UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
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: 12/31/06
Date of reporting period: 01/01/06 - 12/31/06
Item 1 - Report to Stockholders
S&P 500(R) GEARED(SM) Fund Inc.
Annual Report
December 31, 2006
[LOGO] IQ INVESTMENT BLACKROCK
ADVISORS
S&P 500(R) GEARED(SM) Fund Inc.
Portfolio Information as of December 31, 2006
Percent of
Ten Largest Equity Holdings Net Assets
- --------------------------------------------------------------------------------
Exxon Mobil Corp. .................................................... 3.3%
General Electric Co. ................................................. 2.8
Citigroup, Inc. ...................................................... 2.0
Microsoft Corp. ...................................................... 1.9
Bank of America Corp. ................................................ 1.8
The Procter & Gamble Co. ............................................. 1.5
Johnson & Johnson .................................................... 1.4
Pfizer, Inc. ......................................................... 1.4
American International Group, Inc. ................................... 1.4
Altria Group, Inc. ................................................... 1.3
- --------------------------------------------------------------------------------
Percent of
Five Largest Industries Net Assets
- --------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels .......................................... 7.7%
Pharmaceuticals ...................................................... 6.0
Diversified Financial Services ....................................... 5.4
Insurance ............................................................ 4.6
Commercial Banks ..................................................... 4.0
- --------------------------------------------------------------------------------
Percent of
S&P 500 Index Sector Weightings Total Investments
- --------------------------------------------------------------------------------
Financials ........................................................... 19.4%
Information Technology ............................................... 13.2
Health Care .......................................................... 10.4
Industrials .......................................................... 9.5
Consumer Discretionary ............................................... 9.2
Energy ............................................................... 8.5
Consumer Staples ..................................................... 8.0
Utilities ............................................................ 3.1
Telecommunication Services ........................................... 3.1
Materials & Processing ............................................... 2.6
Other* ............................................................... 13.0
- --------------------------------------------------------------------------------
* Includes portfolio holdings in short-term investments and options.
For Fund 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.
Proxy Results
During the six-month period ended December 31, 2006, S&P 500(R) GEARED(SM) Fund
Inc. s shareholders voted on the following proposal. On August 15, 2006, a
special shareholders' meeting was adjourned with respect to the proposal until
August 31, 2006, at which time it was approved. A description of the proposal
and number of shares voted are as follows:
- -------------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
- -------------------------------------------------------------------------------------------------------------------------
To approve a new investment subadvisory agreement
with BlackRock Investment Management, LLC. 2,598,331 75,485 58,983
- -------------------------------------------------------------------------------------------------------------------------
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.
2 S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006
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 LLC,
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 prior annual period began on November 2, 2005, and concluded
on November 3, 2006. 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%. Therefore, 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 fiscal year?
For the 12-month period ended December 31, 2006, the Common Stock of the Fund
had a total investment return of +13.88%, based on a change in per share net
asset value from $19.66 to $19.63, and assuming reinvestment of distributions
paid during the period. During the fiscal year, the Fund paid a distribution of
$2.64 per share in November. During the period, the Fund's unmanaged reference
Index returned +15.79% (including reinvestment of any dividends), exceeding the
Fund's annual return cap.
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.
Describe the market environment during the fiscal year.
2006 marked another strong year for U.S. equity markets as the Federal Reserve
Board (the "Fed") ceased raising interest rates. The U.S. housing market began
to show significant signs of weakness, causing the economy to begin a widely
anticipated slowdown. Corporate profit growth rose by a double-digit percentage
for an unprecedented fourth year in a row. Commodity price volatility increased
significantly with an early-year run-up, followed by a mid-year pullback. Most
of the year featured an inverted yield curve as the Fed moved its funds rate up
to 5.25%, while the yield on the 10-year Treasury note spent much of the year
between 4.5% and 5%. Overall the year was a good one for equities despite a
significant correction during May and the first half of June, largely fueled by
inflation concerns. This correction resulted in a shift in leadership from
smaller-cap, lower-quality, more cyclical stocks to larger-cap, higher-quality,
more predictable stocks. Following the correction, inflation concerns subsided,
notwithstanding the run-up in industrial commodity prices. Oil set a new all
time high during the summer, but corrected noticeably during the fall, giving
further support to the equity market rally during the second half of 2006. The
year also featured unprecedented share buy-backs and mergers and acquisitions as
well as a shift from Republican to Democratic leadership in the U.S. Congress.
The year ended with the U.S. economy showing signs of slowing, record-high U.S.
corporate profitability, fairly low inflation and interest rates, and relatively
strong consumer confidence levels.
How did you manage the portfolio during the period?
On November 3, 2006, the Fund's options expired and were reset to November 5,
2007 expiration, resetting the Fund's annual return cap to 11.67%. On November
3, 2006, we negotiated over-the-counter option transactions, selling three
out-of-the-money call options and purchasing two at-the-money call options. We
utilized this options strategy to provide the three-to-one upside potential to
the annual return cap.
S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006 3
A Discussion With Your Fund's Portfolio Managers (concluded)
How would you characterize the Fund's position at the close of the period?
The Fund is positioned to provide accelerated growth relative to appreciation in
the S&P 500 Index, up to the annual return cap. The S&P 500 Index provides
diversified exposure to the securities of the largest U.S. publicly traded
companies. Given the Fund's investment process and current positions, we believe
the Fund is well positioned to meet its objective.
Debra L. Jelilian
Portfolio Manager
Jonathan Clark
Portfolio Manager
Jeffrey L. Russo, CFA
Portfolio Manager
January 18, 2007
4 S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006
Schedule of Investments as of December 31, 2006
Shares
Industry Common Stocks Held Value
====================================================================================================
Aerospace & Defense--2.3%
Boeing Co. 4,500 $ 399,780
General Dynamics Corp. 2,200 163,570
Goodrich Corp. 800 36,440
Honeywell International, Inc. 4,600 208,104
L-3 Communications Holdings, Inc. 678 55,447
Lockheed Martin Corp. 2,000 184,140
Northrop Grumman Corp. 1,900 128,630
Raytheon Co. 2,700 142,560
Rockwell Collins, Inc. 1,100 69,619
United Technologies Corp. 5,800 362,616
------------
1,750,906
- ----------------------------------------------------------------------------------------------------
Air Freight & Logistics--0.8%
FedEx Corp. 1,700 184,654
United Parcel Service, Inc. Class B 6,200 464,876
------------
649,530
- ----------------------------------------------------------------------------------------------------
Airlines--0.1%
Southwest Airlines Co. 4,600 70,472
- ----------------------------------------------------------------------------------------------------
Auto Components--0.1%
The Goodyear Tire & Rubber Co. (a) 700 14,693
Johnson Controls, Inc. 1,200 103,104
------------
117,797
- ----------------------------------------------------------------------------------------------------
Automobiles--0.3%
Ford Motor Co. 10,300 77,353
General Motors Corp. 3,100 95,232
Harley-Davidson, Inc. 1,400 98,658
------------
271,243
- ----------------------------------------------------------------------------------------------------
Beverages--1.9%
Anheuser-Busch Cos., Inc. 4,300 211,560
Brown-Forman Corp. Class B 500 33,120
The Coca-Cola Co. 11,600 559,700
Coca-Cola Enterprises, Inc. 1,800 36,756
Constellation Brands, Inc. Class A (a) 1,300 37,726
Molson Coors Brewing Co. Class B 200 15,288
Pepsi Bottling Group, Inc. 900 27,819
PepsiCo, Inc. 9,400 587,970
------------
1,509,939
- ----------------------------------------------------------------------------------------------------
Biotechnology--1.2%
Amgen, Inc. (a) 6,700 457,677
Biogen Idec, Inc. (a) 1,900 93,461
Celgene Corp. (a) 2,100 120,813
Genzyme Corp. (a) 1,400 86,212
Gilead Sciences, Inc. (a) 2,600 168,818
Medimmune, Inc. (a) 1,300 42,081
------------
969,062
- ----------------------------------------------------------------------------------------------------
Building Products--0.1%
American Standard Cos., Inc. 1,100 50,435
Masco Corp. 2,400 71,688
------------
122,123
- ----------------------------------------------------------------------------------------------------
Capital Markets--3.6%
Ameriprise Financial, Inc. 1,520 82,840
The Bank of New York Co., Inc. 4,200 165,354
The Bear Stearns Cos., Inc. 700 113,946
The Charles Schwab Corp. 6,100 117,974
E*Trade Financial Corp. (a) 2,300 51,566
Federated Investors, Inc. Class B 600 20,268
Franklin Resources, Inc. 900 99,153
Goldman Sachs Group, Inc. 2,500 498,375
Janus Capital Group, Inc. 1,300 28,067
Legg Mason, Inc. 700 66,535
Lehman Brothers Holdings, Inc. 3,100 242,172
Mellon Financial Corp. 2,200 92,730
Merrill Lynch & Co., Inc. (b) 5,100 474,810
Morgan Stanley 6,200 504,866
Northern Trust Corp. 1,000 60,690
State Street Corp. 1,800 121,392
T. Rowe Price Group, Inc. 1,600 70,032
------------
2,810,770
- ----------------------------------------------------------------------------------------------------
Chemicals--1.4%
Air Products & Chemicals, Inc. 1,300 91,364
Ashland, Inc. 300 20,754
The Dow Chemical Co. 5,400 215,676
E.I. du Pont de Nemours & Co. 5,200 253,292
Eastman Chemical Co. 400 23,724
