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, 5th Floor, New
York, New York 10080. Mailing address: P.O. Box 9011, Princeton, NJ
08543-9011
Registrant's telephone number, including area code: (212) 449-8118
Date of fiscal year end: 09/30/05
Date of reporting period: 10/28/04 - 03/31/05
Item 1 - Report to Stockholders
S&P 500(R) GEARED(SM) Fund Inc.
Semi-Annual Report March 31, 2005
[LOGO] INVESTMENT ADVISORS [LOGO] Merrill Lynch Investment Managers
S&P 500(R) GEARED(SM) Fund Inc.
Portfolio Information as of March 31, 2005
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
General Electric Co. ................................................... 3.6%
Exxon Mobil Corp. ...................................................... 3.5
Microsoft Corp. ........................................................ 2.3
Citigroup, Inc. ........................................................ 2.2
Johnson & Johnson ...................................................... 1.9
Pfizer, Inc. ........................................................... 1.8
Bank of America Corp. .................................................. 1.7
Wal-Mart Stores, Inc. .................................................. 1.6
International Business Machines Corp. .................................. 1.4
American International Group, Inc. ..................................... 1.3
- --------------------------------------------------------------------------------
Percent of
Five Largest Industries* Net Assets
- --------------------------------------------------------------------------------
Oil & Gas .............................................................. 7.7%
Pharmaceuticals ........................................................ 7.1
Commercial Banks ....................................................... 5.8
Industrial Conglomerates ............................................... 4.9
Insurance .............................................................. 4.4
- --------------------------------------------------------------------------------
* For Fund compliance purposes, "Industries" means any of 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 such industry sub-classifications for reporting ease.
Percent of
S&P Sector Weightings Total Investments
- --------------------------------------------------------------------------------
Financials ................................................. 19.4%
Information Technology ..................................... 14.6
Health Care ................................................ 12.6
Industrials ................................................ 11.6
Consumer Discretionary ..................................... 11.3
Consumer Staples ........................................... 10.1
Energy ..................................................... 8.6
Materials .................................................. 3.1
Utilities .................................................. 3.1
Telecommunication Services ................................. 3.0
Other* ..................................................... 2.6
- --------------------------------------------------------------------------------
* Includes portfolio holdings in options and short-term investments.
S&P 500 is a registered trademark of the McGraw-Hill Companies.
"GEARED" and "Geared-Equity Accelerated Return"are service marks of Merrill
Lynch & Co.
2 S&P 500(R) GEARED(SM) FUND INC. MARCH 31, 2005
A Letter From the President
Dear Shareholder
As you know, the investment objective of the S&P 500(R) GEARED(SM) Fund (the
"Fund") is to provide total returns, exclusive of fees and expenses, linked to
the annual performance of the Standard & Poor's 500 Index ("S&P 500 Index"). In
instances where the performance of the S&P 500 Index is positive, the Fund seeks
to deliver a "geared" return equal to approximately three times the Index, up to
a predetermined cap (which is approximately 12.15% for the current period).
The U.S. stock market, as measured by the total return of the S&P 500 Index,
returned +5.28% from the inception of the Fund (November 1, 2004) through March
31, 2005. Over that same period, the Fund returned +4.01% (as measured by change
in net asset value plus dividend reinvestment).
The Fund's performance over this period is consistent with our expectations. To
seek to achieve its investment objective, the Fund owns an S&P 500 portfolio
along with a series of "option strategies" designed to provide the "geared"
return. These strategies tend to cause Fund performance to lag the S&P 500 Index
earlier in the year, and then deliver a "gearing" effect closer to the options'
expiration date later in the year. It is our expectation that if the S&P 500
Index remains at March 31, 2005 levels through October 2005, then the net asset
value of the Fund will reflect the "gearing" strategy.
IQ Investment Advisors continues to take a non-traditional approach to asset
management by seeking to identify specific economic or strategic investment
themes that aim to fulfill particular investor needs. We encourage you to
revisit your portfolio and your asset allocation strategy to ensure you are well
positioned to take advantage of the opportunities that lie ahead in 2005. We
thank you for trusting IQ Investment Advisors with your investment assets, and
we look forward to serving you in the months and years ahead.
Sincerely,
/s/ Mitchell M. Cox
Mitchell M. Cox
President, IQ Investment Advisors
S&P 500(R) GEARED(SM) FUND INC. MARCH 31, 2005 3
A Discussion With Your Fund's Portfolio Manager
We are pleased to provide you with this first 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 to you by Merrill Lynch Investment
Managers, the Fund's sub-adviser.
How has the Fund performed since its inception?
Since inception (November 1, 2004) through March 31, 2005, the Common Stock of
S&P 500(R) GEARED(SM) Fund Inc. had a total investment return of +4.01%, based
on a change in per share net asset value from $19.10 to $19.77, and assuming
reinvestment of all distributions. The Standard & Poor's 500 (S&P 500) Index
returned +5.28% for the same period.
In the short term, the Fund is expected to lag the S&P 500 Index due to the
nature of the options strategies used by the Fund to achieve its "geared"
return. The three-to-one upside, to a maximum index participation level, that
the Fund seeks to provide when the S&P 500 Index generates positive returns,
will not become evident until closer to the options' expiration date of November
2, 2005.
For a description of 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.
What has the market environment been during the period?
The Fund was launched just prior to the November 2004 presidential election,
which marked a positive turning point for equities. In the fourth quarter of
2004, the S&P 500 returned +9.23%, supported by lower oil prices, unwinding of
the election uncertainty, reasonably good economic and earnings news, reactions
to the $32 billion Microsoft Corp. dividend, and the beginning of the seasonally
strong year-end period. Much of the post-election market bounce was attributed
to what many believe to be the most pro-business, pro-market legislative agenda
since the Reagan era, as well as an approximately 23% decrease in the price of
oil from its October 2004 high of $55.67 per barrel.
In the first quarter of 2005, the market turned downward, and the S&P 500 Index
returned -2.15%. The environment during the quarter was largely influenced by
mixed market data, increasing interest rates, disappointing earnings reports,
and climbing oil prices. Oil prices exceeded $50 per barrel for the first time
in several months, reaching as high as $56 per barrel, and earnings revisions
activity continued to be more negative than positive. Year-to-date earnings
revisions have been negative, and the percentage of industries with rising
earnings has continued to deteriorate.
How have you managed the portfolio since its inception?
To commence Fund operations, on November 1, 2004, we purchased a basket of
securities approximately equal to the assets of the initial offering. Our
initial investments comprised all 500 members of the S&P 500 Index and the
individual stock weights closely matched those of the Index. In addition, we
also negotiated over-the-counter option transactions for the Fund, engaging in
an options strategy sometimes called a "ratio call spread." A call spread can be
thought of as a combination of long "at-the-money" and short "out-of-the-money"
calls. It is this options strategy that seeks to provide the three-to-one upside
potential to the annual return cap. After this transaction, the Fund's annual
return cap was set at 12.33%, which is 33 basis points (.33%) higher than the
upper end of the 9% - 12% range described in the Fund's prospectus.
