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GRE S & P 500 Geared FD

0.00
0.00 (0.00%)
Name Symbol Market Type
S & P 500 Geared FD NYSE:GRE NYSE Fund
  Price Change % Change Price High Price Low Price Open Price Traded Last Trade
  0.00 0.00% 0 -

- Certified annual shareholder report for management investment companies (N-CSR)

06/03/2009 8:29pm

Edgar (US Regulatory)


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 ® GEARED SM Fund Inc. (GRE)

 

 

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 ® GEARED SM Fund Inc., 4 World Financial Center, 6 th Floor, New York, New York 10080.

Registrant’s telephone number, including area code: (877) 449-4742

Date of fiscal year end: 12/31/2008

Date of reporting period: 12/31/2008

Item 1 – Report to Stockholders



(COVER PAGE)

S&P 500 ® GEARED SM Fund Inc.

Annual Report

December 31, 2008



 


 

Fund Profile as of December 31, 2008


 


Fund Information



 

 

 

 

Symbol on New York Stock Exchange (“NYSE”)

 

GRE

 

Initial Offering Date

 

November 1, 2004

 

Yield on Closing Market Price as of December 31, 2008 ($9.36)*

 

22.54%

 

Most Recent Distribution per share of Common Stock**

 

$2.109324

 






 

 

 

*

 

Yield on closing market price is calculated by dividing the most recent distribution per share by the closing market price. Past performance does not guarantee future results.

 

 

 

**

 

The distribution is not constant and is subject to change. A portion of the distribution may be deemed a tax return of capital or net realized gain at fiscal year end.

The table below summarizes the changes in the Fund’s market price and net asset value for the twelve-month period:

 

 

 

 

 

 

 

 

 

 

 

 













 

 

12/31/08 (a)

 

12/31/07

 

Change (b)

 

High

 

Low

 













Market Price (c)

 

$9.36

 

$17.21

 

(45.61%)

 

$17.44

 

$7.49

 

Net Asset Value

 

$9.87

 

$18.47

 

(46.56%)

 

$18.47

 

$8.21

 














 

 

(a)

For the twelve-month period, the Common Stock of the Fund had a total investment return of (35.78%) based on net asset value per share and (34.64%) based on market price per share, assuming reinvestment of dividends. For the same period, the Fund’s unmanaged reference Index, the S&P 500 ® Composite Stock Price Index (“S&P 500 Index”), had a total investment return of (37.00%), assuming reinvestment of dividends. The reference index has no expenses associated with performance.

 

 

(b)

Does not include reinvestment of dividends.

 

 

(c)

Primary Exchange Price, NYSE.


 


Portfolio Information



 

 

 

 

Ten Largest Equity Holdings

 

Percent of
Net Assets





Exxon Mobil Corp.

 

4.8

%

The Procter & Gamble Co.

 

2.2

 

General Electric Co.

 

2.0

 

AT&T Inc.

 

2.0

 

Johnson & Johnson

 

2.0

 

Chevron Corp.

 

1.8

 

Microsoft Corp.

 

1.8

 

Wal-Mart Stores, Inc.

 

1.5

 

Pfizer, Inc.

 

1.4

 

JPMorgan Chase & Co.

 

1.4

 





 

 

 

 

Five Largest Industries

 

Percent of
Net Assets




Oil, Gas & Consumable Fuels

 

11.0

%

Pharmaceuticals

 

7.4

 

Computers & Peripherals

 

4.0

 

Diversified Telecommunication Services

 

3.4

 

Software

 

3.4

 





 

 

 

 

Sector Representation

 

Percent of  
Long-Term Investments*




Information Technology

 

15.3

%

Health Care

 

14.8

 

Energy

 

13.3

 

Financials

 

13.3

 

Consumer Staples

 

12.8

 

Industrials

 

11.1

 

Consumer Discretionary

 

8.4

 

Utilities

 

4.2

 

Telecommunication Services

 

3.8

 

Materials

 

3.0

 






 

 

*

Excludes portfolio holdings in options purchased.

 

 

 

For Fund portfolio compliance purposes, the Fund’s industry and sector classifications refer to any one or more of the industry and sector sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Fund management. This definition may not apply for purposes of this report, which may combine industry and sector sub-classifications for reporting ease.


 

S&P 500 and Standard & Poor’s 500 are registered trademarks of the McGraw-Hill Companies.

GEARED and Geared-Equity Accelerated Return are service marks of Merrill Lynch & Co., Inc.


 

 

 




2

S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008



 


 

A Summary From Your Fund’s Portfolio Managers

          We are pleased to provide you with this shareholder report for S&P 500 ® GEARED SM Fund Inc. The Fund is advised by IQ Investment Advisors LLC and sub-advised by BlackRock Investment Management, LLC.

The investment objective of S&P 500 ® GEARED SM Fund Inc. (the “Fund”) is to provide total returns, exclusive of fees and expenses, linked to the annual performance of the S&P 500 ® Composite Stock Price Index (the “Index”). When the Index has negative returns for an annual period, the Fund seeks to provide annual price returns that track the performance of the Index on a one-for-one basis over the annual period. Where the performance of the Index is positive for an annual period, the Fund seeks to deliver a “geared” return equal to approximately three times the annual price returns of the Index up to a maximum index participation level. There is no assurance that the Fund will meet its investment objectives.

For the year ended December 31, 2008, the Fund had a total investment return as set forth in the table below, based on the change per share in net asset value of $18.47 to $9.87. For the same period, the Fund’s unmanaged reference index, the S&P 500 Index, had a total return as shown below. All of the Fund and index information presented includes the reinvestment of any dividends or distributions. Distribution information may be found in the Notes to Financial Statements, Note 5.

 

 

 

 

 

 

 

 

 









Period

 

Fund*

 

S&P 500
Index**

 

Difference

 









Fiscal year ended December 31, 2008

 

(35.78

%)

 

(37.00%)

 

1.22%

 

Since inception (November 1, 2004) through December 31, 2008

 

(7.28

%)

 

(13.16%)

 

5.88%

 











 

 

 

*

 

Fund performance information is net of expenses.

 

 

 

**

 

The reference index has no expenses associated with performance.

For more detail with regard to the Fund’s total investment return based on a change in the 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), 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 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.

Jonathan A. Clark
Portfolio Manager

Debra L. Jelilian
Portfolio Manager

Jeffrey L. Russo, CFA
Portfolio Manager

January 22, 2009

We are pleased to announce that Jonathan Clark has assumed a new role within BlackRock effective February 2, 2009. As such, Mr. Kyle McClements has been named Portfolio Manager of S&P 500 ® GEARED SM Fund Inc., and is responsible for the day-to-day management of the portfolio along with Ms. Jelilian and Mr. Russo. Mr. McClements has been a Director of BlackRock since 2006 and Vice President thereof from 2005 to 2006. Prior to that Mr. McClements was Vice President at State Street Research from 2004 to 2005.


 

 

 




S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008

3



 


 

Schedule of Investments as of December 31, 2008


 

 

 

 

 

 

 

 

 

 

Industry

 

Common Stocks

 

Shares
Held

 

Value

 











Aerospace & Defense — 2.6%

 

 

 

 

 

 

 

 

Boeing Co.

 

 

3,074

 

$

131,125

 

 

 

General Dynamics Corp.

 

 

1,641

 

 

94,505

 

 

 

Goodrich Corp.

 

 

519

 

 

19,213

 

 

 

Honeywell International, Inc.

 

 

3,053

 

 

100,230

 

 

 

L-3 Communications Holdings, Inc.

 

 

504

 

 

37,185

 

 

 

Lockheed Martin Corp.

 

 

1,382

 

 

116,199

 

 

 

Northrop Grumman Corp.

 

 

1,385

 

 

62,380

 

 

 

Precision Castparts Corp.

 

 

578

 

 

34,379

 

 

 

Raytheon Co.

 

 

1,731

 

 

88,350

 

 

 

Rockwell Collins, Inc.

 

 

662

 

 

25,878

 

 

 

United Technologies Corp.

 

 

3,981

 

 

213,382

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

922,826

 











Air Freight & Logistics — 1.1%

 

 

 

 

 

 

 

 

 

C.H. Robinson Worldwide, Inc.

 

 

706

 

 

38,851

 

 

 

Expeditors International Washington, Inc.

 

 

884

 

 

29,411

 

 

 

FedEx Corp.

 

 

1,292

 

 

82,882

 

 

 

United Parcel Service, Inc. Class B

 

 

4,167

 

 

229,852

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

380,996

 











Airlines — 0.1%

 

 

 

 

 

 

 

 

 

Southwest Airlines Co.

 

 

3,048

 

 

26,274

 











Auto Components — 0.1%

 

 

 

 

 

 

 

 

 

The Goodyear Tire & Rubber Co. (a)

 

 

1,002

 

 

5,982

 

 

 

Johnson Controls, Inc.

 

 

2,465

 

 

44,764

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

50,746

 











Automobiles — 0.1%

 

 

 

 

 

 

 

 

 

Ford Motor Co. (a)

 

 

9,822

 

 

22,492

 

 

 

General Motors Corp.

 

 

2,616

 

 

8,371

 

 

 

Harley-Davidson, Inc.

 

 

977

 

 

16,580

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

47,443

 











Beverages — 2.4%

 

 

 

 

 

 

 

 

 

Brown-Forman Corp. Class B

 

 

407

 

 

20,956

 

 

 

The Coca-Cola Co.

 

 

8,297

 

 

375,605

 

 

 

Coca-Cola Enterprises, Inc.

 

 

1,317

 

 

15,844

 

 

 

Constellation Brands, Inc. Class A (a)

 

 

806

 

 

12,711

 

 

 

Dr. Pepper Snapple Group, Inc. (a)

 

 

1,053

 

 

17,111

 

 

 

Molson Coors Brewing Co. Class B

 

 

625

 

 

30,575

 

 

 

Pepsi Bottling Group, Inc.

 

 

567

 

 

12,763

 

 

 

PepsiCo, Inc.

 

 

6,493

 

 

355,622

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

841,187

 











Biotechnology — 2.0%

 

 

 

 

 

 

 

 

 

Amgen, Inc. (a)

 

 

4,418

 

 

255,140

 

 

 

Biogen Idec, Inc. (a)

 

 

1,205

 

 

57,394

 

 

 

Celgene Corp. (a)

 

 

1,899

 

 

104,977

 

 

 

Cephalon, Inc. (a)

 

 

294

 

 

22,650

 

 

 

Genzyme Corp. (a)

 

 

1,117

 

 

74,135

 

 

 

Gilead Sciences, Inc. (a)

 

 

3,836

 

 

196,173

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

710,469

 











Building Products — 0.1%

 

 

 

 

 

 

 

 

 

Masco Corp.

 

 

1,495

 

 

16,639

 











Capital Markets — 2.2%

 

 

 

 

 

 

 

 

 

American Capital Ltd.

 

 

860

 

 

2,786

 

 

 

Ameriprise Financial, Inc.

 

 

901

 

 

21,047

 

 

 

The Bank of New York Mellon Corp.

 

 

4,759

 

 

134,822

 

 

 

The Charles Schwab Corp.

 

 

3,873

 

 

62,626

 

 

 

E*Trade Financial Corp. (a)

 

 

2,139

 

 

2,460

 

 

 

Federated Investors, Inc. Class B

 

 

350

 

 

5,936

 

 

 

 

 

 

 

 

 

 

 

Industry

 

Common Stocks

 

Shares
Held

 

Value

 











Capital Markets (concluded)

 

 

 

 

 

 

 

 

 

Franklin Resources, Inc.

 

 

632

 

$

40,309

 

 

 

The Goldman Sachs Group, Inc.

 

 

1,840

 

 

155,278

 

 

 

Invesco Ltd. (b)

 

 

1,607

 

 

23,205

 

 

 

Janus Capital Group, Inc.

 

 

664

 

 

5,332

 

 

 

Legg Mason, Inc.

 

 

588

 

 

12,883

 

 

 

Merrill Lynch & Co., Inc. (c)

 

 

6,673

 

 

77,674

 

 

 

Morgan Stanley

 

 

4,460

 

 

71,538

 

 

 

Northern Trust Corp.

 

 

918

 

 

47,865

 

 

 

State Street Corp.

 

 

1,792

 

 

70,479

 

 

 

T. Rowe Price Group, Inc.

 

 

1,074

 

 

38,063

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

772,303

 











Chemicals — 1.6%

 

 

 

 

 

 

 

 

 

Air Products & Chemicals, Inc.

 

 

879

 

 

44,187

 

 

 

CF Industries Holdings, Inc.

 

 

235

 

 

11,553

 

 

 

The Dow Chemical Co.

 

 

3,840

 

 

57,946

 

 

 

E.I. du Pont de Nemours & Co.

 

 

3,745

 

 

94,749

 

 

 

Eastman Chemical Co.

 

 

317

 

 

10,052

 

 

 

Ecolab, Inc.

 

 

722

 

 

25,378

 

 

 

International Flavors & Fragrances, Inc.

 

 

319

 

 

9,481

 

 

 

Monsanto Co.

 

 

2,285

 

 

160,750

 

 

 

PPG Industries, Inc.

 

 

681

 

 

28,895

 

 

 

Praxair, Inc.

 

 

1,300

 

 

77,168

 

 

 

Rohm & Haas Co.

 

 

514

 

 

31,760

 

 

 

Sigma-Aldrich Corp.

 

 

523

 

 

22,092

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

574,011

 











Commercial Banks — 2.9%

 

 

 

 

 

 

 

 

 

BB&T Corp.

 

 

2,281

 

 

62,636

 

 

 

Comerica, Inc.

 

 

625

 

 

12,406

 

 

 

Fifth Third Bancorp

 

 

2,399

 

 

19,816

 

 

 

First Horizon National Corp.

 

 

853

 

 

9,020

 

 

 

Huntington Bancshares, Inc.

 

 

1,521

 

 

11,651

 

 

 

KeyCorp

 

 

2,054

 

 

17,500

 

 

 

M&T Bank Corp.

 

 

320

 

 

18,371

 

 

 

Marshall & Ilsley Corp.

 

 

1,077

 

 

14,690

 

 

 

National City Corp.

 

 

8,689

 

 

15,727

 

 

 

The PNC Financial Services Group, Inc.

 

 

1,451

 

 

71,099

 

 

 

Regions Financial Corp.

 

 

2,885

 

 

22,965

 

 

 

SunTrust Banks, Inc.

 

 

1,468

 

 

43,365

 

 

 

U.S. Bancorp

 

 

7,317

 

 

182,998

 

 

 

Wachovia Corp.

 

 

8,963

 

 

49,655

 

 

 

Wells Fargo & Co.

 

 

15,804

 

 

465,902

 

 

 

Zions Bancorporation

 

 

476

 

 

11,667

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

1,029,468

 











Commercial Services & Supplies — 0.5%

 

 

 

 

 

 

 

 

 

Avery Dennison Corp.

 

 

441

 

 

14,434

 

 

 

Cintas Corp.

 

 

549

 

 

12,753

 

 

 

Pitney Bowes, Inc.

 

 

863

 

 

21,989

 

 

 

R.R. Donnelley & Sons Co.

 

 

872

 

 

11,842

 

 

 

Republic Services, Inc. Class A

 

 

1,305

 

 

32,351

 

 

 

Stericycle, Inc. (a)

 

 

372

 

 

19,374

 

 

 

Waste Management, Inc.

 

 

2,036

 

 

67,473

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

180,216

 












 

 

 




4

S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008



 


 

Schedule of Investments (continued)


 

 

 

 

 

 

 

 

 

 

Industry

 

Common Stocks

 

Shares
Held

 

Value

 











Communications Equipment — 2.3%

 

 

 

 

 

 

 

 

 

Ciena Corp. (a)

 

 

328

 

$

2,198

 

 

 

Cisco Systems, Inc. (a)

 

 

24,415

 

 

397,965

 

 

 

Corning, Inc.

 

 

6,539

 

 

62,317

 

 

 

Harris Corp.

 

 

557

 

 

21,194

 

 

 

JDS Uniphase Corp. (a)

 

 

891

 

 

3,252

 

 

 

Juniper Networks, Inc. (a)

 

 

2,231

 

 

39,065

 

 

 

Motorola, Inc.

 

 

9,405

 

 

41,664

 

 

 

QUALCOMM, Inc.

