UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT
COMPANIES
Investment Company Act file number 811-3595
Name of Fund: Merrill Lynch Healthcare Fund, Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Terry K. Glenn, President,
Merrill Lynch Healthcare Fund, Inc., 800 Scudders Mill Road,
Plainsboro, NJ, 08536. Mailing address: P.O. Box 9011, Princeton,
NJ, 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 04/30/03
Date of reporting period: 05/01/02 - 04/30/03
Item 1 - Attach shareholder report
(BULL LOGO)
Merrill Lynch Investment Managers
Annual Report
April 30, 2003
Merrill Lynch
Healthcare
Fund, Inc.
www.mlim.ml.com
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.
Portfolio
Information
As of 4/30/03
(unaudited)
Percent of
Ten Largest Equity Holdings Net Assets
WebMD Corporation 6.1%
Amgen Inc. 5.8
Abbott Laboratories 4.5
Pfizer Inc. 4.4
Neurocrine Biosciences, Inc. 3.5
Wyeth 3.4
Diagnostic Products Corporation 3.1
Medtronic, Inc. 3.0
Zimmer Holdings, Inc. 3.0
Teva Pharmaceutical Industries
Ltd. (ADR) 3.0
Percent of
Five Largest Industries* Net Assets
Biotechnology Products 21.0%
Medical Devices 18.3
Pharmaceutical--Prescription 11.1
Pharmaceutical--Generic 8.8
Healthcare Information &
Technology 7.3
*For Fund compliance purposes, "Industry" means any one or more of
the industry sub-classifications used by one or more widely
recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for
purposes of this report, which may combine such industry sub-
classifications for reporting ease. These industry classifications
are unaudited.
Percent of
Geographic Allocation Net Assets
United States 81.0%
Israel 4.8
Canada 2.9
United Kingdom 1.0
Japan 0.6
India 0.6
Merrill Lynch Healthcare Fund, Inc., April 30, 2003
DEAR SHAREHOLDER
Effective April 14, 2003, the share class names for the Merrill
Lynch family of mutual funds were changed to be consistent with the
standard share classes of most other mutual fund families. As of
that date, all Class A Shares were redesignated Class I Shares. At
the same time, Class D Shares were redesignated Class A Shares.
There were no changes to the Class B or Class C share class labels.
Trading symbols have not been changed nor have current eligibility
rules or pricing structures. This redesignation of share classes
does not impact your investment in any way.
Investment Environment
As fiscal year 2003 closed on April 30, 2003, the stock market was
in an ebullient state. The war with Iraq had successfully concluded.
The Bush Administration was shifting its attention to legislation,
including a tax cut, intended to stimulate the slowed economy. With
a presidential election looming in 18 months, further actions were
likely, if needed, to insure a resurgent economy.
After a 12-month period in which the health care sector suffered
a decline and underperformed the unmanaged Standard & Poor's (S&P)
500 Index, the outlook over the next year, while favorable in an
absolute sense, suggested continued relative underperformance.
Health care companies are generally little affected by economic
developments and therefore, do not become direct beneficiaries of
any recovery. Moreover, the problems that confronted the health
care sector last year are most likely to continue. These issues
include the low research and development productivity in the
worldwide pharmaceutical industry that has led to a paucity of new
drugs; intense generic pressure against patent-expired drugs; and
underperformance in the hospital management group because of
Medicare and Medicaid reimbursement issues. On the other hand, in
the past six months, biotechnology stocks strongly rallied after a
desultory fiscal year start. A new, activist Food and Drug
Administration Commissioner, committed to streamlining the drug
approval process, offers hope that a large number of biotechnology-
derived products will soon reach the approval stage. We continue to
view the prospects of the biotechnology sub-sector as excellent.
Fiscal Year in Review
For the 12-month period ended April 30, 2003, Merrill Lynch
Healthcare Fund, Inc.'s Class A, Class B, Class C, and Class I
Shares had total returns of -16.37%, -16.90%, -17.11% and -16.07,
respectively. The Fund underperformed its peer group, the Lipper
Health/Biotechnology Fund average, which had a -12.34% return. For
the same 12-month period, the Fund's unmanaged benchmark, the S&P
500 Index, provided a return of -13.31%. (Fund results shown 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.)
As the success and quick conclusion to the Iraq war became evident,
the broad market, as reflected in the S&P 500 Index, rallied.
Investors focused on the likely shift of interest to stimulation of
economic activity. Investors' interest in health care was largely
as a source of funds; hence the underperformance for the sector.
During the past 12 months, the Fund continued to underweight
pharmaceutical holdings. While generic drug companies were added,
there was an overall cutback of large pharmaceutical positions. We
also made a sharp reduction of hospital management group holdings.
At the same time, commitments in medical device companies were
increased, especially those involved in cardiology and orthopedics.
We also increased our biotechnology holdings, where we favor
companies with late stage therapeutic compounds for treatment of
life-threatening illness.
Looking forward, we are especially optimistic about the prospects
for biotechnology. Our augmented investment position in this sub-
sector underscores the more aggressive investment position of the
Fund as we enter a new fiscal year.
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
Vice President and
Portfolio Manager
May 30, 2003
Merrill Lynch Healthcare Fund, Inc., April 30, 2003
PERFORMANCE DATA
About Fund Performance
Effective April 14, 2003, Class A Shares were redesignated Class I
Shares and Class D Shares were redesignated Class A Shares.
Investors are able to purchase shares of the Fund through multiple
pricing alternatives:
* Class A Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
* Effective June 1, 2001, Class B Shares are subject to a maximum
contingent deferred sales charge of 4% declining to 0% after six
years. All Class B Shares purchased prior to June 1, 2001 will
maintain the four-year schedule. 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 A Shares
after approximately eight 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 I Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no ongoing distribution or account
maintenance fees. Class I Shares are available only to eligible
investors.
* Class R Shares do not incur a maximum sales charge (front-end
load) or deferred sales charge. These shares are subject to a
distribution fee of 0.25% and an account maintenance fee of 0.25%.
Class R Shares are available only to certain retirement plans.
