MERRILL LYNCH
HEALTHCARE
FUND, INC.
FUND LOGO
Semi-Annual Report
October 31, 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 HEALTH CARE FUND, INC.
Officers and
Directors
Terry K. Glenn, President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Charles C. Reilly, Director
Kevin A. Ryan, Director
Roscoe S. Suddarth, 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
Merrill Lynch Healthcare Fund, Inc., October 31, 2000
DEAR SHAREHOLDER
During the six-month period ended October 31, 2000, Merrill Lynch
Healthcare Fund, Inc.'s Class A, Class B, Class C and Class D Shares
had total returns of +23.21%, +22.59%, +22.69% and +23.02%,
respectively. Our performance trailed the +31.09% return of the
Fund's peer group, as measured by the Lipper Health/ Biotechnology
Fund Average. During the same period, the unmanaged Standard &
Poor's 500 Index declined by 1.03%.
Investment Environment
As the six-month period ended October 31, 2000 began, the
biotechnology sector rebounded from a sharp sell-off that occurred
in March and April. Initial public offering activity in the
biotechnology sector also rose as the period progressed. In May
there was widespread investor concern about possible interest rate
increases to restrain a heated economy. As we entered June, signs of
a slowing economy eased interest rate fears but raised concern about
earnings growth sustainability in a less robust economy.
Pharmaceutical stocks, which constitute about two-thirds of the
healthcare sector's market capitalization, typically generate
relatively predictable earnings growth. We estimate an earnings
growth rate in the mid-to-high teens. This industry group, largely
insulated from an economic slowdown, presents an increasingly
favorable comparison to the slowing earnings growth rate outlook of
the broader indexes. However, in September and October as the
election neared, concerns about a Democratic Presidential/
Congressional sweep with subsequent price controls on
pharmaceuticals, coupled with negative rhetoric from the Gore
campaign, pressured share prices of this group. At the same time, a
sharp pullback in technology shares led to an apparent shift of
investment from that sector to biotechnology, a less economically
and politically sensitive area.
The shift to the biotechnology sector, which is disproportionately
represented in the Lipper Health/ Biotechnology Fund category, led
to outperformance by those funds with an especially heavy or
exclusive commitment to the biotechnology sector and penalized funds
with a significant pharmaceutical position. Merrill Lynch Healthcare
Fund, Inc., which has maintained a diversified healthcare portfolio
with pharmaceutical holdings to provide downside support and
biotechnology positions to generate offensive strength, was caught
in the crosscurrents of this market action. The Lipper
Health/Biotechnology Fund category is heavily skewed toward small
cap biotechnology funds. These circumstances accounted for the
Fund's underperformance relative to its peer group, as measured by
Lipper Health/Biotechnology Fund category, during the six-month
period ended October 31, 2000.
Investment Strategy
We continued to maintain a diversified portfolio. At October 31,
2000, no single position exceeded 7% of the portfolio's net assets.
By October 31, 2000, the Fund held 78 positions, with 21
representing small cap issues (under $1 billion), while 34 were
large cap holdings (over $5 billion). In the present environment, we
expect to continue to maintain a substantial position in the
pharmaceuticals group in an effort to provide downside insulation as
well as to look for any robust upside potential from our
biotechnology holdings.
