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: 04/30/04
Date of reporting period: 05/01/03 - 04/30/04
Item 1 - Report to Stockholders
(BULL LOGO)
Merrill Lynch Investment Managers
www.mlim.ml.com
Merrill Lynch
Healthcare Fund, Inc.
Annual Report
April 30, 2004
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
(GO PAPERLESS LOGO)
It's Fast, Convenient, & Timely!
To sign up today, go to www.icsdelivery.com/live.
Merrill Lynch Healthcare Fund, Inc.
Portfolio Information As of April 30, 2004 (unaudited)
Percent of
Ten Largest Equity Holdings Net Assets
Pfizer, Inc. 5.1%
Teva Pharmaceutical Industries Ltd. (ADR) 4.4
Amgen Inc. 4.0
Novartis AG (Registered Shares) 3.8
Anthem, Inc. 3.8
Cerner Corporation 3.4
Neurocrine Biosciences, Inc. 3.3
St. Jude Medical, Inc. 3.3
Manor Care, Inc. 3.2
Triad Hospitals, Inc. 3.2
Percent of
Five Largest Industries* Net Assets
Pharmaceutical--Prescription 20.4%
Biotechnology Products 16.5
Medical Devices 14.2
Pharmaceutical--Specialty 11.3
Health Care Facilities 7.9
*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. These industry classifications
are unaudited.
Percent of
Geographic Allocation Net Assets*
United States 75.6%
Switzerland 6.8
Israel 6.2
France 2.8
United Kingdom 2.6
Canada 2.0
India 1.7
Japan 1.5
Belgium 0.2
*Total may not equal 100%.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
A Letter From the President
Dear Shareholder
Equity markets produced positive results for the most recent
six-month and 12-month reporting periods. The U.S. stock market,
as measured by the Standard & Poor's 500 Index, returned +6.27%
for the six-month period and +22.88% for the 12-month period ended
April 30, 2004.
Though equity markets enjoyed favorable returns overall, we did
experience an overdue market correction late in the period. This was
largely in response to disappointing employment news (which has
improved markedly since then), terrorist attacks in Madrid and
instability in Iraq - all of which weighed heavily on the markets.
However, despite the more recent skittishness, we still observe
substantial economic strength in the United States.
In fact, the U.S. economy has continued to benefit from 2003's
significant fiscal and monetary stimulus in the form of low interest
rates and tax cuts. This has opened the door to consumer spending,
capital spending, increases in exports and long-awaited job growth.
A major shift on the employment front came on April 2 when the
Department of Labor reported the biggest monthly jobs increase in
four years. These developments have supported continued improvements
in corporate earnings - a positive for stock markets. For its part,
the Federal Reserve Board maintained its accommodative policy
stance, and is expected to raise interest rates at a gradual pace in
order to ensure the sustainability of the current economic recovery.
The events and efforts of the past year leave us with a much
stronger economy today. Of course, markets will always fluctuate,
and there are many uncertainties - not the least of which are
geopolitical in nature - which can translate into negative market
movements. Keeping this in mind, however, we encourage you to
revisit your portfolio and your asset allocation strategy to ensure
you are well positioned to take advantage of the opportunities that
lie ahead. Importantly, your financial advisor can help you develop
a strategy most suitable for your circumstances through all types of
market and economic cycles.
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., APRIL 30, 2004
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 fiscal year in light of the
existing market conditions?
For the 12-month period ended April 30, 2004, Merrill Lynch
Healthcare Fund, Inc.'s Class A, Class B, Class C, Class I and Class
R Shares had total returns of +22.46%, +21.57%, +21.87%, +22.90% and
+22.74%, 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 - 9 of this report
to shareholders.) The Standard & Poor's 500 (S&P 500) Index, a
widely used, unmanaged market benchmark, returned +22.88% 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 a return of +31.54% for the same 12-month period.
The past year initially was marked by concern about the vigor and
sustainability of the economic recovery and its "jobless" nature. As
the period progressed, apprehension arose about likely interest rate
increases and their impact on corporate earnings and a fragile
economy. After steady advances into March 2004, these concerns led
to sharp stock market dips in March and late April, interspersed
with rallies. The Iraqi war and the political overhang attendant to
the presidential election this November have exacerbated this market
action. In this volatile market climate, the health care sector
mirrored the broader market. While all subsectors declined, more
reasonably valued pharmaceuticals were down only modestly, while
biotechnology shares, especially those of companies with minimal
earnings, incurred the sharpest drops. The other health care
subsectors declined at moderate rates. Investors appeared to
discount a lowering of price-to-earnings valuations, customary when
interest rates are raised.
The Fund's performance during the year reflected its portfolio mix.
Pharmaceutical holdings, the defensive component, outperformed on
the downside but this was offset by more substantial price declines
from our positions in small biotechnology companies. Midway through
the fiscal year, the Fund underwent a strategic shift. While we
continued to rely on biotechnology as the subsector with the
greatest upside potential, we gradually shifted our defensive
emphasis away from service companies (HMOs and hospitals) to
pharmaceuticals, both research-based and generic. The service
sector (HMOs and hospital groups) was upset by the weak economy -
admissions declined and bad debt losses rose. Pharmaceuticals
declined, but at a lesser rate than the health care sector.
The Fund's gain was in line with that of the S&P 500 Index for the
fiscal year. The broad market measure was restrained first by fear
of deflation and lack of job growth, and in April, robust economic
growth led to inflation concerns with the anticipation of an
imminent interest rate hike. Moreover, uncertainty with regard to
the Chinese government's ability to dampen its booming economy
without far-reaching dislocation impacted cyclical stocks. The
health care sector, during this time, benefited from its
defensiveness and also from dramatic new cancer treatments from
biotechnology companies.
What changes were made to the portfolio during the fiscal year?
