MERRILL LYNCH
HEALTHCARE
FUND, INC.
FUND LOGO
Annual Report
April 30, 2000
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
Charles C. Reilly, Director
Richard R. West, Director
Arthur Zeikel, Director
Edward D. Zinbarg, Director
Robert C. Doll, Jr., 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
Donald Cecil and Edward H. Meyer, Directors of Merrill Lynch
Healthcare Fund, Inc. have recently retired. The Fund's Board of
Directors wishes Mr. Cecil and Mr. Meyer well in their retirements.
Merrill Lynch Healthcare Fund, Inc., April 30, 2000
DEAR SHAREHOLDER
Investment Environment
Since the beginning of the year, market volatility has increased
dramatically and has become an additional cost in achieving
investment returns. During volatile periods investors can easily
lose sight of basic trends. Opinions quickly shift from too much
optimism to too much bearishness. A whipsaw effect develops that
tends to leave most investors taking too many losses over too short
a period of time. Based on the conditions that have caused this
increase in volatility, we believe the likelihood of it continuing
through the year is quite high. The gross overvaluation in about one-
third of the market, coupled with undervaluation in broad sectors of
the market, is contributing to this manic-depressive type of trading
frenzy. However, even while the volatility causes considerable
noise, basic market trends appear to be mixed, despite positive cash
flows going into the market during the first four months of the
year. This is not a particularly welcome investment sign.
Our economy continues to be strong. Retail sales are robust and
income growth is healthy. More important, production schedules are
in line with retail expansion so that inventory/sales ratios are
still well maintained. Market trends appear to have had little or no
impact on consumption. Historically, stock market declines have not
had great impact on consumption until the decline is significant and
prolonged and followed by a recessionary environment. Inflation in
the first quarter ran excessively high relative to past trends; when
food and energy are included, the rate is alarming. The core rate of
inflation ran at a little over 3%. The ripple effect from rising
energy costs is being felt, and energy prices are holding up
stubbornly. A robust economy may support this trend further and
inflation will continue to expand. Many manufacturers have hedged
commodity price increases this year; however, if there is no relief
in commodity price trends next year, manufacturers could be forced
to raise prices by 3%--5%. The Federal Reserve Board is obviously
aware of this and recognizes that the best way to get commodity
price and inflation expectations down is to slow the economy by
continuing to raise interest rates. Unfortunately, it may require
much higher interest rates than foreseen.
Undoubtedly, investors believe that the Federal Reserve Board
intends to slow the economy and stop the inflationary pressures that
are building, and that interest rates will continue to rise until
that slowdown is apparent. Rising interest rates have historically
been a negative to very high price/earnings issues.
Fiscal Year in Review
The 12 months ended April 30, 2000 were marked by extreme
volatility. This volatility resulted in shifts of emphasis from
biotechnology stocks and recurrent rallies in the pharmaceutical
sector. During the fiscal year, we continued to maintain a large
position in US holdings. In addition, we emphasized product
companies (pharmaceuticals, medical devices and biotechnology) as
opposed to service companies (health maintenance organizations and
hospital companies). Throughout the Fund's fiscal year, we reduced
our positions in small-capitalization and mid-capitalization
holdings and increased our positions in large-capitalization
holdings proportionately.
During the fiscal year ended April 30, 2000, our strategy benefited
performance. The Fund's Class A, Class B, Class C and Class D Shares
had total returns of +28.06%, +26.99%, +26.70% and +27.73%,
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--6 of this report to
shareholders.)
Our strategic goal is to exploit the upside potential presented to
us by small-capitalization and mid-capitalization companies, while
cushioning the downside with positions in large cap stocks. Although
there have been some shifts in the year, our strategy generally
remained constant over the period.
In Conclusion
We thank you for your investment in Merrill Lynch Healthcare Fund,
Inc., and we look forward to serving your investment needs
throughout the Fund's new fiscal year and beyond.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Jordan C. Schreiber)
Jordan C. Schreiber
Senior Vice President and
Portfolio Manager
May 31, 2000
PORTFOLIO INFORMATION (unaudited)
Worldwide
Investments
As of 4/30/00
Percent of
Ten Largest Holdings Net Assets
QLT PhotoTherapeutics Inc.* 5.8%
Columbia/HCA Healthcare
Corporation 5.8
American Home Products
Corporation 5.7
Stryker Corporation 3.9
C.R. Bard, Inc. 3.7
Forest Laboratories, Inc. 3.6
Bristol-Myers Squibb Company 3.6
Baxter International Inc. 3.3
ALZA Corporation 3.0
Becton, Dickinson and Company 2.6
*Excludes short-term securities.