In Conclusion
We thank you for your investment in Merrill Lynch Healthcare Fund,
Inc., and we look forward to serving your investment needs in the
months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Jordan C. Schreiber)
Jordan C. Schreiber
Senior Vice President and
Portfolio Manager
December 5, 2000
<TABLE>
PROXY RESULTS
<CAPTION>
During the six-month period ended October 31, 2000, Merrill Lynch
Healthcare Fund, Inc.'s shareholders voted on the following
proposals. Proposals 1 and 2 were approved at a shareholders'
meeting on July 25, 2000. With respect to Proposals 3 and 4, the
meeting was adjourned until November 8, 2000. The description of
each proposal and number of shares voted are as follows:
Shares Voted
For
<S> <S> <C>
1.To elect the Fund's Board of Directors: Terry K. Glenn 79,699,191
Ronald W. Forbes 79,669,245
Cynthia A. Montgomery 79,637,155
Charles C. Reilly 79,658,711
Kevin A. Ryan 79,613,394
Roscoe S. Suddarth 79,623,692
Richard R. West 79,653,380
Arthur Zeikel 79,631,465
Edward D. Zinbarg 79,601,590
Shares Voted Shares Voted Shares Voted
For Against Abstain
<S> <C> <C> <C>
2. To ratify the selection of Deloitte & Touche LLP as the
Fund's independent auditors for the current fiscal year. 78,239,225 825,385 2,886,606
3. To convert the Fund to "master/feeder" structure. Adjourned Adjourned Adjourned
4. To amend the Fund's investment policy. Adjourned Adjourned Adjourned
</TABLE>
Merrill Lynch Healthcare Fund, Inc., October 31, 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.
Average Annual
Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
One Year Ended 9/30/00 +69.12% +60.24%
Five Years Ended 9/30/00 +27.76 +26.39
Ten Years Ended 9/30/00 +22.03 +21.37
*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**
One Year Ended 9/30/00 +67.48% +63.48%
Five Years Ended 9/30/00 +26.44 +26.44
Ten Years Ended 9/30/00 +20.78 +20.78
*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**
One Year Ended 9/30/00 +67.62% +66.62%
Five Years Ended 9/30/00 +26.44 +26.44
Inception (10/21/94) through 9/30/00 +26.94 +26.94
*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**
One Year Ended 9/30/00 +68.62% +59.77%
Five Years Ended 9/30/00 +27.41 +26.04
Inception (10/21/94) through 9/30/00 +27.46 +26.31
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
<TABLE>
Recent
Performance
Results*
<CAPTION>
Ten Years/
6 Month 12 Month Since Inception
As of October 31, 2000 Total Return Total Return Total Return
<S> <C> <C> <C>
ML Healthcare Fund, Inc.--Class A Shares +23.21% +58.68% +585.77%
ML Healthcare Fund, Inc.--Class B Shares +22.59 +57.49 +518.89
ML Healthcare Fund, Inc.--Class C Shares +22.69 +57.26 +294.81
ML Healthcare Fund, Inc.--Class D Shares +23.02 +58.37 +304.55
*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>
PORTFOLIO INFORMATION
Worldwide
Investments
As of 10/31/00
Percent of
Ten Largest Holdings Net Assets
HCA--The Healthcare
Corporation 5.9%
ALZA Corporation 4.0
AmeriSource Health Corporation
(Class A) 3.8
Stryker Corporation 3.7
WebMD Corporation 3.5
Baxter International Inc. 3.0
QLT Inc. 3.0
Tenet Healthcare Corporation 2.9
Cerner Corporation 2.8
Eli Lilly and Company 2.8
Industries Represented Percent of
In the Fund Net Assets
Pharmaceutical--Prescription 19.3%
Biotechnology 18.9
Healthcare Cost Containment 17.6
Pharmaceutical--Diversified 14.4
Medical Technology 11.1
Medical Specialties 9.1
Healthcare--Information 6.5
Breakdown of Investments Percent of
By Country Net Assets
United States* 80.7%
Canada 5.7
Ireland 2.4
Switzerland 1.9
Israel 1.8
Japan 1.2
Denmark 1.2
United Kingdom 1.1
Germany 0.6
Sweden 0.3
*Excludes short-term securities.
