MERRILL LYNCH
HEALTHCARE
FUND, INC.
FUND LOGO
Quarterly Report
July 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., July 31, 1999
DEAR SHAREHOLDER
For the three-month period ended July 31, 1999, Merrill Lynch
Healthcare Fund, Inc.'s Class A, Class B, Class C and Class D Shares
had total returns of +5.49%, +5.25%, +5.01% and +5.19%,
respectively. (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 Interest Shifts to
Cyclical Issues
The Fund's performance during the July quarter reflects in large
part the greater-than-expected strength of the US economy during the
period. Investors remained concerned that the robust economic
activity would rekindle inflation and lead to further interest rate
increases. Accordingly, investor interest shifted away from steady
earnings growth companies such as large-capitalization
pharmaceutical stocks to cyclical issues. In an inflationary
environment, pharmaceutical companies have much less flexibility in
raising prices than do companies with commodity-based products. In
addition, valuations for US pharmaceutical issues were at
historically high levels, unlike undervalued cyclical issues.
Pharmaceutical issues in Europe also faced the same shift in
investor sentiment toward more cyclical issues. A bright spot in the
US healthcare sector during the July quarter was an improvement in
the outlook for health maintenance organizations (HMOs), as premium
increases were successfully instituted.
A negative factor impacting US pharmaceutical stock performance
during the July quarter was the relative lack of pending important
new drug introductions. In recent years, the Food & Drug
Administration (FDA) has been so expeditious in approving new
pharmaceuticals for the market that few "blockbuster" drugs are in
late phases of the approval process. Finally, the political
environment was a drag on US pharmaceutical stock performance during
the July quarter. With the proposed restructuring of Medicare and
provision of drug benefits to the elderly--and the importance of
this issue in the 2000 presidential election--it seems likely that
the political climate for pharmaceutical companies may remain
difficult into 2001.
Over the course of the July quarter, we maintained a balance of
assets in the portfolio with large-capitalization US pharmaceutical
stocks representing about one-half of the Fund's holdings as a
percent of market value. Mid-capitalization companies in the medical
specialties area comprise a meaningful investment position. Many
companies in this healthcare niche focus on treatment of hearing and
vision problems, and include such Fund investments as Bausch & Lomb
Incorporated and VISX, Incorporated. Bausch & Lomb Incorporated has
completed a series of acquisitions and divestitures. The company is
now almost exclusively positioned in the ophthalmology field. VISX,
Incorporated, a large Fund holding, continues to be a market share
leader in the field of corrective vision laser surgery. The present
growth rate of procedures in this area exceeds 100%. Another large
Fund holding is QLT PhotoTherapeutics Inc., a Canadian biotechnology
company. This company discovered and developed a laser-photo-
chemical procedure that in clinical studies halted the progression
of a form of macular degeneration in about half the patients. This
condition is a leading cause of blindness. Regulatory approval in
the United States is expected in the next six months.
Despite the near-term difficulties faced by the US healthcare
sector, we continue to view the long-term outlook positively.
Demographic trends favor increased healthcare expenditures, with the
elderly making up a growing percentage of the population in the
industrial world. Exciting new technologies and products are in
development, which we expect will come to market in the future.
Dramatic scientific advances and breakthroughs have always been the
hallmarks of the healthcare sector, and we expect that areas such as
genomics and biotechnology will be sources for similar advances in
the years ahead.
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
August 31, 1999
Merrill Lynch Healthcare Fund, Inc., July 31, 1999
PERFORMANCE DATA
About Fund
Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class A Shares are available only to eligible
investors.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after approximately 8 years. (There is no initial
sales charge for automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" tables assume
reinvestment of all dividends and capital gains distributions at net
asset value on the ex-dividend date. Investment return and principal
value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Dividends paid to each
class of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
Average Annual
Total Return+++
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
Year Ended 6/30/99 +14.80% + 8.77%
Five Years Ended 6/30/99 +24.44 +23.10
2/01/90++ through 6/30/99 +15.40 +14.74
Ten Years Ended 6/30/99 +15.58 +14.96
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
++On February 1, 1990, Merrill Lynch Asset Management, L.P. became
the sole investment adviser.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 6/30/99 +13.70% + 9.88%
Five Years Ended 6/30/99 +23.21 +23.21
2/01/90++ through 6/30/99 +14.22 +14.22
Ten Years Ended 6/30/99 +14.40 +14.40
[FN]
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
++On February 1, 1990, Merrill Lynch Asset Management, L.P. became
the sole investment adviser.