On December 15, 2004, another $4.6 million was deposited into the Fund, as
additional shares were issued pursuant to the standard overallotment option. As
a result of this transaction, the return cap decreased to 12.15%, as the S&P 500
Index rallied significantly while the new assets were uninvested. On an ongoing
basis, we have continued to monitor the portfolio and have taken investment
action, as necessary, to ensure that the Fund is properly positioned to achieve
its investment objectives at all times.
4 S&P 500(R) GEARED(SM) FUND INC. MARCH 31, 2005
How would you characterize the portfolio's position at the close of the period?
We believe the Fund is positioned to provide accelerated growth relative to the
current value of the S&P 500 Index as of the date of this report. At period-end,
several concerns weighed on the markets: The Federal Reserve Board continued to
raise interest rates; bond prices were beginning to fall as yields inched
higher; inflation was heating up; and oil prices were rising. However, all was
not negative. Economic growth has been stronger than many expected, certain
sectors of the market have been performing well and corporations have been
engaging in shareholder-friendly mergers and acquisitions and increased stock
buy-backs and dividend payouts. Amid these conditions, we believe the Fund is
positioned to meet its objectives.
Vincent J. Costa
Vice President and Portfolio Manager
Debra L. Jelilian
Vice President and Portfolio Manager
Jeffrey L. Russo
Vice President and Portfolio Manager
April 15, 2005
S&P 500(R) GEARED(SM) FUND INC. MARCH 31, 2005 5
Schedule of Investments
Shares
Industry* Common Stocks Held Value
===================================================================================
Aerospace & Defense--2.2%
Boeing Co. 10,900 $ 637,214
General Dynamics Corp. 2,700 289,035
Goodrich Corp. 1,200 45,948
Honeywell International, Inc. 10,600 394,426
L-3 Communications Holdings, Inc. 1,578 112,070
Lockheed Martin Corp. 5,400 329,724
Northrop Grumman Corp. 4,900 264,502
Raytheon Co. 5,700 220,590
Rockwell Collins, Inc. 2,000 95,180
United Technologies Corp. 6,600 670,956
------------
3,059,645
- -----------------------------------------------------------------------------------
Air Freight & Logistics--1.0%
FedEx Corp. 3,900 366,405
Ryder System, Inc. 900 37,530
United Parcel Service, Inc. Class B 14,400 1,047,456
------------
1,451,391
- -----------------------------------------------------------------------------------
Airlines--0.1%
Delta Air Lines, Inc. (a) 2,500 10,125
Southwest Airlines Co. 9,200 131,008
------------
141,133
- -----------------------------------------------------------------------------------
Auto Components--0.2%
Cooper Tire & Rubber Co. 1,200 22,032
Dana Corp. 2,600 33,254
Delphi Corp. 6,100 27,328
The Goodyear Tire & Rubber Co. (a) 2,700 36,045
Johnson Controls, Inc. 2,200 122,672
Visteon Corp. (a) 1,000 5,710
------------
247,041
- -----------------------------------------------------------------------------------
Automobiles--0.5%
Ford Motor Co. 22,700 257,191
General Motors Corp. 7,500 220,425
Harley-Davidson, Inc. 3,900 225,264
------------
702,880
- -----------------------------------------------------------------------------------
Beverages--2.3%
Anheuser-Busch Cos., Inc. 9,800 464,422
Brown-Forman Corp. Class B 1,300 71,175
The Coca-Cola Co. 29,100 1,212,597
Coca-Cola Enterprises, Inc. 5,100 104,652
Molson Coors Brewing Co. Class B 900 69,453
Pepsi Bottling Group, Inc. 2,800 77,980
PepsiCo, Inc. 21,500 1,140,145
------------
3,140,424
- -----------------------------------------------------------------------------------
Biotechnology--1.2%
Amgen, Inc. (a) 16,000 931,360
Applera Corp.-Applied Biosystems Group 2,200 43,428
Biogen Idec, Inc. (a) 4,400 151,844
Chiron Corp. (a) 2,100 73,626
Genzyme Corp. (a) 3,000 171,720
Gilead Sciences, Inc. (a) 5,300 189,740
Medimmune, Inc. (a) 3,200 76,192
------------
1,637,910
- -----------------------------------------------------------------------------------
Building Products--0.2%
American Standard Cos., Inc. 2,400 111,552
Masco Corp. 5,500 190,685
------------
302,237
- -----------------------------------------------------------------------------------
Capital Markets--2.8%
The Bank of New York Co., Inc. 9,700 281,785
The Bear Stearns Cos., Inc. 1,400 139,860
The Charles Schwab Corp. 16,100 169,211
E*Trade Financial Corp. (a) 4,200 50,400
Federated Investors, Inc. Class B 1,000 28,310
Franklin Resources, Inc. 2,700 185,355
Goldman Sachs Group, Inc. 5,900 648,941
Janus Capital Group, Inc. 2,500 34,875
Lehman Brothers Holdings, Inc. 3,600 338,976
Mellon Financial Corp. 4,900 139,846
Merrill Lynch & Co., Inc. (b) 11,900 673,540
Morgan Stanley 14,300 818,675
Northern Trust Corp. 2,900 125,976
State Street Corp. 4,600 201,112
T. Rowe Price Group, Inc. 1,400 83,132
------------
3,919,994
- -----------------------------------------------------------------------------------
Chemicals--1.8%
Air Products & Chemicals, Inc. 2,900 183,541
The Dow Chemical Co. 12,000 598,200
E.I. du Pont de Nemours & Co. 13,000 666,120
Eastman Chemical Co. 1,100 64,900
Ecolab, Inc. 2,900 95,845
Engelhard Corp. 1,200 36,036
Great Lakes Chemical Corp. 1,000 32,120
Hercules, Inc. (a) 1,000 14,480
International Flavors & Fragrances, Inc. 1,000 39,500
Monsanto Co. 3,600 232,200
PPG Industries, Inc. 2,000 143,040
Praxair, Inc. 3,800 181,868
Rohm & Haas Co. 2,500 120,000
Sigma-Aldrich Corp. 1,000 61,250
------------
2,469,100
- -----------------------------------------------------------------------------------
Commercial Banks--5.8%
AmSouth Bancorp 4,000 103,800
BB&T Corp. 6,700 261,836
Bank of America Corp. 52,100 2,297,610
Comerica, Inc. 2,400 132,192
Compass Bancshares, Inc. 1,551 70,415
Fifth Third Bancorp 7,000 300,860
First Horizon National Corp. 1,700 69,343
Huntington Bancshares, Inc. 2,400 57,360
Keycorp 4,700 152,515
M&T Bank Corp. 1,300 132,678
Marshall & Ilsley Corp. 2,500 104,375
National City Corp. 8,000 268,000
North Fork Bancorporation, Inc. 5,700 158,118
PNC Financial Services Group, Inc. 3,900 200,772
Regions Financial Corp. 5,400 174,960
SunTrust Banks, Inc. 4,500 324,315
Synovus Financial Corp. 3,500 97,510
U.S. Bancorp 23,800 685,916
Wachovia Corp. 20,300 1,033,473
Wells Fargo & Co. 21,800 1,303,640
Zions Bancorporation 1,200 82,824
------------
8,012,512
- -----------------------------------------------------------------------------------
6 S&P 500(R) GEARED(SM) FUND INC. MARCH 31, 2005
Schedule of Investments (continued)
Shares
Industry* Common Stocks Held Value
===================================================================================
Commercial Services & Supplies--0.9%
Allied Waste Industries, Inc. (a) 3,400 $ 24,854