Ecolab, Inc. 1,100 49,720
Hercules, Inc. (a) 800 15,448
International Flavors & Fragrances, Inc. 600 29,496
Monsanto Co. 3,000 157,590
PPG Industries, Inc. 1,000 64,210
Praxair, Inc. 1,900 112,727
Rohm & Haas Co. 900 46,008
Sigma-Aldrich Corp. 400 31,088
------------
1,111,097
- ----------------------------------------------------------------------------------------------------
Commercial Banks--4.0%
BB&T Corp. 3,200 140,576
Comerica, Inc. 800 46,944
Commerce Bancorp, Inc. 1,200 42,324
Compass Bancshares, Inc. 851 50,762
Fifth Third Bancorp 3,100 126,883
First Horizon National Corp. 800 33,424
Huntington Bancshares, Inc. 1,600 38,000
KeyCorp 2,200 83,666
M&T Bank Corp. 500 61,080
Marshall & Ilsley Corp. 1,600 76,976
National City Corp. 3,300 120,648
PNC Financial Services Group, Inc. 1,700 125,868
Regions Financial Corp. 4,175 156,145
SunTrust Banks, Inc. 2,000 168,900
Synovus Financial Corp. 2,000 61,660
U.S. Bancorp 10,100 365,519
Wachovia Corp. 10,912 621,438
Wells Fargo & Co. 19,300 686,308
Zions Bancorp. 700 57,708
------------
3,064,829
- ----------------------------------------------------------------------------------------------------
Commercial Services & Supplies--0.6%
Allied Waste Industries, Inc. (a) 1,600 19,664
Avery Dennison Corp. 600 40,758
Cintas Corp. 900 35,739
Equifax, Inc. 800 32,480
Monster Worldwide, Inc. (a) 700 32,648
Pitney Bowes, Inc. 1,400 64,666
RR Donnelley & Sons Co. 1,400 49,756
Robert Half International, Inc. 1,100 40,832
Waste Management, Inc. 3,200 117,664
------------
434,207
- ----------------------------------------------------------------------------------------------------
S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006 5
Schedule of Investments (continued)
Shares
Industry Common Stocks Held Value
====================================================================================================
Communications Equipment--2.5%
ADC Telecommunications, Inc. (a) 428 $ 6,219
Avaya, Inc. (a) 2,700 37,746
Ciena Corp. (a) 328 9,089
Cisco Systems, Inc. (a) 35,000 956,550
Comverse Technology, Inc. (a) 1,000 21,110
Corning, Inc. (a) 9,000 168,390
JDS Uniphase Corp. (a) 950 15,827
Juniper Networks, Inc. (a) 3,100 58,714
Motorola, Inc. 14,100 289,896
QUALCOMM, Inc. 9,400 355,226
Tellabs, Inc. (a) 2,200 22,572
------------
1,941,339
- ----------------------------------------------------------------------------------------------------
Computers & Peripherals--3.5%
Apple Computer, Inc. (a) 4,900 415,716
Dell, Inc. (a) 12,800 321,152
EMC Corp. (a) 13,200 174,240
Hewlett-Packard Co. 15,700 646,683
International Business Machines Corp. 8,700 845,205
Lexmark International, Inc. Class A (a) 500 36,600
NCR Corp. (a) 1,100 47,036
Network Appliance, Inc. (a) 2,200 86,416
QLogic Corp. (a) 800 17,536
SanDisk Corp. (a) 1,100 47,333
Sun Microsystems, Inc. (a) 19,400 105,148
------------
2,743,065
- ----------------------------------------------------------------------------------------------------
Construction & Engineering--0.0%
Fluor Corp. 500 40,825
- ----------------------------------------------------------------------------------------------------
Construction Materials--0.1%
Vulcan Materials Co. 600 53,922
- ----------------------------------------------------------------------------------------------------
Consumer Finance--0.9%
American Express Co. 6,900 418,623
Capital One Financial Corp. 2,500 192,050
SLM Corp. 2,200 107,294
------------
717,967
- ----------------------------------------------------------------------------------------------------
Containers & Packaging--0.2%
Ball Corp. 700 30,520
Bemis Co. 700 23,786
Pactiv Corp. (a) 700 24,983
Sealed Air Corp. 500 32,460
Temple-Inland, Inc. 700 32,221
------------
143,970
- ----------------------------------------------------------------------------------------------------
Distributors--0.1%
Genuine Parts Co. 1,100 52,173
- ----------------------------------------------------------------------------------------------------
Diversified Consumer Services--0.1%
Apollo Group, Inc. Class A (a) 700 27,279
H&R Block, Inc. 2,000 46,080
------------
73,359
- ----------------------------------------------------------------------------------------------------
Diversified Financial Services--5.4%
Bank of America Corp. 25,859 1,380,612
CIT Group, Inc. 1,200 66,924
Chicago Mercantile Exchange Holdings, Inc. 200 101,950
Citigroup, Inc. 28,300 1,576,310
JPMorgan Chase & Co. 19,800 956,340
Moody's Corp. 1,400 96,684
------------
4,178,820
- ----------------------------------------------------------------------------------------------------
Diversified Telecommunication Services--2.8%
AT&T Inc. (c) 22,289 796,832
BellSouth Corp. 10,500 494,655
CenturyTel, Inc. 800 34,928
Citizens Communications Co. 2,000 28,740
Embarq Corp. 782 41,102
Qwest Communications
International Inc. (a) 8,700 72,819
Verizon Communications, Inc. 16,700 621,908
Windstream Corp. 2,808 39,930
------------
2,130,914
- ----------------------------------------------------------------------------------------------------
Electric Utilities--1.5%
Allegheny Energy, Inc. (a) 1,000 45,910
American Electric Power Co., Inc. 2,100 89,418
Edison International 2,000 90,960
Entergy Corp. 1,100 101,552
Exelon Corp. 3,700 228,993
FPL Group, Inc. 2,200 119,724
FirstEnergy Corp. 2,000 120,600
PPL Corp. 2,300 82,432
Pinnacle West Capital Corp. 700 35,483
Progress Energy, Inc. 1,300 63,804
The Southern Co. 4,100 151,126
------------
1,130,002
- ----------------------------------------------------------------------------------------------------
Electrical Equipment--0.5%
American Power Conversion Corp. 1,100 33,649
Cooper Industries Ltd. Class A 600 54,258
Emerson Electric Co. 4,800 211,536
Rockwell Automation, Inc. 900 54,972
------------
354,415
- ----------------------------------------------------------------------------------------------------
Electronic Equipment & Instruments--0.3%
Agilent Technologies, Inc. (a) 2,419 84,302
Jabil Circuit, Inc. 1,100 27,005
Molex, Inc. 900 28,467
Sanmina-SCI Corp. (a) 3,600 12,420
Solectron Corp. (a) 5,900 18,998
Symbol Technologies, Inc. 1,500 22,410
Tektronix, Inc. 600 17,502
------------
211,104
- ----------------------------------------------------------------------------------------------------
Energy Equipment & Services--1.6%
BJ Services Co. 1,600 46,912
Baker Hughes, Inc. 1,800 134,388
Halliburton Co. 6,000 186,300
Nabors Industries Ltd. (a) 1,700 50,626
National Oilwell Varco, Inc. (a) 907 55,490
Noble Corp. 700 53,305
Rowan Cos., Inc. 500 16,600
Schlumberger Ltd. 6,800 429,488
Smith International, Inc. 1,000 41,070
Transocean, Inc. (a) 1,700 137,513
Weatherford International Ltd. (a) 2,100 87,759
------------
1,239,451
- ----------------------------------------------------------------------------------------------------
Food & Staples Retailing--2.0%
CVS Corp. 4,600 142,186
Costco Wholesale Corp. 2,600 137,462
The Kroger Co. 4,300 99,201
SUPERVALU Inc. 1,046 37,395
SYSCO Corp. 3,400 124,984
Safeway, Inc. 2,400 82,944
6 S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006
Schedule of Investments (continued)
Shares
Industry Common Stocks Held Value
====================================================================================================
Food & Staples Retailing (concluded)
Wal-Mart Stores, Inc. 14,100 $ 651,138
Walgreen Co. 5,700 261,573
Whole Foods Market, Inc. 800 37,544
------------
1,574,427
- ----------------------------------------------------------------------------------------------------
Food Products--1.0%
Archer Daniels Midland Co. 3,700 118,252
Campbell Soup Co. 1,400 54,446
ConAgra Foods, Inc. 2,700 72,900
Dean Foods Co. (a) 900 38,052
General Mills, Inc. 1,900 109,440
HJ Heinz Co. 1,800 81,018
The Hershey Co. 900 44,820
Kellogg Co. 1,500 75,090
McCormick & Co., Inc. 900 34,704
Sara Lee Corp. 4,100 69,823
Tyson Foods, Inc. Class A 1,500 24,675
Wm. Wrigley Jr. Co. 1,125 58,185
------------
781,405
- ----------------------------------------------------------------------------------------------------
Gas Utilities--0.1%
Nicor, Inc. 200 9,360
Peoples Energy Corp. 200 8,914
Questar Corp. 500 41,525
------------
59,799
- ----------------------------------------------------------------------------------------------------
Health Care Equipment & Supplies--1.5%
Bausch & Lomb, Inc. 300 15,618
Baxter International, Inc. 3,800 176,282
Becton Dickinson & Co. 1,500 105,225
Biomet, Inc. 1,300 53,651
Boston Scientific Corp. (a) 6,571 112,890
CR Bard, Inc. 500 41,485
Hospira, Inc. (a) 1,000 33,580
Medtronic, Inc. 6,500 347,815
St. Jude Medical, Inc. (a) 1,900 69,464
Stryker Corp. 1,800 99,198
Zimmer Holdings, Inc. (a) 1,300 101,894
------------
1,157,102
- ----------------------------------------------------------------------------------------------------
Health Care Providers & Services--2.3%
Aetna, Inc. 3,200 138,176
AmerisourceBergen Corp. 1,100 49,456
Cardinal Health, Inc. 2,200 141,746
Caremark Rx, Inc. 2,500 142,775
Cigna Corp. 600 78,942
Coventry Health Care, Inc. (a) 850 42,542
Express Scripts, Inc. (a) 700 50,120
Health Management Associates, Inc.
Class A 1,600 33,776
Humana, Inc. (a) 900 49,779
Laboratory Corp. of America Holdings (a) 700 51,429
Manor Care, Inc. 300 14,076
McKesson Corp. 1,600 81,120
Medco Health Solutions, Inc. (a) 1,600 85,504
Patterson Cos., Inc. (a) 900 31,959
Quest Diagnostics, Inc. 800 42,400
Tenet Healthcare Corp. (a) 3,000 20,910
UnitedHealth Group, Inc. 7,700 413,721
WellPoint, Inc. (a) 3,500 275,415
------------
1,743,846
- ----------------------------------------------------------------------------------------------------
Health Care Technology--0.0%
IMS Health, Inc. 1,300 35,724
- ----------------------------------------------------------------------------------------------------
Hotels, Restaurants & Leisure--1.5%
Carnival Corp. 2,500 122,625
Darden Restaurants, Inc. 900 36,153
Harrah's Entertainment, Inc. 1,100 90,992
Hilton Hotels Corp. 2,300 80,270
International Game Technology 2,000 92,400
Marriott International, Inc. Class A 1,900 90,668
McDonald's Corp. 6,900 305,877
Starbucks Corp. (a) 4,200 148,764
Starwood Hotels & Resorts Worldwide, Inc. 1,200 75,000
Wendy's International, Inc. 600 19,854
Wyndham Worldwide Corp. (a) 1,260 40,345
Yum! Brands, Inc. 1,500 88,200
------------
1,191,148
- ----------------------------------------------------------------------------------------------------
Household Durables--0.6%
Black & Decker Corp. 400 31,988
Centex Corp. 700 39,389
DR Horton, Inc. 1,700 45,033
Fortune Brands, Inc. 800 68,312
Harman International Industries, Inc. 300 29,973
KB Home 400 20,512
Leggett & Platt, Inc. 1,200 28,680
Lennar Corp. Class A 697 36,565
Newell Rubbermaid, Inc. 1,700 49,215
Pulte Homes, Inc. 1,300 43,056
Snap-On, Inc. 400 19,056
The Stanley Works 600 30,174
Whirlpool Corp. 407 33,789
------------
475,742
- ----------------------------------------------------------------------------------------------------
Household Products--2.0%
Clorox Co. 900 57,735
Colgate-Palmolive Co. 2,900 189,196
Kimberly-Clark Corp. 2,500 169,875
The Procter & Gamble Co. 18,102 1,163,416
------------
1,580,222
- ----------------------------------------------------------------------------------------------------
IT Services--1.1%
Affiliated Computer Services, Inc.