None of the past results shown should be considered a representation
of future performance. Performance results do not reflect the
deduction of taxes that a shareholder would pay on fund
distributions or the redemption of fund shares. Figures shown in
each of the following 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 illustrating the growth of a $10,000 investment in
ML Healthcare Fund, Inc++ Class A and Class C Shares* compared to a
similar investment in S&P 500 Index++++. Values illustrated are as
follow:
ML Healthcare Fund, Inc++
Class A Shares*
Date Value
10/21/1994** $ 9,475.00
April 1995 $ 9,764.00
April 1996 $14,034.00
April 1997 $15,173.00
April 1998 $21,841.00
April 1999 $24,393.00
April 2000 $31,158.00
April 2001 $35,585.00
April 2002 $36,573.00
April 2003 $30,585.00
ML Healthcare Fund, Inc++
Class C Shares*
Date Value
10/21/1994** $10,000.00
April 1995 $10,489.00
April 1996 $14,975.00
April 1997 $16,065.00
April 1998 $22,918.00
April 1999 $25,398.00
April 2000 $32,180.00
April 2001 $36,485.00
April 2002 $37,158.00
April 2003 $30,801.00
S&P 500 Index++++
Date Value
April 1994 $10,000.00
April 1995 $11,231.00
April 1996 $14,624.00
April 1997 $18,299.00
April 1998 $25,814.00
April 1999 $31,447.00
April 2000 $34,632.00
April 2001 $30,140.00
April 2002 $26,334.00
April 2003 $22,830.00
A line graph illustrating the growth of a $10,000 investment in
ML Healthcare Fund, Inc++ Class B and Class I Shares* compared to a
similar investment in S&P 500 Index++++. Values illustrated are as
follow:
ML Healthcare Fund, Inc++
Class B Shares*
Date Value
April 1993 $10,000.00
April 1994 $10,725.00
April 1995 $11,292.00
April 1996 $16,086.00
April 1997 $17,283.00
April 1998 $24,647.00
April 1999 $27,306.00
April 2000 $34,676.00
April 2001 $39,282.00
April 2002 $40,008.00
April 2003 $33,245.00
ML Healthcare Fund, Inc++
Class I Shares*
Date Value
April 1993 $ 9,475.00
April 1994 $10,251.00
April 1995 $10,914.00
April 1996 $15,718.00
April 1997 $17,061.00
April 1998 $24,579.00
April 1999 $27,530.00
April 2000 $35,254.00
April 2001 $40,392.00
April 2002 $41,566.00
April 2003 $34,888.00
S&P 500 Index++++
Date Value
April 1993 $10,000.00
April 1994 $10,532.00
April 1995 $12,371.00
April 1996 $16,109.00
April 1997 $20,158.00
April 1998 $28,436.00
April 1999 $34,642.00
April 2000 $38,150.00
April 2001 $33,201.00
April 2002 $29,009.00
April 2003 $25,149.00
*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 health care.
++++This unmanaged broad-based Index is comprised of common stocks.
Past performance is not indicative of future results.
Average Annual
Total Return
% Return Without % Return With
Class A Shares* Sales Charge Sales Charge**
One Year Ended 4/30/03 -16.37% -20.76%
Five Years Ended 4/30/03 + 6.97 + 5.82
Inception (10/21/94) through 4/30/03 +14.74 +14.02
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Class B Shares* Without CDSC With CDSC**
One Year Ended 4/30/03 -16.90% -20.23%
Five Years Ended 4/30/03 + 6.17 + 5.90
Ten Years Ended 4/30/03 +12.76 +12.76
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after six years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Class C Shares* Without CDSC With CDSC**
One Year Ended 4/30/03 -17.11% -17.94%
Five Years Ended 4/30/03 + 6.09 + 6.09
Inception (10/21/94) through 4/30/03 +14.11 +14.11
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after one year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Class I Shares* Sales Charge Sales Charge**
One Year Ended 4/30/03 -16.07% -20.47%
Five Years Ended 4/30/03 + 7.26 + 6.11
Ten Years Ended 4/30/03 +13.92 +13.31
*Maximum sales charge is 5.25%. (Prior to October 21, 1994, Class I
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.
Aggregate
Total Return
% Return Without
Sales Charge
Class R Shares
Inception (1/03/03)
through 4/30/03 +1.24%
Merrill Lynch Healthcare Fund, Inc., April 30, 2003
PERFORMANCE DATA (concluded)
Recent
Performance
Results
Ten Years/
6-Month 12-Month Since Inception
As of April 30, 2003 Total Return Total Return Total Return
ML Healthcare Fund, Inc.--Class A Shares* +1.17% -16.37% +222.80%
ML Healthcare Fund, Inc.--Class B Shares* +0.74 -16.90 +232.45
ML Healthcare Fund, Inc.--Class C Shares* +0.74 -17.11 +208.01
ML Healthcare Fund, Inc.--Class I Shares* +1.27 -16.07 +268.21
ML Healthcare Fund, Inc.--Class R Shares* -- -- + 1.24
Standard & Poor's 500 Index** +4.48 -13.31 +151.49/+128.30/+1.50
*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 for ten years for Class
B & Class I Shares, from 10/21/94 for Class A & Class C Shares and
from 1/03/03 for Class R Shares.
**This unmanaged broad-based Index is comprised of Common Stocks.
Ten-year/since inception total returns are for ten years, from
10/21/94 and from 1/03/03, respectively.
SCHEDULE OF INVESTMENTS
MIDDLE Shares Percent of
EAST Industry++++ Held Common Stocks Value Net Assets
Israel Pharmaceutical--Generic 254,200 ++Taro Pharmaceutical Industries, Ltd. $ 11,632,192 1.8%
400,000 Teva Pharmaceutical Industries, Ltd. (ADR)* 18,680,000 3.0
Total Common Stocks in the Middle East 30,312,192 4.8
NORTH
AMERICA
Canada Pharmaceutical--Generic 500,000 ++Biovail Corporation 18,075,000 2.9
Total Common Stocks in Canada 18,075,000 2.9
United States Biotechnology 1,460,000 ++Emisphere Technologies, Inc. (a) 4,423,800 0.7
Discovery Tools & 780,000 ++Lexicon Genetics Incorporated 3,900,000 0.6
Platform Technologies 350,000 ++Medarex, Inc. 1,459,500 0.3
------------- ------
9,783,300 1.6
Biotechnology Products 600,000 ++Amgen Inc. 36,786,000 5.8
1,007,500 ++AtheroGenics, Inc. 9,168,250 1.4
420,000 ++BioMarin Pharmaceutical Inc. 4,611,600 0.7