Our strategy remains essentially unchanged. The emphasis is on
growth. The most significant change in the portfolio was a shift
away from positions in generic holdings to research-based
pharmaceutical holdings. This move was driven by relative valuations
and defensive considerations. Overall, while there were changes in
individual holdings, the portfolio's subsector mix was little
changed. Our heaviest weighting remained in biotechnology and
pharmaceutical issues. HMOs recorded a large increase as several
positions were added in April.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Biotechnology, with its unique growth opportunities based on new
drug discovery, underpins the upside potential of the Fund. To
counterbalance the risk implicit in relatively unseasoned and
minimal return biotechnology holdings, the Fund relies on large cap
pharmaceuticals that presently are reasonably valued and also
provide dividends to help cushion the downside.
How would you characterize the portfolio's position at the close of
the period?
The portfolio was structured by subsector much as it had been 12
months earlier. However, the number of holdings was increased to 81
as of April 30, 2004 from 55 a year ago. At period end, the Fund's
cash balance was reduced to 0.6% of net assets from 9.1%, and the
Fund's small/mid cap component rose to 51% of net assets from 33%.
Foreign holdings were increased to 23.8% of net assets from 9.9% at
the end of April 2003, as positions were added in Indian, Japanese
and European pharmaceutical companies. 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
May 11, 2004
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Performance Data
About Fund Performance
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. Current performance may be lower or higher
than the performance data quoted. Refer to www.mlim.ml.com to obtain
more current performance information. 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 gain distributions, if any, 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.
Recent Performance Results
10-Year/
6-Month 12-Month Since Inception
As of April 30, 2004 Total Return Total Return Total Return
ML Healthcare Fund, Inc.--Class A Shares* +9.43% +22.46% +295.29%
ML Healthcare Fund, Inc.--Class B Shares* +9.25 +21.57 +276.83
ML Healthcare Fund, Inc.--Class C Shares* +9.25 +21.87 +275.37
ML Healthcare Fund, Inc.--Class I Shares* +9.74 +22.90 +318.27
ML Healthcare Fund, Inc.--Class R Shares* +9.37 +22.74 + 24.26
Standard & Poor's 500 Index** +6.27 +22.88 +193.41/+180.52/+24.72
*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 10-year since inception periods are for 10 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 10 years, from 10/21/94 and from 1/03/03, respectively.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Performance Data (continued)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
Class A & Class C Shares
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 Standard & Poor's 500 Index++++. Values
illustrated are as follows:
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
April 2004 $37,454.00
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
April 2004 $37,537.00
Standard & Poor's 500 Index++++
Date Value
10/21/1994** $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
April 2004 $28,052.00
*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 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.
Past performance is not indicative of future results.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 4/30/04 +22.46% +16.03%
Five Years Ended 4/30/04 + 8.95 + 7.79
Inception (10/21/94)
through 4/30/04 +15.53 +14.87
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
Class C Shares*
One Year Ended 4/30/04 +21.87% +20.87%
Five Years Ended 4/30/04 + 8.13 + 8.13
Inception (10/21/94)
through 4/30/04 +14.90 +14.90
*Maximum contingent deferred sales charge is 1% and is reduced to 0%
after one year.
**Assuming payment of applicable contingent deferred sales charge.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Performance Data (continued)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
Class B & Class I Shares
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 Standard & Poor's 500 Index++++. Values
illustrated are as follows:
ML Healthcare Fund, Inc++
Class B Shares*
Date Value
April 1994 $10,000.00
April 1995 $10,529.00
April 1996 $14,999.00
April 1997 $16,115.00
April 1998 $22,981.00
April 1999 $25,460.00
April 2000 $32,332.00
April 2001 $36,627.00
April 2002 $37,303.00
April 2003 $30,997.00
April 2004 $37,683.00
ML Healthcare Fund, Inc++
Class I Shares*
Date Value
April 1994 $ 9,475.00
April 1995 $10,088.00
April 1996 $14,528.00
April 1997 $15,770.00
April 1998 $22,718.00
April 1999 $25,446.00
April 2000 $32,585.00
April 2001 $37,334.00
April 2002 $38,420.00
April 2003 $32,247.00
April 2004 $39,631.00
Standard & Poor's 500 Index++++
Date Value
April 1994 $10,000.00
April 1995 $11,747.00
April 1996 $15,295.00
April 1997 $19,140.00
April 1998 $27,000.00
April 1999 $32,892.00
April 2000 $36,223.00
April 2001 $31,524.00
April 2002 $27,544.00
April 2003 $23,879.00
April 2004 $29,341.00
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
++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 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.
Past performance is not indicative of future results.
Average Annual Total Return
Return Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 4/30/04 +21.57% +17.57%
Five Years Ended 4/30/04 + 8.16 + 7.86
Ten Years Ended 4/30/04 +14.19 +14.19
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after six years.
**Assuming payment of applicable contingent deferred sales charge.
Return Without Return With
Sales Charge Sales Charge**
Class I Shares*
One Year Ended 4/30/04 +22.90% +16.45%
Five Years Ended 4/30/04 + 9.27 + 8.09
Ten Years Ended 4/30/04 +15.38 +14.76
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Performance Data (concluded)
TOTAL RETURN BASED ON A $10,000 INVESTMENT
Class R Shares
A line graph illustrating the growth of a $10,000 investment in
ML Healthcare Fund, Inc++ Class R Shares* compared to a similar
investment in Standard & Poor's 500 Index++++. Values illustrated
are as follows:
ML Healthcare Fund, Inc++
Class R Shares*
Date Value
1/3/2003** $10,000.00
April 2003 $10,124.00
April 2004 $12,426.00
Standard & Poor's 500 Index++++
Date Value
1/3/2003** $10,000.00
April 2003 $10,150.00
April 2004 $12,472.00
*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 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.
