UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
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: 04/30/04
Date of reporting period: 05/01/03 - 10/31/03
Item 1 - Attach shareholder report
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
Merrill Lynch
Healthcare Fund, Inc.
Semi-Annual Report
October 31, 2003
This report is not authorized for use as an offer of sale or a
solicitation of an offer to buy shares of the Fund unless
accompanied or preceded by the Fund'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.
A description of the policies and procedures that the Fund uses to
determine how to vote proxies relating to portfolio securities is
available (1) without charge, upon request, by calling toll-free
1-800-MER-FUND (1-800-637-3863); (2) on www.mutualfunds.ml.com; and
(3) on the Securities and Exchange Commission's website at
http://www.sec.gov.
Merrill Lynch Healthcare Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Merrill Lynch Healthcare Fund, Inc.
Portfolio Information As of October 31, 2003
Percent of
Ten Largest Equity Holdings Net Assets
Abbott Laboratories 5.0%
WebMD Corporation 4.4
Cerner Corporation 4.3
Aetna Inc. (New Shares) 4.2
Teva Pharmaceutical Industries Ltd. (ADR) 4.2
Manor Care, Inc. 3.9
Wyeth 3.8
Neurocrine Biosciences, Inc. 3.4
Barr Laboratories, Inc. 3.4
Amgen Inc. 3.2
Percent of
Five Largest Industries* Net Assets
Biotechnology Products 17.6%
Pharmaceutical--Prescription 14.1
Medical Devices 13.9
Health Care Facilities 9.5
Health Care Information Technology 8.7
*For Fund compliance purposes, "Industries" 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.
Percent of
Geographic Allocation Net Assets
United States 84.1%
Israel 6.7
Canada 2.0
Switzerland 1.4
United Kingdom 1.4
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
A Letter From the President
Dear Shareholder
As 2003 draws to a close, it seems appropriate to reflect on what
has been a meaningful year in many respects. We saw the beginning
and the end of all-out war in Iraq, equity market uncertainty turned
to strength and sub par gross domestic product (GDP) growth of 1.4%
in the first quarter of 2003 grew to an extraordinary 8.2% in the
third quarter.
Equity markets rebounded from one of the most dismal three-year
periods in history to make a strong showing this year. The S&P 500
Index posted year-to-date and 12-month returns of +21.21% and
+20.80%, respectively, as of October 31, 2003. Although continued
market strength cannot be assured, the positives have begun to
eclipse the negatives. In addition to the impressive GDP growth, the
positive economic news includes waning risk of deflation and
surprisingly strong business spending and corporate earnings. In
fact, business spending in the third quarter was the strongest it
has been in three years, up 14%, and many company earnings reports
exceeded forecasts in the first three quarters of the year. The good
news did not go unnoticed, as investors appeared to regain
confidence by returning to the equity market.
Against this backdrop, our portfolio managers continued to work
diligently to deliver on our commitment to provide superior
performance within reasonable expectations for risk and return. This
included striving to outperform our peers and the market indexes.
With that said, remember that the advice and guidance of a skilled
financial advisor often can mean the difference between successful
and unsuccessful investing. A financial professional can help you
choose those investments that will best serve you as you plan for
your financial future.
Finally, I am proud to premiere a new look to our shareholder
communications. Our portfolio manager commentaries have been trimmed
and organized in such a way that you can get the information you
need at a glance, in plain language. Today's markets are confusing
enough. We want to help you put it all in perspective. The report's
new size also allows us certain mailing efficiencies. Any cost
savings in production or postage are passed on to the Fund and,
ultimately, to Fund shareholders.
We thank you for trusting Merrill Lynch Investment Managers with
your investment assets, and we look forward to serving you in the
months and years ahead.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
A Discussion With Your Fund's Portfolio Manager
In an effort to generate gains while containing risk, we remained
focused on our long-term strategy of balancing the upside potential
of growth-oriented subsectors with the downside support offered by
more defensive health care areas.
How did the Fund perform during the period in light of the existing
market conditions?
For the six-month period ended October 31, 2003, the Fund's Class A,
Class B, Class C, Class I and Class R Shares had total returns of
+11.90%, +11.27%, +11.55%, +11.99% and +12.22%, respectively. (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 6 - 8 of this report to shareholders.) The Standard &
Poor's 500 (S&P 500) Index, a widely used, unmanaged market
benchmark, returned +15.62% for the same period. The Lipper
Health/Biotechnology Funds category, which measures the performance
of funds that focus their investment on companies engaged in health
care, medicine and biotechnology, provided an average return of
+15.56% for the same six-month period.