Class A (a) 700 34,188
Automatic Data Processing, Inc. 3,300 162,525
Cognizant Technology Solutions Corp. (a) 900 69,444
Computer Sciences Corp. (a) 900 48,033
Convergys Corp. (a) 900 21,402
Electronic Data Systems Corp. 3,100 85,405
Fidelity National Information Services, Inc. 1,400 56,126
First Data Corp. 4,200 107,184
Fiserv, Inc. (a) 900 47,178
Paychex, Inc. 1,800 71,172
Sabre Holdings Corp. Class A 900 28,701
Unisys Corp. (a) 2,300 18,032
The Western Union Co. 4,200 94,164
------------
843,554
- ----------------------------------------------------------------------------------------------------
Independent Power Producers &
Energy Traders--0.4%
The AES Corp. (a) 3,900 85,956
Constellation Energy Group, Inc. 900 61,983
Dynegy, Inc. Class A (a) 2,500 18,100
TXU Corp. 2,600 140,946
------------
306,985
- ----------------------------------------------------------------------------------------------------
S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006 7
Schedule of Investments (continued)
Shares
Industry Common Stocks Held Value
====================================================================================================
Industrial Conglomerates--3.8%
3M Co. 4,300 $ 335,099
General Electric Co. 59,000 2,195,390
Textron, Inc. 700 65,639
Tyco International Ltd. 11,600 352,640
------------
2,948,768
- ----------------------------------------------------------------------------------------------------
Insurance--4.6%
ACE Ltd. 1,900 115,083
AMBAC Financial Group, Inc. 500 44,535
AON Corp. 1,900 67,146
Aflac, Inc. 2,900 133,400
The Allstate Corp. 3,500 227,885
American International Group, Inc. 14,900 1,067,734
Chubb Corp. 2,400 126,984
Cincinnati Financial Corp. 1,090 49,388
Genworth Financial, Inc. Class A 2,700 92,367
Hartford Financial Services Group, Inc. 1,700 158,627
Lincoln National Corp. 1,668 110,755
Loews Corp. 2,700 111,969
MBIA, Inc. 700 51,142
Marsh & McLennan Cos., Inc. 3,200 98,112
MetLife, Inc. 4,200 247,842
Principal Financial Group, Inc. 1,600 93,920
The Progressive Corp. 4,600 111,412
Prudential Financial, Inc. 2,700 231,822
Safeco Corp. 700 43,785
The St. Paul Travelers Cos., Inc. 4,000 214,760
Torchmark Corp. 600 38,256
UnumProvident Corp. 2,100 43,638
XL Capital Ltd. Class A 1,100 79,222
------------
3,559,784
- ----------------------------------------------------------------------------------------------------
Internet & Catalog Retail--0.2%
Amazon.com, Inc. (a) 1,700 67,082
IAC/InterActiveCorp (a) 1,500 55,740
------------
122,822
- ----------------------------------------------------------------------------------------------------
Internet Software & Services--1.3%
eBay, Inc. (a) 6,800 204,476
Google, Inc. Class A (a) 1,240 570,995
VeriSign, Inc. (a) 1,500 36,075
Yahoo!, Inc. (a) 7,200 183,888
------------
995,434
- ----------------------------------------------------------------------------------------------------
Leisure Equipment & Products--0.2%
Brunswick Corp. 600 19,140
Eastman Kodak Co. 1,500 38,700
Hasbro, Inc. 800 21,800
Mattel, Inc. 2,300 52,118
------------
131,758
- ----------------------------------------------------------------------------------------------------
Life Sciences Tools & Services--0.3%
Applera Corp.--Applied Biosystems
Group 1,100 40,359
Millipore Corp. (a) 300 19,980
PerkinElmer, Inc. 600 13,338
Thermo Electron Corp. (a) 2,400 108,696
Waters Corp. (a) 600 29,382
------------
211,755
- ----------------------------------------------------------------------------------------------------
Machinery--1.4%
Caterpillar, Inc. 3,700 226,921
Cummins, Inc. 300 35,454
Danaher Corp. 1,400 101,416
Deere & Co. 1,300 123,591
Dover Corp. 1,300 63,726
Eaton Corp. 800 60,112
ITT Corp. 1,100 62,502
Illinois Tool Works, Inc. 2,300 106,237
Ingersoll-Rand Co. Class A 1,700 66,521
PACCAR, Inc. 1,500 97,350
Pall Corp. 800 27,640
Parker Hannifin Corp. 600 46,128
Terex Corp. (a) 600 38,748
------------
1,056,346
- ----------------------------------------------------------------------------------------------------
Media--3.6%
CBS Corp. Class B 4,250 132,515
Clear Channel Communications, Inc. 2,700 95,958
Comcast Corp. Class A (a) 11,900 503,727
The DIRECTV Group, Inc. (a) 5,300 132,182
Dow Jones & Co., Inc. 300 11,400
EW Scripps Co. Class A 600 29,964
Gannett Co., Inc. 1,300 78,598
Interpublic Group of Cos., Inc. (a) 2,600 31,824
The McGraw-Hill Cos., Inc. 2,100 142,842
Meredith Corp. 300 16,905
New York Times Co. Class A 600 14,616
News Corp. Class A 13,500 289,980
Omnicom Group 900 94,086
Time Warner, Inc. 23,200 505,296
Tribune Co. 1,000 30,780
Univision Communications, Inc. Class A (a) 1,500 53,130
Viacom, Inc. Class B (a) 4,150 170,275
Walt Disney Co. 11,900 407,813
------------
2,741,891
- ----------------------------------------------------------------------------------------------------
Metals & Mining--0.8%
Alcoa, Inc. 4,800 144,048
Allegheny Technologies, Inc. 500 45,340
Freeport-McMoRan Copper & Gold, Inc.
Class B 1,100 61,303
Newmont Mining Corp. 2,500 112,875
Nucor Corp. 1,800 98,388
Phelps Dodge Corp. 1,100 131,692
United States Steel Corp. 700 51,198
------------
644,844
- ----------------------------------------------------------------------------------------------------
Multi-Utilities--1.4%
Ameren Corp. 1,100 59,103
CMS Energy Corp. (a) 1,400 23,380
Centerpoint Energy, Inc. 1,900 31,502
Consolidated Edison, Inc. 1,300 62,491
DTE Energy Co. 1,100 53,251
Dominion Resources, Inc. 2,000 167,680
Duke Energy Corp. 6,964 231,274
KeySpan Corp. 1,100 45,298
NiSource, Inc. 1,800 43,380
PG&E Corp. 2,100 99,393
Public Service Enterprise Group, Inc. 1,400 92,932
Sempra Energy 1,600 89,664
TECO Energy, Inc. 1,500 25,845
Xcel Energy, Inc. 2,500 57,650
------------
1,082,843
8 S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006
Schedule of Investments (continued)
Shares
Industry Common Stocks Held Value
====================================================================================================
Multiline Retail--1.1%
Big Lots, Inc. (a) 500 $ 11,460
Dillard's, Inc. Class A 300 10,491
Dollar General Corp. 1,900 30,514
Family Dollar Stores, Inc. 700 20,531
Federated Department Stores 3,066 116,907
JC Penney Co., Inc. 1,200 92,832
Kohl's Corp. (a) 1,800 123,174
Nordstrom, Inc. 1,400 69,076
Sears Holdings Corp. (a) 481 80,774
Target Corp. 5,000 285,250
------------
841,009
- ----------------------------------------------------------------------------------------------------
Office Electronics--0.1%
Xerox Corp. (a) 5,800 98,310
- ----------------------------------------------------------------------------------------------------
Oil, Gas & Consumable Fuels--7.7%
Anadarko Petroleum Corp. 2,700 117,504
Apache Corp. 1,800 119,718
Chesapeake Energy Corp. 2,000 58,100
Chevron Corp. 12,591 925,816
ConocoPhillips 9,508 684,101
Consol Energy, Inc. 1,100 35,343
Devon Energy Corp. 2,500 167,700
EOG Resources, Inc. 1,300 81,185
El Paso Corp. 4,100 62,648
Exxon Mobil Corp. 33,500 2,567,105
Hess Corp. 1,300 64,441
Kinder Morgan, Inc. 700 74,025
Marathon Oil Corp. 2,036 188,330
Murphy Oil Corp. 1,000 50,850
Occidental Petroleum Corp. 4,900 239,267
Peabody Energy Corp. 1,800 72,738
Sunoco, Inc. 700 43,652
Valero Energy Corp. 3,400 173,944
Williams Cos., Inc. 3,500 91,420
XTO Energy, Inc. 2,033 95,653
------------
5,913,540
- ----------------------------------------------------------------------------------------------------
Paper & Forest Products--0.3%
International Paper Co. 2,700 92,070
MeadWestvaco Corp. 1,200 36,072
Weyerhaeuser Co. 1,300 91,845
------------
219,987
- ----------------------------------------------------------------------------------------------------
Personal Products--0.2%
Avon Products, Inc. 2,600 85,904
The Estee Lauder Cos., Inc. Class A 800 32,656
------------
118,560
- ----------------------------------------------------------------------------------------------------
Pharmaceuticals--6.0%
Abbott Laboratories 8,700 423,777
Allergan, Inc. 800 95,792
Barr Pharmaceuticals, Inc. (a) 700 35,084
Bristol-Myers Squibb Co. 11,100 292,152
Eli Lilly & Co. 5,500 286,550
Forest Laboratories, Inc. (a) 1,800 91,080
Johnson & Johnson 16,700 1,102,534
King Pharmaceuticals, Inc. (a) 1,500 23,880
Merck & Co., Inc. 12,400 540,640
Mylan Laboratories 1,300 25,948
Pfizer, Inc. 41,800 1,082,620
Schering-Plough Corp. 8,300 196,212
Watson Pharmaceuticals, Inc. (a) 700 18,221
Wyeth 7,700 392,084
------------
4,606,574
- ----------------------------------------------------------------------------------------------------
Real Estate Investment Trusts (REITs)--1.0%
Apartment Investment & Management
Co. Class A 500 28,010
Archstone-Smith Trust 1,100 64,031
Boston Properties, Inc. 600 67,128
Equity Office Properties Trust 1,900 91,523
Equity Residential 1,700 86,275
Kimco Realty Corp. 1,300 58,435
Plum Creek Timber Co., Inc. 1,200 47,820
ProLogis 1,500 91,155
Public Storage, Inc. 700 68,250
Simon Property Group, Inc. 1,200 121,548
Vornado Realty Trust 700 85,050
------------
809,225
- ----------------------------------------------------------------------------------------------------
Real Estate Management & Development--0.1%
CB Richard Ellis Group, Inc. (a) 1,000 33,200
Realogy Corp. (a) 1,342 40,689
------------
73,889
- ----------------------------------------------------------------------------------------------------
Road & Rail--0.7%
Burlington Northern Santa Fe Corp. 2,000 147,620
CSX Corp. 2,500 86,075
Norfolk Southern Corp. 2,300 115,667
Ryder System, Inc. 300 15,318
Union Pacific Corp. 1,500 138,030
------------
502,710
- ----------------------------------------------------------------------------------------------------
Semiconductors & Semiconductor
Equipment--2.3%
Advanced Micro Devices, Inc. (a) 3,200 65,120
Altera Corp. (a) 1,900 37,392
Analog Devices, Inc. 1,900 62,453
Applied Materials, Inc. 7,700 142,065
Broadcom Corp. Class A (a) 2,750 88,852
Intel Corp. 33,100 670,275
Kla-Tencor Corp. 1,100 54,725
LSI Logic Corp. (a) 2,500 22,500
Linear Technology Corp. 1,600 48,512
Maxim Integrated Products, Inc. 1,800 55,116
Micron Technology, Inc. (a) 4,300 60,028
National Semiconductor Corp. 1,600 36,320
Novellus Systems, Inc. (a) 600 20,652
Nvidia Corp. (a) 1,900 70,319
PMC-Sierra, Inc. (a) 700 4,697
Teradyne, Inc. (a) 800 11,968
Texas Instruments, Inc. 8,900 256,320
Xilinx, Inc. 1,800 42,858
------------
1,750,172
- ----------------------------------------------------------------------------------------------------
S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006 9
Schedule of Investments (continued)
Shares
Industry Common Stocks Held Value
====================================================================================================
Software--3.2%
Adobe Systems, Inc. (a) 3,400 $ 139,808
AutoDesk, Inc. (a) 1,200 48,552
BMC Software, Inc. (a) 1,300 41,860
CA, Inc. 2,500 56,625
Citrix Systems, Inc. (a) 1,000 27,050
Compuware Corp. (a) 2,400 19,992
Electronic Arts, Inc. (a) 1,700 85,612
Intuit, Inc. (a) 1,800 54,918
Microsoft Corp. 49,400 1,475,084
Novell, Inc. (a) 2,000 12,400
Oracle Corp. (a) 23,200 397,648
Symantec Corp. (a) 5,483 114,321
------------
2,473,870
- ----------------------------------------------------------------------------------------------------
Specialty Retail--1.9%
AutoNation, Inc. (a) 1,105 23,559
AutoZone, Inc. (a) 300 34,668
Bed Bath & Beyond, Inc. (a) 1,500 57,150
Best Buy Co., Inc. 2,400 118,056
Circuit City Stores, Inc. 700 13,286
The Gap, Inc. 2,900 56,550
Home Depot, Inc. 11,800 473,888
Limited Brands 2,000 57,880
Lowe's Cos., Inc. 8,600 267,890
Office Depot, Inc. (a) 1,700 64,889
OfficeMax, Inc. 400 19,860
RadioShack Corp. 600 10,068
The Sherwin-Williams Co. 600 38,148
Staples, Inc. 4,050 108,135
TJX Cos., Inc. 2,400 68,448
Tiffany & Co. 900 35,316
------------
1,447,791
- ----------------------------------------------------------------------------------------------------
Textiles, Apparel & Luxury Goods--0.4%
Coach, Inc. (a) 2,000 85,920
Jones Apparel Group, Inc. 800 26,744