Merrill Lynch Healthcare Fund, Inc., October 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS
<CAPTION>
MIDDLE Shares Percent of
EAST Industries Held Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
Israel Pharmaceutical-- 250,000 Teva Pharmaceutical Industries Ltd. (ADR)* $ 14,781,250 1.8%
Diversified
Total Investments in the Middle East 14,781,250 1.8
North
America
Canada Biotechnology 490,000 ++QLT Inc. 24,346,875 3.0
Pharmaceutical-- 520,000 ++Biovail Corporation 21,872,500 2.7
Prescription
Total Investments in Canada 46,219,375 5.7
United States Biotechnology 350,000 ++Amgen Inc. 20,256,250 2.5
120,000 ++Aphton Corporation 3,555,000 0.4
23,000 ++Aquila Biopharmaceuticals, Inc. 93,438 0.0
150,000 ++Caliper Technologies Corp. 8,446,875 1.1
60,000 ++Cell Genesys, Inc. 1,383,750 0.2
50,000 ++Cubist Pharmaceuticals, Inc. 2,153,125 0.3
10,000 ++Genentech, Inc. 825,000 0.1
202,200 ++Genzyme Corporation 14,343,562 1.8
30,000 ++IDEC Pharmaceuticals Corporation 5,883,750 0.7
80,000 ++ILEX Oncology, Inc. 2,900,000 0.4
33,500 ++Illumina, Inc. 1,088,750 0.1
130,000 ++Immunex Corporation 5,525,000 0.7
740,000 ++Inkine Pharmaceutical Company, Inc. 6,590,625 0.8
100,000 ++Maxim Pharmaceuticals, Inc. 4,443,750 0.5
250,000 ++Millennium Pharmaceuticals, Inc. 18,140,625 2.2
232,500 ++OSI Pharmaceuticals, Inc. 16,623,750 2.1
60,000 PE Corp.--PE Biosystems Group 7,020,000 0.9
200,000 ++Regeneron Pharmaceuticals, Inc. 5,337,500 0.7
20,000 ++Tanox, Inc. 745,000 0.1
5,000 ++Transkaryotic Therapies, Inc. 191,875 0.0
------------ ------
125,547,625 15.6
Healthcare Cost 700,000 ++AmeriSource Health Corporation (Class A) 30,406,250 3.8
Containment 15,000 CIGNA Corporation 1,829,250 0.2
50,000 Cardinal Health, Inc. 4,737,500 0.6
1,352,600 ++Caremark Rx, Inc. 16,907,500 2.1
1,200,000 HCA--The Healthcare Corporation 47,925,000 5.9
200,000 ++HEALTHSOUTH Corporation 2,400,000 0.3
100,000 ++Health Management Associates, Inc. (Class A) 1,981,250 0.3
150,000 ++LifePoint Hospitals, Inc. 5,812,500 0.7
40,000 ++Sunrise Assisted Living, Inc. 930,000 0.1
600,000 ++Tenet Healthcare Corporation 23,587,500 2.9
25,000 ++Triad Hospitals, Inc. 687,500 0.1
47,400 UnitedHealth Group Incorporated 5,184,375 0.6
------------ ------
142,388,625 17.6
Healthcare 362,500 ++Cerner Corporation 22,429,687 2.8
--Information 86,600 ++Health Net Inc. 1,796,950 0.2
2,500,000 ++WebMD Corporation 28,281,250 3.5
------------ ------
52,507,887 6.5
Medical 15,000 Arrow International, Inc. 601,875 0.1
Specialties 300,000 Baxter International Inc. 24,656,250 3.0
600,000 Becton, Dickinson and Company 20,100,000 2.5
100,000 ++Edwards Lifesciences Corporation 1,343,750 0.2
100,000 ++Martek Biosciences Corporation 2,125,000 0.3
580,000 ++Syncor International Corporation (a) 14,572,500 1.8
------------ ------
63,399,375 7.9
Medical 50,000 ++Boston Scientific Corporation 796,875 0.1
Technology 500,000 C.R. Bard, Inc. 20,937,500 2.6
200,000 Datascope Corp. 6,862,500 0.8
90,000 ++Guidant Corporation 4,764,375 0.6
100,000 Johnson & Johnson 9,212,500 1.1
250,000 Medtronic, Inc. 13,578,125 1.7
630,000 Stryker Corporation 29,688,750 3.7
99,900 ++Wilson Greatbatch Technologies, Inc. 2,397,600 0.3
