UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21611
Name of Fund: S&P 500(R) GEARED(SM) Fund Inc.
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Mitchell M. Cox, Chief Executive
Officer, S&P 500(R) GEARED(SM) Fund Inc., 4 World Financial Center, 6th
Floor, New York, New York 10080.
Registrant's telephone number, including area code: (212) 449-4742
Date of fiscal year end: 12/31/07
Date of reporting period: 01/01/07 - 06/30/07
Item 1 - Report to Stockholders
S&P 500(R) GEARED(SM) Fund Inc.
Semi-Annual Report
(Unaudited)
June 30, 2007
[LOGO] IQ INVESTMENT
ADVISORS BlackRock
S&P 500(R) GEARED(SM) Fund Inc.
Proxy Results
During the six-month period ended June 30, 2007, the shareholders of S&P 500(R)
GEARED(SM) Fund Inc.'s voted on the following proposal, which was approved at an
annual shareholders' meeting on April 27, 2007. A description of the proposal
and number of shares voted are as follows:
------------------------------------------------------------------------------------------------------
Shares Voted Shares Withheld
For From Voting
------------------------------------------------------------------------------------------------------
To elect the Fund's Board of Directors: Paul Glasserman 3,751,416 118,722
Steven W. Kohlhagen 3,753,416 116,722
William J. Rainer 3,753,416 116,722
------------------------------------------------------------------------------------------------------
Directors and Officers
William J. Rainer, Director and Chairman of the Board
Paul Glasserman, Director and Chairman of the Audit Committee
Steven W. Kohlhagen, Director and Chairman of the Nominating and Corporate
Governance Committee
Donald C. Burke, Vice President and Secretary
Martin G. Byrne, Chief Legal Officer
Mitchell M. Cox, President
Justin C. Ferri, Vice President
Jay M. Fife, Vice President
James E. Hillman, Vice President and Treasurer
Catherine A. Johnston, Chief Compliance Officer
Colleen R. Rusch, Vice President
Custodian
State Street Bank and Trust Company
P.O. Box 351
Boston, MA 02101
Transfer Agent
The Bank of New York
101 Barclay Street -- 11 East
New York, NY 10286
NYSE Symbol
GRE
S&P 500 and Standard & Poor's 500 are registered trademarks of the McGraw-Hill
Companies. GEARED and Geared-Equity Accelerated Return are service marks of
Merrill Lynch & Co., Inc.
2 S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007
Portfolio Information
As of June 30, 2007
Percent of
Ten Largest Equity Holdings Net Assets
--------------------------------------------------------------------------------
Exxon Mobil Corp. ...................................................... 3.4%
General Electric Co. ................................................... 2.8
AT&T Inc. .............................................................. 1.9
Citigroup, Inc. ........................................................ 1.8
Microsoft Corp. ........................................................ 1.8
Bank of America Corp. .................................................. 1.6
The Procter & Gamble Co. ............................................... 1.4
Chevron Corp. .......................................................... 1.3
Pfizer, Inc. ........................................................... 1.3
American International Group, Inc. ..................................... 1.3
--------------------------------------------------------------------------------
Percent of
Five Largest Industries Net Assets
--------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels ............................................ 8.1%
Pharmaceuticals ........................................................ 5.9
Diversified Financial Services ......................................... 4.9
Insurance .............................................................. 4.6
Industrial Conglomerates ............................................... 3.8
--------------------------------------------------------------------------------
Percent of
S&P 500(R) Index Sector Weightings Long-Term Investments
--------------------------------------------------------------------------------
Financials ............................................................ 20.9%
Information Technology ................................................ 15.4
Health Care ........................................................... 11.5
Industrials ........................................................... 11.5
Energy ................................................................ 10.7
Consumer Discretionary ................................................ 10.2
Consumer Staples ...................................................... 9.3
Telecommunication Services ............................................ 3.7
Utilities ............................................................. 3.6
Materials ............................................................. 3.2
--------------------------------------------------------------------------------
For Fund portfolio compliance purposes, the Fund's industry and sector
classifications refer to any one or more of the industry and sector
sub-classifications used by one or more widely recognized market indexes
or ratings group indexes, and/or as defined by Fund management. This
definition may not apply for purposes of this report, which may combine
industry and sector sub-classifications for reporting ease.
S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007 3
A Discussion With Your Fund's Portfolio Managers
We are pleased to provide you with this shareholder report for S&P 500(R)
GEARED(SM) Fund, Inc. While the Fund is advised by IQ Investment Advisors, the
following discussion is provided by BlackRock Investment Management, LLC, the
Fund's subadviser.
The investment objective of S&P 500(R) GEARED(SM) Fund Inc. (the "Fund") is to
provide total returns, exclusive of fees and expenses of the Fund, linked to the
performance of the Standard and Poor's 500(R) Index (the "Index"). The
performance of the Fund will be measured in annual (approximately one year)
periods. The Fund's current annual period began on November 3, 2006, and will
conclude on November 5, 2007. Where the Index has negative returns for an annual
period, the Fund seeks to provide returns that track the performance of the
Index on a one-for-one basis over the annual period (exclusive of fees and
expenses of the Fund). Where the Index has positive returns for an annual
period, the Fund seeks to outperform the Index through a "geared" return equal
to approximately three times the annual price returns of the Index up to a
limit. For example, the Index limit for the current annual period is 3.89%, and
therefore the Fund's annual return cap for the current annual period is equal to
three times this amount, or 11.67%. If the Index has positive returns that are
less than 3.89% for the current annual period, the Fund is expected to
outperform the Index. However, if the Index has returns in excess of 11.67% for
the current annual period, the Fund is expected to underperform the Index. In
addition, the Fund's return during an annual period may be increased by any
dividend income realized by the Fund, and will be decreased by any fees and
expenses incurred by the Fund.
How did the Fund perform during the six-month period?
For the six-month period ended June 30, 2007, the Common Stock of the Fund had a
total investment return of +5.09%, based on a change in per share net asset
value from $19.63 to $20.63. The Fund's unmanaged reference index, the S&P 500
Index, returned +6.96% (including dividend reinvestment) during the same period.
For more detail with regard to the Fund's total investment return based on a
change in per share market value of the Fund's Common Stock (as measured by the
trading price of the Fund's shares on the New York Stock Exchange), and assuming
reinvestment of dividends, please refer to the Financial Highlights section of
this report. As a closed-end fund, the Fund's shares may trade in the secondary
market at a premium or a discount to the Fund's net asset value. As a result,
total investment returns based on changes in the market value of the Fund's
Common Stock can vary significantly from total investment returns based on
changes in the Fund's net asset value.
How did you manage the portfolio during the six-month period?
The Portfolio Management Team monitors the derivative position daily while
ensuring the equity portfolio is managed to its reference index.
How would you characterize the Fund's position at the close of the period?
The Fund is positioned to provide accelerated growth relative to the
appreciation of the S&P 500 Index, up to the annual maximum return cap. The S&P
500 Index provides diversified exposure to the securities of the largest U.S.
publicly traded companies. We believe that the Fund is properly positioned to
achieve its investment objective.