% Return % Return
Class C Shares* Without CDSC With CDSC**
Year Ended 6/30/99 +13.49% +12.53%
Inception (10/21/94) through 6/30/99 +22.55 +22.55
[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 6/30/99 +14.60% + 8.58%
Inception (10/21/94) through 6/30/99 +22.96 +21.56
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<TABLE>
Recent
Performance
Results+++
<CAPTION>
Ten Years/
12 Month 3 Month Since Inception
Total Return Total Return Total Return
<S> <C> <C> <C>
ML Healthcare Fund, Inc.--Class A Shares* +16.52% +5.49% +307.85%
ML Healthcare Fund, Inc.--Class B Shares* +15.24 +5.25 +267.94
ML Healthcare Fund, Inc.--Class C Shares* +15.22 +5.01 +166.72
ML Healthcare Fund, Inc.--Class D Shares* +16.06 +5.19 +170.81
<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 areten years for Class A &
Class B Shares and from 10/21/94 for Class C & Class D Shares.
</TABLE>
+++Important Note:
Prior to April 27, 1992, Merrill Lynch Healthcare Fund, Inc. was
known as Sci/Tech Holdings, Inc. and contained, in addition to a
healthcare portfolio, a portfolio of technology securities. The data
on pages 4 and 5 include the performance of the technology portfolio
which is no longer part of the Fund. Set forth below are performance
data which, for the period before April 27, 1992, include only the
performance of the healthcare portfolio and a pro rata allocated
portion of Sci/Tech Holdings, Inc.'s cash reserves. On February 1,
1990, Merrill Lynch Asset Management, L.P. became the sole
investment adviser.
Performance
Results
2/01/90 to 7/31/99
Total Return++
ML Healthcare Fund, Inc. Class A Shares +436.06%
ML Healthcare Fund, Inc. Class B Shares +397.63
[FN]
++Due to the inability to completely isolate the performance of
Sci/Tech Holdings, Inc.'s technology portfolio from its healthcare
portfolio, computations are based upon management's estimates of the
healthcare portfolio. Investment results shown do not reflect sales
charges; results shown would be lower if a sales charge was
included.
Average Annual
Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
2/01/90++ through 6/30/99 +19.16% +18.48%
[FN]
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
++Due to the inability to completely isolate the performance of
Sci/Tech Holdings, Inc.'s technology portfolio from its healthcare
portfolio, computations are based upon management's estimates of the
healthcare portfolio.
% Return % Return
Class B Shares* Without CDSC With CDSC**
2/01/90++ through 6/30/99 +18.24% +18.24%
[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, compu-tations are based upon management's estimates of
the healthcare portfolio.
Merrill Lynch Healthcare Fund, Inc., July 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
NORTH Shares Percent of
AMERICA Industries Held Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Canada Medical Specialties 150,000 QLT PhotoTherapeutics Inc. $ 4,002,237 $ 9,626,284 1.9%
225,000 QLT PhotoTherapeutics Inc.
