MERRILL LYNCH
REAL ESTATE
FUND, INC.
FUND LOGO
Annual Report
December 31, 1999
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.
Merrill Lynch
Real Estate Fund, Inc.
Box 9011
Princeton, NJ
08543-9011
Printed on post-consumer recycled paper
MERRILL LYNCH REAL ESTATE FUND, INC.
DEAR SHAREHOLDER
The Board of Directors of Merrill Lynch Real Estate Fund, Inc.
recently unanimously voted to change the Fund's fiscal year-end from
November 30 to December 31. This change will permit the Fund to
distribute all of the net dividends it receives, rather than only
the taxable component of the dividend. Over the short term, this
will increase the size of the distribution to shareholders but it
will not change the amount of taxes owed by shareholders. (Please
refer to the "Important Tax Information" section on page 18 of this
report to shareholders for complete details.) This will not affect
the total returns the Fund generates. Over the long term, we expect
this change will make the Fund more attractive compared to
individual security purchases, thus enabling it to grow.
Fiscal Year in Review
Real estate-related securities had a difficult time in the month of
December and for the fiscal year ended December 31, 1999. Yearly
returns for the Fund's Class A, Class B, Class C and Class D Shares
were -13.26%, -14.11%, -14.14% and -13.49%, respectively. (Fund
results do not reflect sales charges, and would be lower if sales
charges were included. Complete performance information can be found
on pages 4--6 of this report to shareholders.) These annual returns
trailed those of the unmanaged Standard & Poor's 500 (S&P) Index of
+21.04%, the ten-year Treasury note of -8.25% and the unmanaged
Morgan Stanley Real Estate Investment Trust (REIT) Index at -4.55%.
In spite of both the absolute returns of the sector and our relative
returns, we believe the underlying fundamentals should support
higher stock prices and our value-oriented stock selection should
add value over time. It is our view that real estate is
significantly underpriced in the public markets. We expect that
during the next 12 months an arbitrage mechanism will emerge,
narrowing the wide valuation gap that exists between these
securities as well as other public securities and private real
estate. We believe that real estate securities are presently
undervalued in a range between 20%--40%. A narrowing of this
valuation gap, coupled with a dividend yield could benefit investors
in real estate securities.
A couple of things stand out as we look back on the fiscal year.
First, we have generally sought financial leverage, believing that
in an environment where the real estate is worth more than the
stocks, financing alternatives would emerge. Meditrust Companies,
Prime Retail, Inc. and Crescent Real Estate Equities Company have
all underperformed, based in part upon the perception of reduced
financial flexibility. All three have sold or are in the process of
selling assets. We hope to see them announce meaningful share
repurchase programs with some of the proceeds. We still believe in
this theme.
Our value-orientation approach also worked against us in December,
as the stocks down the most for the year became the most attractive
tax loss-selling candidates. We hope these names will also benefit
unduly as we enter 2000 and the selling abates. Despite the
difficult fiscal year, we continue to have confidence in our
approach and expect it will enable us to add value in coming
quarters.
Overall, we believe the fundamentals are the best we have seen in
years. The largest real estate sectors (office, apartments and
retail) all have high and stable occupancy and growing rents. Only
the hotel sector suffers from too much supply, and the healthcare
sector has been weighed down by operator bankruptcies caused by the
Medicare prospective payment system. In general, the capital markets
have proven to be a very effective governor on new supply, in line
with our often-stated belief.
In addition to the equity markets decline, corporate loans to REITs
declined to $15.5 billion from $43 billion in 1998's first nine
months. While it is true that supply has increased in most markets,
in some cases faster than demand, there are few markets where this
is causing a meaningful deterioration in fundamentals. Several
Southeast office markets are seeing vacancy rates bump up a couple
of points, and a few southern cities will likely see apartment
vacancy rates move up slightly as well. However, several large
commercial business district markets on the coasts continue to show
mid-single digit vacancies, as do most apartment markets. Similarly,
retail sales per square foot continue to grow at about 6%,
indicating ongoing balance in this sector.
Merrill Lynch Real Estate Fund, Inc.
December 31, 1999
With most forecasters expecting slight increases in vacancy across
property types in both 1999 and 2000, we would like to point out
that REIT occupancies have remained higher than sector averages and
rents have continued to grow. Paine Webber estimates, for example,
that same-store performance improved by 5.7% in the third quarter,
up from 5.3% in the second quarter. At the same time, most all-new
construction starts are coming in below 1998's levels. This should
allow for some cushion in 2000 in the event the economy slows. We
view REITs' ability to continue to post same-store growth in the
4%--6% range, while absorbing peak construction starts, very
positively.
The strong same-store growth again pushed funds from operation (FFO)
up by about 10%. 2000 FFO growth looks set to rise again, probably
by about 9% on average. While we do not mean to imply that real
estate fundamentals are strengthening dramatically, we do expect the
markets to remain in broad equilibrium for some time. The recently
signed REIT Modernization Act further broadens the ability of REITs
to service their tenants, and longer term should enhance their
ability to grow value-added businesses and FFO. This is likely to
produce a healthy environment for the REITs to continue to prosper.
While real estate markets have remained solid, the stocks have not.
In fact, 1998--1999 produced the worst back-to-back returns for
REITs since declining nearly 58% in the severe recession period of
1973--1974. However, National Association of Real Estate Investment
Trusts statistics show that REITs produced a cumulative return of
+142% over the following three years (1975--1977). Including the
reinvestment of dividends, the stocks are off nearly 21% from their
October 1997 highs, according to data in Merrill Lynch Comparative
Valuation REIT Weekly (December 31, 1999). While disappointing in
absolute terms, the relative performance is even worse, more than
77% behind the S&P 500 Index, which was up nearly 56% over that
time. This is historically unprecedented underperformance for the
sector. REITs appear inexpensive on all measures. The broad market
trades at a multiple of 3.49 times the REIT multiple, up from 3.09
times last quarter and a historic average of 1.84 times. Average
REIT dividend yields are a whopping 8.18%, up from 7.43% three
months ago and towering above both utility stocks and the S&P 500
Index. REITs are even inexpensive compared to ten-year Treasury
issues, another poor-performing asset class in 1999. Finally, the
discount to net asset value is wider than it has been in 9 years.