Breakdown of Investments Percent of
By Country Net Assets
United States* 74.2%
Canada 7.0
Japan 4.8
Ireland 2.1
Denmark 1.5
Israel 1.5
Switzerland 1.2
United Kingdom 1.1
Sweden 0.8
Germany 0.2
*Represents combined holdings.
Industries Represented Percent of
In the Portfolio Net Assets
Pharmaceutical--Prescription 21.1%
Biotechnology 14.3
Medical Technology 14.1
Pharmaceutical--Diversified 13.0
Health Care Cost Containment 12.9
Medical Specialties 11.1
Pharmaceutical--Consumer 4.8
Healthcare--Information 3.1
Merrill Lynch Healthcare Fund, Inc., April 30, 2000
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.
Total Return
Based on a
$10,000
Investment
A line graph depicting the growth of ML Healthcare Fund, Inc.'s
Class A and Class B Shares compared to growth of the S&P 500 Index.
Beginning and ending values are:
4/90 4/00
ML Healthcare Fund, Inc.++
--Class A Shares* $10,000 $46,208
ML Healthcare Fund, Inc.++
--Class B Shares* $10,000 $43,977
S&P 500 Index++++ $10,000 $55,894
A line graph depicting the growth of ML Healthcare Fund, Inc.'s
Class C and Class D Shares compared to growth of the S&P 500 Index.
Beginning and ending values are:
4/90 4/00
ML Healthcare Fund, Inc.++
--Class C Shares* $10,000 $32,180
ML Healthcare Fund, Inc.++
--Class D Shares* $ 9,600 $31,160
S&P 500 Index++++ $10,000 $34,632
*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 or 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 3/31/00 +22.25% +15.83%
Five Years Ended 3/31/00 +26.36 +25.00
Ten Years Ended 3/31/00 +17.01 +16.38
*Maximum sales charge is 5.25%. (Prior to October 21, 1994, Class A
Shares were offered at a higher sales charge. Thus, actual returns
would have been lower than shown for the ten-year period.)
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
Year Ended 3/31/00 +20.94% +16.94%
Five Years Ended 3/31/00 +25.07 +25.07
Ten Years Ended 3/31/00 +15.81 +15.81
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Class C Shares* Without CDSC With CDSC**
Year Ended 3/31/00 +21.15% +20.15%
Five Years Ended 3/31/00 +25.01 +25.01
Inception (10/21/94) through 3/31/00 +23.91 +23.91
*Maximum contingent deferred 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 3/31/00 +22.11% +15.70%
Five Years Ended 3/31/00 +26.05 +24.69
Inception (10/21/94) through 3/31/00 +24.37 +23.15
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch Healthcare Fund, Inc., April 30, 2000
PERFORMANCE DATA (concluded)
<TABLE>
Recent
Performance
Results*
<CAPTION>
Ten Years/
6 Month 12 Month Since Inception
As of April 30, 2000 Total Return Total Return Total Return
<S> <C> <C> <C>
ML Healthcare Fund, Inc.--Class A Shares +28.78% +28.06% +387.62%
ML Healthcare Fund, Inc.--Class B Shares +28.47 +26.99 +339.75
ML Healthcare Fund, Inc.--Class C Shares +28.18 +26.70 +221.80
ML Healthcare Fund, Inc.--Class D Shares +28.74 +27.73 +228.84
<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>
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
MIDDLE Shares Percent of
EAST Industries Held Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
Israel Pharmaceutical 200,000 Teva Pharmaceutical Industries Ltd. (ADR)* $ 8,775,000 1.5%