(US Registered Shares) 8,554,357 14,301,563 2.7
Investments in Canada 12,556,594 23,927,847 4.6
United States Biotechnology 200,000 Abgenix, Inc 2,661,875 4,587,500 0.9
100,000 Amgen Inc. 3,839,065 7,687,500 1.5
200,000 Aphton Corporation 3,874,626 2,725,000 0.5
15,000 Aurora Biosciences Corporation 112,500 121,875 0.0
40,000 COR Therapeutics, Inc. 445,000 797,500 0.2
395,000 Cell Genesys, Inc. 2,634,852 2,197,187 0.4
350,000 Coulter Pharmaceutical, Inc. 6,187,874 8,684,375 1.7
350,000 Emisphere Technologies, Inc. 5,741,333 2,646,875 0.5
50,000 Enzon, Inc. 792,687 1,203,125 0.2
41,100 Genentech, Inc. 3,986,700 5,836,200 1.1
90,000 IDEC Pharmaceuticals Corporation 2,949,064 8,915,625 1.7
40,000 Immunex Corporation 1,421,608 4,495,000 0.9
15,000 MedImmune, Inc. 379,687 1,195,313 0.2
40,000 PathoGenesis Corporation 534,480 552,500 0.1
30,000 Protein Design Labs, Inc. 923,125 795,000 0.1
80,000 Trimeris, Inc. 940,000 1,335,000 0.3
------------ ------------ ------
37,424,476 53,775,575 10.3
Health Care Cost 200,000 Aetna Inc. 18,529,399 16,400,000 3.2
Containment 700,000 AmeriSource Health Corporation
(Class A) 19,127,940 19,600,000 3.8
70,000 Bergen Brunswig Corporation
(Class A) 1,613,465 1,120,000 0.2
150,000 CIGNA Corporation 14,403,140 13,228,125 2.5
367,000 Cardinal Health, Inc. 14,281,873 25,047,750 4.8
160,000 CareMatrix Corporation 3,232,964 1,730,000 0.3
300,000 Columbia/HCA Healthcare
Corporation 6,699,817 6,675,000 1.3
50,000 Foundation Health Systems, Inc.
(Class A) 583,337 759,375 0.1
300,000 HEALTHSOUTH Corporation 4,422,000 3,675,000 0.7
70,000 McKesson HBOC, Inc. 5,722,122 2,174,375 0.4
60,000 Omnicare, Inc. 1,371,725 645,000 0.1
30,000 Sunrise Assisted Living, Inc. 1,021,875 903,750 0.2
63,900 United Wisconson Services, Inc. 544,946 539,156 0.1
------------ ------------ ------
91,554,603 92,497,531 17.7
Healthcare-- 60,000 CareInsite, Inc. 1,080,000 2,580,000 0.5
Information 100,000 Cerner Corporation 1,788,711 1,662,500 0.3
125,000 Express Scripts, Inc. (Class A) 7,625,000 8,703,125 1.7
65,100 Gartner Group, Inc. (Class B) 1,412,477 1,407,788 0.3
40,000 Healtheon Corporation 2,363,124 2,010,000 0.4
500,000 IMS Health Incorporated 12,756,266 13,937,500 2.6
150,000 Medical Manager Corporation 9,780,769 9,515,625 1.8
30,000 ProVantage Health Services, Inc. 540,000 555,000 0.1
------------ ------------ ------
37,346,347 40,371,538 7.7
Medical Specialties 285,000 Bausch & Lomb Incorporated 16,671,015 20,466,562 3.9
400,000 Becton, Dickinson and Company 13,692,206 10,975,000 2.1
100,000 ILEX Oncology, Inc. 1,021,248 1,250,000 0.2
100,000 Laser Vision Centers, Inc. 5,350,237 6,237,500 1.2
200,000 Martek Biosciences Corporation 2,093,747 1,987,500 0.4
50,000 Ocular Sciences, Inc. 1,195,835 975,000 0.2
120,000 Serologicals Corporation 1,911,250 892,500 0.2
120,005 Summit Technology, Inc. 1,891,368 2,865,119 0.6
200,000 Syncor International Corporation 5,827,844 5,925,000 1.1
100,000 TLC The Laser Center Inc. 4,685,782 3,637,500 0.7
335,000 VISX, Incorporated 4,526,132 33,876,875 6.5
------------ ------------ ------
58,866,664 89,088,556 17.1