Apollo Group, Inc. Class A (a) 2,200 162,932
Avery Dennison Corp. 1,500 92,895
Cendant Corp. 13,100 269,074
Cintas Corp. 2,200 90,882
Equifax, Inc. 1,400 42,966
H&R Block, Inc. 2,200 111,276
Monster Worldwide, Inc. (a) 1,600 44,880
Pitney Bowes, Inc. 2,600 117,312
R.R. Donnelley & Sons Co. 2,400 75,888
Robert Half International, Inc. 1,900 51,224
Waste Management, Inc. 6,800 196,180
------------
1,280,363
- -----------------------------------------------------------------------------------
Communications Equipment--2.5%
ADC Telecommunications, Inc. (a) 7,900 15,721
Andrew Corp. (a) 2,300 26,933
Avaya, Inc. (a) 5,200 60,736
Ciena Corp. (a) 8,800 15,136
Cisco Systems, Inc. (a) 83,300 1,490,237
Comverse Technology, Inc. (a) 2,600 65,572
Corning, Inc. (a) 17,600 195,888
JDS Uniphase Corp. (a) 23,500 39,245
Lucent Technologies, Inc. (a) 53,800 147,950
Motorola, Inc. 31,100 465,567
Qualcomm, Inc. (a) 21,200 776,980
Scientific-Atlanta, Inc. 2,000 56,440
Tellabs, Inc. (a) 7,100 51,830
------------
3,408,235
- -----------------------------------------------------------------------------------
Computers & Peripherals--3.9%
Apple Computer, Inc. (a) 10,400 433,368
Dell, Inc. (a) 31,600 1,214,072
EMC Corp. (a) 29,800 367,136
Gateway, Inc. (a) 3,900 15,717
Hewlett-Packard Co. 37,800 829,332
International Business Machines Corp. 21,100 1,928,118
Lexmark International, Inc. Class A (a) 1,800 143,946
NCR Corp. (a) 2,400 80,976
Network Appliance, Inc. (a) 4,200 116,172
QLogic Corp. (a) 1,300 52,650
Sun Microsystems, Inc. (a) 41,600 168,064
------------
5,349,551
- -----------------------------------------------------------------------------------
Construction & Engineering--0.1%
Fluor Corp. 1,300 72,059
- -----------------------------------------------------------------------------------
Construction Materials--0.0%
Vulcan Materials Co. 1,100 62,513
- -----------------------------------------------------------------------------------
Consumer Finance--1.3%
American Express Co. 15,300 785,961
Capital One Financial Corp. 3,000 224,310
MBNA Corp. 15,900 390,345
Providian Financial Corp. (a) 3,300 56,628
SLM Corp. 5,500 274,120
------------
1,731,364
- -----------------------------------------------------------------------------------
Containers & Packaging--0.2%
Ball Corp. 1,200 49,776
Bemis Co. 1,000 31,120
Pactiv Corp. (a) 1,500 35,025
Sealed Air Corp. (a) 1,100 57,134
Temple-Inland, Inc. 800 58,040
------------
231,095
- -----------------------------------------------------------------------------------
Distributors--0.1%
Genuine Parts Co. 1,900 82,631
- -----------------------------------------------------------------------------------
Diversified Financial Services--3.6%
CIT Group, Inc. 2,700 102,600
Citigroup, Inc. 67,200 3,019,968
JPMorgan Chase & Co. 45,600 1,577,760
Moody's Corp. 1,700 137,462
Principal Financial Group 3,600 138,564
------------
4,976,354
- -----------------------------------------------------------------------------------
Diversified Telecommunication Services--2.8%
AT&T Corp. 10,700 200,625
Alltel Corp. 3,600 197,460
BellSouth Corp. 23,000 604,670
CenturyTel, Inc. 1,800 59,112
Citizens Communications Co. 5,500 71,170
Qwest Communications International (a) 20,900 77,330
SBC Communications, Inc. 42,400 1,004,456
Sprint Corp. 18,900 429,975
Verizon Communications, Inc. 35,600 1,263,800
------------
3,908,598
- -----------------------------------------------------------------------------------
Electric Utilities--2.2%
Allegheny Energy, Inc. (a) 1,900 39,254
Ameren Corp. 2,200 107,822
American Electric Power Co., Inc. 4,600 156,676
Centerpoint Energy, Inc. 3,300 39,699
Cinergy Corp. 2,400 97,248
Consolidated Edison, Inc. 3,400 143,412
DTE Energy Co. 1,900 86,412
Edison International 4,200 145,824
Entergy Corp. 2,900 204,914
Exelon Corp. 8,300 380,887
FPL Group, Inc. 5,000 200,750
FirstEnergy Corp. 4,600 192,970
PG&E Corp. 5,000 170,500
PPL Corp. 2,500 134,975
Pinnacle West Capital Corp. 1,400 59,514
Progress Energy, Inc. 3,600 151,020
The Southern Co. 9,800 311,934
TECO Energy, Inc. 1,900 29,792
TXU Corp. 3,200 254,816
Xcel Energy, Inc. 4,400 75,592
------------
2,984,011
- -----------------------------------------------------------------------------------
Electrical Equipment--0.4%
American Power Conversion Corp. 2,200 57,442
Cooper Industries Ltd. Class A 1,300 92,976
Emerson Electric Co. 5,200 337,636
Rockwell Automation, Inc. 2,100 118,944
------------
606,998
- -----------------------------------------------------------------------------------
Electronic Equipment & Instruments--0.3%
Agilent Technologies, Inc. (a) 5,700 126,540
Jabil Circuit, Inc. (a) 2,300 65,596
Molex, Inc. 2,100 55,356
Sanmina--SCI Corp. (a) 8,400 43,848
Solectron Corp. (a) 10,900 37,823
Symbol Technologies, Inc. 2,600 37,674
Tektronix, Inc. 900 22,077
------------
388,914
- -----------------------------------------------------------------------------------
S&P 500(R) GEARED(SM) FUND INC. MARCH 31, 2005 7
Schedule of Investments (continued)
Shares
Industry* Common Stocks Held Value
===================================================================================
Energy Equipment & Services--1.2%
BJ Services Co. 2,300 $ 119,324
Baker Hughes, Inc. 4,100 182,409
Halliburton Co. 6,300 272,475
Nabors Industries Ltd. (a) 2,000 118,280
National Oilwell Varco, Inc. (a) 2,307 107,749
Noble Corp. 2,000 112,420
Rowan Cos., Inc. 1,600 47,888
Schlumberger Ltd. 7,500 528,600
Transocean, Inc. (a) 3,900 200,694
------------
1,689,839
- -----------------------------------------------------------------------------------
Food & Staples Retailing--2.9%
Albertson's, Inc. 5,300 109,445
CVS Corp. 4,900 257,838
Costco Wholesale Corp. 6,100 269,498
The Kroger Co. (a) 8,600 137,858
Safeway, Inc. (a) 6,400 118,592
Supervalu, Inc. 1,900 63,365
Sysco Corp. 7,800 279,240
Wal-Mart Stores, Inc. 43,700 2,189,807
Walgreen Co. 12,800 568,576
------------
3,994,219
- -----------------------------------------------------------------------------------
Food Products--1.2%
Archer-Daniels-Midland Co. 8,500 208,930
Campbell Soup Co. 4,700 136,394
ConAgra Foods, Inc. 6,100 164,822
General Mills, Inc. 4,600 226,090
H.J. Heinz Co. 4,500 165,780
Hershey Foods Corp. 3,100 187,426
Kellogg Co. 4,800 207,696
McCormick & Co., Inc. 1,400 48,202
Sara Lee Corp. 9,300 206,088
Wm. Wrigley Jr. Co. 2,600 170,482
------------
1,721,910
- -----------------------------------------------------------------------------------
Gas Utilities--0.1%
KeySpan Corp. 1,700 66,249
Nicor, Inc. 800 29,672
NiSource, Inc. 2,800 63,812
Peoples Energy Corp. 300 12,576
------------
172,309
- -----------------------------------------------------------------------------------