 

 

6,904

 

 

247,370

 

 

 

Tellabs, Inc. (a)

 

 

1,651

 

 

6,802

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

821,827

 











Computers & Peripherals — 4.0%

 

 

 

 

 

 

 

 

 

Apple, Inc. (a)

 

 

3,707

 

 

316,392

 

 

 

Dell, Inc. (a)

 

 

7,236

 

 

74,097

 

 

 

EMC Corp. (a)

 

 

8,563

 

 

89,655

 

 

 

Hewlett-Packard Co.

 

 

10,213

 

 

370,630

 

 

 

International Business Machines Corp.

 

 

5,602

 

 

471,464

 

 

 

Lexmark International, Inc. Class A (a)

 

 

350

 

 

9,415

 

 

 

NetApp, Inc. (a)

 

 

1,360

 

 

18,999

 

 

 

QLogic Corp. (a)

 

 

546

 

 

7,338

 

 

 

SanDisk Corp. (a)

 

 

935

 

 

8,976

 

 

 

Sun Microsystems, Inc. (a)

 

 

3,127

 

 

11,945

 

 

 

Teradata Corp. (a)

 

 

741

 

 

10,989

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

1,389,900

 











Construction & Engineering — 0.2%

 

 

 

 

 

 

 

 

 

Fluor Corp.

 

 

746

 

 

33,473

 

 

 

Jacobs Engineering Group, Inc. (a)

 

 

508

 

 

24,435

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

57,908

 











Construction Materials — 0.1%

 

 

 

 

 

 

 

 

 

Vulcan Materials Co.

 

 

456

 

 

31,728

 











Consumer Finance — 0.5%

 

 

 

 

 

 

 

 

 

American Express Co.

 

 

4,813

 

 

89,281

 

 

 

Capital One Financial Corp.

 

 

1,616

 

 

51,534

 

 

 

Discover Financial Services, Inc.

 

 

1,991

 

 

18,974

 

 

 

SLM Corp. (a)

 

 

1,941

 

 

17,275

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

177,064

 











Containers & Packaging — 0.2%

 

 

 

 

 

 

 

 

 

Ball Corp.

 

 

400

 

 

16,636

 

 

 

Bemis Co.

 

 

400

 

 

9,472

 

 

 

Owens-Illinois, Inc. (a)

 

 

700

 

 

19,131

 

 

 

Pactiv Corp. (a)

 

 

543

 

 

13,510

 

 

 

Sealed Air Corp.

 

 

656

 

 

9,801

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

68,550

 











Distributors — 0.1%

 

 

 

 

 

 

 

 

 

Genuine Parts Co.

 

 

672

 

 

25,442

 











Diversified Consumer Services — 0.2%

 

 

 

 

 

 

 

 

 

Apollo Group, Inc. Class A (a)

 

 

441

 

 

33,789

 

 

 

H&R Block, Inc.

 

 

1,384

 

 

31,444

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

65,233

 











Diversified Financial Services — 3.1%

 

 

 

 

 

 

 

 

 

Bank of America Corp. (d)(e)

 

 

20,923

 

 

294,596

 

 

 

CIT Group, Inc.

 

 

1,486

 

 

6,746

 

 

 

CME Group, Inc.

 

 

279

 

 

58,063

 

 

 

Citigroup, Inc.

 

 

22,724

 

 

152,478

 

 

 

IntercontinentalExchange, Inc. (a)

 

 

308

 

 

25,392

 

 

 

JPMorgan Chase & Co.

 

 

15,564

 

 

490,733

 

 

 

Leucadia National Corp.

 

 

735

 

 

14,553

 

 

 

 

 

 

 

 

 

 

 

Industry

 

Common Stocks

 

Shares
Held

 

Value

 











Diversified Financial Services (concluded)

 

 

 

 

 

 

 

 

 

Moody’s Corp.

 

 

819

 

$

16,454

 

 

 

The NASDAQ Stock Market, Inc. (a)

 

 

564

 

 

13,936

 

 

 

NYSE Euronext

 

 

1,104

 

 

30,228

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

1,103,179

 











Diversified Telecommunication Services — 3.4%

 

 

 

 

 

 

 

 

 

AT&T Inc. (d)

 

 

24,575

 

 

700,388

 

 

 

CenturyTel, Inc.

 

 

425

 

 

11,615

 

 

 

Embarq Corp.

 

 

615

 

 

22,115

 

 

 

Frontier Communications Corp.

 

 

1,313

 

 

11,476

 

 

 

Qwest Communications International Inc.

 

 

6,163

 

 

22,433

 

 

 

Verizon Communications, Inc.

 

 

11,845

 

 

401,546

 

 

 

Windstream Corp.

 

 

1,826

 

 

16,799

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

1,186,372

 











Electric Utilities — 2.3%

 

 

 

 

 

 

 

 

 

Allegheny Energy, Inc.

 

 

701

 

 

23,736

 

 

 

American Electric Power Co., Inc.

 

 

1,670

 

 

55,578

 

 

 

Duke Energy Corp.

 

 

5,251

 

 

78,818

 

 

 

Edison International

 

 

1,353

 

 

43,458

 

 

 

Entergy Corp.

 

 

795

 

 

66,088

 

 

 

Exelon Corp.

 

 

2,744

 

 

152,594

 

 

 

FPL Group, Inc.

 

 

1,696

 

 

85,360

 

 

 

FirstEnergy Corp.

 

 

1,265

 

 

61,454

 

 

 

PPL Corp.

 

 

1,555

 

 

47,723

 

 

 

Pepco Holdings, Inc.

 

 

850

 

 

15,096

 

 

 

Pinnacle West Capital Corp.

 

 

408

 

 

13,109

 

 

 

Progress Energy, Inc.

 

 

1,088

 

 

43,357

 

 

 

The Southern Co.

 

 

3,206

 

 

118,622

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

804,993

 











Electrical Equipment — 0.5%

 

 

 

 

 

 

 

 

 

Cooper Industries Ltd. Class A

 

 

722

 

 

21,104

 

 

 

Emerson Electric Co.

 

 

3,221

 

 

117,921

 

 

 

Rockwell Automation, Inc.

 

 

604

 

 

19,473

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

158,498

 











Electronic Equipment & Instruments — 0.3%

 

 

 

 

 

 

 

 

 

Agilent Technologies, Inc. (a)

 

 

1,484

 

 

23,195

 

 

 

Amphenol Corp. Class A

 

 

734

 

 

17,601

 

 

 

Flir Systems, Inc. (a)

 

 

600

 

 

18,408

 

 

 

Jabil Circuit, Inc.

 

 

859

 

 

5,798

 

 

 

Molex, Inc.

 

 

593

 

 

8,593

 

 

 

Tyco Electronics Ltd.

 

 

1,943

 

 

31,496

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

105,091

 











Energy Equipment & Services — 1.5%

 

 

 

 

 

 

 

 

 

BJ Services Co.

 

 

1,222

 

 

14,261

 

 

 

Baker Hughes, Inc.

 

 

1,280

 

 

41,050

 

 

 

Cameron International Corp. (a)

 

 

904

 

 

18,532

 

 

 

ENSCO International, Inc.

 

 

595

 

 

16,892

 

 

 

Halliburton Co.

 

 

3,691

 

 

67,102

 

 

 

Nabors Industries Ltd. (a)

 

 

1,163

 

 

13,921

 

 

 

National Oilwell Varco, Inc. (a)

 

 

1,733

 

 

42,355

 

 

 

Noble Corp.

 

 

1,117

 

 

24,675

 

 

 

Rowan Cos., Inc.

 

 

467

 

 

7,425

 

 

 

Schlumberger Ltd.

 

 

4,988

 

 

211,142

 

 

 

Smith International, Inc.

 

 

897

 

 

20,532

 

 

 

Weatherford International Ltd. (a)

 

 

2,826

 

 

30,577

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

508,464

 












 

 

 




S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008

5



 


 

Schedule of Investments (continued)


 

 

 

 

 

 

 

 

 

 

Industry

 

Common Stocks

 

Shares
Held

 

Value

 











Food & Staples Retailing — 3.1%

 

 

 

 

 

 

 

 

 

CVS Caremark Corp.

 

 

5,989

 

$

172,124

 

 

 

Costco Wholesale Corp.

 

 

1,805

 

 

94,763

 

 

 

The Kroger Co.

 

 

2,719

 

 

71,809

 

 

 

SUPERVALU, Inc.

 

 

883

 

 

12,892

 

 

 

SYSCO Corp.

 

 

2,499

 

 

57,327

 

 

 

Safeway, Inc.

 

 

1,807

 

 

42,952

 

 

 

Wal-Mart Stores, Inc.

 

 

9,324

 

 

522,703

 

 

 

Walgreen Co.

 

 

4,109

 

 

101,369

 

 

 

Whole Foods Market, Inc.

 

 

583

 

 

5,504

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

1,081,443

 











Food Products — 1.7%

 

 

 

 

 

 

 

 

 

Archer-Daniels-Midland Co.

 

 

2,675

 

 

77,120

 

 

 

Campbell Soup Co.

 

 

879

 

 

26,379

 

 

 

ConAgra Foods, Inc.

 

 

1,881

 

 

31,037

 

 

 

Dean Foods Co. (a)

 

 

632

 

 

11,357

 

 

 

General Mills, Inc.

 

 

1,396

 

 

84,807

 

 

 

H.J. Heinz Co.

 

 

1,297

 

 

48,767

 

 

 

The Hershey Co.

 

 

688

 

 

23,901

 

 

 

The J.M. Smucker Co.

 

 

490

 

 

21,246

 

 

 

Kellogg Co.

 

 

1,040

 

 

45,604

 

 

 

Kraft Foods, Inc.

 

 

6,159

 

 

165,369

 

 

 

McCormick & Co., Inc.

 

 

535

 

 

17,045

 

 

 

Sara Lee Corp.

 

 

2,933

 

 

28,714

 

 

 

Tyson Foods, Inc. Class A

 

 

1,247

 

 

10,924

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

592,270

 











Gas Utilities — 0.1%

 

 

 

 

 

 

 

 

 

Equitable Resources, Inc.

 

 

569

 

 

19,090

 

 

 

Nicor, Inc.

 

 

187

 

 

6,496

 

 

 

Questar Corp.

 

 

720

 

 

23,537

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

49,123

 











Health Care Equipment & Supplies — 2.0%

 

 

 

 

 

 

 

 

 

Baxter International, Inc.

 

 

2,602

 

 

139,441

 

 

 

Becton Dickinson & Co.

 

 

1,011

 

 

69,142

 

 

 

Boston Scientific Corp. (a)

 

 

6,231

 

 

48,228

 

 

 

C.R. Bard, Inc.

 

 

412

 

 

34,715

 

 

 

Covidien Ltd.

 

 

2,083

 

 

75,488

 

 

 

Dentsply International, Inc.

 

 

600

 

 

16,944

 

 

 

Hospira, Inc. (a)

 

 

662

 

 

17,755

 

 

 

Intuitive Surgical, Inc. (a)

 

 

161

 

 

20,445

 

 

 

Medtronic, Inc.

 

 

4,684

 

 

147,171

 

 

 

St. Jude Medical, Inc. (a)

 

 

1,419

 

 

46,770

 

 

 

Stryker Corp.

 

 

1,027

 

 

41,029

 

 

 

Varian Medical Systems, Inc. (a)

 

 

518

 

 

18,151

 

 

 

Zimmer Holdings, Inc. (a)

 

 

935

 

 

37,793

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

713,072

 











Health Care Providers & Services — 2.0%

 

 

 

 

 

 

 

 

 

Aetna, Inc.

 

 

1,943

 

 

55,376

 

 

 

AmerisourceBergen Corp.

 

 

658

 

 

23,464

 

 

 

Cardinal Health, Inc.

 

 

1,491

 

 

51,395

 

 

 

Cigna Corp.

 

 

1,141

 

 

19,226

 

 

 

Coventry Health Care, Inc. (a)

 

 

616

 

 

9,166

 

 

 

DaVita, Inc. (a)

 

 

433

 

 

21,464

 

 

 

Express Scripts, Inc. (a)

 

 

1,024

 

 

56,300

 

 

 

Humana, Inc. (a)

 

 

701

 

 

26,133

 

 

 

Laboratory Corp. of America Holdings (a)

 

 

462

 

 

29,757

 

 

 

McKesson Corp.

 

 

1,145

 

 

44,346

 

 

 

Medco Health Solutions, Inc. (a)

 

 

2,094

 

 

87,760

 

 

 

 

 

 

 

 

 

 

 

Industry

 

Common Stocks

 

Shares
Held

 

Value

 











Health Care Providers & Services (concluded)

 

 

 

 

 

 

 

 

 

Patterson Cos., Inc. (a)

 

 

378

 

$

7,088

 

 

 

Quest Diagnostics, Inc.

 

 

656

 

 

34,053

 

 

 

Tenet Healthcare Corp. (a)

 

 

1,723

 

 

1,981

 

 

 

UnitedHealth Group, Inc.

 

 

5,055

 

 

134,463

 

 

 

WellPoint, Inc. (a)

 

 

2,123

 

 

89,442

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

691,414

 











Health Care Technology — 0.0%

 

 

 

 

 

 

 

 

 

IMS Health, Inc.

 

 

756

 

 

11,461

 











Hotels, Restaurants & Leisure — 1.5%

 

 

 

 

 

 

 

 

 

Carnival Corp.

 

 

1,814

 

 

44,116

 

 

 

Darden Restaurants, Inc.

 

 

583

 

 

16,429

 

 

 

International Game Technology

 

 

1,274

 

 

15,148

 

 

 

Marriott International, Inc. Class A

 

 

1,227

 

 

23,865

 

 

 

McDonald’s Corp.

 

 

4,662

 

 

289,930

 

 

 

Starbucks Corp. (a)

 

 

3,034

 

 

28,702

 

 

 

Starwood Hotels & Resorts Worldwide, Inc.

 

 

775

 

 

13,873

 

 

 

Wyndham Worldwide Corp.

 

 

738

 

 

4,834

 

 

 

Wynn Resorts Ltd. (a)

 

 

245

 

 

10,354

 

 

 

Yum! Brands, Inc.

 

 

1,946

 

 

61,299

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

508,550

 











Household Durables — 0.4%

 

 

 

 

 

 

 

 

 

Black & Decker Corp.

 

 

249

 

 

10,411

 

 

 

Centex Corp.

 

 

539

 

 

5,735

 

 

 

D.R. Horton, Inc.

 

 

1,144

 

 

8,088

 

 

 

Fortune Brands, Inc.

 

 

622

 

 

25,676

 

 

 

Harman International Industries, Inc.

 

 

243

 

 

4,065

 

 

 

KB Home

 

 

330

 

 

4,495

 

 

 

Leggett & Platt, Inc.

 

 

667

 

 

10,132

 

 

 

Lennar Corp. Class A

 

 

611

 

 

5,297

 

 

 

Newell Rubbermaid, Inc.

 

 

1,151

 

 

11,257

 

 

 

Pulte Homes, Inc.

 

 

888

 

 

9,706

 

 

 

Snap-On, Inc.

 

 

238

 

 

9,372

 

 

 

The Stanley Works

 

 

321

 

 

10,946

 

 

 

Whirlpool Corp.

 

 

309

 

 

12,777

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

127,957

 











Household Products — 3.0%

 

 

 

 

 

 

 

 

 

Clorox Co.

 

 

573

 

 

31,836

 

 

 

Colgate-Palmolive Co.

 

 

2,099

 

 

143,865

 

 

 

Kimberly-Clark Corp.

 

 

1,724

 

 

90,924

 

 

 

The Procter & Gamble Co.

 

 

12,451

 

 

769,721

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

1,036,346

 











IT Services — 0.9%

 

 

 

 

 

 

 

 

 

Affiliated Computer Services, Inc. Class A (a)

 

 

404

 

 

18,564

 

 

 

Automatic Data Processing, Inc.

 

 

2,112

 

 

83,086

 

 

 

Cognizant Technology Solutions Corp. (a)

 

 

1,211

 

 

21,871

 

 

 

Computer Sciences Corp. (a)

 

 

628

 

 

22,068

 

 

 

Convergys Corp. (a)

 

 

507

 

 

3,250

 

 

 

Fidelity National Information Services, Inc.

 

 

788

 

 

12,821

 

 

 

Fiserv, Inc. (a)

 

 

681

 

 

24,768

 

 

 

MasterCard, Inc. Class A

 

 

300

 

 

42,879

 

 

 

Paychex, Inc.