Past performance is not indicative of future results.
Average Annual Total Return
Return Without
Sales Charge
Class R Shares
One Year Ended 4/30/04 +22.74%
Inception (1/03/03) through 4/30/04 +17.88
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Schedule of Investments
Value Percent of
MIDDLE EAST Industry* Shares Held Common Stocks (in U.S. dollars) Net Assets
Israel Medical Devices 48,200 ++Given Imaging Ltd. $ 1,747,250 0.3%
Pharmaceutical-- 250,000 ++Taro Pharmaceutical Industries Ltd. 10,812,500 1.5
Prescription
Pharmaceutical-- 500,000 Teva Pharmaceutical Industries Ltd. (ADR) (a) 30,780,000 4.4
Specialty
Total Common Stocks in the Middle East 43,339,750 6.2
NORTH AMERICA
Canada Pharmaceutical-- 6,600 ++Neurochem, Inc. 159,907 0.0
Specialty 500,000 ++QLT Inc. 13,485,000 2.0
Total Common Stocks in Canada 13,644,907 2.0
United Biotechnology 384,300 ++Abgenix, Inc. 6,252,561 0.9
States Discovery 150,000 ++Charles River Laboratories International, Inc. 6,900,000 1.0
Tools & Platform 37,096 ++Emisphere Technologies, Inc. 172,867 0.0
Tech. 900,000 ++Lexicon Genetics Incorporated 6,354,000 0.9
1,000,000 ++Medarex, Inc. 9,530,000 1.4
------------- ------
29,209,428 4.2
Biotechnology 500,000 ++Amgen Inc. 28,135,000 4.0
Products 300,000 ++AtheroGenics, Inc. 7,086,000 1.0
509,900 ++BioMarin Pharmaceutical Inc. 3,528,508 0.5
21,600 ++Cell Genesys, Inc. 238,680 0.0
340,900 ++Corcept Therapeutics Inc. 4,002,166 0.6
142,600 ++Cypress Bioscience, Inc. 2,066,274 0.3
240,000 ++Dyax Corp. 3,360,000 0.5
500,000 ++Genta Incorporated 4,290,000 0.6
100,000 ++Gilead Sciences, Inc. 6,083,000 0.9
200,000 ++ICOS Corporation 6,398,000 0.9
295,200 ++Imclone Systems 19,742,976 2.8
200,000 ++Millennium Pharmaceuticals, Inc. 2,998,000 0.4
350,000 ++Neurocrine Biosciences, Inc. 22,970,500 3.3
100,000 ++Nuvelo, Inc. 1,081,000 0.2
20,000 ++Seattle Genetics, Inc. 166,000 0.0
------------- ------
112,146,104 16.0
Health Care 138,700 ++Community Health Care 3,577,073 0.5
Facilities 180,000 HCA Inc. 7,313,400 1.0
698,900 Manor Care, Inc. 22,672,316 3.2
650,000 ++Triad Hospitals, Inc. 22,106,500 3.2
------------- ------
55,669,289 7.9
Health Care 550,000 ++Cerner Corporation 23,551,000 3.4
Information 2,300,000 ++WebMD Corporation 20,217,000 2.9
& Technology ------------- ------
43,768,000 6.3
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Schedule of Investments (continued)
NORTH AMERICA Value Percent of
(concluded) Industry* Shares Held Common Stocks (in U.S. dollars) Net Assets
United Managed Health 200,000 Aetna Inc. (New Shares) $ 16,550,000 2.4%
States Care 300,000 ++Anthem, Inc. 26,574,000 3.8
(concluded) 150,000 ++PacifiCare Health Systems, Inc. 5,364,000 0.8
100,000 ++Sierra Health Services, Inc. 3,715,000 0.5
200,000 UnitedHealth Group Incorporated 12,296,000 1.7
132,000 ++WellChoice Inc. 5,596,800 0.8
------------- ------
70,095,800 10.0
Medical Devices 25,000 Becton, Dickinson and Company 1,263,750 0.2
200,000 ++Boston Scientific Corporation 8,238,000 1.2
269,100 ++Conceptus, Inc. 3,094,650 0.4
121,400 Cooper Companies, Inc. 6,555,600 0.9
500,000 ++Cytyc Corporation 10,700,000 1.5
200,000 Diagnostic Products Corporation 8,532,000 1.2
100,000 Guidant Corporation 6,301,000 0.9
275,000 Medtronic, Inc. 13,876,500 2.0
451,500 ++SonoSite, Inc. 9,716,280 1.4
300,000 ++St. Jude Medical, Inc. 22,878,000 3.3
------------- ------
91,155,780 13.0
Pharmaceutical-- 100,000 Abbott Laboratories 4,402,000 0.6
Diversified
Pharmaceutical-- 180,000 ++K-V Pharmaceutical Company (Class A) 4,323,600 0.6
Generic
Pharmaceutical-- 60,000 Eli Lilly and Company 4,428,600 0.6
Prescription 500,000 ++The Medicines Company 16,355,000 2.4
425,000 ++Nabi Biopharmaceuticals 6,948,750 1.0
1,000,000 Pfizer, Inc. 35,760,000 5.1
------------- ------
63,492,350 9.1
