29%* 2.29% 2.35% 2.44% 2.55%
Net Assets: ======== ======== ======== ======== ========
Investment loss--net (1.54%)* (1.49%) (1.31%) (.72%) (1.24%)
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $232,883 $256,000 $208,520 $178,025 $207,413
Data: ======== ======== ======== ======== ========
Portfolio turnover 48.69% 91.26% 115.99% 125.94% 133.50%
======== ======== ======== ======== ========
<CAPTION>
Class C++
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
October 31, For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 1999 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 4.55 $ 4.92 $ 4.40 $ 4.68 $ 3.43
Operating -------- -------- -------- -------- --------
Performance: Investment loss--net (.04) (.07) (.06) (.04) (.05)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net --+++++ .55 1.73 .35 1.50
-------- -------- -------- -------- --------
Total from investment operations (.04) .48 1.67 .31 1.45
-------- -------- -------- -------- --------
Less distributions from realized
gain on investments--net (.18) (.85) (1.15) (.59) (.20)
-------- -------- -------- -------- --------
Net asset value, end of period $ 4.33 $ 4.55 $ 4.92 $ 4.40 $ 4.68
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (1.15%)+++ 10.82% 42.66% 7.28% 42.76%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 2.30%* 2.30% 2.36% 2.46% 2.52%
Net Assets: ======== ======== ======== ======== ========
Investment loss--net (1.55%)* (1.50%) (1.31%) (.76%) (1.19%)
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 30,816 $ 31,295 $ 19,860 $ 17,762 $ 20,761
Data: ======== ======== ======== ======== ========
Portfolio turnover 48.69% 91.26% 115.99% 125.94% 133.50%
======== ======== ======== ======== ========
<CAPTION>
Class D++
The following per share data and ratios have been derived For the Six
from information provided in the financial statements. Months Ended
October 31, For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 1999 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 5.36 $ 5.62 $ 4.89 $ 5.13 $ 3.72
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.02) (.04) (.03) --+++++ (.02)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net (.01) .64 1.95 .39 1.63
-------- -------- -------- -------- --------
Total from investment operations (.03) .60 1.92 .39 1.61
-------- -------- -------- -------- --------
Less distributions from realized
gain on investments--net (.18) (.86) (1.19) (.63) (.20)
-------- -------- -------- -------- --------
Net asset value, end of period $ 5.15 $ 5.36 $ 5.62 $ 4.89 $ 5.13
======== ======== ======== ======== ========
Total Investment Based on net asset value per share (.78%)+++ 11.69% 43.95% 8.11% 43.74%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.52%* 1.52% 1.56% 1.65% 1.75%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net (.76%)* (.72%) (.52%) .06% (.44%)
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 44,457 $ 43,700 $ 25,718 $ 18,318 $ 21,564
Data: ======== ======== ======== ======== ========
Portfolio turnover 48.69% 91.26% 115.99% 125.94% 133.50%
======== ======== ======== ======== ========
<FN>
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
+++++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Healthcare Fund, Inc., October 31, 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. These unaudited financial statements reflect
all adjustments which are, in the opinion of management, necessary
to a fair statement of the results for the interim period presented.
All such adjustments are of a normal recurring nature. 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 that 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 that 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.
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 .25% .75%
Class C .25% .75%
Class D .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 six months ended October 31, 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 $ 359 $ 3,987
Class D $2,788 $41,178
For the six months ended October 31, 1999, MLPF&S received
contingent deferred sales charges of $201,150 and $8,974 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $175,856 in commissions on the
execution of portfolio security transactions for the Company for the
six months ended October 31, 1999.
Merrill Lynch Healthcare Fund, Inc., October 31, 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 six months ended October 31, 1999, were $230,584,954 and
$271,887,352, respectively.
Net realized gains (losses) for the six months ended October 31,
1999 and net unrealized gains as of October 31, 1999 were as
follows:
Realized
Gains Unrealized
(Losses) Gains
Long-term investments $ (3,661,061) $ 73,014,015
Short-term investments 68 --
Foreign currency transactions (81,969) 2,343
------------ ------------
Total $ (3,742,962) $ 73,016,358
============ ============
As of October 31, 1999, net unrealized appreciation for Federal
income tax purposes aggregated $73,014,015, of which $99,064,285
related to appreciated securities and $26,050,270 related to
depreciated securities. The aggregate cost of investments at October
31, 1999 for Federal income tax purposes was $409,480,256.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(8,740,867) and $133,798,226 for the six months
ended October 31, 1999 and the year ended April 30, 1999,
respectively.
Transactions in capital shares for each class were as follows:
Class A Shares
For the Six Months Dollar
Ended October 31, 1999 Shares Amount
Shares sold 2,606,292 $ 14,682,308
Shares issued to shareholders in
reinvestment of distributions 872,042 5,014,244
------------ -------------
Total issued 3,478,334 19,696,552
Shares redeemed (3,714,466) (20,997,195)
------------ -------------
Net decrease (236,132) $ (1,300,643)
============ =============
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 B Shares
For the Six Months Dollar
Ended October 31, 1999 Shares Amount
Shares sold 5,920,692 $ 26,911,432
Shares issued to shareholders in
reinvestment of distributions 1,897,468 8,728,352
------------ -------------
Total issued 7,818,160 35,639,784
Automatic conversion of shares (804,334) (3,669,665)
Shares redeemed (9,507,871) (43,094,212)
------------ -------------
Net decrease (2,494,045) $ (11,124,093)
============ =============
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 C Shares
For the Six Months Dollar
Ended October 31, 1999 Shares Amount
Shares sold 1,231,158 $ 5,630,129
Shares issued to shareholders in
reinvestment of distributions 244,785 1,128,458
------------ -------------
Total issued 1,475,943 6,758,587
Shares redeemed (1,238,407) (5,629,138)
------------ -------------
Net increase 237,536 $ 1,129,449
============ =============
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 D Shares
For the Six Months Dollar
Ended October 31, 1999 Shares Amount
Shares sold 1,117,848 $ 5,967,021
Automatic conversion of shares 678,104 3,669,665
Shares issued to shareholders in
reinvestment of distributions 241,738 1,322,309
------------ -------------
Total issued 2,037,690 10,958,995
Shares redeemed (1,561,840) (8,404,575)
------------ -------------
Net increase 475,850 $ 2,554,420
============ =============
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
============ =============
5. Commitments:
At October 31, 1999, the Company had entered into foreign exchange
contracts under which it had agreed to purchase various foreign
currencies with an approximate value of $10,394,000.