--Diversified
Total Investments in the Middle East 8,775,000 1.5
North
America
Canada Biotechnology 166,000 ++QLT PhotoTherapeutics Inc. 9,209,152 1.6
450,000 ++QLT PhotoTherapeutics Inc. (US Registered Shares) 25,003,125 4.2
------------ ------
34,212,277 5.8
Pharmaceutical 150,000 ++Biovail Corporation 7,153,125 1.2
--Prescription
Total Investments in Canada 41,365,402 7.0
United Biotechnology 200,000 ++Amgen Inc. 11,200,000 1.9
States 200,000 ++Aphton Corporation 5,475,000 0.9
320,000 ++Aquila Biopharmaceuticals, Inc. 1,080,000 0.2
40,000 ++Cell Genesys, Inc. 740,000 0.1
200,000 ++Coulter Pharmaceutical, Inc. 3,637,500 0.6
15,000 ++Genentech, Inc. 1,755,000 0.3
60,000 ++IDEC Pharmaceuticals Corporation 3,828,750 0.6
100,000 ++ILEX Oncology, Inc. 2,350,000 0.4
10,000 ++Imclone Systems 908,750 0.2
100,000 ++Immunex Corporation 3,931,250 0.7
250,000 ++Lexicon Genetics Incorporated 2,421,875 0.4
75,000 ++Luminex Corporation 1,396,875 0.2
100,000 ++Maxim Pharmaceuticals, Inc. 3,862,500 0.7
60,000 ++Regeneron Pharmaceuticals, Inc. 1,713,750 0.3
5,000 ++Transkaryotic Therapies, Inc. 149,375 0.0
32,500 ++Trimeris, Inc. 1,119,219 0.2
------------ ------
45,569,844 7.7
Health Care 700,000 ++AmeriSource Health Corporation (Class A) 14,000,000 2.4
Cost Containment 120,000 Bindley Western Industries, Inc. 2,092,500 0.3
50,000 Cardinal Health, Inc. 2,753,125 0.5
1,200,000 ++Caremark Rx, Inc. 7,650,000 1.3
1,200,000 Columbia/HCA Healthcare Corporation 34,125,000 5.8
100,000 Hooper Holmes, Inc. 1,737,500 0.3
67,500 ++LifePoint Hospitals, Inc. 1,151,719 0.2
500,000 ++Tenet Healthcare Corporation 12,750,000 2.1
------------ ------
76,259,844 12.9
Healthcare 60,000 ++CareInsite, Inc. 1,485,000 0.2
--Information 350,000 ++Cerner Corporation 7,700,000 1.3
100,000 IMS Health Incorporated 1,706,250 0.3
250,000 ++Medical Manager Corporation 7,968,750 1.3
------------ ------
18,860,000 3.1
Medical Specialties 80,000 Bausch & Lomb Incorporated 4,830,000 0.8
300,000 Baxter International Inc. 19,537,500 3.3
600,000 Becton, Dickinson and Company 15,375,000 2.6
100,000 ++Edwards Lifesciences Corporation 1,500,000 0.3
100,000 ++Martek Biosciences Corporation 1,425,000 0.2
290,000 ++Syncor International Corporation 11,944,375 2.0
------------ ------
54,611,875 9.2
Medical Technology 132,800 ++Boston Scientific Corporation 3,519,200 0.6
500,000 C.R. Bard, Inc. 21,781,250 3.7
200,000 ++Datascope Corp. 6,600,000 1.1
150,000 ++Guidant Corporation 8,606,250 1.5
280,000 Medtronic, Inc. 14,542,500 2.5
120,000 ++Novoste Corporation 4,912,500 0.8
325,000 Stryker Corporation 23,359,375 3.9
------------ ------
83,321,075 14.1
Pharmaceutical--Consumer 400,000 Bristol-Myers Squibb Company 20,975,000 3.6
120,000 The Procter & Gamble Company 7,155,000 1.2
------------ ------
28,130,000 4.8
</TABLE>
Merrill Lynch Healthcare Fund, Inc., April 30, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
<CAPTION>
MIDDLE Shares Percent of
EAST Industries Held Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
United Pharmaceutical 120,000 Allergan Inc. $ 7,065,000 1.2%
