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 811-03595
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: Robert C. Doll, Jr., Chief Executive
Officer, 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: 04/30/06
Date of reporting period: 05/01/05 - 10/31/05
Item 1 - Report to Stockholders
Merrill Lynch
Healthcare Fund, Inc.
Semi-Annual Report
October 31, 2005
(BULL LOGO) Merrill Lynch Investment Managers
www.mlim.ml.com
Mercury Advisors
A Division of Merrill Lynch Investment Managers
www.mercury.ml.com
This report is not authorized for use as an offer of sale or a solicitation
of an offer to buy shares of the 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) at www.mutualfunds.ml.com; and (3) on the Securities and Exchange
Commission's Web site at http://www.sec.gov. Information about how the
Fund voted proxies relating to securities held in the Fund's portfolio
during the most recent 12-month period ended June 30 is available (1) at
www.mutualfunds.ml.com; and (2) on the Securities and Exchange Commission's
Web site at http://www.sec.gov.
Merrill Lynch Healthcare Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
(GO PAPERLESS LOGO)
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Merrill Lynch Healthcare Fund, Inc.
Portfolio Information as of October 31, 2005
Percent of
Ten Largest Equity Holdings Net Assets
Caremark Rx, Inc. 7.5%
Roche Holding AG 7.1
Cerner Corp. 6.4
UnitedHealth Group, Inc. 5.9
WellPoint, Inc. 5.7
Sanofi-Aventis 4.0
Health Net, Inc. 3.8
Aetna, Inc. 3.4
SonoSite, Inc. 2.9
Wyeth 2.7
Percent of
Total
Geographic Allocation Investments
United States 63.0%
Switzerland 7.3
Japan 3.6
France 3.4
India 1.7
Germany 1.6
Sweden 0.8
Netherlands 0.7
United Kingdom 0.6
Finland 0.5
Denmark 0.4
Israel 0.4
Hungary 0.1
Other* 15.9
* Includes portfolio holdings in short-term investments.
Officers and Directors
Robert C. Doll, Jr., President and Director
Ronald W. Forbes, Director
Cynthia A. Montgomery, Director
Jean Margo Reid, Director
Roscoe S. Suddarth, Director
Richard R. West, Director
Edward D. Zinbarg, Director
Jordan C. Schreiber, Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Jeffrey Hiller, Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
JPMorgan Chase Bank, N.A.
3 Chase Metrotech Center
Brooklyn, NY 11245
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
800-637-3863
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
MERRILL LYNCH HEALTHCARE FUND, INC. OCTOBER 31, 2005
A Letter From the President
Dear Shareholder
As the financial markets continued to muddle their way through 2005, the
Federal Reserve Board (the Fed) advanced its monetary tightening campaign full
steam ahead. The 12th consecutive interest rate hike since June 2004 came on
November 1, bringing the target federal funds rate to 4%. The central bank is
clearly more focused on inflationary figures than on economic growth, which
has shown some signs of moderating. Despite rising short-term interest rates
and record-high energy prices, the major market indexes managed to post
positive results for the current reporting period:
Total Returns as of October 31, 2005 6-month 12-month
U.S. equities (Standard & Poor's 500 Index) + 5.27% + 8.72%
Small-cap U.S. equities (Russell 2000 Index) +12.25 +12.08
International equities (MSCI Europe Australasia Far East Index) + 8.63 +18.09
Fixed income (Lehman Brothers Aggregate Bond Index) + 0.15 + 1.13
Tax-exempt fixed income (Lehman Brothers Municipal Bond Index) + 0.59 + 2.54
High yield bonds (Credit Suisse First Boston High Yield Index) + 2.87 + 3.54
The headlines in recent months focused on Hurricanes Katrina and Rita and,
more recently, the nomination of Ben Bernanke to succeed Alan Greenspan as
Chairman of the Fed. While the hurricanes prompted a spike in energy prices
and short-term disruptions to production and spending, the longer-term
economic impact is likely to be tempered. In fact, the fiscal stimulus
associated with reconstruction efforts in the Gulf Coast region could add to
gross domestic product growth in 2006. Notably, the uncontroversial
nomination of Dr. Bernanke was well received by the markets.
The U.S. equity markets remained largely range bound in 2005. Up to this
point, strong corporate earnings reports and relatively low long-term bond
yields have worked in favor of equities. Looking ahead, high energy prices,
continued interest rate hikes, a potential consumer slowdown and/or
disappointing earnings pose the greatest risks to U.S. stocks. Internationally,
many markets have benefited from strong economic statistics, trade surpluses
and solid finances.
The bond market continued to be characterized by a flattening yield curve,
although long-term yields finally began to inch higher toward period end. The
10-year Treasury yield hit 4.57% on October 31, 2005, its highest level in
more than six months. Still, the difference between the two-year and 10-year
Treasury yield was just 17 basis points (.17%) at period end, compared to 149
basis points a year earlier.
Financial markets are likely to face continued crosscurrents in the months
ahead. Nevertheless, opportunities do exist and we encourage you to work with
your financial advisor to diversify your portfolio among a variety of asset
types. This can help to diffuse risk while also tapping into the potential
benefits of a broader range of investment alternatives. As always, we thank
you for trusting Merrill Lynch Investment Managers with your investment
assets.
Sincerely,
(Robert C. Doll, Jr.)
Robert C. Doll, Jr.
President and Director
MERRILL LYNCH HEALTHCARE FUND, INC. OCTOBER 31, 2005
A Discussion With Your Fund's Portfolio Manager
The Fund significantly outperformed its composite benchmark and the broader
equity market for the period, benefiting from our long-term strategy of
balancing upside potential and downside support within the health care sector.
How did the Fund perform during the period in light of the existing market
conditions?