 

 

1,332

 

 

35,005

 

 

 

Total System Services, Inc.

 

 

822

 

 

11,508

 

 

 

The Western Union Co.

 

 

3,020

 

 

43,307

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

319,127

 












 

 

 




6

S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008



 


 

Schedule of Investments (continued)


 

 

 

 

 

 

 

 

 

 

Industry

 

Common Stocks

 

Shares
Held

 

Value

 











Independent Power Producers & Energy Traders — 0.1%

 

 

 

 

 

 

 

 

 

The AES Corp. (a)

 

 

2,831

 

$

23,327

 

 

 

Constellation Energy Group, Inc.

 

 

740

 

 

18,567

 

 

 

Dynegy, Inc. Class A (a)

 

 

2,100

 

 

4,200

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

46,094

 











Industrial Conglomerates — 2.7%

 

 

 

 

 

 

 

 

 

3M Co.

 

 

2,902

 

 

166,981

 

 

 

General Electric Co.

 

 

43,799

 

 

709,544

 

 

 

Textron, Inc.

 

 

1,032

 

 

14,314

 

 

 

Tyco International Ltd.

 

 

1,971

 

 

42,573

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

933,412

 











Insurance — 2.5%

 

 

 

 

 

 

 

 

 

AON Corp.

 

 

1,144

 

 

52,258

 

 

 

Aflac, Inc.

 

 

1,963

 

 

89,984

 

 

 

The Allstate Corp.

 

 

2,248

 

 

73,644

 

 

 

American International Group, Inc.

 

 

11,163

 

 

17,526

 

 

 

Assurant, Inc.

 

 

492

 

 

14,760

 

 

 

Chubb Corp.

 

 

1,497

 

 

76,347

 

 

 

Cincinnati Financial Corp.

 

 

674

 

 

19,593

 

 

 

Genworth Financial, Inc. Class A

 

 

1,799

 

 

5,091

 

 

 

Hartford Financial Services Group, Inc.

 

 

1,251

 

 

20,541

 

 

 

Lincoln National Corp.

 

 

1,066

 

 

20,083

 

 

 

Loews Corp.

 

 

1,503

 

 

42,460

 

 

 

MBIA, Inc.

 

 

813

 

 

3,309

 

 

 

Marsh & McLennan Cos., Inc.

 

 

2,129

 

 

51,671

 

 

 

MetLife, Inc.

 

 

3,293

 

 

114,794

 

 

 

Principal Financial Group, Inc.

 

 

1,076

 

 

24,285

 

 

 

The Progressive Corp.

 

 

2,805

 

 

41,542

 

 

 

Prudential Financial, Inc.

 

 

1,773

 

 

53,651

 

 

 

Torchmark Corp.

 

 

362

 

 

16,181

 

 

 

The Travelers Cos., Inc.

 

 

2,453

 

 

110,876

 

 

 

UnumProvident Corp.

 

 

1,413

 

 

26,282

 

 

 

XL Capital Ltd. Class A

 

 

1,296

 

 

4,795

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

879,673

 











Internet & Catalog Retail — 0.2%

 

 

 

 

 

 

 

 

 

Amazon.com, Inc. (a)

 

 

1,331

 

 

68,254

 

 

 

Expedia, Inc. (a)

 

 

870

 

 

7,169

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

75,423

 











Internet Software & Services — 1.3%

 

 

 

 

 

 

 

 

 

Akamai Technologies, Inc. (a)

 

 

703

 

 

10,608

 

 

 

eBay, Inc. (a)

 

 

4,508

 

 

62,932

 

 

 

Google, Inc. Class A (a)

 

 

1,000

 

 

307,650

 

 

 

VeriSign, Inc. (a)

 

 

802

 

 

15,302

 

 

 

Yahoo! Inc. (a)

 

 

5,754

 

 

70,199

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

466,691

 











Leisure Equipment & Products — 0.1%

 

 

 

 

 

 

 

 

 

Eastman Kodak Co.

 

 

1,197

 

 

7,876

 

 

 

Hasbro, Inc.

 

 

521

 

 

15,198

 

 

 

Mattel, Inc.

 

 

1,498

 

 

23,968

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

47,042

 











Life Sciences Tools & Services — 0.3%

 

 

 

 

 

 

 

 

 

Life Technologies Corp (a)

 

 

693

 

 

16,154

 

 

 

Millipore Corp. (a)

 

 

229

 

 

11,798

 

 

 

PerkinElmer, Inc.

 

 

496

 

 

6,899

 

 

 

Thermo Fisher Scientific, Inc. (a)

 

 

1,739

 

 

59,248

 

 

 

Waters Corp. (a)

 

 

411

 

 

15,063

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

109,162

 











 

 

 

 

 

 

 

 

 

 

Industry

 

Common Stocks

 

Shares
Held

 

Value

 











Machinery — 1.6%

 

 

 

 

 

 

 

 

 

Caterpillar, Inc.

 

 

2,527

 

$

112,881

 

 

 

Cummins, Inc.

 

 

841

 

 

22,480

 

 

 

Danaher Corp.

 

 

1,059

 

 

59,950

 

 

 

Deere & Co.

 

 

1,773

 

 

67,941

 

 

 

Dover Corp.

 

 

780

 

 

25,678

 

 

 

Eaton Corp.

 

 

690

 

 

34,300

 

 

 

Flowserve Corp.

 

 

238

 

 

12,257

 

 

 

ITT Corp.

 

 

754

 

 

34,676

 

 

 

Illinois Tool Works, Inc.

 

 

1,660

 

 

58,183

 

 

 

Ingersoll-Rand Co. Class A

 

 

1,322

 

 

22,937

 

 

 

Manitowoc Co.

 

 

542

 

 

4,694

 

 

 

PACCAR, Inc.

 

 

1,508

 

 

43,129

 

 

 

Pall Corp.

 

 

498

 

 

14,158

 

 

 

Parker Hannifin Corp.

 

 

689

 

 

29,310

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

542,574

 











Media — 2.4%

 

 

 

 

 

 

 

 

 

CBS Corp. Class B

 

 

2,824

 

 

23,129

 

 

 

Comcast Corp. Class A

 

 

12,055

 

 

203,488

 

 

 

The DIRECTV Group, Inc. (a)

 

 

2,296

 

 

52,601

 

 

 

Gannett Co., Inc.

 

 

948

 

 

7,584

 

 

 

Interpublic Group of Cos., Inc. (a)

 

 

1,979

 

 

7,837

 

 

 

The McGraw-Hill Cos., Inc.

 

 

1,318

 

 

30,564

 

 

 

Meredith Corp.

 

 

150

 

 

2,568

 

 

 

The New York Times Co. Class A

 

 

484

 

 

3,548

 

 

 

News Corp. Class A

 

 

9,532

 

 

86,646

 

 

 

Omnicom Group Inc.

 

 

1,323

 

 

35,615

 

 

 

Scripps Networks Interactive

 

 

373

 

 

8,206

 

 

 

Time Warner, Inc.

 

 

14,959

 

 

150,488

 

 

 

Viacom, Inc. Class B (a)

 

 

2,578

 

 

49,137

 

 

 

Walt Disney Co.

 

 

7,755

 

 

175,961

 

 

 

The Washington Post Co. Class B

 

 

24

 

 

9,366

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

846,738

 











Metals & Mining — 0.7%

 

 

 

 

 

 

 

 

 

AK Steel Holding Corp.

 

 

467

 

 

4,352

 

 

 

Alcoa, Inc.

 

 

3,378

 

 

38,036

 

 

 

Allegheny Technologies, Inc.

 

 

416

 

 

10,620

 

 

 

Freeport-McMoRan Copper & Gold, Inc. Class B

 

 

1,594

 

 

38,957

 

 

 

Newmont Mining Corp.

 

 

1,896

 

 

77,167

 

 

 

Nucor Corp.

 

 

1,314

 

 

60,707

 

 

 

Titanium Metals Corp.

 

 

354

 

 

3,119

 

 

 

United States Steel Corp.

 

 

488

 

 

18,154

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

251,112

 











Multi-Utilities — 1.4%

 

 

 

 

 

 

 

 

 

Ameren Corp.

 

 

873

 

 

29,036

 

 

 

CMS Energy Corp.

 

 

900

 

 

9,099

 

 

 

CenterPoint Energy, Inc.

 

 

1,415

 

 

17,857

 

 

 

Consolidated Edison, Inc.

 

 

1,134

 

 

44,147

 

 

 

DTE Energy Co.

 

 

677

 

 

24,149

 

 

 

Dominion Resources, Inc.

 

 

2,408

 

 

86,303

 

 

 

Integrys Energy Group, Inc.

 

 

312

 

 

13,410

 

 

 

NiSource, Inc.

 

 

1,139

 

 

12,495

 

 

 

PG&E Corp.

 

 

1,488

 

 

57,600

 

 

 

Public Service Enterprise Group, Inc.

 

 

2,111

 

 

61,578

 

 

 

SCANA Corp.

 

 

500

 

 

17,800

 

 

 

Sempra Energy

 

 

1,023

 

 

43,610

 

 

 

TECO Energy, Inc.

 

 

884

 

 

10,917

 

 

 

Wisconsin Energy Corp.

 

 

485

 

 

20,360

 

 

 

Xcel Energy, Inc.

 

 

1,851

 

 

34,336

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

482,697

 












 

 

 




S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008

7



 


 

Schedule of Investments (continued)


 

 

 

 

 

 

 

 

 

 

Industry

 

Common Stocks

 

Shares
Held

 

Value

 











Multiline Retail — 0.7%

 

 

 

 

 

 

 

 

 

Big Lots, Inc. (a)

 

 

341

 

$

4,941

 

 

 

Family Dollar Stores, Inc.

 

 

580

 

 

15,121

 

 

 

J.C. Penney Co., Inc.

 

 

922

 

 

18,163

 

 

 

Kohl’s Corp. (a)

 

 

1,264

 

 

45,757

 

 

 

Macy’s, Inc.

 

 

1,747

 

 

18,081

 

 

 

Nordstrom, Inc.

 

 

662

 

 

8,811

 

 

 

Sears Holdings Corp. (a)

 

 

236

 

 

9,173

 

 

 

Target Corp.

 

 

3,133

 

 

108,182

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

228,229

 











Office Electronics — 0.1%

 

 

 

 

 

 

 

 

 

Xerox Corp.

 

 

3,622

 

 

28,867

 











Oil, Gas & Consumable Fuels — 11.0%

 

 

 

 

 

 

 

 

 

Anadarko Petroleum Corp.

 

 

1,932

 

 

74,479

 

 

 

Apache Corp.

 

 

1,388

 

 

103,448

 

 

 

Cabot Oil & Gas Corp. Class A

 

 

429

 

 

11,154

 

 

 

Chesapeake Energy Corp.

 

 

2,222

 

 

35,930

 

 

 

Chevron Corp.

 

 

8,473

 

 

626,748

 

 

 

ConocoPhillips

 

 

6,217

 

 

322,041

 

 

 

Consol Energy, Inc.

 

 

760

 

 

21,721

 

 

 

Devon Energy Corp.

 

 

1,834

 

 

120,512

 

 

 

EOG Resources, Inc.

 

 

1,033

 

 

68,777

 

 

 

El Paso Corp.

 

 

2,912

 

 

22,801

 

 

 

Exxon Mobil Corp.

 

 

21,212

 

 

1,693,354

 

 

 

Hess Corp.

 

 

1,175

 

 

63,027

 

 

 

Marathon Oil Corp.

 

 

2,929

 

 

80,137

 

 

 

Massey Energy Co.

 

 

351

 

 

4,840

 

 

 

Murphy Oil Corp.

 

 

791

 

 

35,081

 

 

 

Noble Energy, Inc.

 

 

717

 

 

35,291

 

 

 

Occidental Petroleum Corp.

 

 

3,391

 

 

203,426

 

 

 

Peabody Energy Corp.

 

 

1,129

 

 

25,685

 

 

 

Pioneer Natural Resources Co.

 

 

497

 

 

8,041

 

 

 

Range Resources Corp.

 

 

644

 

 

22,147

 

 

 

Southwestern Energy Co. (a)

 

 

1,425

 

 

41,282

 

 

 

Spectra Energy Corp.

 

 

2,552

 

 

40,168

 

 

 

Sunoco, Inc.

 

 

485

 

 

21,078

 

 

 

Tesoro Corp.

 

 

573

 

 

7,546

 

 

 

Valero Energy Corp.

 

 

2,172

 

 

47,002

 

 

 

Williams Cos., Inc.

 

 

2,392

 

 

34,636

 

 

 

XTO Energy, Inc.

 

 

2,389

 

 

84,260

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

3,854,612

 











Paper & Forest Products — 0.2%

 

 

 

 

 

 

 

 

 

International Paper Co.

 

 

1,775

 

 

20,945

 

 

 

MeadWestvaco Corp.

 

 

710

 

 

7,945

 

 

 

Weyerhaeuser Co.

 

 

877

 

 

26,845

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

55,735

 











Personal Products — 0.2%

 

 

 

 

 

 

 

 

 

Avon Products, Inc.

 

 

1,767

 

 

42,461

 

 

 

The Estée Lauder Cos., Inc. Class A

 

 

477

 

 

14,768

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

57,229

 











Pharmaceuticals — 7.4%

 

 

 

 

 

 

 

 

 

Abbott Laboratories

 

 

6,470

 

 

345,304

 

 

 

Allergan, Inc.

 

 

1,277

 

 

51,489

 

 

 

Bristol-Myers Squibb Co.

 

 

8,255

 

 

191,929

 

 

 

Eli Lilly & Co.

 

 

4,172

 

 

168,006

 

 

 

Forest Laboratories, Inc. (a)

 

 

1,266

 

 

32,245

 

 

 

Johnson & Johnson

 

 

11,570

 

 

692,233

 

 

 

King Pharmaceuticals, Inc. (a)

 

 

1,013

 

 

10,758

 

 

 

 

 

 

 

 

 

 

 

Industry

 

Common Stocks

 

Shares
Held

 

Value

 











Pharmaceuticals (concluded)

 

 

 

 

 

 

 

 

 

Merck & Co., Inc.

 

 

8,837

 

$

268,645

 

 

 

Mylan, Inc. (a)

 

 

1,265

 

 

12,511

 

 

 

Pfizer, Inc.

 

 

28,119

 

 

497,987

 

 

 

Schering-Plough Corp.

 

 

6,749

 

 

114,935

 

 

 

Watson Pharmaceuticals, Inc. (a)

 

 

429

 

 

11,399

 

 

 

Wyeth

 

 

5,552

 

 

208,256

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

2,605,697

 











Professional Services — 0.1%

 

 

 

 

 

 

 

 

 

Dun & Bradstreet Corp.

 

 

215

 

 

16,598

 

 

 

Equifax, Inc.

 

 

532

 

 

14,109

 

 

 

Monster Worldwide, Inc. (a)

 

 

516

 

 

6,238

 

 

 

Robert Half International, Inc.

 

 

647

 

 

13,471

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

50,416

 











Real Estate Investment Trusts (REITs) — 0.9%

 

 

 

 

 

 

 

 

 

Apartment Investment & Management Co. Class A

 

 

443

 

 

5,117

 

 

 

AvalonBay Communities, Inc.

 

 

320

 

 

19,386

 

 

 

Boston Properties, Inc.

 

 

497

 

 

27,335

 

 

 

Developers Diversified Realty Corp.

 

 

500

 

 

2,440

 

 

 

Equity Residential

 

 

1,125

 

 

33,548

 

 

 

HCP, Inc.

 

 

1,045

 

 

29,020

 

 

 

Host Marriott Corp.

 

 

2,158

 

 

16,336

 

 

 

Kimco Realty Corp.

 

 

943

 

 

17,238

 

 

 

Plum Creek Timber Co., Inc.

 

 

710

 

 

24,665

 

 

 

ProLogis

 

 

1,124

 

 

15,612

 

 

 

Public Storage

 

 

520

 

 

41,340

 

 

 

Simon Property Group, Inc.

 

 

934

 

 

49,623

 

 

 

Vornado Realty Trust

 

 

569

 

 

34,339

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

315,999

 











Real Estate Management & Development — 0.0%

 

 

 

 

 

 

 

 

 

CB Richard Ellis Group, Inc. (a)

 

 

798

 

 

3,447

 











Road & Rail — 0.9%

 

 

 

 

 

 

 

 

 

Burlington Northern Santa Fe Corp.

