THE S&P 500(R)
PROTECTED EQUITY
FUND, INC.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Semi-Annual Report
March 31, 2000
<PAGE>
The S&P 500(R) Protected Equity Fund, Inc.
Officers and
Directors
Terry K. Glenn, President and Director
Jack B. Sunderland, Director
Stephen B. Swensrud, Director
J. Thomas Touchton, Director
Eric S. Mitofsky, Senior Vice President and
Portfolio Manager
Donald C. Burke, Vice President and Treasurer
Ira P. Shapiro, Secretary
Custodian
The Chase Manhattan Bank
4 Chase MetroTech Center, 18th Floor
Brooklyn, NY 11245
Transfer Agent
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
NYSE Symbol
PEF
<PAGE>
The S&P 500(R) Protected Equity Fund, Inc., March 31, 2000
DEAR SHAREHOLDER
We are pleased to provide you with this first semi-annual report for The S&P
500(R) Protected Equity Fund, Inc. In this and future shareholder reports, we
will highlight the Fund's performance and describe recent investment activities.
The Fund's investment objective is to return to shareholders $10.00 per share
(the Fund's initial net asset value per share) plus an amount equal to
approximately $10.00 multiplied by the percentage increase in any price
appreciation of the S&P 500 Index from the Fund's inception until on or about
the Fund's maturity date of November 30, 2007. The Fund will seek to achieve its
investment objective by investing primarily in a portfolio of the common stocks
of substantially all of the companies represented in the Standard & Poor's (S&P)
500 Index and by purchasing privately-negotiated put option contracts.
The Fund was designed to provide investors with exposure to the US equity
market, as measured by the S&P 500 Index, with a goal that there will be no loss
of principal if the Fund is held to its termination, regardless of the level of
the S&P 500 Index at that time. To accomplish this objective, on the Fund's
start date most of the Fund's net assets were invested in a portfolio of stocks
and other assets designed to provide an investment return that closely
approximates that of the S&P 500 Index. (The Fund differs from traditional index
funds in that not all of its assets were deployed in investments directly
related to the underlying index.)
The portfolio consisted of holdings at weightings nearly identical to the
weights of the stocks in the S&P 500 Index (aside from the Fund's elimination of
shares of Merrill Lynch & Co.). The Fund had initial net assets of $315 million,
with an equity portfolio valued at $266.7 million. Our intention to maintain the
Fund's equity holdings in a manner consistent with the S&P 500 Index required us
to establish a liquidity cushion. To do this, we purchased S&P Depositary
Receipts (SPDRs) and established a long position in S&P 500 futures contracts.
In addition, we purchased seven-year European-style (no early exercise) put
options from three independent counterparties. The value of these options at the
Fund's maturity will help offset losses suffered by the Fund's underlying equity
portfolio in the event the S&P 500 Index settles below its value at inception.
The criteria used by the Fund to select its various counterparties included
credit rating, financial stability and their flexibility to structure the put
options needed by the Fund in a manner deemed beneficial to the Fund. In
declining order of notional amount, the three put options purchased by the Fund
were: $113.4 million with UBS AG, London Branch; $107.1 million with Credit
Suisse Financial Products; and $94.5 million with Banque AIG. In the event of
non-performance, the Fund's net asset value at maturity could fall below $10.00
per share. Accordingly, the put options contain terms that mitigate the
possibility the Fund could suffer losses as a result of non-performance.
Performance Results
Since inception (November 3, 1999) through March 31, 2000, the Fund had a total
return of +5.10%, based on a change in per share net asset value from $10.00 to
$10.51. During the same period, the S&P 500 Index rose from 1,354.93 to
1,498.58, for an increase of +10.60%. Much of the Fund's apparent
underperformance was the result of the decline in the value of the Fund's
protective put options, which would normally be expected to decline in value as
the S&P 500 Index rises. At the Fund's inception, the three put options
purchased by the Fund were collectively valued at $191.017. By March 31, 2000,
the value of the put options had declined to $135.657. Thus, approximately 15%
of the Fund's net assets, the portion used to purchase the protective put
options, suffered a decline of nearly 29% by the end of March 2000. This
reflects not only the rising value of the underlying index during this period
but also the initial impact of the bid/offer spread of the options purchased by
the Fund as well.
In Conclusion
We appreciate your investment in The S&P 500(R) Protected Equity Fund, Inc., and
we look forward to assisting you with your investment needs in the months and
years ahead.