For the six-month period ended October 31, 2005, Merrill Lynch Healthcare
Fund, Inc.'s Class A, Class B, Class C, Class I and Class R Shares had total
returns of +13.74%, +13.11%, +13.11%, +13.74% and +13.51%, 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 and 7
of this report to shareholders.) The Fund outpaced the broader stock market,
as represented by the Standard & Poor's 500 (S&P 500) Index, and its composite
benchmark, which comprises four Morgan Stanley Capital International (MSCI)
industries.* The S&P 500 Index returned +5.27% for the six-month period while
the composite benchmark returned +8.47%.
The Fund also outperformed the Lipper Health/Biotechnology Funds category,
which posted an average return of +8.31% for the six-month period ended
October 31, 2005. (Funds in this Lipper group focus their investment on
companies engaged in health care and biotechnology.)
The past six months were marked by continuing economic stability, interrupted
by two devastating hurricanes, the economic drain caused by the ongoing
hostilities in Iraq, scandal potentially undermining the Bush Administration
and the Federal Reserve Board (the Fed) raising interest rates (albeit from
historically low levels) to forestall potential inflation. During the period,
the trade and budget deficits have increased to sizeable levels. The strength
in the economy largely has been driven by the consumer sector. As the six
months came to a close, concern increased that consumer strength would abate
because of the impact of increased gasoline and heating oil costs, higher
interest rates and what many perceive as a real estate bubble set to deflate.
* The Fund's composite benchmark comprises the following four
MSCI industries: health care equipment and supplies (15%),
health care providers and services (25%), biotechnology (25%)
and pharmaceuticals (35%).
The health care sector has been one of the poorest-performing industry
sectors. Within the S&P 500 Index, health care provided the lowest six-month
return as of October 31, 2005, at -1.62%. Pharmaceutical shares continued to
trail the market and the sector overall, as political pressure stemming from
high drug prices and an FDA focused on drug safety as opposed to efficacy led
to increased clinical study costs. Patent expirations and generic company
efforts to invalidate existing branded drug patents, superimposed on an anemic
new product flow from research labs, were among other pressures facing drug
manufacturers. This pressure spilled over to device makers. There was concern
that, because of their product price increases, orthopedic and cardiovascular
device companies would follow the pattern of the drug companies that led to
investor unloading of shares in this subsector.
The bright spots in the health care sector continue to be managed care (HMOs)
and biotechnology. Anticipation of the volume increases to be gained from the
Medicare Modernization Act that starts in 2006 sparked investor interest in
HMOs, while biotechnology saw new products progress to commercialization, with
takeovers or licenses from "big pharma" expected. We stressed companies with
either late-stage or marketed products, especially those focused on cancer
treatment.
We believe the Fund performed quite well amid the underlying conditions. Our
"barbell" strategy, which stresses biotechnology stocks for upside potential
and HMOs as a cushion of downside support (based on reasonable valuations and
minimal exposure to what may be a slowing economy), was appropriate in an
equity market without firm leadership. The Fund also maintained a moderate
position in non-U.S.-based pharmaceutical companies with attractive
fundamentals. Holdings in India and Europe were joined by the addition of
three Japanese pharmaceutical company positions.
MERRILL LYNCH HEALTHCARE FUND, INC. OCTOBER 31, 2005
What changes were made to the portfolio during the period?
Changes to the portfolio during the past six months were marginal. We
slightly lowered our holdings of device companies, and increased holdings of
non-U.S.-based pharmaceutical companies. The additions included the three
aforementioned Japanese drug companies, leading companies in Finland (Orion
Oyj) and in Hungary (Gideon Richter, RT), and two German companies (Merck KGAA
and GPC Biotech AG). Our interest has centered on companies with potentially
important new products and/or new market opportunities. The total number of
holdings in the portfolio was increased from 58 to 71 over the past six months
as we added to our foreign drug holdings. At the end of October, U.S. holdings
were reduced to 72.2% of net assets from 82.3% six months earlier.
How would you characterize the Fund's position at the close of the period?
We maintain our growth investment style in a relatively turbulent market. At
the same time, we are sensitive to valuations and remain diversified across
the breadth of health care subsectors and geographical areas. As a further
risk-limiting step, we cap our commitment to any single holding at 8% of
portfolio assets.
We continue to believe that health care is a core long-term investment area
driven by an aging population, continued scientific discovery, and economic
advances in China, India and other less developed parts of the world, which
substantially expands market opportunity.
Jordan C. Schreiber
Vice President and Portfolio Manager
November 12, 2005
MERRILL LYNCH HEALTHCARE FUND, INC. OCTOBER 31, 2005
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 (front-end load) of 5.25%
and an account maintenance fee of 0.25% per year (but no distribution fee).
* Class B Shares are subject to a maximum contingent deferred sales charge of
4% declining to 0% after six years. In addition, Class B Shares are subject to
a distribution fee of 0.75% per year and an account maintenance fee of 0.25%
per year. These shares automatically convert to Class A Shares after
approximately eight years. (There is no initial sales charge for automatic
share conversions.) All returns for periods greater than eight years reflect
this conversion.
* Class C Shares are subject to a distribution fee of 0.75% per year and an
account maintenance fee of 0.25% per year. 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%
per year and an account maintenance fee of 0.25% per year. Class R Shares are
available only to certain retirement plans. Prior to inception, Class R Share
performance results are those of Class I Shares (which have no distribution or
account maintenance fees) restated for Class R Share fees.