Jonathan Clark
Portfolio Manager
Debra L. Jelilian
Portfolio Manager
Jeffrey L. Russo, CFA
Portfolio Manager
July 13, 2007
4 S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007
Schedule of Investments as of June 30, 2007 (Unaudited)
Shares
Industry Common Stocks Held Value
====================================================================================================
Aerospace & Defense -- 2.5%
Boeing Co. 4,500 $ 432,720
General Dynamics Corp. 2,200 172,084
Goodrich Corp. 800 47,648
Honeywell International, Inc. 4,600 258,888
L-3 Communications Holdings, Inc. 678 66,030
Lockheed Martin Corp. 2,000 188,260
Northrop Grumman Corp. 1,900 147,953
Precision Castparts Corp. 800 97,088
Raytheon Co. 2,700 145,503
Rockwell Collins, Inc. 1,100 77,704
United Technologies Corp. 5,800 411,394
------------
2,045,272
----------------------------------------------------------------------------------------------------
Air Freight & Logistics -- 0.8%
CH Robinson Worldwide, Inc. 1,000 52,520
FedEx Corp. 1,700 188,649
United Parcel Service, Inc. Class B 6,200 452,600
------------
693,769
----------------------------------------------------------------------------------------------------
Airlines -- 0.1%
Southwest Airlines Co. 4,600 68,586
----------------------------------------------------------------------------------------------------
Auto Components -- 0.2%
The Goodyear Tire & Rubber Co. (a) 700 24,332
Johnson Controls, Inc. 1,200 138,924
------------
163,256
----------------------------------------------------------------------------------------------------
Automobiles -- 0.4%
Ford Motor Co. 10,300 97,026
General Motors Corp. 3,100 117,180
Harley-Davidson, Inc. 1,400 83,454
------------
297,660
----------------------------------------------------------------------------------------------------
Beverages -- 2.0%
Anheuser-Busch Cos., Inc. 4,300 224,288
Brown-Forman Corp. Class B 500 36,540
The Coca-Cola Co. 11,600 606,796
Coca-Cola Enterprises, Inc. 1,800 43,200
Constellation Brands, Inc. Class A (a) 1,300 31,564
Molson Coors Brewing Co. Class B 200 18,492
Pepsi Bottling Group, Inc. 900 30,312
PepsiCo, Inc. 9,400 609,590
------------
1,600,782
----------------------------------------------------------------------------------------------------
Biotechnology -- 1.1%
Amgen, Inc. (a) 6,700 370,443
Biogen Idec, Inc. (a) 1,700 90,950
Celgene Corp. (a) 2,100 120,393
Genzyme Corp. (a) 1,400 90,160
Gilead Sciences, Inc. (a) 5,200 201,604
------------
873,550
----------------------------------------------------------------------------------------------------
Building Products -- 0.2%
American Standard Cos., Inc. 1,100 64,878
Masco Corp. 2,400 68,328
------------
133,206
----------------------------------------------------------------------------------------------------
Capital Markets -- 3.6%
Ameriprise Financial, Inc. 1,520 96,626
The Bank of New York Co., Inc. 4,200 174,048
The Bear Stearns Cos., Inc. 700 98,000
The Charles Schwab Corp. 6,100 125,172
E*Trade Financial Corp. (a) 2,300 50,807
Federated Investors, Inc. Class B 600 22,998
Franklin Resources, Inc. 900 119,223
The Goldman Sachs Group, Inc. 2,500 541,875
Janus Capital Group, Inc. 1,300 36,192
Legg Mason, Inc. 700 68,866
Lehman Brothers Holdings, Inc. 3,100 231,012
Mellon Financial Corp. 2,200 96,800
Merrill Lynch & Co., Inc. (b) 5,100 426,258
Morgan Stanley 6,200 520,056
Northern Trust Corp. 1,000 64,240
State Street Corp. 2,000 136,800
T. Rowe Price Group, Inc. 1,600 83,024
------------
2,891,997
----------------------------------------------------------------------------------------------------
Chemicals -- 1.5%
Air Products & Chemicals, Inc. 1,300 104,481
Ashland, Inc. 300 19,185
The Dow Chemical Co. 5,400 238,788
E.I. du Pont de Nemours & Co. 5,200 264,368
Eastman Chemical Co. 400 25,732
Ecolab, Inc. 1,100 46,970
Hercules, Inc. (a) 800 15,720
International Flavors & Fragrances, Inc. 600 31,284
Monsanto Co. 3,000 202,620
PPG Industries, Inc. 1,000 76,110
Praxair, Inc. 1,900 136,781
Rohm & Haas Co. 900 49,212
Sigma-Aldrich Corp. 800 34,136
------------
1,245,387
----------------------------------------------------------------------------------------------------
Commercial Banks -- 3.6%
BB&T Corp. 3,200 130,176
Comerica, Inc. 800 47,576
Commerce Bancorp, Inc. 1,200 44,388
Compass Bancshares, Inc. 851 58,702
Fifth Third Bancorp 3,100 123,287
First Horizon National Corp. 800 31,200
Huntington Bancshares, Inc. 2,000 45,480
KeyCorp 2,200 75,526
M&T Bank Corp. 500 53,450
Marshall & Ilsley Corp. 1,600 76,208
National City Corp. 3,300 109,956
PNC Financial Services Group, Inc. 2,000 143,160
Regions Financial Corp. 4,175 138,193
SunTrust Banks, Inc. 2,000 171,480
Synovus Financial Corp. 2,000 61,400
U.S. Bancorp 10,100 332,795
Wachovia Corp. 10,912 559,240
Wells Fargo & Co. 19,300 678,781
Zions Bancorporation 700 53,837
------------
2,934,835
----------------------------------------------------------------------------------------------------
Commercial Services & Supplies -- 0.6%
Allied Waste Industries, Inc. (a) 1,600 21,536
Avery Dennison Corp. 600 39,888
Cintas Corp. 900 35,487
Equifax, Inc. 800 35,536
Monster Worldwide, Inc. (a) 700 28,770
Pitney Bowes, Inc. 1,400 65,548
RR Donnelley & Sons Co. 1,400 60,914
Robert Half International, Inc. 1,100 40,150
Waste Management, Inc. 3,200 124,960
------------
452,789
----------------------------------------------------------------------------------------------------
S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007 5
Schedule of Investments (continued)
Shares
Industry Common Stocks Held Value
====================================================================================================
Communications Equipment -- 2.5%
Avaya, Inc. (a) 2,700 $ 45,468
Ciena Corp. (a) 328 11,851
Cisco Systems, Inc. (a) 35,000 974,750
Corning, Inc. (a) 9,000 229,950
JDS Uniphase Corp. (a) 950 12,759
Juniper Networks, Inc. (a) 3,100 78,027
Motorola, Inc. 14,100 249,570
QUALCOMM, Inc. 9,400 407,866
Tellabs, Inc. (a) 2,200 23,672
------------
2,033,913
----------------------------------------------------------------------------------------------------
Computers & Peripherals -- 3.7%
Apple Computer, Inc. (a) 4,900 597,996
Dell, Inc. (a) 12,800 365,440
EMC Corp. (a) 13,200 238,920
Hewlett-Packard Co. 15,400 687,148
International Business Machines Corp. 7,900 831,475
Lexmark International, Inc. Class A (a) 500 24,655
NCR Corp. (a) 1,100 57,794
Network Appliance, Inc. (a) 2,200 64,240
QLogic Corp. (a) 800 13,320
SanDisk Corp. (a) 1,100 53,834
Sun Microsystems, Inc. (a) 19,400 102,044
------------
3,036,866
----------------------------------------------------------------------------------------------------
Construction & Engineering -- 0.1%
Fluor Corp. 500 55,685
----------------------------------------------------------------------------------------------------
Construction Materials -- 0.1%
Vulcan Materials Co. 600 68,724
----------------------------------------------------------------------------------------------------
Consumer Finance -- 0.9%
American Express Co. 6,900 422,142
Capital One Financial Corp. 2,500 196,100
SLM Corp. 2,200 126,676
------------
744,918
----------------------------------------------------------------------------------------------------
Containers & Packaging -- 0.2%
Ball Corp. 700 37,219
Bemis Co. 700 23,226
Pactiv Corp. (a) 700 22,323
Sealed Air Corp. 1,000 31,020
Temple-Inland, Inc. 700 43,071
------------
156,859
----------------------------------------------------------------------------------------------------
Distributors -- 0.1%
Genuine Parts Co. 1,100 54,560
----------------------------------------------------------------------------------------------------
Diversified Consumer Services -- 0.1%
Apollo Group, Inc. Class A (a) 700 40,901
H&R Block, Inc. 2,000 46,740
------------
87,641
----------------------------------------------------------------------------------------------------
Diversified Financial Services -- 4.9%
Bank of America Corp. 25,859 1,264,246
CIT Group, Inc. 1,200 65,796
Chicago Mercantile Exchange
Holdings, Inc. 200 106,872
Citigroup, Inc. 28,700 1,472,023
JPMorgan Chase & Co. 19,800 959,310
Moody's Corp. 1,400 87,080
------------
3,955,327
----------------------------------------------------------------------------------------------------
Diversified Telecommunication Services -- 3.0%
AT&T Inc. (c) 36,201 1,502,342
CenturyTel, Inc. 800 39,240
Citizens Communications Co. 2,000 30,540
Embarq Corp. 782 49,555
Qwest Communications International
Inc. (a) 8,700 84,390
Verizon Communications, Inc. 16,700 687,539
Windstream Corp. 2,808 41,446
------------
2,435,052
----------------------------------------------------------------------------------------------------
Electric Utilities -- 1.7%
Allegheny Energy, Inc. (a) 1,000 51,740
American Electric Power Co., Inc. 2,100 94,584
Duke Energy Corp. 6,964 127,441
Edison International 2,000 112,240
Entergy Corp. 1,100 118,085
Exelon Corp. 3,700 268,620
FPL Group, Inc. 2,200 124,828
FirstEnergy Corp. 2,000 129,460
PPL Corp. 2,300 107,617
Pinnacle West Capital Corp. 700 27,895
Progress Energy, Inc. 1,300 59,267
The Southern Co. 4,100 140,589
------------
1,362,366
----------------------------------------------------------------------------------------------------
Electrical Equipment -- 0.4%
Cooper Industries Ltd. Class A 1,200 68,508
Emerson Electric Co. 4,800 224,640
Rockwell Automation, Inc. 900 62,496
------------
355,644
----------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments -- 0.2%
Agilent Technologies, Inc. (a) 2,419 92,986
Jabil Circuit, Inc. 1,100 24,277
Molex, Inc. 900 27,009
Solectron Corp. (a) 5,900 21,712
Tektronix, Inc. 600 20,244
------------
186,228
----------------------------------------------------------------------------------------------------
Energy Equipment & Services -- 2.0%