Though we cannot say that REITs have bottomed, the disdain in which
the market currently holds these securities seems extreme, in our
opinion. The fundamentals have held up well and look like they are
settling into equilibrium. In our opinion, investors will look back
on this time period as a historic opportunity to purchase real
estate at bargain basement prices, akin to the early 1990s. This
time, however, investors do not buy the bricks and mortar, but
rather the stocks of REITs. A recent Merrill Lynch study found that
nearly one-half of all REITs have active repurchase plans, averaging
about 5% of their outstanding shares.
Portfolio Matters
For the month ended December 31, 1999, the Fund's Class A, Class B,
Class C and Class D Shares had total returns of -0.94%, -0.95%,
- -1.09% and -1.01%, respectively. These results trailed behind the
return of the S&P 500 Index at +5.89% and the unmanaged Morgan
Stanley REIT Index of +3.11%.
We would like our shareholders to know what we are doing in the
current environment. The short answer is that we are doing the same
thing we have always done. We read and digest all the internal and
external research we can. Incorporating company contacts, we
construct valuation models of each company. We try to buy those
specific stocks that we believe represent the best value on either a
stock (cash flow) or real estate (net asset value) basis. We are
indifferent about whom we sell our stocks to (a stock or real estate
buyer), our concern is the price.
Merrill Lynch Real Estate Fund, Inc.
December 31, 1999
We continue to see the best value in the office and triple net lease
sectors. Some of our largest holdings representing the office sector
include Mission West Properties Inc., TrizecHahn Corporation and
Prentiss Properties Trust. In the triple net lease sector we prefer
Capital Automotive and Entertainment Properties Trust. The office
companies are generally faster growing and lower yielding, whereas
the net lease companies are higher yielding and slower growing. We
think this gives the portfolio a good balance. As of December 31,
1999, our portfolio of stocks traded at about 8 times consensus FFO
estimates and provided a dividend yield of 10.2% to the Fund.
In Conclusion
We want to reiterate our strong belief that there is excellent value
in the REIT sector. We think share prices may improve now that the
tax loss-selling season is behind us. We believe 2000 is likely to
bring much better overall returns for REIT investors.
We thank you for your continued interest and support of Merrill
Lynch Real Estate Fund, Inc., and we look forward to reviewing our
outlook and strategy with you again in our next report to
shareholders.
Sincerely,
(Terry K. Glenn)
Terry K. Glenn
President and Director
(Jay Willoughby)
Jay Willoughby
Senior Vice President and Portfolio Manager
February 15, 2000
To reduce shareholders' expenses, Merrill Lynch Real Estate Fund,
Inc. will no longer be printing and mailing quarterly reports to
shareholders. We will continue to provide you with reports on a semi-
annual and annual basis.
Merrill Lynch Real Estate Fund, Inc.
December 31, 1999
PERFORMANCE DATA
About Fund Performance
Investors are able to purchase shares of the Fund through the
Merrill Lynch Select Pricing SM System, which offers four pricing
alternatives:
* Class A Shares incur a maximum initial sales charge (front-end
load) of 5.25% and bear no on-going distribution or account
maintenance fees. Class A Shares are available only to eligible
investors, as detailed in the Fund's prospectus.
* Class B Shares are subject to a maximum contingent deferred sales
charge of 4% if redeemed during the first year, decreasing 1% each
year thereafter to 0% after the fourth year. In addition, Class B
Shares are subject to a distribution fee of 0.75% and an account
maintenance fee of 0.25%. These shares automatically convert to
Class D Shares after 8 years. (There is no initial sales charge for
automatic share conversions.)
* Class C Shares are subject to a distribution fee of 0.75% and an
account maintenance fee of 0.25%. In addition, Class C Shares are
subject to a 1% contingent deferred sales charge if redeemed within
one year of purchase.
* Class D Shares incur a maximum initial sales charge of 5.25% and
an account maintenance fee of 0.25% (but no distribution fee).
None of the past results shown should be considered a representation
of future performance. Figures shown in the "Recent Performance
Results" and "Average Annual Total Return" tables assume
reinvestment of all dividends and capital gains distributions at net
asset value on the ex-dividend date. Investment return and principal
value of shares will fluctuate so that shares, when redeemed, may be
worth more or less than their original cost. Dividends paid to each
class of shares will vary because of the different levels of account
maintenance, distribution and transfer agency fees applicable to
each class, which are deducted from the income available to be paid
to shareholders.
Average Annual Total Return
% Return Without % Return With
Sales Charge Sales Charge**
Class A Shares*
Year Ended 12/31/99 -13.26% -17.82%
Inception (12/26/97)
through 12/31/99 -12.29 -14.60
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
% Return % Return
Without CDSC With CDSC**
Class B Shares*
Year Ended 12/31/99 -14.11% -17.43%
Inception (12/26/97)
through 12/31/99 -13.16 -13.96
*Maximum contingent deferred sales charge is 4% and is reduced to 0%
after 4 years.
**Assuming payment of applicable contingent deferred sales charge.
% Return % Return
Without CDSC With CDSC**
Class C Shares*
Year Ended 12/31/99 -14.14% -14.97%
Inception (12/26/97)
through 12/31/99 -13.21 -13.21
*Maximum contingent deferred sales charge is 1% and is reduced
to 0% after 1 year.
**Assuming payment of applicable contingent deferred sales charge.
% Return Without % Return With
Sales Charge Sales Charge**
Class D Shares*
Year Ended 12/31/99 -13.49% -18.03%
Inception (12/26/97)
through 12/31/99 -12.51 -14.82
*Maximum sales charge is 5.25%.