The past six months were highlighted by a tentative start to
economic recovery in the United States. The health care sector
generally underperforms during periods of economic revitalization as
investors shift assets from health care to more economically
sensitive industries. In addition, the pharmaceutical industry, the
largest component of the health care sector, was battered by
negative publicity over high drug prices, patent expirations and
intensified pressure from generic drugs. Moreover, new product
discovery and development continued to slow. In the face of these
conditions, we underweighted pharmaceuticals in the portfolio and
increased our emphasis on generic and specialty drug companies. This
enabled the Fund to advance nearly 12% during the period.
The Fund's gain trailed that of the S&P 500 Index during the period.
This Index, a broad market measure sensitive to the performance of
stocks in various sectors of the economy, benefited from the
perception of a nascent economic recovery. The economically
sensitive sectors within the Index all outperformed the health care
sector in the equity market rally that commenced during this
particular six-month period.
What changes were made to the portfolio during the period?
We entered the period with an emphasis on biotechnology for its
upside potential and on health care services companies for downside
support. We view biotechnology as an area of potentially strong new
product generation and creativity. While maintaining a focus on the
more growth-oriented biotechnology area, we sought to limit risk by
investing in health care service companies, such as health
maintenance organizations (HMOs) and hospital management companies.
We underweighted large-capitalization pharmaceutical companies,
whose stock performance historically lags more economically
sensitive sectors during the early stages of economic acceleration.
As the period progressed, we reduced our weighting in HMOs, based on
our assessment that profitability in this group had probably peaked.
We increased our holdings of generic drug companies, which should
have substantial opportunity in view of the large number of patent
expirations due over the next few years.
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
How would you characterize the portfolio's position at the close of
the period?
The portfolio was structured much as it was six months earlier. The
number of holdings was increased slightly from 53 at April 30 to 57
as of October 31. The Fund's positioning at the end of the period
reflected a shift in emphasis toward mid- and small-capitalization
holdings and away from large cap positions. This change was evident
in the increased focus on generic and specialty drug companies,
hospital management groups and biotechnology. We continue to pursue
a growth-oriented investment strategy. At the same time, we are
sensitive to valuations of individual stocks and remain diversified
across many health care subsectors.
Jordan C. Schreiber
Vice President and Portfolio Manager
November 12, 2003
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 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).
* 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.
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
Performance Data (continued)
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 10/31/03 +13.20% + 7.26%
Five Years Ended 10/31/03 + 9.56 + 8.38
Inception (10/21/94) through 10/31/03 +15.29 +14.60
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 10/31/03 +12.10% + 8.10%
Five Years Ended 10/31/03 + 8.70 + 8.41
Ten Years Ended 10/31/03 +13.15 +13.15
*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
Without CDSC With CDSC**
Class C Shares*
One Year Ended 10/31/03 +12.38% +11.38%
Five Years Ended 10/31/03 + 8.66 + 8.66
Inception (10/21/94) through 10/31/03 +14.65 +14.65
*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
Sales Charge Sales Charge**
Class I Shares*
One Year Ended 10/31/03 +13.41% + 7.45%
Five Years Ended 10/31/03 + 9.82 + 8.64
Ten Years Ended 10/31/03 +14.32 +13.70
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Aggregate Total Return
% Return Without
Sales Charge
Class R Shares
Inception (1/03/03) through 10/31/03 +13.61%
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
Performance Data (concluded)
Recent Performance Results
Ten-Year/
6-Month 12-Month Since Inception
As of October 31, 2003 Total Return Total Return Total Return
ML Healthcare Fund, Inc.--Class A Shares* +11.90% +13.20% +261.21%
ML Healthcare Fund, Inc.--Class B Shares* +11.27 +12.10 +243.95
ML Healthcare Fund, Inc.--Class C Shares* +11.55 +12.38 +243.58
ML Healthcare Fund, Inc.--Class I Shares* +11.99 +13.41 +281.13
ML Healthcare Fund, Inc.--Class R Shares* +12.22 -- + 13.61
Standard & Poor's 500 Index** +15.62 +20.80 +169.68/+163.97/+17.36
*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 index covers 500 industrial, utility,
transportation and financial companies of the U.S. markets (mostly
NYSE issues) representing about 75% of NYSE market capitalization
and 30% of NYSE issues. Ten-year/since inception total returns are
for ten years, from 10/21/94 and from 1/03/03, respectively.