------------ ------
88,238,225 10.9
Pharmaceutical-- 100,000 Allergan Inc. 8,406,250 1.0
Diversified 100,000 Alpharma, Inc. (Class A) 3,881,250 0.5
240,000 American Home Products Corporation 15,240,000 1.9
90,000 ++Barr Laboratories, Inc. 5,681,250 0.7
200,000 Bristol-Myers Squibb Company 12,187,500 1.5
321,650 ++K-V Pharmaceutical Company (Class A) 12,524,246 1.5
40,000 ++Novoste Corporation 1,010,000 0.1
200,000 Pharmacia Corporation 11,000,000 1.4
30,000 Schering-Plough Corporation 1,550,625 0.2
44,500 ++Trimeris, Inc. 3,140,031 0.4
------------ ------
74,621,152 9.2
Pharmaceutical-- 400,000 ++ALZA Corporation 32,375,000 4.0
Prescription 181,100 ++COR Therapeutics, Inc. 10,220,831 1.2
250,000 Eli Lilly and Company 22,343,750 2.8
800,000 ++Emisphere Technologies, Inc. 20,200,000 2.5
80,000 ++Forest Laboratories, Inc. 10,600,000 1.3
150,000 Pfizer Inc. 6,478,125 0.8
45,000 ++Sepracor Inc. 3,065,625 0.4
------------ ------
105,283,331 13.0
Total Investments in the United States 651,986,220 80.7
Total Investments in North America 698,205,595 86.4
</TABLE>
Merrill Lynch Healthcare Fund, Inc., October 31, 2000
<TABLE>
SCHEDULE OF INVESTMENTS (concluded)
PACIFIC Shares Percent of
BASIN/ASIA Industries Held Investments Value Net Assets
<S> <S> <C> <S> <C> <C>
Japan Pharmaceutical-- 96,000 Fujisawa Pharmaceutical Co., Ltd. $ 3,015,661 0.4%
Prescription 200,000 Kyorin Pharmaceutical Co., Ltd. 6,575,694 0.8
Total Investments in the Pacific Basin/Asia 9,591,355 1.2
Western
Europe
Denmark Medical 200,000 William Demant A/S 9,566,000 1.2
Specialties
Total Investments in Denmark 9,566,000 1.2
Germany Pharmaceutical-- 85,300 Schering AG 4,757,358 0.6
Diversified
Total Investments in Germany 4,757,358 0.6
Ireland Pharmaceutical-- 380,000 ++Elan Corporation PLC (ADR)* 19,736,250 2.4
Prescription
Total Investments in Ireland 19,736,250 2.4
Sweden Biotechnology 340,000 ++OXiGENE, Inc. 2,401,250 0.3
Total Investments in Sweden 2,401,250 0.3
Switzerland Pharmaceutical-- 10,000 Novartis AG (Registered Shares) 15,166,009 1.9
Diversified
Total Investments in Switzerland 15,166,009 1.9
United Kingdom Medical 333,000 Smith & Nephew PLC 1,368,445 0.2
Technology 6,700 Smith & Nephew PLC (ADR)* 275,538 0.0
------------ ------
1,643,983 0.2
Pharmaceutical-- 150,000 Galen Holdings PLC 1,927,663 0.3
Diversified 62,500 ++Galen Holdings PLC (ADR)* 3,289,063 0.4
1,500,000 ++SkyePharma PLC 1,807,864 0.2
------------ ------
7,024,590 0.9
Total Investments in the United Kingdom 8,668,573 1.1
Total Investments in Western Europe 60,295,440 7.5
Total Long-Term Investments
(Cost--$579,770,994) 782,873,640 96.9
SHORT-TERM Face
SECURITIES Amount
Commercial $ 20,945,000 General Motors Acceptance Corp., 6.63%
Paper** due 11/01/2000 20,945,000 2.6
US Government 2,500,000 Freddie Mac Participation Certificates,
Agency 6.40% due 11/14/2000 2,494,222 0.3
Obligations**
Total Short-Term Investments
(Cost--$23,439,222) 23,439,222 2.9
Total Investments (Cost--$603,210,216) 806,312,862 99.8
Other Assets Less Liabilities 1,715,790 0.2
------------ ------
Net Assets $808,028,652 100.0%
============ ======
*American Depositary Receipts (ADR).