200,000 ++CV Therapeutics, Inc. 3,996,000 0.6
300,000 ++Celgene Corporation 7,983,000 1.3
50,000 ++Cell Genesys, Inc. 446,000 0.1
250,000 ++Cubist Pharmaceuticals, Inc. 2,307,500 0.4
40,000 ++Genentech, Inc. 1,519,600 0.2
400,000 ++Genzyme Corporation 16,112,000 2.5
200,000 ++Gilead Sciences, Inc. 9,228,000 1.5
100,000 ++MedImmune, Inc. 3,527,000 0.6
600,000 ++Millennium Pharmaceuticals, Inc. 6,600,000 1.0
489,400 ++Neurocrine Biosciences, Inc. 22,145,350 3.5
380,595 ++Repligen Corporation 2,378,719 0.4
141,600 ++Trimeris, Inc. 6,285,624 1.0
------------- ------
133,094,643 21.0
Health Care Distributors 300,000 AmerisourceBergen Corporation 17,355,000 2.7
Health Care Facilities 200,000 HCA Inc. 6,420,000 1.0
500,000 ++Manor Care, Inc. 9,725,000 1.5
200,000 ++Triad Hospitals, Inc. 4,402,000 0.7
------------- ------
20,547,000 3.2
Health Care 400,000 ++Cerner Corporation 7,992,000 1.2
Information & 4,000,000 ++WebMD Corporation 38,560,000 6.1
Technology ------------- ------
46,552,000 7.3
Managed Health Care 50,000 Aetna Inc. (New Shares) 2,490,000 0.4
100,000 ++Anthem, Inc. 6,864,000 1.1
200,000 ++Mid Atlantic Medical Services, Inc. 8,710,000 1.4
200,000 UnitedHealth Group Incorporated 18,426,000 2.9
100,000 ++WellPoint Health Networks, Inc. 7,594,000 1.2
------------- ------
44,084,000 7.0
Medical Devices 100,000 Biomet, Inc. 3,046,000 0.5
400,000 ++Boston Scientific Corporation 17,220,000 2.7
500,000 Diagnostic Products Corporation 19,750,000 3.1
400,000 Medtronic, Inc. 19,096,000 3.0
300,000 ++St. Jude Medical, Inc. 15,738,000 2.5
89,400 Stryker Corporation 5,990,694 0.9
840,000 ++Thoratec Laboratories Corporation 11,550,000 1.8
400,000 ++Zimmer Holdings, Inc. 18,760,000 3.0
------------- ------
111,150,694 17.5
Merrill Lynch Healthcare Fund, Inc., April 30, 2003
SCHEDULE OF INVESTMENTS (concluded)
NORTH AMERICA Shares Percent of
(concluded) Industry++++ Held Common Stocks Value Net Assets
United States Medical Technology 103,200 ++CTI Molecular Imaging, Inc. $ 1,894,752 0.3%
(concluded)
Pharmaceutical-- 700,000 Abbott Laboratories 28,441,000 4.5
Diversified 40,000 Johnson & Johnson 2,254,400 0.3
------------- ------
30,695,400 4.8
Pharmaceutical--Generic 150,000 ++K-V Pharmaceutical Company (Class A) 3,373,500 0.5
Pharmaceutical-- 542,100 ++The Medicines Company 11,140,155 1.8
Prescription 100,000 ++Medicis Pharmaceutical (Class A) 5,764,000 0.9
900,000 Pfizer, Inc. 27,675,000 4.4
500,000 Wyeth 21,765,000 3.4
------------- ------
66,344,155 10.5
Pharmaceutical-- 100,000 Allergan, Inc. 7,025,000 1.1
Specialty 160,000 ++Forest Laboratories, Inc. 8,275,200 1.3
------------- ------
15,300,200 2.4
Pharmacy Benefit 700,000 ++Caremark Rx, Inc. 13,937,000 2.2
Managers
Total Common Stocks in the United States 514,111,644 81.0
Total Common Stocks in North America 532,186,644 83.9
PACIFIC BASIN/
ASIA
Japan Pharmaceutical-- 232,000 Fujisawa Pharmaceutical Co., Ltd. 3,929,566 0.6
Prescription
Total Common Stocks in Japan 3,929,566 0.6
India Pharmaceutical--Generic 250,000 ++Ranbaxy Laboratories (Sponsored GDR)** 3,875,000 0.6
Total Common Stocks in India 3,875,000 0.6
Total Common Stocks in the Pacific Basin/Asia 7,804,566 1.2
WESTERN
EUROPE
United Medical Devices 800,000 Smith & Nephew PLC 5,334,961 0.8
Kingdom
Pharmaceutical-- 1,500,000 ++SkyePharma PLC 1,186,701 0.2
Specialty
Total Common Stocks in Western Europe 6,521,662 1.0
Total Common Stocks (Cost--$526,227,813) 576,825,064 90.9
SHORT-TERM
SECURITIES Short-Term Securities
70,024,119 Merrill Lynch Premier Institutional Fund (b)(c) 70,024,119 11.0
Beneficial
Interest
$ 58,285,481 Merrill Lynch Liquidity Series, LLC Cash Sweep
Series I (b) 58,285,481 9.2
105,036,181 Merrill Lynch Liquidity Series, LLC Money Market
Series (b)(c) 105,036,181 16.5
------------- ------
163,321,662 25.7
Total Short-Term Securities
(Cost--$233,345,781) 233,345,781 36.7
Total Investments (Cost--$759,573,594) 810,170,845 127.6
Liabilities in Excess of Other Assets (175,429,564) (27.6)
------------- ------
Net Assets $ 634,741,281 100.0%
============= ======
*American Depositary Receipts (ADR).
**Global Depositary Receipts (GDR).
++Non-income producing security.
++++For Fund compliance purposes, "Industry" means any one or more
of the industry sub-classifications used by one or more widely
recognized market indexes or ratings group indexes, and/or as
defined by Fund management. This definition may not apply for
purposes of this report, which may combine such industry sub-
classifications for reporting ease. These industry classifications
are unaudited.
(a)Investment in companies 5% or more of whose outstanding
securities are held by the Trust (such companies are defined as
"Affiliated Companies" in Section 2(a)(3) of the Investment Company
Act of 1940) are as follows:
Net Share Purchase Sales Realized Dividend
Affiliate Activity Cost Cost Loss Income
Emisphere 460,000 $(4,159,170) $6,044,648 $(5,536,904) ++
Technologies,
Inc.
++Non-income producing security.
(b)Investments in companies considered to be an affiliate of the
Fund (such companies are defined as "Affiliated Companies" in
Section 2 (a)(3) of the Investment Company Act of 1940) are as
follows:
Dividend/
Net Interest
Affiliate Activity Income
Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I $ 58,285,481 $222,396
Merrill Lynch Liquidity Series,
LLC Money Market Series $105,036,181 75,642
Merrill Lynch Premier Institutional
Fund 70,024,119 103,444
Merrill Lynch Institutional Fund -- 8,417
(c)Security was purchased with the cash proceeds from securities
loans.
See Notes to Financial Statements.