Sincerely,
/s/ Terry K. Glenn
Terry K. Glenn
President and Director
/s/ Eric S. Mitofsky
Eric S. Mitofsky
Senior Vice President and
Portfolio Manager
May 4, 2000
2 & 3
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The S&P 500(R) Protected Equity Fund, Inc., March 31, 2000
SCHEDULE OF INVESTMENTS (in US dollars)
Shares
Issue Held Value
================================================================================
Common
Stocks
+ 3Com Corporation.............................. 7,843 $ 436,267
+ ADC Telecommunications, Inc. ................. 6,884 370,875
+ The AES Corporation........................... 4,741 373,354
AFLAC Incorporated............................ 6,119 278,797
ALLTEL Corporation............................ 7,192 453,545
+ ALZA Corporation.............................. 2,338 87,821
+ AMR Corporation............................... 3,393 108,152
AT&T Corp..................................... 73,193 4,117,106
Abbott Laboratories........................... 35,214 1,239,093
+ Adaptec, Inc. ................................ 2,378 91,702
Adobe Systems Incorporated.................... 2,716 302,155
Adolph Coors Company (Class B)................ 848 40,545
+ Advanced Micro Devices, Inc. ................. 3,388 193,328
Aetna Inc. ................................... 3,276 182,432
Air Products and Chemicals, Inc. ............. 5,278 150,093
Alberto-Culver Company (Class B).............. 1,285 30,599
Albertson's, Inc. ............................ 9,674 299,894
Alcan Aluminium Ltd. ......................... 6,043 204,707
Alcoa Inc. ................................... 8,439 592,840
Allegheny Technologies Incorporated........... 2,193 43,997
Allergan Inc. ................................ 3,039 151,950
+ Allied Waste Industries, Inc. ................ 4,338 28,468
The Allstate Corporation...................... 18,449 439,317
Amerada Hess Corporation...................... 2,085 134,743
Ameren Corporation............................ 3,158 97,701
+ America Online, Inc. ......................... 52,267 3,514,956
American Electric Power Company, Inc. ........ 4,451 132,695
American Express Company...................... 10,254 1,527,205
American General Corporation.................. 5,661 317,724
American Greetings Corporation
(Class A)................................... 1,478 26,973
American Home Products Corporation............ 29,909 1,603,870
American International Group, Inc. ........... 35,465 3,883,417
+ Amgen Inc. ................................... 23,400 1,436,175
AmSouth Bancorporation........................ 8,958 133,810
Anadarko Petroleum Corporation................ 2,933 113,470
+ Analog Devices, Inc. ......................... 8,012 645,467
+ Andrew Corporation............................ 1,889 43,211
Anheuser-Busch Companies, Inc. ............... 10,659 663,523
Aon Corporation............................... 5,896 190,146
Apache Corporation............................ 2,622 130,444
+ Apple Computer, Inc. ......................... 3,703 502,914
+ Applied Materials, Inc. ...................... 17,531 1,652,297
Archer-Daniels-Midland Company................ 13,908 144,295
Armstrong World Industries, Inc. ............. 923 16,499
Ashland Inc. ................................. 1,662 55,573
Associates First Capital Corporation
(Class A)................................... 16,682 357,620
Atlantic Richfield Company (ARCO)............. 7,419 630,615
Autodesk, Inc. ............................... 1,356 61,698
Automatic Data Processing, Inc. .............. 14,437 696,585
+ AutoZone, Inc. ............................... 3,166 87,856
Avery Dennison Corporation.................... 2,615 159,678
Avon Products, Inc. .......................... 5,565 161,733
The B.F. Goodrich Company..................... 2,528 72,522
BB&T Corporation.............................. 7,959 223,349
+ BMC Software, Inc. ........................... 5,594 276,204
Baker Hughes Incorporated..................... 7,569 228,962
Ball Corporation.............................. 700 24,194
Bank of America Corporation................... 39,106 2,050,621
The Bank of New York Company, Inc. ........... 16,923 703,362
Bank One Corporation.......................... 26,271 903,066
Barrick Gold Corporation...................... 8,974 140,780
Bausch & Lomb Incorporated.................... 1,322 68,992
Baxter International Inc. .................... 6,792 425,773
The Bear Stearns Companies Inc. .............. 3,212 146,547
Becton, Dickinson and Company................. 5,761 151,586
+ Bed Bath & Beyond Inc. ....................... 3,215 126,591
Bell Atlantic Corporation..................... 35,568 2,174,094
BellSouth Corporation......................... 43,117 2,026,499
Bemis Company, Inc. .......................... 1,204 44,397
+ Best Buy Co., Inc. ........................... 4,691 403,426
Bestfoods..................................... 6,420 300,536
+ Bethlehem Steel Corporation................... 3,011 18,066
+ Biogen, Inc. ................................. 3,442 240,510
Biomet, Inc. ................................. 2,588 94,138
The Black & Decker Corporation................ 2,004 75,275
The Boeing Company............................ 19,900 754,956
Boise Cascade Corporation..................... 1,313 45,627
+ Boston Scientific Corporation................. 9,518 202,852
Briggs & Stratton Corporation................. 536 22,043
Bristol-Myers Squibb Company.................. 45,439 2,624,102
Brown-Forman Corporation (Class B)............ 1,577 85,848
Brunswick Corporation......................... 2,119 40,129
Burlington Northern Santa Fe Corp............. 10,496 232,224
Burlington Resources Inc. .................... 4,982 184,334
+ CBS Corporation............................... 17,464 988,899
CIGNA Corporation............................. 3,861 292,471
CMS Energy Corporation........................ 2,653 48,086
C.R. Bard, Inc. .............................. 1,179 45,613
CSX Corporation............................... 5,010 117,735
CVS Corporation............................... 9,016 338,663
+ Cabletron Systems, Inc. ...................... 4,175 122,380
Campbell Soup Company......................... 9,827 302,180
Capital One Financial Corporation............. 4,545 217,876
Cardinal Health, Inc. ........................ 6,444 295,618
Carnival Corporation.......................... 14,115 350,228
Carolina Power & Light Company................ 3,673 119,143