**Commercial Paper and certain US Government Agency Obligations are
traded on a discount basis; the interest rates shown reflects the
discount rate paid at the time of purchase by the Fund.
++Non-income producing security.
(a)Investment in companies 5% or more of whose outstanding
securities are held by the Fund (such companies are defined as
"Affiliated Companies" in Section 2 (a) (3) of the Investment
Company Act of 1940) are as follows:
Net Share Net Dividend
Industry Affiliate Activity Cost Income
Medical Syncor
Specialties International -- -- ++
Corporation
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Healthcare Fund, Inc., October 31, 2000
<TABLE>
STATEMENT OF ASSETS AND LIABILITIES
<CAPTION>
As of October 31, 2000
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$603,210,216) $806,312,862
Cash 126
Foreign cash 5,539
Receivables:
Securities sold $ 6,584,816
Capital shares sold 3,452,299
Dividends 276,597 10,313,712
------------
Prepaid registration fees and other assets 29,015
------------
Total assets 816,661,254
------------
Liabilities: Payables:
Securities purchased 6,128,079
Capital shares redeemed 1,005,775
Investment adviser 697,515
Distributor 377,271 8,208,640
------------
Accrued expenses and other liabilities 423,962
------------
Total liabilities 8,632,602
------------
Net Assets: Net assets $808,028,652
============
Net Assets Class A Shares of Common Stock, $.10 par value,
Consist of: 100,000,000 shares authorized $ 4,014,803
Class B Shares of Common Stock, $.10 par value,
100,000,000 shares authorized 6,241,152
Class C Shares of Common Stock, $.10 par value,
100,000,000 shares authorized 1,089,411
Class D Shares of Common Stock, $.10 par value,
100,000,000 shares authorized 1,434,895
Paid-in capital in excess of par 577,474,989
Accumulated investment loss--net (4,145,066)
Undistributed realized capital gains on investments
and foreign currency transactions--net 18,831,354
Unrealized appreciation on investments and foreign
currency transactions--net 203,087,114
------------
Net assets $808,028,652
============
Net Asset Class A--Based on net assets of $296,040,783 and
Value: 40,148,027 shares outstanding $ 7.37
============
Class B--Based on net assets of $351,092,841 and
62,411,520 shares outstanding $ 5.63
============
Class C--Based on net assets of $61,284,653 and
10,894,109 shares outstanding $ 5.63
============
Class D--Based on net assets of $99,610,375 and
14,348,947 shares outstanding $ 6.94
============
See Notes to Financial Statements.
</TABLE>
<TABLE>
STATEMENT OF OPERATIONS
<CAPTION>
For the Six Months Ended October 31, 2000
<S> <S> <C> <C>
Investment Interest and discount earned $ 1,201,062
Income: Dividends (net of $17,198 foreign withholding tax) 1,003,933
------------
Total income 2,204,995
------------
Expenses: Investment advisory fees $ 3,633,386
Account maintenance and distribution fees--Class B 1,618,503
Account maintenance and distribution fees--Class C 254,708
Transfer agent fees--Class B 223,385
Transfer agent fees--Class A 160,381
Account maintenance fees--Class D 103,128
Accounting services 72,184
Registration fees 52,975
Transfer agent fees--Class D 48,995
Professional fees 40,687
Transfer agent fees--Class C 37,785
Printing and shareholder reports 36,070
Custodian fees 34,717
Directors' fees and expenses 22,590
Pricing fees 3,173
Other 7,394
------------
Total expenses 6,350,061
------------
Investment loss--net (4,145,066)
------------
Realized & Realized gain from:
Unrealized Gain on Investments--net 21,547,340
Investments & Foreign currency transactions--net 169,461 21,716,801
Foreign Currency ------------
Transactions--Net: Change in unrealized appreciation/depreciation on:
Investments--net 120,238,459
Foreign currency transactions--net 8,605 120,247,064
------------ ------------
Net Increase in Net Assets Resulting from Operations $137,818,799
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Healthcare Fund, Inc., October 31, 2000
<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: 2000 2000
<S> <S> <C> <C>
Operations: Investment loss--net $ (4,145,066) $ (5,568,169)
Realized gain on investments and foreign
currency transactions--net 21,716,801 119,128,130
Change in unrealized appreciation/depreciation on
investments and foreign currency transactions--net 120,247,064 12,838,335
------------ ------------
Net increase in net assets resulting from operations 137,818,799 126,398,296
------------ ------------
Distributions to Realized gain on investments--net:
Shareholders: Class A (38,783,363) (5,572,543)
Class B (57,043,728) (9,877,905)
Class C (8,534,468) (1,273,871)
Class D (11,689,918) (1,478,725)
------------ ------------
Net decrease in net assets resulting from distributions
to shareholders (116,051,477) (18,203,044)
------------ ------------
Capital Share Net increase (decrease) in net assets derived from
Transactions: capital share transactions 195,581,445 (25,000,986)
------------ ------------
Net Assets: Total increase in net assets 217,348,767 83,194,266
Beginning of period 590,679,885 507,485,619
------------ ------------
End of period $808,028,652 $590,679,885
============ ============
See Notes to Financial Statements.