**Assuming maximum sales charge.
Merrill Lynch Real Estate Fund, Inc.
December 31, 1999
PERFORMANCE DATA (continued)
Total Return Based on a $10,000 Investment
A line graph depicting the growth of an investment in the Fund's
Class A Shares, Class B Shares, Class C Shares and Class D Shares
compared to growth of an investment in the Morgan Stanley REIT
Index. Beginning and ending values are:
12/26/97** 11/99
ML Real Estate Fund, Inc.++--
Class A Shares* $ 9,475 $ 7,346
ML Real Estate Fund, Inc.++--
Class B Shares* $10,000 $ 7,385
ML Real Estate Fund, Inc.++--
Class C Shares* $10,000 $ 7,602
ML Real Estate Fund, Inc.++--
Class D Shares* $ 9,475 $ 7,313
Morgan Stanley REIT Index++++ $10,000 $ 7,692
*Assuming maximum sales charge, transaction costs and other
operating expenses, including advisory fees.
**Commencement of operations.
++ML Real Estate Fund, Inc. invests primarily in equity securities
of issuers that are principally engaged in the real estate industry.
++++This unmanaged Index is a total return index comprised of the
most actively traded real estate investment trusts. The starting
date for the Index in the graph is from 12/31/97.
Past performance is not predictive of future performance.
Merrill Lynch Real Estate Fund, Inc.
December 31, 1999
PERFORMANCE DATA (concluded)
<TABLE>
Recent Performance Results*
<CAPTION>
3 Month 12 Month Since Inception
As of December 31, 1999 Total Return Total Return Total Return
<S> <C> <C> <C>
ML Real Estate Fund, Inc. Class A Shares -6.41% -13.26% -23.20%
ML Real Estate Fund, Inc. Class B Shares -6.70 -14.11 -24.74
ML Real Estate Fund, Inc. Class C Shares -6.72 -14.14 -24.81
ML Real Estate Fund, Inc. Class D Shares -6.54 -13.49 -23.60
*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 commenced operations on 12/26/97.
</TABLE>
PORTFOLIO INFORMATION
As of December 31, 1999
Percent of
Ten Largest Equity Holdings Net Assets
Capital Automotive 8.7%
Mission West Properties Inc. 7.6
Entertainment Properties Trust 7.3
TrizecHahn Corporation 5.6
Prentiss Properties Trust 4.8
Prime Retail, Inc. 4.7
Simon Property Group, Inc. 4.5
Equity Office Properties Trust 4.2
Meditrust Companies 3.7
Glimcher Realty Trust 3.5
Merrill Lynch Real Estate Fund, Inc.
December 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (in US dollars)
<CAPTION>
Shares Percent of
Industries Held Real Estate Investment Trusts Value Net Assets
<S> <C> <S> <C> <C>
Apartments 20,000 Archstone Communities Trust $ 410,000 1.0%
15,000 Camden Property Trust 410,625 1.0
10,000 Summit Properties Inc. 178,750 0.4
------------ ------
999,375 2.4
Diversified/ 290,000 Capital Automotive 3,534,375 8.7
Mixed Use 35,000 Duke-Weeks Realty Corporation 682,500 1.7
224,800 Entertainment Properties Trust 2,964,550 7.3
35,000 Glenborough Realty Trust Incorporated 468,125 1.1
5,000 Golf Trust of America, Inc. 84,688 0.2
10,000 The Rouse Company 212,500 0.5
------------ ------
7,946,738 19.5
Factory Outlets 5,000 Chelsea GCA Realty, Inc. 148,750 0.4
340,000 Prime Retail, Inc. 1,912,500 4.7
------------ ------
2,061,250 5.1
Health Care 275,000 Meditrust Companies 1,512,500 3.7
Hotels & Motels 40,000 Host Marriott Corporation 330,000 0.8
Office Property 10,000 Boston Properties, Inc. 311,250 0.7
10,000 CarrAmerica Realty Corporation 211,250 0.5
75,000 Crescent Real Estate Equities Company 1,378,125 3.4
70,000 Equity Office Properties Trust 1,723,750 4.2
5,000 Highwoods Properties, Inc. 116,250 0.3
5,000 Liberty Property Trust 121,250 0.3
40,000 Mack-Cali Realty Corporation 1,042,500 2.5
398,000 Mission West Properties Inc. 3,084,500 7.6
93,000 Prentiss Properties Trust 1,953,000 4.8
33,456 Reckson Associates Realty Corporation 761,124 1.9
20,000 Spieker Properties, Inc. 728,750 1.8
------------ ------
11,431,749 28.0
Regional Malls 110,000 Glimcher Realty Trust 1,416,250 3.5
65,000 JP Realty, Inc. 1,015,625 2.5
80,000 Simon Property Group, Inc. 1,835,000 4.5
------------ ------
4,266,875 10.5
Shopping Centers 30,000 Developers Diversified Realty Corporation 386,250 0.9
14,100 Federal Realty Investment Trust 265,256 0.7
10,000 New Plan Excel Realty Trust 158,125 0.4
10,900 Regency Realty Corporation 218,000 0.5
------------ ------
1,027,631 2.5
Storage 60,000 Public Storage, Inc. 1,361,250 3.3
25,000 Storage USA, Inc. 756,250 1.9
------------ ------
2,117,500 5.2
</TABLE>
Merrill Lynch Real Estate Fund, Inc.