Caterpillar Inc. ............................. 8,183 322,717
+ Cendant Corporation........................... 16,172 299,182
Centex Corporation............................ 1,372 32,671
Central & South West Corporation.............. 4,895 83,521
CenturyTel, Inc. ............................. 3,211 119,208
+ Ceridian Corporation.......................... 3,332 63,933
Champion International Corporation............ 2,209 117,629
The Charles Schwab Corporation................ 23,606 1,341,116
The Chase Manhattan Corporation............... 18,944 1,651,680
Chevron Corporation........................... 15,033 1,389,613
The Chubb Corporation......................... 4,056 274,033
Cincinnati Financial Corporation.............. 3,799 142,937
Cinergy Corp.................................. 3,657 78,625
Circuit City Stores--Circuit City Group....... 4,623 281,425
+ Cisco Systems, Inc. .......................... 156,733 12,117,420
Citigroup Inc. ............................... 77,232 4,580,823
+ Citrix Systems, Inc. ......................... 4,104 271,890
+ Clear Channel Communications, Inc. ........... 7,771 536,685
The Clorox Company............................ 5,432 176,540
The Coastal Corporation....................... 4,912 225,952
The Coca-Cola Company......................... 56,577 2,655,583
Coca-Cola Enterprises Inc. ................... 9,780 210,881
Colgate-Palmolive Company..................... 13,345 752,324
Columbia Energy Group......................... 1,888 111,864
Columbia/HCA Healthcare Corporation........... 12,903 326,607
+ Comcast Corporation (Class A)................. 21,250 921,719
Comerica Incorporated......................... 3,598 150,666
Compaq Computer Corporation................... 38,803 1,033,130
Computer Associates International, Inc. ...... 13,445 795,776
+ Computer Sciences Corporation................. 3,834 303,365
+ Compuware Corporation......................... 8,218 173,092
+ Comverse Technology, Inc. .................... 1,727 326,403
ConAgra, Inc. ................................ 11,235 203,634
+ Conexant Systems, Inc. ....................... 4,919 349,249
Conoco Inc. (Class B)......................... 14,345 367,591
Conseco, Inc. ................................ 7,527 86,090
Consolidated Edison, Inc. .................... 5,087 147,523
+ Consolidated Stores Corporation............... 2,535 28,836
Constellation Energy Group.................... 3,442 109,714
Cooper Industries, Inc. ...................... 2,175 76,125
Cooper Tire & Rubber Company.................. 1,746 21,934
Corning Incorporated.......................... 6,326 1,227,244
+ Costco Wholesale Corporation.................. 10,164 534,245
Countrywide Credit Industries, Inc. .......... 2,600 70,850
Crane Co...................................... 1,559 36,734
Crown Cork & Seal Company, Inc. .............. 2,964 47,424
Cummins Engine Company, Inc. ................. 964 36,210
DTE Energy Company............................ 3,339 96,831
Dana Corporation.............................. 3,816 107,563
Danaher Corporation........................... 3,273 166,923
Darden Restaurants, Inc. ..................... 2,936 52,297
Deere & Company............................... 5,379 204,402
+ Dell Computer Corporation..................... 58,758 3,169,260
Delphi Automotive Systems Corporation......... 12,943 207,088
Delta Air Lines, Inc. ........................ 2,958 157,513
Deluxe Corporation............................ 1,681 44,546
Dillard's, Inc. (Class A)..................... 2,461 40,453
Dollar General Corporation.................... 6,110 164,206
Dominion Resources, Inc. ..................... 5,453 209,600
Dover Corporation............................. 4,677 223,911
The Dow Chemical Company...................... 5,065 577,410
Dow Jones & Company, Inc. .................... 2,091 150,160
Duke Energy Corporation....................... 8,398 440,895
The Dun & Bradstreet Corporation.............. 3,706 106,084
E.I. du Pont de Nemours and Company........... 23,926 1,265,087
+ EMC Corporation............................... 23,322 2,915,250
Eastern Enterprises........................... 618 37,003
Eastman Chemical Company...................... 1,800 81,900
Eastman Kodak Company......................... 7,285 395,667
Eaton Corporation............................. 1,661 129,558
Ecolab Inc. .................................. 2,980 109,329
Edison International.......................... 7,991 132,351
El Paso Energy Corporation.................... 5,246 211,807
Electronic Data Systems Corporation........... 10,813 694,059
Eli Lilly and Company......................... 24,980 1,573,740
Emerson Electric Co........................... 9,875 522,141
Engelhard Corporation......................... 2,898 43,832
Enron Corp.................................... 16,428 1,230,046
Entergy Corporation........................... 5,681 114,685
4 & 5
<PAGE>
The S&P 500(R) Protected Equity Fund, Inc., March 31, 2000
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
Shares
Issue Held Value
================================================================================
Common
Stocks
(continued)
Equifax Inc. ................................. 3,240 $ 81,810
Exxon Mobil Corporation....................... 79,108 6,155,591
+ FMC Corporation............................... 733 41,414
FPL Group, Inc. .............................. 4,126 190,054
+ FedEx Corp.................................... 6,642 259,038
Federal Home Loan Mortgage
Association................................. 15,924 703,642
Federal National Mortgage Association......... 23,480 1,325,152
+ Federated Department Stores, Inc. ............ 4,800 200,400
Fifth Third Bancorp........................... 7,071 445,473
First Data Corporation........................ 9,625 425,906
First Union Corporation....................... 22,625 842,781
Firstar Corporation........................... 22,453 515,016
FirstEnergy Corp.............................. 5,385 111,066
FleetBoston Financial Corporation............. 21,028 767,522
Florida Progress Corporation.................. 2,261 103,723
Fluor Corporation............................. 1,746 54,126
Ford Motor Company............................ 27,668 1,270,999
Fort James Corporation........................ 4,970 109,340
Fortune Brands, Inc. ......................... 3,759 93,975
Franklin Resources, Inc. ..................... 5,696 190,460
+ Freeport-McMoRan Copper & Gold, Inc.