States --Diversified 600,000 American Home Products Corporation 33,712,500 5.7
(concluded) 250,000 Pharmacia Corporation 12,484,375 2.1
80,000 Schering-Plough Corporation 3,225,000 0.6
------------ ------
56,486,875 9.6
Pharmaceutical 400,000 ++ALZA Corporation 17,625,000 3.0
--Prescription 50,000 Eli Lilly and Company 3,865,625 0.6
250,000 ++Forest Laboratories, Inc. 21,015,625 3.6
15,000 Merck & Co., Inc. 1,042,500 0.2
250,000 Pfizer Inc. 10,531,250 1.8
500,000 ++SangStat Medical Corporation 13,968,750 2.4
80,000 ++Sepracor Inc. 7,350,000 1.2
------------ ------
75,398,750 12.8
Total Investments in the United States 438,638,263 74.2
Total Investments in North America 480,003,665 81.2
Pacific
Basin/Asia
Japan Pharmaceutical-- 250,000 Fujisawa Pharmacturical Co., Ltd. 9,368,494 1.6
Prescription 75,000 Kissei Pharmaceutical Co., Ltd. 1,229,008 0.2
200,000 Kyorin Pharmaceutical Co., Ltd. 9,808,004 1.7
150,000 Yamanouchi Pharmaceutical Co., Ltd. 7,925,052 1.3
Total Investments in the Pacific Basin/Asia 28,330,558 4.8
Western
Europe
Denmark Medical Specialties 52,000 William Demant A/S 7,912,974 1.3
Pharmaceutical 30,000 H. Lundbeck A/S 1,338,385 0.2
--Prescription
Total Investments in Denmark 9,251,359 1.5
Germany Medical Specialties 50,000 Fresenius Medical Care AG (ADR)* 1,228,125 0.2
Total Investments in Germany 1,228,125 0.2
Ireland Pharmaceutical 100,000 ++Warner Chilcott Laboratories (ADR)* 1,575,000 0.3
--Diversified
Pharmaceutical 250,000 ++Elan Corporation PLC (ADR)* 10,718,750 1.8
--Prescription
Total Investments in Ireland 12,293,750 2.1
Sweden Biotechnology 340,000 ++OXiGENE, Inc. 4,760,000 0.8
Total Investments in Sweden 4,760,000 0.8
Switzerland Pharmaceutical 40,000 Novartis AG (ADR)* 2,785,000 0.5
--Diversified 400 Roche Holding AG (Genuss) 4,187,155 0.7
Total Investments in Switzerland 6,972,155 1.2
United Medical Specialties 1,500,000 ++SkyePharma PLC 2,347,200 0.4
Kingdom
Pharmaceutical 170,000 SmithKline Beecham PLC 2,336,950 0.4
--Diversified
Pharmaceutical 10,000 Glaxo Wellcome PLC 309,987 0.1
--Prescription 100,000 ++Shire Pharmaceuticals Group PLC 1,425,533 0.2
------------ ------
1,735,520 0.3
Total Investments in the United Kingdom 6,419,670 1.1
Total Investments in Western Europe 40,925,059 6.9
Total Long-Term Investments (Cost--$475,170,095) 558,034,282 94.4
SHORT-TERM Face
SECURITIES Amount
Commercial $ 4,000,000 Bell Atlantic Financial Service Inc., 6.03% due
Paper** 5/25/2000 3,982,580 0.7
10,000,000 CSW Credit Inc., 6.01% due 5/05/2000 9,989,983 1.7
11,015,000 General Motors Acceptance Corp., 6.06% due
5/01/2000 11,011,292 1.9
5,000,000 Transamerica Finance Corporation, 6.01% due
5/10/2000 4,990,818 0.8
Total Investments in Short-Term Securities
(Cost--$29,974,673) 29,974,673 5.1
Total Investments (Cost--$505,144,768) 588,008,955 99.5
Other Assets Less Liabilities 2,670,930 0.5
------------ ------
Net Assets $590,679,885 100.0%
============ ======
*American Depositary Receipts (ADR).
**Commercial Paper is traded on a discount basis; the interest rate
shown reflects the discount rate paid at the time of purchase by the
Fund.