December 31, 1999
<TABLE>
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<CAPTION>
Shares Percent of
Industries Held Real Estate Investment Trusts Value Net Assets
<S> <C> <S> <C> <C>
Warehouse/ 55,000 AMB Property Corporation $ 1,096,562 2.7%
Industrial 10,000 CenterPoint Properties Corporation 358,750 0.9
50,000 Pacific Gulf Properties, Inc. 1,012,500 2.5
10,000 ProLogis Trust 192,500 0.4
------------ ------
2,660,312 6.5
Total Real Estate Investment Trusts
(Cost--$42,684,826) 34,353,930 84.2
Common Stocks
Diversified/ 135,000 TrizecHahn Corporation 2,278,125 5.6
Mixed Use 1,050,000 Wihlborgs Fastigheter AB (Class B) 1,174,358 2.9
------------ ------
3,452,483 8.5
Health Care 25,000 ++Assisted Living Concepts, Inc. 51,563 0.1
65,000 ++Sunrise Assisted Living, Inc. 893,750 2.2
------------ ------
945,313 2.3
Total Common Stocks (Cost--$5,604,162) 4,397,796 10.8
Face
Amount Short-Term Securities
Commercial Paper* $1,843,000 General Motors Acceptance Corp., 5% due 1/03/2000 1,842,488 4.5
Total Short-Term Securities (Cost--$1,842,488) 1,842,488 4.5
Total Investments (Cost--$50,131,476) 40,594,214 99.5
Other Assets Less Liabilities 204,767 0.5
------------ ------
Net Assets $ 40,798,981 100.0%
============ ======
<FN>
*Commercial Paper is traded on a discount basis; the interest rate
shown reflects the discount rate paid at the time of purchase by the
Fund.
++Non-income producing security.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Real Estate Fund, Inc.
December 31, 1999
FINANCIAL INFORMATION
<TABLE>
Statement of Assets and Liabilities as of December 31, 1999
<S> <S> <C> <C>
Assets: Investments, at value (identified cost--$50,131,476) $ 40,594,214
Cash 146
Foreign cash 1,177
Receivables:
Capital shares sold $ 1,254,494
Dividends 527,400
Securities sold 101,146 1,883,040
------------
Deferred organization expenses 43,610
Prepaid registration fees and other assets 41,937
------------
Total assets 42,564,124
------------
Liabilities: Payables:
Securities purchased 1,121,088
Capital shares redeemed 498,661
Investment adviser 30,937
Distributor 24,866 1,675,552
------------
Accrued expenses and other liabilities 89,591
------------
Total liabilities 1,765,143
------------
Net Assets: Net assets $ 40,798,981
============
Net Assets Class A Shares of Common Stock, $.10 par value,
Consist of: 100,000,000 shares authorized $ 85,872
Class B Shares of Common Stock, $.10 par value,
100,000,000 shares authorized 339,339
Class C Shares of Common Stock, $.10 par value,
100,000,000 shares authorized 68,247
Class D Shares of Common Stock, $.10 par value,
100,000,000 shares authorized 87,361
Paid-in capital in excess of par 61,682,528
Undistributed investment income--net 208,577
Accumulated realized capital losses on investments and
foreign currency transactions--net (12,135,048)
Unrealized depreciation on investments and foreign currency
transactions--net (9,537,895)
------------
Net assets $ 40,798,981
============
Net Asset Value: Class A--Based on net assets of $6,027,740
and 858,717 shares outstanding $ 7.02
============
Class B--Based on net assets of $23,844,150
and 3,393,392 shares outstanding $ 7.03
============
Class C--Based on net assets of $4,793,053
and 682,465 shares outstanding $ 7.02
============
Class D--Based on net assets of $6,134,038
and 873,614 shares outstanding $ 7.02
============
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Real Estate Fund, Inc.
December 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Operations
<CAPTION>
For the Period For the
Dec. 1, 1999 Year Ended
to Dec. 31, 1999 Nov. 30, 1999
<S> <S> <C> <C>
Investment Dividends $ 571,060 $ 3,376,064
Income: Interest and discount earned 4,846 14,672
----------- -----------
Total income 575,906 3,390,736
----------- -----------
Expenses: Professional fees 39,185 74,591
Investment advisory fees 27,273 434,733
Account maintenance and distribution fees--Class B 19,758 338,846
Account maintenance and distribution fees--Class C 4,087 72,089
Amortization of organization expenses 3,964 15,429
Transfer agent fees--Class B 2,708 45,303
Accounting services 2,090 55,850
Custodian fees 1,533 22,555
Directors' fees and expenses 1,259 25,670
Account maintenance fees--Class D 1,021 14,862
Transfer agent fees--Class C 585 9,992
Transfer agent fees--Class A 457 4,808
Transfer agent fees--Class D 450 6,688
Pricing fees 118 --
Registration fees 103 186,799
Printing and shareholder reports -- 51,225
Other -- 15,264
Total expenses 104,591 1,374,704
----------- -----------
Investment income--net 471,315 2,016,032
----------- -----------
Realized & Realized loss from:
Unrealized Investments--net (1,988,175) (6,149,128)
Gain (Loss) on Foreign currency transactions--net (119) (663)
Investments & Change in unrealized appreciation/depreciation on:
Foreign Currency Investments--net 1,164,307 (3,546,573)
Transactions--Net: Foreign currency transactions--net 25 (1,342)
----------- -----------
Net realized and unrealized loss on investments
and foreign currency transactions (823,962) (9,697,706)
----------- -----------
Net Decrease in Net Assets Resulting from Operations $ (352,647) $(7,681,674)
=========== ===========
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Real Estate Fund, Inc.