(Class B)................................... 3,763 45,391
GPU, Inc. .................................... 2,828 77,416
GTE Corporation............................... 22,260 1,580,460
Gannett Co., Inc. ............................ 6,439 453,145
The Gap, Inc. ................................ 19,491 970,895
+ Gateway Inc. ................................. 7,208 382,024
General Dynamics Corporation.................. 4,585 228,104
General Electric Company...................... 75,155 11,663,117
General Mills, Inc. .......................... 6,899 249,658
General Motors Corporation.................... 14,704 1,217,675
Genuine Parts Company......................... 4,121 98,389
Georgia-Pacific Group......................... 3,948 156,193
The Gillette Company.......................... 24,571 926,020
+ Global Crossing Ltd........................... 17,908 733,109
Golden West Financial Corporation............. 3,703 115,487
The Goodyear Tire & Rubber Company............ 3,597 83,855
The Great Atlantic & Pacific Tea
Company, Inc. .............................. 882 17,199
Great Lakes Chemical Corporation.............. 1,346 45,764
+ Guidant Corporation........................... 7,041 414,099
H & R Block, Inc. ............................ 2,248 100,598
H.J. Heinz Company............................ 8,125 283,359
+ HEALTHSOUTH Corporation....................... 8,872 49,350
Halliburton Company........................... 10,154 416,314
Harcourt General, Inc. ....................... 1,637 60,978
Harley-Davidson, Inc. ........................ 3,467 275,193
+ Harrah's Entertainment, Inc. ................. 2,953 54,815
The Hartford Financial Services
Group, Inc. ................................ 5,091 268,550
Hasbro, Inc. ................................. 4,067 67,105
Hercules Incorporated......................... 2,441 39,361
Hershey Foods Corporation..................... 3,212 156,585
Hewlett-Packard Company....................... 23,021 3,051,721
Hilton Hotels Corporation..................... 8,487 65,774
The Home Depot, Inc. ......................... 52,738 3,401,601
Homestake Mining Company...................... 5,990 35,940
Honeywell International Inc. ................. 18,163 956,963
Household International, Inc. ................ 10,798 402,900
+ Humana Inc. .................................. 3,858 28,212
Huntington Bancshares Incorporated............ 5,301 118,610
IKON Office Solutions, Inc. .................. 3,432 21,235
IMS Health Incorporated....................... 7,072 119,782
ITT Industries, Inc. ......................... 2,024 62,870
Illinois Tool Works Inc. ..................... 6,906 381,556
+ Inco Limited.................................. 4,418 80,905
Ingersoll-Rand Company........................ 3,801 168,194
Intel Corporation............................. 76,529 10,097,045
International Business Machines
Corporation................................. 41,291 4,872,338
International Flavors & Fragrances Inc. ...... 2,443 85,658
International Paper Company................... 9,519 406,937
The Interpublic Group of Companies,
Inc. ....................................... 6,429 303,770
J.C. Penney Company, Inc. .................... 5,966 88,744
J.P. Morgan & Co., Incorporated............... 3,967 522,652
Jefferson-Pilot Corporation................... 2,427 161,547
Johnson Controls, Inc. ....................... 1,965 106,233
Johnson & Johnson............................. 31,873 2,233,102
Jostens, Inc. ................................ 782 19,061
+ KLA-Tencor Corporation........................ 4,206 354,355
+ Kansas City Southern Industries, Inc. ........ 2,544 218,625
Kaufman and Broad Home Corporation............ 1,103 23,646
Kellogg Company............................... 9,326 238,979
Kerr-McGee Corporation........................ 2,161 124,798
KeyCorp....................................... 10,247 194,693
Kimberly-Clark Corporation.................... 12,727 712,712
+ Kmart Corporation............................. 11,153 108,045
Knight Ridder, Inc. .......................... 1,864 94,947
+ Kohl's Corporation............................ 3,747 384,067
+ The Kroger Co................................. 19,089 335,251
+ LSI Logic Corporation......................... 6,785 492,761
Leggett & Platt, Incorporated................. 4,528 97,352
Lehman Brothers Holdings, Inc. ............... 3,404 330,188
+ Lexmark International Group, Inc.
(Class A)................................... 2,965 313,549
The Limited, Inc. ............................ 4,927 207,550
Lincoln National Corporation.................. 4,478 150,013
Linear Technology Corporation................. 7,104 389,832
Liz Claiborne, Inc. .......................... 1,355 62,076
Lockheed Martin Corporation................... 9,095 185,879
Loews Corporation............................. 2,477 123,850
Longs Drug Stores Corporation................. 904 20,566
Louisiana-Pacific Corporation................. 2,473 34,313
Lowe's Companies, Inc. ....................... 8,779 512,474
Lucent Technologies Inc. ..................... 73,013 4,435,540
MBIA, Inc. ................................... 2,300 119,744
MBNA Corporation.............................. 18,366 468,333
+ MCI WorldCom Inc. ............................ 65,016 2,950,078
MGIC Investment Corporation................... 2,422 105,660
Mallinckrodt Inc. ............................ 1,571 45,166
+ Manor Care, Inc. ............................. 2,367 31,954
Marriott International, Inc. (Class A)........ 5,726 180,369
Marsh & McLennan Companies, Inc. ............. 6,076 670,259
Masco Corporation............................. 10,194 208,977
Mattel, Inc. ................................. 9,672 100,951
The May Department Stores Company............. 7,617 217,084
Maytag Corporation............................ 1,934 64,064
McDermott International, Inc. ................ 1,367 12,559
McDonald's Corporation........................ 31,016 1,165,038
The McGraw-Hill Companies, Inc. .............. 4,530 206,115
McKesson HBOC, Inc. .......................... 6,474 135,954
The Mead Corporation.......................... 2,356 82,313
+ MediaOne Group, Inc. ......................... 14,019 1,135,539
Medtronic, Inc. .............................. 27,359 1,407,279
Mellon Financial Corporation.................. 11,682 344,619
Merck & Co., Inc. ............................ 53,541 3,326,235
Meredith Corporation.......................... 1,194 33,059
+ Micron Technology, Inc. ...................... 6,198 780,948
+ Microsoft Corporation++....................... 119,223 12,667,444
Milacron Inc. ................................ 852 12,301
Millipore Corporation......................... 1,036 58,469
Minnesota Mining and Manufacturing
Company (3M)................................ 9,140 809,461
+ Mirage Resorts, Incorporated.................. 4,438 85,986
Molex Incorporated............................ 4,501 264,434
+ Monsanto Company.............................. 14,585 751,127
Morgan Stanley Dean Witter & Co............... 32,692 2,666,441