Merrill Lynch Healthcare Fund, Inc., April 30, 2003
STATEMENT OF ASSETS AND LIABILITIES
As of April 30, 2003
Assets: Investments, at value (including securities loaned of $170,486,112)
(identified cost--$759,573,594) $ 810,170,845
Receivables:
Securities sold $ 4,649,714
Capital shares sold 824,125
Dividends 234,442
Interest 49,305
Securities lending--net 3,740 5,761,326
--------------
Prepaid registration fees 34,549
--------------
Total assets 815,966,720
--------------
Liabilities: Collateral on securities loaned, at value 175,060,300
Payables:
Securities purchased 3,563,035
Capital shares redeemed 1,468,918
Investment adviser 562,164
Other affiliates 261,411
Distributor 242,750 6,098,278
--------------
Accrued expenses and other liabilities 66,861
--------------
Total liabilities 181,225,439
--------------
Net Assets: Net assets $ 634,741,281
==============
Net Assets Class A Shares of Common Stock, $.10 par value, 100,000,000
Consist of: shares authorized $ 2,292,182
Class B Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 4,772,662
Class C Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 1,879,901
Class I Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 4,371,313
Class R Shares of Common Stock, $.10 par value, 100,000,000
shares authorized 2
Paid-in capital in excess of par 617,271,558
Undistributed investment income--net $ 8,555
Accumulated realized capital losses on investments and foreign
currency transactions--net (46,453,866)
Unrealized appreciation on investments and foreign currency
transactions--net 50,598,974
--------------
Total accumulated earnings--net 4,153,663
--------------
Net assets $ 634,741,281
==============
Net Asset Class A--Based on net assets of $119,374,670 and 22,921,816
Value: shares outstanding $ 5.21
==============
Class B--Based on net assets of $194,543,346 and 47,726,621
shares outstanding $ 4.08
==============
Class C--Based on net assets of $76,605,911 and 18,799,011
shares outstanding $ 4.07
==============
Class I--Based on net assets of $244,217,253 and 43,713,128
shares outstanding $ 5.59
==============
Class R--Based on net assets of $101.31 and 24.752 shares outstanding $ 4.09
==============
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
For the Year Ended April 30, 2003
Investment Dividends (net of $48,762 foreign withholding tax) $ 2,820,430
Income: Interest 619,726
Securities lending--net 187,503
--------------
Total income 3,627,659
--------------
Expenses: Investment advisory fees $ 6,826,433
Account maintenance and distribution fees--Class B 2,256,392
Account maintenance and distribution fees--Class C 805,026
Transfer agent fees--Class B 580,124
Transfer agent fees--Class I 572,936
Account maintenance fees--Class A 306,868
Transfer agent fees--Class A 277,313
Accounting services 241,770
Transfer agent fees--Class C 219,575
Professional fees 120,802
Registration fees 84,250
Printing and shareholder reports 65,518
Custodian fees 63,746
Directors' fees and expenses 51,454
Pricing fees 10,462
Other 54,593
--------------
Total expenses 12,537,262
--------------
Investment loss--net (8,909,603)
--------------
Realized & Realized loss on:
Unrealized Investments--net (30,305,228)
Gain (Loss) Foreign currency transactions--net (99,740) (30,404,968)
On Investments & --------------
Foreign Currency Change in unrealized appreciation on:
Transactions--Net: Investments--net (107,307,242)
Foreign currency transactions--net 4,972 (107,302,270)
-------------- --------------
Total realized and unrealized loss on investments and foreign
currency transactions--net (137,707,238)
--------------
Net Decrease in Net Assets Resulting from Operations $(146,616,841)
==============
See Notes to Financial Statements.
Merrill Lynch Healthcare Fund, Inc., April 30, 2003
STATEMENTS OF CHANGES IN NET ASSETS
For the Year Ended April 30,
Increase (Decrease) in Net Assets: 2003 2002
Operations: Investment loss--net $ (8,909,603) $ (12,316,875)
Realized loss on investments and foreign currency transactions--net (30,404,968) (1,488,251)
Change in unrealized appreciation on investments and foreign
currency transactions--net (107,302,270) 33,193,706
-------------- --------------
Net increase (decrease) in net assets resulting from operations (146,616,841) 19,388,580
-------------- --------------
Distributions to Realized gain on investments--net:
Shareholders: Class A -- (4,492,685)
Class B -- (14,949,634)
Class C -- (3,438,059)
Class I -- (10,090,226)
-------------- --------------
Net decrease in net assets resulting from distributions to
shareholders -- (32,970,604)
-------------- --------------
Capital Share Net increase (decrease) in net assets derived from capital share
Transactions: transactions (86,554,209) 88,049,914
-------------- --------------
Net Assets: Total increase (decrease) in net assets (233,171,050) 74,467,890
Beginning of year 867,912,331 793,444,441
-------------- --------------
End of year* $ 634,741,281 $ 867,912,331
============== ==============
*Undistributed (accumulated) investment income (loss)--net $ 8,555 $ (14,379)
============== ==============
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
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: 2003 2002 2001 2000 1999
Per Share Net asset value, beginning of year $ 6.23 $ 6.29 $ 6.63 $ 5.36 $ 5.62
Operating --------- --------- --------- --------- ---------
Performance: Investment loss--net++ (.05) (.07) (.05) (.04) (.04)
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net (.97) .24 1.05 1.49 .64
--------- --------- --------- --------- ---------
Total from investment operations (1.02) .17 1.00 1.45 .60
--------- --------- --------- --------- ---------
Less distributions from realized gain
on investments--net -- (.23) (1.34) (.18) (.86)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 5.21 $ 6.23 $ 6.29 $ 6.63 $ 5.36
========= ========= ========= ========= =========
Total Investment Based on net asset value per share (16.37%) 2.78% 14.21% 27.73% 11.69%
Return:* ========= ========= ========= ========= =========
Ratios to Expenses 1.58% 1.52% 1.50% 1.51% 1.52%
Average ========= ========= ========= ========= =========
Net Assets: Investment loss--net (1.04%) (1.20%) (.80%) (.71%) (.72%)
========= ========= ========= ========= =========
Supplemental Net assets, end of year (in thousands) $ 119,375 $ 146,714 $ 107,642 $ 59,029 $ 43,700
Data: ========= ========= ========= ========= =========
Portfolio turnover 128.24% 81.36% 65.42% 109.88% 91.26%
========= ========= ========= ========= =========
*Total investment returns exclude the effects of sales charges.
**Effective April 14, 2003, Class D Shares were redesignated Class A
Shares.
++Based on average shares outstanding.
See Notes to Financial Statements.