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 performance data current to
the most recent month-end. 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
6-Month 12-Month 10-Year
As of October 31, 2005 Total Return Total Return Total Return
ML Healthcare Fund, Inc.--Class A Shares* +13.74% +22.78% +260.93%
ML Healthcare Fund, Inc.--Class B Shares* +13.11 +21.49 +238.69
ML Healthcare Fund, Inc.--Class C Shares* +13.11 +21.77 +233.45
ML Healthcare Fund, Inc.--Class I Shares* +13.74 +23.03 +269.73
ML Healthcare Fund, Inc.--Class R Shares* +13.51 +22.31 +253.92
S&P 500 (R) Index** + 5.27 + 8.72 +144.29
* Investment results shown do not reflect sales charges; results shown would be lower if a
sales charge was included. Cumulative 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.
** 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.
S&P 500 is a registered trademark of the McGraw-Hill companies.
MERRILL LYNCH HEALTHCARE FUND, INC. OCTOBER 31, 2005
Performance Data (concluded)
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge**
Class A Shares*
One Year Ended 10/31/05 +22.78% +16.33%
Five Years Ended 10/31/05 + 2.28 + 1.19
Ten Years Ended 10/31/05 +13.70 +13.08
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Return Return
Without CDSC With CDSC**
Class B Shares*
One Year Ended 10/31/05 +21.49% +17.49%
Five Years Ended 10/31/05 + 1.45 + 1.11
Ten Years Ended 10/31/05 +12.97 +12.97
* 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 10/31/05 +21.77% +20.77%
Five Years Ended 10/31/05 + 1.45 + 1.45
Ten Years Ended 10/31/05 +12.80 +12.80
* 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 10/31/05 +23.03% +16.57%
Five Years Ended 10/31/05 + 2.54 + 1.44
Ten Years Ended 10/31/05 +13.97 +13.36
* Maximum sales charge is 5.25%.
** Assuming maximum sales charge.
Class R Shares Return
One Year Ended 10/31/05 +22.31%
Five Years Ended 10/31/05 + 2.16
Ten Years Ended 10/31/05 +13.47
MERRILL LYNCH HEALTHCARE FUND, INC. OCTOBER 31, 2005
Disclosure of Expenses
Shareholders of this Fund may incur the following charges: (a) expenses
related to transactions, including sales charges, redemption fees and exchange
fees; and (b) operating expenses including advisory fees, distribution fees
including 12(b)-1 fees, and other Fund expenses. The following example (which
is based on a hypothetical investment of $1,000 invested on May 1, 2005 and
held through October 31, 2005) is intended to assist shareholders both in
calculating expenses based on an investment in the Fund and in comparing these
expenses with similar costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a shareholder paid during
the period covered by this report, shareholders can divide their account value
by $1,000 and then multiply the result by the number in the first line under
the heading entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
shareholders in comparing the ongoing expenses of investing in this Fund and
other funds, compare the 5% hypothetical example with the 5% hypothetical
examples that appear in other funds' shareholder reports.
The expenses shown in the table are intended to highlight shareholders'
ongoing costs only and do not reflect any transactional expenses, such as
sales charges, redemption fees or exchange fees. Therefore, the second table
is useful in comparing ongoing expenses only, and will not help shareholders
determine the relative total expenses of owning different funds. If these
transactional expenses were included, shareholder expenses would have been
higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value May 1, 2005 to
May 1, October 31, October 31,
2005 2005 2005
Actual
Class A $1,000 $1,137.40 $ 8.40
Class B $1,000 $1,131.10 $12.58
Class C $1,000 $1,131.10 $12.64
Class I $1,000 $1,137.40 $ 7.04
Class R $1,000 $1,135.10 $ 9.69
Hypothetical (5% annual return before expenses)**
Class A $1,000 $1,017.44 $ 7.92
Class B $1,000 $1,013.49 $11.89
Class C $1,000 $1,013.44 $11.94
Class I $1,000 $1,018.71 $ 6.65
Class R $1,000 $1,016.23 $ 9.15
* For each class of the Fund, expenses are equal to the annualized expense ratio for the class
(1.55% for Class A, 2.33% for Class B, 2.34% for Class C, 1.30% for Class I and 1.79% for Class R),
multiplied by the average account value over the period, multiplied by 185/365 (to reflect the
one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating the number of days in the
most recent fiscal half-year divided by 365.