Pharmaceutical-- 120,000 ++Alkermes, Inc. 1,839,600 0.3
Specialty 250,000 ++Amylin Pharmaceuticals, Inc. 5,600,000 0.8
100,000 ++DOV Pharmaceutical, Inc. 1,731,000 0.3
220,000 ++Genelabs Technologies, Inc. 605,000 0.1
80,000 ++Kosan Biosciences, Inc. 1,105,600 0.2
700,000 ++La Jolla Pharmaceutical Company 2,338,000 0.3
440,000 Medicis Pharmaceutical (Class A) 18,884,800 2.7
10,659 ++Memory Pharmaceuticals Corp. 108,722 0.0
182,121 ++NPS Pharmaceuticals, Inc. 4,562,131 0.6
------------- ------
36,774,853 5.3
Pharmacy Benefit 550,000 ++Caremark Rx, Inc. 18,617,500 2.6
Managers
Total Common Stocks in the United States 529,654,704 75.6
Total Common Stocks in North America 543,299,611 77.6
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Schedule of Investments (continued)
PACIFIC Value Percent of
BASIN/ASIA Industry* Shares Held Common Stocks (in U.S. dollars) Net Assets
India Pharmaceutical-- 275,093 Cadila Healthcare Limited $ 3,086,213 0.4%
Generic 93,167 Cipla Limited 2,866,451 0.4
100,000 Nicholas Piramal Ltd. 1,934,338 0.3
100,000 Ranbaxy Laboratories Limited 2,389,364 0.3
35,198 Sun Pharmaceutical Industries Limited 594,377 0.1
166,431 Wockhardt Limited 1,198,924 0.2
Total Common Stocks in India 12,069,667 1.7
Japan Pharmaceutical-- 150,000 Fujisawa Pharmaceutical Co., Ltd. 3,486,476 0.5
Prescription 200,000 Yamanouchi Pharmaceutical Co., Ltd. 6,669,385 1.0
Total Common Stocks in Japan 10,155,861 1.5
Total Common Stocks in the Pacific Basin/Asia 22,225,528 3.2
WESTERN EUROPE
Belgium Pharmaceutical-- 46,826 UCB SA 1,873,709 0.2
Prescription
Total Common Stocks in Belgium 1,873,709 0.2
France Biotechnology 500,000 ++Flamel Technologies SA (Sponsored ADR) (a) 13,195,000 1.9
Discovery
Tools & Platform
Technology
Pharmaceutical-- 100,000 Sanofi-Synthelabo SA 6,353,377 0.9
Prescription
Total Common Stocks in France 19,548,377 2.8
Switzerland Pharmaceutical-- 600,000 Novartis AG (Registered Shares) 26,746,876 3.8
Prescription 200,000 Roche Holdings AG 20,977,942 3.0
Total Common Stocks in Switzerland 47,724,818 6.8
United Biotechnology 1,782,100 ++Ark Therapeutics Group PLC 3,444,716 0.5
Kingdom Products
Medical Devices 2,500,000 ++SkyePharma PLC 2,626,777 0.4
900,000 Smith & Nephew PLC 9,137,194 1.3
------------- ------
11,763,971 1.7
Pharmaceutical-- 60,000 AstraZeneca Group PLC (ADR) (a) 2,871,000 0.4
Prescription
Total Common Stocks in the United Kingdom 18,079,687 2.6
Total Common Stocks in Western Europe 87,226,591 12.4
Total Common Stocks
(Cost--$566,273,553) 696,091,480 99.4
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Schedule of Investments (concluded)
Beneficial Interest/ Value Percent of
Shares Held Short-Term Securities (in U.S. dollars) Net Assets
$ 7,623,917 Merrill Lynch Liquidity Series, LLC Cash
Sweep Series I (b) $ 7,623,917 1.1%
$135,159,806 Merrill Lynch Liquidity Series, LLC Money
Market Series (b)(c) 135,159,806 19.3
45,053,269 Merrill Lynch Liquidity Series Premier
Institutional Fund (b)(c) 45,053,269 6.4
Total Short-Term Securities
(Cost--$187,836,992) 187,836,992 26.8
Total Investments (Cost--$754,110,545) 883,928,472 126.2
Liabilities in Excess of Other Assets (183,737,570) (26.2)
------------- ------
Net Assets $ 700,190,902 100.0%
============= ======
*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.
++Non-income producing security.
(a)American Depositary Receipts (ADR).
(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:
Interest/
Net Dividend
Affiliate Activity Income
Merrill Lynch Liquidity Series,
LLC Cash Sweep Series I $(50,661,564) $465,441
Merrill Lynch Liquidity Series,
LLC Money Market Series $ 30,123,625 $ 71,330
Merrill Lynch Premier
Institutional Fund (24,970,850) $ 86,665
(c)Security was purchased with the cash proceeds from securities
loans.