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Healthcare Fund, Inc., April 30, 2000
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of April 30, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$505,144,768) $588,008,955
Cash 969
Foreign cash 1,359,001
Receivables:
Securities sold $ 3,038,845
Capital shares sold 1,147,983
Dividends 427,757 4,614,585
------------
Prepaid registration fees and other assets 29,015
------------
Total assets 594,012,525
------------
Liabilities: Payables:
Securities purchased 1,298,650
Capital shares redeemed 1,050,470
Investment adviser 450,556
Distributor 249,840 3,049,516
------------
Accrued expenses and other liabilities 283,124
------------
Total liabilities 3,332,640
------------
Net Assets: Net assets $590,679,885
============
Net Assets Class A Shares of Common Stock, $.10 par value, 100,000,000
Consist of: shares authorized $ 3,142,738
Class B Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 4,931,500
Class C Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 695,698
Class D Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 890,252
Paid-in capital in excess of par 385,013,617
Undistributed realized capital gains on investments and foreign
currency transactions--net 113,166,030
Unrealized appreciation on investments and foreign currency
transactions--net 82,840,050
------------
Net assets $590,679,885
============
Net Asset Class A--Based on net assets of $219,499,204 and 31,427,380
Value: shares outstanding $ 6.98
============
Class B--Based on net assets of $273,529,692 and 49,314,996
shares outstanding $ 5.55
============
Class C--Based on net assets of $38,621,773 and 6,956,978
shares outstanding $ 5.55
============
Class D--Based on net assets of $59,029,216 and 8,902,517
shares outstanding $ 6.63
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Year Ended April 30, 2000
<S> <S> <C> <C>
Investment Dividends (net of $31,882 foreign withholding tax) $ 2,428,840
Income: Interest and discount earned 1,761,649
------------
Total income 4,190,489
------------
Expenses: Investment advisory fees $ 5,267,282
Account maintenance and distribution fees--Class B 2,559,594
Transfer agent fees--Class B 500,119
Account maintenance and distribution fees--Class C 337,171
Transfer agent fees--Class A 322,456
Account maintenance fees--Class D 121,203
Registration fees 103,874
Printing and shareholder reports 96,092
Professional fees 94,411
Transfer agent fees--Class D 82,833
Accounting services 80,400
Transfer agent fees--Class C 70,241
Custodian fees 64,891
Directors' fees and expenses 36,477
Pricing fees 7,134
Other 14,480
------------
Total expenses 9,758,658
------------
Investment loss--net (5,568,169)
------------
Realized & Realized gain (loss) from:
Unrealized Gain Investments--net 119,286,966
(Loss) on Foreign currency transactions--net (158,836) 119,128,130
Investments & ------------
Foreign Currency Change in unrealized appreciation/depreciation on:
Transactions--Net: Investments--net 12,859,214
Foreign currency transactions--net (20,879) 12,838,335
------------ ------------
Net Increase in Net Assets Resulting from Operations $126,398,296
------------
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Healthcare Fund, Inc., April 30, 2000
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS
<CAPTION>
For the Year Ended April 30,
Increase (Decrease) in Net Assets: 2000 1999
<S> <S> <C> <C>
Operations: Investment loss--net $ (5,568,169) $ (4,714,156)
Realized gain on investments and foreign currency
transactions--net 119,128,130 51,839,878
Change in unrealized appreciation/depreciation on investments
and foreign currency transactions--net 12,838,335 (3,584,627)
------------ ------------
Net increase in net assets resulting from operations 126,398,296 43,541,095
------------ ------------
Distributions to Realized gain on investments--net:
Shareholders: Class A (5,572,543) (22,527,624)
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 capital
Transactions: share transactions (25,000,986) 133,798,226
------------ ------------
Net Assets: Total increase in net assets 83,194,266 107,233,539
Beginning of year 507,485,619 400,252,080
------------ ------------
End of year $590,679,885 $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
from information provided in the financial statements. For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 5.62 $ 5.84 $ 5.05 $ 5.27 $ 3.81
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.03) (.03) (.02) .02 (.01)
Realized and unrealized gain on investments
and foreign currency transactions--net 1.57 .67 2.02 .40 1.67
-------- -------- -------- -------- --------
Total from investment operations 1.54 .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 year $ 6.98 $ 5.62 $ 5.84 $ 5.05 $ 5.27
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 28.06% 12.01% 44.06% 8.55% 44.01%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 1.26% 1.27% 1.32% 1.40% 1.53%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net (.47%) (.46%) (.28%) .32% (.23%)
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $219,499 $176,491 $146,154 $121,529 $132,083
Data: ======== ======== ======== ======== ========
Portfolio turnover 109.88% 91.26% 115.99% 125.94% 133.50%
======== ======== ======== ======== ========
<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: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 4.54 $ 4.91 $ 4.40 $ 4.67 $ 3.43
Operating -------- -------- -------- -------- --------
Performance: Investment loss--net (.07) (.07) (.06) (.03) (.05)
Realized and unrealized gain on investments
and foreign currency transactions--net 1.26 .55 1.72 .35 1.49
-------- -------- -------- -------- --------
Total from investment operations 1.19 .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 year $ 5.55 $ 4.54 $ 4.91 $ 4.40 $ 4.67