Merrill Lynch Healthcare Fund, Inc., April 30, 2003
FINANCIAL HIGHLIGHTS (continued)
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: 2003 2002 2001 2000 1999
Per Share Net asset value, beginning of year $ 4.91 $ 5.05 $ 5.55 $ 4.54 $ 4.91
Operating --------- --------- --------- --------- ---------
Performance: Investment loss--net++ (.08) (.10) (.09) (.07) (.07)
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net (.75) .19 .89 1.26 .55
--------- --------- --------- --------- ---------
Total from investment operations (.83) .09 .80 1.19 .48
--------- --------- --------- --------- ---------
Less distributions from realized
gain on investments--net -- (.23) (1.30) (.18) (.85)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 4.08 $ 4.91 $ 5.05 $ 5.55 $ 4.54
========= ========= ========= ========= =========
Total Investment Based on net asset value per share (16.90%) 1.85% 13.28% 26.99% 10.79%
Return:* ========= ========= ========= ========= =========
Ratios to Expenses 2.36% 2.29% 2.26% 2.28% 2.29%
Average ========= ========= ========= ========= =========
Net Assets: Investment loss--net (1.83%) (1.97%) (1.57%) (1.49%) (1.49%)
========= ========= ========= ========= =========
Supplemental Net assets, end of year (in thousands) $ 194,543 $ 310,916 $ 331,683 $ 273,530 $ 256,000
Data: ========= ========= ========= ========= =========
Portfolio turnover 128.24% 81.36% 65.42% 109.88% 91.26%
========= ========= ========= ========= =========
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: 2003 2002 2001 2000 1999
Per Share Net asset value, beginning of year $ 4.91 $ 5.05 $ 5.55 $ 4.55 $ 4.92
Operating --------- --------- --------- --------- ---------
Performance: Investment loss--net++ (.08) (.10) (.09) (.07) (.07)
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net (.76) .19 .90 1.25 .55
--------- --------- --------- --------- ---------
Total from investment operations (.84) .09 .81 1.18 .48
--------- --------- --------- --------- ---------
Less distributions from realized gain
on investments--net -- (.23) (1.31) (.18) (.85)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 4.07 $ 4.91 $ 5.05 $ 5.55 $ 4.55
========= ========= ========= ========= =========
Total Investment Based on net asset value per share (17.11%) 1.85% 13.38% 26.70% 10.82%
Return:* ========= ========= ========= ========= =========
Ratios to Expenses 2.37% 2.30% 2.28% 2.30% 2.30%
Average ========= ========= ========= ========= =========
Net Assets: Investment loss--net (1.84%) (1.99%) (1.58%) (1.50%) (1.50%)
========= ========= ========= ========= =========
Supplemental Net assets, end of year (in thousands) $ 76,606 $ 98,994 $ 66,028 $ 38,622 $ 31,295
Data: ========= ========= ========= ========= =========
Portfolio turnover 128.24% 81.36% 65.42% 109.88% 91.26%
========= ========= ========= ========= =========
Class I**
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: 2003 2002 2001 2000 1999
Per Share Net asset value, beginning of year $ 6.66 $ 6.70 $ 6.98 $ 5.62 $ 5.84
Operating --------- --------- --------- --------- ---------
Performance: Investment loss--net++ (.04) (.06) (.04) (.03) (.03)
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net (1.03) .25 1.12 1.57 .67
--------- --------- --------- --------- ---------
Total from investment operations (1.07) .19 1.08 1.54 .64
--------- --------- --------- --------- ---------
Less distributions from realized gain
on investments--net -- (.23) (1.36) (.18) (.86)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 5.59 $ 6.66 $ 6.70 $ 6.98 $ 5.62
========= ========= ========= ========= =========
Total Investment Based on net asset value per share (16.07%) 2.91% 14.57% 28.06% 12.01%
Return:* ========= ========= ========= ========= =========
Ratios to Expenses 1.33% 1.27% 1.24% 1.26% 1.27%
Average ========= ========= ========= ========= =========
Net Assets: Investment loss--net (.79%) (.95%) (.55%) (.47%) (.46%)
========= ========= ========= ========= =========
Supplemental Net assets, end of year (in thousands) $ 244,217 $ 311,288 $ 288,091 $ 219,499 $ 176,491
Data: ========= ========= ========= ========= =========
Portfolio turnover 128.24% 81.36% 65.42% 109.88% 91.26%
========= ========= ========= ========= =========
*Total investment returns exclude the effects of sales charges.
**Effective April 14, 2003, Class A Shares were redesignated Class I
Shares.
++Based on average shares outstanding.
See Notes to Financial Statements.
Merrill Lynch Healthcare Fund, Inc., April 30, 2003
FINANCIAL HIGHLIGHTS (concluded)
Class R
For the
Period
The following per share data and ratios have been derived January 3,
from information provided in the financial statements. 2003++ to
April 30,
Increase (Decrease) in Net Asset Value: 2003
Per Share Net asset value, beginning of period $ 4.04
Operating ---------
Performance: Investment loss--net++++ (.01)
Realized and unrealized gain on investments and foreign currency transactions--net .06
---------
Total from investment operations .05
---------
Net asset value, end of period $ 4.09
=========
Total Investment Based on net asset value per share 1.24%+++
Return:** =========
Ratios to Expenses 1.84%*
Average =========
Net Assets: Investment loss--net (.36%)*
=========
Supplemental Net assets, end of period (in thousands) $ --***
Data: =========
Portfolio turnover 128.24%
=========
*Annualized.
**Total investment returns exclude the effects of sales charges.
***Amount is less than $1,000.
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
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. The Fund offers multiple
classes of shares. Effective April 14, 2003, Class A Shares were
redesignated Class I Shares and Class D Shares were redesignated
Class A Shares. The Fund's financial statements and financial
highlights contained within this report reflect the new share class
redesignation. Shares of Class A and Class I are sold with a front-
end sales charge. Shares of Class B and Class C may be subject to a
contingent deferred sales charge. Class R Shares are sold only to
certain retirement plans. All classes of shares have identical
voting, dividend, liquidation and other rights and the same terms
and conditions, except that Class A, Class B, Class C and Class R
Shares bear certain expenses related to the account maintenance of
such shares, and Class B, Class C and Class R 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. Income,
expenses (other than expenses attributable to a specific class) and
realized and unrealized gains and losses on investments and foreign
currency transactions are allocated daily to each class based on its
relative net assets. 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 or NASDAQ National are valued at the last sale price
or official closing 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 for long positions, and at the last available ask price for
short positions. 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. Occasionally, events
affecting the values of securities and other assets may occur
between the times at which valuations of such securities are
determined (that is, close of the market on which such securities
trade) and the close of business on the NYSE. If events (for
example, company announcement, natural disasters, market volatility)
occur during such periods that are expected to materially affect the
value for such securities, those securities may be valued at their
fair market value as determined in good faith by the Fund's Board of
Directors or by the investment adviser using a pricing service
and/or procedures approved by the Board of Directors of the Fund.
(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 U.S. 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 both to increase the return of the
Fund and to hedge, or protect, its exposure to interest rate
movement and movements in the securities markets. Losses may arise
due to changes in the value of the contract or if the counterparty
does not perform under the contract.
* Financial futures contracts--The Fund may also purchase or sell
financial futures contracts and options on such futures contracts.
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-U.S. 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.
* 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. The contract is
marked-to-market daily and the change in market value is recorded by
the Fund as an unrealized gain or loss. When the contract is closed,
the Fund records a realized gain or loss equal to the difference
between the value at the time it was opened and the value at the
time it was closed.
Merrill Lynch Healthcare Fund, Inc., April 30, 2003
NOTES TO FINANCIAL STATEMENTS (continued)
* 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). Realized gains and losses on security
transactions are determined on the identified cost basis. 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 is recognized on the accrual 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) Securities lending--The Fund may lend securities to financial
institutions that provide cash or securities issued or guaranteed by
the U.S. government as collateral, which will be maintained at all
times in an amount equal to at least 100% of the current market
value of the loaned securities. The market value of the loaned
securities is determined at the close of business of the Fund and
any additional required collateral is delivered to the Fund on the
next business day. Where the Fund receives securities as collateral
for the loaned securities, the Fund typically receives the income on
both the loaned securities and the collateral and, as a result, the
Fund's yield may increase. Where the Fund receives cash collateral,
it may invest such collateral and retain the amount earned on such
investment, net of any amount rebated to the borrower. The Fund may
receive a flat fee for its loans. Loans of securities are terminable
at any time and the borrower, after notice, is required to return
borrowed securities within five business days. The Fund may pay
reasonable finder's, lending agent, administrative and custodial
fees in connection with its loans. In the event that the borrower
defaults on its obligation to return borrowed securities because of
insolvency or for any other reason, the fund could experience delays
and costs in gaining access to the collateral. The Fund also could
suffer a loss where the value of the collateral falls below the
market value of the borrowed securities, in the event of borrower
default or in the event of losses on investments made with cash
collateral.