 

 

1,172

 

 

88,732

 

 

 

CSX Corp.

 

 

1,669

 

 

54,192

 

 

 

Norfolk Southern Corp.

 

 

1,558

 

 

73,304

 

 

 

Ryder System, Inc.

 

 

234

 

 

9,075

 

 

 

Union Pacific Corp.

 

 

2,114

 

 

101,049

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

326,352

 











Semiconductors & Semiconductor Equipment — 2.0%

 

 

 

 

 

 

 

 

 

Advanced Micro Devices, Inc. (a)

 

 

2,522

 

 

5,448

 

 

 

Altera Corp.

 

 

1,249

 

 

20,871

 

 

 

Analog Devices, Inc.

 

 

1,206

 

 

22,938

 

 

 

Applied Materials, Inc.

 

 

5,571

 

 

56,434

 

 

 

Broadcom Corp. Class A (a)

 

 

1,832

 

 

31,089

 

 

 

Intel Corp.

 

 

23,206

 

 

340,200

 

 

 

KLA-Tencor Corp.

 

 

719

 

 

15,667

 

 

 

LSI Corp. (a)

 

 

2,673

 

 

8,794

 

 

 

Linear Technology Corp.

 

 

920

 

 

20,350

 

 

 

MEMC Electronic Materials, Inc. (a)

 

 

938

 

 

13,395

 

 

 

Microchip Technology, Inc.

 

 

764

 

 

14,921

 

 

 

Micron Technology, Inc. (a)

 

 

3,160

 

 

8,342

 

 

 

National Semiconductor Corp.

 

 

810

 

 

8,157

 

 

 

Novellus Systems, Inc. (a)

 

 

413

 

 

5,096

 

 

 

Nvidia Corp. (a)

 

 

2,300

 

 

18,561

 

 

 

Teradyne, Inc. (a)

 

 

702

 

 

2,962

 

 

 

Texas Instruments, Inc.

 

 

5,442

 

 

84,460

 

 

 

Xilinx, Inc.

 

 

1,148

 

 

20,457

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

698,142

 












 

 

 




8

S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008



 


 

Schedule of Investments (continued)


 

 

 

 

 

 

 

 

 

 

Industry

 

Common Stocks

 

Shares
Held

 

Value

 











Software — 3.4%

 

 

 

 

 

 

 

 

 

Adobe Systems, Inc. (a)

 

 

2,202

 

$

46,881

 

 

 

Autodesk, Inc. (a)

 

 

934

 

 

18,353

 

 

 

BMC Software, Inc. (a)

 

 

789

 

 

21,232

 

 

 

CA, Inc.

 

 

1,635

 

 

30,297

 

 

 

Citrix Systems, Inc. (a)

 

 

757

 

 

17,842

 

 

 

Compuware Corp. (a)

 

 

1,059

 

 

7,148

 

 

 

Electronic Arts, Inc. (a)

 

 

1,324

 

 

21,237

 

 

 

Intuit, Inc. (a)

 

 

1,333

 

 

31,712

 

 

 

McAfee, Inc. (a)

 

 

700

 

 

24,199

 

 

 

Microsoft Corp.

 

 

31,901

 

 

620,155

 

 

 

Novell, Inc. (a)

 

 

1,434

 

 

5,578

 

 

 

Oracle Corp. (a)

 

 

16,335

 

 

289,620

 

 

 

Salesforce.com, Inc. (a)

 

 

432

 

 

13,828

 

 

 

Symantec Corp. (a)

 

 

3,484

 

 

47,104

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

1,195,186

 











Specialty Retail — 1.7%

 

 

 

 

 

 

 

 

 

Abercrombie & Fitch Co. Class A

 

 

361

 

 

8,328

 

 

 

AutoNation, Inc. (a)

 

 

448

 

 

4,426

 

 

 

AutoZone, Inc. (a)

 

 

159

 

 

22,176

 

 

 

Bed Bath & Beyond, Inc. (a)

 

 

1,081

 

 

27,479

 

 

 

Best Buy Co., Inc.

 

 

1,402

 

 

39,410

 

 

 

GameStop Corp. Class A (a)

 

 

678

 

 

14,685

 

 

 

The Gap, Inc.

 

 

1,950

 

 

26,111

 

 

 

Home Depot, Inc.

 

 

7,070

 

 

162,751

 

 

 

Limited Brands, Inc.

 

 

1,183

 

 

11,877

 

 

 

Lowe’s Cos., Inc.

 

 

6,084

 

 

130,928

 

 

 

Office Depot, Inc. (a)

 

 

1,143

 

 

3,406

 

 

 

RadioShack Corp.

 

 

545

 

 

6,507

 

 

 

The Sherwin-Williams Co.

 

 

410

 

 

24,498

 

 

 

Staples, Inc.

 

 

2,952

 

 

52,900

 

 

 

TJX Cos., Inc.

 

 

1,741

 

 

35,812

 

 

 

Tiffany & Co.

 

 

515

 

 

12,169

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

583,463

 











Textiles, Apparel & Luxury Goods — 0.4%

 

 

 

 

 

 

 

 

 

Coach, Inc. (a)

 

 

1,386

 

 

28,787

 

 

 

Jones Apparel Group, Inc.

 

 

347

 

 

2,033

 

 

 

Nike, Inc. Class B

 

 

1,629

 

 

83,079

 

 

 

Polo Ralph Lauren Corp.

 

 

236

 

 

10,717

 

 

 

VF Corp.

 

 

362

 

 

19,827

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

144,443

 











Thrifts & Mortgage Finance — 0.2%

 

 

 

 

 

 

 

 

 

Hudson City Bancorp, Inc.

 

 

2,157

 

 

34,426

 

 

 

People’s United Financial, Inc.

 

 

1,499

 

 

26,727

 

 

 

Sovereign Bancorp, Inc. (a)

 

 

2,304

 

 

6,866

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

68,019

 











Tobacco — 1.7%

 

 

 

 

 

 

 

 

 

Altria Group, Inc.

 

 

8,551

 

 

128,778

 

 

 

Lorillard, Inc.

 

 

716

 

 

40,347

 

 

 

Philip Morris International, Inc.

 

 

8,457

 

 

367,964

 

 

 

Reynolds American, Inc.

 

 

706

 

 

28,459

 

 

 

UST, Inc.

 

 

613

 

 

42,530

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

608,078

 











 

 

 

 

 

 

 

 

 

 

Industry

 

Common Stocks

 

Shares
Held

 

Value

 











Trading Companies & Distributors — 0.1%

 

 

 

 

 

 

 

 

 

Fastenal Co.

 

 

536

 

$

18,680

 

 

 

W.W. Grainger, Inc.

 

 

269

 

 

21,208

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

39,888

 











Wireless Telecommunication Services — 0.2%

 

 

 

 

 

 

 

 

 

American Tower Corp. Class A (a)

 

 

1,635

 

 

47,938

 

 

 

Sprint Nextel Corp. (a)

 

 

11,850

 

 

21,686

 

 

 

 

 

 

 

 




 

 

 

 

 

 

 

 

69,624

 











 

 

Total Common Stocks
(Cost — $40,320,209) — 93.6%

 

 

 

 

 

32,801,634

 












 

 

 

 

 

 

 

 

 

 

 

 

 

 















 

 

 

 

 

 

 

 

 

 

 

Short-Term Securities

 

Maturity
Date

 

Yield

 

Face
Amount

 

 

 

 















Time Deposits — 7.6%

 

 

 

 

 

 

 

 

 

 

 

State Street Bank & Trust Co.

 

1/02/09

 

0.01

%

$

2,689,480

 

 

2,689,480

 















 

 

Total Short-Term Securities
(Cost — $2,689,480) — 7.6%

 

 

 

 

 

 

 

 

 

2,689,480

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options Purchased

 

 

 

 

 

Number of
Contracts

 

 

 

 















Call Options Purchased

 

 

 

 

 

 

 

 

 

 

 

 

 

S&P 500 Index, expiring November 2009 at USD 904.88, BNP Paribas

 

 

 

 

 

 

76,160

 

 

8,793,638

 















 

 

Total Options Purchased
(Premium Paid — $10,750,843) — 25.1%

 

 

 

 

 

 

 

8,793,638

 















 

 

Total Investments Before Options Written
(Cost — $53,760,532*) — 126.3%

 

 

 

 

 

 

 

44,284,752

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options Written

 

 

 

 

 

 

 

 

 

 

 















Call Options Written

 

 

 

 

 

 

 

 

 

 

 

 

 

S&P 500 Index, expiring November 2009 at USD 999.89, BNP Paribas

 

 

 

 

 

 

114,240

 

 

(8,249,205

)















 

 

Total Options Written
(Premium Received — $10,750,843) — (23.5%)

 

 

 

 

 

 

 

(8,249,205

)















 

 

Total Investments, Net of Options Written
(Net Cost — $43,009,689) — 102.8%

 

 

 

 

 

 

 

36,035,547

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities in Excess of Other Assets — (2.8%)

 

 

 

 

 

 

 

(976,085

)

 

 

 

 

 

 

 

 

 

 

 




 

 

Net Assets — 100.0%

 

 

 

 

 

 

 

 

$

35,059,462

 

 

 

 

 

 

 

 

 

 

 

 





 

 

 




S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008

9



 


 

Schedule of Investments (concluded)


 

 

*

The cost and unrealized appreciation (depreciation) of investments as of December 31, 2008, as computed for federal income tax purposes, were as follows:


 

 

 

 

 

 

 

Aggregate cost

 

$

53,930,851

 

 

 

 



 

 

Gross unrealized appreciation

 

$

4,389,914

 

 

Gross unrealized depreciation

 

 

(14,036,013

)

 

 

 



 

 

Net unrealized depreciation

 

$

(9,646,099

)

 

 

 



 


 

 

(a)

Non-income producing security.

 

 

(b)

Depositary receipts.

 

 

(c)

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:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Affiliate

 

Purchase
Cost

 

Sales
Cost

 

Realized
Loss

 

Dividend
Income

 

 











 

Merrill Lynch & Co., Inc.

 

$109,673

 

$86,941

 

$(53,419)

 

$7,988

 

 



 

 

(d)

All or a portion of security held as collateral in connection with open financial futures contracts.

 

 

(e)

Please see Note 6 of the Notes to Financial Statements.

 

 

Financial futures contracts purchased as of December 31, 2008 were as follows:


 

 

 

 

 

 

 

 

 

 

 

 

 

 


Number of
Contracts

 

Issue

 

Expiration
Date

 

Face
Value

 

Appreciation
(Depreciation)

 











38

 

E-mini S&P 500

 

March 2009

 

$

1,700,540

 

 

$9,650

 
















 

 

 

For Fund portfolio compliance purposes, the Fund’s industry classifications refer to any one or more of the industry sub-classifications used by one or more widely recognized market indexes or ratings group indexes, and/or as defined by Fund management. This definition may not apply for purposes of this report, which may combine industry sub-classifications for reporting ease. Industries are shown as a percent of net assets. These industry classifications are unaudited.

 

 

 

Effective January 1, 2008, the Fund adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS 157”). FAS 157 clarifies the definition of fair value, establishes a framework for measuring fair values and requires additional disclosures about the use of fair value measurements. Various inputs are used in determining the fair value of investments, which are as follows:

 

 

 

 

Level 1 — price quotations in active markets/exchanges for identical securities

 

 

 

 

Level 2 — other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, and default rates) or other market-corroborated inputs)

 

 

 

 

Level 3 — unobservable inputs based on the best information available in the circumstance, to the extent observable inputs are not available (including the Fund’s own assumption used in determining the fair value of investments)

 

 

 

 

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. For information about the Fund’s policy regarding valuation of investments and other significant accounting policies, please refer to Note 1(a) of the Notes to Financial Statements.

 

 

 

 

The following table summarizes the inputs used as of December 31, 2008 in determining the fair valuation of the Fund’s investments:


 

 

 

 

 

 

 

 

 

 

 

 

 









 

Valuation Inputs

 

Investments in
Securities

 

Other
Financial Instruments†

 

 







 

 

 

 

 

Assets

 

Liabilities

 

 

 

 

 

 


 



 

Level 1

 

$

32,801,634

 

$

9,650

 

 

 

 

Level 2

 

 

2,689,480

 

 

8,793,638

 

$

(8,249,205

)

 

Level 3

 

 

 

 

 

 

 

 












 

Total

 

$

35,491,114

 

$

8,803,288

 

$

(8,249,205

)

 

 

 











 

 

 

 

Other financial instruments are options and futures.

See Notes to Financial Statements.

 

 

 




10

S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008



 


 

Statement of Assets, Liabilities and Capital


 

 

 

 

 

 

 

 

As of December 31, 2008

 

 

 

 

 

 

 









Assets

 

 

 

 

 

 

 









Investments in unaffiliated securities, at value (identified cost — $42,748,763)

 

 

 

 

$

35,413,440

 

Investments in affiliated securities, at value (identified cost — $260,926)

 

 

 

 

 

77,674

 

Options purchased, at value (premiums paid — $10,750,843)

 

 

 

 

 

8,793,638

 

Collateral on options

 

 

 

 

 

410,000

 

Receivables:

 

 

 

 

 

 

 

Dividends

 

$

74,448

 

 

 

 

Securities sold

 

 

63,459

 

 

 

 

Variation margin

 

 

22,326

 

 

160,233

 

 

 







Total assets

 

 

 

 

 

44,854,985

 

 

 

 

 

 




 

 

 

 

 

 

 

 









Liabilities

 

 

 

 

 

 

 









Collateral on options (including accrued interest of $167)

 

 

 

 

 

1,410,167

 

Options written, at value (premiums received — $10,750,843)

 

 

 

 

 

8,249,205

 

Payables:

 

 

 

 

 

 

 

Securities purchased

 

 

55,275

 

 

 

 

Investment advisory fees

 

 

3,812

 

 

 

 

Custodian bank

 

 

1,189

 

 

60,276

 

Accrued expenses

 

 

 

 

 

75,875

 

 

 

 

 

 




Total liabilities

 

 

 

 

 

9,795,523

 

 

 

 

 

 




 

 

 

 

 

 

 

 









Net Assets

 

 

 

 

 

 

 









Net assets

 

 

 

 

$

35,059,462

 

 

 

 

 

 




 

 

 

 

 

 

 

 









Capital

 

 

 

 

 

 

 









Common Stock, par value $.001 per share, 100,000,000 shares authorized

 

 

 

 

$

3,551

 

Paid-in capital in excess of par

 

 

 

 

 

61,329,280

 

Undistributed investment income — net

 

$

498,168

 

 

 

 

Accumulated realized capital losses — net

 

 

(19,807,045

)

 

 

 

Unrealized depreciation — net

 

 

(6,964,492

)

 

 

 

 

 



 

 

 

 

Total accumulated losses — net

 

 

 

 

 

(26,273,369

)

 

 

 

 

 




Total capital — Equivalent to $9.87 per share based on 3,551,176 shares of Common Stock outstanding (market price — $9.36)

 

 

 

 

$

35,059,462

 

 

 

 

 

 




See Notes to Financial Statements.