BJ Services Co. 1,600 45,504
Baker Hughes, Inc. 1,800 151,434
ENSCO International, Inc. 900 54,909
Halliburton Co. 5,500 189,750
Nabors Industries Ltd. (a) 1,700 56,746
National Oilwell Varco, Inc. (a) 907 94,546
Noble Corp. 700 68,264
Rowan Cos., Inc. 500 20,490
Schlumberger Ltd. 6,800 577,592
Smith International, Inc. 1,000 58,640
Transocean, Inc. (a) 1,700 180,166
Weatherford International Ltd. (a) 2,100 116,004
------------
1,614,045
----------------------------------------------------------------------------------------------------
Food & Staples Retailing -- 2.2%
CVS Corp./Caremark Corp. 8,775 319,849
Costco Wholesale Corp. 2,600 152,152
The Kroger Co. 4,300 120,959
SUPERVALU INC. 1,046 48,451
SYSCO Corp. 3,400 112,166
Safeway, Inc. 2,400 81,672
6 S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007
Schedule of Investments (continued)
Shares
Industry Common Stocks Held Value
====================================================================================================
Food & Staples Retailing (concluded)
Wal-Mart Stores, Inc. 14,100 $ 678,351
Walgreen Co. 5,700 248,178
Whole Foods Market, Inc. 800 30,640
------------
1,792,418
----------------------------------------------------------------------------------------------------
Food Products -- 1.4%
Archer Daniels Midland Co. 3,700 122,433
Campbell Soup Co. 1,400 54,334
ConAgra Foods, Inc. 2,700 72,522
Dean Foods Co. 900 28,683
General Mills, Inc. 1,900 110,998
H.J. Heinz Co. 1,800 85,446
The Hershey Co. 900 45,558
Kellogg Co. 1,500 77,685
Kraft Foods, Inc. 9,135 322,009
McCormick & Co., Inc. 900 34,362
Sara Lee Corp. 4,100 71,340
Tyson Foods, Inc. Class A 1,500 34,560
Wm. Wrigley Jr. Co. 1,125 62,224
------------
1,122,154
----------------------------------------------------------------------------------------------------
Gas Utilities -- 0.2%
Nicor, Inc. 200 8,584
Questar Corp. 1,000 52,850
Spectra Energy Corp. 3,482 90,393
------------
151,827
----------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies -- 1.5%
Bausch & Lomb, Inc. 300 20,832
Baxter International, Inc. 3,800 214,092
Becton Dickinson & Co. 1,500 111,750
Biomet, Inc. 1,300 59,436
Boston Scientific Corp. (a) 6,571 100,799
CR Bard, Inc. 500 41,315
Hospira, Inc. (a) 1,000 39,040
Medtronic, Inc. 6,500 337,090
St. Jude Medical, Inc. (a) 1,900 78,831
Stryker Corp. 1,800 113,562
Varian Medical Systems, Inc. (a) 700 29,757
Zimmer Holdings, Inc. (a) 1,300 110,357
------------
1,256,861
----------------------------------------------------------------------------------------------------
Health Care Providers & Services -- 2.1%
Aetna, Inc. 3,200 158,080
AmerisourceBergen Corp. 1,100 54,417
Cardinal Health, Inc. 2,200 155,408
Cigna Corp. 1,800 93,996
Coventry Health Care, Inc. (a) 850 49,002
Express Scripts, Inc. (a) 1,400 70,014
Humana, Inc. (a) 900 54,819
Laboratory Corp. of America Holdings (a) 700 54,782
Manor Care, Inc. 300 19,587
McKesson Corp. 1,600 95,424
Medco Health Solutions, Inc. (a) 1,600 124,784
Patterson Cos., Inc. (a) 900 33,543
Quest Diagnostics, Inc. 800 41,320
Tenet Healthcare Corp. (a) 3,000 19,530
UnitedHealth Group, Inc. 7,700 393,778
WellPoint, Inc. (a) 3,500 279,405
------------
1,697,889
----------------------------------------------------------------------------------------------------
Health Care Technology -- 0.1%
IMS Health, Inc. 1,300 41,769
----------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure -- 1.5%
Carnival Corp. 2,500 121,925
Darden Restaurants, Inc. 900 39,591
Harrah's Entertainment, Inc. 1,100 93,786
Hilton Hotels Corp. 2,300 76,981
International Game Technology 2,000 79,400
Marriott International, Inc. Class A 1,900 82,156
McDonald's Corp. 6,900 350,244
Starbucks Corp. (a) 4,200 110,208
Starwood Hotels & Resorts
Worldwide, Inc. 1,200 80,484
Wendy's International, Inc. 600 22,050
Wyndham Worldwide Corp. (a) 1,260 45,688
Yum! Brands, Inc. 3,000 98,160
------------
1,200,673
----------------------------------------------------------------------------------------------------
Household Durables -- 0.5%
Black & Decker Corp. 400 35,324
Centex Corp. 700 28,070
DR Horton, Inc. 1,700 33,881
Fortune Brands, Inc. 800 65,896
Harman International Industries, Inc. 300 35,040
KB Home 400 15,748
Leggett & Platt, Inc. 1,200 26,460
Lennar Corp. Class A 697 25,482
Newell Rubbermaid, Inc. 1,700 50,031
Pulte Homes, Inc. 1,300 29,185
Snap-On, Inc. 400 20,204
The Stanley Works 600 36,420
Whirlpool Corp. 407 45,258
------------
446,999
----------------------------------------------------------------------------------------------------
Household Products -- 1.9%
Clorox Co. 900 55,890
Colgate-Palmolive Co. 2,900 188,065
Kimberly-Clark Corp. 2,500 167,225
The Procter & Gamble Co. 18,102 1,107,661
------------
1,518,841
----------------------------------------------------------------------------------------------------
IT Services -- 1.1%
Affiliated Computer Services, Inc.
Class A (a) 700 39,704
Automatic Data Processing, Inc. 3,300 159,951
Cognizant Technology Solutions Corp. (a) 900 67,581
Computer Sciences Corp. (a) 900 53,235
Convergys Corp. (a) 900 21,816
Electronic Data Systems Corp. 3,100 85,963
Fidelity National Information Services, Inc. 1,400 75,992
First Data Corp. 4,200 137,214
Fiserv, Inc. (a) 900 51,120
Paychex, Inc. 1,800 70,416
Unisys Corp. (a) 2,300 21,022
The Western Union Co. 4,200 87,486
------------
871,500
----------------------------------------------------------------------------------------------------
Independent Power Producers & Energy Traders -- 0.4%
The AES Corp. (a) 3,900 85,332
Constellation Energy Group, Inc. 900 78,453
Dynegy, Inc. Class A (a) 2,500 23,600
TXU Corp. 2,600 174,980
------------
362,365
----------------------------------------------------------------------------------------------------
S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007 7
Schedule of Investments (continued)
Shares
Industry Common Stocks Held Value
====================================================================================================
Industrial Conglomerates -- 3.8%
3M Co. 4,300 $ 373,197
General Electric Co. 59,000 2,258,520
Textron, Inc. 700 77,077
Tyco International Ltd. 11,600 391,964
------------
3,100,758
----------------------------------------------------------------------------------------------------
Insurance -- 4.6%
ACE Ltd. 1,900 118,788
AMBAC Financial Group, Inc. 500 43,595
AON Corp. 1,900 80,959
Aflac, Inc. 2,900 149,060
The Allstate Corp. 3,500 215,285
American International Group, Inc. 14,900 1,043,447
Assurant, Inc. 600 35,352
Chubb Corp. 2,400 129,936
Cincinnati Financial Corp. 1,090 47,306
Genworth Financial, Inc. Class A 2,700 92,880
Hartford Financial Services Group, Inc. 1,700 167,467
Lincoln National Corp. 1,668 118,345
Loews Corp. 2,700 137,646
MBIA, Inc. 700 43,554
Marsh & McLennan Cos., Inc. 3,200 98,816
MetLife, Inc. 4,200 270,816
Principal Financial Group, Inc. 1,600 93,264
The Progressive Corp. 4,600 110,078
Prudential Financial, Inc. 2,700 262,521
Safeco Corp. 700 43,582
Torchmark Corp. 600 40,200
The Travelers Cos., Inc. 4,000 214,000
UnumProvident Corp. 2,100 54,831
XL Capital Ltd. Class A 1,100 92,719
------------
3,704,447
----------------------------------------------------------------------------------------------------
Internet & Catalog Retail -- 0.2%
Amazon.com, Inc. (a) 1,700 116,297
IAC/InterActiveCorp (a) 1,500 51,915
------------
168,212
----------------------------------------------------------------------------------------------------
Internet Software & Services -- 1.4%
eBay, Inc. (a) 6,800 218,824
Google, Inc. Class A (a) 1,240 648,991
VeriSign, Inc. (a) 1,500 47,595
Yahoo! Inc. (a) 7,200 195,336
------------
1,110,746
----------------------------------------------------------------------------------------------------
Leisure Equipment & Products -- 0.2%
Brunswick Corp. 600 19,578
Eastman Kodak Co. 1,500 41,745
Hasbro, Inc. 800 25,128
Mattel, Inc. 2,300 58,167
------------
144,618
----------------------------------------------------------------------------------------------------
Life Sciences Tools & Services -- 0.3%
Applera Corp. -- Applied
Biosystems Group 1,100 33,594
Millipore Corp. (a) 300 22,527
PerkinElmer, Inc. 600 15,636
Thermo Fisher Scientific, Inc. (a) 2,400 124,128
Waters Corp. (a) 600 35,616
------------
231,501
----------------------------------------------------------------------------------------------------
Machinery -- 1.6%
Caterpillar, Inc. 3,700 289,710
Cummins, Inc. 600 60,726
Danaher Corp. 1,400 105,700
Deere & Co. 1,300 156,962
Dover Corp. 1,300 66,495
Eaton Corp. 800 74,400
ITT Corp. 1,100 75,108
Illinois Tool Works, Inc. 2,300 124,637
Ingersoll-Rand Co. Class A 1,700 93,194
PACCAR, Inc. 1,500 130,560
Pall Corp. 800 36,792
Parker Hannifin Corp. 600 58,746
Terex Corp. (a) 600 48,780
------------
1,321,810
----------------------------------------------------------------------------------------------------
Media -- 3.2%
CBS Corp. Class B 4,250 141,610
Citadel Broadcasting Corp. 47 303
Clear Channel Communications, Inc. 2,700 102,114
Comcast Corp. Class A (a) 17,850 501,942
The DIRECTV Group, Inc. (a) 5,300 122,483
Dow Jones & Co., Inc. 300 17,235
EW Scripps Co. Class A 600 27,414
Gannett Co., Inc. 1,300 71,435
Interpublic Group of Cos., Inc. (a) 2,600 29,640
The McGraw-Hill Cos., Inc. 2,100 142,968
Meredith Corp. 300 18,480
The New York Times Co. Class A 600 15,240
News Corp. Class A 13,500 286,335
Omnicom Group Inc. 1,800 95,256
Time Warner, Inc. 22,300 469,192
Tribune Co. 423 12,436
Viacom, Inc. Class B (a) 4,150 172,765
Walt Disney Co. 11,900 406,266
------------
2,633,114
----------------------------------------------------------------------------------------------------
Metals & Mining -- 0.8%
Alcoa, Inc. 4,800 194,544
Allegheny Technologies, Inc. 500 52,440
Freeport-McMoRan Copper & Gold, Inc.