(i) Reclassification--Accounting principles generally accepted in
the United States of America require that certain components of
net assets be adjusted to reflect permanent differences between
financial and tax reporting. Accordingly, the current year's
permanent book/tax differences of $9,032,277 has been reclassified
between paid-in capital in excess of par and undistributed net
investment income and $99,740 has been reclassified between
undistributed net investment income and accumulated net realized
capital losses. 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 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.
MLIM has entered into a Sub-Advisory Agreement with Merrill Lynch
Asset Management U.K. Limited ("MLAM U.K."), an affiliate of MLIM,
pursuant to which MLAM U.K. provides investment advisory services to
MLIM, with respect to the Fund. There is no increase to the
aggregate fees paid by the Fund for these services.
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 A .25% --
Class B .25% .75%
Class C .25% .75%
Class R .25% .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 A, Class B, Class C and Class R
shareholders. The ongoing distribution fee compensates the
Distributor and MLPF&S for providing shareholder and distribution-
related services to Class B, Class C and Class R shareholders.
For the year ended April 30, 2003, FAMD earned underwriting
discounts and direct commissions and MLPF&S earned dealer
concessions on sales of the Fund's Class A and Class I Shares as
follows:
FAMD MLPF&S
Class A $6,036 $86,040
Class I $ 436 $ 3,026
For the year ended April 30, 2003, MLPF&S received contingent
deferred sales charges of $492,160 and $38,933 relating to
transactions in Class B and Class C Shares, respectively.
The Fund has received an exemptive order from the Securities and
Exchange Commission permitting it to lend portfolio securities to
MLPF&S or its affiliates. As of April 30, 2003, the Fund lent
securities with a value of $54,274,196 to MLPF&S or its affiliates.
Pursuant to that order, the Fund also has retained Merrill Lynch
Investment Managers, LLC ("MLIM, LLC"), an affiliate of MLIM, as the
securities lending agent for a fee based on a share of the returns
on investment of cash collateral. MLIM, LLC may, on behalf of the
Fund, invest cash collateral received by the Fund for such loans,
among other things, in a private investment company managed by MLIM,
LLC or in registered money market funds advised by MLIM or its
affiliates. For the year ended April 30, 2003, MLIM, LLC received
$79,890 in securities lending agent fees.
In addition, MLPF&S received $854,400 in commissions on the
execution of portfolio security transactions for the Fund for the
year ended April 30, 2003.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
For the year ended April 30, 2003, the Fund reimbursed MLIM $16,782
for certain accounting services.
Certain officers and/or directors of the Fund are officers and/or
directors of MLIM, PSI, FDS, FAMD, MLAM U.K., and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term
securities, for the year ended April 30, 2003 were $838,650,636
and $883,544,694, respectively.
Net realized losses for the year ended April 30, 2003 and net
unrealized gains as of April 30, 2003 were as follows:
Realized Unrealized
Losses Gains
Long-term investments $ (30,305,125) $ 50,597,251
Short-term investments (103) --
Foreign currency transactions (99,740) 1,723
-------------- --------------
Total $ (30,404,968) $ 50,598,974
============== ==============
As of April 30, 2003, net unrealized appreciation for Federal income
tax purposes aggregated $47,698,749, of which $110,136,373 related
to appreciated securities and $62,437,624 related to depreciated
securities. The aggregate cost of investments at April 30, 2003 for
Federal income tax purposes was $762,472,096.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(86,554,209) and $88,049,914 for the years ended
April 30, 2003 and April 30, 2002, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended April 30, 2003++ Shares Amount
Shares sold 3,548,341 $ 19,069,461
Automatic conversion of shares 3,785,084 20,127,478
-------------- --------------
Total issued 7,333,425 39,196,939
Shares redeemed (7,967,938) (41,518,050)
-------------- --------------
Net decrease (634,513) $ (2,321,111)
============== ==============
++Effective April 14, 2003, Class D Shares were redesignated Class
A Shares.
Merrill Lynch Healthcare Fund, Inc., April 30, 2003
NOTES TO FINANCIAL STATEMENTS (concluded)
Class A Shares for the Year Dollar
Ended April 30, 2002++ Shares Amount
Shares sold 5,140,152 $ 31,977,791
Automatic conversion of shares 5,981,195 36,910,326
Shares issued to shareholders in
reinvestment of distributions 647,283 3,996,660
-------------- --------------
Total issued 11,768,630 72,884,777
Shares redeemed (5,319,896) (32,980,990)
-------------- --------------
Net increase 6,448,734 $ 39,903,787
============== ==============
++Effective April 14, 2003, Class D Shares were redesignated Class
A Shares.
Class B Shares for the Year Dollar
Ended April 30, 2003 Shares Amount
Shares sold 6,795,271 $ 28,741,477
Automatic conversion of shares (4,814,702) (20,127,478)
Shares redeemed (17,534,030) (72,112,842)
-------------- --------------
Net decrease (15,553,461) $ (63,498,843)
============== ==============
Class B Shares for the Year Dollar
Ended April 30, 2002 Shares Amount
Shares sold 16,600,213 $ 82,131,524
Shares issued to shareholders in
reinvestment of distributions 2,678,221 13,133,300
-------------- --------------
Total issued 19,278,434 95,264,824
Automatic conversion of shares (7,524,902) (36,910,326)
Shares redeemed (14,151,003) (69,705,874)
-------------- --------------
Net decrease (2,397,471) $ (11,351,376)
============== ==============
Class C Shares for the Year Dollar
Ended April 30, 2003 Shares Amount
Shares sold 3,864,785 $ 16,346,399
Shares redeemed (5,217,038) (21,381,414)
-------------- --------------
Net decrease (1,352,253) $ (5,035,015)
============== ==============
Class C Shares for the Year Dollar
Ended April 30, 2002 Shares Amount
Shares sold 9,996,865 $ 49,209,812
Shares issued to shareholders in
reinvestment of distributions 624,631 3,063,315
-------------- --------------
Total issued 10,621,496 52,273,127
Shares redeemed (3,545,417) (17,448,885)
-------------- --------------
Net increase 7,076,079 $ 34,824,242
============== ==============
Class I Shares for the Year Dollar
Ended April 30, 2003++ Shares Amount
Shares sold 7,899,517 $ 45,265,112
Shares redeemed (10,891,825) (60,964,452)
-------------- --------------
Net decrease (2,992,308) $ (15,699,340)
============== ==============
++Effective April 14, 2003, Class A Shares were redesignated Class
I Shares.