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 26.99% 10.79% 42.60% 7.44% 42.46%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 2.28% 2.29% 2.35% 2.44% 2.55%
Net Assets: ======== ======== ======== ======== ========
Investment loss--net (1.49%) (1.49%) (1.31%) (.72%) (1.24%)
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $273,530 $256,000 $208,520 $178,025 $207,413
Data: ======== ======== ======== ======== ========
Portfolio turnover 109.88% 91.26% 115.99% 125.94% 133.50%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Healthcare Fund, Inc., April 30, 2000
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class C++
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: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 4.55 $ 4.92 $ 4.40 $ 4.68 $ 3.43
Operating -------- -------- -------- -------- --------
Performance: Investment loss--net (.07) (.07) (.06) (.04) (.05)
Realized and unrealized gain on investments
and foreign currency transactions--net 1.25 .55 1.73 .35 1.50
-------- -------- -------- -------- --------
Total from investment operations 1.18 .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 year $ 5.55 $ 4.55 $ 4.92 $ 4.40 $ 4.68
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 26.70% 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 (1.50%) (1.50%) (1.31%) (.76%) (1.19%)
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 38,622 $ 31,295 $ 19,860 $ 17,762 $ 20,761
Data: ======== ======== ======== ======== ========
Portfolio turnover 109.88% 91.26% 115.99% 125.94% 133.50%
======== ======== ======== ======== ========
<CAPTION>
Class D++
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: 2000 1999 1998 1997 1996
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of year $ 5.36 $ 5.62 $ 4.89 $ 5.13 $ 3.72
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.04) (.04) (.03) --+++ (.02)
Realized and unrealized gain on investments
and foreign currency transactions--net 1.49 .64 1.95 .39 1.63
-------- -------- -------- -------- --------
Total from investment operations 1.45 .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 year $ 6.63 $ 5.36 $ 5.62 $ 4.89 $ 5.13
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 27.73% 11.69% 43.95% 8.11% 43.74%
Return:* ======== ======== ======== ======== ========
Ratios to Average Expenses 1.51% 1.52% 1.56% 1.65% 1.75%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net (.71%) (.72%) (.52%) .06% (.44%)
======== ======== ======== ======== ========
Supplemental Net assets, end of year (in thousands) $ 59,029 $ 43,700 $ 25,718 $ 18,318 $ 21,564
Data: ======== ======== ======== ======== ========
Portfolio turnover 109.88% 91.26% 115.99% 125.94% 133.50%
======== ======== ======== ======== ========
*Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Amount is less than $.01 per share.
See Notes to Financial Statements.
</TABLE>
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Healthcare Fund, Inc. (the "Fund") is registered under
the Investment Company Act of 1940 as a non-diversified, open-end
management investment company. The Fund's financial statements are
prepared in accordance with accounting principles generally accepted
in the United States of America, which may require the use of
management accruals and estimates. The Fund offers four classes of
shares under the Merrill Lynch Select Pricingsm 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 Fund.
(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 Fund'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 Fund may engage in various
portfolio investment strategies to increase or decrease the level of
risk to which the Fund is exposed more quickly and efficiently than
transactions in other types of instruments. 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 Fund may also purchase or sell
financial futures contacts 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 Fund
deposits and maintains as collateral such initial margin as required
by the exchange on which the transaction is effected. Pursuant to
the contract, the Fund 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 Fund as unrealized gains or losses. When the
contract is closed, the Fund 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 Fund 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 Fund,
sold by the Fund but not yet delivered, or committed or anticipated
to be purchased by the Fund.
Merrill Lynch Healthcare Fund, Inc., April 30, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
* Forward foreign exchange contracts--The Fund 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 Fund's records. However, the effect on
operations is recorded from the date the Fund enters into such
contracts.
* Options--The Fund is authorized to write covered put and call
options and purchase put and call options. When the Fund writes an
option, an amount equal to the premium received by the Fund 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 Fund enters into a closing
transaction), the Fund 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 Fund'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
Fund 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 Fund 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
$5,445,839 have been reclassified between undistributed net realized
capital gains and accumulated net investment loss and $122,330 has
been reclassified between paid-in capital in excess of par 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 Fund 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 Fund 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 Fund's portfolio and
provides, or arranges for affiliates to provide, the administrative
services necessary for the operation of the Fund. As compensation
for its services to the Fund, MLAM receives monthly compensation at
the annual rate of 1.0% of the average daily net assets of the Fund.