 

 

 


S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008

11



 


 

Statement of Operations


 

 

 

 

 

 

 

 

For the Year Ended December 31, 2008

 

 

 

 

 

 

 









Investment Income

 

 

 

 

 

 

 









Dividends (including $7,988 from affiliates)

 

 

 

 

$

1,193,329

 

Interest

 

 

 

 

 

50,066

 

 

 

 

 

 




Total income

 

 

 

 

 

1,243,395

 

 

 

 

 

 




 

 

 

 

 

 

 

 









Expenses

 

 

 

 

 

 

 









Investment advisory fees

 

$

456,112

 

 

 

 

Professional fees

 

 

71,057

 

 

 

 

Directors’ fees and expenses

 

 

63,475

 

 

 

 

Interest expense

 

 

27,956

 

 

 

 

Repurchase offer

 

 

25,899

 

 

 

 

Printing and shareholder reports

 

 

25,102

 

 

 

 

Listing fees

 

 

23,750

 

 

 

 

Transfer agent fees

 

 

22,992

 

 

 

 

Accounting services

 

 

19,071

 

 

 

 

Custodian fees

 

 

17,138

 

 

 

 

Insurance fees

 

 

5,946

 

 

 

 

Other

 

 

12,627

 

 

 

 

 

 



 

 

 

 

Total expenses

 

 

 

 

 

771,125

 

 

 

 

 

 




Investment income — net

 

 

 

 

 

472,270

 

 

 

 

 

 




 

 

 

 

 

 

 

 









Realized & Unrealized Gain (Loss) — Net

 

 

 

 

 

 

 









Realized loss on:

 

 

 

 

 

 

 

Investments — net (including $53,419 loss from affiliates)

 

 

(13,090,099

)

 

 

 

Financial futures contracts — net

 

 

(1,432,768

)

 

 

 

Options written — net

 

 

11,784,703

 

 

(2,738,164

)

 

 



 

 

 

 

Change in unrealized appreciation/depreciation on:

 

 

 

 

 

 

 

Investments — net

 

 

(20,470,891

)

 

 

 

Financial futures contracts — net

 

 

113,281

 

 

 

 

Options written — net

 

 

(1,679,384

)

 

(22,036,994

)

 

 







Total realized and unrealized loss — net

 

 

 

 

 

(24,775,158

)

 

 

 

 

 




Net Decrease in Net Assets Resulting from Operations

 

 

 

 

$

(24,302,888

)

 

 

 

 

 




See Notes to Financial Statements.

 

 

 




12

S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008




 


 

Statements of Changes in Net Assets


 

 

 

 

 

 

 

 

 

 

For the Year Ended
December 31,

 

 

 



Increase (Decrease) in Net Assets:

 

2008

 

2007

 







Operations

 

 

 

 

 

 

 









Investment income — net

 

$

472,270

 

$

773,972

 

Realized gain (loss) — net

 

 

(2,738,164

)

 

4,254,855

 

Change in unrealized appreciation/depreciation — net

 

 

(22,036,994

)

 

1,365,611

 

 

 







Net increase (decrease) in net assets resulting from operations

 

 

(24,302,888

)

 

6,394,438

 

 

 







 

 

 

 

 

 

 

 









Dividends & Distributions to Shareholders

 

 

 

 

 

 

 









Investment income — net

 

 

(789,231

)

 

(818,543

)

Realized gain — net

 

 

(7,095,591

)

 

(9,588,789

)

 

 







Net decrease in net assets resulting from dividends and distributions to shareholders

 

 

(7,884,822

)

 

(10,407,332

)

 

 







 

 

 

 

 

 

 

 









Common Stock Transactions

 

 

 

 

 

 

 









Net redemption of Common Stock resulting from a repurchase offer
(including $36,297 and $29,511 of repurchase fees, respectively)

 

 

(1,778,542

)

 

(4,188,616

)

 

 







 

 

 

 

 

 

 

 









Net Assets

 

 

 

 

 

 

 









Total decrease in net assets

 

 

(33,966,252

)

 

(8,201,510

)

Beginning of year

 

 

69,025,714

 

 

77,227,224

 

 

 







End of year*

 

$

35,059,462

 

$

69,025,714

 

 

 







* Undistributed investment income — net

 

$

498,168

 

$

789,230

 

 

 







See Notes to Financial Statements.

 

 

 

 

 

 

 


 

 

 




S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008

13




 


 

Financial Highlights


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Period
October 1,
2005 to
December 31,
2005 (a)

 

For the Period
November 1,
2004 (b) to
September 30,
2005

 

 

 

 

 

 

 

For the Year Ended
December 31,

 

The following per share data and ratios have been derived
from information provided in the financial statements.

 


 

 

2008

 

2007

 

2006

 













Per Share Operating Performance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


















Net asset value, beginning of period

 

$

18.47

 

$

19.63

 

$

19.66

 

$

21.27

 

$

19.10

 

 

 
















Investment income — net (c)

 

 

.13

 

 

.20

 

 

.16

 

 

.04

 

 

.20

 

Realized and unrealized gain (loss) — net

 

 

(6.62

) (d)

 

1.42

(d)

 

2.45

(d)

 

.70

 

 

2.10

 

 

 
















Total from investment operations

 

 

(6.49

)

 

1.62

 

 

2.61

 

 

.74

 

 

2.30

 

 

 
















Less dividends and distributions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment income — net

 

 

(.21

)

 

(.22

)

 

 

 

(.19

)

 

(.09

)

Realized gain — net

 

 

(1.90

)

 

(2.56

)

 

(2.64

)

 

(2.16

)

 

 

 

 
















Total dividends and distributions

 

 

(2.11

)

 

(2.78

)

 

(2.64

)

 

(2.35

)

 

(.09

)

 

 
















Offering costs resulting from the issuance of Common Stock

 

 

 

 

 

 

 

 

 

 

(.04

)

 

 
















Net asset value, end of period

 

$

9.87

 

$

18.47

 

$

19.63

 

$

19.66

 

$

21.27

 

 

 
















Market price per share, end of period

 

$

9.36

 

$

17.21

 

$

18.76

 

$

18.85

 

$

20.38

 

 

 
















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


















Total Investment Return (e)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


















Based on net asset value per share

 

 

(35.78

%)

 

8.76

%

 

13.88

%

 

4.18

% (f)

 

11.90

% (f)

 

 
















Based on market price per share

 

 

(34.64

%)

 

6.04

%

 

13.51

%

 

4.25

% (f)

 

2.39

% (f)

 

 
















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


















Ratios to Average Net Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


















Expenses, excluding interest expense

 

 

1.33

%

 

1.08

%

 

1.20

%

 

1.29

% (g)

 

1.07

% (g)

 

 
















Expenses

 

 

1.38

%

 

1.45

%

 

1.34

%

 

1.29

% (g)

 

1.13

% (g)

 

 
















Investment income — net

 

 

.85

%

 

.97

%

 

.78

%

 

.76

% (g)

 

1.10

% (g)

 

 
















 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


















Supplemental Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


















Net assets, end of period (in thousands)

 

$

35,059

 

$

69,026

 

$

77,227

 

$

103,142

 

$

148,787

 

 

 
















Portfolio turnover

 

 

5

%

 

4

%

 

5

%

 

1

%

 

5

%

 

 

















 

 

 

 

(a)

Effective October 1, 2005, the Fund changed its year end date to December 31.

 

 

 

 

(b)

Commencement of operations.

 

 

 

 

(c)

Based on average shares outstanding.

 

 

 

 

(d)

Includes repurchase offer fees, which are less than $.01 per share.

 

 

 

 

(e)

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.

 

 

 

 

(f)

Aggregate total investment return.

 

 

 

 

(g)

Annualized.

See Notes to Financial Statements.

 

 

 




14

S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008



 


 

Notes to Financial Statements

1. Significant Accounting Policies:

S&P 500 ® GEARED SM Fund Inc. (the “Fund”) is registered under the Investment Company Act of 1940, as amended, (the “1940 Act”) as a non-diversified, closed-end management investment company with a fixed term of approximately five years. The expected termination date of the Fund is on or about December 15, 2009. 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. 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 that are 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 the over-the-counter (“OTC”) market, 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 market are valued at the last available asked price. Portfolio securities that are traded both in the OTC market and on an exchange are valued according to the broadest and most representative market.

Exchange-traded options are valued at the mean between the last bid and ask prices at the close of the options market in which the options trade. Options traded in the OTC market are valued at the last asked price (options written) or the last bid price (options purchased). The value of swaps, including interest rate swaps, caps and floors, will be determined by reference to the value of the components when such components consist of securities for which market quotations are available. In the absence of obtainable quotations, swaps will be valued by obtaining dealer quotations. 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 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. Overnight Time Deposits are valued at the amount deposited each day. 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) Real Estate Investment Trusts (REITs) — A portion of distributions received from REITs may constitute a return of capital. During the year an amount, based upon prior experience and guidance from the REITs is reclassified from dividend income and recorded as an adjustment to basis of the REIT holdings.The adjustment is a reduction in basis and is reflected in either unrealized appreciation (depreciation) or realized gain (loss).

(c) Derivative financial instruments — The Fund may 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. The

 

 

 




S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008

15



 


 

Notes to Financial Statements (continued)

counterparty, for certain instruments, may pledge cash or securities as collateral.

 

 

Options — The Fund will purchase and write call options. When the Fund writes an option, an amount equal to the premium received by the Fund is reflected as an asset and an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option written. When a security is purchased or sold through an exercise of an option, the related premium paid (or received) is added to (or deducted from) the basis of the security acquired or deducted from (or added to) the proceeds of the security sold. When an option expires (or the Fund enters into a closing transaction), the Fund realizes a gain or loss on the option to the extent of the premiums received or paid (or gain or loss to the extent the cost of the closing transaction exceeds the premium paid or received). 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.

 

 

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.

(d) 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.

Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”) requires an analysis of tax positions taken or to be taken on a tax return and whether such positions are “more likely than not” to be sustained upon examination based on their technical merit. To the extent they would not be sustained, tax expense (and related interest and penalties) would be recognized for financial statement reporting purposes. Management has evaluated the application of FIN 48 to the Fund, and has determined that FIN 48 does not have a material impact on the Fund’s financial statements.The Fund files U.S. and various state tax returns.To the best of the Fund’s knowledge, no income tax returns are currently under examination.All tax years of the Fund are open at this time.

(e) 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 is recognized on the accrual basis.

(f) Dividends and distributions — Dividends and distributions paid by the Fund are recorded on the ex-dividend dates.

(g) Custodian bank — The Fund recorded a bank overdraft which resulted from a failed trade that settled the next day.

(h) Recent accounting pronouncement — In March 2008, Statement of Financial Accounting Standards No. 161, “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB Statement No. 133” (“FAS 161”), was issued. FAS 161 is intended to improve financial reporting for derivative instruments by requiring enhanced disclosure that enables investors to understand how and why an entity uses derivatives, how derivatives are accounted for, and how derivative instruments affect an entity’s results of operations and financial position. Disclosure required by FAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The impact on the Fund’s financial statement disclosures, if any, is currently being assessed.

(i) Reclassification — Accounting principles generally accepted in the United States of America require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, during the current year, $25,899 has been reclassified to paid-in capital in excess of par from undistributed net investment income as a result of a permanent difference attributable to non-deductible expenses. This reclassification has no effect on net assets or net asset values per share.

 

 

 




16

S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008



 


 

Notes to Financial Statements (continued)

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 Advisors”), an indirect, wholly owned subsidiary of Merrill Lynch & Co., Inc. (“ML & Co.”). IQ Advisors is responsible for the investment advisory, management and administrative services to the Fund. In addition, IQ Advisors provides the necessary personnel, facilities, equipment and certain other services necessary to the operations of the Fund. For such services, the Fund pays a monthly fee 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 Advisors has entered into a Subadvi-sory Agreement with BlackRock Investment Management, LLC (the “Subadviser”), an indirect, wholly owned subsidiary of BlackRock, Inc. (“BlackRock”). Pursuant to the agreement, the Subadviser provides certain investment advisory services to IQ Advisors with respect to the Fund. For such services, IQ Advisors pays the Subadviser a monthly fee at an annual rate equal to .35% of the average daily value of the Fund’s net assets plus borrowings for leverage and other investment purposes. There is no increase in the aggregate fees paid by the Fund for these services.

IQ Advisors has entered into an Administration Agreement with Princeton Administrators, LLC (the “Administrator”). The Administration Agreement provides that IQ Advisors pays the Administrator a fee from its investment advisory fee at an annual rate equal to .12% of the average daily value of the Fund’s net assets plus borrowings for leverage and other investment purposes for the performance of administrative and other services necessary for the operation of the Fund. There is no increase in the aggregate fees paid by the Fund for these services. The Administrator is an indirect, wholly owned subsidiary of BlackRock. ML & Co. is a substantial owner of BlackRock.

In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated, an affiliate of IQ Advisors, received $1,080 in commissions on the execution of portfolio security transactions for the Fund for the year ended December 31, 2008.

Certain officers of the Fund are officers and/or directors of IQ Advisors, ML & Co. and/or BlackRock or its affiliates.

3. Investments:

Purchases and sales of investments, excluding short-term securities, for the year ended December 31, 2008 were $2,846,728 and $12,130,013, respectively.

Transactions in options written outstanding for the year ended December 31, 2008 were as follows:

 

 

 

 

 

 

 

 







 

 

Number of
Contracts

 

Premiums
Received

 







Outstanding call options written, beginning of year

 

 

139,308

 

$

14,124,612

 

Options written

 

 

114,240

 

 

10,750,843

 

Options closed

 

 

(20,100

)

 

(2,037,973

)

Options expired

 

 

(119,208

)

 

(12,086,639

)

 

 







Outstanding call options written, end of year

 

 

114,240

 

$

10,750,843

 

 

 







4. Common Stock Transactions:

The Fund is authorized to issue 100,000,000 shares of capital stock, par value $.001 per share, all of which were initially classified as Common Stock. The Board of Directors is authorized, however, to classify and reclassify any unissued shares of capital stock without approval of the holders of Common Stock.

Shares issued and outstanding during the years ended December 31, 2008 and December 31, 2007 decreased by 186,904 and 196,741,respectively, as a result of repurchase offers.

Subject to the approval of the Board of Directors, the Fund will make offers to repurchase 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.

With regard to repurchase fees, IQ Advisors will reimburse the Fund for the cost of expenses paid in excess of 2% of the value of the shares that are repurchased.

 

 

 




S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008

17



 


 

Notes to Financial Statements (concluded)

5. Distributions to Shareholders:

The tax character of distributions during the fiscal years ended December 31, 2008 and December 31, 2007 were as follows:

 

 

 

 

 

 

 

 







 

 

12/31/08

 

12/31/07

 









Distributions paid from:

 

 

 

 

 

 

 

Ordinary income

 

$

3,811,485

 

$

7,554,741

 

Long-term capital gains

 

 

4,073,337

 

 

2,852,591

 

 

 







Total distributions

 

$

7,884,822

 

$

10,407,332

 

 

 







As of December 31, 2008, the components of accumulated losses on a tax basis were as follows:

 

 

 

 

 





 

Undistributed ordinary income — net

 

$

498,168

 

Undistributed long-term capital gains — net

 

 

 

 

 



 

Total undistributed earnings — net

 

 

498,168

 

Capital loss carryforward

 

 

(13,526,198

)*

Unrealized losses — net

 

 

(13,245,339

)**

 

 



 

Total accumulated losses — net

 

$

(26,273,369

)

 

 



 


 

 

*

As of December 31, 2008, the Fund had a capital loss carryforward of $13,526,198, all of which expires in 2016. This amount is available to offset future realized capital gains.

 

 

**

The difference between book-basis and tax-basis net unrealized losses is attributable primarily to the tax deferral of losses on wash sales, the tax deferral of losses on straddles, the realization for tax purposes of unrealized gains (losses) on certain financial futures contracts and the deferral of post-October capital losses for tax purposes.

6. Subsequent Event:

Effective January 1, 2009, ML & Co., IQ Advisors’ parent, became a wholly-owned subsidiary of Bank of America Corporation (the “Transaction”).

On January 23, 2009, the Fund announced that the special meeting of stockholders scheduled for that day to vote on a new investment advisory and management agreement and a new investment subadvisory agreement (together, the “New Agreements”), to prevent any potential disruption in IQ Advisors’ and the subadviser’s ability to continue to provide services to the Fund in connection with the Transaction, was adjourned to March 6, 2009 to permit further solicitation of votes by proxy in order to achieve a quorum. ML & Co. had informed the Board of Directors of the Fund that it did not believe the Transaction would result in an “assignment” of the Fund’s current investment advisory and management agreement and current investment subadvisory agreement (together, the “Current Agreements”) under the 1940 Act, but that it was possible that the Transaction could be determined to result in such an assignment, which would cause the automatic termination of the Current Agreements.

At the Board’s November 11, 2008 meeting, the Board approved an interim investment advisory and management agreement and an interim investment subadvisory agreement (together, the “Interim Agreements”) for the Fund pursuant to Rule 15a-4 under the 1940 Act to take effect upon completion of the Transaction.The Interim Agreements allow IQ Advisors and the subadviser to continue advisory and subadvisory arrangements with respect to the Fund until May 31, 2009, while the Fund continues to seek stockholder approval of the New Agreements. Compensation earned by IQ Advisors and the subadviser under the Interim Agreements will be held in an interest-bearing escrow account pending stockholder approval of the New Agreements. If stockholders approve the New Agreements by May 31, 2009, the amount held in the escrow account, including interest, will be paid to IQ Advisors and the subadviser. If stockholders of the Fund do not approve the New Agreements, IQ Advisors and the subadviser will be paid the lesser of the costs incurred in performing their services under the Interim Agreements or the total amount in the escrow account, including interest earned. In the event stockholders of the Fund do not approve the New Agreements, the Board will take such action as it deems to be in the best interests of the Fund and its stockholders.