Health Care Equipment & Supplies--2.2%
Bausch & Lomb, Inc. 800 58,640
Baxter International, Inc. 7,600 258,248
Becton Dickinson & Co. 3,400 198,628
Biomet, Inc. 3,500 127,050
Boston Scientific Corp. (a) 10,100 295,829
CR Bard, Inc. 1,400 95,312
Fisher Scientific International (a) 1,500 85,380
Guidant Corp. 4,100 302,990
Hospira, Inc. (a) 1,700 54,859
Medtronic, Inc. 15,500 789,725
Millipore Corp. (a) 700 30,380
PerkinElmer, Inc. 1,300 26,819
St. Jude Medical, Inc. (a) 4,800 172,800
Stryker Corp. 5,000 223,050
Thermo Electron Corp. (a) 1,800 45,522
Waters Corp. (a) 1,300 46,527
Zimmer Holdings, Inc. (a) 3,100 241,211
------------
3,052,970
- -----------------------------------------------------------------------------------
Health Care Providers & Services--2.6%
Aetna, Inc. New Shares 4,000 299,800
AmerisourceBergen Corp. 1,500 85,935
Cardinal Health, Inc. 5,300 295,740
Caremark Rx, Inc. (a) 5,500 218,790
Cigna Corp. 1,800 160,740
Express Scripts, Inc. (a) 1,000 87,190
HCA, Inc. 5,590 299,456
Health Management Associates, Inc.
Class A 3,300 86,394
Humana, Inc. (a) 1,700 54,298
IMS Health, Inc. 2,600 63,414
Laboratory Corp. of America Holdings (a) 1,900 91,580
Manor Care, Inc. 1,200 43,632
McKesson Corp. 3,700 139,675
Medco Health Solutions, Inc. (a) 3,500 173,495
Quest Diagnostics 1,200 126,156
Tenet Healthcare Corp. (a) 5,300 61,109
UnitedHealth Group, Inc. 8,300 791,654
WellPoint, Inc. (a) 3,900 488,865
------------
3,567,923
- -----------------------------------------------------------------------------------
Hotels, Restaurants & Leisure--1.5%
Carnival Corp. 7,000 362,670
Darden Restaurants, Inc. 1,700 52,156
Harrah's Entertainment, Inc. 1,600 103,328
Hilton Hotels Corp. 5,700 127,395
International Game Technology 4,300 114,638
Marriott International, Inc. Class A 2,700 180,522
McDonald's Corp. 16,400 510,696
Starbucks Corp. (a) 5,200 268,632
Starwood Hotels & Resorts Worldwide, Inc. 2,700 162,081
Wendy's International, Inc. 1,600 62,464
Yum! Brands, Inc. 3,700 191,697
------------
2,136,279
- -----------------------------------------------------------------------------------
Household Durables--0.6%
Black & Decker Corp. 1,000 78,990
Centex Corp. 1,600 91,632
Fortune Brands, Inc. 1,700 137,071
KB Home 600 70,476
Leggett & Platt, Inc. 2,100 60,648
Maytag Corp. 1,200 16,764
Newell Rubbermaid, Inc. 3,700 81,178
Pulte Homes, Inc. 1,700 125,171
Snap-On, Inc. 800 25,432
The Stanley Works 1,200 54,324
Whirlpool Corp. 1,100 74,503
------------
816,189
- -----------------------------------------------------------------------------------
Household Products--1.9%
Clorox Co. 2,200 138,578
Colgate-Palmolive Co. 7,000 365,190
Kimberly-Clark Corp. 6,400 420,672
Procter & Gamble Co. 32,400 1,717,200
------------
2,641,640
- -----------------------------------------------------------------------------------
IT Services--1.1%
Affiliated Computer Services, Inc. Class A (a)1,700 90,508
Automatic Data Processing, Inc. 7,200 323,640
Computer Sciences Corp. (a) 2,600 119,210
Convergys Corp. (a) 1,400 20,902
Electronic Data Systems Corp. 6,500 134,355
First Data Corp. 10,000 393,100
Fiserv, Inc. (a) 2,600 103,480
8 S&P 500(R) GEARED(SM) FUND INC. MARCH 31, 2005
Schedule of Investments (continued)
Shares
Industry* Common Stocks Held Value
===================================================================================
IT Services (concluded)
Paychex, Inc. 4,800 $ 157,536
Sabre Holdings Corp. Class A 2,000 43,760
Sungard Data Systems, Inc. (a) 3,700 127,650
Unisys Corp. (a) 3,800 26,828
------------
1,540,969
- -----------------------------------------------------------------------------------
Industrial Conglomerates--4.9%
3M Co. 10,000 856,900
General Electric Co. 136,200 4,911,372
Textron, Inc. 1,600 119,392
Tyco International Ltd. 25,900 875,420
------------
6,763,084
- -----------------------------------------------------------------------------------
Insurance--4.1%
ACE Ltd. 3,700 152,699
AMBAC Financial Group, Inc. 1,400 104,650
AON Corp. 4,200 95,928
Aflac, Inc. 6,900 257,094
The Allstate Corp. 8,500 459,510
American International Group, Inc. 33,500 1,856,235
Chubb Corp. 2,400 190,248
Cincinnati Financial Corp. 1,800 78,498
Hartford Financial Services Group, Inc. 3,700 253,672
Jefferson--Pilot Corp. 1,500 73,575
Lincoln National Corp. 2,000 90,280
Loews Corp. 2,100 154,434
MBIA, Inc. 1,900 99,332
Marsh & McLennan Cos., Inc. 7,100 215,982
Metlife, Inc. 8,900 347,990
The Progressive Corp. 2,500 229,400
Prudential Financial, Inc. 6,500 373,100
Safeco Corp. 1,700 82,807
The St. Paul Travelers Cos., Inc. 8,200 301,186
Torchmark Corp. 1,200 62,640
UnumProvident Corp. 4,100 69,782
XL Capital Ltd. Class A 2,000 144,740
------------
5,693,782
- -----------------------------------------------------------------------------------
Internet & Catalog Retail--0.4%
eBay, Inc. (a) 15,700 584,982
- -----------------------------------------------------------------------------------
Internet Software & Services--0.4%
Yahoo!, Inc. (a) 17,000 576,300
- -----------------------------------------------------------------------------------
Leisure Equipment & Products--0.2%
Brunswick Corp. 1,000 46,850
Eastman Kodak Co. 3,700 120,435
Hasbro, Inc. 1,800 36,810
Mattel, Inc. 4,700 100,345
------------
304,440
- -----------------------------------------------------------------------------------
Machinery--1.5%
Caterpillar, Inc. 4,500 411,480
Cummins, Inc. 600 42,210
Danaher Corp. 3,600 192,276
Deere & Co. 3,200 214,816
Dover Corp. 2,300 86,917
Eaton Corp. 2,000 130,800
ITT Industries, Inc. 1,300 117,312
Illinois Tool Works, Inc. 3,600 322,308
Ingersoll-Rand Co. Class A 2,200 175,230
Navistar International Corp. (a) 1,000 36,400
Paccar, Inc. 2,400 173,736
Pall Corp. 1,300 35,256
Parker Hannifin Corp. 1,600 97,472
------------
2,036,213
- -----------------------------------------------------------------------------------
Media--4.0%
Clear Channel Communications, Inc. 7,100 244,737
Comcast Corp. Class A (a) 28,200 952,596
Dow Jones & Co., Inc. 800 29,896
Gannett Co., Inc. 3,400 268,872
Interpublic Group of Cos., Inc. (a) 4,800 58,944
Knight-Ridder, Inc. 1,100 73,975
The McGraw-Hill Cos., Inc. 2,400 209,400
Meredith Corp. 400 18,700
New York Times Co. Class A 1,600 58,528
News Corp. Class A 37,000 626,040
Omnicom Group 2,400 212,448
Time Warner, Inc. (a) 59,100 1,037,205
Tribune Co. 3,700 147,519
Univision Communications, Inc. Class A (a) 3,700 102,453
Viacom, Inc. Class B 21,900 762,777
Walt Disney Co. 26,300 755,599
------------
5,559,689
- -----------------------------------------------------------------------------------
Metals & Mining--0.7%
Alcoa, Inc. 10,800 328,212
Allegheny Technologies, Inc. 900 21,699
Freeport-McMoRan Copper & Gold, Inc.