December 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Statements of Changes in Net Assets
<CAPTION>
For the Period For the Year For the Period
Dec. 1, 1999 Ended Dec. 26, 1997++
to Dec. 31, Nov. 30, to Nov. 30,
Increase (Decrease) in Net Assets: 1999 1999 1998
<S> <S> <C> <C> <C>
Operations: Investment income--net $ 471,315 $ 2,016,032 $ 1,731,891
Realized loss on investments and foreign
currency transactions--net (1,988,294) (6,149,791) (4,010,701)
Change in unrealized appreciation/depreciation
on investments and foreign currency
transactions--net 1,164,332 (3,547,915) (7,154,312)
------------ ------------ ------------
Net decrease in net assets resulting
from operations (352,647) (7,681,674) (9,433,122)
------------ ------------ ------------
Dividends to Investment income--net:
Shareholders: Class A (68,137) (157,728) (56,990)
Class B (261,220) (1,344,422) (1,018,928)
Class C (53,994) (290,556) (216,101)
Class D (66,651) (264,265) (197,931)
------------ ------------ ------------
Net decrease in net assets resulting from
dividends to shareholders (450,002) (2,056,971) (1,489,950)
------------ ------------ ------------
Capital Share Net increase (decrease) in net assets derived
Transactions: from capital share transactions 2,325,405 (13,727,936) 73,565,878
------------ ------------ ------------
Net Assets: Total increase (decrease) in net assets 1,522,756 (23,466,581) 62,642,806
Beginning of period 39,276,225 62,742,806 100,000
------------ ------------ ------------
End of period* $ 40,798,981 $ 39,276,225 $ 62,742,806
============ ============ ============
*Undistributed investment income--net $ 208,577 $ 187,264 $ 228,866
============ ============ ============
++Commencement of operations.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Real Estate Fund, Inc.
December 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights
<CAPTION>
Class A++++
For the For the For the Period
The following per share data and ratios have been derived Period Year Dec. 26,
from information provided in the financial statements. Dec. 1, 1999 to Ended 1997++ to
Dec. 31, Nov. 30, Nov. 30,
Increase (Decrease) in Net Asset Value: 1999 1999 1998
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 7.19 $ 8.70 $ 10.00
Operating ------------ ------------ ------------
Performance: Investment income--net .10 .43 .33
Realized and unrealized loss on investments and
foreign currency transactions--net (.17) (1.55) (1.37)
------------ ------------ ------------
Total from investment operations (.07) (1.12) (1.04)
------------ ------------ ------------
Less dividends from investment income--net (.10) (.39) (.26)
------------ ------------ ------------
Net asset value, end of period $ 7.02 $ 7.19 $ 8.70
============ ============ ============
Total Investment Based on net asset value per share (.94%)+++ (13.31%) (10.57%)+++
Return:** ============ ============ ============
Ratios to Average Expenses 2.46%* 1.89% 1.39%*
Net Assets: ============ ============ ============
Investment income--net 17.44%* 5.33% 3.67%*
============ ============ ============
Supplemental Net assets, end of period (in thousands) $ 6,028 $ 4,602 $ 2,255
Data: ============ ============ ============
Portfolio turnover 7.34% 53.53% 108.25%
============ ============ ============
<CAPTION>
Class B++++
For the For the For the Period
The following per share data and ratios have been derived Period Year Dec. 26,
from information provided in the financial statements. Dec. 1, 1999 to Ended 1997++ to
Dec. 31, Nov. 30, Nov. 30,
Increase (Decrease) in Net Asset Value: 1999 1999 1998
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 7.18 $ 8.69 $ 10.00
Operating ------------ ------------ ------------
Performance: Investment income--net .08 .30 .24
Realized and unrealized loss on investments and
foreign currency transactions--net (.15) (1.51) (1.36)
------------ ------------ ------------
Total from investment operations (.07) (1.21) (1.12)
------------ ------------ ------------
Less dividends from investment income--net (.08) (.30) (.19)
------------ ------------ ------------
Net asset value, end of period $ 7.03 $ 7.18 $ 8.69
============ ============ ============
Total Investment Based on net asset value per share (.95%)+++ (14.28%) (11.36%)+++
Return:** ============ ============ ============
Ratios to Average Expenses 3.49%* 2.85% 2.41%*
Net Assets: ============ ============ ============
Investment income--net 14.09%* 3.67% 2.58%*
============ ============ ============
Supplemental Net assets, end of period (in thousands) $ 23,844 $ 24,660 $ 44,482
Data: ============ ============ ============
Portfolio turnover 7.34% 53.53% 108.25%
============ ============ ============
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Real Estate Fund, Inc.
December 31, 1999
FINANCIAL INFORMATION (continued)
<TABLE>
Financial Highlights (concluded)
<CAPTION>
Class C++++
For the For the For the Period
The following per share data and ratios have been derived Period Year Dec. 26,
from information provided in the financial statements. Dec. 1, 1999 to Ended 1997++ to
Dec. 31, Nov. 30, Nov. 30,
Increase (Decrease) in Net Asset Value: 1999 1999 1998
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 7.18 $ 8.68 $ 10.00
Operating ------------ ------------ ------------
Performance: Investment income--net .08 .30 .24
Realized and unrealized loss on investments and
foreign currency transactions--net (.16) (1.50) (1.37)
------------ ------------ ------------
Total from investment operations (.08) (1.20) (1.13)
------------ ------------ ------------
Less dividends from investment income--net (.08) (.30) (.19)
------------ ------------ ------------
Net asset value, end of period $ 7.02 $ 7.18 $ 8.68
============ ============ ============
Total Investment Based on net asset value per share (1.09%)+++ (14.19%) (11.41%)+++
Return:** ============ ============ ============
Ratios to Average Expenses 3.50%* 2.86% 2.42%*
Net Assets: ============ ============ ============
Investment income--net 13.93%* 3.77% 2.63%*
============ ============ ============
Supplemental Net assets, end of period (in thousands) $ 4,793 $ 5,189 $ 9,737
Data: ============ ============ ============
Portfolio turnover 7.34% 53.53% 108.25%
============ ============ ============
<CAPTION>
Class D++++
For the For the For the Period
The following per share data and ratios have been derived Period Year Dec. 26,
from information provided in the financial statements. Dec. 1, 1999 to Ended 1997++ to
Dec. 31, Nov. 30, Nov. 30,
Increase (Decrease) in Net Asset Value: 1999 1999 1998
<S> <S> <C> <C> <C>
Per Share Net asset value, beginning of period $ 7.19 $ 8.70 $ 10.00
Operating ------------ ------------ ------------
Performance: Investment income--net .08 .39 .30
Realized and unrealized loss on investments
and foreign currency transactions--net (.16) (1.53) (1.36)
------------ ------------ ------------
Total from investment operations (.08) (1.14) (1.06)
------------ ------------ ------------
Less dividends from investment income--net (.09) (.37) (.24)
------------ ------------ ------------
Net asset value, end of period $ 7.02 $ 7.19 $ 8.70
============ ============ ============
Total Investment Based on net asset value per share (1.01%)+++ (13.53%) (10.74%)+++
Return:** ============ ============ ============
Ratios to Average Expenses 2.71%* 2.10% 1.64%*
Net Assets: ============ ============ ============
Investment income--net 15.56%* 4.74% 3.34%*
============ ============ ============
Supplemental Net assets, end of period (in thousands) $ 6,134 $ 4,825 $ 6,269
Data: ============ ============ ============
Portfolio turnover 7.34% 53.53% 108.25%
============ ============ ============
*Annualized.