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
Schedule of Investments
Value Percent of
MIDDLE EAST Industry++++ Shares Held Common Stocks (in U.S. dollars) Net Assets
Israel Pharmaceutical-- 270,000 ++Taro Pharmaceutical Industries Ltd. $ 17,347,500 2.5%
Prescription
Pharmaceutical-- 500,000 Teva Pharmaceutical Industries Ltd. (ADR)* 28,445,000 4.2
Specialty
Total Common Stocks in the Middle East 45,792,500 6.7
NORTH AMERICA
Canada Pharmaceutical-- 570,000 ++Biovail Corporation 13,708,500 2.0
Generic
Total Investments in Canada 13,708,500 2.0
United Biotechnology 700,000 ++Abgenix, Inc. 8,575,000 1.3
States Discovery Tools & 180,000 ++Charles River Laboratories International, Inc. 5,803,200 0.9
Platform Technologies 358,000 ++Emisphere Technologies, Inc. 2,237,500 0.3
900,000 ++Lexicon Genetics Incorporated 5,040,000 0.7
1,000,000 ++Medarex, Inc. 7,150,000 1.0
-------------- ------
28,805,700 4.2
Biotechnology 350,000 ++Amgen Inc. 21,616,000 3.2
Products 1,000,000 ++AtheroGenics, Inc. 16,490,000 2.4
500,000 ++BioMarin Pharmaceutical Inc. 3,500,000 0.5
150,000 ++Celgene Corporation 6,253,500 0.9
50,000 ++Cell Genesys, Inc. 642,000 0.1
200,000 ++Chiron Corporation 10,926,000 1.6
547,700 ++Cubist Pharmaceuticals, Inc. 6,364,274 0.9
100,000 ++Genzyme Corporation 4,590,000 0.7
100,000 ++Gilead Sciences, Inc. 5,458,000 0.8
100,000 ++ICOS Corporation 4,672,000 0.7
192,500 ++ILEX Oncology, Inc. 4,015,550 0.6
140,000 ++Imclone Systems 4,865,000 0.7
300,000 ++Millennium Pharmaceuticals, Inc. 4,776,000 0.7
500,000 ++Neurocrine Biosciences, Inc. 23,415,000 3.4
560,000 ++Repligen Corporation 2,833,600 0.4
-------------- ------
120,416,924 17.6
Drugs & Medicine 100,000 ++DOV Pharmaceutical, Inc. 1,225,000 0.2
Health Care 160,000 AmerisourceBergen Corporation 9,083,200 1.3
Distributors
Health Care 300,000 ++Community Health Care 7,206,000 1.1
Facilities 196,700 HCA Inc. 7,523,775 1.1
383,200 Health Management Associates, Inc. (Class A) 8,487,880 1.2
800,000 Manor Care, Inc. 26,624,000 3.9
500,000 ++Triad Hospitals, Inc. 15,365,000 2.2
-------------- ------
65,206,655 9.5
Health Care 686,400 ++Cerner Corporation 29,082,768 4.3
Information & 3,900,000 ++WebMD Corporation 30,381,000 4.4
Technology -------------- ------
59,463,768 8.7
Managed Health Care 500,000 Aetna Inc. (New Shares) 28,705,000 4.2
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
Schedule of Investments (continued)
NORTH AMERICA Value Percent of
(concluded) Industry++++ Shares Held Common Stocks (in U.S. dollars) Net Assets
United Medical Devices 100,000 Boston Scientific Corporation $ 6,772,000 1.0%
States 500,000 Diagnostic Products Corporation 20,410,000 3.0
(concluded) 400,000 Medtronic, Inc. 18,228,000 2.7
300,000 ++SonoSite, Inc. 5,925,000 0.8
300,000 ++St. Jude Medical, Inc. 17,448,000 2.5
300,000 ++Zimmer Holdings, Inc. 19,143,000 2.8
-------------- ------
87,926,000 12.8
Pharmaceutical-- 800,000 Abbott Laboratories 34,096,000 5.0
Diversified
Pharmaceutical-- 300,000 ++Barr Laboratories, Inc. 23,031,000 3.4
Generic 180,000 ++K-V Pharmaceutical Company (Class A) 4,320,000 0.6
-------------- ------
27,351,000 4.0
Pharmaceutical-- 260,000 ++Esperion Therapeutics, Inc. 6,206,200 0.9
Prescription 590,000 ++The Medicines Company 15,723,500 2.3
400,000 ++Nabi Biopharmaceuticals 4,412,000 0.6
300,000 ++OSI Pharmaceuticals, Inc. 8,400,000 1.2
300,000 Pfizer, Inc. 9,480,000 1.4
582,700 Wyeth 25,720,378 3.8
-------------- ------
69,942,078 10.2
Pharmaceutical-- 200,000 ++Amylin Pharmaceuticals, Inc. 5,466,000 0.8
Specialty 200,000 Baxter International Inc. 5,316,000 0.8
120,000 ++Forest Laboratories, Inc. 6,001,200 0.9
600,000 ++La Jolla Pharmaceutical Company 2,046,000 0.3
-------------- ------
18,829,200 2.8
Pharmacy Benefit 200,000 ++Caremark Rx, Inc. 5,010,000 0.7
Managers 300,000 Eli Lilly and Company 19,986,000 2.9
-------------- ------
24,996,000 3.6
Total Common Stocks in the United States 576,046,525 84.1
Total Common Stocks in North America 589,755,025 86.1