MERRILL LYNCH HEALTHCARE FUND, INC. OCTOBER 31, 2005
Schedule of Investments (in U.S. dollars)
Shares
Industry Common Stocks Held Value
Middle East
Israel--0.4%
Medical Devices--0.4%
Given Imaging Ltd. (d) 100,000 $ 2,220,000
Total Common Stocks in the
Middle East--0.4% 2,220,000
North America
United States--72.2%
Biotechnology Discovery Tools
& Platform Technologies--4.6%
Charles River Laboratories
International, Inc. (d) 125,000 5,470,000
Covance, Inc. (d) 250,000 12,162,500
Exelixis, Inc. (d) 400,000 3,092,000
Fisher Scientific International (d) 25,000 1,412,500
Lexicon Genetics, Inc. (d) 174,000 694,260
Medarex, Inc. (d) 120,000 1,048,800
--------------
23,880,060
Biotechnology Products--10.7%
Amgen, Inc. (d) 120,000 9,091,200
BioCryst Pharmaceuticals, Inc. (d) 400,000 5,534,000
Biogen Idec, Inc. (d) 30,700 1,247,341
Cell Genesys, Inc. (c)(d) 80,000 431,200
Coley Pharmaceutical Group, Inc. (c)(d) 100,000 1,481,000
Genentech, Inc. (c)(d) 150,000 13,590,000
Genzyme Corp. (d) 100,000 7,230,000
Millennium Pharmaceuticals, Inc. (d) 100,000 912,000
Progenics Pharmaceuticals, Inc. (d) 108,134 2,545,474
Protein Design Labs, Inc. (d) 100,000 2,802,000
Telik, Inc. (d) 100,000 1,494,000
VaxGen, Inc. (d) 250,000 3,700,000
Vertex Pharmaceuticals, Inc. (d) 100,000 2,275,000
Viropharma, Inc. (c)(d) 200,000 3,832,000
--------------
56,165,215
Health Care Information
& Technology--9.6%
Cerner Corp. (c)(d) 400,000 33,780,000
Emageon, Inc. (d) 180,000 2,359,800
Emdeon Corp. (d) 1,200,000 11,040,000
WebMD Health Corp. Class A (d) 120,000 3,134,400
--------------
50,314,200
Managed Health Care--
Medicare/Medicaid--5.5%
Centene Corp. (d) 140,000 2,821,000
Health Net, Inc. (d) 420,000 19,672,800
WellCare Health Plans, Inc. (d) 200,000 6,300,000
--------------
28,793,800
Managed Health Care--
Multi-line--14.9%
Aetna, Inc. 200,000 17,712,000
UnitedHealth Group, Inc. 530,000 30,681,700
WellPoint, Inc. (d) 400,000 29,872,000
--------------
78,265,700
Managed Health Care--
Regional--1.4%
Humana, Inc. (d) 160,000 7,102,400
Shares
Industry Common Stocks Held Value
North America (concluded)
Medical Devices--8.6%
Adeza Biomedical Corp. (d) 40,000 $ 682,000
DexCom, Inc. (d) 154,200 2,006,142
Diagnostic Products Corp. 27,600 1,161,960
ev3, Inc. (d) 100,000 1,499,000
HemoSense, Inc. (d) 200,000 1,420,000
Intuitive Surgical, Inc. (d) 110,000 9,760,300
Medtronic, Inc. 160,000 9,065,600
SonoSite, Inc. (c)(d) 524,700 15,420,933
St. Jude Medical, Inc. (d) 80,000 3,845,600
Varian Medical Systems, Inc. (d) 5,900 268,804
--------------
45,130,339
Pharmaceutical--
Prescription--3.0%
First Horizon Pharmaceutical Corp. (c)(d) 100,000 1,443,000
Wyeth 320,000 14,259,200
--------------
15,702,200
Pharmaceutical--
Specialty--4.8%
Amylin Pharmaceuticals, Inc. (c)(d) 80,000 2,688,000
Celgene Corp. (c)(d) 200,000 11,220,000
MGI Pharma, Inc. (d) 200,000 3,752,000
Nabi Biopharmaceuticals (c)(d) 300,000 3,855,000
Onyx Pharmaceuticals, Inc. (d) 40,000 1,027,600
Renovis, Inc. (c)(d) 200,100 2,807,403
--------------
25,350,003
Pharmacy Benefit Managers--9.1%
Caremark Rx, Inc. (c)(d) 750,000 39,300,000
Medco Health Solutions, Inc. (d) 150,000 8,475,000
--------------
47,775,000
Total Common Stocks in
North America--72.2% 378,478,917
Pacific Basin/Asia
India--2.0%
Pharmaceutical--
Generic--2.0%
Cadila Healthcare Ltd. 220,000 2,196,098
Lupin Ltd. 100,000 1,537,634
Sun Pharmaceuticals Industries Ltd. 400,000 5,332,890
Wockhardt Ltd. 150,000 1,292,152
Total Common Stocks in India 10,358,774
Japan--4.2%
Pharmaceutical--
Prescription--4.2%
Astellas Pharma Inc. 220,000 7,843,306
Chugai Pharmaceutical Co., Ltd. 80,000 1,745,629
Takeda Pharmaceutical Co., Ltd. 225,000 12,293,286
Total Common Stocks in Japan 21,882,221
Total Common Stocks in the
Pacific Basin/Asia--6.2% 32,240,995
MERRILL LYNCH HEALTHCARE FUND, INC. OCTOBER 31, 2005
Schedule of Investments (concluded) (in U.S. dollars)
Shares
Industry Common Stocks Held Value
Western Europe
Denmark--0.5%
Biotechnology Products--0.5%
Genmab A/S (d) 140,000 $ 2,685,156
Total Common Stocks in Denmark 2,685,156
Finland--0.6%
Pharmaceutical--
Diversified--0.6%
Orion OYJ Class B 140,000 3,041,801
Total Common Stocks in Finland 3,041,801
France--4.0%
Pharmaceutical--
Prescription--4.0%
Sanofi-Aventis 260,000 20,802,491
Total Common Stocks in France 20,802,491
Germany--1.8%
Biotechnology Products--0.2%
GPC Biotech AG (d) 100,000 1,165,409
Pharmaceutical--
Prescription--1.6%
Merck KGaA 100,000 8,264,463
Total Common Stocks in Germany 9,429,872
Hungary--0.1%
Pharmaceutical--
Generic--0.1%
Gedeon Richter Rt 3,000 490,291
Total Common Stocks in Hungary 490,291
Netherlands--0.8%
Biotechnology Products--0.1%
Pharming Group NV (d) 125,000 480,596
Medical Devices--0.7%
Orthofix International NV (d) 100,000 3,768,000
Total Common Stocks in the
Netherlands 4,248,596
Shares
Industry Common Stocks Held Value
Western Europe (concluded)
Sweden--0.9%
Medical Devices--0.9%
Elekta AB 300,000 $ 4,577,047
Total Common Stocks in Sweden 4,577,047
Switzerland--8.3%
Pharmaceutical--
Prescription--8.3%
Novartis AG Registered Shares 120,000 6,445,667
Roche Holding AG 250,000 37,293,781
Total Common Stocks in Switzerland 43,739,448
United Kingdom--0.6%
Pharmaceutical--
Specialty--0.6%
Ark Therapeutics Group Plc (d) 1,907,700 3,368,675
Total Common Stocks in the
United Kingdom 3,368,675
Total Common Stocks in
Western Europe--17.6% 92,383,377
Total Common Stocks
(Cost--$367,493,536)--96.4% 505,323,289
Beneficial
Short-Term Securities Interest
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I (a) $12,678,412 12,678,412
Merrill Lynch Liquidity Series, LLC
Money Market Series (a)(b) 82,617,050 82,617,050
Total Short-Term Securities
(Cost--$95,295,462)--18.2% 95,295,462
Total Investments (Cost--$462,788,998*)--114.6% 600,618,751
Liabilities in Excess of Other Assets--(14.6%) (76,565,120)
--------------
Net Assets--100.0% $ 524,053,631
==============
For Fund compliance purposes, the Fund's industry classifications refer
to 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 industry sub-classifications for
reporting ease. Industries are shown as a percent of net assets.