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Statement of Assets and Liabilities
As of April 30, 2004
Assets
Investments in unaffiliated securities, at value
(including securities loaned of $169,398,727) (identified cost--$566,273,553) $ 696,091,480
Investments in affiliated securities, at value (identified cost--$187,836,992) 187,836,992
Cash 1,137,776
Receivables:
Securities sold $ 3,691,834
Capital shares sold 747,749
Dividends 360,893
Interest from affiliates 30,425
Securities lending--net 19,885 4,850,786
---------------
Prepaid expenses 25,972
---------------
Total assets 889,943,006
---------------
Liabilities
Collateral on securities loaned, at value 180,213,075
Payables:
Securities purchased 6,782,371
Capital shares redeemed 1,080,950
Investment adviser 691,143
Deferred foreign capital gain tax 429,975
Distributor 257,164
Other affiliates 237,647 9,479,250
---------------
Accrued expenses 59,779
---------------
Total liabilities 189,752,104
---------------
Net Assets
Net assets $ 700,190,902
===============
Net Assets Consist of
Class A Shares of Common Stock, $.10 par value, 100,000,000 shares authorized $ 2,512,954
Class B Shares of Common Stock, $.10 par value, 250,000,000 shares authorized 3,588,569
Class C Shares of Common Stock, $.10 par value, 100,000,000 shares authorized 1,730,049
Class I Shares of Common Stock, $.10 par value, 200,000,000 shares authorized 4,013,206
Class R Shares of Common Stock, $.10 par value, 250,000,000 shares authorized 9,431
Paid-in capital in excess of par 537,878,646
Accumulated investment loss--net $ (190,068)
Undistributed realized capital gains on investments and foreign
currency transactions--net 21,261,843
Unrealized appreciation on investments and foreign currency transactions--net 129,386,272
---------------
Total accumulated earnings--net 150,458,047
---------------
Net Assets $ 700,190,902
===============
Net Asset Value
Class A--Based on net assets of $160,442,545 and 25,129,537 shares outstanding $ 6.38
===============
Class B--Based on net assets of $177,952,102 and 35,885,694 shares outstanding $ 4.96
===============
Class C--Based on net assets of $85,752,549 and 17,300,493 shares outstanding $ 4.96
===============
Class I--Based on net assets of $275,570,336 and 40,132,055 shares outstanding $ 6.87
===============
Class R--Based on net assets of $473,370 and 94,311 shares outstanding $ 5.02
===============
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Statement of Operations
For the Year Ended April 30, 2004
Investment Income
Dividends (net of $146,037 foreign withholding tax) $ 3,200,312
Interest from affiliates 465,441
Securities lending--net 157,995
---------------
Total income 3,823,748
---------------
Expenses
Investment advisory fees $ 7,018,719
Account maintenance and distribution fees--Class B 1,998,562
Account maintenance and distribution fees--Class C 855,356
Transfer agent fees--Class I 543,075
Transfer agent fees--Class B 450,621
Account maintenance fees--Class A 356,335
Transfer agent fees--Class A 288,269
Accounting services 249,154
Transfer agent fees--Class C 204,988
Custodian fees 118,714
Registration fees 73,247
Professional fees 68,546
Printing and shareholder reports 68,045
Directors' fees and expenses 48,823
Pricing fees 11,782
Account maintenance and distribution fees--Class R 548
Transfer agent fees--Class R 402
Other 43,779
---------------
Total expenses 12,398,965
---------------
Investment loss--net (8,575,217)
---------------
Realized & Unrealized Gain (Loss) on Investments and Foreign Currency Transactions--Net
Realized gain (loss) on:
Investments--net (net of $14,959 foreign capital gain tax) 67,700,750
Foreign currency transactions--net (235,896) 67,464,854
---------------
Change in unrealized appreciation/depreciation on:
Investments--net (net of $429,975 deferred foreign capital gain tax) 78,790,701
Foreign currency transactions--net (3,403) 78,787,298
--------------- ---------------
Total realized and unrealized gain on investments and foreign currency
transactions--net 146,252,152
---------------
Net Increase in Net Assets Resulting from Operations $ 137,676,935
===============
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Statements of Changes in Net Assets
For the Year Ended April 30,
Increase (Decrease) in Net Assets: 2004 2003
Operations
Investment loss--net $ (8,575,217) $ (8,909,603)
Realized gain (loss) on investments and foreign currency transactions--net 67,464,854 (30,404,968)
Change in unrealized appreciation/depreciation on investments and foreign
currency transactions--net 78,787,298 (107,302,270)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations 137,676,935 (146,616,841)
--------------- ---------------
Capital Share Transactions
Net decrease in net assets derived from capital share transactions (72,227,314) (86,554,209)
--------------- ---------------
Net Assets
Total increase (decrease) in net assets 65,449,621 (233,171,050)
Beginning of year 634,741,281 867,912,331
--------------- ---------------
End of year* $ 700,190,902 $ 634,741,281
=============== ===============
*Undistributed (accumulated) investment income (loss)--net $ (190,068) $ 8,555
=============== ===============
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Financial Highlights
The following per share data and ratios have been derived Class A
from information provided in the financial statements.
For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 2004 2003++ 2002++ 2001++ 2000++
Per Share Operating Performance
Net asset value, beginning of year $ 5.21 $ 6.23 $ 6.29 $ 6.63 $ 5.36
---------- ---------- ---------- ---------- ----------
Investment loss--net** (.06) (.05) (.07) (.05) (.04)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.23 (.97) .24 1.05 1.49
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.17 (1.02) .17 1.00 1.45
---------- ---------- ---------- ---------- ----------
Less distributions from realized gain on
investments--net -- -- (.23) (1.34) (.18)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 6.38 $ 5.21 $ 6.23 $ 6.29 $ 6.63
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 22.46% (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 (1.00%) (1.04%) (1.20%) (.80%) (.71%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 160,443 $ 119,375 $ 146,714 $ 107,642 $ 59,029
========== ========== ========== ========== ==========
Portfolio turnover 141.46% 128.24% 81.36% 65.42% 109.88%
========== ========== ========== ========== ==========
++Effective April 14, 2003, Class D Shares were redesignated Class A
Shares.
*Total investment returns exclude the effects of sales charges.
**Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Financial Highlights (continued)
The following per share data and ratios have been derived Class B
from information provided in the financial statements.
For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of year $ 4.08 $ 4.91 $ 5.05 $ 5.55 $ 4.54
---------- ---------- ---------- ---------- ----------
Investment loss--net** (.08) (.08) (.10) (.09) (.07)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .96 (.75) .19 .89 1.26
---------- ---------- ---------- ---------- ----------
Total from investment operations .88 (.83) .09 .80 1.19
---------- ---------- ---------- ---------- ----------
Less distributions from realized gain on
investments--net -- -- (.23) (1.30) (.18)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 4.96 $ 4.08 $ 4.91 $ 5.05 $ 5.55
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 21.57% (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 (1.78%) (1.83%) (1.97%) (1.57%) (1.49%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 177,952 $ 194,543 $ 310,916 $ 331,683 $ 273,530
========== ========== ========== ========== ==========
Portfolio turnover 141.46% 128.24% 81.36% 65.42% 109.88%
========== ========== ========== ========== ==========
*Total investment returns exclude the effects of sales charges.
**Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Financial Highlights (continued)
The following per share data and ratios have been derived Class C
from information provided in the financial statements.
For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 2004 2003 2002 2001 2000
Per Share Operating Performance
Net asset value, beginning of year $ 4.07 $ 4.91 $ 5.05 $ 5.55 $ 4.55
---------- ---------- ---------- ---------- ----------
Investment loss--net** (.08) (.08) (.10) (.09) (.07)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net .97 (.76) .19 .90 1.25
---------- ---------- ---------- ---------- ----------
Total from investment operations .89 (.84) .09 .81 1.18
---------- ---------- ---------- ---------- ----------
Less distributions from realized gain on
investments--net -- -- (.23) (1.31) (.18)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 4.96 $ 4.07 $ 4.91 $ 5.05 $ 5.55
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 21.87% (17.11%) 1.85% 13.38% 26.70%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 2.33% 2.37% 2.30% 2.28% 2.30%
========== ========== ========== ========== ==========
Investment loss--net (1.79%) (1.84%) (1.99%) (1.58%) (1.50%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 85,753 $ 76,606 $ 98,994 $ 66,028 $ 38,622
========== ========== ========== ========== ==========
Portfolio turnover 141.46% 128.24% 81.36% 65.42% 109.88%
========== ========== ========== ========== ==========
*Total investment returns exclude the effects of sales charges.
**Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Financial Highlights (continued)
The following per share data and ratios have been derived Class I
from information provided in the financial statements.
For the Year Ended April 30,
Increase (Decrease) in Net Asset Value: 2004 2003++ 2002++ 2001++ 2000++
Per Share Operating Performance
Net asset value, beginning of year $ 5.59 $ 6.66 $ 6.70 $ 6.98 $ 5.62
---------- ---------- ---------- ---------- ----------
Investment loss--net** (.05) (.04) (.06) (.04) (.03)
Realized and unrealized gain (loss) on
investments and foreign currency
transactions--net 1.33 (1.03) .25 1.12 1.57
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.28 (1.07) .19 1.08 1.54
---------- ---------- ---------- ---------- ----------
Less distributions from realized gain on
investments--net -- -- (.23) (1.36) (.18)
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 6.87 $ 5.59 $ 6.66 $ 6.70 $ 6.98
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 22.90% (16.07%) 2.91% 14.57% 28.06%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 1.29% 1.33% 1.27% 1.24% 1.26%
========== ========== ========== ========== ==========
Investment loss--net (.75%) (.79%) (.95%) (.55%) (.47%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of year (in thousands) $ 275,570 $ 244,217 $ 311,288 $ 288,091 $ 219,499
========== ========== ========== ========== ==========
Portfolio turnover 141.46% 128.24% 81.36% 65.42% 109.88%
========== ========== ========== ========== ==========
++Effective April 14, 2003, Class A Shares were redesignated Class I
Shares.
*Total investment returns exclude the effects of sales charges.
**Based on average shares outstanding.
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Financial Highlights (concluded)
Class R
The following per share data and ratios have been derived For the For the Period
from information provided in the financial statements. Year Ended Jan. 3, 2003++
April 30, to April 30,
Increase (Decrease) in Net Asset Value: 2004 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 .95 .06
------------ ------------
Total from investment operations .93 .05
------------ ------------
Net asset value, end of period $ 5.02 $ 4.09
============ ============
Total Investment Return++++
Based on net asset value per share 22.74% 1.24%++++++
============ ============
Ratios to Average Net Assets
Expenses 1.73% 1.84%*
============ ============
Investment loss--net (1.15%) (.36%)*
============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 473 --***
============ ============
Portfolio turnover 141.46% 128.24%
============ ============
++Commencement of operations.
++++Total investment returns exclude the effects of sales charges.
++++++Aggregate total investment return.
*Annualized.
**Based on average shares outstanding.
***Amount is less than $1,000.
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
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 U.S. generally
accepted accounting principles, which may require the use of
management accruals and estimates. Actual results may differ from
these estimates. The Fund offers multiple classes of shares. 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 purchased 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.
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 disaster) 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.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Notes to Financial Statements (continued)
(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 contacts 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 may 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 may 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).
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.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Notes to Financial Statements (continued)
(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) Reclassifications--U.S. generally accepted accounting principles
require that certain components of net assets be adjusted to
reflect permanent differences between financial and tax reporting.
Accordingly, during the current year, $8,627,449 has been
reclassified between paid-in capital in excess of par and
undistributed net investment income and $250,855 has been
reclassified between undistributed net investment income and
accumulated realized capital gains on investments as a result of
permanent differences attributable to net operating losses,
transaction gains/losses and foreign withholding taxes. 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 in the aggregate
fees paid by the Fund for these services.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
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 year ended April 30, 2004, 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 $7,172 $105,359
Class I $ 301 $ 4,036
For the year ended April 30, 2004, MLPF&S received contingent
deferred sales charges of $299,523 and $8,940 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, 2004, the Fund lent
securities with a value of $27,644,476 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, 2004, MLIM, LLC received
$68,598 in securities lending agent fees.
In addition, MLPF&S received $1,002,738 in commissions on the
execution of portfolio security transactions for the Fund for the
year ended April 30, 2004.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
For the year ended April 30, 2004, the Fund, reimbursed MLIM,
$14,962 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, 2004 were $930,586,136 and $958,250,721
respectively.