WESTERN EUROPE
Switzerland Pharmaceutical-- 120,000 Roche Holding AG 9,929,981 1.4
Prescription
Total Common Stocks in Switzerland 9,929,981 1.4
United Medical Devices 900,000 Smith & Nephew PLC 7,151,366 1.0
Kingdom
Pharmaceutical-- 2,400,000 ++SkyePharma PLC 2,637,058 0.4
Specialty
Total Common Stocks in the United Kingdom 9,788,424 1.4
Total Common Stocks in Western Europe 19,718,405 2.8
Total Common Stocks (Cost--$564,067,065) 655,265,930 95.6
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
Schedule of Investments (concluded)
Beneficial Interest/ Value Percent of
Shares Held Short-Term Securities (in U.S. dollars) Net Assets
$72,431,790 Merrill Lynch Liquidity Series, LLC Cash Sweep
Series I (a) $ 72,431,790 10.6%
$95,529,844 Merrill Lynch Liquidity Series, LLC Money Market
Series (a)(b) 95,529,844 13.9
31,843,281 Merrill Lynch Premier Institutional Fund (a)(b) 31,843,281 4.7
Total Short-Term Securities
(Cost--$199,804,915 ) 199,804,915 29.2
Total Investments (Cost--$763,871,980) 855,070,845 124.8
Liabilities in Excess of Other Assets (170,088,263) (24.8)
-------------- ------
Net Assets $ 684,982,582 100.0%
============== ======
*American Depositary Receipts (ADR).
++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.
(a)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 $ 14,146,309 $304,568
Merrill Lynch Liquidity Series,
LLC Money Market Series $ (9,506,337) $ 65,071
Merrill Lynch Premier
Institutional Fund (38,180,838) $ 36,354
(b)Security was purchased with the cash proceeds from securities
loans.
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
Statement of Assets and Liabilities
As of October 31, 2003
Assets
Investments, at value (including securities loaned of $124,315,042)
(identified cost--$763,871,980) $ 855,070,845
Receivables:
Securities sold $ 989,139
Capital shares sold 632,128
Dividends 230,272
Interest 48,892
Securities lending--net 13,876 1,914,307
---------------
Prepaid registration fees 34,549
---------------
Total assets 857,019,701
---------------
Liabilities
Collateral on securities loaned, at value 127,373,125
Payables:
Securities purchased 40,897,939
Capital shares redeemed 1,788,412
Custodian bank 760,627
Investment adviser 656,971
Distributor 268,971
Other affiliates 285,005 44,657,925
---------------
Accrued expenses and other liabilities 6,069
---------------
Total liabilities 172,037,119
---------------
Net Assets
Net assets $ 684,982,582
===============
Net Assets Consist of
Class A Shares of Capital Stock, $.10 par value, 100,000,000 shares
authorized $ 2,354,031
Class B Shares of Capital Stock, $.10 par value, 250,000,000 shares
authorized 4,331,317
Class C Shares of Capital Stock, $.10 par value, 100,000,000 shares
authorized 1,838,950
Class I Shares of Capital Stock, $.10 par value, 200,000,000 shares
authorized 4,277,971
Class R Shares of Capital Stock, $.10 par value, 250,000,000 shares
authorized 56
Paid-in capital in excess of par 593,897,463
Accumulated investment loss--net $ (4,622,162)
Accumulated realized capital losses on investments and foreign
currency transactions--net (8,298,945)
Unrealized appreciation on investments and foreign currency
transactions--net 91,203,901
---------------
Total accumulated earnings--net 78,282,794
---------------
Net Assets $ 684,982,582
===============
Net Asset Value
Class A--Based on net assets of $137,125,350 and 23,540,308 shares
outstanding $ 5.83
===============
Class B--Based on net assets of $196,707,591 and 43,313,165 shares
outstanding $ 4.54
===============
Class C--Based on net assets of $83,485,245 and 18,389,502 shares
outstanding $ 4.54
===============
Class I--Based on net assets of $267,661,806 and 42,779,710 shares
outstanding $ 6.26
===============
Class R--Based on net assets of $2,589.94 and 564.730 shares
outstanding $ 4.59
===============
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
Statement of Operations
For the Six Months Ended October 31, 2003
Investment Income
