The S&P 500(R)
Protected Equity
Fund, Inc.
[GRAPHIC OMITTED]
STRATEGIC
Performance
Annual Report
September 30, 2000
<PAGE>
THE S&P 500(R) PROTECTED EQUITY FUND, INC.
Officers and Terry K. Glenn, President and Director
Directors 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., September 30, 2000
DEAR SHAREHOLDER
We are pleased to provide you with the first annual report for The S&P 500(R)
Protected Equity Fund, Inc. The Fund commenced operations on November 3, 1999
and is intended to have a maturity date on or about November 30, 2007. The Fund
was designed to provide investors with exposure to the US equity market, as
measured by the unmanaged Standard & Poor's (S&P) 500 Index, with a goal that
there will be no loss of principal if the Fund is held to termination,
regardless of the level of the S&P 500 Index at that time.
At the Fund's inception, 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 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. It is anticipated that the Fund's equity holdings will be
maintained in a manner consistent with the S&P 500 Index.
However, the Fund differs from traditional index funds to the extent that not
all of the Fund's assets are deployed in investments directly related to the
underlying index. Our goal of returning at least the Fund's initial net asset
value at the Fund's maturity requires us to hedge the Fund's equity investments.
To do this, 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 the Fund's
inception. The combined purchase price of the three put options was $44.4
million, which represented approximately 14% of the Fund's net assets. The
criteria used by the Fund to select its various counterparties included credit
rating, financial stability, and flexibility to structure the put options needed
by the Fund in a beneficial manner. 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. The goal in purchasing three put options of nearly equal size
was to diversify the risk to the Fund of non-performance by one of the
counterparties.
The six-month period ended September 30, 2000 was marked by high levels of
volatility within the equity markets around the world. The NASDAQ Composite
Index, which had peaked at just above 5,000 in early March, began a steep
decline later that month and proceeded to fall back to the 3,300 level by the
middle of April. This dragged down returns for the S&P 500 Index as well, which
had peaked at 1,527.46 on March 24. By mid-April, the S&P 500 Index fell to
1,356.56, more than 150 points off its previous all-time high. The Index was
able to reattain the 1,500 level several times during the second and third
quarters of the year, but could not sustain sufficient momentum to achieve any
consistent progress and fell back to 1,436.51 by the end of September. Continued
fears of inflation, worries about earnings growth in the high technology sector,
and three additional interest rate increases by the Federal Reserve Board
highlighted the year's second and third quarters. Ultimately, the combination of
these factors produced an equity market beset with volatility.
Performance Results
For the six months ended September 30, 2000, the Fund had a total return of
-3.33%, based on a change in per share net asset value from $10.51 to $10.16.
During the same six-month period, the unmanaged S&P 500 Index had a return of
-3.60%. Since inception (November 3, 1999) through September 30, 2000, the Fund
had a total return of +1.60%, based on a change in per share net asset value
from $10.00 to $10.16. During the same period, the S&P 500 Index had a return of
+7.15%. Net assets in the Fund as of September 30, 2000 were $320 million, a
decrease of 3.4% from the $331.1 million level at the end of March.
Much of the Fund's underperformance relative to the S&P 500 Index since
inception is a result of the decline in the value of the protective put options.
The value of these options would normally be expected to decline in value as the
S&P 500 Index rises, and will also decline in value with the passage of time. At
the Fund's inception, the three put options purchased by the Fund were valued
collectively at $191.017, and by September 30, 2000 the value of the put options
had declined to $141.06. This represents a decline in value of more than 26%.
Composition changes activity continued at a rapid pace during the second half of
2000. During the second quarter of the year, the Fund added the following
equities to its portfolio in response to their addition to the S&P 500 Index:
Linear Technology Corporation, Pharmacia Corporation, VERITAS Software
Corporation, Altera Corporation, Siebel Systems, Inc., Sapient Corporation,
Maxim Integrated Products, Inc., American Power Conversion Corporation, Agilent
Technologies, Inc., Starbucks Corporation, Convergys Corporation, MedImmune
Inc., Charter One Financial, Inc., Novellus Systems, Inc., Sanmina Corporation,
Tiffany & Co., Mercury Interactive Corp., Visteon Corporation and Broadcom
Corporation. During the second quarter of the year, the following securities
were added to the Fund's equity portfolio as a result of their inclusion in the
S&P 500 Index in the third quarter: Qwest Communications International Inc.,
Stilwell Financial, Inc., The CIT Group, Inc., JDS Uniphase Corporation, Palm
Inc., KeySpan Corporation, Devon Energy Corporation and Avaya Inc.