Class B 2,600 102,986
Newmont Mining Corp. 5,900 249,275
Nucor Corp. 2,100 120,876
Phelps Dodge Corp. 1,300 132,249
United States Steel Corp. 1,500 76,275
------------
1,031,572
- -----------------------------------------------------------------------------------
Multi-Utilities & Unregulated Power--0.9%
The AES Corp. (a) 7,600 124,488
CMS Energy Corp. (a) 3,000 39,120
Calpine Corp. (a) 8,400 23,520
Constellation Energy Group, Inc. 1,900 98,230
Dominion Resources, Inc. 4,400 327,492
Duke Energy Corp. 11,700 327,717
Dynegy, Inc. Class A (a) 3,800 14,858
Public Service Enterprise Group, Inc. 3,100 168,609
Sempra Energy 3,100 123,504
------------
1,247,538
- -----------------------------------------------------------------------------------
Multiline Retail--1.2%
Big Lots, Inc. (a) 1,000 12,020
Dillard's, Inc. Class A 800 21,520
Dollar General Corp. 3,900 85,449
Family Dollar Stores, Inc. 2,300 69,828
Federated Department Stores 2,300 146,372
JC Penney Co., Inc. 3,700 192,104
Kohl's Corp. (a) 4,200 216,846
The May Department Stores Co. 3,800 140,676
Nordstrom, Inc. 1,800 99,684
Sears Holdings Corp. (a) 1,381 183,947
Target Corp. 11,200 560,224
------------
1,728,670
- -----------------------------------------------------------------------------------
Office Electronics--0.1%
Xerox Corp. (a) 11,700 177,255
- -----------------------------------------------------------------------------------
S&P 500(R) GEARED(SM) FUND INC. MARCH 31, 2005 9
Schedule of Investments (continued)
Shares
Industry* Common Stocks Held Value
===================================================================================
Oil & Gas--7.7%
Amerada Hess Corp. 1,200 $ 115,452
Anadarko Petroleum Corp. 3,200 243,520
Apache Corp. 4,400 269,412
Ashland, Inc. 1,000 67,470
Burlington Resources, Inc. 4,700 235,329
ChevronTexaco Corp. 26,900 1,568,539
ConocoPhillips 9,000 970,560
Devon Energy Corp. 5,900 281,725
EOG Resources, Inc. 3,400 165,716
El Paso Corp. 7,300 77,234
Exxon Mobil Corp. 82,000 4,887,200
Kerr-McGee Corp. 2,300 180,159
Kinder Morgan, Inc. 1,600 121,120
Marathon Oil Corp. 4,800 225,216
Occidental Petroleum Corp. 4,900 348,733
Sunoco, Inc. 1,000 103,520
Unocal Corp. 3,400 209,746
Valero Energy Corp. 3,200 234,464
Williams Cos., Inc. 6,900 129,789
XTO Energy, Inc. 4,533 148,875
------------
10,583,779
- -----------------------------------------------------------------------------------
Paper & Forest Products--0.5%
Georgia-Pacific Corp. 3,000 106,470
International Paper Co. 6,100 224,419
Louisiana-Pacific Corp. 1,600 40,224
MeadWestvaco Corp. 2,200 70,004
Weyerhaeuser Co. 2,900 198,650
------------
639,767
- -----------------------------------------------------------------------------------
Personal Products--0.7%
Alberto-Culver Co. Class B 1,000 47,860
Avon Products, Inc. 6,300 270,522
The Gillette Co. 12,700 641,096
------------
959,478
- -----------------------------------------------------------------------------------
Pharmaceuticals--7.1%
Abbott Laboratories 20,000 932,400
Allergan, Inc. 1,700 118,099
Bristol-Myers Squibb Co. 24,600 626,316
Eli Lilly & Co. 14,600 760,660
Forest Laboratories, Inc. (a) 4,700 173,665
Johnson & Johnson 38,200 2,565,512
King Pharmaceuticals, Inc. (a) 3,000 24,930
Merck & Co., Inc. 28,300 916,071
Mylan Laboratories 3,000 53,160
Pfizer, Inc. 95,800 2,516,666
Schering-Plough Corp. 19,100 346,665
Watson Pharmaceuticals, Inc. (a) 1,500 46,095
Wyeth 17,200 725,496
------------
9,805,735
- -----------------------------------------------------------------------------------
Real Estate--0.6%
Apartment Investment & Management Co.