Class B 2,037 168,704
Newmont Mining Corp. 2,500 97,650
Nucor Corp. 1,800 105,570
United States Steel Corp. 700 76,125
------------
695,033
----------------------------------------------------------------------------------------------------
Multi-Utilities -- 1.1%
Ameren Corp. 1,100 53,911
CMS Energy Corp. 1,400 24,080
CenterPoint Energy, Inc. 1,900 33,060
Consolidated Edison, Inc. 1,300 58,656
DTE Energy Co. 1,100 53,042
Dominion Resources, Inc. 2,000 172,620
Integrys Energy Group, Inc. 365 18,516
KeySpan Corp. 1,100 46,178
NiSource, Inc. 1,800 37,278
PG&E Corp. 2,100 95,130
Public Service Enterprise Group, Inc. 1,400 122,892
Sempra Energy 1,600 94,768
TECO Energy, Inc. 1,500 25,770
Xcel Energy, Inc. 2,500 51,175
------------
887,076
----------------------------------------------------------------------------------------------------
8 S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007
Schedule of Investments (continued)
Shares
Industry Common Stocks Held Value
====================================================================================================
Multiline Retail -- 1.1%
Big Lots, Inc. (a) 500 $ 14,710
Dillard's, Inc. Class A 300 10,779
Dollar General Corp. 1,900 41,648
Family Dollar Stores, Inc. 700 24,024
JC Penney Co., Inc. 1,200 86,856
Kohl's Corp. (a) 1,800 127,854
Macy's, Inc. 2,766 110,031
Nordstrom, Inc. 1,400 71,568
Sears Holdings Corp. (a) 481 81,530
Target Corp. 5,000 318,000
------------
887,000
----------------------------------------------------------------------------------------------------
Office Electronics -- 0.1%
Xerox Corp. (a) 5,800 107,184
----------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels -- 8.1%
Anadarko Petroleum Corp. 2,700 140,373
Apache Corp. 1,800 146,862
Chesapeake Energy Corp. 2,000 69,200
Chevron Corp. 12,591 1,060,666
ConocoPhillips 9,508 746,378
Consol Energy, Inc. 1,100 50,721
Devon Energy Corp. 2,500 195,725
EOG Resources, Inc. 1,300 94,978
El Paso Corp. 4,100 70,643
Exxon Mobil Corp. 32,700 2,742,876
Hess Corp. 1,300 76,648
Marathon Oil Corp. 4,072 244,157
Murphy Oil Corp. 1,000 59,440
Occidental Petroleum Corp. 4,900 283,612
Peabody Energy Corp. 1,800 87,084
Sunoco, Inc. 700 55,776
Valero Energy Corp. 3,100 228,966
Williams Cos., Inc. 3,500 110,670
XTO Energy, Inc. 2,033 122,183
------------
6,586,958
----------------------------------------------------------------------------------------------------
Paper & Forest Products -- 0.3%
International Paper Co. 2,700 105,435
MeadWestvaco Corp. 1,200 42,384
Weyerhaeuser Co. 1,300 102,609
------------
250,428
----------------------------------------------------------------------------------------------------
Personal Products -- 0.2%
Avon Products, Inc. 2,600 95,550
The Estee Lauder Cos., Inc. Class A 800 36,408
------------
131,958
----------------------------------------------------------------------------------------------------
Pharmaceuticals -- 5.9%
Abbott Laboratories 8,700 465,885
Allergan, Inc. 1,600 92,224
Barr Pharmaceuticals, Inc. (a) 700 35,161
Bristol-Myers Squibb Co. 11,100 350,316
Eli Lilly & Co. 5,500 307,340
Forest Laboratories, Inc. (a) 1,800 82,170
Johnson & Johnson 16,700 1,029,054
King Pharmaceuticals, Inc. (a) 1,500 30,690
Merck & Co., Inc. 12,400 617,520
Mylan Laboratories Inc. 1,300 23,647
Pfizer, Inc. 41,300 1,056,041
Schering-Plough Corp. 8,300 252,652
Watson Pharmaceuticals, Inc. (a) 700 22,771
Wyeth 7,700 441,518
------------
4,806,989
----------------------------------------------------------------------------------------------------
Real Estate Investment Trusts (REITs) -- 1.1%
Apartment Investment &
Management Co. Class A 500 25,210
Archstone-Smith Trust 1,100 65,021
AvalonBay Communities, Inc. 400 47,552
Boston Properties, Inc. 600 61,278
Developers Diversified Realty Corp. 700 36,897
Equity Residential 1,700 77,571
General Growth Properties, Inc. 900 47,655
Host Marriott Corp. 3,200 73,984
Kimco Realty Corp. 1,300 49,491
Plum Creek Timber Co., Inc. 1,200 49,992
ProLogis 1,500 85,350
Public Storage, Inc. 700 53,774
Simon Property Group, Inc. 1,200 111,648
Vornado Realty Trust 700 76,888
------------
862,311
----------------------------------------------------------------------------------------------------
Real Estate Management & Development -- 0.0%
CB Richard Ellis Group, Inc. (a) 1,000 36,500
----------------------------------------------------------------------------------------------------
Road & Rail -- 0.7%
Burlington Northern Santa Fe Corp. 2,000 170,280
CSX Corp. 2,500 112,700
Norfolk Southern Corp. 2,300 120,911
Ryder System, Inc. 300 16,140
Union Pacific Corp. 1,500 172,725
------------
592,756
----------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor Equipment -- 2.5%
Advanced Micro Devices, Inc. (a) 3,200 45,760
Altera Corp. 1,900 42,047
Analog Devices, Inc. 1,900 71,516
Applied Materials, Inc. 7,700 152,999
Broadcom Corp. Class A (a) 2,750 80,438
Intel Corp. 33,100 786,456
KLA-Tencor Corp. 1,100 60,445
LSI Logic Corp. (a) 4,700 35,297
Linear Technology Corp. 1,400 50,652
MEMC Electronic Materials, Inc. (a) 1,300 79,456
Maxim Integrated Products, Inc. 1,800 60,138
Micron Technology, Inc. (a) 4,300 53,879
National Semiconductor Corp. 1,600 45,232
Novellus Systems, Inc. (a) 600 17,022
Nvidia Corp. (a) 1,900 78,489
Teradyne, Inc. (a) 800 14,064
Texas Instruments, Inc. 8,900 334,907
Xilinx, Inc. 1,800 48,186
------------
2,056,983
----------------------------------------------------------------------------------------------------
Software -- 3.1%
Adobe Systems, Inc. (a) 3,400 136,510
Autodesk, Inc. (a) 1,200 56,496
BMC Software, Inc. (a) 1,300 39,390
CA, Inc. 2,500 64,575
Citrix Systems, Inc. (a) 1,000 33,670
Compuware Corp. (a) 2,400 28,464
Electronic Arts, Inc. (a) 1,700 80,444
Intuit, Inc. (a) 1,800 54,144
Microsoft Corp. 48,500 1,429,295
Novell, Inc. (a) 2,000 15,580
Oracle Corp. (a) 23,200 457,272
Symantec Corp. (a) 5,483 110,757
------------
2,506,597
S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007 9
Schedule of Investments (continued)
Shares
Industry Common Stocks Held Value
====================================================================================================
Specialty Retail -- 1.8%
Abercrombie & Fitch Co. Class A 500 $ 36,490
AutoNation, Inc. (a) 1,105 24,796
AutoZone, Inc. (a) 300 40,986
Bed Bath & Beyond, Inc. (a) 1,500 53,985
Best Buy Co., Inc. 2,400 112,008
Circuit City Stores, Inc. 700 10,556
The Gap, Inc. 2,900 55,390
Home Depot, Inc. 11,800 464,330
Limited Brands, Inc. 2,000 54,900
Lowe's Cos., Inc. 8,600 263,934
Office Depot, Inc. (a) 1,700 51,510
OfficeMax, Inc. 400 15,720
RadioShack Corp. 600 19,884
The Sherwin-Williams Co. 600 39,882
Staples, Inc. 4,050 96,107
TJX Cos., Inc. 2,400 66,000
Tiffany & Co. 900 47,754
------------
1,454,232
----------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods -- 0.4%
Coach, Inc. (a) 2,000 94,780
Jones Apparel Group, Inc. 800 22,600
Liz Claiborne, Inc. 700 26,110
Nike, Inc. Class B 2,000 116,580
Polo Ralph Lauren Corp. 300 29,433
VF Corp. 500 45,790
------------
335,293
----------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance -- 1.3%
Countrywide Financial Corp. 3,600 130,860
Fannie Mae 5,600 365,848
Freddie Mac 3,900 236,730
Hudson City Bancorp, Inc. 3,000 36,660
MGIC Investment Corp. 400 22,744
Sovereign Bancorp, Inc. 1,870 39,532
Washington Mutual, Inc. 5,061 215,801
------------
1,048,175
----------------------------------------------------------------------------------------------------
Tobacco -- 1.1%
Altria Group, Inc. 11,900 834,666
Reynolds American, Inc. 900 58,680
UST, Inc. 800 42,968
------------
936,314
----------------------------------------------------------------------------------------------------
Trading Companies & Distributors -- 0.1%
WW Grainger, Inc. 500 46,525
----------------------------------------------------------------------------------------------------
Wireless Telecommunication Services -- 0.6%
Alltel Corp. 2,100 141,855
Sprint Nextel Corp. 16,852 349,005
------------
490,860
----------------------------------------------------------------------------------------------------
Total Common Stocks
(Cost -- $58,370,553) -- 95.0% 77,146,591
====================================================================================================
Face
Short-Term Securities Amount
====================================================================================================
Time Deposits -- 13.6%
State Street Bank & Trust Co., 4.25%
due 7/02/2007 $ 11,088,472 11,088,472
----------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost -- $11,088,472) -- 13.6% 11,088,472
====================================================================================================
Number of
Options Purchased Contracts
====================================================================================================
Call Options Purchased -- 23.0%
S&P 500 Index, expiring November 2007
at USD 1,364.30, HSBC Securities 36,725 6,222,340
S&P 500 Index, expiring November 2007
at USD 1,364.30, BNP Paribas 73,449 12,424,539
----------------------------------------------------------------------------------------------------
Total Options Purchased
(Premiums Paid -- $0) -- 23.0% 18,646,879
====================================================================================================
Total Investments
(Cost -- $69,459,025) -- 131.6% 106,881,942
====================================================================================================
Options Written
====================================================================================================
Call Options Written -- (25.4%)
S&P 500 Index, expiring November 2007
at USD 1,417.09, HSBC Securities 55,087 (6,898,034)
S&P 500 Index, expiring November 2007
at USD 1,417.50, BNP Paribas 110,174 (13,737,749)
----------------------------------------------------------------------------------------------------
Total Options Written
(Premiums Received -- $0) -- (25.4%) (20,635,783)
====================================================================================================
Total Investments, Net of Options Written
(Cost -- $69,459,025*) -- 106.2% 86,246,159
Liabilities in Excess of Other Assets -- (6.2%) (5,062,421)
------------
Net Assets -- 100.0% $ 81,183,738
============
10 S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007
Schedule of Investments (concluded)
* The cost and unrealized appreciation (depreciation) of investments, net of
options written, as of June 30, 2007, as computed for federal income tax
purposes, were as follows:
Aggregate cost ........................................ $ 69,464,519
============
Gross unrealized appreciation ......................... $ 38,636,730
Gross unrealized depreciation ......................... (21,855,090)
------------
Net unrealized appreciation ........................... $ 16,781,640
============
(a) Non-income producing security.