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
November 14, 2000
2 & 3
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The S&P 500(R) Protected Equity Fund, Inc., September 30, 2000
SCHEDULE OF INVESTMENTS (in US dollars)
Shares
Issue Held Value
================================================================================
Common + ADC Telecommunications, Inc. ........... 15,764 $ 423,904
Stocks + The AES Corporation .................... 10,249 702,056
AFLAC Incorporated ..................... 5,919 379,186
ALLTEL Corporation ..................... 7,092 370,114
+ ALZA Corporation ....................... 2,631 227,581
+ AMR Corporation ........................ 3,293 107,640
AT&T Corp. ............................. 83,874 2,463,799
Abbott Laboratories .................... 34,610 1,646,138
+ Adaptec, Inc. .......................... 2,215 44,300
Adobe Systems Incorporated ............. 2,716 421,659
Adolph Coors Company (Class B) ......... 848 53,583
+ Advanced Micro Devices, Inc. ........... 6,956 164,335
Aetna Inc. ............................. 3,120 181,155
+ Agilent Technologies, Inc. ............. 10,116 495,052
Air Products and Chemicals, Inc. ....... 5,178 186,408
Alberto-Culver Company (Class B) ....... 1,285 37,024
Albertson's, Inc. ...................... 9,474 198,954
Alcan Aluminium Ltd. ................... 4,943 143,038
Alcoa Inc. ............................. 19,338 489,493
Allegheny Technologies Incorporated .... 1,816 32,915
Allergan Inc. .......................... 2,887 243,771
+ Allied Waste Industries, Inc. .......... 4,394 40,370
The Allstate Corporation ............... 16,395 569,726
+ Altera Corporation ..................... 8,880 424,020
Amerada Hess Corporation ............... 2,085 139,565
Ameren Corporation ..................... 3,058 128,054
+ America Online, Inc. ................... 51,597 2,773,339
American Electric Power Company, Inc. .. 7,188 281,230
American Express Company ............... 29,741 1,806,766
American General Corporation ........... 5,661 441,558
American Greetings Corporation
(Class A) ............................ 1,478 25,865
American Home Products Corporation ..... 29,111 1,646,591
American International Group, Inc. ..... 51,668 4,943,982
+ American Power Conversion Corporation .. 4,400 84,425
+ Amgen Inc. ............................. 22,961 1,603,324
AmSouth Bancorporation ................. 8,412 105,150
Anadarko Petroleum Corporation ......... 5,470 363,536
+ Analog Devices, Inc. ................... 7,987 659,427
+ Andrew Corporation ..................... 1,889 49,468
Anheuser-Busch Companies, Inc. ......... 20,240 856,405
Aon Corporation ........................ 5,694 223,489
Apache Corporation ..................... 2,722 160,938
+ Apple Computer, Inc. ................... 7,306 188,129
+ Applied Materials, Inc. ................ 18,161 1,077,174
Archer-Daniels-Midland Company ......... 14,119 121,776
Armstrong Holdings, Inc. ............... 923 11,018
Ashland Inc. ........................... 1,562 52,620
Associates First Capital Corporation
(Class A) ............................ 16,265 618,070
Autodesk, Inc. ......................... 1,276 32,378
Automatic Data Processing, Inc. ........ 14,006 936,651
+ AutoZone, Inc. ......................... 2,846 64,569
Avery Dennison Corporation ............. 2,491 115,520
Avon Products, Inc. .................... 5,339 218,232
The B.F. Goodrich Company .............. 2,323 91,033
BB&T Corporation ....................... 8,930 269,016
+ BMC Software, Inc. ..................... 5,494 105,073
Baker Hughes Incorporated .............. 7,369 273,574
Ball Corporation ....................... 700 22,181
Bank One Corporation ................... 25,806 996,757
Bank of America Corporation ............ 36,682 1,921,220
The Bank of New York Company, Inc. ..... 16,485 924,190
Barrick Gold Corporation ............... 8,874 135,328
Bausch & Lomb Incorporated ............. 1,217 47,387
Baxter International Inc. .............. 6,592 526,124
The Bear Stearns Companies Inc. ........ 3,140 197,820
Becton, Dickinson and Company .......... 5,661 149,663
+ Bed Bath & Beyond Inc. ................. 6,330 154,393
BellSouth Corporation .................. 41,849 1,684,422
Bemis Company, Inc. .................... 1,204 38,678
+ Best Buy Co., Inc. ..................... 4,591 292,102
Bestfoods .............................. 6,202 451,195
+ Bethlehem Steel Corporation ............ 2,911 8,733
+ Biogen, Inc. ........................... 3,292 200,812
Biomet, Inc. ........................... 3,954 138,390
The Black & Decker Corporation ......... 1,860 63,589
The Boeing Company ..................... 20,036 1,262,268
Boise Cascade Corporation .............. 1,313 34,877
+ Boston Scientific Corporation .......... 9,133 150,124
Briggs & Stratton Corporation .......... 536 20,267
Bristol-Myers Squibb Company ........... 43,886 2,506,988
+ Broadcom Corporation (Class A) ......... 4,950 1,206,562
Brown-Forman Corporation (Class B) ..... 1,577 86,341
Brunswick Corporation .................. 2,023 36,920
Burlington Northern Santa Fe Corp. ..... 9,027 194,645
Burlington Resources Inc. .............. 4,819 177,399
CIGNA Corporation ...................... 3,519 367,384
The CIT Group, Inc. (Class A) .......... 5,910 103,425
CMS Energy Corporation ................. 2,507 67,532
CP&L, Inc. ............................. 3,573 148,949
C.R. Bard, Inc. ........................ 1,179 49,813
CSX Corporation ........................ 4,910 107,099
CVS Corporation ........................ 8,753 405,373
+ Cabletron Systems, Inc. ................ 4,075 119,703
Campbell Soup Company .................. 9,404 243,328
Capital One Financial Corporation ...... 4,445 311,428
Cardinal Health, Inc. .................. 6,189 545,792
Carnival Corporation ................... 13,161 324,090