Liz Claiborne, Inc. 700 30,422
Nike, Inc. Class B 1,000 99,030
VF Corp. 500 41,040
------------
283,156
- ----------------------------------------------------------------------------------------------------
Thrifts & Mortgage Finance--1.4%
Countrywide Financial Corp. 3,600 152,820
Fannie Mae 5,600 332,584
Freddie Mac 3,900 264,810
MGIC Investment Corp. 400 25,016
Sovereign Bancorp, Inc. 1,870 47,479
Washington Mutual, Inc. 5,361 243,872
------------
1,066,581
- ----------------------------------------------------------------------------------------------------
Tobacco--1.5%
Altria Group, Inc. 11,900 1,021,258
Reynolds American, Inc. 900 58,923
UST, Inc. 800 46,560
------------
1,126,741
- ----------------------------------------------------------------------------------------------------
Trading Companies & Distributors--0.0%
WW Grainger, Inc. 500 34,970
- ----------------------------------------------------------------------------------------------------
Wireless Telecommunication Services--0.6%
Alltel Corp. 2,100 127,008
Sprint Nextel Corp. 16,852 318,334
------------
445,342
- ----------------------------------------------------------------------------------------------------
Total Common Stocks
(Cost--$58,211,709)--94.5% 72,951,927
====================================================================================================
Face
Short-Term Securities Amount
====================================================================================================
Time Deposits--15.4%
State Street Bank & Trust Co.,
4.25% due 1/02/2007 (d) $11,903,082 11,903,082
- ----------------------------------------------------------------------------------------------------
Total Short-Term Securities
(Cost--$11,903,082)--15.4% 11,903,082
====================================================================================================
Number of
Options Purchased Contracts
====================================================================================================
Call Options Purchased--18.2%
S&P 500 Index, expiring
November 2007 at USD 1,364.30,
HSBC Securities 36,725 4,677,452
S&P 500 Index, expiring
November 2007 at USD 1,364.30,
BNP Paribas 73,449 9,383,563
- ----------------------------------------------------------------------------------------------------
Total Options Purchased
(Premiums Paid--$0)--18.2% 14,061,015
- ----------------------------------------------------------------------------------------------------
Total Investments
(Cost--$70,114,791)--128.1% 98,916,024
====================================================================================================
Options Written
====================================================================================================
Call Options Written--(19.6%)
S&P 500 Index, expiring
November 2007 at USD 1,417.09,
HSBC Securities 55,087 (5,032,159)
S&P 500 Index, expiring
November 2007 at USD 1,417.50,
BNP Paribas 110,174 (10,076,343)
- ----------------------------------------------------------------------------------------------------
Total Options Written
(Premiums Received--$0)--(19.6%) (15,108,502)
====================================================================================================
Total Investments, Net of Options Written
(Cost--$70,114,791*)--108.5% 83,807,522
Liabilities in Excess of Other Assets--(8.5%) (6,580,298)
------------
Net Assets--100.0% $ 77,227,224
============
10 S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006
Schedule of Investments (concluded)
* The cost and unrealized appreciation (depreciation) of investments, net of
options written, as of December 31, 2006, as computed for federal income
tax purposes, were as follows:
Aggregate cost ........................................... $ 70,120,285
=============
Gross unrealized appreciation ............................ $ 30,300,802
Gross unrealized depreciation ............................ (16,613,565)
-------------
Net unrealized appreciation .............................. $ 13,687,237
=============
(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. -- $162,405 $94,854 $ 8,025
--------------------------------------------------------------------------
(c) All or a portion of security held as collateral in connection with open
financial futures contracts.
(d) All or a portion of security held as collateral in connection with open
option contracts.
o For Fund 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. These industry
classifications are unaudited.
o Financial futures contracts purchased as of December 31, 2006 were as
follows:
--------------------------------------------------------------------------
Number of Expiration Face Unrealized
Contracts Issue Date Value Appreciation
--------------------------------------------------------------------------
15 S&P 500 Index March 2007 $5,342,340 $ 14,160
--------------------------------------------------------------------------
See Notes to Financial Statements.
S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006 11
Statement of Assets, Liabilities and Capital
As of December 31, 2006
====================================================================================================================================
Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Investments in unaffiliated securities, at value (identified cost--$69,838,702) ........ $ 84,380,199
Investments in affiliated securities, at value (identified cost--$276,089) ............. 474,810
Options purchased, at value (premiums paid--$0) ........................................ 14,061,015
Cash ................................................................................... 45,726
Receivables:
Dividends ........................................................................... $ 110,876
Securities sold ..................................................................... 9,010
Interest ............................................................................ 1,405 121,291
------------
Prepaid expenses ....................................................................... 7,045
------------
Total assets ........................................................................... 99,090,086
------------
====================================================================================================================================
Liabilities
- ------------------------------------------------------------------------------------------------------------------------------------
Collateral on options (including accrued interest of $42,861) .......................... 6,159,796
Options written, at value (premiums received--$0) ...................................... 15,108,502
Payables:
Dividends to Common Stock shareholders .............................................. 387,394
Investment adviser .................................................................. 48,423
Variation margin .................................................................... 20,250 456,067
------------
Accrued expenses ....................................................................... 138,497
------------
Total liabilities ...................................................................... 21,862,862
------------
====================================================================================================================================
Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets ............................................................................. $ 77,227,224
============
====================================================================================================================================
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 ................................................... $ 818,543
Accumulated realized capital losses--net ............................................... (4,639,356)
Unrealized appreciation--net ........................................................... 13,706,891
------------
Total accumulated earnings--net ........................................................ 9,886,078
------------
Total Capital--Equivalent to $19.63 per share based on 3,934,821 shares of
Common Stock outstanding (market price--$18.76) ....................................... $ 77,227,224
============
See Notes to Financial Statements.
12 S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006
Statement of Operations
For the Year Ended December 31, 2006
====================================================================================================================================
Investment Income
- ------------------------------------------------------------------------------------------------------------------------------------
Dividends (including $8,025 from affiliates) ........................................... $ 1,841,972
Interest ............................................................................... 356,239
------------
Total income ........................................................................... 2,198,211
------------
====================================================================================================================================
Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ............................................................... $ 848,984
Professional fees ...................................................................... 182,331
Interest expense ....................................................................... 151,583
Directors' fees and expenses ........................................................... 36,430
Transfer agent fees .................................................................... 30,447
Licensing fees ......................................................................... 30,000
Accounting services .................................................................... 27,829
Printing and shareholder reports ....................................................... 21,231
Listing fees ........................................................................... 16,572
Custodian fees ......................................................................... 15,452
Repurchase offer fees .................................................................. 10,087
Pricing fees ........................................................................... 1,071
Other .................................................................................. 17,738
------------
Total expenses ......................................................................... 1,389,755
------------
Investment income--net ................................................................. 808,456
------------
====================================================================================================================================
Realized & Unrealized Gain (Loss)--Net
- ------------------------------------------------------------------------------------------------------------------------------------
Realized gain (loss) on:
Investments (including $94,854 from affiliates)--net ................................ 31,229,626
Financial futures contracts--net .................................................... 398,007
Options written--net ................................................................ (23,971,394) 7,656,239
------------
Change in unrealized appreciation/depreciation on:
Investments--net .................................................................... 2,842,034
Financial futures contracts--net .................................................... 80,754
Options written--net ................................................................ 1,586,634 4,509,422
----------------------------
Total realized and unrealized gain--net ................................................ 12,165,661
------------
Net Increase in Net Assets Resulting from Operations ................................... $ 12,974,117
============
See Notes to Financial Statements.