Medical Technology 125,000 Boston Scientific Corporation 4,352,940 5,070,312 1.0
250,000 C.R. Bard, Inc. 10,401,604 12,156,250 2.3
100,000 Datascope Corp. 2,706,380 3,437,500 0.7
150,000 Guidant Corporation 4,027,090 8,784,375 1.7
140,000 Medtronic, Inc. 5,320,616 10,088,750 1.9
50,000 Novoste Corporation 815,589 1,143,750 0.2
80,000 Stryker Corporation 2,930,424 4,880,000 0.9
------------ ------------ ------
30,554,643 45,560,937 8.7
Pharmaceutical-- 150,000 Bristol-Myers Squibb Company 8,874,250 9,975,000 1.9
Consumer 200,000 Warner-Lambert Company 12,701,894 13,200,000 2.5
------------ ------------ ------
21,576,144 23,175,000 4.4
Pharmaceutical-- 200,000 American Home Products
Diversified Corporation 10,961,373 10,200,000 2.0
7,500 Dura Pharmaceuticals, Inc. 105,000 77,812 0.0
80,000 Monsanto Company 3,294,546 3,130,000 0.6
100,000 Schering-Plough Corporation 4,401,678 4,900,000 0.9
------------ ------------ ------
18,762,597 18,307,812 3.5
Pharmaceutical-- 300,000 ALZA Corporation 13,968,827 14,587,500 2.8
Prescription 100,000 Eli Lilly and Company 6,937,250 6,562,500 1.2
250,000 Forest Laboratories, Inc. 10,123,659 12,812,500 2.5
40,000 Geltex Pharmaceuticals, Inc. 683,594 562,500 0.1
60,000 Merck & Co., Inc. 3,964,925 4,061,250 0.8
120,000 Pfizer Inc. 4,983,276 4,072,500 0.8
400,000 SangStat Medical Corporation 10,407,147 7,400,000 1.4
140,000 Sepracor Inc. 8,189,932 10,272,500 2.0
------------ ------------ ------
59,258,610 60,331,250 11.6
Investments in the
United States 355,344,084 423,108,199 81.0
Total Investments in
North America 367,900,678 447,036,046 85.6
</TABLE>
Merrill Lynch Healthcare Fund, Inc., July 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
PACIFIC Shares Percent of
BASIN/ASIA Industries Held Investments Cost Value Net Assets
<S> <S> <C> <S> <C> <C> <C>
Japan Pharmaceutical-- 100,000 Fujisawa Pharmacturical
Co., Ltd. $ 1,762,001 $ 1,887,204 0.4%
Prescription 50,000 Yamanouchi Pharmaceutical
Co., Ltd. 1,696,178 2,314,331 0.4
Total Investments in the
Pacific Basin/Asia 3,458,179 4,201,535 0.8
Western
Europe
Denmark Medical Specialties 50,000 William Demant A/S 3,466,839 4,238,201 0.8
Investments in Denmark 3,466,839 4,238,201 0.8
France Pharmaceutical-- 100,000 Sanofi-Synthelabo SA 4,363,543 4,158,504 0.8
Prescription
Investments in France 4,363,543 4,158,504 0.8
Germany Medical Specialties 50,000 Fresenius Medical Care AG (ADR)* 1,012,168 1,193,750 0.2
Investments in Germany 1,012,168 1,193,750 0.2
Ireland Pharmaceutical-- 100,000 Elan Corporation PLC (ADR)* 3,504,440 2,906,250 0.6
Prescription
Investments in Ireland 3,504,440 2,906,250 0.6
Switzerland Pharmaceutical-- 300 Roche Holding AG 3,361,465 3,317,462 0.6
Diversified
Investments in Switzerland 3,361,465 3,317,462 0.6
United Medical Specialties 600,000 SkyePharma PLC 756,303 505,440 0.1
Kingdom
Pharmaceutical-- 555,000 Shire Pharmaceuticals Group PLC 3,429,119 4,558,437 0.9
Diversified 551,662 SmithKline Beecham PLC 7,074,488 6,792,059 1.3
------------ ------------ ------
10,503,607 11,350,496 2.2
Pharmaceutical-- 50,000 AstraZeneca Group PLC 2,314,452 1,859,760 0.4