Caterpillar Inc. ....................... 7,720 260,550
+ Cendant Corporation .................... 16,181 175,968
Centex Corporation ..................... 1,372 44,076
CenturyTel, Inc. ....................... 3,111 84,775
+ Ceridian Corporation ................... 3,232 90,698
The Charles Schwab Corporation ......... 38,772 1,376,406
Charter One Financial, Inc. ............ 4,689 114,294
The Chase Manhattan Corporation ........ 29,218 1,349,506
Chevron Corporation .................... 14,598 1,244,479
The Chubb Corporation .................. 3,956 313,019
Cincinnati Financial Corporation ....... 3,612 128,226
Cinergy Corp. .......................... 3,557 117,603
Circuit City Stores--Circuit City Group 4,623 106,329
+ Cisco Systems, Inc.++ .................. 158,463 8,755,081
Citigroup Inc. ......................... 100,457 5,430,957
+ Citrix Systems, Inc. ................... 4,129 82,838
+ Clear Channel Communications, Inc. ..... 13,077 738,850
The Clorox Company ..................... 5,277 208,771
The Coastal Corporation ................ 4,812 356,690
The Coca-Cola Company .................. 55,310 3,048,964
Coca-Cola Enterprises Inc. ............. 9,341 148,872
Colgate-Palmolive Company .............. 12,826 605,387
Columbia Energy Group .................. 1,776 126,096
+ Comcast Corporation (Class A) .......... 20,231 828,207
Comerica Incorporated .................. 3,498 204,414
Compaq Computer Corporation ............ 37,961 1,046,964
Computer Associates International,
Inc. ................................. 13,245 333,608
+ Computer Sciences Corporation .......... 3,734 277,249
+ Compuware Corporation .................. 8,118 67,988
+ Comverse Technology, Inc. .............. 3,484 376,272
ConAgra, Inc. .......................... 11,945 239,647
+ Conexant Systems, Inc. ................. 5,087 213,018
Conoco Inc. (Class B) .................. 13,907 374,620
Conseco, Inc. .......................... 7,264 55,388
Consolidated Edison, Inc. .............. 4,765 162,606
+ Consolidated Stores Corporation ........ 2,535 34,222
Constellation Energy Group ............. 3,342 166,265
+ Convergys Corporation .................. 3,400 132,175
Cooper Industries, Inc. ................ 2,075 73,144
Cooper Tire & Rubber Company ........... 1,693 17,036
Corning Incorporated ................... 6,636 1,970,892
+ Costco Wholesale Corporation ........... 9,964 348,117
Countrywide Credit Industries, Inc. .... 2,600 98,150
Crane Co. .............................. 1,432 32,757
Crown Cork & Seal Company, Inc. ........ 2,864 30,609
Cummins Engine Company, Inc. ........... 964 28,860
DTE Energy Company ..................... 3,176 121,482
Dana Corporation ....................... 3,325 71,488
Danaher Corporation .................... 3,173 157,857
Darden Restaurants, Inc. ............... 2,727 56,756
Deere & Company ........................ 5,279 175,527
+ Dell Computer Corporation .............. 57,840 1,782,195
Delphi Automotive Systems Corporation .. 12,504 189,123
Delta Air Lines, Inc. .................. 2,798 124,161
Deluxe Corporation ..................... 1,681 34,145
Devon Energy Corporation ............... 2,885 173,533
Dillard's, Inc. (Class A) .............. 2,090 22,206
Dollar General Corporation ............. 7,338 122,912
Dominion Resources, Inc. ............... 5,353 310,809
Dover Corporation ...................... 4,577 214,833
The Dow Chemical Company ............... 15,145 377,678
Dow Jones & Company, Inc. .............. 1,951 118,036
Duke Energy Corporation ................ 8,298 711,554
The Dun & Bradstreet Corporation ....... 3,606 124,182
E.I. du Pont de Nemours and Company .... 23,281 964,706
+ EMC Corporation ........................ 48,738 4,831,154
Eastern Enterprises .................... 618 39,436
Eastman Chemical Company ............... 1,700 62,794
Eastman Kodak Company .................. 6,875 281,016
Eaton Corporation ...................... 1,661 102,359
Ecolab Inc. ............................ 2,880 103,860
Edison International ................... 7,275 140,498
El Paso Energy Corporation ............. 5,202 320,573
Electronic Data Systems Corporation .... 10,472 434,588
Eli Lilly and Company .................. 25,222 2,046,135
Emerson Electric Co. ................... 9,550 639,850
4 & 5
<PAGE>
The S&P 500(R) Protected Equity Fund, Inc., September 30, 2000
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
Shares
Issue Held Value
================================================================================
Common Engelhard Corporation .................. 2,798 $ 45,467
Stocks Enron Corp. ............................ 16,468 1,443,008
(continued) Entergy Corporation .................... 4,977 185,393
Equifax Inc. ........................... 3,140 84,584
Exxon Mobil Corporation ................ 77,794 6,933,390
+ FMC Corporation ........................ 733 49,157
FPL Group, Inc. ........................ 4,026 264,710
+ FedEx Corp. ............................ 6,362 282,091
Federal Home Loan Mortgage
Association .......................... 15,521 839,104
Federal National Mortgage Association .. 22,495 1,608,393
+ Federated Department Stores, Inc. ...... 4,643 121,298
Fifth Third Bancorp .................... 10,406 560,623
First Data Corporation ................. 9,053 353,633
First Union Corporation ................ 22,004 708,254
FirstEnergy Corp. ...................... 5,105 137,516
Firstar Corporation .................... 21,397 478,758
FleetBoston Financial Corporation ...... 20,141 785,499
Florida Progress Corporation ........... 2,261 119,692
Fluor Corporation ...................... 1,746 52,380
Ford Motor Company ..................... 42,277 1,070,137
Fort James Corporation ................. 4,612 140,954
Fortune Brands, Inc. ................... 3,517 93,200
Franklin Resources, Inc. ............... 5,464 242,766
+ Freeport-McMoRan Copper & Gold, Inc.