Class A 1,600 59,520
Archstone-Smith Trust 2,200 75,042
Equity Office Properties Trust 5,600 168,728
Equity Residential 4,000 128,840
Plum Creek Timber Co., Inc. 2,000 71,400
Prologis 2,000 74,200
Simon Property Group, Inc. 3,100 187,798
------------
765,528
- -----------------------------------------------------------------------------------
Road & Rail--0.6%
Burlington Northern Santa Fe Corp. 4,700 253,471
CSX Corp. 2,800 116,620
Norfolk Southern Corp. 4,700 174,135
Union Pacific Corp. 3,300 230,010
------------
774,236
- -----------------------------------------------------------------------------------
Semiconductors & Semiconductor Equipment--3.1%
Advanced Micro Devices, Inc. (a) 4,600 74,152
Altera Corp. (a) 4,700 92,966
Analog Devices, Inc. 4,500 162,630
Applied Materials, Inc. 20,800 338,000
Applied Micro Circuits Corp. (a) 2,700 8,883
Broadcom Corp. Class A (a) 4,000 119,680
Freescale Semiconductor, Inc. Class B (a) 5,546 95,669
Intel Corp. 79,900 1,856,077
Kla-Tencor Corp. 2,500 115,025
LSI Logic Corp. (a) 3,800 21,242
Linear Technology Corp. 4,200 160,902
Maxim Integrated Products, Inc. 4,100 167,567
Micron Technology, Inc. (a) 7,100 73,414
National Semiconductor Corp. 4,100 84,501
Novellus Systems, Inc. (a) 1,900 50,787
Nvidia Corp. (a) 2,300 54,648
PMC--Sierra, Inc. (a) 2,700 23,760
Teradyne, Inc. (a) 2,600 37,960
Texas Instruments, Inc. 21,700 553,133
Xilinx, Inc. 4,400 128,612
------------
4,219,608
- -----------------------------------------------------------------------------------
Software--3.8%
Adobe Systems, Inc. 3,000 201,510
Autodesk, Inc. 3,000 89,280
BMC Software, Inc. (a) 2,500 37,500
Citrix Systems, Inc. (a) 2,200 52,404
Computer Associates International, Inc. 6,900 186,990
Compuware Corp. (a) 4,000 28,800
Electronic Arts, Inc. (a) 4,000 207,120
Intuit, Inc. (a) 2,400 105,048
Mercury Interactive Corp. (a) 1,200 56,856
Microsoft Corp. 130,100 3,144,517
Novell, Inc. (a) 6,500 38,740
Oracle Corp. (a) 58,400 728,832
Parametric Technology Corp. (a) 2,500 13,975
Siebel Systems, Inc. (a) 6,700 61,171
Symantec Corp. (a) 8,500 181,305
Veritas Software Corp. (a) 5,500 127,710
------------
5,261,758
- -----------------------------------------------------------------------------------
Specialty Retail--2.3%
Autonation, Inc. (a) 2,900 54,926
Autozone, Inc. (a) 1,000 85,700
Bed, Bath & Beyond, Inc. (a) 3,800 138,852
Best Buy Co., Inc. 4,000 216,040
Circuit City Stores, Inc. 2,700 43,335
The Gap, Inc. 10,000 218,400
Home Depot, Inc. 28,200 1,078,368
Limited Brands 5,300 128,790
Lowe's Cos., Inc. 9,600 548,064
Office Depot, Inc. (a) 3,500 77,630
OfficeMax, Inc. 1,500 50,250
RadioShack Corp. 2,100 51,450
The Sherwin-Williams Co. 1,500 65,985
Staples, Inc. 6,700 210,581
TJX Cos., Inc. 5,700 140,391
10 S&P 500(R) GEARED(SM) FUND INC. MARCH 31, 2005
Schedule of Investments (concluded)
Shares
Industry* Common Stocks Held Value
===================================================================================
Specialty Retail (concluded)
Tiffany & Co. 2,200 $ 75,944
Toys 'R' Us, Inc. (a) 2,300 59,248
------------
3,243,954
- -----------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods--0.4%
Coach, Inc. (a) 2,200 124,586
Jones Apparel Group, Inc. 1,700 56,933
Liz Claiborne, Inc. 1,100 44,143
Nike, Inc. Class B 3,100 258,261
Reebok International Ltd. 900 39,870
VF Corp. 1,200 70,968
------------
594,761
- -----------------------------------------------------------------------------------
Thrifts & Mortgage Finance--1.7%
Countrywide Financial Corp. 7,200 233,712
Fannie Mae 12,400 675,180
Freddie Mac 8,700 549,840
Golden West Financial Corp. 3,900 235,950
MGIC Investment Corp. 1,100 67,837
Sovereign Bancorp, Inc. 4,200 93,072
Washington Mutual, Inc. 10,900 430,550
------------
2,286,141
- -----------------------------------------------------------------------------------
Tobacco--1.4%
Altria Group, Inc. 26,600 1,739,374
Reynolds American, Inc. 1,600 128,944
UST, Inc. 2,200 113,740
------------
1,982,058
- -----------------------------------------------------------------------------------
Trading Companies & Distributors--0.1%
WW Grainger, Inc. 1,000 62,270
- -----------------------------------------------------------------------------------
Wireless Telecommunication Services--0.3%
Nextel Communications, Inc.
Class A (a) 14,400 409,248
- -----------------------------------------------------------------------------------
Total Common Stocks
(Cost--$133,562,365)--100.4% 138,793,046
===================================================================================
Exchange Traded Funds
===================================================================================
SPDR Trust Series 1 2,395 282,610
- -----------------------------------------------------------------------------------
Total Exchange Traded Funds
(Cost--$274,047)--0.2% 282,610
Short-Term Securities Face Amount
===================================================================================
Time Deposits
Brown Brothers Harriman & Co.,
2.25% due 4/01/2005 $4,410,348 4,410,348
- -----------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$4,410,348)--3.2% 4,410,348
===================================================================================
Number of
Options Purchased Contracts
===================================================================================
Call Options Purchased
S&P 500 Geared Index, expiring
November 2005 at USD 113.01,
Broker BNP Paribas 154,560 741,888
S&P 500 Geared Index, expiring
November 2005 at USD 113.05,
Broker HSBC Securities 111,800 536,640
- -----------------------------------------------------------------------------------
Total Options Purchased
(Premiums Paid--$0)--0.9% 1,278,528
- -----------------------------------------------------------------------------------
Total Investments
(Cost--$138,246,760)--104.7% 144,764,532
===================================================================================
Options Written
===================================================================================
Call Options Written
S&P 500 Geared Index, expiring
November 2005 at USD 117.69,
Broker HSBC Securities 167,700 (804,960)
S&P 500 Geared Index, expiring
November 2005 at USD 117.71,
Broker BNP Paribas 231,840 (1,112,832)
- -----------------------------------------------------------------------------------
Total Options Written
(Premiums Received--$60,000)--(1.4%) (1,917,792)
===================================================================================
Total Investments,
Net of Options Written
(Cost--$138,186,760**)--103.3% 142,846,740
Liabilities in Excess of Other Assets--(3.3%) (4,525,860)
------------
Net Assets--100.0% $138,320,880
============
* For Fund compliance purposes, "Industry" means 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 such industry sub-classifications for reporting ease.
** The cost and unrealized appreciation (depreciation) of investments as of
March 31, 2005, as computed for federal income tax purposes, were as
follows:
Aggregate cost, including options ......................... $138,186,760
============
Gross unrealized appreciation ............................. $ 10,682,821
Gross unrealized depreciation ............................. (6,022,841)
------------
Net unrealized appreciation ............................... $ 4,659,980
============
(a) Non-income producing security.
(b) Investments in companies considered to be an affiliate of the Fund (such
companies are defined as "Affiliated Companies" in Section 2(a)(3) of the
Investment Company Act of 1940) were as follows:
Net Dividend
Affiliate Activity Income
--------------------------------------------------------------------------
Merrill Lynch & Co. Inc. 11,900 $3,728
--------------------------------------------------------------------------
See Notes to Financial Statements.