* The cost and unrealized appreciation (depreciation) of investments as
of October 31, 2005, as computed for federal income tax purposes, were
as follows:
Aggregate cost $ 464,555,170
=================
Gross unrealized appreciation $ 149,685,580
Gross unrealized depreciation (13,621,999)
-----------------
Net unrealized appreciation $ 136,063,581
=================
(a) Investments in companies considered to be an affiliate of the Fund,
for purposes of Section 2(a)(3) of the Investment Company Act of 1940,
were as follows:
Net Interest
Affiliate Activity Income
Merrill Lynch Liquidity Series, LLC
Cash Sweep Series I $ 653,019 $320,537
Merrill Lynch Liquidity Series, LLC
Money Market Series $(2,140,300) $127,580
(b) Security was purchased with the cash proceeds from securities loans.
(c) Security, or a portion of security, is on loan.
(d) Non-income producing security.
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC. OCTOBER 31, 2005
Statement of Assets and Liabilities
As of October 31, 2005
Assets
Investments in unaffiliated securities, at value (including securities loaned
of $82,222,323) (identified cost--$367,493,536) $ 505,323,289
Investments in affiliated securities, at value (identified cost--$95,295,462) 95,295,462
Foreign cash (cost--$138,830) 136,479
Receivables:
Securities sold $ 4,010,106
Capital shares sold 678,281
Dividends 289,256
Securities lending 63,393 5,041,036
---------------
Prepaid expenses and other assets 4,108,209
---------------
Total assets 609,904,475
---------------
Liabilities
Collateral on securities loaned, at value 82,617,050
Payables:
Securities purchased 1,312,295
Capital shares redeemed 987,379
Investment adviser 443,746
Distributor 202,514
Other affiliates 169,324 3,115,258
---------------
Accrued expenses and other liabilities 118,536
---------------
Total liabilities 85,850,844
---------------
Net Assets
Net assets $ 524,053,631
===============
Net Assets Consist of
Class A Shares of Common Stock, $.10 par value, 100,000,000 shares authorized $ 2,464,977
Class B Shares of Common Stock, $.10 par value, 250,000,000 shares authorized 2,346,758
Class C Shares of Common Stock, $.10 par value, 100,000,000 shares authorized 1,541,075
Class I Shares of Common Stock, $.10 par value, 200,000,000 shares authorized 2,197,476
Class R Shares of Common Stock, $.10 par value, 250,000,000 shares authorized 65,727
Paid-in capital in excess of par 348,533,218
Accumulated investment loss--net $ (3,751,340)
Undistributed realized capital gains--net 32,839,652
Unrealized appreciation--net 137,816,088
---------------
Total accumulated earnings--net 166,904,400
---------------
Net Assets $ 524,053,631
===============
Net Asset Value
Class A--Based on net assets of $165,451,903 and 24,649,774 shares outstanding $ 6.71
===============
Class B--Based on net assets of $117,684,348 and 23,467,582 shares outstanding $ 5.01
===============
Class C--Based on net assets of $77,268,466 and 15,410,745 shares outstanding $ 5.01
===============
Class I--Based on net assets of $160,276,563 and 21,974,758 shares outstanding $ 7.29
===============
Class R--Based on net assets of $3,372,351 and 657,267 shares outstanding $ 5.13
===============
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC. OCTOBER 31, 2005
Statement of Operations
For the Six Months Ended October 31, 2005
Investment Income
Dividends (net of $26,126 foreign withholding tax) $ 664,427
Interest from affiliates 320,537
Securities lending--net 127,580
---------------
Total income 1,112,544
---------------
Expenses
Investment advisory fees $ 2,601,652
Account maintenance and distribution fees--Class B 614,178
Account maintenance and distribution fees--Class C 378,509
Account maintenance fees--Class A 199,089
Transfer agent fees--Class I 148,376
Transfer agent fees--Class A 147,094
Transfer agent fees--Class B 131,978
Accounting services 100,474
Transfer agent fees--Class C 83,377
Custodian fees 60,248
Professional fees 33,128
Registration fees 32,050
Printing and shareholder reports 30,426
Directors' fees and expenses 21,869
Account maintenance and distribution fees--Class R 6,651
Pricing fees 3,488
Transfer agent fees--Class R 2,378
Other 18,356
---------------
Total expenses 4,613,321
---------------
Investment loss--net (3,500,777)
---------------
Realized & Unrealized Gain (Loss)--Net
Realized gain (loss) on:
Investments--net (including $36,018 foreign capital gain tax) 34,866,648
Foreign currency transactions--net (260,757) 34,605,891
---------------
Change in unrealized appreciation/depreciation on:
Investments--net 32,724,900
Foreign currency transactions--net (23,286) 32,701,614
--------------- ---------------
Total realized and unrealized gain--net 67,307,505
---------------
Net Increase in Net Assets Resulting from Operations $ 63,806,728
===============
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC. OCTOBER 31, 2005
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
October 31, April 30,
Increase (Decrease) in Net Assets: 2005 2005
Operations
Investment loss--net $ (3,500,777) $ (7,680,053)
Realized gain--net 34,605,891 28,495,750
Change in unrealized appreciation/depreciation--net 32,701,614 (24,271,798)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations 63,806,728 (3,456,101)
--------------- ---------------
Distributions to Shareholders