(Class B) ............................ 3,414 30,086
GPU, Inc. .............................. 2,772 89,917
Gannett Co., Inc. ...................... 5,887 312,011
The Gap, Inc. .......................... 18,982 382,013
+ Gateway Inc. ........................... 7,212 337,161
General Dynamics Corporation ........... 4,485 281,714
General Electric Company ............... 221,174 12,758,975
General Mills, Inc. .................... 6,373 226,241
General Motors Corporation ............. 11,975 778,375
Genuine Parts Company .................. 3,907 74,477
Georgia-Pacific Group .................. 3,848 90,428
The Gillette Company ................... 23,545 726,952
+ Global Crossing Ltd. ................... 19,662 609,522
Golden West Financial Corporation ...... 3,513 188,385
The Goodyear Tire & Rubber Company ..... 3,497 62,946
Great Lakes Chemical Corporation ....... 1,166 34,178
+ Guidant Corporation .................... 6,841 483,573
H & R Block, Inc. ...................... 2,248 83,317
H.J. Heinz Company ..................... 7,758 287,531
HCA-The Healthcare Corporation ......... 12,540 465,547
+ HEALTHSOUTH Corporation ................ 8,672 70,460
Halliburton Company .................... 9,954 487,124
Harcourt General, Inc. ................. 1,637 96,583
Harley-Davidson, Inc. .................. 6,834 327,178
+ Harrah's Entertainment, Inc. ........... 2,605 71,638
The Hartford Financial Services
Group, Inc. .......................... 5,009 365,344
Hasbro, Inc. ........................... 3,873 44,297
Hercules Incorporated .................. 2,441 34,479
Hershey Foods Corporation .............. 3,112 168,437
Hewlett-Packard Company ................ 22,268 2,159,996
Hilton Hotels Corporation .............. 8,229 95,148
The Home Depot, Inc. ................... 51,714 2,744,074
+ Homestake Mining Company ............... 5,890 30,554
Honeywell International Inc. ........... 17,869 636,583
Household International, Inc. .......... 10,598 600,112
+ Humana Inc. ............................ 3,758 40,399
Huntington Bancshares Incorporated ..... 5,640 82,838
IMS Health Incorporated ................ 6,705 139,129
ITT Industries, Inc. ................... 2,024 65,654
Illinois Tool Works Inc. ............... 6,806 380,285
+ Inco Limited ........................... 4,070 65,629
Ingersoll-Rand Company ................. 3,598 121,882
Intel Corporation ...................... 149,924 6,231,216
International Business Machines
Corporation .......................... 39,317 4,423,163
International Flavors & Fragrances
Inc. ................................. 2,231 40,716
International Paper Company ............ 10,781 309,280
The Interpublic Group of Companies,
Inc. ................................. 6,899 234,997
J.C. Penney Company, Inc. .............. 5,866 69,292
J.P. Morgan & Co., Incorporated ........ 3,607 589,294
+ JDS Uniphase Corporation ............... 20,890 1,978,022
Jefferson-Pilot Corporation ............ 2,301 156,180
Johnson & Johnson ...................... 31,046 2,916,384
Johnson Controls, Inc. ................. 1,965 104,513
+ KLA-Tencor Corporation ................. 4,106 169,116
Kaufman and Broad Home Corporation ..... 1,103 29,712
Kellogg Company ........................ 9,126 220,735
Kerr-McGee Corporation ................. 2,161 143,166
KeyCorp ................................ 9,613 243,329
KeySpan Corporation .................... 3,000 120,375
Kimberly-Clark Corporation ............. 12,017 670,699
+ Kmart Corporation ...................... 10,789 64,734
Knight Ridder, Inc. .................... 1,725 87,652
+ Kohl's Corporation ..................... 7,394 426,541
+ The Kroger Co. ......................... 18,442 416,098
+ LSI Logic Corporation .................. 6,888 201,474
Leggett & Platt, Incorporated .......... 4,428 70,018
Lehman Brothers Holdings, Inc. ......... 3,404 502,941
+ Lexmark International Group, Inc.
(Class A) ............................ 2,865 107,438
The Limited, Inc. ...................... 9,654 212,991
Lincoln National Corporation ........... 4,280 205,975
Linear Technology Corporation .......... 7,004 453,509
Liz Claiborne, Inc. .................... 1,243 47,856
Lockheed Martin Corporation ............ 9,589 316,053
Loews Corporation ...................... 2,199 183,342
Longs Drug Stores Corporation .......... 904 17,289
Louisiana-Pacific Corporation .......... 2,314 21,260
Lowe's Companies, Inc. ................. 8,579 384,983
Lucent Technologies Inc. ............... 74,571 2,279,076
MBIA, Inc. ............................. 2,194 156,048
MBNA Corporation ....................... 19,020 732,270
MGIC Investment Corporation ............ 2,422 148,045
Mallinckrodt Inc. ...................... 1,571 71,677
+ Manor Care, Inc. ....................... 2,267 35,564
Marriott International, Inc. (Class A) . 5,399 196,726
Marsh & McLennan Companies, Inc. ....... 6,076 806,589
Masco Corporation ...................... 10,207 190,105
Mattel, Inc. ........................... 9,561 106,964
+ Maxim Integrated Products, Inc. ........ 6,312 507,722
The May Department Stores Company ...... 7,099 145,530
Maytag Corporation ..................... 1,790 55,602
McDermott International, Inc. .......... 1,367 15,037
McDonald's Corporation ................. 29,491 890,260
The McGraw-Hill Companies, Inc. ........ 4,330 275,226
McKesson HBOC, Inc. .................... 6,374 194,805
The Mead Corporation ................... 2,356 55,071
+ MedImmune, Inc. ........................ 4,680 361,530
Medtronic, Inc. ........................ 26,751 1,386,036
Mellon Financial Corporation ........... 10,901 505,534
Merck & Co., Inc. ...................... 51,371 3,823,929
+ Mercury Interactive Corp. .............. 1,830 286,852
Meredith Corporation ................... 1,194 35,223