Dividends (net of $13,996 foreign withholding tax) $ 1,198,264
Interest 307,409
Securities lending--net 101,425
---------------
Total income 1,607,098
---------------
Expenses
Investment advisory fees $ 3,499,752
Account maintenance and distribution fees--Class B 1,042,912
Account maintenance and distribution fees--Class C 423,737
Transfer agent fees--Class I 278,193
Transfer agent fees--Class B 245,285
Account maintenance fees--Class A 168,985
Transfer agent fees--Class A 138,545
Accounting services 125,893
Transfer agent fees--Class C 104,767
Registration fees 47,219
Custodian fees 44,574
Professional fees 36,302
Printing and shareholder reports 32,310
Directors' fees and expenses 24,966
Pricing fees 8,001
Other 16,374
---------------
Total expenses 6,237,815
---------------
Investment loss--net (4,630,717)
---------------
Realized & Unrealized Gain (Loss) on Investments and Foreign Currency Transactions--Net
Realized gain (loss) on:
Investments--net 38,206,532
Foreign currency transactions--net (51,611) 38,154,921
---------------
Change in unrealized appreciation on:
Investments--net 40,601,614
Foreign currency transactions--net 3,313 40,604,927
--------------- ---------------
Total realized and unrealized gain on investments and foreign currency
transactions--net 78,759,848
---------------
Net Increase in Net Assets Resulting from Operations $ 74,129,131
===============
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
October 31, April 30,
Increase (Decrease) in Net Assets: 2003 2003
Operations
Investment loss--net $ (4,630,717) $ (8,909,603)
Realized gain (loss) on investments and foreign currency
transactions--net 38,154,921 (30,404,968)
Change in unrealized appreciation on investments and foreign currency
transactions--net 40,604,927 (107,302,270)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations 74,129,131 (146,616,841)
--------------- ---------------
Capital Share Transactions
Net decrease in net assets derived from capital share transactions (23,887,830) (86,554,209)
--------------- ---------------
Net Assets
Total increase (decrease) in net assets 50,241,301 (233,171,050)
Beginning of period 634,741,281 867,912,331
--------------- ---------------
End of period* $ 684,982,582 $ 634,741,281
=============== ===============
*Undistributed (accumulated) investment income (loss)--net $ (4,622,162) $ 8,555
=============== ===============
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
Financial Highlights
The following per share data and ratios have been derived For the Six Class A***
from information provided in the financial statements. Months Ended
October 31, For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 2003 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of period $ 5.21 $ 6.23 $ 6.29 $ 6.63 $ 5.36
---------- ---------- ---------- ---------- ----------
Investment loss--net++ (.03) (.05) (.07) (.05) (.04)
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net .65 (.97) .24 1.05 1.49
---------- ---------- ---------- ---------- ----------
Total from investment operations .62 (1.02) .17 1.00 1.45
---------- ---------- ---------- ---------- ----------
Less distributions from realized gain
on investments--net -- -- (.23) (1.34) (.18)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 5.83 $ 5.21 $ 6.23 $ 6.29 $ 6.63
========== ========== ========== ========== ==========
Total Investment Return**
Based on net asset value per share 11.90%+++ (16.37%) 2.78% 14.21% 27.73%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 1.55%* 1.58% 1.52% 1.50% 1.51%
========== ========== ========== ========== ==========
Investment loss--net (1.09%)* (1.04%) (1.20%) (.80%) (.71%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of period (in thousands) $ 137,125 $ 119,375 $ 146,714 $ 107,642 $ 59,029
========== ========== ========== ========== ==========
Portfolio turnover 76.63% 128.24% 81.36% 65.42% 109.88%
========== ========== ========== ========== ==========
*Annualized.