</TABLE>
<TABLE>
FINANCIAL HIGHLIGHTS
<CAPTION>
Class A++
For the Six
The following per share data and ratios have been derived Months Ended
from information provided in the financial statements. October 31, For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 2000 2000 1999 1998 1997
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 6.98 $ 5.62 $ 5.84 $ 5.05 $ 5.27
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.02) (.03) (.03) (.02) .02
Realized and unrealized gain on
investments and foreign currency
transactions--net 1.61 1.57 .67 2.02 .40
-------- -------- -------- -------- --------
Total from investment operations 1.59 1.54 .64 2.00 .42
-------- -------- -------- -------- --------
Less distributions from realized
gain on investments--net (1.20) (.18) (.86) (1.21) (.64)
-------- -------- -------- -------- --------
Net asset value, end of period $ 7.37 $ 6.98 $ 5.62 $ 5.84 $ 5.05
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 23.21%+++ 28.06% 12.01% 44.06% 8.55%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.19%* 1.26% 1.27% 1.32% 1.40%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net (.59%)* (.47%) (.46%) (.28%) .32%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $296,041 $219,499 $176,491 $146,154 $121,529
Data: ======== ======== ======== ======== ========
Portfolio turnover 36.35% 109.88% 91.26% 115.99% 125.94%
======== ======== ======== ======== ========
<CAPTION>
Class B++
For the Six
The following per share data and ratios have been derived Months Ended
from information provided in the financial statements. October 31, For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 2000 2000 1999 1998 1997
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 5.55 $ 4.54 $ 4.91 $ 4.40 $ 4.67
Operating -------- -------- -------- -------- --------
Performance: Investment loss--net (.05) (.07) (.07) (.06) (.03)
Realized and unrealized gain on
investments and foreign currency
transactions--net 1.27 1.26 .55 1.72 .35
-------- -------- -------- -------- --------
Total from investment operations 1.22 1.19 .48 1.66 .32
-------- -------- -------- -------- --------
Less distributions from realized
gain on investments--net (1.14) (.18) (.85) (1.15) (.59)
-------- -------- -------- -------- --------
Net asset value, end of period $ 5.63 $ 5.55 $ 4.54 $ 4.91 $ 4.40
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 22.59%+++ 26.99% 10.79% 42.60% 7.44%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 2.21%* 2.28% 2.29% 2.35% 2.44%
Net Assets: ======== ======== ======== ======== ========
Investment loss--net (1.60%)* (1.49%) (1.49%) (1.31%) (.72%)
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $351,093 $273,530 $256,000 $208,520 $178,025
Data: ======== ======== ======== ======== ========
Portfolio turnover 36.35% 109.88% 91.26% 115.99% 125.94%
======== ======== ======== ======== ========
*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>
<TABLE>
FINANCIAL HIGHLIGHTS (concluded)
<CAPTION>
Class C++
For the Six
The following per share data and ratios have been derived Months Ended
from information provided in the financial statements. October 31, For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 2000 2000 1999 1998 1997
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 5.55 $ 4.55 $ 4.92 $ 4.40 $ 4.68
Operating -------- -------- -------- -------- --------
Performance: Investment loss--net (.05) (.07) (.07) (.06) (.04)
Realized and unrealized gain on
investments and foreign currency
transactions--net 1.28 1.25 .55 1.73 .35
-------- -------- -------- -------- --------
Total from investment operations 1.23 1.18 .48 1.67 .31
-------- -------- -------- -------- --------
Less distributions from realized