+ Micron Technology, Inc. ................ 12,605 579,830
+ Microsoft Corporation++ ................ 117,510 7,079,977
Millipore Corporation .................. 1,036 50,181
Minnesota Mining and Manufacturing
Company (3M) ......................... 8,844 805,909
Molex Incorporated ..................... 4,401 239,579
Morgan Stanley Dean Witter & Co. ....... 32,487 2,970,530
Motorola, Inc. ......................... 48,693 1,375,577
+ NCR Corporation ........................ 2,220 83,944
NICOR, Inc. ............................ 1,086 39,300
Nabisco Group Holdings Corp. ........... 7,288 207,708
National City Corporation .............. 13,548 299,749
+ National Semiconductor Corporation ..... 3,935 158,384
National Service Industries, Inc. ...... 932 18,232
+ Navistar International Corporation ..... 1,322 39,577
+ Network Appliance, Inc. ................ 6,977 888,695
The New York Times Company (Class A) ... 3,724 146,400
Newell Rubbermaid Inc. ................. 6,014 137,194
Newmont Mining Corporation ............. 3,756 63,852
+ Nextel Communications, Inc. (Class A) .. 16,980 793,815
+ Niagara Mohawk Holdings Inc. ........... 3,582 56,416
Nike, Inc. (Class B) ................... 6,024 241,337
Nordstrom, Inc. ........................ 2,984 46,439
Norfolk Southern Corporation ........... 8,556 125,132
Nortel Networks Corporation ............ 66,701 3,972,878
Northern Trust Corporation ............. 5,032 447,219
Northrop Grumman Corporation ........... 1,599 145,309
+ Novell, Inc. ........................... 7,252 72,067
+ Novellus Systems, Inc. ................. 2,960 137,825
Nucor Corporation ...................... 1,812 54,587
ONEOK, Inc. ............................ 729 28,978
Occidental Petroleum Corporation ....... 8,221 179,321
+ Office Depot, Inc. ..................... 6,826 53,328
Old Kent Financial Corporation ......... 3,087 89,330
Omnicom Group Inc. ..................... 3,985 290,656
+ Oracle Corporation ..................... 62,857 4,949,989
+ Owens-Illinois, Inc. ................... 3,257 30,127
PACCAR Inc. ............................ 1,703 63,117
PE Corp.-PE Biosystems Group ........... 4,596 535,434
PECO Energy Company .................... 3,810 230,743
PG&E Corporation ....................... 8,637 208,907
PNC Bank Corp. ......................... 6,453 419,445
PPG Industries, Inc. ................... 3,896 154,622
PPL Corporation ........................ 3,201 133,642
+ Pactiv Corporation ..................... 3,757 42,031
PaineWebber Group Inc. ................. 4,012 273,318
Pall Corporation ....................... 2,755 54,928
6 & 7
<PAGE>
The S&P 500(R) Protected Equity Fund, Inc., September 30, 2000
SCHEDULE OF INVESTMENTS (continued) (in US dollars)
Shares
Issue Held Value
================================================================================
Common + Palm, Inc. ............................. 12,614 $ 667,754
Stocks + Parametric Technology Corporation ...... 6,080 66,500
(concluded) Parker-Hannifin Corporation ............ 2,568 86,670
Paychex, Inc. .......................... 8,391 440,528
+ PeopleSoft, Inc. ....................... 6,190 172,933
Peoples Energy Corporation ............. 817 27,267
PepsiCo, Inc. .......................... 32,224 1,482,304
PerkinElmer, Inc. ...................... 1,055 110,116
Pfizer Inc. ............................ 140,986 6,335,558
Pharmacia Corporation .................. 28,978 1,744,113
Phelps Dodge Corporation ............... 1,799 75,108
Philip Morris Companies Inc. ........... 50,289 1,480,382
Phillips Petroleum Company ............. 5,730 359,557
Pinnacle West Capital Corporation ...... 1,951 99,257
Pitney Bowes Inc. ...................... 5,690 224,399
Placer Dome Inc. ....................... 7,293 68,828
Polaroid Corporation ................... 1,021 13,720
Potlatch Corporation ................... 666 21,062
Praxair, Inc. .......................... 3,568 133,354
The Procter & Gamble Company ........... 29,205 1,956,735
The Progressive Corporation ............ 1,679 137,468
Providian Financial Corporation ........ 3,164 401,828
Public Service Enterprise Group
Incorporated ......................... 4,783 213,740
Pulte Corporation ...................... 943 31,119
+ QUALCOMM Incorporated .................. 16,604 1,183,035
The Quaker Oats Company ................ 2,905 229,858
+ Quintiles Transnational Corp. .......... 2,644 42,139
+ Qwest Communications International
Inc. ................................. 37,086 1,782,446
R.R. Donnelley & Sons Company .......... 2,722 66,859
RadioShack Corporation ................. 4,182 270,262
Ralston-Ralston Purina Group ........... 6,911 163,704
Raytheon Company (Class B) ............. 7,572 215,329
+ Reebok International Ltd. .............. 1,292 24,306
Regions Financial Corporation .......... 4,923 111,691
Reliant Energy, Inc. ................... 6,564 305,226
Rockwell International Corporation ..... 4,133 125,023
Rohm and Haas Company .................. 4,913 142,784
+ Rowan Companies, Inc. .................. 2,115 61,335
Royal Dutch Petroleum Company
(NY Registered Shares) ............... 47,882 2,869,927
Russell Corporation .................... 768 12,192
Ryder System, Inc. ..................... 1,393 25,683
S&P 500 Depositary Receipts (a) ........ 20,000 2,872,500
SAFECO Corporation ..................... 2,865 78,071
SBC Communications Inc. ................ 75,689 3,784,450
SUPERVALU INC. ......................... 2,901 43,696
SYSCO Corporation ...................... 7,440 344,565
Sabre Holdings Corporation ............. 2,867 82,964
+ Safeway Inc. ........................... 11,140 520,099
+ Sanmina Corporation .................... 3,416 319,823
+ Sapient Corporation .................... 2,660 108,229
Sara Lee Corporation ................... 19,417 394,408