 

 

 




18

S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008



 


 

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of S&P 500 ® GEARED SM Fund Inc.:

We have audited the accompanying statement of assets, liabilities and capital of S&P 500 ® GEARED SM Fund Inc. (the “Fund”), including the schedule of investments, as of Decem-ber 31, 2008, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented. 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, 2008, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. 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 ® GEARED SM Fund Inc. as of December 31, 2008, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America.

As described in Note 1 to the financial statements, the expected termination date of the Fund is on or about December 15, 2009.

Deloitte & Touche LLP
Princeton, NJ
February 27, 2009

 


 

Important Tax Information (Unaudited)

The following information is provided with respect to the ordinary income distribution paid by S&P 500 ® GEARED SM Fund Inc. to shareholders of record on September 22, 2008:

 

 

 

 

 






Short-Term Capital Gain Dividends for Non-U.S. Residents

 

 

79.29

%*







 

 

*

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 $1.089687 per share to shareholders of record on September 22, 2008.

 

 

 




S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008

19



 


 

Approval of New Advisory Agreements and New Subadvisory Agreements

On September 15, 2008, Merrill Lynch & Co., Inc. (“Merrill Lynch”), the parent company of IQ Investment Advisors LLC (“IQ Advisors” or the “Adviser”), announced that it had entered into a definitive Agreement and Plan of Merger with Bank of America Corporation (“Bank of America”) whereby a wholly owned subsidiary of Bank of America would be merged with and into Merrill Lynch (the “Transaction”). Merrill Lynch informed the Board of Directors of each of the funds advised by IQ Advisors (the “IQ Funds” or the “Funds”) that it did not believe the Transaction would result in an “assignment” of the Funds’ current investment advisory and management agreements (the “Current Advisory Agreements”) and current investment subadvisory agreements (the “Current Subadvisory Agreements”) (together, the “Current Agreements”) under the Investment Company Act of 1940, as amended (the “1940 Act”), but that it was possible that the Transaction could be determined to result in such an assignment, which would cause the automatic termination of each Current Agreement.

In anticipation of the completion of the Transaction, the Boards of Directors of each of the Funds (the “Board”) met in person on November 11, 2008 (the “Meeting”) for purposes of, among other things, considering whether it would be in the best interests of the Funds and their stockholders to approve new investment advisory and management agreements between IQ Advisors and each of the Funds (the “New Advisory Agreements”) and new investment subadvisory agreements between IQ Advisors and the respective subad-viser to each Fund (the “New Subadvisory Agreements”) (together, the “New Agreements”) that would take effect upon the closing of the Transaction. The Board also approved interim investment advisory and management agreements between IQ Advisors and each of the Funds (the “Interim Advisory Agreements”) and interim subadvisory agreements between IQ Advisors and the respective subadviser to each Fund (the “Interim Subadvisory Agreements”) (together, the “Interim Agreements”) that would take effect for a maximum of 150 days following the closing of the Transaction only in the event that stockholders have not approved the respective New Agreements prior to such time.The Board considered substantially the same factors in approving the Interim Agreements as were considered in approving the New Agreements.

The Transaction was approved by the stockholders of Merrill Lynch on December 5, 2008. Effective January 1, 2009, Merrill Lynch became a wholly owned subsidiary of Bank of America. A special meeting of stockholders will be held on March 6, 2009 to vote on the approval of the New Agreements to prevent any potential disruption in the ability of IQ Advisors and the subadviser to continue to provide services to the Fund.

The following discussion summarizes the information considered and the conclusions made by the Board in approving the New Agreements.

In considering the approval of the New Advisory Agreement between IQ Advisors and each Fund, the Directors received and discussed various materials provided to them in advance of the Meeting, which included, among other things, a copy of the form of New Advisory Agreement, the materials the Directors had received in connection with their consideration and approval of the continuation of the Current Advisory Agreement for each Fund (other than for MLP & Strategic Equity Fund Inc. (“MLP Fund”)), at the June 5, 2008 Board meeting, and additional materials presented at the November 11, 2008 Board meeting in connection with the New Advisory Agreements, including information from Lipper, Inc. (“Lipper”) with respect to MLP Fund, due diligence materials from IQ Advisors and a report on the Transaction and its potential impact on the services provided to the Funds. In addition, the Directors considered materials received at previous meetings of the Board regarding the Funds.

In considering whether to approve the New Advisory Agreements, the Directors reviewed materials from counsel to the Funds and from IQ Advisors including: (i) information concerning the services rendered to the Funds by IQ Advisors and its affiliates; (ii) information concerning the revenues and expenses incurred by IQ Advisors and its affiliates from the operation of the Funds; (iii) a memorandum outlining the legal duties of the Directors under the 1940 Act; and (iv) information from Lipper comparing each Fund’s fee rate for advisory and administrative services to those of other closed-end funds chosen by Lipper. Each New Advisory Agreement was considered separately by the Directors.

The Directors considered and discussed, among other things, the following factors in approving the New Advisory Agreements and Interim Advisory Agreements:

(a) Nature, Extent and Quality of Services Provided by IQ Advisors and its Affiliates — In connection with their consideration of each New Advisory Agreement, the Directors considered representations by IQ Advisors that there would be no diminution in the services to be rendered to the Funds by IQ Advisors as a result of the Transaction. The Directors noted that representatives of IQ Advisors stated that they did not anticipate any change in their personnel responsible for providing services to the Funds.

In reviewing each New Advisory Agreement, the Directors focused on the services that IQ Advisors has provided to each Fund. The Directors considered the size and experience of IQ Advisors’ staff, its use of technology, and the degree to

 

 

 




20

S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008



 


 

Approval of New Advisory Agreements and New Subadvisory Agreements (continued)

which IQ Advisors exercises supervision over the actions of each Fund’s respective subadviser. In connection with the investment advisory services provided, the Directors took into account detailed discussions they had with officers of IQ Advisors at the November 11, 2008 Board meeting and at prior Board meetings regarding the management of each Fund’s investments in accordance with each Fund’s stated investment objective and policies and the types of transactions entered into on behalf of each Fund.

In addition to the investment advisory services provided to the Funds, the Directors considered that IQ Advisors and its affiliates also provide administrative services, stockholder services, oversight of Fund accounting, marketing services, assistance in meeting legal and regulatory requirements and other services necessary for the operation of the Funds. In particular, the Directors reviewed the compliance and administrative services provided to the Funds by IQ Advisors, including its oversight of each Fund’s day-to-day operations and its oversight of Fund accounting.The Directors noted that IQ Advisors has access to administrative, legal and compliance resources that help ensure a high level of quality in the compliance and administrative services provided to the Funds.The Directors also considered each Fund’s compliance history.

The Directors noted the representations of IQ Advisors that the Transaction would have no adverse effect on the resources and strengths of IQ Advisors in managing the Funds. The Directors then discussed the anticipated financial condition of IQ Advisors and its affiliates following the Transaction. The Directors noted statements from representatives of IQ Advisors that the financial position of IQ Advisors and its affiliates is not expected to be negatively affected by the Transaction. The Directors also considered representations from IQ Advisors that the Transaction is not expected to impact IQ Advisors’ compliance personnel or compliance procedures. Based on the discussions held and the materials presented at the Board meetings held on November 11, 2008 and June 5, 2008 and other prior Board meetings, the Directors determined that the Transaction would not likely cause an adverse change in the nature, extent and quality of the services to be provided by IQ Advisors under the New Advisory Agreements and that they expect that the quality of such services will continue to be of high quality and beneficial to the Funds.

(b) Investment Performance of each Fund and IQ Advisors —The Directors considered the history, experience, resources and strengths of IQ Advisors and its affiliates in developing and implementing the investment strategies used by each Fund. The Directors also considered the innovative nature of each Fund. The Directors noted the specialized nature of each Fund’s investment strategy and the inherent limitations in comparing a Fund’s investment performance to that of another investment company. The Directors reviewed the investment performance of each Fund that is currently operating and, where applicable, compared such performance to the performance of a relevant reference index. The Directors discussed the degree to which each such Fund was achieving its investment objective. In particular, the Directors noted that the Funds generally performed as expected and met their respective investment objectives. As a result of their discussions and review, the Directors concluded that the performance of each currently operating Fund was satisfactory.

(c) Costs of Services Provided and Profits Realized by IQ Advisors and its Affiliates from the Relationship with each Fund — In reviewing the New Advisory Agreements, the Directors referred to the materials presented and discussions held in connection with their consideration of the continuation of the Current Advisory Agreement for each respective Fund (other than for MLP Fund) at the June 5, 2008 Board meeting, and additional materials presented at the November 11, 2008 Board meeting in connection with the New Agreements for all Funds. At the June 5, 2008 meeting, the Directors reviewed and considered a memorandum from IQ Advisors regarding the methodology used by IQ Advisors in allocating its costs regarding the operations of the Funds and calculating each Fund’s profitability, including MLP Fund, to IQ Advisors and its affiliates. At the June 5, 2008 meeting, the Directors also reviewed a report detailing IQ Advisors’ profitability. After considering their discussion with IQ Advisors at the June 5, 2008 meeting and further discussions at the November 11, 2008 meeting and reviewing IQ Advisors’ memorandum and report, the Directors concluded that there continued to be a reasonable basis for the allocation of costs and the determination of profitability. The Directors considered the cost of the services provided by IQ Advisors to each Fund and the revenue derived by IQ Advisors and its affiliates. The Directors took into account discussions that they had with representatives of IQ Advisors at the June 5, 2008 Board meeting regarding its general level of profitability (if any), and the profits derived by its affiliate, BlackRock, Inc., from operating the Funds. The Directors also considered the direct and indirect benefits derived by other IQ Advisors’ affiliates, including Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S”), from the establishment of the Funds, including the underwriting arrangements relating to the initial distribution of Fund shares. The Directors considered federal court decisions discussing an investment adviser’s profitability and profitability levels considered to be reasonable in those decisions. The Directors concluded that any profits made by IQ Advisors and its affiliates (including BlackRock, Inc. and MLPF&S) are acceptable in relation to the nature, extent and

 

 

 




S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008

21



 


 

Approval of New Advisory Agreements and New Subadvisory Agreements (continued)

quality of services provided. The Directors also concluded that each Fund continued to benefit from such services provided by IQ Advisors’ affiliates.

(d) Extent to which Economies of Scale would be Realized as a Fund Grows and Whether Fee Levels would Reflect such Economies of Scale — In considering the extent to which economies of scale might be realized if the assets of a Fund were to increase and whether there should be changes in the advisory fee rate or structure in order to enable a Fund to participate in these economies of scale, the Directors referred to the materials presented and discussions held in connection with their considerations at the June 5, 2008 Board meeting and additional materials presented at the November 11, 2008 Board meeting in connection with the New Advisory Agreements. The Directors noted that because each Fund is a closed-end fund, any increase in asset levels generally would have to come from appreciation through investment performance. The Directors also noted that each Fund, other than Dow 30 SM Premium & Dividend Income Fund Inc. (“Dow 30 Premium”), NASDAQ Premium Income & Growth Fund Inc. (“NASDAQ Premium”), Dow 30 SM Enhanced Premium & Income Fund Inc. (“Dow 30 Enhanced”), MLP Fund and S&P 500 ® Covered Call Fund Inc. (“Covered Call”), is an interval fund that periodically allows stockholders to tender their shares to the Fund and that such tender offers reduce the amount of Fund assets.

Taking into account the totality of the information and materials provided to them at Board meetings held November 11, 2008 and June 5, 2008 and at other prior Board meetings, the Directors determined that no changes were currently necessary to each Fund’s fee structure.

(e) Comparison of services rendered and fees paid to those under other investment advisory contracts, such as contracts of the same and other investment advisers or other clients — The Directors considered representations by IQ Advisors that there would be no change in the advisory fee paid by each Fund to IQ Advisors under the New Advisory Agreements as a result of the Transaction. In considering the compensation to be paid to IQ Advisors, noting that no changes to such compensation from that payable under the Current Advisory Agreements were proposed, the Directors referred to the materials presented and discussions held in connection with their considerations at the June 5, 2008 Board meeting and additional materials presented at the November 11, 2008 Board meeting in connection with the New Advisory Agreements. The Directors noted that in connection with such considerations it had received and reviewed a comparison of both the services rendered and the fees paid under the Current Advisory Agreements to the contracts of other investment advisers with respect to other closed-end registered investment companies. In particular, the Directors noted that it evaluated each Fund’s contractual fee rate for advisory and administrative services as compared to the contractual fee rate of other closed-end funds chosen by Lipper. In connection with its consideration of the New Advisory Agreement for MLP Fund, the Directors noted that it had received and reviewed fee comparison data from Lipper at the November 11, 2008 Board meeting. The Directors noted that each Fund’s contractual advisory fee rate at a common asset level was equal to or lower than the median fee rate of its Lipper comparison funds.

Taking into account the totality of the information and materials provided to them at the Board meetings held on Novem-ber 11, 2008 and June 5, 2008 and at other prior Board meetings, the Directors concluded that the advisory fee rates proposed under each New Advisory Agreement were reasonable for the services being rendered and in comparison to the data reflected in the Lipper materials.

(f) Conclusion —The Directors examined the totality of the information they were provided at the November 11, 2008 and June 5, 2008 Board meetings and did not identify any single factor discussed previously as controlling. The Directors concluded that the terms of each New Advisory Agreement were fair and reasonable, that IQ Advisors’ fees are reasonable for the services provided to each Fund, and that each New Advisory Agreement should be approved and recommended to stockholders.

Approval of New Investment Subadvisory Agreements

The Directors discussed the approval of New Subadvisory Agreements between IQ Advisors and BlackRock Investment Management, LLC (“BlackRock”), as subadviser to S&P 500 ® GEARED Fund Inc. (“S&P GEARED”) and Small Cap Premium & Dividend Income Fund Inc. (“Small Cap”); Oppenheimer Capital LLC (“Oppenheimer”), as subadviser to Covered Call and Enhanced S&P 500 ® Covered Call Fund Inc. (“Enhanced Covered Call”); Nuveen HydePark Group, LLC (“Nuveen HydePark”), as subadviser to Dow 30, Dow 30 Enhanced, NASDAQ Premium and Defined Strategy Fund Inc. (“Defined Strategy”); Fiduciary Asset Management, LLC (“FAMCO”), as subadviser to MLP Fund; and Nuveen Asset Management (“NAM”), as subadviser to Global Income & Currency Fund Inc. (“Global Income”) (each, a “Subadviser” and, collectively, the “Subadvisers”). The Directors also discussed the approval of Interim Subadvisory Agreements between IQ Advisors and the Subadvisers of each of the Funds, which would go into effect for a maximum of 150 days following the closing of the Transaction only in the event that

 

 

 




22

S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008



 


 

Approval of New Advisory Agreements and New Subadvisory Agreements (continued)

stockholders have not approved the respective New Subadvisory Agreement prior to such time.

In considering the approval of the New Subadvisory Agreement between IQ Advisors and each Subadviser, the Directors received and discussed various materials provided to them in advance of the meetings which included, among other things, a copy of the form of New Subadvisory Agreement, the materials the Directors had received in connection with their consideration and approval of the continuation of the Current Subadvisory Agreements for each Fund (other than for MLP Fund) at the June 5, 2008 Board meeting, and additional materials presented at the November 11, 2008 Board meeting in connection with the New Agreements, including due diligence materials from IQ Advisors and a report and presentation on the Transaction and its potential impact on the services provided to the Funds. In addition, the Directors considered materials received at previous meetings of the Directors regarding the Funds.

In considering whether to approve the New Subadvisory Agreements, the Directors reviewed materials from counsel to the Funds and from IQ Advisors and the Subadvisers including, as applicable: (i) information concerning the services rendered to the Funds by the Subadvisers; (ii) information concerning the revenues and expenses incurred by the Subad-visers from the operation of the Funds; (iii) a memorandum outlining the legal duties of the Directors under the 1940 Act; and (iv) information from Lipper comparing each Fund’s fee rate for advisory and administrative services to those of other closed-end funds chosen by Lipper. Each New Subadvisory Agreement was considered separately by the Directors.