S&P 500(R) GEARED(SM) FUND INC. MARCH 31, 2005 11
Statement of Assets, Liabilities and Capital
As of March 31, 2005
==================================================================================================================
Assets
- ------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value
(identified cost--$137,599,726) .......................... $142,812,464
Investments in affiliated securities, at value
(identified cost--$647,034) .............................. 673,540
Options purchased, at value (premiums paid--$0) ........... 1,278,528
Receivables:
Dividends (including $1,904 from affiliates) ........... $ 212,328
Interest ............................................... 276 212,604
----------------------------
Total assets .............................................. 144,977,136
------------
==================================================================================================================
Liabilities
- ------------------------------------------------------------------------------------------------------------------
Cash collateral on options (including accrued interest
of $10,399) .............................................. 4,351,372
Options written, at value (premiums received--$60,000) .... 1,917,792
Payables:
Offering costs ......................................... 232,977
Investment adviser ..................................... 84,768 317,745
------------
Accrued expenses and other liabilities .................... 69,347
------------
Total liabilities ......................................... 6,656,256
------------
==================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------
Net assets ................................................ $138,320,880
============
==================================================================================================================
Capital
- ------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share, 100,000,000 shares
authorized ............................................... $ 6,995
Paid-in capital in excess of par .......................... 133,322,413
Undistributed investment income--net ...................... $ 258,004
Undistributed realized capital gains--net ................. 73,488
Unrealized appreciation--net .............................. 4,659,980
------------
Total accumulated earnings--net ........................... 4,991,472
------------
Total Capital--Equivalent to $19.77 per share based on
6,995,236 shares of Common Stock outstanding
(market price--$18.30) ................................... $138,320,880
============
See Notes to Financial Statements.
12 S&P 500(R) GEARED(SM) FUND INC. MARCH 31, 2005
Statement of Operations
For the Period November 1, 2004+ to March 31, 2005
==================================================================================================================
Investment Income
- ------------------------------------------------------------------------------------------------------------------
Dividends (including $3,728 from affiliates) .............. $ 1,493,291
Interest .................................................. 53,816
------------
Total income .............................................. 1,547,107
------------
==================================================================================================================
Expenses
- ------------------------------------------------------------------------------------------------------------------
Investment advisory fees .................................. $ 466,780
Interest expense .......................................... 50,112
Directors' fees and expenses .............................. 27,859
Tender offer fees ......................................... 15,148
Accounting services ....................................... 13,128
Transfer agent fees ....................................... 13,001
Custodian fees ............................................ 9,838
Printing and shareholder reports .......................... 9,058
Registration fees ......................................... 9,058
Professional fees ......................................... 6,771
Pricing fees .............................................. 417
Other ..................................................... 7,933
------------
Total expenses ............................................ 629,103
------------
Investment income--net .................................... 918,004
------------
==================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- ------------------------------------------------------------------------------------------------------------------
Realized gain on investments--net ......................... 73,488
Unrealized appreciation/depreciation on:
Investments--net ....................................... 6,517,772
Options written--net ................................... (1,857,792) 4,659,980
----------------------------
Total realized and unrealized gain--net ................... 4,733,468
------------
Net Increase in Net Assets Resulting from Operations ...... $ 5,651,472
============
+ Commencement of operations.
See Notes to Financial Statements.
S&P 500(R) GEARED(SM) FUND INC. MARCH 31, 2005 13
Statement of Changes in Net Assets
For the Period
November 1,
2004+ to
March 31,
2005
===========================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------
Investment income--net ............................................ $ 918,004
Realized gain--net ................................................ 73,488
Unrealized appreciation--net ...................................... 4,659,980
-------------
Net increase in net assets resulting from operations .............. 5,651,472
-------------
===========================================================================================================
Dividends to Shareholders
- -----------------------------------------------------------------------------------------------------------
Investment income--net ............................................ (660,000)
-------------
===========================================================================================================
Common Stock Transactions
- -----------------------------------------------------------------------------------------------------------
Proceeds from issuance of Common Stock ............................ 133,509,000
Offering costs resulting from the issuance of Common Stock ........ (279,600)
-------------
Net increase in net assets resulting from Common Stock transactions 133,229,400
-------------
===========================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------
Total increase in net assets ...................................... 138,220,872
Beginning of period ............................................... 100,008
-------------
End of period* .................................................... $ 138,320,880
=============
* Undistributed investment income--net ........................... $ 258,004
=============
+ Commencement of operations.
See Notes to Financial Statements.
14 S&P 500(R) GEARED(SM) FUND INC. MARCH 31, 2005
For the Period
November 1,
2004+ to
The following per share data and ratios have been derived March 31,
from information provided in the financial statements. 2005
===========================================================================================================
Per Share Operating Performance
- -----------------------------------------------------------------------------------------------------------
Net asset value, beginning of period .............................. $ 19.10
-------------
Investment income--net ............................................ .13
Realized and unrealized gain--net ................................. .67
-------------
Total from investment operations .................................. .80
-------------
Less dividends from investment income--net ........................ (.09)
-------------
Offering costs resulting from the issuance of Common Stock ........ (.04)
-------------
Net asset value, end of period .................................... $ 19.77
=============
Market price per share, end of period ............................. $ 18.30
=============
===========================================================================================================
Total Investment Return**
- -----------------------------------------------------------------------------------------------------------
Based on net asset value per share ................................ 4.01%@
=============
Based on market price per share ................................... (8.06%)@
=============
===========================================================================================================
Ratios to Average Net Assets
- -----------------------------------------------------------------------------------------------------------
Expenses, excluding interest expense .............................. 1.02%*
=============
Expenses .......................................................... 1.11%*
=============
Investment income--net ............................................ 1.62%*
=============
===========================================================================================================
Supplemental Data
- -----------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) .......................... $ 138,321
=============
Portfolio turnover ................................................ 2.27%
=============
* Annualized.
** Total investment returns based on market value, which can be significantly
greater or lesser than the net asset value, may result in substantially
different returns. Total investment returns exclude the effects of sales
charges.
+ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
S&P 500(R) GEARED(SM) FUND INC. MARCH 31, 2005 15
Notes to Financial Statements
1. Significant Accounting Policies:
The 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 existence. Prior to
commencement of operations on November 1, 2004, the Fund had no operations other
than those relating to organizational matters and the sale of 5,236 shares of
Common Stock on September 16, 2004 to Merrill Lynch Investment Managers, L.P.
("MLIM") for $100,008. 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 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 is
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 that are held by the Fund that
are traded on stock exchanges or the Nasdaq National Market are valued at the
last sale price or official close price on the exchange, as of the close of
business on the day the securities are being valued or, lacking any sales, at
the last available bid price for long positions, and at the last available asked
price for short positions. In cases where equity securities are traded on more
than one exchange, the securities are valued on the exchange designated as the
primary market by or under the authority of the Board of Directors of the Fund.
Long positions traded in the over-the-counter ("OTC") market, Nasdaq Small Cap
or Bulletin Board are valued at the last available bid price or yield equivalent
obtained from one or more dealers or pricing services approved by the Board of
Directors of the Fund. Short positions traded in the OTC market are valued at
the last available asked price. Portfolio securities that are traded both in the
OTC market and on a stock exchange are valued according to the broadest and most
representative market.