Motorola, Inc. ............................... 16,267 2,316,014
NACCO Industries, Inc. (Class A).............. 188 9,012
+ NCR Corporation............................... 2,220 89,077
NICOR, Inc. .................................. 1,086 35,770
Nabisco Group Holdings Corp................... 7,507 90,084
National City Corporation..................... 14,123 291,287
+ National Semiconductor Corporation............ 3,929 238,196
National Service Industries, Inc. ............ 932 19,630
+ Navistar International Corporation............ 1,449 58,141
+ Network Appliance, Inc. ...................... 6,977 577,347
New Century Energies, Inc. ................... 2,653 79,756
The New York Times Company (Class A).......... 3,924 168,487
Newell Rubbermaid Inc. ....................... 6,489 161,008
Newmont Mining Corporation.................... 3,856 86,519
+ Nextel Communications, Inc. (Class A)......... 8,322 1,233,736
+ Niagara Mohawk Holdings Inc. ................. 4,313 58,255
Nike, Inc. (Class B).......................... 6,323 250,549
Nordstrom, Inc. .............................. 3,084 90,978
Norfolk Southern Corporation.................. 8,756 125,867
Nortel Networks Corporation................... 33,070 4,166,820
Northern States Power Company................. 3,549 70,536
Northern Trust Corporation.................... 5,132 346,731
Northrop Grumman Corporation.................. 1,599 84,647
+ Novell, Inc. ................................. 7,482 214,172
Nucor Corporation............................. 2,009 100,450
ONEOK, Inc. .................................. 729 18,225
Occidental Petroleum Corporation.............. 8,421 174,736
+ Office Depot, Inc. ........................... 7,561 87,424
Old Kent Financial Corporation................ 2,796 90,346
Omnicom Group Inc. ........................... 4,085 381,692
+ Oracle Corporation............................ 64,631 5,045,257
Owens Corning................................. 1,262 24,451
+ Owens-Illinois, Inc. ......................... 3,448 58,185
PACCAR Inc. .................................. 1,803 90,150
PE Corp-PE Biosystems Group................... 4,696 453,164
PECO Energy Company........................... 4,295 158,378
PG&E Corporation.............................. 8,837 185,577
PNC Bank Corp................................. 6,753 304,307
PPG Industries, Inc. ......................... 3,996 209,041
6 & 7
<PAGE>
The S&P 500(R) Protected Equity Fund, Inc., March 31, 2000
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
Shares
Issue Held Value
================================================================================
Common
Stocks
(concluded)
PPL Corporation............................... 3,301 $ 69,115
+ Pactiv Corporation............................ 3,923 34,326
PaineWebber Group Inc. ....................... 4,053 178,332
Pall Corporation.............................. 2,856 64,081
+ Parametric Technology Corporation............. 6,299 132,673
Parker-Hannifin Corporation................... 2,568 106,090
Paychex, Inc. ................................ 5,661 296,495
Peoples Energy Corporation.................... 817 22,416
+ PeopleSoft, Inc. ............................. 6,131 122,620
PepsiCo, Inc. ................................ 33,345 1,152,487
PerkinElmer, Inc. ............................ 1,055 70,157
Pfizer Inc. .................................. 88,676 3,242,216
Pharmacia & Upjohn, Inc. ..................... 11,877 703,712
Phelps Dodge Corporation...................... 1,855 88,112
Philip Morris Companies Inc. ................. 54,199 1,144,954
Phillips Petroleum Company.................... 5,830 269,637
Pinnacle West Capital Corporation............. 1,951 54,994
Pitney Bowes Inc. ............................ 6,077 271,566
Placer Dome Inc. ............................. 7,493 60,881
Polaroid Corporation.......................... 1,021 24,249
Potlatch Corporation.......................... 666 28,638
Praxair, Inc. ................................ 3,668 152,680
The Procter & Gamble Company.................. 30,183 1,697,794
The Progressive Corporation................... 1,679 127,709
Providian Financial Corporation............... 3,264 282,744
Public Service Enterprise Group
Incorporated................................ 5,047 149,517
Pulte Corporation............................. 996 20,791
+ QUALCOMM Incorporated......................... 16,904 2,523,978
The Quaker Oats Company....................... 3,079 186,664
+ Quintiles Transnational Corp.................. 2,644 45,113
R.R. Donnelley & Sons Company................. 2,939 61,535
Ralston-Ralston Purina Group.................. 6,914 189,271
Raytheon Company (Class B).................... 7,772 137,953
+ Reebok International Ltd...................... 1,292 11,951
Regions Financial Corporation................. 5,023 114,587
Reliant Energy, Inc. ......................... 6,808 159,562
Reynolds Metals Company....................... 1,448 96,835
+ Rite Aid Corporation.......................... 5,959 32,774
Rockwell International Corporation............ 4,404 184,142
Rohm and Haas Company......................... 5,013 223,705
+ Rowan Companies, Inc. ........................ 2,115 62,260
Royal Dutch Petroleum Company
(NY Registered Shares)...................... 49,118 2,827,355
Russell Corporation........................... 768 10,992
Ryder System, Inc. ........................... 1,508 34,213
S&P 500 Depositary Receipts (a)............... 21,550 3,244,622
SAFECO Corporation............................ 3,028 80,431
SBC Communications Inc. ...................... 78,142 3,281,964
SLM Holding Corporation....................... 3,644 121,391
SUPERVALU Inc. ............................... 3,197 60,543
SYSCO Corporation............................. 7,618 271,867
Sabre Holdings Corporation.................... 2,968 109,629
+ Safeway Inc. ................................. 11,655 527,389
Sara Lee Corporation.......................... 20,792 374,256
Schering-Plough Corporation................... 33,651 1,236,674
Schlumberger Limited.......................... 12,602 964,053
Scientific-Atlanta, Inc. ..................... 3,519 223,236
+ Seagate Technology, Inc. ..................... 4,945 297,936
The Seagram Company Ltd....................... 9,953 592,203
+ Sealed Air Corporation........................ 1,925 104,551
Sears, Roebuck & Co........................... 8,657 267,285
Sempra Energy................................. 4,681 78,407
Shared Medical Systems Corporation............ 615 31,903
The Sherwin-Williams Company.................. 3,800 83,362
Sigma-Aldrich Corporation..................... 2,322 62,404
+ Silicon Graphics, Inc. ....................... 4,221 44,584
Snap-On Incorporated.......................... 1,344 35,196
+ Solectron Corporation......................... 13,576 543,888
SouthTrust Corporation........................ 3,855 98,061
The Southern Company.......................... 15,459 336,233
Southwest Airlines Co......................... 11,601 241,446
Springs Industries, Inc. (Class A)............ 412 15,656