gain on investments--net (1.15) (.18) (.85) (1.15) (.59)
-------- -------- -------- -------- --------
Net asset value, end of period $ 5.63 $ 5.55 $ 4.55 $ 4.92 $ 4.40
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 22.69%+++ 26.70% 10.82% 42.66% 7.28%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 2.22%* 2.30% 2.30% 2.36% 2.46%
Net Assets: ======== ======== ======== ======== ========
Investment loss--net (1.62%)* (1.50%) (1.50%) (1.31%) (.76%)
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 61,285 $ 38,622 $ 31,295 $ 19,860 $ 17,762
Data: ======== ======== ======== ======== ========
Portfolio turnover 36.35% 109.88% 91.26% 115.99% 125.94%
======== ======== ======== ======== ========
<CAPTION>
Class D++
For the Six
The following per share data and ratios have been derived Months Ended
from information provided in the financial statements. October 31, For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 2000 2000 1999 1998 1997
<S> <S> <C> <C> <C> <C> <C>
Per Share Net asset value, beginning of period $ 6.63 $ 5.36 $ 5.62 $ 4.89 $ 5.13
Operating -------- -------- -------- -------- --------
Performance: Investment income (loss)--net (.03) (.04) (.04) (.03) --+++++
Realized and unrealized gain on
investments and foreign currency
transactions--net 1.52 1.49 .64 1.95 .39
-------- -------- -------- -------- --------
Total from investment operations 1.49 1.45 .60 1.92 .39
-------- -------- -------- -------- --------
Less distributions from realized
gain on investments--net (1.18) (.18) (.86) (1.19) (.63)
-------- -------- -------- -------- --------
Net asset value, end of period $ 6.94 $ 6.63 $ 5.36 $ 5.62 $ 4.89
======== ======== ======== ======== ========
Total Investment Based on net asset value per share 23.02%+++ 27.73% 11.69% 43.95% 8.11%
Return:** ======== ======== ======== ======== ========
Ratios to Average Expenses 1.44%* 1.51% 1.52% 1.56% 1.65%
Net Assets: ======== ======== ======== ======== ========
Investment income (loss)--net (.84%)* (.71%) (.72%) (.52%) .06%
======== ======== ======== ======== ========
Supplemental Net assets, end of period (in thousands) $ 99,610 $ 59,029 $ 43,700 $ 25,718 $ 18,318
Data: ======== ======== ======== ======== ========
Portfolio turnover 36.35% 109.88% 91.26% 115.99% 125.94%
======== ======== ======== ======== ========
*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>
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 conformity with accounting principles generally accepted
in the United States of America, 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 Fund 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 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 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 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., October 31, 2000
NOTES TO FINANCIAL STATEMENTS (continued)
* 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.
2. Investment Advisory Agreement and Transactions with
Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Investment Managers, L.P. ("MLIM"). The general
partner of MLIM 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 FAM Distributors,
Inc. ("FAMD" or the "Distributor"), which is a wholly-owned
subsidiary of Merrill Lynch Group, Inc.
MLIM 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, MLIM 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 six months ended October 31, 2000, FAMD 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:
FAMD MLPF&S
Class A $ 793 $ 8,341
Class D $8,882 $133,955
For the six months ended October 31, 2000, MLPF&S received
contingent deferred sales charges of $140,817 and $4,595 relating to
transactions in Class B and Class C Shares, respectively.