Options written are valued at the last sale price in the case of exchange-traded
options or, in the case of options traded in the OTC market, the last ask price.
Options purchased are valued at their last sale price in the case of
exchange-traded options or, in the case of options traded in the OTC market, the
last bid price. Swap agreements are valued daily based upon quotations from
market makers. 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 also are generally determined prior
to the close of business on the NYSE. Occasionally, events affecting the values
of such securities and such exchange rates may occur between the times at which
they are determined and the close of business on the NYSE that may not be
reflected in the computation of the Fund's net asset value. If events (for
example, a company announcement, market volatility or a natural disaster) occur
during such periods that are expected to materially affect the value of such
securities, those securities may be valued at their fair value as determined in
good faith by the Fund's Board of Directors or by the Investment Adviser using a
pricing service and/or procedures approved by the Fund's Board of Directors.
(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 or if the counterparty does not
perform under the contract.
16 S&P 500(R) GEARED(SM) FUND INC. MARCH 31, 2005
Notes to Financial Statements (continued)
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 purchased or sold through
an exercise of an option, the related premium paid (or received) is added
to (or deducted from) the basis of the security acquired or deducted from
(or added to) the proceeds of the security sold. When an option expires
(or the Fund enters into a closing transaction), the Fund realizes a gain
or loss on the option to the extent of the premiums received or paid (or
gain or loss to the extent the cost of the closing transaction exceeds the
premium paid or received).
Written and purchased options are non-income producing investments.
o Financial futures contracts -- The Fund may purchase or sell financial
futures contracts and options on such futures contracts. Futures contracts
are contracts for delayed delivery of securities at a specific future date
and at a specific price or yield. Upon entering into a contract, the Fund
deposits and maintains as collateral such initial margin as required by
the exchange on which the transaction is effected. Pursuant to the
contract, the Fund agrees to receive from or pay to the broker an amount
of cash equal to the daily fluctuation in value of the contract. Such
receipts or payments are known as variation margin and are recorded by the
Fund as unrealized gains or losses. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the value
of the contract at the time it was opened and the value at the time it was
closed.
(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) Offering expenses -- Direct expenses relating to the public offering of the
Fund's Common Stock were charged to capital at the time of issuance of the
shares.
(g) Securities lending -- The Fund may lend securities to financial institutions
that provide cash or securities issued or guaranteed by the U.S. government as
collateral, which will be maintained at all times in an amount equal to at least
100% of the current market value of the loaned securities. The market value of
the loaned securities is determined at the close of business of the Fund and any
additional required collateral is delivered to the Fund on the next business
day. Where the Fund receives securities as collateral for the loaned securities,
it collects a fee from the borrower. The Fund typically receives the income on
the loaned securities but does not receive the income on the collateral. Where
the Fund receives cash collateral, it may invest such collateral and retain the
amount earned on such investment, net of any amount rebated to the borrower.
Loans of securities are terminable at any time and the borrower, after notice,
is required to return borrowed securities within five business days. The Fund
may pay reasonable finder's, lending agent, administrative and custodial fees in
connection with its loans. In the event that the borrower defaults on its
obligation to return borrowed securities because of insolvency or for any other
reason, the Fund could experience delays and costs in gaining access to the
collateral. The Fund also could suffer a loss where the value of the collateral
falls below the market value of the borrowed securities, in the event of
borrower default or in the event of losses on investments made with cash
collateral.
S&P 500(R) GEARED(SM) FUND INC. MARCH 31, 2005 17
Notes to Financial Statements (concluded)
2. Investment Advisory and Management 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. IQ has entered into a
Sub-Advisory Agreement with MLIM pursuant to which MLIM provides certain
investment advisory services to IQ with respect to the Fund. For such services,
IQ will pay MLIM 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 was no increase in the aggregate fees paid by the
Fund for these services.
The Fund has received an exemptive order from the Securities and Exchange
Commission permitting it to lend portfolio securities to ML & Co. and its
affiliates, including Merrill Lynch, Pierce, Fenner & Smith Incorporated
("MLPF&S"), an affiliate of IQ. Pursuant to that order, the Fund also has
retained Merrill Lynch Investment Managers, LLC ("MLIM, LLC"), an affiliate of
IQ, as the securities lending agent for a fee based on a share of the returns on
investment of cash collateral. MLIM, LLC may, on behalf of the Fund, invest cash
collateral received by the Fund for such loans, among other things, in a private
investment company managed by MLIM, LLC or in registered money market funds
advised by MLIM or its affiliates.
For the period November 1, 2004 to March 31, 2005, MLPF&S received gross fees
from underwriting of $6,056,489 in connection with the issuance of the Fund's
Common Stock. In addition, the Fund reimbursed MLPF&S $40,407 as a partial
reimbursement of expenses incurred in connection with the issuance of the Fund's
Common Stock.
Transactions in call options written for the period November 1, 2004 to March
31, 2005 were as follows:
- --------------------------------------------------------------------------------
Number of Premiums
Contracts Received
- --------------------------------------------------------------------------------
Outstanding call options written,
beginning of period ......................... -- --
Options written ............................... 399,540 $60,000
-------------------------
Outstanding call options written,
end of period ............................... 399,540 $60,000
=========================
Certain officers and/or directors of the Fund are officers and/or directors of
MLIM, IQ, MLPF&S, and/or ML & Co.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
period November 1, 2004 and March 31, 2005 were $136,851,494 and $3,084,082,
respectively.
4. Common Stock Transactions:
The Fund is authorized to issue 100,000,000 shares of capital stock, par value
$.001, all of which are initially classified as Common Stock. The Board of
Directors is authorized, however, to classify and reclassify any unissued shares
of capital stock without approval of the holders of Common Stock.
Shares issued and outstanding during the period November 1, 2004 to March 31,
2005 increased by 6,990,000 from shares sold.
18 S&P 500(R) GEARED(SM) FUND INC. MARCH 31, 2005
Officers and Directors
Alan R. Batkin, Director and Chairman of the Board
Paul Glasserman, Director and Chairman of Audit Committee
William J. Rainer, Director and Chairman of
Nominating Committee
Andrew J. Donohue, Director and Chief Legal Officer
Steven W. Kohlhagen, Director
Mitchell M. Cox, President
Jay M. Fife, Vice President
Colleen R. Rusch, Vice President
Donald C. Burke, Vice President, Secretary and Treasurer
Jeffrey Hiller, Chief Compliance Officer
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
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.
S&P 500(R) GEARED)SM) FUND INC. MARCH 31, 2005 19
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
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,
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.
S&P 500(R) GEARED(SM) Fund Inc.
Box 9011
Princeton, NJ 08543-9011
#IQSP5G -- 3/05
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 - Not Applicable
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 - Not Applicable
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the last fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
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: May 23, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Mitchell M. Cox
-----------------------
Mitchell M. Cox,
Chief Executive Officer of
S&P 500(R) GEARED(SM) Fund Inc.
Date: May 23, 2005
By: /s/ Donald C. Burke
-----------------------
Donald C. Burke,
Chief Financial Officer of
S&P 500(R) GEARED(SM) Fund Inc.
Date: May 23, 2005