**Total investment returns exclude the effects of sales charges.
++Commencement of operations.
++++Based on average shares outstanding.
+++Aggregate total investment return.
See Notes to Financial Statements.
</TABLE>
Merrill Lynch Real Estate Fund, Inc.
December 31, 1999
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
Merrill Lynch Real Estate Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a non-diversified, open-
end management investment company. The Fund's financial statements
are prepared in accordance with generally accepted accounting
principles, which may require the use of management accruals and
estimates. The Fund has changed its fiscal year end from November 30
to December 31. The Fund offers four classes of shares under the
Merrill Lynch Select Pricing SM System. Shares of Class A and Class
D are sold with a front-end sales charge. Shares of Class B and
Class C may be subject to a contingent deferred sales charge. All
classes of shares have identical voting, dividend, liquidation and
other rights and the same terms and conditions, except that Class B,
Class C and Class D Shares bear certain expenses related to the
account maintenance of such shares, and Class B and Class C Shares
also bear certain expenses related to the distribution of such
shares. Each class has exclusive voting rights with respect to
matters relating to its account maintenance and distribution
expenditures. The following is a summary of significant accounting
policies followed by the Fund.
(a) Valuation of investments--Portfolio securities that are traded
on stock exchanges are valued at the last sale price on the exchange
on which such securities are traded, as of the close of business on
the day the securities are being valued or, lacking any sales, at
the last available bid price. Securities traded in the over-the-
counter market are valued at the last available bid price prior to
the time of valuation. In cases where securities are traded on more
than one exchange, the securities are valued on the exchange
designated by or under the authority of the Board of Directors as
the primary market. Securities that are traded both in the over-the-
counter market and on a stock exchange are valued according to the
broadest and most representative market. Options written or
purchased are valued at the last sale price in the case of exchange-
traded options. In the case of options traded in the over-the-
counter market, valuation is the last asked price (options written)
or the last bid price (options purchased). Short-term securities are
valued at amortized cost, which approximates market value. Other
investments, including futures contracts and related options, are
stated at market value. Securities and assets for which market value
quotations are not available are valued at their fair value as
determined in good faith by or under the direction of the Fund's
Board of Directors.
(b) Foreign currency transactions--Transactions denominated in
foreign currencies are recorded at the exchange rate prevailing when
recognized. Assets and liabilities denominated in foreign currencies
are valued at the exchange rate at the end of the period. Foreign
currency transactions are the result of settling (realized) or
valuing (unrealized) assets or liabilities expressed in foreign
currencies into US dollars. Realized and unrealized gains or losses
from investments include the effects of foreign exchange rates on
investments.
(c) Derivative financial instruments--The Fund may engage in various
portfolio strategies to seek to increase its return by hedging its
portfolio against adverse movements in the equity, debt and currency
markets. Losses may arise due to changes in the value of the
contract or if the counterparty does not perform under the contract.
* Options--The Fund is authorized to write and purchase 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.
* Forward foreign exchange contracts--The Fund is authorized to
enter into forward foreign exchange contracts as a hedge against
either specific transactions or portfolio positions. Such contracts
are not entered on the Fund's records. However, the effect on
operations is recorded from the date the Fund enters into such
contracts.
Merrill Lynch Real Estate Fund, Inc.
December 31, 1999
* Financial futures contracts--The Fund may purchase or sell
financial futures contracts and options on such futures contracts as
a hedge against adverse changes in the interest rate. A futures
contract is an agreement between two parties to buy and sell a
security, respectively, for a set price on a future date. 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.
(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 all of its taxable income to
its shareholders. Therefore, no Federal income tax provision is
required. Under the applicable foreign tax law, a withholding tax
may be imposed on interest, dividends and capital gains at various
rates.
(e) Security transactions and investment income--Security
transactions are recorded on the dates the transactions are entered
into (the trade dates). Dividend income is recorded on the ex-
dividend dates. Dividends from foreign securities where the ex-
dividend date may have passed are subsequently recorded when the
Fund has determined the ex-dividend date. Interest income (including
amortization of discount) is recognized on the accrual basis.
Realized gains and losses on security transactions are determined on
the identified cost basis.
(f) Deferred organization expenses and prepaid registration fees--
Deferred organization expenses are charged to expense on a straight-
line basis over a period not exceeding five years. Prepaid
registration fees are charged to expense as the related shares are
issued.
(g) Dividends and distributions--Dividends and distributions paid by
the Fund are recorded on the ex-dividend dates.