The Directors considered and discussed, among other things, the following factors in approving the New Subadvisory Agreements and Interim Subadvisory Agreements:

(a) Nature, Extent and Quality of Services Provided by the Subadvisers — In reviewing the New Subadvisory Agreements, the Directors referred to the materials presented and discussions held in connection with their consideration of the continuation of the Current Subadvisory Agreement for each respective Fund (other than MLP Fund) at the June 5, 2008 Board meeting, and additional materials presented at the November 11, 2008 Board meeting in connection with the New Advisory Agreements.The Directors focused on the experience of the Subadvisers in managing registered funds.The Directors considered the reputation and investment experience of the Subadvisers and their investment professionals who have served as portfolio managers and would continue to serve as portfolio managers.The Directors noted that it had met with officers of IQ Advisors and members of each Subadviser’s portfolio management team to discuss the management of each Fund’s investments at recent Board meetings.The Directors took into account the annual due diligence investment review of each Subadviser to a currently operating Fund and the report presented at a prior meeting that concluded that each such Subadviser has thus far executed its respective Fund’s investment strategies in accordance with the Fund’s objectives and general expectations. The Directors noted that it had discussed each Fund’s investment strategy with representatives from the respective Sub-adviser, including discussions regarding the premises underlying the Fund’s investment strategy, its efficacy and potential risks.The Directors also considered the favorable history, reputation and background of each Subadviser and its personnel, and the substantial experience of such Subad-viser’s portfolio management team.The Directors considered the compliance program of each Subadviser and the report of the chief compliance officer of the Funds. Following consideration of this information, and based on management presentations during the November 11, 2008 and June 5, 2008 Board meetings, the Directors concluded that the nature, extent and quality of services provided to each Fund by the applicable Subadviser under the Current Subadvisory Agreement were of a high quality and would continue to benefit the respective Fund.The Directors considered that the same services would be provided by the same personnel pursuant to the New Subadvisory Agreements.

(b) Investment Performance of each Fund and each Subadviser — The Directors had received and considered information about the investment performance of each Fund that is currently operating in light of its stated investment objective and made the determinations discussed above under “Investment Performance of each Fund and IQ Advisors.” As a result of their discussions and review, the Directors concluded that the performance of each currently operating Fund was satisfactory.

(c) Cost of Services Provides and Profits Realized by each Subadviser from the Relationship with each respective Fund — The Directors considered the profitability to BlackRock, a subsidiary of BlackRock, Inc., by serving as Subadviser to two Funds and from its relationship with IQ Advisors based on the information discussed above under “Costs of Services Provided and Profits Realized by IQ Advisors and its Affiliates from the Relationship with each Fund.” Based on such information, the Directors concluded that BlackRock’s profits were acceptable in relation to the nature, extent and quality of services provided. The Directors noted that profitability data was not provided with respect to the other Subadvisers of the Funds and concluded that such data was unnecessary because such subadvisory arrangements were entered into at “arm’s length” between IQ Advisors and

 

 

 




S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008

23



 


 

Approval of New Advisory Agreements and New Subadvisory Agreements (concluded)

each such Subadviser (including NAM and Nuveen HydePark, with which subadvisory arrangements were originally negotiated prior to the investment in their parent company by an affiliate of IQ Advisors). The Directors then considered the potential direct and indirect benefits to each Subadviser and its affiliates from their relationship with each of their respective Funds, including the reputational benefits from managing the Funds. The Directors concluded that the potential benefits to each Subadviser were consistent with those obtained by other subadvisers in similar types of arrangements.

(d) Extent to which Economies of Scale would be Realized as a Fund Grows and Whether Fee Levels would Reflect such Economies of Scale — The Directors received and considered information about potential economies of scale at the November 11, 2008 and June 5, 2008 Board meetings and made the determinations discussed above under “Extent to which Economies of Scale would be Realized as a Fund Grows and Whether Fee Levels would Reflect such Economies of Scale.”

Taking into account the totality of the information and materials provided to them at the November 11, 2008, June 5, 2008, and at other prior Board meetings, the Directors determined that no changes were currently necessary to each Fund’s fee structure.

(e) Comparison of services rendered and fees paid to those under other subadvisory contracts, such as contracts of the same and other investment advisers or other clients —The Directors considered representations by IQ Advisors that there would be no change in the allocation of the fees between IQ Advisors and Subadvisers in relation to the services provided by a Subadviser, as a result of the Transaction. In considering the compensation to be paid to the Subadvis-ers, noting that no changes to such compensation from that payable under the Current Subadvisory Agreements were proposed, the Directors referred to the materials presented and discussions held in connection with their consideration of the continuation of the Current Subadvisory Agreement for the respective Fund (other than for MLP Fund), and additional materials presented at the November 11, 2008 Board meeting in connection with the New Advisory Agreements. The Directors noted that, in connection with such considerations, the Directors had received and reviewed fee comparison data from Lipper (which included information regarding the fees paid by certain investment advisers to subadvisers of peer funds), and concluded that such information continued to be relevant to their current deliberations. The Directors received and reviewed fee comparison data from Lipper for MLP Fund at the November 11, 2008 Board meeting. In reviewing that data, the Directors noted that the subadvisory fee with respect to each Fund was at a level that continued to be reasonable and similar to that of comparable funds.

The Directors discussed the services rendered by each Subad-viser and determined that such services were consistent with those provided by subadvisers generally and sufficient for the management of the Funds. Taking into account the totality of the information and materials provided to them at the Board meetings held on November 11, 2008 and June 5, 2008 and at other prior Board meetings, among other things, the fact that the subadvisory fees were negotiated by IQ Advisors on an arm’s length basis, the Directors concluded that the subadvisory fees proposed under each New Subadvisory Agreement continued to be reasonable for the services being rendered.

(f) Conclusion — The Directors examined the totality of the information they were provided at the November 11, 2008 and June 5, 2008 Board meetings and did not identify any single factor discussed previously as controlling. The Directors concluded that the terms of each New Subadvisory Agreement were fair and reasonable, that the Subadvisers’ fees are reasonable for the services provided to each Fund, and that each New Subadvisory Agreement should be approved and recommended to stockholders.

 

 

 




24

S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008



 


 

Automatic Dividend Reinvestment Plan

How the Plan Works — The Fund offers a Dividend Reinvestment Plan (the “Plan”) under which distributions 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 BNY Mellon Shareowners Services (the “Plan Agent”). Under the Plan, whenever the Fund declares a distribution, 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 distribution 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 distribution 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 distribution amount by purchasing on the open market additional shares. If the Plan Agent is unable to invest the full distribution 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 distribution 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 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 distributions will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such distributions. Therefore, income and capital gains may still be realized even though shareholders do not receive cash. 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 BNY Mellon Shareowner Services, P.O. Box 358035, Pittsburgh, PA 15252-8035, Telephone: 877-296-3711.

 

 

 




S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008

25




 

Proxy Results

During the six-month period ended December 31, 2008, the shareholders of S&P 500 GEARED Fund Inc. received a notice and proxy statement for a special meeting of shareholders to vote on the approval of a new investment advisory and management agreement and a new investment subadvisory agreement for the Fund. On December 19, 2008 and January 23, 2009, special meetings of shareholders were adjourned with respect to the proposals until March 6, 2009.

On December 19, 2008 and January 23, 2009, the proxies utilized their discretionary voting authority to adjourn the special meeting of shareholders and voted as follows:

 

 

 

 

 

 

 

 

 

 

 









 

 

Shares Voted
For

 

Shares Voted
Against

 

Shares Voted
Abstain

 









Proposal to adjourn special meeting of shareholders to January 23, 2009 to continue to solicit proxies to obtain quorum.

 

1,432,933

 

 

 

0

 

 

0

 












Proposal to adjourn special meeting of shareholders to March 6, 2009 to continue to solicit proxies to obtain quorum.

 

981,411

 

 

 

0

 

 

0

 














 

Directors and Officers


 

 

 

 

 

 

 

 

 

 

 

 

 

Name

 

Address &
Year of Birth

 

Position(s)
Held With
Fund***

 

Length of
Time
Served**

 

Principal Occupation(s) During Past 5 Years

 

Number of
IQ Advisors-
Affiliate
Advised Funds
and Portfolios
Overseen by
Director

 

Other Public
Directorships
Held by
Director














Non-Interested Directors*

 

 

 

 

 

 

 

 

 

 












Paul Glasserman

 

P.O. Box 9095
Princeton, NJ 08543-9095
1962

 

Director & Chairperson of the Board

 

2004 to present

 

Professor, Columbia University Business School since 1991; Senior Vice Dean since July 2004.

 

10

 

None














Steven W. Kohlhagen

 

P.O. Box 9095
Princeton, NJ 08543-9095
1947

 

Director & Chairperson of the Audit Committee

 

2005 to present

 

Retired financial industry executive since August 2002.

 

10

 

Ametek, Inc.














William J. Rainer

 

P.O. Box 9095
Princeton, NJ 08543-9095
1946

 

Director

 

2004 to present

 

Retired securities and futures industry executive; Chairman and Chief Executive Officer, OneChicago, LLC, a designated contract market (2001 – November 2004); Former Chairman, Commodity Futures Trading Commission.

 

10

 

None














Laura S. Unger

 

P.O. Box 9095
Princeton, NJ 08543-9095
1961

 

Director & Chairperson of the Nominating & Corporate Governance Committee

 

2007 to present

 

Independent Consultant since 2002; Commentator, Nightly Business Report since 2005; Senior Advisor, Marwood Group (2005 – 2007); Regulatory Expert for CNBC (2002 – 2003).

 

10

 

CA, Inc. (software) and Ambac Financial Group, Inc.

 

 

 




*

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 or her successor is elected and qualifies, or his or her earlier death, resignation or removal as provided in the Fund’s Bylaws, charter or by statute.

 

 

***

Chairperson titles are effective January 1, 2009. Prior to this date, the chairpersons were as follows: Mr. William J. Rainer, Chairman of the Board; Mr. Steven W. Kohlhagen, Chairman of the Nominating & Corporate Governance Committee; and Mr. Paul Glasserman, Chairman of the Audit Committee.


 

 

 




26

S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008





 

Directors and Officers (concluded)


 

 

 

 

 

 

 

 

 

Name

 

Address &
Year of Birth

 

Position(s)
Held with
Fund

 

Length of
Time
Served

 

Principal Occupation(s) During Past 5 Years










Fund Officers*

 

 

 

 

 

 








Mitchell M. Cox

 

P.O. Box 9011
Princeton, NJ 08543-9011
1965

 

President

 

2004 to present

 

IQ Investment Advisors LLC, President since April 2004; Merrill Lynch, Pierce, Fenner & Smith (“MLPF&S”), Managing Director, Head of Global Investments & Insurance Solutions since 2008; MLPF&S, Managing Director, Head of Financial Products Group (2007 – 2008); MLPF&S, Managing Director, Head of Global Wealth Management Market Investments & Origination (2003 – 2007); MLPF&S, Managing Director, Head of Structured Products Origination and Sales (2001 – 2003); MLPF&S, FAM Distributors (“FAMD”), Director since 2006; IQ Financial Products LLC, Director since 2006.










Justin C. Ferri

 

P.O. Box 9011
Princeton, NJ 08543-9011
1975

 

Vice President

 

2005 to present

 

IQ Investment Advisors LLC, Vice President since 2005; MLPF&S, Managing Director, Global Investments & Insurance Solutions since 2008; Merrill Lynch Alternative Investments LLC (“MLAI”), Director since 2008; MLPF&S, Vice 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).










Donald C. Burke

 

P.O. Box 9011
Princeton, NJ 08543-9011
1960

 

Vice President and Assistant Treasurer

 

2004 to present

 

IQ Investment Advisors LLC, Secretary and Treasurer (2004 – March 2007); BlackRock, Inc., Managing Director since 2006; Merrill Lynch Investment Managers, L.P. (“MLIM”) and Fund Asset Management (“FAM”), Managing Director (2006); MLIM and FAM, First Vice President (1997 – 2005) and Treasurer (1999 – 2006).










James E. Hillman

 

P.O. Box 9011
Princeton, NJ 08543-9011
1957

 

Vice President and Treasurer

 

2007 to present

 

IQ Investment Advisors LLC, Treasurer since March 2007; MLPF&S, Director, Structured and Alternative Solutions since 2007; MLPF&S, Director, Global Wealth Management Market Investments & Origination (September 2006 – 2007); Managed Account Advisors LLC, Vice President and Treasurer since November 2006; Director, Citigroup Alternative Investments Tax Advantaged Short Term Fund in 2006; Director, Korea Equity Fund Inc. in 2006; Independent Consultant, January to September 2006; Managing Director, The Bank of New York, Inc. (1999 – 2006).










Colleen R. Rusch

 

P.O. Box 9011
Princeton, NJ 08543-9011
1967

 

Vice President and Secretary

 

2005 to present

 

IQ Investment Advisors LLC, Chief Administrative Officer and Secretary since 2007, Vice President since 2005; MLPF&S, Director, Structured and Alternative Solutions since 2007; MLPF&S, Director, Global Wealth Management Market Investments & Origination (2005 – 2007); MLIM, Director from January 2005 to July 2005; Vice President of MLIM (1998 – 2004).










Martin G. Byrne

 

P.O. Box 9011
Princeton, NJ 08543-9011
1962

 

Chief Legal Officer

 

2006 to present

 

IQ Investment Advisors LLC, Chief Legal Officer since June 2006; Merrill Lynch & Co., Inc., Office of General Counsel, Managing Director since 2006, First Vice President (2002 – 2006); Managed Account Advisors LLC, Chief Legal Officer since November 2006; FAMD, Director since 2006.










Gloria Greco

 

P.O. Box 9011
Princeton, NJ 08543-9011
1962

 

Chief Compliance Officer

 

2008 to present

 

IQ Investment Advisors LLC, Chief Compliance Officer since 2008; Merrill Lynch & Co., Inc., First Vice President, Global Compliance since February 2006, Director (2003 – 2006), Vice President (1999 – 2003).










Michael M. Higuchi

 

P.O. Box 9011
Princeton, NJ 08543-9011
1979

 

Vice President

 

2008 to present

 

IQ Investment Advisors LLC, Vice President since 2008; MLPF&S, Vice President, Structured and Alternative Solutions since 2007; ML & Co., Inc., Vice President, Corporate Finance Treasury (2006 – 2007); ML & Co., Inc., Assistant Vice President, Corporate Finance Treasury (2005 – 2006); ML & Co., Inc., Senior Specialist, Corporate Finance Treasury (2003 – 2005).










* 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
BNY Mellon Shareowner Services
480 Washington Boulevard
Jersey City, NJ 07310

 

 

 


S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008

27




 


 

Privacy Pledge

Below is a summary of the Merrill Lynch Global Privacy Pledge, as it pertains to the IQ Funds’ shareholders. A full copy of the pledge is available at www.iqiafunds.com or upon request by calling 1-877-449-4742.

To whom and what does this Pledge apply?

This Pledge covers the personal information of current and former individual clients of Merrill Lynch and certain affiliates, including IQ Investment Advisors LLC (“IQ”), the investment adviser to the IQ family of registered closed-end investment companies (“IQ Funds”). In addition, this Pledge covers the personal information of other individuals with whom Merrill Lynch has an existing or prospective relationship where either (a) such protection is required by applicable laws, rules or regulations; or (b) a Merrill Lynch company has made a separate and specific commitment to that effect. In this Pledge, “personal information” refers to (a) any information relating to an identified individual; or (b) any nonpublic personal information. Shareholders of the IQ Funds are covered by this Pledge.

The Merrill Lynch family of companies is now part of the Bank of America family of companies. When used herein, “we,” “our” and “us” refer only to the Merrill Lynch family of companies and does not explain how the other Bank of America companies manage customer information and what actions you can take regarding how the other Bank of America companies use and share your information. Please visit www.bankofamerica.com/privacy for more information on the policy of the other Bank of America companies.

What personal information do we collect and how do we collect it?