(b) Investments in companies considered to be an affiliate of the Fund, for
purposes of Section 2(a)(3) of the Investment Company Act of 1940, were as
follows:
--------------------------------------------------------------------------
Purchase Sales Realized Dividend
Affiliate Cost Cost Gain Income
--------------------------------------------------------------------------
Merrill Lynch & Co., Inc. -- -- -- $3,570
--------------------------------------------------------------------------
(c) All or a portion of security held as collateral in connection with open
financial futures contracts.
o Financial futures contracts purchased as of June 30, 2007 were as follows:
--------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Depreciation
--------------------------------------------------------------------------
15 S&P 500 Index September 2007 $5,745,603 $ (62,853)
--------------------------------------------------------------------------
o For Fund portfolio compliance purposes, the Fund's industry
classifications refer to any one or more of the industry
sub-classifications used by one or more widely recognized market indexes
or ratings group indexes, and/or as defined by Fund management. This
definition may not apply for purposes of this report, which may combine
industry sub-classifications for reporting ease. Industries are shown as a
percent of net assets.
See Notes to Financial Statements.
S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007 11
Statement of Assets, Liabilities and Capital
As of June 30, 2007 (Unaudited)
=================================================================================================================================
Assets
---------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified cost -- $69,182,936) ..... $ 87,808,805
Investments in affiliated securities, at value (identified cost -- $276,089) .......... 426,258
Options purchased, at value (premiums paid -- $0) ..................................... 18,646,879
Receivables:
Dividends ........................................................................ $ 82,761
Securities sold .................................................................. 35,213
Interest ......................................................................... 1,309 119,283
------------
Prepaid expenses ...................................................................... 7,045
------------
Total assets .......................................................................... 107,008,270
------------
=================================================================================================================================
Liabilities
---------------------------------------------------------------------------------------------------------------------------------
Collateral on options (including accrued interest of $22,600) ......................... 4,911,600
Options written, at value (premiums received -- $0) ................................... 20,635,783
Payables:
Securities purchased ............................................................. 70,449
Investment adviser ............................................................... 51,133
Variation margin ................................................................. 6,750 128,332
------------
Accrued expenses ...................................................................... 148,817
------------
Total liabilities ..................................................................... 25,824,532
------------
=================================================================================================================================
Net Assets
---------------------------------------------------------------------------------------------------------------------------------
Net assets ............................................................................ $ 81,183,738
============
=================================================================================================================================
Capital
---------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share, 100,000,000 shares authorized ................ $ 3,935
Paid-in capital in excess of par ...................................................... 67,337,211
Undistributed investment income -- net ................................................ 1,150,221
Accumulated realized capital losses -- net ............................................ (4,031,910)
Unrealized appreciation -- net ........................................................ 16,724,281
------------
Total accumulated earnings -- net ..................................................... 13,842,592
------------
Total capital--Equivalent to $20.63 per share based on 3,934,821 shares of Common Stock
outstanding (market price -- $20.48) ............................................... $ 81,183,738
============
See Notes to Financial Statements.
12 S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007
Statement of Operations
For the Six Months Ended June 30, 2007 (Unaudited)
=================================================================================================================================
Investment Income
---------------------------------------------------------------------------------------------------------------------------------
Dividends (including $3,570 from affiliates) .......................................... $ 693,976
Interest .............................................................................. 249,260
------------
Total income .......................................................................... 943,236
------------
=================================================================================================================================
Expenses
---------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees .............................................................. $ 324,102
Interest expense ...................................................................... 156,624
Professional fees ..................................................................... 45,126
Directors' fees and expenses .......................................................... 26,918
Transfer agent fees ................................................................... 15,151
Listing fees .......................................................................... 12,506
Accounting services ................................................................... 11,442
Custodian fees ........................................................................ 7,990
Printing and shareholder reports ...................................................... 5,657
Repurchase offer fees ................................................................. 5,490
Other ................................................................................. 552
------------
Total expenses ........................................................................ 611,558
------------
Investment income -- net .............................................................. 331,678
------------
=================================================================================================================================
Realized & Unrealized Gain (Loss) -- Net
---------------------------------------------------------------------------------------------------------------------------------
Realized gain on:
Investments -- net ............................................................... 305,968
Financial futures contracts -- net ............................................... 301,478 607,446
------------
Change in unrealized appreciation/depreciation on:
Investments -- net ............................................................... 8,621,684
Financial futures contracts -- net ............................................... (77,013)
Options written -- net ........................................................... (5,527,281) 3,017,390
---------------------------
Total realized and unrealized gain -- net ............................................. 3,624,836
------------
Net Increase in Net Assets Resulting from Operations .................................. $ 3,956,514
============
See Notes to Financial Statements.
S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007 13
Statements of Changes in Net Assets
For the Six
Months Ended For the
June 30, Year Ended
2007 December 31,
Increase (Decrease) in Net Assets: (Unaudited) 2006
=================================================================================================================================
Operations
---------------------------------------------------------------------------------------------------------------------------------
Investment income -- net .............................................................. $ 331,678 $ 808,456
Realized gain -- net .................................................................. 607,446 7,656,239
Change in unrealized appreciation/depreciation -- net ................................. 3,017,390 4,509,422
---------------------------
Net increase in net assets resulting from operations .................................. 3,956,514 12,974,117
---------------------------
=================================================================================================================================
Distributions to Shareholders
---------------------------------------------------------------------------------------------------------------------------------
Realized gain -- net .................................................................. -- (10,387,927)
---------------------------
Net decrease in net assets resulting from distributions to shareholders ............... -- (10,387,927)
---------------------------
=================================================================================================================================
Common Stock Transactions
---------------------------------------------------------------------------------------------------------------------------------
Redemption of Common Stock resulting from a repurchase offer
(includes $13,116 of repurchase fees) ............................................... -- (28,501,198)
---------------------------
Net decrease in net assets resulting from Common Stock transactions ................... -- (28,501,198)
---------------------------
=================================================================================================================================
Net Assets
---------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets ............................................... 3,956,514 (25,915,008)
Beginning of period ................................................................... 77,227,224 103,142,232
---------------------------
End of period* ........................................................................ $ 81,183,738 $ 77,227,224
===========================
* Undistributed investment income -- net ............................................ $ 1,150,221 $ 818,543
===========================
See Notes to Financial Statements.
14 S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007
For the Six For the Period For the Period
Months Ended For the October 1, November 1,
June 30, Year Ended 2005 to 2004+ to
The following per share data and ratios have been derived 2007 December 31, December 31, September 30,
from information provided in the financial statements. (Unaudited) 2006 2005@@ 2005
====================================================================================================================================
Per Share Operating Performance
------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ..................... $ 19.63 $ 19.66 $ 21.27 $ 19.10
----------------------------------------------------------
Investment income -- net*** .............................. .08 .16 .04 .20
Realized and unrealized gain -- net ...................... .92 2.45 .70 2.10
----------------------------------------------------------
Total from investment operations ......................... 1.00 2.61 .74 2.30
----------------------------------------------------------
Less dividends and distributions:
Investment income -- net ............................ -- -- (.19) (.09)
Realized gain -- net ................................ -- (2.64) (2.16) --
----------------------------------------------------------
Total dividends and distributions ........................ -- (2.64) (2.35) (.09)
----------------------------------------------------------
Offering costs resulting from the issuance of Common Stock -- -- -- (.04)
----------------------------------------------------------
Net asset value, end of period ........................... $ 20.63 $ 19.63 $ 19.66 $ 21.27
==========================================================
Market price per share, end of period .................... $ 20.48 $ 18.76 $ 18.85 $ 20.38
==========================================================
====================================================================================================================================
Total Investment Return**
------------------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ....................... 5.09%@ 13.88% 4.18%@ 11.90%@
==========================================================
Based on market price per share .......................... 9.17%@ 13.51% 4.25%@ 2.39%@
==========================================================
====================================================================================================================================
Ratios to Average Net Assets
------------------------------------------------------------------------------------------------------------------------------------
Expenses, excluding interest expense ..................... 1.15%* 1.20% 1.29%* 1.07%*
==========================================================
Expenses ................................................. 1.55%* 1.34% 1.29%* 1.13%*
==========================================================
Investment income -- net ................................. .84%* .78% .76%* 1.10%*
==========================================================
====================================================================================================================================
Supplemental Data
------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ................. $ 81,184 $ 77,227 $103,142 $148,787
==========================================================
Portfolio turnover ....................................... 1% 5% 1% 5%
==========================================================
* 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.