Net realized gains (losses) for the year ended April 30, 2004 and
net unrealized appreciation/depreciation as of April 30, 2004 were
as follows:
Unrealized
Realized Appreciation/
Gains (Losses) Depreciation
Long-term investments $ 67,715,709 $ 129,817,927
Foreign currency transactions (235,896) (1,680)
Foreign capital gain tax (14,959) (429,975)
--------------- ---------------
Total $ 67,464,854 $ 129,386,272
=============== ===============
As of April 30, 2004, net unrealized appreciation for Federal income
tax purposes aggregated $129,205,057, of which $144,304,100 related
to appreciated securities and $15,099,043 related to depreciated
securities. The aggregate cost of investments at April 30, 2004 for
Federal income tax purposes was $754,723,415.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Notes to Financial Statements (continued)
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions
was $72,227,314 and $86,554,209 for the years ended April 30, 2004
and April 30, 2003, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the Year Dollar
Ended April 30, 2004 Shares Amount
Shares sold 3,548,971 $ 21,466,372
Automatic conversion of shares 4,753,957 29,349,565
-------------- ---------------
Total issued 8,302,928 50,815,937
Shares redeemed (6,095,207) (36,859,042)
-------------- ---------------
Net increase 2,207,721 $ 13,956,895
============== ===============
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)
============== ===============
Class B Shares for the Year Dollar
Ended April 30, 2004 Shares Amount
Shares sold 4,858,391 $ 22,694,707
Automatic conversion of shares (6,102,911) (29,349,565)
Shares redeemed (10,596,407) (49,517,621)
-------------- ---------------
Net decrease (11,840,927) $ (56,172,479)
============== ===============
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 Year Dollar
Ended April 30, 2004 Shares Amount
Shares sold 3,027,451 $ 14,171,991
Shares redeemed (4,525,969) (21,296,318)
-------------- ---------------
Net decrease (1,498,518) $ (7,124,327)
============== ===============
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 Year Dollar
Ended April 30, 2004 Shares Amount
Shares sold 5,776,882 $ 37,022,644
Shares redeemed (9,357,955) (60,361,693)
-------------- ---------------
Net decrease (3,581,073) $ (23,339,049)
============== ===============
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)
============== ===============
Class R Shares for the Year Dollar
Ended April 30, 2004 Shares Amount
Shares sold 110,216 $ 532,188
Shares redeemed (15,930) (80,542)
-------------- ---------------
Net increase 94,286 $ 451,646
============== ===============
Class R Shares for the
Period Jan. 3, 2003++ to Dollar
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 28, 2003, the credit agreement was
renewed for one year under the same terms. The Fund did not borrow
under the credit agreement during the year ended April 30, 2004.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Notes to Financial Statements (concluded)
6. Distributions to Shareholders:
As of April 30, 2004, the components of accumulated earnings on a
tax basis were as follows:
Undistributed ordinary income--net $ --
Undistributed long-term capital gains--net 21,874,713
---------------
Total undistributed earnings--net 21,874,713
Capital loss carryforward --
Unrealized gains--net 128,583,334*
---------------
Total accumulated earnings--net $ 50,458,047
===============
*The difference between book-basis and tax-basis net unrealized
gains is attributable primarily to the tax deferral of losses on
wash sales and the deferral of post-October currency losses for tax
purposes.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Report of Independent Registered Public Accounting Firm
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, 2004, 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 each of 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 the standards of the
Public Company Accounting Oversight Board (United States). 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, 2004, 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, 2004, 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 each of the
respective periods then ended, in conformity with U.S. generally
accepted accounting principles.
Deloitte & Touche LLP
Princeton, New Jersey
June 4, 2004
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Officers and Directors (unaudited)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
Interested Director
Terry K. Glenn* President 1999 to President of Merrill Lynch Investment 122 Funds None
P.O. Box 9011 and present Managers, L.P. ("MLIM")/Fund Asset 161 Portfolios
Princeton, Director and Management, L.P. ("FAM")--Advised Funds
NJ 08543-9011 1983 to since 1999; Chairman (Americas Region)
Age: 63 present 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. since 1985.
* Mr. Glenn is a director, trustee or member of an advisory board of
certain other investment companies for which MLIM or FAM 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 MLIM, FAM, 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.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Officers and Directors (unaudited)(continued)
Number of
Portfolios in Other Public
Position(s) Length of Fund Complex Directorships
Held with Time Overseen by Held by
Name, Address & Age Fund Served Principal Occupation(s) During Past 5 Years Director Director
Independent Directors*
Ronald W. Forbes Director 2000 to Professor Emeritus of Finance, School of 49 Funds None
P.O. Box 9095 present Business, State University of New York at 49 Portfolios
Princeton, Albany since 2000 and Professor thereof
NJ 08543-9095 from 1989 to 2000; International Consultant
Age: 63 at the Urban Institute, Washington, D.C.
from 1995 to 1999.
Cynthia A. Montgomery Director 2000 to Professor of Harvard Business School since 49 Funds Newell
P.O. Box 9095 present 1989; Associate Professor of J.L. Kellogg 49 Portfolios Rubbermaid, Inc.
Princeton, Graduate School of Management, Northwestern
NJ 08543-9095 University from 1985 to 1989; Associate
Age: 51 Professor of the Graduate School of
Business Administration, University of
Michigan from 1979 to 1985.
Kevin A. Ryan Director 2000 to Founder and Director of The Boston 49 Funds None
P.O. Box 9095 present University Center for the Advancement of 49 Portfolios
Princeton, Ethics and Character from 1989 to 1999
NJ 08543-9095 and Director Emeritus thereof since 1999;
Age: 71 Professor of Education of Boston University
from 1982 to 1999 and Professor Emeritus
thereof since 1999; formerly on the
faculties of The University of Chicago,
Stanford University and Ohio State University.