Schering-Plough Corporation ............ 32,712 1,521,108
Schlumberger Limited ................... 12,716 1,046,686
Scientific-Atlanta, Inc. ............... 3,556 226,251
+ Seagate Technology, Inc. ............... 5,105 352,245
The Seagram Company Ltd. ............... 9,753 560,188
+ Sealed Air Corporation ................. 1,925 87,106
Sears, Roebuck & Co. ................... 7,656 248,208
Sempra Energy .......................... 4,581 95,342
The Sherwin-Williams Company ........... 3,641 77,826
+ Siebel Systems, Inc. ................... 9,303 1,035,540
Sigma-Aldrich Corporation .............. 1,800 59,400
Snap-On Incorporated ................... 1,344 31,668
+ Solectron Corporation .................. 13,376 616,968
SouthTrust Corporation ................. 3,755 118,048
The Southern Company ................... 14,556 472,160
Southwest Airlines Co. ................. 11,184 271,212
Springs Industries, Inc. (Class A) ..... 412 11,613
Sprint Corp. (FON Group) ............... 19,734 578,453
+ Sprint Corp. (PCS Group) ............... 20,728 726,776
+ St. Jude Medical, Inc. ................. 1,949 99,399
+ The St. Paul Companies, Inc. ........... 4,987 245,921
The Stanley Works ...................... 1,996 46,033
+ Staples, Inc. .......................... 10,140 143,861
+ Starbucks Corporation .................. 4,177 167,341
State Street Corporation ............... 3,611 469,430
Stilwell Financial, Inc. ............... 4,988 216,978
Summit Bancorp. ........................ 3,903 134,654
+ Sun Microsystems, Inc. ................. 35,425 4,135,869
SunTrust Banks, Inc. ................... 6,657 331,602
Sunoco, Inc. ........................... 1,945 52,393
Synovus Financial Corp. ................ 6,309 133,672
T. Rowe Price Associates, Inc. ......... 2,695 126,497
The TJX Companies, Inc. ................ 6,532 146,970
TRW Inc. ............................... 2,790 113,344
TXU Corp. .............................. 5,951 235,808
Target Corporation ..................... 20,320 520,700
Tektronix, Inc. ........................ 1,079 82,881
+ Tellabs, Inc. .......................... 9,158 437,294
Temple-Inland, Inc. .................... 1,200 45,450
+ Tenet Healthcare Corporation ........... 7,047 256,335
+ Teradyne, Inc. ......................... 3,818 133,630
Texaco Inc. ............................ 12,309 646,222
Texas Instruments Incorporated ......... 38,597 1,821,296
Textron, Inc. .......................... 3,244 149,629
+ Thermo Electron Corporation ............ 3,841 99,866
Thomas & Betts Corporation ............. 1,310 22,843
Tiffany & Co. .......................... 3,264 125,868
Time Warner Inc. ....................... 29,570 2,313,852
The Timken Company ..................... 1,426 19,518
Torchmark Corporation .................. 2,877 80,017
Tosco Corporation ...................... 3,206 99,987
+ Toys 'R' Us, Inc. ...................... 4,835 78,569
Transocean Sedco Forex Inc. ............ 4,688 274,834
Tribune Company ........................ 6,961 303,674
+ Tricon Global Restaurants, Inc. ........ 3,268 100,083
Tupperware Corporation ................. 1,326 23,868
Tyco International Ltd. ................ 37,625 1,951,797
+ US Airways Group, Inc. ................. 1,529 46,539
U.S. Bancorp ........................... 16,654 378,879
USA Education Inc. ..................... 3,477 167,548
UST Inc. ............................... 3,605 82,464
USX-Marathon Group ..................... 7,006 198,795
USX-U.S. Steel Group ................... 2,035 30,907
Unicom Corporation ..................... 3,973 223,233
Unilever NV (NY Registered Shares) ..... 12,763 615,815
Union Carbide Corporation .............. 2,965 111,929
Union Pacific Corporation .............. 5,604 217,856
Union Planters Corporation ............. 2,991 98,890
+ Unisys Corporation ..................... 7,015 78,919
United Technologies Corporation ........ 10,451 723,732
UnitedHealth Group Incorporated ........ 3,610 356,488
Unocal Corporation ..................... 5,479 194,162
UnumProvident Corporation .............. 5,396 147,041
V. F. Corporation ...................... 2,539 62,682
+ VERITAS Software Corporation ........... 8,976 1,274,592
Verizon Communications ................. 60,693 2,939,817
+ Viacom, Inc. (Class B) ................. 33,866 1,981,161
Visteon Corporation .................... 2,906 43,953
Vulcan Materials Company ............... 2,303 92,552
+ W.R. Grace & Co. ....................... 1,532 10,532
W. W. Grainger, Inc. ................... 2,149 56,546
Wachovia Corporation ................... 4,555 258,212
Wal-Mart Stores, Inc. .................. 99,734 4,799,699
Walgreen Co. ........................... 22,553 855,604
The Walt Disney Company ................ 46,549 1,780,499
Washington Mutual, Inc. ................ 12,033 479,064
Waste Management, Inc. ................. 13,880 242,032
+ Watson Pharmaceuticals, Inc. ........... 2,326 150,899
+ Wellpoint Health Networks Inc. ......... 1,401 134,496
Wells Fargo Company .................... 36,763 1,688,800
Wendy's International, Inc. ............ 2,534 50,838
Westvaco Corporation ................... 2,306 61,541
Weyerhaeuser Company ................... 4,917 198,524
Whirlpool Corporation .................. 1,593 61,928
Willamette Industries, Inc. ............ 2,439 68,292
The Williams Companies, Inc. ........... 9,932 419,627
Winn-Dixie Stores, Inc. ................ 3,145 45,209
Wm. Wrigley Jr. Company ................ 2,538 190,033
+ WorldCom, Inc. ......................... 64,153 1,948,632
Worthington Industries, Inc. ........... 1,968 18,450
Xcel Energy, Inc. ...................... 7,561 207,927
Xerox Corporation ...................... 14,960 225,335
+ Xilinx, Inc. ........................... 7,360 630,200
+ Yahoo! Inc. ............................ 12,252 1,114,932