*** Based on average shares outstanding.
+ Commencement of operations.
@ Aggregate total investment return.
@@ Effective October 1, 2005, the Fund changed its year end to December 31,
2005.
See Notes to Financial Statements.
S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007 15
Notes to Financial Statements (Unaudited)
1. Significant Accounting Policies:
S&P 500(R) GEARED(SM) Fund Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as a non-diversified, closed-end management
investment company with a fixed term of approximately five years. The Fund's
financial statements are prepared in conformity with U.S. generally accepted
accounting principles, which may require the use of management accruals and
estimates. Actual results may differ from these estimates. These unaudited
financial statements reflect all adjustments, which are, in the opinion of
management, necessary to present a fair statement of the results for the interim
period. All such adjustments are of a normal, recurring nature. The Fund
determines and makes available for publication the net asset value of its Common
Stock on a daily basis. The Fund's Common Stock shares are listed on the New
York Stock Exchange ("NYSE") under the symbol GRE. The following is a summary of
significant accounting policies followed by the Fund.
(a) Valuation of investments -- Equity securities held by the Fund that are
traded on stock exchanges or the NASDAQ Global Market are valued at the last
sale price or official close price on the exchange, as of the close of business
on the day the securities are being valued or, lacking any sales, at the last
available bid price for long positions, and at the last available asked price
for short positions. In cases where equity securities are traded on more than
one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Directors of the Fund.
Long positions traded in over-the-counter ("OTC") markets, NASDAQ Capital Market
or Bulletin Board are valued at the last available bid price or yield equivalent
obtained from one or more dealers or pricing services approved by the Board of
Directors of the Fund. Short positions traded in the OTC markets are valued at
the last available asked price. Portfolio securities that are traded both in the
OTC markets and on a stock exchange are valued according to the broadest and
most representative market.
Options written or purchased are valued at the last sale price in the case of
exchange-traded options. Options traded in the OTC market are valued at the last
asked price (options written) or the last bid price (options purchased). Swap
agreements are valued based upon quoted fair valuations received daily by the
Fund from a pricing service or counterparty. Financial futures contracts and
options thereon, which are traded on exchanges, are valued at their last sale
price as of the close of such exchanges. Obligations with remaining maturities
of 60 days or less are valued at amortized cost unless the investment adviser
believes that this method no longer produces fair valuations.
Repurchase agreements are valued at cost plus accrued interest. The Fund employs
pricing services to provide certain securities prices for the Fund. Securities
and assets for which market quotations are not readily available are valued at
fair value as determined in good faith by or under the direction of the Board of
Directors of the Fund, including valuations furnished by the pricing services
retained by the Fund, which may use a matrix system for valuations. The
procedures of a pricing service and its valuations are reviewed by the officers
of the Fund under the general supervision of the Fund's Board of Directors. Such
valuations and procedures will be reviewed periodically by the Board of
Directors of the Fund.
Generally, trading in foreign securities, as well as U.S. government securities
and money market instruments, is substantially completed each day at various
times prior to the close of business on the NYSE. The values of such securities
used in computing the net asset value of the Fund's shares are determined as of
such times. Foreign currency exchange rates will generally be determined as of
the close of business on the NYSE. Occasionally, events affecting the values of
such securities and such exchange rates may occur between the times at which
they are determined and the close of business on the NYSE that may not be
reflected in the computation of the Fund's net asset value. If events (for
example, a company announcement, market volatility or a natural disaster) occur
during such periods that are expected to materially affect the value of such
securities, those securities may be valued at their fair value as determined in
good faith by the Fund's Board of Directors or by the investment adviser using a
pricing service and/or procedures approved by the Fund's Board of Directors.
(b) Derivative financial instruments -- The Fund will engage in various
portfolio investment strategies both to enhance its returns or as a proxy for a
direct investment in securities underlying the Fund's index. Losses may arise
due to changes in the value of the contract due to an unfavorable change in the
price of the underlying security or index, or if the counterparty does not
perform under the contract.
o Options -- The Fund will purchase and write call 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
16 S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007
Notes to Financial Statements (continued)
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).When cash
is received as collateral for purchased options, the Fund may pay interest
to the option writer. Alternatively, the counterparty may pledge
securities as collateral. Written and purchased options are non-income
producing investments.
o Financial futures contracts -- The Fund may purchase or sell financial
futures contracts and options on such financial futures contracts.
Financial futures contracts are contracts for delayed delivery of
securities at a specific future date and at a specific price or yield.
Upon entering into a contract, the Fund deposits, and maintains, as
collateral such initial margin as required by the exchange on which the
transaction is effected. Pursuant to the contract, the Fund agrees to
receive from or pay to the broker an amount of cash equal to the daily
fluctuation in value of the contract. Such receipts or payments are known
as variation margin and are recorded by the Fund as unrealized gains or
losses. When the contract is closed, the Fund records a realized gain or
loss equal to the difference between the value of the contract at the time
it was opened and the value at the time it was closed.
(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).
Realized gains and losses on security transactions are determined on the
identified cost basis. Dividend income is recorded on the ex-dividend dates.
Interest income is recognized on the accrual basis.
(e) Dividends and distributions -- Dividends and distributions paid by the Fund
are recorded on the ex-dividend dates.
(f) Recent accounting pronouncements -- Effective June 29, 2007, the Fund
implemented Financial Accounting Standards Board ("FASB") Interpretation No. 48,
"Accounting for Uncertainty in Income Taxes -- an interpretation of FASB
Statement No. 109" ("FIN 48"). FIN 48 prescribes the minimum recognition
threshold a tax position must meet in connection with accounting for
uncertainties in income tax positions taken or expected to be taken by an
entity, including investment companies, before being measured and recognized in
the financial statements. Management has evaluated the application of FIN 48 to
the Fund, and has determined that the adoption of FIN 48 does not have a
material impact on the Fund's financial statements. The Fund files U.S. and
various state tax returns. No income tax returns are currently under
examination.
In September 2006, Statement of Financial Accounting Standards No. 157, "Fair
Value Measurements" ("FAS 157"), was issued and is effective for fiscal years
beginning after November 15, 2007. FAS 157 defines fair value, establishes a
framework for measuring fair value and expands disclosures about fair value
measurements. At this time, management is evaluating the implications of FAS 157
and its impact on the Fund's financial statements, if any, has not been
determined.
In addition, in February 2007, Statement of Financial Accounting Standards No.
159, "The Fair Value Option for Financial Assets and Financial Liabilities"
("FAS 159"), was issued and is effective for fiscal years beginning after
November 15, 2007. Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also elects
to apply the provisions of FAS 157. FAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value that
are not currently required to be measured at fair value. FAS 159 also
establishes presentation and disclosure requirements designed to facilitate
comparisons between entities that choose different measurement attributes for
similar types of assets and liabilities. At this time, management is evaluating
the implications of FAS 159 and its impact on the Fund's financial statements,
if any, has not been determined.
S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007 17
Notes to Financial Statements (concluded)
2. Investment Advisory Agreement and Transactions with Affiliates:
The Fund has entered into an Investment Advisory and Management Agreement with
IQ Investment Advisors LLC ("IQ"), an indirect subsidiary of Merrill Lynch &
Co., Inc. ("ML & Co."). IQ is responsible for the investment advisory,
management and administrative services to the Fund. In addition, IQ 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 monthly
fee at an annual rate equal to .82% of the average daily value of the Fund's net
assets plus borrowings for leverage and other investment purposes. In addition,
IQ has entered into a Subadvisory Agreement with BlackRock Investment
Management, LLC (the "Subadviser"), an indirect, wholly owned subsidiary of
BlackRock, Inc. ("BlackRock"), pursuant to which the Subadviser provides certain
investment advisory services to IQ with respect to the Fund. For such services,
IQ will pay the Subadviser a monthly fee at an annual rate equal to .35% of the
average daily value of the Fund's net assets plus borrowings for leverage and
other investment purposes. There is no increase in the aggregate fees paid by
the Fund for these services.
IQ has entered into an Administration Agreement with Princeton Administrators,
LLC (the "Administrator"). The Administration Agreement provides that IQ will
pay the Administrator a fee from its investment advisory fee at an annual rate
equal to .12% of the average daily value of the Fund's net assets plus
borrowings for leverage and other investment purposes for the performance of
administrative and other services necessary for the operation of the Fund. There
is no increase in the aggregate fees paid by the Fund for these services. The
Administrator is an indirect subsidiary of BlackRock. ML & Co. is a principal
owner of BlackRock.
In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated, an affiliate of
IQ, received $210 in commissions on the execution of portfolio security
transactions for the Fund for the six months ended June 30, 2007.
Certain officers of the Fund are officers of IQ, ML & Co., BlackRock or its
affiliates.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the six
months ended June 30, 2007 were $856,283 and $986,978, respectively.
Transactions in options written for the six months ended June 30, 2007 were as
follows:
--------------------------------------------------------------------------------
Number of Premiums
Contracts Received
--------------------------------------------------------------------------------
Outstanding call options written,
beginning of period ............................. 165,261 --
------------------------
Outstanding call options written,
end of period ................................... 165,261 --
========================
4. Common Stock Transactions:
The Fund is authorized to issue 100,000,000 shares of stock, all of which are
initially classified as Common Stock, par value $.001. The Board of Directors is
authorized, however, to classify and reclassify any unissued shares of Common
Stock without approval of the holders of Common Stock.
Shares issued and outstanding during the six months ended June 30, 2007 remained
constant. Shares issued and outstanding during the year ended December 31, 2006
decreased 1,311,606 as a result of a repurchase offer.