2. Investment Advisory Agreement and
Transactions with Affiliates:
The Fund has entered into an Investment Advisory Agreement with
Merrill Lynch Asset Management, L.P. ("MLAM"). The general partner
of MLAM 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 Merrill Lynch Funds
Distributor ("MLFD" or the "Distributor"), a division of Princeton
Funds Distributor, Inc. ("PFD"), which is a wholly-owned subsidiary
of Merrill Lynch Group, Inc.
MLAM is responsible for the management of the Fund's portfolio and
provides the necessary personnel, facilities, equipment and certain
other services necessary to the operations of the Fund. As
compensation for its services to the Fund, MLAM receives monthly
compensation at the annual rate of .85% of the average daily net
assets of the Fund.
Pursuant to the Distribution Plans adopted by the Fund in accordance
with Rule 12b-1 under the Investment Company Act of 1940, the Fund
pays the Distributor ongoing account maintenance and distribution
fees. The fees are accrued daily and paid monthly at annual rates
based upon the average daily net assets of the shares as follows:
Account Distribution
Maintenance Fee Fee
Class B .25% .75%
Class C .25% .75%
Class D .25% --
Pursuant to a sub-agreement with the Distributor, Merrill Lynch,
Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of ML &
Co., also provides account maintenance and distribution services to
the Fund. The ongoing account maintenance fee compensates the
Distributor and MLPF&S for providing account maintenance services to
Class B, Class C and Class D shareholders. The ongoing distribution
fee compensates the Distributor and MLPF&S for providing shareholder
and distribution-related services to Class B and Class C
shareholders.
Merrill Lynch Real Estate Fund, Inc.
December 31, 1999
NOTES TO FINANCIAL STATEMENTS (concluded)
For the period December 1, 1999 to December 31, 1999, MLFD earned
underwriting discounts and MLPF&S earned dealer concessions on sales
of the Fund's Class D Shares as follows:
MLFD MLPF&S
Class D $3,134 $33,528
For the period December 1, 1999 to December 31, 1999, MLPF&S
received contingent deferred sales charges of $25,868 and $1,504
relating to transactions in Class B and Class C Shares,
respectively.
In addition, MLPF&S received $250 in commissions on the execution of
portfolio security transactions for the Fund for the period December
1, 1999 to December 31, 1999.
Financial Data Services, Inc. ("FDS"), a wholly-owned subsidiary of
ML & Co., is the Fund's transfer agent.
Accounting services are provided to the Fund by MLAM at cost.
Certain officers and/or directors of the Fund are officers and/or
directors of MLAM, PFD, FDS, PSI, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities,
for the period December 1, 1999 to December 31, 1999 were $3,354,792
and $2,855,211, respectively.
Net realized losses for the period December 1, 1999 to December 31,
1999 and net unrealized losses as of December 31, 1999 were as
follows:
Realized Unrealized
Losses Losses
Long-term investments $(1,988,175) $ (9,537,262)
Foreign currency transactions (119) (633)
----------- ------------
Total $(1,988,294) $ (9,537,895)
=========== ============
As of December 31, 1999, net unrealized depreciation for Federal
income tax purposes aggregated $10,291,197, of which $201,474
related to appreciated securities and $10,492,671 related to
depreciated securities. At December 31, 1999, the aggregate cost of
investments for Federal income tax purposes was $50,885,411.
4. Capital Share Transactions:
Net increase (decrease) in net assets derived from capital share
transactions was $2,325,405, $(13,727,936) and $73,565,878 for the
period December 1, 1999 to December 31, 1999, for the year ended
November 30, 1999 and for the period December 26, 1997 to November
30, 1998, respectively.
Transactions in shares for each class were as follows:
Class A Shares for the Period Dollar
Dec. 1, 1999 to Dec. 31, 1999 Shares Amount
Shares sold 262,203 $ 1,801,145
Shares issued to shareholders in
reinvestment of dividends 9,015 61,393
---------- ------------
Total issued 271,218 1,862,538
Shares redeemed (52,817) (370,913)
---------- ------------
Net increase 218,401 $ 1,491,625
========== ============
Class A Shares for the Year Dollar
Ended November 30, 1999 Shares Amount
Shares sold 678,806 $ 5,592,075
Shares issued to shareholders in
reinvestment of dividends 16,702 133,711
---------- ------------
Total issued 695,508 5,725,786
Shares redeemed (314,364) (2,513,033)
---------- ------------
Net increase 381,144 $ 3,212,753
========== ============
Class A Shares for the Period Dollar
Dec. 26, 1997++ to Nov. 30, 1998 Shares Amount
Shares sold 377,111 $ 3,593,591
Shares issued to shareholders in
reinvestment of dividends 4,933 45,780
---------- ------------
Total issued 382,044 3,639,371
Shares redeemed (125,372) (1,090,914)
---------- ------------
Net increase 256,672 $ 2,548,457
========== ============
++Prior to December 26, 1997 (commencement of operations), the Fund
issued 2,500 shares to MLAM for $25,000.
Class B Shares for the Period Dollar
Dec. 1, 1999 to Dec. 31, 1999 Shares Amount
Shares sold 247,237 $ 1,702,230
Shares issued to shareholders in
reinvestment of dividends 26,979 183,995
---------- ------------
Total issued 274,216 1,886,225
Shares redeemed (315,078) (2,177,709)
Automatic conversion of shares (78) (533)
---------- ------------
Net decrease (40,940) $ (292,017)
========== ============
Merrill Lynch Real Estate Fund, Inc.
December 31, 1999
Class B Shares for the Year Dollar
Ended November 30, 1999 Shares Amount
Shares sold 444,297 $ 3,631,085
Shares issued to shareholders in
reinvestment of dividends 121,972 989,020
---------- ------------
Total issued 566,269 4,620,105
Shares redeemed (2,229,275) (17,930,533)
Automatic conversion of shares (23,139) (185,640)
---------- ------------
Net decrease (1,686,145) $(13,496,068)
========== ============
Class B Shares for the Period Dollar
Dec. 26, 1997++ to Nov. 30, 1998 Shares Amount
Shares sold 6,447,479 $ 64,264,672
Shares issued to shareholders in
reinvestment of dividends 79,692 749,347
---------- ------------
Total issued 6,527,171 65,014,019
Shares redeemed (1,389,954) (12,500,414)
Automatic conversion of shares (19,240) (183,702)
---------- ------------
Net increase 5,117,977 $ 52,329,903
========== ============
++Prior to December 26, 1997 (commencement of operations), the Fund
issued 2,500 shares to MLAM for $25,000.