**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.
+++Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
Financial Highlights (continued)
The following per share data and ratios have been derived For the Six Class B
from information provided in the financial statements. Months Ended
October 31, For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 2003 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of period $ 4.08 $ 4.91 $ 5.05 $ 5.55 $ 4.54
---------- ---------- ---------- ---------- ----------
Investment loss--net++ (.04) (.08) (.10) (.09) (.07)
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net .50 (.75) .19 .89 1.26
---------- ---------- ---------- ---------- ----------
Total from investment operations .46 (.83) .09 .80 1.19
---------- ---------- ---------- ---------- ----------
Less distributions from realized gain
on investments--net -- -- (.23) (1.30) (.18)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 4.54 $ 4.08 $ 4.91 $ 5.05 $ 5.55
========== ========== ========== ========== ==========
Total Investment Return**
Based on net asset value per share 11.27%+++ (16.90%) 1.85% 13.28% 26.99%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 2.32%* 2.36% 2.29% 2.26% 2.28%
========== ========== ========== ========== ==========
Investment loss--net (1.87%)* (1.83%) (1.97%) (1.57%) (1.49%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of period (in thousands) $ 196,708 $ 194,543 $ 310,916 $ 331,683 $ 273,530
========== ========== ========== ========== ==========
Portfolio turnover 76.63% 128.24% 81.36% 65.42% 109.88%
========== ========== ========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
Financial Highlights (continued)
The following per share data and ratios have been derived For the Six Class C
from information provided in the financial statements. Months Ended
October 31, For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 2003 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of period $ 4.07 $ 4.91 $ 5.05 $ 5.55 $ 4.55
---------- ---------- ---------- ---------- ----------
Investment loss--net++ (.04) (.08) (.10) (.09) (.07)
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net .51 (.76) .19 .90 1.25
---------- ---------- ---------- ---------- ----------
Total from investment operations .47 (.84) .09 .81 1.18
---------- ---------- ---------- ---------- ----------
Less distributions from realized gain
on investments--net -- -- (.23) (1.31) (.18)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 4.54 $ 4.07 $ 4.91 $ 5.05 $ 5.55
========== ========== ========== ========== ==========
Total Investment Return**
Based on net asset value per share 11.55%+++ (17.11%) 1.85% 13.38% 26.70%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 2.34%* 2.37% 2.30% 2.28% 2.30%
========== ========== ========== ========== ==========
Investment loss--net (1.88%)* (1.84%) (1.99%) (1.58%) (1.50%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of period (in thousands) $ 83,485 $ 76,606 $ 98,994 $ 66,028 $ 38,622
========== ========== ========== ========== ==========
Portfolio turnover 76.63% 128.24% 81.36% 65.42% 109.88%
========== ========== ========== ========== ==========
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
Financial Highlights
The following per share data and ratios have been derived For the Six Class I***
from information provided in the financial statements. Months Ended
October 31, For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 2003 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of period $ 5.59 $ 6.66 $ 6.70 $ 6.98 $ 5.62
---------- ---------- ---------- ---------- ----------
Investment loss--net++ (.03) (.04) (.06) (.04) (.03)
Realized and unrealized gain (loss)
on investments and foreign currency
transactions--net .70 (1.03) .25 1.12 1.57
---------- ---------- ---------- ---------- ----------
Total from investment operations .67 (1.07) .19 1.08 1.54
---------- ---------- ---------- ---------- ----------
Less distributions from realized gain
on investments--net -- -- (.23) (1.36) (.18)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 6.26 $ 5.59 $ 6.66 $ 6.70 $ 6.98
========== ========== ========== ========== ==========
Total Investment Return**
Based on net asset value per share 11.99%+++ (16.07%) 2.91% 14.57% 28.06%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 1.30%* 1.33% 1.27% 1.24% 1.26%
========== ========== ========== ========== ==========
Investment loss--net (.84%)* (.79%) (.95%) (.55%) (.47%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of period (in thousands) $ 267,662 $ 244,217 $ 311,288 $ 288,091 $ 219,499
========== ========== ========== ========== ==========
Portfolio turnover 76.63% 128.24% 81.36% 65.42% 109.88%
========== ========== ========== ========== ==========
*Annualized.