The Fund will make offers to repurchase its shares at annual (approximately
12-month) intervals. The shares tendered in the repurchase offer will be subject
to a repurchase fee retained by the Fund to compensate the Fund for expenses
directly related to the repurchase offer.
18 S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007
Renewal of Current Investment Advisory and Management Agreements
The Board of Directors of each Fund, currently consisting solely of Independent
Directors, as defined in Section 2(a)(19) of the Investment Company Act of 1940
(the "Investment Company Act"), has the responsibility under the Investment
Company Act to consider annually the Investment Advisory and Management
Agreement of each Fund (each, a "Management Agreement" and together, the
"Management Agreements") with IQ Investment Advisors LLC ("IQ Advisors").
At a Board meeting held on June 14, 2007, all of the Directors present at the
meeting renewed the Management Agreement for each Fund for an additional
one-year term. Each Management Agreement was considered separately by the
relevant Fund's Directors. In considering whether to approve the Management
Agreements, the Directors reviewed a meeting book and other materials from
counsel to the Funds and from IQ Advisors which: (i) included information
concerning the services rendered to the Funds by IQ Advisors and IQ Advisors'
affiliates; (ii) contained information concerning the revenues and expenses
incurred by IQ Advisors and its affiliates from the operation of the Funds; and
(iii) outlined the legal duties of the Board under the Investment Company Act.
The Board also received information from Lipper, Inc. ("Lipper") comparing each
Fund's fee rate for advisory and administrative services to those of other
closed-end funds chosen by Lipper. In voting to approve the renewal of each
Fund's Management Agreement, the Directors considered in particular the
following factors:
(a) The nature, extent and quality of services provided by IQ Advisors and its
affiliates -- The Directors reviewed the services that IQ Advisors has provided
to the Funds. They considered the size and experience of IQ Advisors' staff, its
use of technology, and the degree to which IQ Advisors exercises supervision
over the actions of each Fund's subadviser. In connection with the investment
advisory services provided, the Directors took into account detailed discussions
they had with officers of IQ Advisors regarding the management of each Fund's
investments in accordance with the Fund's stated investment objective and
policies and the types of transactions entered into on behalf of each Fund.
During these discussions, the Directors asked detailed questions of, and
received answers from, the officers of IQ Advisors regarding the implementation
of each Fund's investment strategy, its efficacy and risks.
In addition to the investment advisory services provided to the Funds, the
Directors considered that IQ Advisors and its affiliates also provide
administrative services, stockholder services, oversight of Fund accounting,
marketing services, assistance in meeting legal and regulatory requirements and
other services necessary for the operation of the Funds. In particular, the
Directors reviewed the compliance and administrative services provided to the
Funds by IQ Advisors, including its oversight of each Fund's day-to-day
operations and its oversight of Fund accounting. The Directors noted that IQ
Advisors has access to administrative, legal and compliance resources that help
ensure a high level of quality in the compliance and administrative services
provided to the Funds. The Directors also considered each Fund's compliance
history. Following their consideration of this information, and based on the
presentations at the meeting and the Directors' experience as Directors of other
investment companies advised by IQ Advisors, the Directors concluded that the
services provided to each Fund by IQ Advisors under the respective Management
Agreement were of a high quality and benefited the Funds.
(b) Investment performance of each Fund and IQ Advisors -- The Directors
considered the history, experience, resources and strengths of IQ Advisors and
its affiliates in developing and implementing the investment strategies used by
each Fund. The Directors also considered the innovative nature of each Fund. The
Directors noted that each Fund uses a unique investment strategy and that
comparisons of a Fund's investment performance to the performance of other
investment companies were generally not meaningful. The Directors reviewed each
Fund's investment performance and where applicable, compared such performance to
the performance of a relevant reference index. The Directors discussed the
degree to which each Fund was achieving its investment objective, noting that
each Fund had been in operation for a relatively short period of time. In
particular, the Directors noted that all of the Funds generally performed as
expected relative to their respective reference index and met their respective
investment objectives. As a result of their discussions and review, the
Directors concluded that each Fund's performance was satisfactory. Based on
these factors, the Directors determined that IQ Advisors continued to be an
appropriate investment adviser for the Funds.
S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007 19
Renewal of Current Investment Advisory and Management Agreements (continued)
(c) Cost of services provided and profits realized by IQ Advisors and its
affiliates from the relationship with each of the Funds -- The Directors
reviewed and considered a memorandum from IQ Advisors regarding the methodology
used by IQ Advisors in allocating its costs regarding the operations of the
Funds and calculating each Fund's profitability (if any) to IQ Advisors and its
affiliates. The Directors noted that IQ Advisors' methodology in calculating
profitability had previously been reviewed by independent consultants. The
Directors also reviewed a report detailing IQ Advisors' profitability. After
considering their discussion with IQ Advisors and reviewing its memorandum and
report, the Directors concluded that there was a reasonable basis for the
allocation of costs and the determination of profitability. The Directors
considered the cost of the services provided by IQ Advisors to each Fund and the
revenue derived by IQ Advisors and its affiliates. The Directors took into
account discussions that they had with representatives of IQ Advisors regarding
its general level of profitability (if any), and the profits derived by its
affiliates, including Merrill Lynch Investment Managers, L.P. ("MLIM") prior to
its merger with BlackRock, Inc. ("BlackRock"), from operating the Funds. The
Directors also considered the direct and indirect benefits derived by other IQ
Advisors affiliates, including Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S"), from the establishment of the Funds, including the
underwriting arrangements relating to the initial distribution of Fund shares.
The Directors considered federal court decisions discussing an investment
adviser's profitability and profitability levels considered to be reasonable in
those decisions. The Directors concluded that any profits made by IQ Advisors
and its affiliates (including MLIM and MLPF&S) are acceptable in relation to the
nature, extent and quality of services provided. The Directors also concluded
that each Fund benefited from such services provided by IQ Advisors' affiliates.
(d) The extent to which economies of scale would be realized as a Fund grows and
whether fee levels would reflect such economies of scale -- The Directors
considered the extent to which economies of scale might be realized if the
assets of the Funds increase and whether there should be changes in the
management fee rate or structure in order to enable a Fund to participate in
these economies of scale. The Directors noted that, because each Fund is a
closed-end fund, any increase in asset levels generally would have to come from
appreciation through investment performance. The Directors also noted that each
Fund, except for Dow 30(SM) Premium & Dividend Income Fund Inc. and S&P 500(R)
Covered Call Fund Inc., is an interval fund that periodically allows
stockholders to tender their shares to the Funds and that such tender offers
reduce the amount of Fund assets. In consideration of these and other factors,
the Directors determined that no changes were currently necessary to each Fund's
fee structure. The Directors also discussed the renewal requirements for
investment advisory agreements, and determined that they would revisit this
issue no later than when they next review the investment advisory fees.
(e) Comparison of services rendered and fees paid to those under other
investment advisory contracts, such as contracts of the same and other
investment advisers or other clients -- The Directors compared both the services
rendered and the fees paid under the Management Agreements to the contracts of
other investment advisers with respect to other closed-end registered investment
companies. In particular, the Directors evaluated each Fund's contractual fee
rate for advisory and administrative services as compared to the contractual fee
rate of other closed-end funds chosen by Lipper. In considering this
information, the Directors took into account the unique nature of the investment
strategies of the Funds and the fact that the relevant peer group of funds
provided by Lipper for comparison have investment strategies and restrictions
different from those of the Funds. The Directors did not consider compensation
paid to IQ Advisors with respect to accounts other than registered investment
companies because IQ Advisors utilizes each Fund's strategy in connection with
only registered funds. In particular, the Directors noted that each Fund's
contractual advisory fee rate at a common asset level was lower than the median
fee rate of its Lipper comparison funds. The Directors concluded that the
advisory fee rates were reasonable in comparison to the data reflected in the
Lipper materials.
(f) Conclusion -- No single factor was determinative to the decision of the
Directors. Based on the foregoing and such other matters as were deemed
relevant, all of the Directors concluded that the advisory fee rate of each Fund
was reasonable in relation to the services provided by IQ Advisors to the Funds,
as well as the costs incurred and benefits gained by IQ Advisors and its
affiliates in providing such services, including the investment advisory and
administrative components. The Directors also found the investment advisory fees
to be reasonable in comparison to the fees charged by advisers to other funds of
a similar size. As a result, the Board of Directors of each Fund approved the
Management Agreement for each Fund. The Directors were represented by
independent legal counsel who assisted them in their deliberations.
20 S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007
Renewal of Current Investment Subadvisory Agreements
The Board of Directors of each Fund, currently consisting solely of Independent
Directors, at a meeting held on June 14, 2007 considered and approved the
renewal of the Current Investment Subadvisory Agreement of each Fund (each a
"Subadvisory Agreement" and together, the "Subadvisory Agreements"). Each
Subadvisory Agreement was considered separately by the relevant Fund's
Directors. The Directors received, reviewed and evaluated information concerning
the services and personnel of BlackRock Investment Management, LLC
("BlackRock"), as subadviser to each of S&P 500(R) GEARED(SM) Fund Inc. and
Small Cap Premium & Dividend Income Fund Inc.; Oppenheimer Capital LLC
("Oppenheimer"), as subadviser to each of S&P 500(R) Covered Call Fund Inc. and
Enhanced S&P 500(R) Covered Call Fund Inc.; and Nuveen Asset Management
("Nuveen," and together with BlackRock and Oppenheimer, the "Subadvisers"), as
subadviser to Dow 30(SM) Premium & Dividend Income Fund Inc. and Global Income &
Currency Fund Inc.