Pursuant to the Distribution Plans adopted by the Fund in accordance
with Rule 12b-1 under the Investment Company Act of 1940, the Fund
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 Fund. 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, 2000, MLFD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions on sales of the Fund's Class A and Class D Shares as
follows:
MLFD MLPF&S
Class A $ 984 $ 10,053
Class D $7,905 $102,904
For the year ended April 30, 2000, MLPF&S received contingent
deferred sales charges of $436,530 and $23,107 relating to
transactions in Class B and Class C Shares, respectively.
Furthermore, MLPF&S received contingent deferred sales charges of
$134 relating to transactions subject to front-end sales charge
waivers in Class D shares.
In addition, MLPF&S received $328,780 in commissions on the
execution of portfolio security transactions for the Fund for the
year ended April 30, 2000.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund 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, 2000 were $553,860,740 and
$611,032,733, respectively.
Net realized gains (losses) for the year ended April 30, 2000 and
net unrealized gains (losses) as of April 30, 2000 were as follows:
Realized Unrealized
Gains (Losses) Gains (Losses)
Long-term investments $119,287,512 $ 82,864,187
Short-term investments (546) --
Foreign currency transactions (158,836) (24,137)
------------ --------------
Total $119,128,130 $ 82,840,050
============ ==============
As of April 30, 2000, net unrealized appreciation for Federal income
tax purposes aggregated $80,032,068, of which $124,895,600 related
to appreciated securities and $44,863,532 related to depreciated
securities. The aggregate cost of investments at April 30, 2000 for
Federal income tax purposes was $507,976,887.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was ($25,000,986) and $133,798,266 for the years ended
April 30, 2000 and April 30, 1999, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended April 30, 2000 Shares Amount
Shares sold 7,840,765 $ 49,755,147
Shares issued to shareholders in
reinvestment of distributions 872,042 5,014,244
------------ -------------
Total issued 8,712,807 54,769,391
Shares redeemed (8,689,330) (53,055,597)
------------ -------------
Net increase 23,477 $ 1,713,794
============ =============
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 Year Dollar
Ended April 30, 2000 Shares Amount
Shares sold 12,112,815 $ 59,918,845
Shares issued to shareholders in
reinvestment of distributions 1,897,468 8,728,352
------------ -------------
Total issued 14,010,283 68,647,197
Automatic conversion of shares (1,478,012) (7,217,923)
Shares redeemed (19,571,161) (94,061,748)
------------ -------------
Net decrease (7,038,890) $ (32,632,474)
============ =============
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
============ =============
Merrill Lynch Healthcare Fund, Inc., April 30, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
Class C Shares for the Year Dollar
Ended April 30, 2000 Shares Amount
Shares sold 2,719,549 $ 13,605,930
Shares issued to shareholders in
reinvestment of distributions 244,785 1,128,458
------------ -------------
Total issued 2,964,334 14,734,388
Shares redeemed (2,889,968) (13,916,317)
------------ -------------
Net increase 74,366 $ 818,071
============ =============
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 Year Dollar
Ended April 30, 2000 Shares Amount
Shares sold 3,083,096 $ 18,461,597
Automatic conversion of shares 1,242,493 7,217,923
Shares issued to shareholders in
reinvestment of distributions 241,738 1,322,309
------------ -------------
Total issued 4,567,327 27,001,829
Shares redeemed (3,822,901) (21,902,206)
------------ -------------
Net increase 744,426 $ 5,099,623
============ =============
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
============ =============
<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, 2000, 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 Fund'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 auditing standards
generally accepted in the United States of America. 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, 2000 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, 2000, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in accordance
with accounting principles generally accepted in the United States
of America.
Deloitte & Touche LLP
Princeton, New Jersey
June 5, 2000
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
During its taxable year ended April 30, 2000, Merrill Lynch
Healthcare Fund, Inc. paid a long-term capital gains distribution of
$.178559 per share to shareholders of record on July 7, 1999. The
entire distribution is subject to a maximum 20% tax rate.
Please retain this information for your records.