Young & Rubicam Inc. ................... 1,652 81,774
--------------------------------------------------------------------------------
Total Common Stocks (Cost--$268,757,794)--89.1% ... 285,095,313
================================================================================
8 & 9
<PAGE>
The S&P 500(R) Protected Equity Fund, Inc., September 30, 2000
SCHEDULE OF INVESTMENTS (concluded) (in US dollars)
Face
Amount Short-Term Obligations Value
================================================================================
Commercial $3,321,000 General Motors Acceptance Corp.,
Paper* 6.75% due 10/02/2000 $ 3,319,755
================================================================================
Total Short-Term Obligations (Cost--$3,319,755)--1.0% 3,319,755
================================================================================
Nominal Value
OPTIONS Covered by
PURCHASED Options Purchased
================================================================================
Put Options 232,484 S&P 500 European, expiring October
Purchased 2007 at $1,639 32,795,247
================================================================================
Total Options Purchased (Cost--$44,408,620)--10.3% 32,795,247
================================================================================
Total Investments (Cost--$316,486,169)--100.4% 321,210,315
Variation Margin on Financial Futures Contracts**--0.0% (27,875)
Liabilities in Excess of Other Assets--(0.4%) (1,156,326)
------------
Net Assets--100.0% $320,026,114
============
================================================================================
(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.
++ Portions 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 September 30, 2000 were as
follows:
--------------------------------------------------------------------------
Number of Expiration
Contracts Issue Date Value
--------------------------------------------------------------------------
5 S&P 500 Index December 2000 $1,817,125
--------------------------------------------------------------------------
Total Financial Futures Contracts Purchased
(Total Contract Price--$1,882,842) $1,817,125
==========
--------------------------------------------------------------------------
See Notes to Financial Statements.
STATEMENT OF ASSETS, LIABILITIES AND CAPITAL
<TABLE>
<CAPTION>
As of September 30, 2000
=====================================================================================================
<C> <S> <C> <C>
Assets: Investments, at value (identified cost--$272,077,549) . $ 288,415,068
Options purchased, at value (cost--$44,408,620) ....... 32,795,247
Cash .................................................. 1,497
Receivables:
Dividends .......................................... $ 241,369
Securities sold .................................... 3,287 244,656
------------- -------------
Total assets .......................................... 321,456,468
-------------
=====================================================================================================
Liabilities: Payables:
Investment adviser ................................. 1,402,474
Variation margin ................................... 27,875 1,430,349
-------------
Accrued expenses ...................................... 5
-------------
Total liabilities ..................................... 1,430,354
=====================================================================================================
Net Assets: Net assets ............................................ $ 320,026,114
=============
=====================================================================================================
Capital: Common stock, par value $.10 per share, 200,000,000
shares authorized ..................................... $ 3,151,000
Paid-in capital in excess of par ...................... 311,949,000
Undistributed investment income--net .................. 360,357
Accumulated realized capital losses on investments--net (92,672)
Unrealized appreciation on investments--net ........... 4,658,429
-------------
Net Assets--Equivalent to $10.16 per share based on
shares of 31,510,000 capital stock outstanding
(market price--$9.25) ................................. $ 320,026,114
=============
=====================================================================================================
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Period November 3, 1999+ to September 30, 2000
=========================================================================================================
<C> <S> <C> <C>
Investment Dividends (net of $12,121 foreign withholding tax) . $ 3,016,160
Income: Interest and discount earned ....................... 279,153
-----------
Total income ....................................... 3,295,313
-----------
=========================================================================================================
Expenses: Investment advisory fees ........................... $ 2,919,557
Directors' fees and expenses ....................... 15,399
-----------
Total expenses ..................................... 2,934,956
-----------
Investment income--net ............................. 360,357
-----------
=========================================================================================================
Realized & Realized loss on investments--net .................. (92,672)
Unrealized Gain (Loss) Unrealized appreciation on investments--net ........ 4,658,429
On Investments-Net: -----------
Net Increase in Net Assets Resulting from Operations $ 4,926,114
===========
=========================================================================================================
</TABLE>
+ Commencement of operations.
See Notes to Financial Statements.