(a) The nature, extent and quality of services provided by each Subadviser --
The Directors reviewed the services that each Subadviser provides to each of
their respective Funds. The Directors considered their detailed discussions with
officers of IQ Advisors and members of each Subadviser's portfolio management
team, the management of each Fund's investments in accordance with the Fund's
stated investment objective and policies and the types of transactions that have
been entered into on behalf of the Funds. The Directors took into account the
annual due diligence investment review conducted by Merrill Lynch Global Private
Client Investment Management, an affiliate of IQ Advisors, of each Subadviser
and its report that concluded that each such Subadviser has thus far executed
its respective Fund's investment strategies in accordance with the Fund's
objectives and general expectations. The Directors noted that, drawing on their
collective industry experience, they had discussed each Fund's investment
strategy with representatives from each Subadviser, including discussions
regarding the premises underlying the Fund's investment strategy, its efficacy
and potential risks. The Directors also considered the favorable history,
reputation and background of each Subadviser and its personnel, and the
substantial experience of such Subadviser's portfolio management teams. The
Directors discussed the compliance program of each Subadviser and the report of
Mrs. Catherine Johnston, the chief compliance officer of the Funds. Following
consideration of this information, and based on management presentations during
the Board meeting and their discussion during an Executive Session, the
Directors concluded that the nature, extent and quality of services provided to
each Fund by the applicable Subadviser under its Subadvisory Agreement were of a
high quality and would continue to benefit the Fund.
(b) Investment performance of each Fund and each Subadviser -- The Directors
received and considered information about each Fund's investment performance in
comparison to the performance of its relative reference index, where applicable,
and also in light of its stated investment objective and made the determinations
discussed above under "Renewal of Current Investment Advisory and Management
Agreements." Based on these factors, the Directors determined that each
Subadviser continued to be appropriate for each of its respective Funds.
(c) Cost of services provided and profits realized by each Subadviser from the
relationship with each respective Fund -- The Directors considered the
profitability to MLIM, prior to its merger with BlackRock, of serving as
investment subadviser to two Funds and from its relationship with IQ Advisors
based on the information discussed above under "Renewal of Current Investment
Advisory and Management Agreements." Based on such information, the Directors
concluded that MLIM's profits were acceptable in relation to the nature, extent
and quality of services provided. The Directors noted that profitability data
was not provided with respect to the unaffiliated Subadvisers of the Funds and
concluded that such data was unnecessary because such subadvisory arrangements
were entered into at "arm's length" between the Subadviser and IQ Advisors. The
Directors then considered the potential direct and indirect benefits to each
Subadviser and its affiliates from their relationship with each of their
respective Funds, including the reputational benefits from managing the Funds.
The Directors of each Fund concluded that the potential benefits to each
Subadviser were consistent with those obtained by other subadvisers in similar
types of arrangements.
S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007 21
Renewal of Current Investment Advisory and Management Agreements (concluded)
(d) The extent to which economies of scale would be realized as a Fund grows and
whether fee levels would reflect such economies of scale -- The Directors
considered the extent to which economies of scale might be realized if the
assets of the Funds increase and whether there should be changes in the
subadvisory fee rate or structure in order to enable a Fund to participate in
these economies of scale. The Directors noted that each Subadviser's fees are
paid by IQ Advisors out of its fees and not directly by the Funds. The Directors
noted that, because each Fund is a closed-end fund, any increase in asset levels
would have to come from appreciation due to investment performance. The
Directors also noted that each Fund, except for Dow 30(SM) Premium & Dividend
Income Fund Inc. and S&P 500(R) Covered Call Fund Inc., is an interval fund that
periodically allows stockholders to tender their shares to the Funds and that
such tender offers reduce the amount of Fund assets. The Directors also
discussed the renewal requirements for subadvisory agreements, and determined
that they would revisit this issue no later than when they next review the
subadvisory fee.
(e) Comparison of services rendered and fees paid to those under other
subadvisory contracts, such as contracts of the same and other investment
advisers or other clients -- The Directors discussed the services rendered by
each Subadviser and determined that such services were consistent with those
provided by subadvisers generally and sufficient for the management of the
Funds. Taking into account the totality of the information and materials
provided to the Directors as noted above, including the fact that the
subadvisory fee for each Fund was negotiated with IQ Advisors and not payable
directly by the Fund, the Directors concluded that the subadvisory fee for each
Fund was reasonable for the services being rendered.
Conclusion -- No single factor was determinative to the decision of the
Directors. Based on the foregoing and such other matters as were deemed
relevant, all of the Directors concluded that the relevant subadvisory fee rate
was reasonable in relation to the services provided by each Subadviser. As a
result, all of the Directors approved the Subadvisory Agreement for each Fund.
The Directors were represented by independent legal counsel who assisted them in
their deliberations.
22 S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007
Fundamental Periodic Repurchase Policy
The Board of Directors approved a fundamental policy whereby the Fund would
adopt an "interval fund" structure pursuant to Rule 23c-3 under the Investment
Company Act of 1940 (the "1940 Act"), as amended. As an interval fund, the Fund
will make annual repurchase offers at net asset value (less repurchase fee not
to exceed 2%) to all Fund shareholders. The percentage of outstanding shares
that the Fund can repurchase in each offer will be established by the Fund's
Board of Directors shortly before the commencement of each offer, and will be
between 5% and 25% of the Fund's then outstanding shares.
The Fund has adopted the following fundamental policy regarding periodic
repurchases:
a) The Fund will make offers to repurchase its shares at annual (approximately
12-month) intervals pursuant to Rule 23c-3 under the 1940 Act ("Offers"). The
Board of Directors may place such conditions and limitations on an Offer, as may
be permitted under Rule 23c-3.
b) The repurchase request deadline for each Offer, by which the Fund must
receive repurchase requests submitted by shareholders in response to the most
recent Offer, will be determined by reference to the exercise date of the call
spreads and written call options that comprise the Fund's transactions (as
described in the Fund's prospectus) for an annual period; and will be the
fourteenth day prior to such exercise date; provided that, in the event that
such day is not a business day, the repurchase request deadline will be the
business day subsequent to the fourteenth day prior to the exercise date of the
call spreads and written call options (the "Repurchase Request Deadline").
c) The maximum number of days between a Repurchase Request Deadline and the next
repurchase pricing date will be fourteen days; provided that if the fourteenth
day after a Repurchase Request Deadline is not a business day, the repurchase
pricing date shall be the next business day (the "Repurchase Pricing Date").
d) Offers may be suspended or postponed under certain circumstances, as provided
for in Rule 23c-3. (For further details, see Note 4 to the Financial
Statements.)
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
The Fund offers electronic delivery of communications to its shareholders. In
order to receive this service, you must register your account and provide us
with e-mail information. To sign up for this service, simply access this Web
site at http://www.icsdelivery.com/live and follow the instructions.
When you visit this site, you will obtain a personal identification number
(PIN). You will need this PIN should you wish to update your e-mail address,
choose to discontinue this service and/or make any other changes to the service.
This service is not available for certain retirement accounts at this time.
Contact Information
For more information regarding the Fund, please visit www.IQIAFunds.com or
contact us at 1-877-449-4742.
S&P 500(R) GEARED(SM) FUND INC. JUNE 30, 2007 23
[LOGO]
IQ
INVESTMENT
ADVISORS www.IQIAFunds.com
S&P 500(R) GEARED(SM) Fund Inc. seeks to provide total returns, exclusive of
fees and expenses of the Fund, linked to the annual performance of the S&P
500(R) Composite Stock Price Index.
This report, including the financial information herein, is transmitted to
shareholders of S&P 500(R) GEARED(SM) 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.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge at
www.IQIAFunds.com/proxyvoting.asp or upon request by calling toll-free
1-877-449-4742 or through the Securities and Exchange Commission's Web site at
http://www.sec.gov. Information about how the Fund voted proxies relating to
securities held in the Fund's portfolio during the most recent 12-month period
ended June 30 is available (1) at www.IQIAFunds.com/proxyvoting.asp; and (2) on
the Securities and Exchange Commission's Web site at http://www.sec.gov.
S&P 500(R) GEARED(SM) Fund Inc.
P.O. Box 9011
Princeton, NJ 08543-9011
#IQGRE -- 6/07
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this
semi-annual report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable to this
semi-annual report
Item 6 - Schedule of Investments - The registrant's Schedule of Investments
is included as part of the Report to Stockholders filed under Item 1
of this form.
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable to this semi-annual
report
Item 8 - Portfolio Managers of Closed-End Management Investment Companies -
Not Applicable to this semi-annual report
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - The
registrant's Nominating Committee will consider nominees to the
Board recommended by shareholders when a vacancy becomes available.
Shareholders who wish to recommend a nominee should send nominations
which include biographical information and set forth the
qualifications of the proposed nominee to the registrant's
Secretary. There have been no material changes to these procedures.
Item 11 - Controls and Procedures
11(a) - The registrant's principal executive and principal financial
officers or persons performing similar functions have concluded that
the registrant's disclosure controls and procedures (as defined in
Rule 30a-3(c) under the Investment Company Act of 1940, as amended
(the "1940 Act")) are effective as of a date within 90 days of the
filing of this report based on the evaluation of these controls and
procedures required by Rule 30a-3(b) under the 1940 Act and Rule
13a-15(b) under the Securities and Exchange Act of 1934, as amended.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act
(17 CFR 270.30a-3(d)) that occurred during the second fiscal quarter
of the period covered by this report that have materially affected,
or are reasonably likely to materially affect, the registrant's
internal control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
S&P 500(R) GEARED(SM) Fund Inc.
By: /s/ Mitchell M. Cox
-------------------------------
Mitchell M. Cox,
Chief Executive Officer of
S&P 500(R) GEARED(SM) Fund Inc.
Date: August 28, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Mitchell M. Cox
-------------------------------
Mitchell M. Cox,
Chief Executive Officer of
S&P 500(R) GEARED(SM) Fund Inc.
Date: August 28, 2007
By: /s/ James E. Hillman
-------------------------------
James E. Hillman,
Chief Financial Officer of
S&P 500(R) GEARED(SM) Fund Inc.
Date: August 28, 2007