Prescription 123,547 Glaxo Wellcome PLC 3,766,039 3,186,327 0.6
------------ ------------ ------
6,080,491 5,046,087 1.0
Investments in the
United Kingdom 17,340,401 16,902,023 3.3
Total Investments in
Western Europe 33,048,856 32,716,190 6.3
SHORT-TERM Face
SECURITIES Amount
Commercial General Electric Capital Corp.:
Paper** $12,547,000 5.13% due 8/02/1999 12,543,424 12,543,424 2.4
10,000,000 5.07% due 8/09/1999 9,987,325 9,987,325 1.9
Total Investments in
Short-Term Securities 22,530,749 22,530,749 4.3
Total Investments $426,938,462 506,484,520 97.0
============
Other Assets Less Liabilities 15,597,148 3.0
------------ ------
Net Assets $522,081,668 100.0%
============ ======
Net Asset Value: Class A--Based on net assets of $182,725,032 and 31,802,390
shares outstanding $ 5.75
============
Class B--Based on net assets of $259,048,035 and 56,341,588
shares outstanding $ 4.60
============
Class C--Based on net assets of $33,806,118 and 7,345,446
shares outstanding $ 4.60
============
Class D--Based on net assets of $46,502,483 and 8,509,609
shares outstanding $ 5.46
============
<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.
</TABLE>
Merrill Lynch Healthcare Fund, Inc., July 31, 1999
PORTFOLIO CHANGES
For the Quarter Ended July 31, 1999
Additions
*Ares--Serono Group
CIGNA Corporation
CareInsite, Inc.
Cerner Corporation
*Chemdex Corporation
*Drugstore.com Inc.
Express Scripts, Inc. (Class A)
Gartner Group, Inc. (Class B)
Healtheon Corporation
Laser Vision Centers, Inc.
*LifePoint Hospitals, Inc.
Martek Biosciences Corporation
Omnicare, Inc.
PathoGenesis Corporation
ProVantage Health Services, Inc.
Sunrise Assisted Living, Inc.
TLC The Laser Center Inc.
*Triad Hospitals, Inc.
Trimeris, Inc.
Deletions
*Ares--Serono Group
Centocor, Inc.
*Chemdex Corporation
*Drugstore.com Inc.
*LifePoint Hospitals, Inc.
Medaphis Corporation
Novartis AG (Registered Shares)
OXiGENE, Inc.
Orion-Yhtyma OY 'B'
Pharmacia & Upjohn, Inc.
Synetic, Inc.
Total Renal Care Holdings, Inc.
*Triad Hospitals, Inc.
U.S. Bioscience, Inc.
Vertex Pharmaceuticals Incorporated
[FN]
*Added and deleted in the same quarter.
PORTFOLIO INFORMATION
Worldwide
Investments
As of 7/31/99
Ten Largest Holdings Percent of
Represented in the Portfolio Net Assets
VISX, Incorporated 6.5%
Cardinal Health, Inc. 4.8
QLT PhotoTherapeutics Inc.* 4.5
Bausch & Lomb Incorporated 3.9
AmeriSource Health Corporation
(Class A) 3.8
Aetna Inc. 3.2
ALZA Corporation 2.8
IMS Health Incorporated 2.6
CIGNA Corporation 2.5
Warner-Lambert Company 2.5
[FN]
*Includes combined holdings.
Breakdown of Securities Percent of
By Country Net Assets
United States* 81.0%
Canada 4.6
United Kingdom 3.3
Denmark 0.8
Japan 0.8
France 0.8
Switzerland 0.6
Ireland 0.6
Germany 0.2
[FN]
*Excludes short-term investments.
Industries Represented Percent of
In the Portfolio Net Assets
Medical Specialties 22.8%
Health Care Cost Containment 17.7
Pharmaceutical--Prescription 14.8
Biotechnology 10.3
Medical Technology 8.7
Healthcare--Information 7.7
Pharmaceutical--Diversified 6.3
Pharmaceutical--Consumer 4.4