10 & 11
<PAGE>
The S&P 500(R) Protected Equity Fund, Inc., September 30, 2000
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
For the Period
Nov. 3, 1999+ to
Increase (Decrease) in Net Assets: Sept. 30, 2000
=====================================================================================
<C> <S> <C>
Operations: Investment income--net ............................. $ 360,357
Realized loss on investments--net .................. (92,672)
Unrealized appreciation on investments--net ........ 4,658,429
-------------
Net increase in net assets resulting from operations 4,926,114
-------------
=====================================================================================
Common Stock Proceeds from issuance of Common Stock ............. 315,000,000
Transactions: -------------
=====================================================================================
Net Assets: Total increase in net assets ....................... 319,926,114
Beginning of period ................................ 100,000
-------------
End of period* ..................................... $ 320,026,114
=============
=====================================================================================
* Undistributed investment income--net ............... $ 360,357
=============
=====================================================================================
</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: Sept. 30, 2000
==================================================================================================
<C> <S> <C>
Per Share Operating Net asset value, beginning of period .................... $ 10.00
Performance: -----------
Investment income--net ................................ .01
Realized and unrealized gain on investments--net .15
-----------
Total from investment operations ........................ .16
-----------
Net asset value, end of period .......................... $ 10.16
===========
Market price per share, end of period ................... $ 9.25
===========
==================================================================================================
Total Investment Based on net asset value per share ...................... 1.60%++
Return:** ===========
Based on market price per share ......................... (7.50%)
===========
==================================================================================================
Ratios to Average Expenses ................................................ 1.00%*
Net Assets: ===========
Investment income--net .................................. .12%*
===========
==================================================================================================
Supplemental Net assets, end of period (in thousands) ................ $ 320,026
Data: ===========
Portfolio turnover ...................................... 7.60%
===========
==================================================================================================
</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.
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 newly organized, non-diversified,
fixed-term, closed-end management investment company. The Fund's financial
statements are prepared in conformity with accounting principles generally
accepted in the United States of America, which may require the use of
management accruals and estimates. 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 Investment Managers, L.P. ("MLIM") for $100,000 on October 21,
1999. The Fund is anticipated to terminate on or about November 30, 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. 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
12 & 13
<PAGE>
The S&P 500(R) Protected Equity Fund, Inc., September 30, 2000
NOTES TO FINANCIAL STATEMENTS (concluded)
of the contract or if the counterparty 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 interest rate. 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 MLIM. The
general partner of MLIM is Princeton Services, Inc. ("PSI"), an indirect,
wholly-owned subsidiary of Merrill Lynch & Co., Inc. ("ML & Co."), which is a
limited partner.
MLIM 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 will pay a fee on a
quarterly basis in arrears at an annual rate equal to 1.0% of the average weekly
value of the Fund's net assets. To the extent that cash or cash equivalents are
not sufficient to pay all of the investment advisory fee at the conclusion of a
quarterly period, MLIM will defer collecting the portion of the investment
advisory fee not covered by such available cash or cash equivalents. The Fund
will not pay MLIM any interest on any deferred investment advisory fees.
MLIM will bear all of the Fund's ordinary operating expenses, including
administration, custodial, transfer agency, legal, auditing and accounting fees.
Certain officers and/or directors of the Fund are officers and/or directors of
MLIM, 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 September 30, 2000 were $291,219,015 and $22,249,647,
respectively.
Net realized gains (losses) for the period November 3, 1999 to September 30,
2000 and net unrealized gains (losses) as of September 30, 2000 were as follows:
--------------------------------------------------------------------------------
Realized Unrealized
Gains (Losses) Gains (Losses)
--------------------------------------------------------------------------------
Long-term investments ....................... $(211,444) $ 16,337,519
Financial futures contracts ................. 118,772 (65,717)
Options purchased ........................... -- (11,613,373)
--------- ------------
Total ....................................... $ (92,672) $ 4,658,429
========= ============
--------------------------------------------------------------------------------
As of September 30, 2000, net unrealized appreciation for Federal income tax
purposes aggregated $4,671,850, of which $49,728,052 related to appreciated
securities and $45,056,202 related to depreciated securities. The aggregate cost
of investments, net of options purchased, at September 30, 2000 for Federal
income tax purposes was $316,538,465.
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 September 30, 2000 increased by 31,500,000 from shares sold.
5. Capital Loss Carryforward:
At September 30, 2000, the Fund had a net capital loss carryforward of
approximately $106,000, all of which expires in 2008. This amount will be
available to offset like amounts.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
The S&P 500(R) Protected Equity Fund, Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of The S&P 500(R) Protected Equity Fund,
Inc., as of September 30, 2000 and the related statements of operations, changes
in net assets, and the financial highlights for the period November 3, 1999
(commencement of operations) to September 30, 2000. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 September 30, 2000, 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights present
fairly, in all material respects, the financial position of The S&P 500(R)
Protected Equity Fund, Inc., as of September 30, 2000 and the results of its
operations, the changes in its net assets, and the financial highlights for the
respective stated period in conformity with accounting principles generally
accepted in the United States of America.
Deloitte & Touche LLP
Princeton, New Jersey
November 13, 2000
14 & 15
<PAGE>
The S&P 500(R) Protected Equity Fund, Inc. invests in a portfolio primarily of
the common stocks of substantially all of the companies represented in the S&P
500 and privately negotiated put options contracts intended to protect the
Fund's initial net asset value at the maturity date by limiting the risk of loss
caused by a decline in the market value of the Fund's common stock portfolio.
This report, including the financial information herein, is transmitted to
shareholders of The S&P 500(R) Protected Equity Fund, Inc. for their
information. It is not a prospectus. 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--9/00
[RECYCLE LOGO]Printed on post-consumer recycled paper