Class I Shares for the Year Dollar
Ended April 30, 2002++ Shares Amount
Shares sold 11,239,078 $ 74,475,884
Shares issued to shareholders in
reinvestment of distributions 1,415,947 9,332,034
-------------- --------------
Total issued 12,655,025 83,807,918
Shares redeemed (8,939,874) (59,134,657)
-------------- --------------
Net increase 3,715,151 $ 24,673,261
============== ==============
++Effective April 14, 2003, Class A Shares were redesignated Class
I Shares.
Class R Shares for the Period Dollar
Jan. 3, 2003++ to April 30, 2003 Shares Amount
Shares sold 25 $ 100
-------------- --------------
Net increase 25 $ 100
============== ==============
++Commencement of operations.
5. Short-Term Borrowings:
The Fund, along with certain other funds managed by MLIM and its
affiliates, is a party to a $500,000,000 credit agreement with Bank
One, 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 credit agreement. Amounts borrowed under the
credit agreement 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 One, N.A. On November 29, 2002, the credit
agreement was renewed for one year under the same terms, except that
the commitment was reduced from $1,000,000,000 to $500,000,000. The
Fund did not borrow under the credit agreement during the year ended
April 30, 2003.
6. Commitments:
At April 30, 2003, the Fund had entered into foreign exchange
contracts under which it had agreed to sell foreign currency with an
approximate value of $700,000.
7. Distributions to Shareholders:
The tax character of distributions paid during the fiscal years
ended April 30, 2003 and April 30, 2002 was as follows:
4/30/2003 4/30/2002
Distributions paid from:
Net long-term capital gains $ -- $ 32,970,064
-------------- --------------
Total taxable distributions $ -- $ 32,970,604
============== ==============
As of April 30, 2003, the components of accumulated earnings on a
tax basis were as follows:
Undistributed ordinary income--net $ --
Undistributed long-term capital gains--net --
--------------
Total undistributed earnings--net --
Capital loss carryforward (6,034,534)*
Unrealized gains--net 10,188,197**
--------------
Total accumulated earnings--net $ 4,153,663
==============
*On April 30, 2003, the Fund had a net capital loss carryforward of
$6,034,534, all of which expires in 2011. This amount will be
available to offset like amounts of any future taxable gains.
**The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the tax deferral of losses on
wash sales, the realization for tax purposes of unrealized gains
(losses) on certain foreign currency contracts and the deferral of
post-October capital losses for tax purposes.
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of 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, 2003, and the related
statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then
ended, and the financial highlights for the respective periods then
ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and 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 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 as of April 30, 2003, by
correspondence with the custodian and brokers; where replies were
not received from brokers, we performed other auditing procedures.
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, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Merrill Lynch Healthcare Fund, Inc. as of
April 30, 2003, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in
the period then ended, and its financial highlights for the
respective periods then ended, in conformity with accounting
principles generally accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
June 6, 2003
Merrill Lynch Healthcare Fund, Inc., April 30, 2003
OFFICERS AND DIRECTORS
Number of Other
Portfolios in Director-
Position(s) Length Fund Complex ships
Held of Time Overseen by Held by
Name, Address & Age with Fund Served Principal Occupation(s) During Past 5 Years Director Director
Interested Director
Terry K. Glenn* President 1999 to President and Chairman of Merrill Lynch 116 Funds None
P.O.Box 9011 and present Investment Managers, L.P. ("MLIM")/Fund 161 Portfolios
Princeton, Director and Asset Management, L.P. ("FAM")--Advised
NJ 08543-9011 1983 to Funds since 1999; Chairman (Americas
Age: 62 present Region) of MLIM from 2000 to 2002;
Executive Vice President of MLIM and
FAM (which terms as used herein include
their corporate predecessors) from 1983
to 2002; President of FAM Distributors.
Inc. ("FAMD") from 1986 to 2002 and
Director thereof from 1991 to 2002;
Executive Vice President and Director
of Princeton Services, Inc. ("Princeton
Services") from 1993 to 2002; President
of Princeton Administrators, L.P. from
1989 to 2002; Director of Financial Data
Services, Inc. from 1985 to 2002.
*Mr. Glenn is a director, trustee or member of an advisory board of
certain other investment companies for which FAM or MLIM acts as
investment adviser. Mr. Glenn is an "interested person" as described
in the Investment Company Act, of the Fund based on his former
positions with FAM, MLIM, FAMD, Princeton Services and Princeton
Administrators, L.P. The Director's term is unlimited. Directors
serve until their resignation, removal, or death, or until December
31 of the year in which they turn 72. As Fund President, Mr. Glenn
serves at the pleasure of the Board of Directors.
Independent Directors*
Ronald W. Forbes Director 2000 to Professor Emeritus of Finance, 44 Funds None
P.O. Box 9095 present School of Business, State University 50 Portfolios
Princeton, of New York at Albany since 2000 and
NJ 08543-9095 Professor thereof from 1989 to 2000;
Age: 62 International Consultant, Urban Institute
from 1995 to 1999.
Cynthia A. Montgomery Director 2000 to Professor, Harvard Business School since 44 Funds Unum
P.O. Box 9095 present 1989; Director, Unum Provident Corporation 50 Portfolios Provident
Princeton, since 1990; Director, Newell Rubbermaid, Corpora-
NJ 08543-9095 Inc. since 1995. tion;
Age: 50 Newell
Rubber-
maid, Inc.
Charles C. Reilly Director 1990 to Self-employed financial consultant since 44 Funds None
P.O. Box 9095 present 1990; Partner of Small Cities Cable 50 Portfolios
Princeton, Television from 1986 to 1997.
NJ 08543-9095
Age: 71
Kevin A. Ryan Director 2000 to Founder and Director Emeritus of The Boston 44 Funds None
P.O. Box 9095 present University Center for the Advancement of 50 Portfolios
Princeton, Ethics and Character; Professor of Education
NJ 08543-9095 at Boston University from 1982 to 1999 and
Age: 70 Professor Emeritus since 1999.
Roscoe S. Suddarth Director 2000 to President, Middle East Institute from 1995 44 Funds None
P.O. Box 9095 present to 2001; Foreign Service Officer, United 50 Portfolios
Princeton, States Foreign Service from 1961 to 1995;
NJ 08543-9095 Career Minister from 1989 to 1995; Deputy
Age: 67 Inspector General, U.S. Department of State
from 1991 to 1994; U.S. Ambassador to the
Hashemite Kingdom of Jordan from 1987 to 1990.
Richard R. West Director 1983 to Dean Emeritus of New York University, 44 Funds Bowne &
P.O. Box 9095 present Leonard N. Stern School of Business 50 Portfolios Co., Inc.;
Princeton, Administration since 1994. Vornado
NJ 08543-9095 Operating
Age: 65 Company;
Vornado
Realty Trust;
Alexander's,
Inc.
Edward D. Zinbarg Director 1994 to Self-employed financial consultant since 44 Funds None
P.O. Box 9095 present 1994. 50 Portfolios
Princeton,
NJ 08543-9095
Age: 68
*The Director's term is unlimited. Directors serve until their
resignation, removal or death, or until December 31 of the year in
which they turn 72.