Sprint Corp. (FON Group)...................... 19,964 1,257,732
+ Sprint Corp. (PCS Group)...................... 19,795 1,292,861
+ St. Jude Medical, Inc. ....................... 1,949 50,309
The St. Paul Companies, Inc. ................. 5,216 177,996
The Stanley Works............................. 2,046 53,963
+ Staples, Inc. ................................ 10,761 215,220
State Street Corporation...................... 3,711 359,503
Summit Bancorp................................ 4,003 105,079
+ Sun Microsystems, Inc. ....................... 36,157 3,388,024
SunTrust Banks, Inc. ......................... 7,330 423,307
Sunoco, Inc. ................................. 2,084 57,049
Synovus Financial Corp........................ 6,409 120,970
T. Rowe Price Associates, Inc. ............... 2,795 110,402
The TJX Companies, Inc. ...................... 7,122 158,019
TRW Inc. ..................................... 2,790 163,215
Tandy Corporation............................. 4,448 225,736
Target Corporation............................ 10,037 750,266
Tektronix, Inc. .............................. 1,079 60,424
+ Tellabs, Inc. ................................ 9,215 580,401
Temple-Inland, Inc. .......................... 1,286 64,059
+ Tenet Healthcare Corporation.................. 7,147 164,381
+ Teradyne, Inc. ............................... 3,918 322,255
Texaco Inc. .................................. 12,721 682,164
Texas Instruments Incorporated................ 18,623 2,979,680
Texas Utilities Company....................... 6,361 188,842
Textron, Inc. ................................ 3,458 210,506
+ Thermo Electron Corporation................... 3,634 74,043
Thomas & Betts Corporation.................... 1,310 37,007
Time Warner Inc. ............................. 29,469 2,946,900
The Times Mirror Company (Class A)............ 1,375 127,789
The Timken Company............................ 1,426 23,172
Torchmark Corporation......................... 3,063 70,832
Tosco Corporation............................. 3,306 100,626
+ Toys 'R' Us, Inc. ............................ 5,497 81,424
Transocean Sedco Forex Inc. .................. 4,788 245,684
Tribune Company............................... 5,456 199,485
+ Tricon Global Restaurants, Inc. .............. 3,459 107,445
Tupperware Corporation........................ 1,326 20,967
Tyco International Ltd........................ 38,736 1,931,958
U S WEST, Inc. ............................... 11,614 843,467
+ US Airways Group, Inc. ....................... 1,648 45,835
U.S. Bancorp.................................. 17,258 377,519
UST Inc. ..................................... 3,920 61,250
USX-Marathon Group............................ 7,106 185,200
USX-U.S. Steel Group.......................... 2,035 50,875
Unicom Corporation............................ 5,003 182,609
Unilever NV (NY Registered Shares)............ 13,093 630,101
Union Carbide Corporation..................... 3,065 178,728
Union Pacific Corporation..................... 5,704 223,169
Union Pacific Resources Group Inc. ........... 5,797 84,056
Union Planters Corporation.................... 3,231 99,555
+ Unisys Corporation............................ 7,115 181,432
United HealthCare Corporation................. 3,889 231,882
United Technologies Corporation............... 10,881 687,543
Unocal Corporation............................ 5,579 165,975
UnumProvident Corporation..................... 5,496 93,432
V. F. Corporation............................. 2,736 65,835
+ VERITAS Software Corporation.................. 8,939 1,169,892
+ Viacom, Inc. (Class B)........................ 15,966 842,206
Vulcan Materials Company...................... 2,303 105,506
+ W.R. Grace & Co............................... 1,638 20,782
W. W. Grainger, Inc. ......................... 2,149 116,583
Wachovia Corporation.......................... 4,655 314,503
Wal-Mart Stores, Inc. ........................ 102,017 5,661,943
Walgreen Co................................... 23,095 594,696
The Walt Disney Company....................... 47,461 1,963,699
Warner-Lambert Company........................ 19,670 1,917,825
Washington Mutual, Inc. ...................... 13,225 350,462
Waste Management, Inc. ....................... 14,252 195,074
+ Watson Pharmaceuticals, Inc. ................. 2,205 87,511
+ Wellpoint Health Networks Inc. ............... 1,515 105,861
Wells Fargo Company........................... 37,815 1,548,052
Wendy's International, Inc. .................. 2,796 56,444
Westvaco Corporation.......................... 2,306 76,963
Weyerhaeuser Company.......................... 5,428 309,396
Whirlpool Corporation......................... 1,736 101,773
Willamette Industries, Inc. .................. 2,568 103,041
The Williams Companies, Inc. ................. 9,993 439,067
Winn-Dixie Stores, Inc. ...................... 3,348 65,077
Wm. Wrigley Jr. Company....................... 2,675 205,473
Worthington Industries, Inc. ................. 2,044 25,294
Xerox Corporation............................. 15,260 396,760
+ Xilinx, Inc. ................................. 7,360 609,500
+ Yahoo! Inc. .................................. 12,095 2,072,781
Young & Rubicam Inc. ......................... 1,595 74,965
----------------------------------------------------------------------------
Total Common Stocks (Cost--$267,385,875)--89.3% $295,737,839
================================================================================
8 & 9
<PAGE>
The S&P 500(R) Protected Equity Fund, Inc., March 31, 2000
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
<TABLE>
<CAPTION>
Face
Amount Short-Term Obligations Value
================================================================================================
<S> <C> <C>
Commercial $2,554,000 General Motors Acceptance Corp., 6.38% due 4/03/2000 $ 2,553,095
Paper*
================================================================================================
Total Short-Term Obligations (Cost--$2,553,095)--0.8% 2,553,095
================================================================================================
<CAPTION>
OPTIONS Nominal Value
PURCHASED Covered by
Options Purchased
================================================================================================
<S> <C> <C>
Put Options 232,484 S&P 500 European, expiring October 2007 at $1,639 31,538,320
Purchased
================================================================================================
Total Options Purchased (Cost--$44,408,620)--9.5% 31,538,320
================================================================================================
Total Investments (Cost--$314,347,590)--99.6% 329,829,254
Variation Margin on Financial Futures Contracts**--0.0% 5,664
Other Assets Less Liabilities--0.4% 1,303,003
------------
Net Assets--100.0% $331,137,921
============
================================================================================================
</TABLE>
(a) Represents ownership in SPDR Trust, a registered unit investment trust.