S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006 13
Statements of Changes in Net Assets
For the Period For the Period
For the October 1, November 1,
Year Ended 2005 to 2004+ to
December 31, December 31, September 30,
Increase (Decrease) in Net Assets: 2006 2005@ 2005
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ............................................... $ 808,456 $ 230,416 $ 1,404,715
Realized gain--net ................................................... 7,656,239 9,200,875 245,430
Change in unrealized appreciation/depreciation--net .................. 4,509,422 (5,269,549) 14,467,018
-----------------------------------------------
Net increase in net assets resulting from operations ................. 12,974,117 4,161,742 16,117,163
-----------------------------------------------
===================================================================================================================================
Dividends & Distributions to Shareholders
- -----------------------------------------------------------------------------------------------------------------------------------
Investment income--net ............................................... -- (975,131) (660,000)
Realized gain--net ................................................... (10,387,927) (11,353,973) --
-----------------------------------------------
Net decrease in net assets resulting from dividends and distributions
to shareholders ..................................................... (10,387,927) (12,329,104) (660,000)
-----------------------------------------------
===================================================================================================================================
Common Stock Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Net proceeds from the issuance of Common Stock ....................... -- -- 133,509,000
Offering costs resulting from the issuance of Common Stock ........... -- -- (279,600)
Redemption of Common Stock resulting from a repurchase offer (includes
$13,116 and $34,976, respectively, of repurchase fees) .............. (28,501,198) (37,476,977) --
-----------------------------------------------
Net increase (decrease) in net assets resulting from Common Stock
transactions ........................................................ (28,501,198) (37,476,977) 133,229,400
-----------------------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets .............................. (25,915,008) (45,644,339) 148,686,563
Beginning of period .................................................. 103,142,232 148,786,571 100,008
-----------------------------------------------
End of period* ....................................................... $ 77,227,224 $ 103,142,232 $ 148,786,571
===============================================
* Undistributed net investment income ............................. $ 818,543 -- $ 744,715
===============================================
+ Commencement of operations.
@ Effective October 1, 2005, the Fund changed its year end to December 31,
2005.
See Notes to Financial Statements.
14 S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006
Financial Highlights
For the Period For the Period
For the October 1, November 1,
Year Ended 2005 to 2004+ to
The following per share data and ratios have been derived December 31, December 31, September 30,
from information provided in the financial statements. 2006 2005@ 2005
========================================================================================================================
Per Share Operating Performance
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ..................... $ 19.66 $ 21.27 $ 19.10
----------------------------------------------
Investment income--net*** ................................ .16 .04 .20
Realized and unrealized gain--net ........................ 2.45 .70 2.10
----------------------------------------------
Total from investment operations ......................... 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 ........................... $ 19.63 $ 19.66 $ 21.27
==============================================
Market price per share, end of period .................... $ 18.76 $ 18.85 $ 20.38
==============================================
========================================================================================================================
Total Investment Return**
- ------------------------------------------------------------------------------------------------------------------------
Based on net asset value per share ....................... 13.88% 4.18%@@ 11.90%@@
==============================================
Based on market price per share .......................... 13.51% 4.25%@@ 2.39%@@
==============================================
========================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------
Expenses, excluding interest expense ..................... 1.20% 1.29%* 1.07%*
==============================================
Expenses ................................................. 1.34% 1.29%* 1.13%*
==============================================
Investment income--net ................................... .78% .76%* 1.10%*
==============================================
========================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ................. $ 77,227 $ 103,142 $ 148,787
==============================================
Portfolio turnover ....................................... 4.55% .69% 5.14%
==============================================
* 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.
@ Effective October 1, 2005, the Fund changed its year end to December 31,
2005.
@@ Aggregate total investment return.
See Notes to Financial Statements.
S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006 15
Notes to Financial Statements
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. 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 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
16 S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006
Notes to Financial Statements (continued)
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) 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) Recent accounting pronouncements -- In July 2006, the Financial Accounting
Standards Board ("FASB") issued Interpretation No. 48 ("FIN 48"), "Accounting
for Uncertainty in Income Taxes -- an interpretation of FASB Statement No. 109."
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 mutual funds before being measured
and recognized in the financial statements. Adoption of FIN 48 is required for
the last net asset value calculation in the first required financial statement
reporting period for fiscal years beginning after December 15, 2006. The impact
on the Fund's financial statements, if any, is currently being assessed.
In addition, 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. Management is currently evaluating the implications of
FAS 157. At this time its impact on the Fund's financial statements has not been
determined.
(h) Reclassification -- U.S. generally accepted accounting principles require
that certain components of net assets be adjusted to reflect permanent
differences between financial and tax reporting. Accordingly, during the current
year, $10,087 has been reclassified between paid in capital in excess of par and
undistributed net investment income as a result of permanent differences
attributable to non-deductible expenses. This reclassification has no effect on
net assets or net asset values per share.
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
S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006 17
Notes to Financial Statements (concluded)
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. Prior to September 29, 2006, IQ had a
Subadvisory Agreement with Merrill Lynch Investment Managers, L.P ("MLIM").
On September 29, 2006, BlackRock and ML & Co. combined ML & Co.'s investment
management business, MLIM and its affiliates, with BlackRock to create a new
independent company. ML & Co. owns up to a 49.8% economic interest and up to a
45% voting interest in the combined company, and The PNC Financial Services
Group, Inc. has approximately a 34% economic and voting interest. The new
company operates under the BlackRock name and is governed by a board of
directors with a majority of independent members. IQ remains an indirect
subsidiary of ML & Co.
Effective October 2, 2006, 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 Fund's average daily net
assets 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.
In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated, an affiliate of
IQ, received $431 in commissions on the execution of portfolio security
transactions for the Fund for the year ended December 31, 2006.
Certain officers of the Fund are officers of IQ and/or ML & Co. Effective
September 29, 2006, certain officers of the Fund are officers of BlackRock or
its affiliates.
3. Investments:
Purchases and sales of investments, excluding short-term securities, for the
year ended December 31, 2006 were $4,458,147 and $41,580,888, respectively.
Transactions in options written for the year ended December 31, 2006 were as
follows:
- --------------------------------------------------------------------------------
Number of Premiums
Contracts Received
- --------------------------------------------------------------------------------
Outstanding call options written,
beginning of year ................................ 247,468 --
Options written .................................... 165,261 --
Options closed ..................................... (247,468) --
--------------------------
Outstanding call options written,
end of year ...................................... 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 year ended December 31, 2006 and during
the period October 1, 2005 to December 31, 2005 decreased 1,311,606 and
1,748,809, respectively, as a result of repurchase offers. During the period
November 1, 2004 to September 30, 2005, shares issued and outstanding increased
6,990,000 from shares sold.
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.
5. Distributions to Shareholders:
The tax character of distributions paid during the fiscal year ended December
31, 2006, the period October 1, 2005 to December 31, 2005 and November 1, 2004
to September 30, 2005 was as follows:
- --------------------------------------------------------------------------------
10/01/2005 to 11/01/2004+
12/31/2006 12/31/2005 to 9/30/2005
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income ................. $ 2,459,562 $ 1,652,960 $ 660,000
Net long-term capital gains ..... 7,928,365 10,676,144 --
-----------------------------------------
Total distributions ............... $10,387,927 $12,329,104 $ 660,000
=========================================
+ Commencement of operations.
As of December 31, 2006, the components of accumulated earnings on a tax basis
were as follows:
- -------------------------------------------------------------------------------
Undistributed ordinary income -- net ............................ $7,554,742
Undistributed long-term capital gains -- net .................... 1,063,820
----------
Total undistributed earnings -- net ............................. 8,618,562
Capital loss carryforward ....................................... --
Unrealized gains -- net ......................................... 1,267,516*
----------
Total accumulated earnings -- net ............................... $9,886,078
==========
* The difference between book-basis and tax-basis net unrealized gains is
attributable primarily to the tax deferral of losses on wash sales, the
tax deferral of losses on straddles and the realization for tax purposes
of unrealized gains/losses on certain futures contracts.
18 S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of S&P 500(R) GEARED(SM) Fund Inc.:
We have audited the accompanying statement of assets, liabilities and capital,
including the schedule of investments, of S&P 500(R) GEARED(SM) Fund Inc. as of
December 31, 2006, and the related statement of operations for the year then
ended, and the statements of changes in net assets and the financial highlights
for the year then ended and for the periods October 1, 2005 through December 31,
2005 and November 1, 2004 (commencement of operations) through September 30,
2005. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. The Fund
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Fund's internal control over
financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. Our procedures included confirmation
of securities owned as of December 31, 2006, by correspondence with the
custodian. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of S&P
500(R) GEARED(SM) Fund Inc. as of December 31, 2006, the results of its
operations for the year then ended, and the changes in its net assets and its
financial highlights for the year then ended and for the periods October 1, 2005
through December 31, 2005 and November 1, 2004 through September 30, 2005, in
conformity with accounting principles generally accepted in the United States of
America.
Deloitte & Touche llp
Princeton, NJ
February 22, 2007
Fund Certification (unaudited)
In May 2006, the Fund filed its Chief Executive Officer Certification for the
prior year with the New York Stock Exchange pursuant to Section 303A.12(a) of
the New York Stock Exchange Corporate Governance Listing Standards.
The Fund's Chief Executive Officer and Chief Financial Officer Certifications
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 were filed with the
Fund's Form N-CSR and are available on the Securities and Exchange Commission's
Web site at http://www.sec.gov.
Important Tax Information (unaudited)
The following information is provided with respect to the ordinary income
distribution paid by S&P 500(R) GEARED(SM) Fund Inc. to shareholders of record
on November 20, 2006:
- --------------------------------------------------------------------------------
Short-Term Capital Gain Dividends for Non-U.S. Residents ............. 100.00%*
- --------------------------------------------------------------------------------
* Represents the portion of the taxable ordinary income dividends eligible
for exemption from U.S. withholding tax for nonresident aliens and foreign
corporations.
Additionally, the Fund distributed long-term capital gains of $2.014924 per
share to shareholders of record on November 20, 2006.
S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006 19
Automatic Dividend Reinvestment Plan
How the Plan Works -- The Fund offers a Dividend Reinvestment Plan (the "Plan")
under which income and capital gains dividends paid by the Fund are
automatically reinvested in additional shares of Common Stock of the Fund. The
Plan is administered on behalf of the shareholders by The Bank of New York (the
"Plan Agent"). Under the Plan, whenever the Fund declares a dividend,
participants in the Plan will receive the equivalent in shares of Common Stock
of the Fund. The Plan Agent will acquire the shares for the participant's
account either (i) through receipt of additional unissued but authorized shares
of the Fund ("newly issued shares") or (ii) by purchase of outstanding shares of
Common Stock on the open market on the New York Stock Exchange or elsewhere. If,
on the dividend payment date, the Fund's net asset value per share is equal to
or less than the market price per share plus estimated brokerage commissions (a
condition often referred to as a "market premium"), the Plan Agent will invest
the dividend amount in newly issued shares. If the Fund's net asset value per
share is greater than the market price per share (a condition often referred to
as a "market discount"), the Plan Agent will invest the dividend amount by
purchasing on the open market additional shares. If the Plan Agent is unable to
invest the full dividend amount in open market purchases, or if the market
discount shifts to a market premium during the purchase period, the Plan Agent
will invest any uninvested portion in newly issued shares. The shares acquired
are credited to each shareholder's account. The amount credited is determined by
dividing the dollar amount of the dividend by either (i) when the shares are
newly issued, the net asset value per share on the date the shares are issued or
(ii) when shares are purchased in the open market, the average purchase price
per share.