Realized gain--net:
Class A (3,655,322) (9,134,235)
Class B (3,786,381) (11,655,113)
Class C (2,307,127) (6,066,998)
Class I (3,408,780) (11,767,593)
Class R (78,319) (63,939)
--------------- ---------------
Net decrease in net assets resulting from distributions to shareholders (13,235,929) (38,687,878)
--------------- ---------------
Capital Share Transactions
Net decrease in net assets derived from capital share transactions (4,292,025) (180,272,066)
--------------- ---------------
Net Assets
Total increase (decrease) in net assets 46,278,774 (222,416,045)
Beginning of period 477,774,857 700,190,902
--------------- ---------------
End of period* $ 524,053,631 $ 477,774,857
=============== ===============
* Accumulated investment loss--net $ (3,751,340) $ (250,563)
=============== ===============
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC. OCTOBER 31, 2005
Financial Highlights
Class A
For the Six
Months Ended
The following per share data and ratios have been derived October 31, For the Year Ended April 30,
from information provided in the financial statements. 2005 2005 2004 2003 2002
Per Share Operating Performance
Net asset value, beginning of period $ 6.04 $ 6.38 $ 5.21 $ 6.23 $ 6.29
---------- ---------- ---------- ---------- ----------
Investment loss--net** (.04) (.07) (.06) (.05) (.07)
Realized and unrealized gain (loss)--net .87 .10 1.23 (.97) .24
---------- ---------- ---------- ---------- ----------
Total from investment operations .83 .03 1.17 (1.02) .17
---------- ---------- ---------- ---------- ----------
Less distributions from realized gain--net (.16) (.37) -- -- (.23)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 6.71 $ 6.04 $ 6.38 $ 5.21 $ 6.23
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 13.74%+++ .74% 22.46% (16.37%) 2.78%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 1.55%++ 1.58% 1.55% 1.58% 1.52%
========== ========== ========== ========== ==========
Investment loss--net (1.12%)++ (1.13%) (1.00%) (1.04%) (1.20%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of period (in thousands) $ 165,452 $ 142,774 $ 160,443 $ 119,375 $ 146,714
========== ========== ========== ========== ==========
Portfolio turnover 56.19% 126.81% 141.46% 128.24% 81.36%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
++ Annualized.
+++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC. OCTOBER 31, 2005
Financial Highlights (continued)
Class B
For the Six
Months Ended
The following per share data and ratios have been derived October 31, For the Year Ended April 30,
from information provided in the financial statements. 2005 2005 2004 2003 2002
Per Share Operating Performance
Net asset value, beginning of period $ 4.57 $ 4.96 $ 4.08 $ 4.91 $ 5.05
---------- ---------- ---------- ---------- ----------
Investment loss--net** (.05) (.09) (.08) (.08) (.10)
Realized and unrealized gain (loss)--net .65 .07 .96 (.75) .19
---------- ---------- ---------- ---------- ----------
Total from investment operations .60 (.02) .88 (.83) .09
---------- ---------- ---------- ---------- ----------
Less distributions from realized gain--net (.16) (.37) -- -- (.23)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 5.01 $ 4.57 $ 4.96 $ 4.08 $ 4.91
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 13.11%+++ (.09%) 21.57% (16.90%) 1.85%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 2.33%++ 2.36% 2.32% 2.36% 2.29%
========== ========== ========== ========== ==========
Investment loss--net (1.91%)++ (1.91%) (1.78%) (1.83%) (1.97%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of period (in thousands) $ 117,684 $ 117,482 $ 177,952 $ 194,543 $ 310,916
========== ========== ========== ========== ==========
Portfolio turnover 56.19% 126.81% 141.46% 128.24% 81.36%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
++ Annualized.
+++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC. OCTOBER 31, 2005
Financial Highlights (continued)
Class C
For the Six
Months Ended
The following per share data and ratios have been derived October 31, For the Year Ended April 30,
from information provided in the financial statements. 2005 2005 2004 2003 2002
Per Share Operating Performance
Net asset value, beginning of period $ 4.57 $ 4.96 $ 4.07 $ 4.91 $ 5.05
---------- ---------- ---------- ---------- ----------
Investment loss--net** (.05) (.09) (.08) (.08) (.10)
Realized and unrealized gain (loss)--net .65 .07 .97 (.76) .19
---------- ---------- ---------- ---------- ----------
Total from investment operations .60 (.02) .89 (.84) .09
---------- ---------- ---------- ---------- ----------
Less distributions from realized gain--net (.16) (.37) -- -- (.23)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 5.01 $ 4.57 $ 4.96 $ 4.07 $ 4.91
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 13.11%+++ (.09%) 21.87% (17.11%) 1.85%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 2.34%++ 2.37% 2.33% 2.37% 2.30%
========== ========== ========== ========== ==========
Investment loss--net (1.91%)++ (1.92%) (1.79%) (1.84%) (1.99%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of period (in thousands) $ 77,268 $ 68,743 $ 85,753 $ 76,606 $ 98,994
========== ========== ========== ========== ==========
Portfolio turnover 56.19% 126.81% 141.46% 128.24% 81.36%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
++ Annualized.