Class C Shares for the Period Dollar
Dec. 1, 1999 to Dec. 31, 1999 Shares Amount
Shares sold 20,637 $ 142,229
Shares issued to shareholders in
reinvestment of dividends 6,151 41,949
---------- ------------
Total issued 26,788 184,178
Shares redeemed (67,422) (468,660)
---------- ------------
Net decrease (40,634) $ (284,482)
========== ============
Class C Shares for the Year Dollar
Ended November 30, 1999 Shares Amount
Shares sold 291,428 $ 2,388,607
Shares issued to shareholders in
reinvestment of dividends 29,144 236,418
---------- ------------
Total issued 320,572 2,625,025
Shares redeemed (719,001) (5,815,671)
---------- ------------
Net decrease (398,429) $ (3,190,646)
========== ============
Class C Shares for the Period Dollar
Dec. 26, 1997++ to Nov. 30, 1998 Shares Amount
Shares sold 1,420,370 $ 14,079,175
Shares issued to shareholders in
reinvestment of dividends 19,205 179,846
---------- ------------
Total issued 1,439,575 14,259,021
Shares redeemed (320,547) (2,985,037)
---------- ------------
Net increase 1,119,028 $ 11,273,984
========== ============
++Prior to December 26, 1997 (commencement of operations), the Fund
issued 2,500 shares to MLAM for $25,000.
Class D Shares for the Period Dollar
Dec. 1, 1999 to Dec. 31, 1999 Shares Amount
Shares sold 290,944 $ 2,034,725
Automatic conversion of shares 78 533
Shares issued to shareholders in
reinvestment of dividends 4,931 33,579
---------- ------------
Total issued 295,953 2,068,837
Shares redeemed (93,810) (658,558)
---------- ------------
Net increase 202,143 $ 1,410,279
========== ============
Class D Shares for the Year Dollar
Ended November 30, 1999 Shares Amount
Shares sold 339,464 $ 2,842,618
Automatic conversion of shares 23,112 185,640
Shares issued to shareholders in
reinvestment of dividends 19,046 153,709
---------- ------------
Total issued 381,622 3,181,967
Shares redeemed (430,748) (3,435,942)
---------- ------------
Net decrease (49,126) $ (253,975)
========== ============
Class D Shares for the Period Dollar
Dec. 26, 1997++ to Nov. 30, 1998 Shares Amount
Shares sold 966,865 $ 9,656,369
Automatic conversion of shares 19,213 183,702
Shares issued to shareholders in
reinvestment of dividends 12,854 121,219
---------- ------------
Total issued 998,932 9,961,290
Shares redeemed (280,835) (2,547,756)
---------- ------------
Net increase 718,097 $ 7,413,534
========== ============
++Prior to December 26, 1997 (commencement of operations), the Fund
issued 2,500 shares to MLAM for $25,000.
5. Capital Loss Carryforward:
At December 31, 1999, the Fund had a net capital loss carryforward
of approximately $11,122,000, of which $3,290,000 expires in 2025,
$4,766,000 expires in 2006 and $3,066,000 expires in 2007. This
amount will be available to offset like amounts of any future
taxable gains.
Merrill Lynch Real Estate Fund, Inc.
December 31, 1999
<AUDIT-REPORT>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders,
Merrill Lynch Real Estate Fund, Inc.:
We have audited the accompanying statement of assets and
liabilities, including the schedule of investments, of Merrill Lynch
Real Estate Fund, Inc. as of December 31, 1999, the related
statement of operations for the period December 1, 1999 to December
31, 1999 and for the year ended November 30, 1999 and the statement
of changes in net assets and the financial highlights for the period
December 1, 1999 to December 31, 1999 and for the year ended
November 30, 1999 and the period December 26, 1997 (commencement of
operations) to December 31, 1998. 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 generally accepted
auditing standards. 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 at December
31, 1999 by correspondence with the custodian and brokers. 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, such financial statements and financial highlights
present fairly, in all material respects, the financial position of
Merrill Lynch Real Estate Fund, Inc. as of December 31, 1999, the
results of its operations, the changes in its net assets, and the
financial highlights for the respective stated periods in conformity
with generally accepted accounting principles.
Deloitte &Touche LLP
Princeton, New Jersey
February 18, 2000
</AUDIT-REPORT>
IMPORTANT TAX INFORMATION (unaudited)
Merrill Lynch Real Estate Fund, Inc. will make distributions on a
quarterly basis during the year 2000. It is anticipated that a
portion of these distributions may be reclassified as a return of
capital. The actual amount, if any, of such reclassification will be
determined at year end and will be reported to you on your tax
reporting statements.
Please retain this information for your records.
Merrill Lynch Real Estate Fund, Inc.
December 31, 1999
OFFICERS AND DIRECTORS
Terry K. Glenn, President and Director
Joe Grills, Director
Walter Mintz, Director
Robert S. Salomon Jr., Director
Melvin R. Seiden, Director
Steven B. Swensrud, Director
Arthur Zeikel, Director
Robert C. Doll, Senior Vice President
Jay L. Willoughby, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Barbara G. Fraser, Secretary
Custodian
The Bank of New York
90 Washington Street, 12th Floor
New York, NY 10286
Transfer Agent
Financial Data Services, Inc.
4800 Deer Lake Drive East
Jacksonville, FL 32246-6484
(800) 637-3863