**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.
+++Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
Financial Highlights (concluded)
Class R
The following per share data and ratios have been derived For the Six For the Period
from information provided in the financial statements. Months Ended Jan. 3, 2003++
October 31, to April 30,
Increase (Decrease) in Net Asset Value: 2003 2003
Per Share Operating Performance
Net asset value, beginning of period $ 4.09 $ 4.04
------------ ------------
Investment loss--net++++ (.02) (.01)
Realized and unrealized gain on investments and foreign currency
transactions--net .52 .06
------------ ------------
Total from investment operations .50 .05
------------ ------------
Net asset value, end of period $ 4.59 $ 4.09
============ ============
Total Investment Return**
Based on net asset value per share 12.22%++++++ 1.24%++++++
============ ============
Ratios to Average Net Assets
Expenses 1.80%* 1.84%*
============ ============
Investment loss--net (1.34%)* (.36%)*
============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 3 --***
============ ============
Portfolio turnover 76.63% 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.
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
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 amended, 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 adjustments are of a
normal, recurring nature.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--Equity securities that are held by the
Fund that are traded on stock exchanges or the Nasdaq National
Market are valued at the last sale price or official close price on
the exchange, 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. In cases where equity securities are traded on more
than one exchange, the securities are valued on the exchange
designated as the primary market by or under the authority of the
Board of Directors of the Fund. Long positions traded in the over-
the-counter ("OTC") market, Nasdaq Small Cap or Bulletin Board are
valued at the last available bid price or yield equivalent obtained
from one or more dealers or pricing services approved by the Board
of Directors of the Fund. Short positions traded in the OTC market
are valued at the last available ask price. Portfolio securities
that are traded both in the OTC market and on a stock exchange are
valued according to the broadest and most representative market.
Options written are valued at the last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC
market, the last ask price. Options puchased are valued at their
last sale price in the case of exchange-traded options or, in the
case of options traded in the OTC market, the last bid price. Swap
agreements are valued daily based upon quotations from market
makers. Financial futures contracts and options thereon, which are
traded on exchanges, are valued at their last sale price as of the
close of such exchanges. Obligations with remaining maturities of 60
days or less are valued at amortized cost unless the Investment
Adviser believes that this method no longer produces fair
valuations.
Repurchase agreements are valued at cost plus accrued interest. The
Fund employs pricing services to provide certain securities prices
for the Fund. Securities and assets for which market quotations are
not readily available are valued at fair value as determined in good
faith by or under the direction of the Board of Directors of the
Fund, including valuations furnished by the pricing services
retained by the Fund, which may use a matrix system for valuations.
The procedures of a pricing service and its valuations are reviewed
by the officers of the Fund under the general supervision of the
Fund's Board of Directors. Such valuations and procedures will be
reviewed periodically by the Board of Directors of the Fund.
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
Notes to Financial Statements (continued)
Generally, trading in foreign securities, as well as U.S. government
securities and money market instruments, is substantially completed
each day at various times prior to the close of business on the New
York Stock Exchange ("NYSE"). The values of such securities used in
computing the net asset value of the Fund's shares are determined as
of such times. Foreign currency exchange rates also are generally
determined prior to the close of business on the NYSE. Occasionally,
events affecting the values of such securities and such exchange
rates may occur between the times at which they are determined and
the close of business on the NYSE that may not be reflected in the
computation of the Fund's net asset value. If events (for example, a
company announcement, market volatility or a natural distaster)
occur during such periods that are expected to materially affect the
value of such securities, those securities may be valued at their
fair 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 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 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
movements 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 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.
* Options--The Fund is authorized to purchase and write call and put
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).
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
Notes to Financial Statements (continued)
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) Custodian bank--The Fund recorded an amount payable to the
custodian bank reflecting an overnight overdraft, which resulted
from management estimates of available cash.
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 in the aggregate
fees paid by the Fund for these services.
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
Notes to Financial Statements (continued)
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
Maintenance Distribution
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 six months ended October 31, 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 $ 4,036 $ 65,695
Class I $ 53 $ 858
For the six months ended October 31, 2003, MLPF&S received
contingent deferred sales charges of $141,286 and $3,620 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 October 31, 2003, the Fund lent
securities with a value of $12,409,087 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 six months ended October 31, 2003, MLIM, LLC
received $43,800 in securities lending agent fees.