Roscoe S. Suddarth Director 2000 to President of Middle East Institute from 49 Funds None
P.O. Box 9095 present 1995 to 2001; Foreign Service Officer of 49 Portfolios
Princeton, United States Foreign Service from 1961
NJ 08543-9095 to 1995 and Career Minister thereof from
Age: 68 1989 to 1995; Deputy Inspector General of
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 of New York University, Leonard N. 49 Funds Bowne & Co.,
P.O. Box 9095 present Stern School of Business Administration 49 Portfolios Inc.; Vornado
Princeton, from 1984 to 1993, Professor of Finance Operating
NJ 08543-9095 thereof since 1984 and currently Dean Company;
Age: 66 Emeritus. Vornado Realty
Trust and
Alexander's, Inc.
Edward D. Zinbarg Director 1994 to Self-employed financial consultant since 49 Funds None
P.O. Box 9095 present 1994; Executive Vice President of The 49 Portfolios
Princeton, Prudential Insurance Company of America
NJ 08543-9095 from 1988 to 1994; Former Director of
Age: 69 Prudential Reinsurance Company and former
Trustee of The Prudential Foundation.
* 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.
MERRILL LYNCH HEALTHCARE FUND, INC., APRIL 30, 2004
Officers and Directors (unaudited)(concluded)
Position(s) Length of
Held with Time
Name, Address & Age 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: 43 present
Robert C. Doll, Jr. Senior 1999 to President of MLIM and member of the Executive Management Committee of
P.O. Box 9011 Vice present ML & Co., Inc. since 2001; Global Chief Investment Officer and Senior
Princeton, President Portfolio Manager of MLIM since 1999; Chief Investment Officer of Equities
NJ 08543-9011 at Oppenheimer Funds, Inc. from 1990 to 1999 and Chief Investment Officer
Age: 49 thereof from 1998 to 1999; Executive Vice President of Oppenheimer Funds, Inc.
from 1991 to 1999.
Jordan C. Schreiber Vice 1983 to Managing Director of MLIM since 2000; Director (Equities) of MLIM from 1997
P.O. Box 9011 President present to 2000.
Princeton,
NJ 08543-9011
Age: 74
Phillip S. Gillespie Secretary 2000 to First Vice President of MLIM since 2001; Director (Legal Advisory) from 2000
P.O. Box 9011 present to 2001; Vice President from 1999 to 2000; Attorney associated with MLIM
Princeton, since 1998.
NJ 08543-9011
Age: 40
* Officers of the Fund serve at the pleasure of the Board of
Directors.
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.
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
Charles C. Reilly, Director of Merrill Lynch Healthcare Fund, Inc.,
has recently retired. The Fund's Board of Directors wishes
Mr. Reilly well in his retirement.
Electronic Delivery
The Fund offers 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., APRIL 30, 2004
Item 2 - Code of Ethics - The registrant has adopted 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 and principal accounting officer, or persons
performing similar functions. A copy of the code of ethics
is available without charge upon request by calling toll-free
1-800-MER-FUND (1-800-637-3863).
Item 3 - Audit Committee Financial Expert - The registrant's board
of directors has determined that (i) the registrant has the
following audit committee financial experts serving on its audit
committee and (ii) each audit committee financial expert is
independent: (1) Ronald W. Forbes, (2) Richard R. West, and (3)
Edward D. Zinbarg.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending April 30, 2004 - $34,000
Fiscal Year Ending April 30, 2003 - $38,900
(b) Audit-Related Fees - Fiscal Year Ending April 30, 2004 - $0
Fiscal Year Ending April 30, 2003 - $0
(c) Tax Fees - Fiscal Year Ending April 30, 2004 - $5,200
Fiscal Year Ending April 30, 2003 - $4,800
The nature of the services include tax compliance, tax advice and
tax planning.
(d) All Other Fees - Fiscal Year Ending April 30, 2004 - $0
Fiscal Year Ending April 30, 2003 - $0
(e)(1) The registrant's audit committee (the "Committee") has
adopted policies and procedures with regard to the pre-approval of
services. Audit, audit-related and tax compliance services provided
to the registrant on an annual basis require specific pre-approval
by the Committee. The Committee also must approve other non-audit
services provided to the registrant and those non-audit services
provided to the registrant's affiliated service providers that
relate directly to the operations and the financial reporting of the
registrant. Certain of these non-audit services that the Committee
believes are a) consistent with the SEC's auditor independence rules
and b) routine and recurring services that will not impair the
independence of the independent accountants may be approved by the
Committee without consideration on a specific case-by-case basis
("general pre-approval"). However, such services will only be
deemed pre-approved provided that any individual project does not
exceed $5,000 attributable to the registrant or $50,000 for the
project as a whole. Any proposed services exceeding the pre-
approved cost levels will require specific pre-approval by the
Committee, as will any other services not subject to general pre-
approval (e.g., unanticipated but permissible services). The
Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board
meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending April 30, 2004 - $17,002,957
Fiscal Year Ending April 30, 2003 - $17,600,292
(h) The registrant's audit committee has considered and determined
that the provision of non-audit services that were rendered to the
registrant's 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.
Regulation S-X Rule 2-01(c)(7)(ii) - $541,640, 0%
Item 5 - Audit Committee of Listed Registrants - Not Applicable
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for
Closed-End Management Investment Companies - Not Applicable
Item 8 - Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers - Not Applicable
Item 9 - Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 10 - Controls and Procedures
10(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.
10(b) - There were no changes in the registrant's internal control
over financial reporting (as defined in Rule 30a-3(d) under the Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal half-
year of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 11 - Exhibits attached hereto
11(a)(1) - Code of Ethics - See Item 2
11(a)(2) - Certifications - Attached hereto
11(a)(3) - Not Applicable
11(b) - Certifications - 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 18, 2004
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 18, 2004
By: _/s/ Donald C. Burke________
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Healthcare Fund, Inc.
Date: June 18, 2004