The investment objective of the SPDR Trust is to provide investment
results that generally correspond to the price and yield performance of
the component stocks of the S&P 500 Index.
+ Non-income producing security.
++ Portion of securities held as collateral for open financial futures
contracts.
* 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.
** Financial futures contracts purchased as of March 31, 2000 were as
follows:
- --------------------------------------------------------------------------------
Number of Expiration
Contracts Issue Date Value
- --------------------------------------------------------------------------------
9 S&P 500 Index June 2000 $3,409,425
- --------------------------------------------------------------------------------
Total Financial Futures Contracts Purchased
(Total Contract Price--$3,330,829) $3,409,425
==========
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
As of March 31, 2000
==================================================================================================
<S> <C> <C> <C>
Assets: Investments, at value (identified cost--$269,938,970) . $298,290,934
Options purchased, at value (cost--$44,408,620) ....... 31,538,320
Cash .................................................. 1,881
Receivables:
Securities sold .................................... $ 3,983,384
Dividends .......................................... 264,348
Variation margin ................................... 5,664 4,253,396
-----------
Other assets .......................................... 11,867
------------
Total assets .......................................... 334,096,398
------------
==================================================================================================
Liabilities: Payables:
Securities purchased ................................ 2,104,563
Investment adviser .................................. 788,856
Deferred advisory fees .............................. 65,058 2,893,419
----------- ------------
Total liabilities ..................................... 2,958,477
------------
==================================================================================================
Net Assets: Net assets ............................................ $331,137,921
============
==================================================================================================
Net Assets Common stock, par value $.10 per share, 200,000,000
Consist of: shares authorized ................................... $ 3,151,000
Paid-in capital in excess of par ...................... 311,949,000
Undistributed investment income-net ................... 263,174
Undistributed realized capital gains on investments-net 214,487
Unrealized appreciation on investments-net ............ 15,560,260
------------
Net Assets--Equivalent of $10.51 per share based on
shares of 31,510,000 capital stock outstanding ....... $331,137,921
============
==================================================================================================
</TABLE>
See Notes to Financial Statements.
10 & 11
<PAGE>
The S&P 500(R) Protected Equity Fund, Inc., March 31, 2000
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Period Ended November 3, 1999+ to March 31, 2000
=================================================================================================
<S> <C> <C> <C>
Investment Dividends (net of $2,106 foreign withholding tax) ..... $ 1,383,720
Income: Interest and discount earned .......................... 190,426
-----------
Total income .......................................... 1,574,146
-----------
=================================================================================================
Expenses: Investment advisory fees ............................... $ 1,305,272
Directors' fees and expenses ........................... 5,700
-----------
Total expenses ......................................... 1,310,972
-----------
Investment income-net .................................. 263,174
-----------
=================================================================================================
Realized & Realized gain on investments-net ....................... 214,487
Unrealized Unrealized appreciation on investments-net ............. 15,560,260
Gain -----------
on Invest- Net Increase in Net Assets Resulting from Operations ... $16,037,921
ents-Net: ===========
=================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
Nov. 3, 1999+ to
Increase (Decrease) in Net Assets: March 31, 2000
==============================================================================================
<S> <C> <C>
Operations: Investment income-net ...................................... $ 263,174
Realized gain on investments-net ........................... 214,487
Unrealized appreciation on investments-net ................. 15,560,260
------------
Net increase in net assets resulting from operations ....... 16,037,921
------------
==============================================================================================
Capital Share Net increase in net assets derived from capital share
Transactions: transactions ............................................... 315,000,000
------------
==============================================================================================
Net Assets: Total increase in net assets ............................... 331,037,921
Beginning of period ........................................ 100,000
------------
End of period* ............................................. $ 331,137,921
=============
==============================================================================================
* Undistributed investment income-net ........................ $ 263,174
=============
==============================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
The following per share data and ratios have been derived
from information provided in the financial statements. For the Period
Nov. 3, 1999+ to
Increase (Decrease) in Net Asset Value: March 31, 2000
==================================================================================================
<S> <C> <C>
Per Share Operating Net asset value, beginning of period ................. $ 10.00
Performance: ----------
Investment income-net .............................. .01
Realized and unrealized gain on investments-net .... .50
---------
Total from investment operations ..................... .51
---------
Net asset value, end of period ....................... $ 10.51
=========
==================================================================================================
Total Investment Based on net asset value per share ................... 5.10%++
Return:** =========
==================================================================================================
Ratios to Average Expenses ............................................. 1.00%*
Net Assets: =========
Investment income-net ................................ .20%*
=========
==================================================================================================
Supplemental Net assets, end of period (in thousands) ............. $ 331,138
Data: =========
Portfolio turnover ................................... 3.56%
=========
==================================================================================================
</TABLE>
* Annualized.