+++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC. OCTOBER 31, 2005
Financial Highlights (continued)
Class I
For the Six
Months Ended
The following per share data and ratios have been derived October 31, For the Year Ended April 30,
from information provided in the financial statements. 2005 2005 2004 2003 2002
Per Share Operating Performance
Net asset value, beginning of period $ 6.55 $ 6.87 $ 5.59 $ 6.66 $ 6.70
---------- ---------- ---------- ---------- ----------
Investment loss--net** (.03) (.06) (.05) (.04) (.06)
Realized and unrealized gain (loss)--net .93 .11 1.33 (1.03) .25
---------- ---------- ---------- ---------- ----------
Total from investment operations .90 .05 1.28 (1.07) .19
---------- ---------- ---------- ---------- ----------
Less distributions from realized gain--net (.16) (.37) -- -- (.23)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 7.29 $ 6.55 $ 6.87 $ 5.59 $ 6.66
========== ========== ========== ========== ==========
Total Investment Return*
Based on net asset value per share 13.74%+++ .99% 22.90% (16.07%) 2.91%
========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 1.30%++ 1.33% 1.29% 1.33% 1.27%
========== ========== ========== ========== ==========
Investment loss--net (.87%)++ (.88%) (.75%) (.79%) (.95%)
========== ========== ========== ========== ==========
Supplemental Data
Net assets, end of period (in thousands) $ 160,277 $ 146,922 $ 275,570 $ 244,217 $ 311,288
========== ========== ========== ========== ==========
Portfolio turnover 56.19% 126.81% 141.46% 128.24% 81.36%
========== ========== ========== ========== ==========
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
++ Annualized.
+++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC. OCTOBER 31, 2005
Financial Highlights (concluded)
Class R
For the Six For the Period
Months Ended For the Year Ended January 3, 2003++
The following per share data and ratios have been derived October 31, April 30, to April 30,
from information provided in the financial statements. 2005 2005 2004 2003
Per Share Operating Performance
Net asset value, beginning of period $ 4.66 $ 5.02 $ 4.09 $ 4.04
------------ ------------ ------------ ------------
Investment loss--net** (.03) (.06) (.02) (.01)
Realized and unrealized gain--net .66 .07 .95 .06
------------ ------------ ------------ ------------
Total from investment operations .63 .01 .93 .05
------------ ------------ ------------ ------------
Less distributions from realized gain--net (.16) (.37) -- --
------------ ------------ ------------ ------------
Net asset value, end of period $ 5.13 $ 4.66 $ 5.02 $ 4.09
============ ============ ============ ============
Total Investment Return*
Based on net asset value per share 13.51%+++++ .54% 22.74% 1.24%+++++
============ ============ ============ ============
Ratios to Average Net Assets
Expenses 1.79%+++ 1.83% 1.73% 1.84%+++
============ ============ ============ ============
Investment loss--net (1.35%)+++ (1.37%) (1.15%) (.36%)+++
============ ============ ============ ============
Supplemental Data
Net assets, end of period (in thousands) $ 3,372 $ 1,853 $ 473 --***
============ ============ ============ ============
Portfolio turnover 56.19% 126.81% 141.46% 128.24%
============ ============ ============ ============
* Total investment returns exclude the effects of sales charges.
** Based on average shares outstanding.
*** Amount is less than $1,000.
++ Commencement of operations.
+++ Annualized.
+++++ Aggregate total investment return.
See Notes to Financial Statements.
MERRILL LYNCH HEALTHCARE FUND, INC. OCTOBER 31, 2005
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. These unaudited financial statements reflect all
adjustments, which are, in the opinion of management, necessary to present a
fair statement of the results for the interim period. All such adjustments are
of a normal, recurring nature. 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 (except that Class B shareholders may vote on certain changes
to the Class A distribution plan). 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
asked 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 asked 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
asked 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 based upon quoted fair
valuations received daily by the Fund from a pricing service or counterparty.
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. OCTOBER 31, 2005
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. The Fund invests in foreign securities, which may involve a
number of risk factors and special considerations not present with investments
in securities of U.S. corporations.
(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.
(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.
MERRILL LYNCH HEALTHCARE FUND, INC. OCTOBER 31, 2005
Notes to Financial Statements (continued)
(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.
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 Plan 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.
Pursuant to the Distribution Plan 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"), an affiliate of MLIM, 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, 2005, 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 $ 5,293 $ 86,783
Class I $ 61 $ 620
For the six months ended October 31, 2005, MLPF&S received contingent deferred
sales charges of $64,003 and $1,663 relating to transactions in Class B and
Class C Shares, respectively.
MERRILL LYNCH HEALTHCARE FUND, INC. OCTOBER 31, 2005
Notes to Financial Statements (continued)
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, 2005, the Fund lent securities with a value of
$15,720,000 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, 2005, MLIM, LLC received $57,575 in securities
lending agent fees.
In addition, MLPF&S received $247,361 in commissions on the execution of
portfolio security transactions for the Fund for the six months ended October
31, 2005.
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, 2005, the Fund reimbursed MLIM $5,431 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., ML & Co., and/or MLIM, LLC.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
six months ended October 31, 2005 were $274,843,737 and $303,913,579,
respectively.
4. Capital Share Transactions:
Net decrease in net assets derived from capital share transactions was
$4,292,025 and $180,272,066 for the six months ended October 31, 2005 and the
year ended April 30, 2005, respectively.