Participation in the Plan -- Participation in the Plan is automatic, that is, a
shareholder is automatically enrolled in the Plan when he or she purchases
shares of Common Stock of the Fund unless the shareholder specifically elects
not to participate in the Plan. Shareholders who elect not to participate will
receive all dividend distributions in cash. Shareholders who do not wish to
participate in the Plan must advise the Plan Agent in writing (at the address
set forth below) that they elect not to participate in the Plan. Participation
in the Plan is completely voluntary and may be terminated or resumed at any time
without penalty by writing to the Plan Agent.
Benefits of the Plan -- The Plan provides an easy, convenient way for
shareholders to make additional, regular investments in the Fund. The Plan
promotes a long-term strategy of investing at a lower cost. All shares acquired
pursuant to the Plan receive voting rights. In addition, if the market price
plus commissions of the Fund's shares is above the net asset value, participants
in the Plan will receive shares of the Fund for less than they could otherwise
purchase them and with a cash value greater than the value of any cash
distribution they would have received. However, there may not be enough shares
available in the market to make distributions in shares at prices below the net
asset value. Also, since the Fund does not redeem shares, the price on resale
may be more or less than the net asset value.
Plan Fees -- There are no enrollment fees or brokerage fees for participating in
the Plan. The Plan Agent's service fees for handling the reinvestment of
distributions are paid for by the Fund. However, brokerage commissions may be
incurred when the Fund purchases shares on the open market and shareholders will
pay a pro rata share of any such commissions.
Tax Implications -- The automatic reinvestment of dividends and distributions
will not relieve participants of any federal, state or local income tax that may
be payable (or required to be withheld) on such dividends. Therefore, income and
capital gains may still be realized even though shareholders do not receive
cash. Participation in the Plan generally will not affect the tax-exempt status
of exempt interest dividends paid by the Fund. If, when the Fund's shares are
trading at a market premium, the Fund issues shares pursuant to the Plan that
have a greater fair market value than the amount of cash reinvested, it is
possible that all or a portion of the discount from the market value (which may
not exceed 5% of the fair market value of the Fund's shares) could be viewed as
a taxable distribution. If the discount is viewed as a taxable distribution, it
is also possible that the taxable character of this discount would be allocable
to all the shareholders, including shareholders who do not participate in the
Plan. Thus, shareholders who do not participate in the Plan might be required to
report as ordinary income a portion of their distributions equal to their
allocable share of the discount.
Contact Information -- All correspondence concerning the Plan, including any
questions about the Plan, should be directed to the Plan Agent at The Bank of
New York, Church Street Station, P.O. Box 11258, New York, NY 10286-1258,
Telephone: 800-432-8224.
20 S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006
Officers and Directors
Number of IQ
Advisors-
Affiliate
Advised Funds Other Public
Position(s) Length of and Portfolios Directorships
Held with Time Overseen Held by
Name Address & Age Fund Served** Principal Occupation(s) During Past 5 Years By Director Director
====================================================================================================================================
Non-Interested Directors*
- ------------------------------------------------------------------------------------------------------------------------------------
Alan R. P.O. Box 9095 Director & 2004 to Vice-Chairman, Kissinger Associates, Inc., a 7 Hasbro, Inc.;
Batkin Princeton, NJ Chairman of present consulting firm, since 1990. Overseas
08543-9095 the Board Shipholding
Age: 62 Group, Inc.;
Cantel
Medical
Corp.; and
Diamond
Offshore
Drilling,
Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Paul P.O. Box 9095 Director & 2004 to Professor, Columbia University Business School 7 None
Glasserman Princeton, NJ Chairman of present since 1991; Senior Vice Dean since July 2004.
08543-9095 the Audit
Age: 44 Committee
- ------------------------------------------------------------------------------------------------------------------------------------
Steven W. P.O. Box 9095 Director 2005 to Retired since August 2002; Managing Director, 7 Ametek, Inc.
Kohlhagen Princeton, NJ present Wachovia National Bank and its predecessors
08543-9095 (1992 - 2002).
Age: 59
- ------------------------------------------------------------------------------------------------------------------------------------
William J. P.O. Box 9095 Director & 2004 to Retired since November 2004; Chairman and 7 None
Rainer Princeton, NJ Chairman of present Chief Executive Officer, OneChicago, LLC, a
08543-9095 Nominating designated contract market (2001 to November
Age: 60 and 2004); Chairman, U.S. Commodity Futures
Corporate Trading Commission (1999 - 2001).
Governance
Committee
------------------------------------------------------------------------------------------------------------------------
* Each of the Non-Interested Directors is a member of the Audit Committee and the Nominating and Corporate
Governance Committee.
** Each Director will serve for a term of one year and until his successor is elected and qualifies, or his earlier
death, resignation or removal as provided in the Fund's Bylaws, charter or by statute.
S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006 21
Officers and Directors (concluded)
Position(s) Length of
Held with Time
Name Address & Age Fund Served Principal Occupation(s) During Past 5 Years
====================================================================================================================================
Fund Officers*
- ------------------------------------------------------------------------------------------------------------------------------------
Mitchell P.O. Box 9011 President 2004 to IQ Investment Advisors LLC, President since April 2004; MLPF&S, Managing Director,
M. Cox Princeton, NJ present Head of Global Private Client Market Investments & Origination since 2003; MLPF&S,
08543-9011 Managing Director, Head of Structured Products Origination and Sales (2001 - 2003);
Age: 41 MLPF&S, Director, Head of Structured Products Origination (1997 - 2001).
- ------------------------------------------------------------------------------------------------------------------------------------
Donald C. P.O. Box 9011 Vice 2004 to IQ Investment Advisors LLC, Treasurer and Secretary since December 2004; Managing
Burke Princeton, NJ President, present Director of BlackRock, Inc. since 2006; Managing Director of Merrill Lynch
08543-9011 Treasurer Investment Managers, L.P. ("MLIM") and Fund Asset Management, L.P. ("FAM") (2006);
Age: 46 and First Vice President of MLIM and FAM (1997 - 2005) and Treasurer thereof (1999 -
Secretary 2006); Vice President of MLIM and FAM (1990 - 1997).
- ------------------------------------------------------------------------------------------------------------------------------------
Martin G. P.O. Box 9011 Chief 2006 to IQ Investment Advisors LLC, Chief Legal Officer since June 2006; Merrill Lynch &
Byrne Princeton, NJ Legal present Co., Inc., Office of General Counsel, Managing Director since 2006, First Vice
08543-9011 Officer President (2002 - 2006), Director (2000 - 2002).
Age: 44
- ------------------------------------------------------------------------------------------------------------------------------------
Jeffrey P.O. Box 9011 Fund Chief 2004 to IQ Investment Advisors LLC, Fund Chief Compliance Officer since 2004; Managing
Hiller Princeton, NJ Compliance present Director of BlackRock, Inc. and Fund Chief Compliance Officer since 2006; Chief
08543-9011 Officer Compliance Officer of the MLIM/FAM-advised funds and First Vice President and Chief
Age: 55 Compliance Officer of MLIM (Americas Region) (2004 - 2006); Global Director of
Compliance at Morgan Stanley Investment Management (2000 - 2004); Managing Director
and Global Director of Compliance at Citigroup Asset Management (2000 - 2002);
Chief Compliance Officer at Soros Fund Management in 2000; Chief Compliance Officer
at Prudential Financial (1995 - 2000); Senior Counsel in the Securities and
Exchange Commission's Division of Enforcement in Washington, D.C. (1990 - 1995).
- ------------------------------------------------------------------------------------------------------------------------------------
Justin C. P.O. Box 9011 Vice 2005 to IQ Investment Advisors LLC, Vice President since 2005; MLPF&S, Director, Global
Ferri Princeton, NJ President present Private Client Market Investments & Origination since 2006; MLPF&S, Vice President,
08543-9011 Global Private Client Market Investments & Origination in 2005; MLPF&S, Vice
Age: 31 President, Head of Global Private Client Rampart Equity Derivatives (2004 - 2005);
MLPF&S, Vice President, Co-Head Global Private Client Domestic Analytic Development
(2002 - 2004); mPower Advisors LLC, Vice President, Quantitative Development (1999
- 2002).
- ------------------------------------------------------------------------------------------------------------------------------------
Jay M. P.O. Box 9011 Vice 2005 to IQ Investment Advisors LLC, Vice President since 2005; BlackRock, Inc., Director
Fife Princeton, NJ President present since 2006; MLIM, Director (2000 - 2006); MLPF&S, Director (2000) and Vice
08543-9011 President (1997 - 2000).
Age: 36
- ------------------------------------------------------------------------------------------------------------------------------------
Colleen R. P.O. Box 9011 Vice 2005 to IQ Investment Advisors LLC, Vice President since 2005; MLPF&S, Director, Global
Rusch Princeton, NJ President present Private Client Market Investments & Origination since July 2005; MLIM, Director
08543-9011 from January 2005 to July 2005; Vice President of MLIM (1998 - 2004).
Age: 39
------------------------------------------------------------------------------------------------------------------------
* Officers of the Fund serve at the pleasure of the Board of Directors.
- ------------------------------------------------------------------------------------------------------------------------------------
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
22 S&P 500(R) GEARED(SM) FUND INC. DECEMBER 31, 2006
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.)
Under the terms of the Offer for the most recent annual period, the Fund offered
to purchase up to 1,311,606 shares from shareholders at an amount per share
equal to the Fund's net asset value per share calculated as of the close of
business of the New York Stock Exchange on November 3, 2006, nine business days
after Monday, October 23, 2006, the Repurchase Request Deadline. As of November
3, 2006, 1,311,606 shares, or 25% of the Fund's outstanding shares, were
purchased by the Fund at $21.74 per share (subject to a repurchase fee of 0.09%
of the net asset value per share), the Fund's net asset value per share was
determined as of 4:00 p.m. EST, Friday, November 3, 2006.
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. DECEMBER 31, 2006 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 -- 12/06
Item 2 - Code of Ethics - The registrant has adopted a code of ethics, as of the
end of the period covered by this report, that applies to the
registrant's principal executive officer, principal financial officer
and principal accounting officer, or persons performing similar
functions. A copy of the code of ethics is available without charge
upon request by calling toll-free 1-877-449-4742.
Item 3 - Audit Committee Financial Expert - The registrant's board of directors
has determined that (i) the registrant has the following audit
committee financial experts serving on its audit committee and (ii)
each audit committee financial expert is independent: (1) Alan R.
Batkin and (2) Steven W. Kohlhagen.
Item 4 - Principal Accountant Fees and Services
(a) Audit Fees - Fiscal Year Ending December 31, 2006 - $29,100
Fiscal Year Ending December 31, 2005 - $19,000
The nature of the services relate to a change in the Fund's fiscal
year-end.
(b) Audit-Related Fees - Fiscal Year Ending December 31, 2006 - $0
Fiscal Year Ending December 31, 2005 - $0
(c) Tax Fees - Fiscal Year Ending December 31, 2006 - $6,500
Fiscal Year Ending December 31, 2005 - $6,500
The nature of the services include tax compliance, tax advice and tax
planning.
(d) All Other Fees - Fiscal Year Ending December 31, 2006 - $0
Fiscal Year Ending December 31, 2005 - $0
(e)(1) The registrant's audit committee (the "Committee") has adopted
policies and procedures with regard to the pre-approval of services.