** Total investment returns based on market value, which
can be significantly greater or lesser than the net
asset value, may result in substantially different
returns. Total investment returns exclude the effects of
sales charges.
+ Commencement of operations.
++ Aggregate total investment return.
See Notes to Financial Statements.
12 & 13
<PAGE>
The S&P 500(R) Protected Equity Fund, Inc., March 31, 2000
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies:
The S&P 500(R) Protected Equity Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940 as a non-diversified, closed-end management
investment company. The Fund's financial statements are prepared in accordance
with accounting principles generally accepted in the United States of America,
which may require the use of management accruals and estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to a fair statement of the results for the interim period
presented. All such adjustments are of a normal recurring nature. Prior to
commencement of operations on November 3, 1999, the Fund had no operations other
than those relating to organizational matters and the issue of 10,000 capital
shares of the Fund to Merrill Lynch Asset Management, L.P. ("MLAM") for $100,000
on October 21, 1999. The Fund is anticipated to terminate on or about October
31, 2007. The Fund determines and makes available for publication the net asset
value of its Common Stock on a weekly basis. The Fund's Common Stock is listed
on the New York Stock Exchange under the symbol PEF. The following is a summary
of significant accounting policies followed by the Fund.
(a) Valuation of investments--Portfolio securities are valued on the basis of
prices furnished by one or more pricing services which determine prices for
normal, institutional-size trading units of such securities using market
information, transactions for comparable securities and various relationships
between securities which are generally recognized by institutional traders. In
certain circumstances, portfolio securities are valued at the last sale price on
the exchange that is the primary market for such securities, or the last quoted
bid price for those securities for which the over-the-counter market is the
primary market or for listed securities in which there were no sales during the
day. 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). Obligations with remaining maturities of
sixty days or less are valued at amortized cost, which approximates market
value, unless this method no longer produces fair valuations. Rights or warrants
to acquire stock, or stock acquired pursuant to the exercise of a right or
warrant, may be valued taking into account various factors such as original cost
to the Fund, earnings and net worth of the issuer, market prices for securities
of similar issuers, assessment of the issuer's future prosperity, liquidation
value or third party transactions involving the issuer's securities. Securities
and assets for which there exist no price quotations or valuations and all other
assets including futures contracts and related options are valued at fair value
as determined in good faith by or on behalf of the Board of Directors of the
Fund.
(b) Derivative financial instruments--The Fund may engage in various portfolio
investment strategies to increase or decrease the level of risk to which the
Fund is exposed more quickly and efficiently than transactions in other types of
instruments. Losses may arise due to changes in the value of the contract or if
the counter party does not perform under the contract.
o 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 market value of its portfolio securities and interest rates or to
enhance the Fund's income. A futures contract is an agreement between two
parties to buy and sell a security, respectively, for a set price at 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.
o Options--The Fund can purchase privately-negotiated put option contracts
intended to protect the Fund's initial net asset value. In addition to the put
option contracts, the Fund is authorized to write covered call options and
purchase 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.
(c) 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.
(d) Security transactions and investment income--Security transactions are
recorded on the dates the transactions are entered into (the trade dates).
Interest income is recognized on the accrual basis. Discounts and market
premiums are amortized into interest income. Realized gains and losses on
security transactions are determined on the identified cost basis.
(e) 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 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 a
limited partner. 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. For such services, the Fund
pays a monthly fee of 1.0%, on an annual basis, of the average daily value of
the Fund's net assets. As of March 31, 2000, deferred advisory fees amounted to
$65,058.
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, PSI, Merrill Lynch, Pierce, Fenner & Smith Incorporated, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
period November 3, 1999 to March 31, 2000 were $276,763,517 and $9,445,404,
respectively.
Net realized gains for the period November 3, 1999 to March 31, 2000 and net
unrealized gains (losses) as of March 31, 2000 were as follows:
- --------------------------------------------------------------------------------
Realized Unrealized
Gains Gains (Losses)
- --------------------------------------------------------------------------------
Long-term investments ................... $ 67,763 $ 28,351,964
Financial futures contracts ............. 146,724 78,596
Options purchased ....................... -- (12,870,300)
------------ ------------
Total ................................... $ 214,487 $ 15,560,260
============ ============
- --------------------------------------------------------------------------------
As of March 31, 2000, net unrealized appreciation for Federal income tax
purposes aggregated $28,351,964, of which $48,259,398 related to appreciated
securities and $19,907,434 related to depreciated securities. The aggregate cost
of investments at March 31, 2000 for Federal income tax purposes was
$314,347,590.
4. Common Stock Transactions:
The Fund is authorized to issue 200,000,000 shares of Common Stock, par value
$.10 per share. Shares issued and outstanding during the period November 3, 1999
to March 31, 2000 increased by 31,500,000 from shares sold.
14 & 15
<PAGE>
This report, including the financial information herein, is transmitted to the
shareholders of The S&P 500(R) Protected Equity Fund, Inc. for their
information. It is not a prospectus, circular or representation intended for use
in the purchase of shares of the Fund or any securities mentioned in the report.
Past performance results shown in this report should not be considered a
representation of future performance. Statements and other information herein
are as dated and are subject to change.
The S&P 500(R) Protected
Equity Fund, Inc.
Box 9011
Princeton, NJ
08543-9011 SPPEQ--3/00
[RECYCLE LOGO] Printed on post-consumer recycled paper