Transactions in capital shares for each class were as follows:
Class A Shares for the
Six Months Ended Dollar
October 31, 2005 Shares Amount
Shares sold 2,330,333 $ 15,537,197
Automatic conversion of shares 891,074 5,922,229
Shares issued to shareholders in
reinvestment of distributions 489,447 3,205,873
--------------- ---------------
Total issued 3,710,854 24,665,299
Shares redeemed (2,687,465) (17,737,606)
--------------- ---------------
Net increase 1,023,389 $ 6,927,693
=============== ===============
Class A Shares for the Year Dollar
Ended April 30, 2005 Shares Amount
Shares sold 2,840,992 $ 17,026,680
Automatic conversion of shares 2,538,742 15,235,649
Shares issued to shareholders in
reinvestment of distributions 1,345,733 7,908,862
--------------- ---------------
Total issued 6,725,467 40,171,191
Shares redeemed (8,228,619) (49,224,908)
--------------- ---------------
Net decrease (1,503,152) $ (9,053,717)
=============== ===============
Class B Shares for the
Six Months Ended Dollar
October 31, 2005 Shares Amount
Shares sold 1,206,499 $ 6,011,755
Shares issued to shareholders in
reinvestment of distributions 680,781 3,342,636
--------------- ---------------
Total issued 1,887,280 9,354,391
--------------- ---------------
Shares redeemed (2,940,533) (14,499,784)
Automatic conversion of shares (1,187,144) (5,922,229)
--------------- ---------------
Total redeemed (4,127,677) (20,422,013)
--------------- ---------------
Net decrease (2,240,397) $ (11,067,622)
=============== ===============
Class B Shares for the Year Dollar
Ended April 30, 2005 Shares Amount
Shares sold 2,194,158 $ 10,113,067
Shares issued to shareholders in
reinvestment of distributions 2,296,589 10,280,937
--------------- ---------------
Total issued 4,490,747 20,394,004
--------------- ---------------
Shares redeemed (11,362,052) (51,790,118)
Automatic conversion of shares (3,306,410) (15,235,649)
--------------- ---------------
Total redeemed (14,668,462) (67,025,767)
--------------- ---------------
Net decrease (10,177,715) $ (46,631,763)
=============== ===============
Class C Shares for the
Six Months Ended Dollar
October 31, 2005 Shares Amount
Shares sold 1,505,816 $ 7,488,571
Shares issued to shareholders in
reinvestment of distributions 414,694 2,036,151
--------------- ---------------
Total issued 1,920,510 9,524,722
Shares redeemed (1,560,668) (7,692,341)
--------------- ---------------
Net increase 359,842 $ 1,832,381
=============== ===============
MERRILL LYNCH HEALTHCARE FUND, INC. OCTOBER 31, 2005
Notes to Financial Statements (concluded)
Class C Shares for the Year Dollar
Ended April 30, 2005 Shares Amount
Shares sold 1,680,859 $ 7,724,596
Shares issued to shareholders in
reinvestment of distributions 1,201,784 5,387,888
--------------- ---------------
Total issued 2,882,643 13,112,484
Shares redeemed (5,132,233) (23,414,159)
--------------- ---------------
Net decrease (2,249,590) $ (10,301,675)
=============== ===============
Class I Shares for the
Six Months Ended Dollar
October 31, 2005 Shares Amount
Shares sold 931,422 $ 6,751,129
Shares issued to shareholders in
reinvestment of distributions 417,611 2,973,387
--------------- ---------------
Total issued 1,349,033 9,724,516
Shares redeemed (1,818,387) (13,021,876)
--------------- ---------------
Net decrease (469,354) $ (3,297,360)
=============== ===============
Class I Shares for the Year Dollar
Ended April 30, 2005 Shares Amount
Shares sold 2,119,737 $ 13,738,441
Shares issued to shareholders in
reinvestment of distributions 1,696,873 10,649,607
--------------- ---------------
Total issued 3,816,610 24,388,048
Shares redeemed (21,504,553) (140,059,954)
--------------- ---------------
Net decrease (17,687,943) $ (115,671,906)
=============== ===============
Class R Shares for the
Six Months Ended Dollar
October 31, 2005 Shares Amount
Shares sold 337,183 $ 1,701,456
Shares issued to shareholders in
reinvestment of distributions 15,632 78,318
--------------- ---------------
Total issued 352,815 1,779,774
Shares redeemed (93,469) (466,891)
--------------- ---------------
Net increase 259,346 $ 1,312,883
=============== ===============
Class R Shares for the Year Dollar
Ended April 30, 2005 Shares Amount
Shares sold 364,470 $ 1,671,887
Shares issued to shareholders in
reinvestment of distributions 13,862 63,939
--------------- ---------------
Total issued 378,332 1,735,826
Shares redeemed (74,722) (348,831)
--------------- ---------------
Net increase 303,610 $ 1,386,995
=============== ===============
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 a group of lenders, which
expires November 2005 and was subsequently renewed for one year under
substantially the same terms. 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 .07% 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 defined in the credit
agreement. The Fund did not borrow under the credit agreement during the six
months ended October 31, 2005.
6. Commitments:
At October 31, 2005, the Fund had entered into foreign exchange contracts,
under which it had agreed to purchase a foreign currency with an approximate
value of $13,700.
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 Web
site at 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, 2005
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-
annual report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
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 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - Not
Applicable
Item 11 - Controls and Procedures
11(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.
11(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 last 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 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(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/ Robert C. Doll, Jr.
-----------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Healthcare Fund, Inc.
Date: December 16, 2005
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/ Robert C. Doll, Jr.
-----------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
Merrill Lynch Healthcare Fund, Inc.
Date: December 16, 2005
By: /s/ Donald C. Burke
-----------------------------
Donald C. Burke,
Chief Financial Officer of
Merrill Lynch Healthcare Fund, Inc.
Date: December 16, 2005