Audit, audit-related and tax compliance services provided to the
registrant on an annual basis require specific pre-approval by the
Committee. The Committee also must approve other non-audit services
provided to the registrant and those non-audit services provided to the
registrant's affiliated service providers that relate directly to the
operations and the financial reporting of the registrant. Certain of
these non-audit services that the Committee believes are a) consistent
with the SEC's auditor independence rules and b) routine and recurring
services that will not impair the independence of the independent
accountants may be approved by the Committee without consideration on a
specific case-by-case basis ("general pre-approval"). However, such
services will only be deemed pre-approved provided that any individual
project does not exceed $5,000 attributable to the registrant or
$50,000 for all of the registrants the Committee oversees. Any proposed
services exceeding the pre-approved cost levels will require specific
pre-approval by the Committee, as will any other services not subject
to general pre-approval (e.g., unanticipated but permissible services).
The Committee is informed of each service approved subject to general
pre-approval at the next regularly scheduled in-person board meeting.
(e)(2) 0%
(f) Not Applicable
(g) Fiscal Year Ending December 31, 2006 - $1,961,000
Fiscal Year Ending December 31, 2005 - $5,034,771
(h) The registrant's audit committee has considered and determined that
the provision of non-audit services that were rendered to the
registrant's investment adviser and any entity controlling, controlled
by, or under common control with the investment adviser that provides
ongoing services to the registrant that were not pre-approved pursuant
to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible
with maintaining the principal accountant's independence.
Regulation S-X Rule 2-01(c)(7)(ii) - $1,110,000, 0%
Item 5 - Audit Committee of Listed Registrants - The following individuals are
members of the registrant's separately-designated standing audit
committee established in accordance with Section 3(a)(58)(A) of the
Exchange Act (15 U.S.C. 78c(a)(58)(A)):
Alan R. Batkin
Steven W. Kohlhagen
Paul Glasserman
William J. Rainer
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies -
Proxy Voting Policies and Procedures
Each Fund's Board of Directors has delegated to IQ Investment
Advisors LLC, and/or any sub-investment adviser approved by the Board of
Directors (the "Investment Adviser") authority to vote all proxies relating to
the Fund's portfolio securities. The Investment Adviser has adopted policies and
procedures ("Proxy Voting Procedures") with respect to the voting of proxies
related to the portfolio securities held in the account of one or more of its
clients, including a Fund. Pursuant to these Proxy Voting Procedures, the
Investment Adviser's primary objective when voting proxies is to make proxy
voting decisions solely in the best interests of each Fund and its shareholders,
and to act in a manner that the Investment Adviser believes is most likely to
enhance the economic value of the securities held by the Fund. The Proxy Voting
Procedures are designed to ensure that the Investment Adviser considers the
interests of its clients, including the Funds, and not the interests of the
Investment Adviser, when voting proxies and that real (or perceived) material
conflicts that may arise between the Investment Adviser's interest and those of
the Investment Adviser's clients are properly addressed and resolved.
In order to implement the Proxy Voting Procedures, the Investment
Adviser has formed a Proxy Voting Committee (the "Committee"). The Committee is
comprised of the Investment Adviser's Chief Investment Officer (the "CIO"), one
or more other senior investment professionals appointed by the CIO, portfolio
managers and investment analysts appointed by the CIO and any other personnel
the CIO deems appropriate. The Committee will also include two non-voting
representatives from the Investment Adviser's Legal department appointed by the
Investment Adviser's General Counsel. The Committee's membership shall be
limited to full-time employees of the Investment Adviser. No person with any
investment banking, trading, retail brokerage or research responsibilities for
the Investment Adviser's affiliates may serve as a member of the Committee or
participate in its decision making (except to the extent such person is asked by
the Committee to present information to the Committee, on the same basis as
other interested knowledgeable parties not affiliated with the Investment
Adviser might be asked to do so). The Committee determines how to vote the
proxies of all clients, including a Fund, that have delegated proxy voting
authority to the Investment Adviser and seeks to ensure that all votes are
consistent with the best interests of those clients and are free from
unwarranted and inappropriate influences. The Committee establishes general
proxy voting policies for the Investment Adviser and is responsible for
determining how those policies are applied to specific proxy votes, in light of
each issuer's unique structure, management, strategic options and, in certain
circumstances, probable economic and other anticipated consequences of alternate
actions. In so doing, the Committee may determine to vote a particular proxy in
a manner contrary to its generally stated policies. In addition, the Committee
will be responsible for ensuring that all reporting and recordkeeping
requirements related to proxy voting are fulfilled.
The Committee may determine that the subject matter of a recurring
proxy issue is not suitable for general voting policies and requires a
case-by-case determination. In such cases, the Committee may elect not to adopt
a specific voting policy applicable to that issue. The Investment Adviser
believes that certain proxy voting issues require investment analysis -- such as
approval of mergers and other significant corporate transactions -- akin to
investment decisions, and are, therefore, not suitable for general guidelines.
The Committee may elect to adopt a common position for the Investment Adviser on
certain proxy votes that are akin to investment decisions, or determine to
permit the portfolio manager to make individual decisions on how best to
maximize economic value for a Fund (similar to normal buy/sell investment
decisions made by such portfolio managers). While it is expected that the
Investment Adviser will generally seek to vote proxies over which the Investment
Adviser exercises voting authority in a uniform manner for all the Investment
Adviser's clients, the Committee, in conjunction with a Fund's portfolio
manager, may determine that the Fund's specific circumstances require that its
proxies be voted differently.
To assist the Investment Adviser in voting proxies, the Committee has
retained Institutional Shareholder Services ("ISS"). ISS is an independent
adviser that specializes in providing a variety of fiduciary-level proxy-related
services to institutional investment managers, plan sponsors, custodians,
consultants, and other institutional investors. The services provided to the
Investment Adviser by ISS include in-depth research, voting recommendations
(although the Investment Adviser is not obligated to follow such
recommendations), vote execution, and recordkeeping. ISS will also assist the
Fund in fulfilling its reporting and recordkeeping obligations under the
Investment Company Act.
The Investment Adviser's Proxy Voting Procedures also address special
circumstances that can arise in connection with proxy voting. For instance,
under the Proxy Voting Procedures, the Investment Adviser generally will not
seek to vote proxies related to portfolio securities that are on loan, although
it may do so under certain circumstances. In addition, the Investment Adviser
will vote proxies related to securities of foreign issuers only on a best
efforts basis and may elect not to vote at all in certain countries where the
Committee determines that the costs associated with voting generally outweigh
the benefits. The Committee may at any time override these general policies if
it determines that such action is in the best interests of a Fund.
From time to time, the Investment Adviser may be required to vote
proxies in respect of an issuer where an affiliate of the Investment Adviser
(each, an "Affiliate"), or a money management or other client of the Investment
Adviser (each, a "Client") is involved. The Proxy Voting Procedures and the
Investment Adviser's adherence to those procedures are designed to address such
conflicts of interest. The Committee intends to strictly adhere to the Proxy
Voting Procedures in all proxy matters, including matters involving Affiliates
and Clients. If, however, an issue representing a non-routine matter that is
material to an Affiliate or a widely known Client is involved such that the
Committee does not reasonably believe it is able to follow its guidelines (or if
the particular proxy matter is not addressed by the guidelines) and vote
impartially, the Committee may, in its discretion for the purposes of ensuring
that an independent determination is reached, retain an independent fiduciary to
advise the Committee on how to vote or to cast votes on behalf of the Investment
Adviser's clients.
In the event that the Committee determines not to retain an independent
fiduciary, or it does not follow the advice of such an independent fiduciary,
the powers of the Committee shall pass to a subcommittee, appointed by the CIO
(with advice from the Secretary of the Committee), consisting solely of
Committee members selected by the CIO. The CIO shall appoint to the
subcommittee, where appropriate, only persons whose job responsibilities do not
include contact with the Client and whose job evaluations would not be affected
by the Investment Adviser's relationship with the Client (or failure to retain
such relationship). The subcommittee shall determine whether and how to vote all
proxies on behalf of the Investment Adviser's clients or, if the proxy matter
is, in their judgment, akin to an investment decision, to defer to the
applicable portfolio managers, provided that, if the subcommittee determines to
alter the Investment Adviser's normal voting guidelines or, on matters where the
Investment Adviser's policy is case-by-case, does not follow the voting
recommendation of any proxy voting service or other independent fiduciary that
may be retained to provide research or advice to the Investment Adviser on that
matter, no proxies relating to the Client may be voted unless the Secretary, or
in the Secretary's absence, the Assistant Secretary of the Committee concurs
that the subcommittee's determination is consistent with the Investment
Adviser's fiduciary duties.
In addition to the general principles outlined above, the Investment
Adviser has adopted voting guidelines with respect to certain recurring proxy
issues that are not expected to involve unusual circumstances. These policies
are guidelines only, and the Investment Adviser may elect to vote differently
from the recommendation set forth in a voting guideline if the Committee
determines that it is in a Fund's best interest to do so. In addition, the
guidelines may be reviewed at any time upon the request of a Committee member
and may be amended or deleted upon the vote of a majority of Committee members
present at a Committee meeting at which there is a quorum.
The Investment Adviser has adopted specific voting guidelines with
respect to the following proxy issues:
o Proposals related to the composition of the Board of Directors
of issuers other than investment companies. As a general
matter, the Committee believes that a company's Board of
Directors (rather than shareholders) is most likely to have
access to important, nonpublic information regarding a
company's business and prospects, and is therefore
best-positioned to set corporate policy and oversee
management. The Committee, therefore, believes that the
foundation of good corporate governance is the election of
qualified, independent corporate directors who are likely to
diligently represent the interests of shareholders and oversee
management of the corporation in a manner that will seek to
maximize shareholder value over time. In individual cases, the
Committee may look at a nominee's history of representing
shareholder interests as a director of other companies or
other factors, to the extent the Committee deems relevant.
o Proposals related to the selection of an issuer's independent
auditors. As a general matter, the Committee believes that
corporate auditors have a responsibility to represent the
interests of shareholders and provide an independent view on
the propriety of financial reporting decisions of corporate
management. While the Committee will generally defer to a
corporation's choice of auditor, in individual cases, the
Committee may look at an auditors' history of representing
shareholder interests as auditor of other companies, to the
extent the Committee deems relevant.
o Proposals related to management compensation and employee
benefits. As a general matter, the Committee favors disclosure
of an issuer's compensation and benefit policies and opposes
excessive compensation, but believes that compensation matters
are normally best determined by an issuer's board of
directors, rather than shareholders. Proposals to
"micro-manage" an issuer's compensation practices or to set
arbitrary restrictions on compensation or benefits will,
therefore, generally not be supported.
o Proposals related to requests, principally from management,
for approval of amendments that would alter an issuer's
capital structure. As a general matter, the Committee will
support requests that enhance the rights of common
shareholders and oppose requests that appear to be
unreasonably dilutive.
o Proposals related to requests for approval of amendments to an
issuer's charter or by-laws. As a general matter, the
Committee opposes poison pill provisions.
o Routine proposals related to requests regarding the
formalities of corporate meetings.
o Proposals related to proxy issues associated solely with
holdings of investment company shares. As with other types of
companies, the Committee believes that a fund's Board of
Directors (rather than its shareholders) is best-positioned to
set fund policy and oversee management. However, the Committee
opposes granting Boards of Directors authority over certain
matters, such as changes to a fund's investment objective that
the Investment Company Act envisions will be approved directly
by shareholders.
o Proposals related to limiting corporate conduct in some manner
that relates to the shareholder's environmental or social
concerns. The Committee generally believes that annual
shareholder meetings are inappropriate forums for discussion
of larger social issues, and opposes shareholder resolutions
"micromanaging" corporate conduct or requesting release of
information that would not help a shareholder evaluate an
investment in the corporation as an economic matter. While the
Committee is generally supportive of proposals to require
corporate disclosure of matters that seem relevant and
material to the economic interests of shareholders, the
Committee is generally not supportive of proposals to require
disclosure of corporate matters for other purposes.