In addition, MLPF&S received $589,104 in commissions on the
execution of portfolio security transactions for the Fund for six
months ended October 31, 2003.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
For the six months ended October 31, 2003, the Fund, reimbursed
MLIM, $8,096 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 six months ended October 31, 2003 were $488,695,044 and
$489,056,940 respectively.
Net realized gains (losses) for the six months ended October 31,
2003 and net unrealized gains as of October 31, 2003 were as
follows:
Realized Unrealized
Gains (Losses) Gains
Long-term investments $ 38,206,532 $ 91,198,865
Foreign currency transactions (51,611) 5,036
--------------- ---------------
Total $ 38,154,921 $ 91,203,901
=============== ===============
As of October 31, 2003, net unrealized appreciation for Federal
income tax purposes aggregated $88,300,363 of which $127,958,794
related to appreciated securities and $39,658,431 related to
depreciated securities. The aggregate cost of investments at
October 31, 2003 for Federal income tax purposes was $766,770,482.
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
Notes to Financial Statements (continued)
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $(23,887,830) and $(86,554,209) for the six months
ended October 31, 2003 and for the year ended April 30, 2003,
respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the
Six Months Ended Dollar
October 31, 2003++ Shares Amount
Shares sold 1,611,390 $ 9,359,677
Automatic conversion of shares 1,589,373 9,204,078
--------------- ---------------
Total issued 3,200,763 18,563,755
Shares redeemed (2,582,271) (14,977,404)
--------------- ---------------
Net increase 618,492 $ 3,586,351
=============== ===============
++Effective April 14, 2003, Class D Shares were redesignated Class A
Shares.
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.
Class B Shares for the
Six Months Ended Dollar
October 31, 2003 Shares Amount
Shares sold 2,842,566 $ 12,895,404
Automatic conversion of shares (2,035,963) (9,204,078)
Shares redeemed (5,220,059) (23,567,951)
--------------- ---------------
Net decrease (4,413,456) $ (19,876,625)
=============== ===============
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 C Shares for the
Six Months Ended Dollar
October 31, 2003 Shares Amount
Shares sold 1,616,686 $ 7,339,493
Shares redeemed (2,026,195) (9,146,459)
--------------- ---------------
Net decrease (409,509) $ (1,806,966)
=============== ===============
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 I Shares for the
Six Months Ended Dollar
October 31, 2003++ Shares Amount
Shares sold 3,737,352 $ 23,335,514
Shares redeemed (4,670,770) (29,128,617)
--------------- ---------------
Net decrease (933,418) $ (5,793,103)
=============== ===============
++Effective April 14, 2003, Class A Shares were redesignated Class I
Shares.
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 R Shares for the
Six Months Ended Dollar
October 31, 2003 Shares Amount
Shares sold 540 $ 2,513
--------------- ---------------
Net increase 540 $ 2,513
=============== ===============
Class R Shares for the
Period January 3, 2003++ to Dollar
April 30, 2003 Shares Amount
Shares sold 25 $ 100
--------------- ---------------
Net increase 25 $ 100
=============== ===============
++Commencement of operations.
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
Notes to Financial Statements (concluded)
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 six months
ended October 31, 2003.
6. Commitments:
At October 31, 2003, the Fund had entered into foreign exchange
contracts under which it had agreed to purchase foreign currency
with an approximate value of $1,651,000.
7. Capital Loss Carryforward:
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.
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
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
Edward D. Zinbarg, Director
Robert C. Doll, Jr., Senior Vice President
Jordan C. Schreiber, Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Phillip S. Gillespie, Secretary
Custodian
J.P. Morgan 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, 2003
Electronic Delivery
The Fund is now offering electronic delivery of communications to
its shareholders. In order to receive this service, you must
register your account and provide us with e-mail information.
To sign up for this service, simply access this website
http://www.icsdelivery.com/live and follow the instructions.
When you visit this site, you will obtain a personal identification
number (PIN). You will need this PIN should you wish to update your
e-mail address, choose to discontinue this service and/or make any
other changes to the service. This service is not available for
certain retirement accounts at this time.
MERRILL LYNCH HEALTHCARE FUND, INC., OCTOBER 31, 2003
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 (annual requirement
only)
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 (annual requirement only)
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. N/A
(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
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: December 22, 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: December 22, 2003
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Healthcare Fund, Inc.
Date: December 22, 2003
Attached hereto as a furnished exhibit are the certifications
pursuant to Section 906 of the Sarbanes-Oxley Act.