In addition, MLPF&S received $58,712 in commissions on the execution
of portfolio security transactions for the Fund for the six months
ended October 31, 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 MLIM.
Certain officers and/or directors of the Fund are officers and/or
directors of MLIM, PSI, FDS, FAMD, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the six months ended October 31, 2000 were $331,390,528 and
$248,246,972, respectively.
Net realized gains for the six months ended October 31, 2000 and net
unrealized gains (losses) as of October 31, 2000 were as follows:
Realized Unrealized
Gains Gains (Losses)
Long-term investments $ 21,547,334 $ 203,102,646
Short-term investments 6 --
Foreign currency transactions 169,461 (15,532)
------------ -------------
Total $ 21,716,801 $ 203,087,114
============ =============
As of October 31, 2000, net unrealized appreciation for Federal
income tax purposes aggregated $203,102,646, of which $247,955,181
related to appreciated securities and $44,852,535 related to
depreciated securities. The aggregate cost of investments at October
31, 2000 for Federal income tax purposes was $603,210,216.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $195,581,445 and $(25,000,986) for the six months
ended October 31, 2000 and the year ended April 30, 2000,
respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Six Months Dollar
Ended October 31, 2000 Shares Amount
Shares sold 7,025,952 $ 51,551,252
Shares issued to shareholders in
reinvestment of distributions 4,916,954 35,254,558
------------ -------------
Total issued 11,942,906 86,805,810
Shares redeemed (3,222,259) (23,483,612)
------------ -------------
Net increase 8,720,647 $ 63,322,198
============ =============
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 B Shares for the Six Months Dollar
Ended October 31, 2000 Shares Amount
Shares sold 12,753,379 $ 72,190,494
Shares issued to shareholders in
reinvestment of distributions 8,899,214 48,856,684
------------ -------------
Total issued 21,652,593 121,047,178
Automatic conversion of shares (2,802,151) (15,647,878)
Shares redeemed (5,753,918) (32,338,760)
------------ -------------
Net increase 13,096,524 $ 73,060,540
============ =============
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)
============ =============
Merrill Lynch Healthcare Fund, Inc., October 31, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
Class C Shares for the Six Months Dollar
Ended October 31, 2000 Shares Amount
Shares sold 3,313,344 $ 18,639,699
Shares issued to shareholders in
reinvestment of distributions 1,352,891 7,427,372
------------ -------------
Total issued 4,666,235 26,067,071
Shares redeemed (729,104) (4,102,246)
------------ -------------
Net increase 3,937,131 $ 21,964,825
============ =============
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 D Shares for the Six Months Dollar
Ended October 31, 2000 Shares Amount
Shares sold 3,081,375 $ 21,245,380
Automatic conversion of shares 2,295,915 15,647,878
Shares issued to shareholders in
reinvestment of distributions 1,550,961 10,484,495
------------ -------------
Total issued 6,928,251 47,377,753
Shares redeemed (1,481,821) (10,143,871)
------------ -------------
Net increase 5,446,430 $ 37,233,882
============ =============
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
============ =============
5. Short-Term Borrowings:
On December 3, 1999, the Fund, along with certain other funds
managed by MLIM and its affiliates, entered into a $1,000,000,000
credit agreement with Bank of America, N.A. and certain other
lenders. The Fund may borrow under the credit agreement to fund
shareholder redemptions and for other lawful purposes other than for
leverage. The Fund may borrow up to the maximum amount allowable
under the Fund's current prospectus and statement of additional
information, subject to various other legal, regulatory or
contractual limits. The Fund pays a commitment fee of .09% per annum
based on the Fund's pro rata share of the unused portion of the
facility. Amounts borrowed under the facility bear interest at a
rate equal to, at each fund's election, the Federal Funds rate plus
.50% or a base rate as determined by Bank of America, N.A. The Fund
did not borrow under the facility during the six months ended
October 31, 2000.
6. Commitments:
At October 31, 2000, the Fund had entered into foreign exchange
contracts under which it had agreed to sell foreign currency with an
approximate value of $822,000.