Position(s) Length
Held of Time
Name, Address & Age with Fund Served* Principal Occupation(s) During Past 5 Years
Fund Officers*
Donald C. Burke Vice 1993 to First Vice President of MLIM and FAM since 1997 and Treasurer thereof
P.O. Box 9011 President present since 1999; Senior Vice President and Treasurer of Princeton Services
Princeton, and and since 1999; Vice President of FAMD since 1999; Director of MLIM Taxation
NJ 08543-9011 Treasurer 1999 to since 1990.
Age: 42 present
Robert C. Doll, Jr. Senior 1999 to President and Global Chief Investment Officer of MLIM and member of the
P.O. Box 9011 Vice present Executive Management Committee of ML & Co., Inc. since 2001; Chief
Princeton, President Investment Officer, Senior Vice President and Co-Head of MLIM Americas
NJ 08543-9011 from 1999 to 2001; Chief Investment Officer of Oppenheimer Funds, Inc.
Age: 48 from 1987 to 1999 and Executive Vice President from 1991 to 1999.
Jordan C. Schreiber Vice 1983 to Managing Director of MLIM since 2000 and Director (Equities) of MLIM
P.O. Box 9011 President present from 1997 to 2000.
Princeton,
NJ 08543-9011
Age: 73
Phillip S. Gillespie Acting 2003 to First Vice President of MLIM since 2001; Director (Legal Advisory) of MLIM
P.O. Box 9011 Secretary present from 2000 to 2001; Vice President of MLIM from 1999 to 2000 and Attorney
Princeton, associated with MLIM since 1998; Assistant General Counsel of Chancellor
NJ 08543-9011 LGT Asset Management, Inc. from 1997 to 1998.
Age: 39
*Officers of the Fund serve at the pleasure of the Board of
Directors.
Custodian
J.P. Morgan Chase 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
Further information about the Fund's Officers and Directors is
available in the Fund's Statement of Additional Information, which
can be obtained without charge by calling 1-800-MER-FUND.
Item 2 - Did registrant adopt a code of ethics, as of the end of the
period covered by this report, that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by
the registrant or a third party? If not, why not? Briefly describe
any amendments or waivers that occurred during the period. State
here if code of ethics/amendments/waivers are on website and give
website address-. State here if fund will send code of ethics to
shareholders without charge upon request--N/A (not answered until
July 15, 2003 and only annually for funds)
Item 3 - Did the registrant's board of directors determine that the
registrant either: (i) has at least one audit committee financial
expert serving on its audit committee; or (ii) does not have an
audit committee financial expert serving on its audit committee? If
yes, disclose name of financial expert and whether he/she is
"independent," (fund may, but is not required, to disclose
name/independence of more than one financial expert) If no, explain
why not. -N/A (not answered until July 15, 2003 and only annually
for funds)
Item 4 - Disclose annually only (not answered until December 15,
2003)
(a) Audit Fees - Disclose aggregate fees billed for each of the last
two fiscal years for professional services rendered by the principal
accountant for the audit of the registrant's annual financial
statements or services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements
for those fiscal years. N/A.
(b) Audit-Related Fees - Disclose aggregate fees billed in each of
the last two fiscal years for assurance and related services by the
principal accountant that are reasonably related to the performance
of the audit of the registrant's financial statements and are not
reported under paragraph (a) of this Item. Registrants shall
describe the nature of the services comprising the fees disclosed
under this category. N/A.
(c) Tax Fees - Disclose aggregate fees billed in each of the last
two fiscal years for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning.
Registrants shall describe the nature of the services comprising the
fees disclosed under this category. N/A.
(d) All Other Fees - Disclose aggregate fees billed in each of the
last two fiscal years for products and services provided by the
principal accountant, other than the services reported in paragraphs
(a) through (c) of this Item. Registrants shall describe the nature
of the services comprising the fees disclosed under this category.
N/A.
(e)(1) Disclose the audit committee's pre-approval policies and
procedures described in paragraph (c)(7) of Rule 2-01 of Regulation
S-X. N/A.
(e)(2) Disclose the percentage of services described in each of
paragraphs (b) through (d) of this Item that were approved by the
audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of
Regulation S-X. N/A.
(f) If greater than 50%, disclose the percentage of hours expended
on the principal accountant's engagement to audit the registrant's
financial statements for the most recent fiscal year that were
attributed to work performed by persons other than the principal
accountant's full-time, permanent employees. N/A.
(g) Disclose the aggregate non-audit fees billed by the registrant's
accountant for services rendered to the registrant, and rendered to
the registrant's investment adviser (not including any sub-adviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser
that provides ongoing services to the registrant for each of the
last two fiscal years of the registrant. N/A.
(h) Disclose whether the registrant's audit committee has considered
whether the provision of non-audit services that were rendered to
the registrant's investment adviser (not including any subadviser
whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X is compatible with maintaining the principal
accountant's independence. N/A.
Item 5 - If the registrant is a listed issuer as defined in Rule 10A-
3 under the Exchange Act, state whether or not the registrant has a
separately-designated standing audit committee established in
accordance with Section 3(a)(58)(A) of the Exchange Act. If the
registrant has such a committee, however designated, identify each
committee member. If the entire board of directors is acting as the
registrant's audit committee in Section 3(a)(58)(B) of the Exchange
Act, so state.
If applicable, provide the disclosure required by Rule 10A-3(d)
under the Exchange Act regarding an exemption from the listing
standards for audit committees.
(Listed issuers must be in compliance with the new listing rules by
the earlier of their first annual shareholders meeting after January
2004, or October 31, 2004 (annual requirement))
Item 6 - Reserved
Item 7 - For closed-end funds that contain voting securities in
their portfolio, describe the policies and procedures that it uses
to determine how to vote proxies relating to those portfolio
securities. N/A (not answered until July 1, 2003)
Item 8--Reserved
Item 9(a) - The registrant's certifying officers have reasonably
designed such disclosure controls and procedures to ensure material
information relating to the registrant is made known to us by others
particularly during the period in which this report is being
prepared. The registrant's certifying officers have determined that
the registrant's disclosure controls and procedures are effective
based on our evaluation of these controls and procedures as of a
date within 90 days prior to the filing date of this report.
Item 9(b)--There were no significant changes in the registrant's
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Item 10 - Exhibits
10(a) - Attach code of ethics or amendments/waivers, unless code of
ethics or amendments/waivers is on website or offered to
shareholders upon request without charge. N/A.
10(b) - Attach certifications pursuant to Section 302 of the
Sarbanes-Oxley Act. Attached hereto.
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Merrill Lynch Healthcare Fund, Inc.
By: _/s/ Terry K. Glenn_______
Terry K. Glenn,
President of
Merrill Lynch Healthcare Fund, Inc.
Date: June 23, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
By: _/s/ Terry K. Glenn________
Terry K. Glenn,
President of
Merrill Lynch Healthcare Fund, Inc.
Date: June 23, 2003
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Healthcare Fund, Inc.
Date: June 23, 2003
Attached hereto as an exhibit are the certifications pursuant to
Section 906 of the Sarbanes-Oxley Act.