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - as
of December 31, 2006.
(a)(1) Mr. Jonathan Clark and Ms. Debra L. Jelilian are primarily
responsible for the day-to-day management of the registrant's
portfolio.
Mr. Clark has been a Director of BlackRock since 2006. Prior to
joining BlackRock, he became a Director with MLIM in 2006 and was a
Vice President of MLIM from 1999 to 2006. Mr. Clark has more than 14
years' experience as a portfolio manager and trader. He has been a
portfolio manager of the Fund since 2004. Ms. Jelilian has been a
Director of BlackRock since 2006. Prior to joining BlackRock, she
was a Director of MLIM from 1999 to 2006. Ms. Jelilian has more than
13 years' experience in investing and managing index investments.
She has been a portfolio manager of the Fund since 2004.
(a)(2) As of December 31, 2006, in Thousands:
(iii) Number of Other Accounts and
(ii) Number of Other Accounts Managed Assets for Which Advisory Fee is
and Assets by Account Type Performance-Based
Other Other
(i) Name of Registered Other Pooled Registered Other Pooled
Portfolio Investment Investment Other Investment Investment Other
Manager Companies Vehicles Accounts Companies Vehicles Accounts
--------- ---------
Jonathan Clark 7 2 0 0 0 0
$ 1,760,817,915 $ 544,312,247 $ 0 $ 0 $ 0 $ 0
Debra L
Jelilian 15 16 26 0 0 0
$ 8,396,699,764 $12,241,383,765 $41,270,850,975 $ 0 $ 0 $ 0
(iv) Potential Material Conflicts of Interest
BlackRock has built a professional working environment, firm-wide
compliance culture and compliance procedures and systems designed to
protect against potential incentives that may favor one account over
another. BlackRock has adopted policies and procedures that address the
allocation of investment opportunities, execution of portfolio
transactions, personal trading by employees and other potential conflicts
of interest that are designed to ensure that all client accounts are
treated equitably over time. Nevertheless, BlackRock furnishes investment
management and advisory services to numerous clients in addition to the
Fund, and BlackRock may, consistent with applicable law, make investment
recommendations to other clients or accounts (including accounts which are
hedge funds or have performance or higher fees paid to BlackRock, or in
which portfolio managers have a personal interest in the receipt of such
fees), which may be the same as or different from those made to the Fund.
In addition, BlackRock, its affiliates and any officer, director,
stockholder or employee may or may not have an interest in the securities
whose purchase and sale BlackRock recommends to the Fund. BlackRock, or
any of its affiliates, or any officer, director, stockholder, employee or
any member of their families may take different actions than those
recommended to the Fund by BlackRock with respect to the same securities.
Moreover, BlackRock may refrain from rendering any advice or services
concerning securities of companies of which any of BlackRock's (or its
affiliates') officers, directors or employees are directors or officers,
or companies as to which BlackRock or any of its affiliates or the
officers, directors and employees of any of them has any substantial
economic interest or possesses material non-public information. Each
portfolio manager also may manage accounts whose investment strategies may
at times be opposed to the strategy utilized for the Fund. In this
connection, it should be noted that certain portfolio managers currently
manage certain accounts that are subject to performance fees. In addition,
certain portfolio managers assist in managing certain hedge funds and may
be entitled to receive a portion of any incentive fees earned on such
funds and a portion of such incentive fees may be voluntarily or
involuntarily deferred. Additional portfolio managers may in the future
manage other such accounts or funds and may be entitled to receive
incentive fees.
As a fiduciary, BlackRock owes a duty of loyalty to its clients and must
treat each client fairly. When BlackRock purchases or sells securities for
more than one account, the trades must be allocated in a manner consistent
with its fiduciary duties. BlackRock attempts to allocate investments in a
fair and equitable manner among client accounts, with no account receiving
preferential treatment. To this end, BlackRock has adopted a policy that
is intended to ensure that investment opportunities are allocated fairly
and equitably among client accounts over time. This policy also seeks to
achieve reasonable efficiency in client transactions and provide BlackRock
with sufficient flexibility to allocate investments in a manner that is
consistent with the particular investment discipline and client base.
(a)(3) As of December 31, 2006:
Portfolio Manager Compensation
Compensation Program
The elements of total compensation for portfolio managers on
BlackRock's quantitative investments team include a fixed base salary,
annual performance-based cash and stock compensation (cash and stock
bonus) and other benefits. BlackRock has balanced these components of pay
to provide these portfolio managers with a powerful incentive to achieve
consistently superior investment performance. By design, compensation
levels for these portfolio managers fluctuate--both up and down--with the
relative investment performance of the portfolios that they manage.
Base compensation
Like that of many asset management firms, base salaries represent a
relatively small portion of a portfolio manager's total compensation. This
approach serves to enhance the motivational value of the performance-based
(and therefore variable) compensation elements of the compensation
program.
Performance-Based Compensation
BlackRock believes that the best interests of investors are served
by recruiting and retaining exceptional asset management talent and
managing their compensation within a consistent and disciplined framework
that emphasizes pay for performance in the context of an intensely
competitive market for talent. To that end, BlackRock and its affiliates
portfolio manager incentive compensation is based on a formulaic
compensation program. BlackRock's formulaic portfolio manager compensation
program includes: investment performance over 1-, 3- and 5-year
performance periods and a measure of operational efficiency. Portfolio
managers are compensated based on the pre-tax performance of the products
they manage. If a portfolio manager's tenure is less than 5 years,
performance periods will reflect time in position. Portfolio managers are
compensated based on products they manage. A discretionary element of
portfolio manager compensation may include consideration of: financial
results, expense control, profit margins, strategic planning and
implementation, quality of client service, market share, corporate
reputation, capital allocation, compliance and risk control, leadership,
workforce diversity, supervision, technology and innovation. All factors
are considered collectively by BlackRock management.
Long-Term Retention and Incentive Plan (LTIP)
The LTIP is a long-term incentive plan that seeks to reward certain
key employees. The plan provides for the grant of awards that are
expressed as an amount of cash that, if properly vested and subject to the
attainment of certain performance goals, will be settled in cash and/or in
BlackRock, Inc. common stock.
Cash Bonus
Performance-based compensation is distributed to portfolio managers
in a combination of cash and stock. Typically, the cash bonus, when
combined with base salary, represents more than 60% of total compensation
for portfolio managers.
Stock Bonus
A portion of the dollar value of the total annual performance-based
bonus is paid in restricted shares of BlackRock stock. Paying a portion of
annual bonuses in stock puts compensation earned by a portfolio manager
for a given year "at risk" based on the company's ability to sustain and
improve its performance over future periods. The ultimate value of stock
bonuses is dependent on future BlackRock stock price performance. As such,
the stock bonus aligns each portfolio manager's financial interests with
those of the BlackRock shareholders and encourages a balance between
short-term goals and long-term strategic objectives. Management strongly
believes that providing a significant portion of competitive
performance-based compensation in stock is in the best interests of
investors and shareholders. This approach ensures that portfolio managers
participate as shareholders in both the "downside risk" and "upside
opportunity" of the company's performance. Portfolio managers therefore
have a direct incentive to protect BlackRock's reputation for integrity.
Other Compensation Programs
Portfolio managers who meet relative investment performance and
financial management objectives during a performance year are eligible to
participate in a deferred cash program. Awards under this program are in
the form of deferred cash that may be benchmarked to a menu of BlackRock
mutual funds (including their own fund) during a five-year vesting period.
The deferred cash program aligns the interests of participating portfolio
managers with the investment results of BlackRock products and promotes
continuity of successful portfolio management teams.
Other Benefits
Portfolio managers are also eligible to participate in broad-based
plans offered generally to employees of BlackRock and its affiliates,
including broad-based retirement, 401(k), health, and other employee
benefit plans.
(a)(4) Beneficial Ownership of Securities. As of December 31, 2006, Mr.
Clark does not beneficially own any stock issued by the Fund and Ms.
Jelilian does not beneficially own any stock issued by the Fund.
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers -
- ------------------------------ ----------------- ------------------ ------------------------------ ---------------------------------
Period (a) Total (b) Average (c) Total Number of (d) Maximum Number (or
Number of Price Paid per Shares Purchased as Part Approx. Dollar Value) of
Shares Share of Publicly Announced Shares that May Yet Be
Purchased Plans or Programs Purchased Under the Plans
or Programs
- ------------------------------ ----------------- ------------------ ------------------------------ ---------------------------------
June 1-30, 2006
- ------------------------------ ----------------- ------------------ ------------------------------ ---------------------------------
July 1-31, 2006
- ------------------------------ ----------------- ------------------ ------------------------------ ---------------------------------
August 1-31, 2006
- ------------------------------ ----------------- ------------------ ------------------------------ ---------------------------------
September 1-30, 2006
- ------------------------------ ----------------- ------------------ ------------------------------ ---------------------------------
October 1-31, 2006 1,311,606 21.74 1,311,606 0
- ------------------------------ ----------------- ------------------ ------------------------------ ---------------------------------
November 1-30, 2006
- ------------------------------ ----------------- ------------------ ------------------------------ ---------------------------------
December 1-31, 2006
- ------------------------------ ----------------- ------------------ ------------------------------ ---------------------------------
Total:
- ------------------------------ ----------------- ------------------ ------------------------------ ---------------------------------
On September 12, 2006, the repurchase offer was announced to repurchase up to
25% of outstanding shares. The expiration date of the offer was October 23,
2006. The registrant may conduct annual repurchases for between 5% and 25% of
its outstanding shares pursuant to Rule 23c-3 under the Investment Company Act
of 1940, as amended.
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) - As of September 29, 2006, with the conclusion of the combination of
Merrill Lynch's asset management business with BlackRock, the registrant
was migrated to BlackRock's trading and compliance monitoring systems,
and various personnel changes occurred. In conjunction with these
business improvements, there were no changes in the registrants internal
control over financial reporting (as defined in Rule 30a-3(d) under 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 affect, the registrant's internal control over
financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - See Item 2
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: February 20, 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: February 20, 2007
By: /s/ Donald C. Burke
---------------------------
Donald C. Burke,
Chief Financial Officer of
S&P 500(R) GEARED(SM) Fund Inc.
Date: February 20, 2007