Based on our relationship with you, we collect personal information from and about you that is adequate, relevant and appropriate under the circumstances. For example, we may collect or verify personal information from or about you in the following ways:

 

 

From applications; forms; communications (including electronic communications) and other interactions (information including your name, address, e-mail address, telephone number, Social Security or other identification number, income, assets, financial goals, interests, source of funds and investment objectives);

 

 

From your transactions made with or by a Merrill Lynch company;

 

 

From entities outside of the Merrill Lynch corporate family (“nonaffiliated third parties”), information including your creditworthiness/credit history and identity. These non-affiliated third parties include consumer/credit-reporting agencies; joint marketing partners; verification services; loan servicers or originators; entities to which we provide stock option and 401(k) plan services; entities that provide us with mailing lists; and public reference sources including the Internet. In the case of insurance, we may, pursuant to your consent or as otherwise permitted, obtain motor vehicle reports or medical information; and

 

 

From visits to our websites, information including certain technical information about your computer and operating systems.

How do we use personal information?

We use personal information to operate our business in a prudent manner. This may include, depending on your relationship with us, using it to evaluate financial needs; offer a broad range of products and services; deliver integrated financial services; process, service and maintain accounts and transactions; respond to inquiries and requests; fulfill our obligations to you; verify income, asset and obligation information; resolve disputes; prevent fraud; monitor and archive communications; and perform risk control. Additionally, we may use your personal information to verify your identity, including, where applicable, verification in accordance with the USA PATRIOT Act or to comply with legal and regulatory requirements around the world, and in accordance with applicable laws, rules and regulations. Where permitted and appropriate, we may also use personal information for Merrill Lynch’s marketing, product research, business development and/or global relationship management purposes, and may contact you in this regard.

 

 

 


28

S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008



 


 

Privacy Pledge (continued)

What personal information do we share internally among the Bank of America companies and Merrill Lynch companies and why do we share it?

In connection with the uses described above, we may, depending on the nature of your relationship with us, share some or all of your personal information with any Bank of America company and Merrill Lynch company, including broker-dealers, investment advisors, investment managers, transfer agents, banks, insurance companies and agencies, trust companies and mortgage originators or bankers.

What personal information do we share externally with nonaffiliated third parties and why do we share it?

In connection with the uses described above, we may, depending on the nature of your relationship with us, share some or all of the personal information we collect with non-affiliated third parties. These nonaffiliated third parties may be financial service providers (such as securities broker-dealers, banks or insurance companies), intermediaries (such as SWIFT, a global provider of secure financial messaging services), non-financial companies (such as consumer reporting agencies or technology companies) or others (such as professional services organizations or other service providers). Where you have a contractual relationship with a third party, the handling of your information by that party will be subject to your agreement(s) with it.

In addition, Merrill Lynch has entered into a Protocol with certain other brokerage firms under which your Merrill Lynch Financial Advisor (if applicable) may use your contact information (for example, your name and address) in the event your Financial Advisor joins one of these firms.

If you have a relationship with us through your employer, such as through your stock option or 401(k) plan, then we will share certain plan and transaction information related to your plan activity with your employer pursuant to the terms of the plan agreements. We will limit the use of this information in accordance with our agreements with the plan or employer.

We may also transfer personal information (a) to government agencies and other self-regulatory organizations, and regulatory and law enforcement authorities as necessary or required (for example, in the context of their investigation of terrorism, money laundering and other serious forms of organized crime); (b) as part of the sale, merger or other disposition of a Merrill Lynch business; and (c) to other non-affiliated third parties as requested by you or your authorized representative, or as permitted or required by law, rule and/or regulation. These third parties may be located in your country or in other countries, which may not have equivalent data protection laws to those in your country.

How do we protect the confidentiality and security of personal information?

 

 

We educate our employees to treat personal information with care, and work to limit access to this information to individuals who need it for the purposes stated in this Pledge.

 

 

We maintain and monitor our physical, electronic and procedural safeguards to comply with applicable regulations, updating them as needed to protect personal information.

 

 

We take such technical and organizational security measures as we deem appropriate to keep personal information confidential and secure against unauthorized or unlawful processing, and to prevent loss, destruction or damage.

How can you verify that your personal information is accurate?

We endeavor to (a) keep personal information only for so long as is necessary for business purposes or to meet legal and regulatory requirements; and (b) keep our records of your personal information current and complete.

If you become aware of any discrepancies in your personal information, please contact your Financial Advisor, or contact us at the phone number or address set forth at the end of this Pledge, and we will make the necessary corrections. Note that, in some cases, if you are an online client with us, certain information may also be corrected via the Merrill Lynch secure/password-protected Web sites. Please do not send any personal information via nonsecure methods of communication.

 

 

 




S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008

29



 


 

Privacy Pledge (concluded)

What choices do you have?

As described in this Pledge, each Merrill Lynch company may share your information with affiliated companies within the Bank of America and Merrill Lynch family of companies. You may have the right to instruct the Merrill Lynch company with whom you have a relationship not to share certain eligibility information, such as certain loan application or credit eligibility information, with any other Bank of America or Merrill Lynch company. Please note that, even if you exercise this option, we may still share this information with our affiliates when they are assisting us in serving you, and we can continue to share transaction and experience information with our affiliates.

How can you exercise your choices?

If you would like to limit the sharing of certain eligibility information, such as certain loan application and credit eligibility information, among Bank of America and Merrill Lynch-affiliated companies, as more fully described in the “What choices do you have?” section of this Pledge, please call (+1) (877) 222-7954.

What if you have questions regarding this Pledge or our privacy practices?

Merrill Lynch is responsible for ensuring that it is handled in accordance with this Pledge and applicable laws, rules and regulations. If you have any questions regarding this Pledge or our privacy-related practices, please contact us by e-mail at privacy@ml.com or by phone at (+1) (877) 222-7954.

 


 

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, as amended (the “Investment Company Act”).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 Investment Company 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 186,904 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 on the New York Stock Exchange on November 6, 2008, ten business days after Thursday, October 23, 2008, the Repurchase Request Deadline. As of November 6, 2008, 186,904 shares, or 5.00% of the Fund’s outstanding shares, were repurchased by the Fund at $9.71 per share (subject to a repurchase fee of up to 2% of the net asset value per share), the Fund’s net asset value per share was determined as of 4:00 p.m. EST, Thursday, November 6, 2008.

 

 

 


30

S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008



 


 

Availability of Quarterly Schedule of Investments

The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (“SEC”) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at http://www.sec.gov. The Fund’s Forms N-Q may also be reviewed and copied at the SEC’s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.

 


 

Electronic Delivery

The Fund offers electronic delivery of communications to its shareholders. In order to receive this service, you must register your account and provide us with e-mail information. To sign up for this service, simply access this website 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.

 


 

Fund Certification

In May 2008, 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 website at http://www.sec.gov.

 


 

Contact Information

For more information regarding the Fund, please visit www.IQIAFunds.com or contact us at 1-877-449-4742.

 

 

 




S&P 500 ® GEARED SM FUND INC.

DECEMBER 31, 2008

31



(BACK COVER)

www.IQIAFunds.com

S&P 500 ® GEARED SM Fund Inc. seeks to provide total returns, exclusive of fees and expenses of the Fund, linked to the annual performance of the S&P 500 ® Composite Stock Price Index.

This report, including the financial information herein, is transmitted to shareholders of S&P 500 ® 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 website 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 website at http://www.sec.gov.

S&P 500 ® GEARED SM Fund Inc.

P.O. Box 9011

Princeton, NJ 08543-9011

#IQGRE — 12/08



 

 

Item 2 –

Code of Ethics – The registrant (or the “Fund”) 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. During the period covered by this report, there have been no amendments to or waivers granted under the code of ethics. 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 expert serving on its audit committee and (ii) the audit committee financial expert is independent: (1) Steven W. Kohlhagen.

 

 

 

Under applicable securities laws, a person determined to be an audit committee financial expert will not be deemed an “expert” for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification.

 

 

Item 4 –

Principal Accountant Fees and Services


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a) Audit Fees

 

(b) Audit-Related Fees 1

 

(c) Tax Fees 2

 

(d) All Other Fees

 

 

 

 

 

 

 

 

 

Entity Name

 

Current Fiscal Year End

 

Previous Fiscal Year End

 

Current Fiscal Year End

 

Previous Fiscal Year End

 

Current Fiscal Year End

 

Previous Fiscal Year End

 

Current Fiscal Year End

 

Previous Fiscal Year End

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S&P 500 ® GEARED SM Fund Inc.

 

$31,000

 

$29,100

 

$0

 

$0

 

$8,500

 

$8,500

 

$0

 

$0


 

 

1 The nature of the services include assurance and related services reasonably related to the performance of the audit of financial statements not included in Audit Fees.

2 The nature of the services include tax compliance, tax advice and tax planning.


 

 

 

(e)(1) Audit Committee Pre-Approval Policies and Procedures:

 

          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) None of the services described in each of Items 4(b) through (d) were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

 

 

 

(f) Not Applicable

 

 

 

(g) Affiliates’ Aggregate Non-Audit Fees:


 

 

 

 

 

Entity Name

 

Current Fiscal Year End

 

Previous Fiscal Year End

 

 

 

 

 

S&P 500 ® GEARED SM Fund Inc.

 

$8,500

 

$8,500


 

 

 

(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 (not including any non-affiliated sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by 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) – $2,049,000, 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 Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(58)(A)):

 

 

 

Paul Glasserman

 

Steven W. Kohlhagen

 

William J. Rainer

 

Laura S. Unger

 

 

Item 6 –

Investments

 

(a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this form.

 

(b) Not Applicable due to no such divestments during the semi-annual period covered since the previous Form N-CSR filing.

 

 

Item 7 –

Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies – The registrant has delegated the voting of proxies relating to its voting securities to its investment sub-adviser, BlackRock Investment Management, LLC (the “Sub-adviser” or “BlackRock”). The Proxy Voting Policies and Procedures of the Sub-adviser (the “Proxy Voting Policies”) are attached as an Exhibit 99.PROXYPOL hereto.

 

 

Item 8 –

Portfolio Managers of Closed-End Management Investment Companies – as of December 31, 2008.

 

 

 

(a)(1) As of January 31, 2009, S&P 500 ® GEARED SM Fund Inc. is managed by Debra L. Jelilian, Managing Director at BlackRock, Jeff L. Russo, Director at BlackRock and Kyle G. McClements, CFA, Director at BlackRock. Ms. Jelilian and Messrs. Russo and McClements are jointly responsible for the day-to-day management of the Fund’s portfolio and the selection of its investments. Ms. Jelilian, Mr. Russo and Mr. McClements have been the Fund’s portfolio managers since 2005, 2006 and 2009, respectively.



 

 

 

Ms. Jelilian has been a Managing Director of BlackRock since 2008 and a Director thereof since 2006. Prior to joining BlackRock in 2006, she was a Director at Merrill Lynch Investment Managers, L.P. (“MLIM”) from 1999 to 2006.

 

 

 

Mr. Russo has been a Director of BlackRock since 2006. Mr. Russo was a Director of MLIM from 2004 to 2006 and a Vice President thereof from 1999 to 2004.

 

 

 

Mr. McClements has been a Director of BlackRock since 2006, and a Vice President thereof from 2005 to 2006. Prior to joining BlackRock, he was a Vice President at State Street Research from 2004 to 2005.

 

 

 

(a)(2) As of December 31, 2008*:


 

 

 

 

 

 

 

 

 

 

 

 

 

 

(ii) Number of Other Accounts Managed
and Assets by Account Type

 

(iii) Number of Other Accounts and
Assets for Which Advisory Fee is
Performance-Based

 

 

 

 

(i) Name of
Portfolio Manager

 

Other
Registered
Investment
Companies

 

Other Pooled
Investment
Vehicles

 

Other
Accounts

 

Other
Registered
Investment
Companies

 

Other Pooled
Investment
Vehicles

 

Other
Accounts

 

 

 

 

 

 

 

 

 

 

 

 

 

Debra L. Jelilian

 

24

 

28

 

31

 

0

 

0

 

1

 

 

$13.08 Billion

 

$14 Billion

 

$29.2 Billion

 

$0

 

$0

 

$690.4 Million

Jeff L. Russo

 

13

 

28

 

30

 

0

 

0

 

2

 

 

$7.02 Billion

 

$15.02 Billion

 

$30.7 Billion

 

$0

 

$0

 

$813.7 Million

Kyle G. McClements

 

8

 

4

 

8

 

0

 

0

 

8

 

 

$3.1 Billion

 

$181.7 Million

 

$3.48 Billion

 

$0

 

$0

 

$3.48 Million


 

 

 

* Ms. Jelilian and Mr. McClements’s assets managed are presented as of January 31, 2009 due to the assignment of additional registered investment companies following the December 31, 2008 fiscal year end.

 

 

 

(iv) Potential Material Conflicts of Interest

 

 

 

Real, potential or apparent conflicts of interest may arise when a portfolio manager has day-to-day portfolio management responsibilities with respect to more than one fund or account, including the following:

 

 

 

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 significant shareholders 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 significant shareholders, 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’ or significant shareholders’) officers, directors or employees are directors or officers, or companies as to which BlackRock or any of its affiliates or significant shareholders 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 a fund. In this connection, it should be noted that Ms. Jelilian and Messrs. Russo and McClements each currently manage certain accounts that are subject to performance fees. In addition, a portfolio manager may 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, 2008:

 

 

 

Portfolio Manager Compensation Overview

 

 

 

BlackRock’s financial arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources. Compensation may include a variety of components and may vary from year to year based on a number of factors. The principal components of compensation include a base salary, a performance-based discretionary bonus, participation in various benefits programs and one or more of the incentive compensation programs established by BlackRock such as its Long-Term Retention and Incentive Plan and Restricted Stock Program.

 

 

 

Base compensation. Generally, portfolio managers receive base compensation based on their seniority and/or their position with the firm. Senior portfolio managers who perform additional management functions within the portfolio management group or within BlackRock may receive additional compensation for serving in these other capacities.



 

 

 

Discretionary Incentive Compensation

 

 

 

Discretionary incentive compensation is a function of several components: the performance of BlackRock, Inc., the performance of the portfolio manager’s group within BlackRock, the investment performance, including risk-adjusted returns, of the firm’s assets under management or supervision by that portfolio manager relative to predetermined benchmarks, and the individual’s seniority, role within the portfolio management team, teamwork and contribution to the overall performance of these portfolios and BlackRock. In most cases, including for the portfolio managers of the Fund, these benchmarks are the same as the benchmark or benchmarks against which the performance of the Fund or other accounts managed by the portfolio managers are measured. BlackRock’s Chief Investment Officers determine the benchmarks against which the performance of funds and other accounts managed by each portfolio manager is compared and the period of time over which performance is evaluated. With respect to the portfolio managers, such benchmarks for the Funds include the following:


 

 

Portfolio Manager

Benchmarks Applicable to Each Manager

   

Debra L. Jelilian

A combination of market-based indices (e.g., The S&P 400 Index, Russell 2000 Index), certain customized indices and certain fund industry peer groups.

Jeff L Russo

A combination of market-based indices (e.g., The S&P 400 Index, Russell 2000 Index), certain customized indices and certain fund industry peer groups.

Kyle G. McClements

A combination of Lipper peer groups and a subset of other closed-end funds.


 

 

 

BlackRock’s Chief Investment Officers make a subjective determination with respect to the portfolio managers’ compensation based on the performance of the funds and other accounts managed by each portfolio manager relative to the various benchmarks noted above. Performance is measured on a pre-tax basis over various time periods including 1, 3 and 5-year periods, as applicable.

 

 

 

Distribution of Discretionary Incentive Compensation

 

 

 

Discretionary incentive compensation is distributed to portfolio managers in a combination of cash and BlackRock, Inc. restricted stock units which vest ratably over a number of years. The BlackRock, Inc. restricted stock units, if properly vested, will be settled in BlackRock, Inc. common stock. Typically, the cash bonus, when combined with base salary, represents more than 60% of total compensation for the portfolio managers. Paying a portion of annual bonuses in stock puts compensation earned by a portfolio manager for a given year “at risk” based on BlackRock’s ability to sustain and improve its performance over future periods.

 

 

 

          Long-Term Retention and Incentive Plan (“LTIP”) — The LTIP is a long-term incentive plan that seeks to reward certain key employees. Prior to 2006, the plan provided for the grant of awards that were 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. Beginning in 2006, awards are granted under the LTIP in the form of BlackRock, Inc. restricted stock units that, if properly vested and subject to the attainment of certain performance goals, will be settled in BlackRock, Inc. common stock. Each portfolio manager has received awards under the LTIP.

 

 

 

          Deferred Compensation Program — A portion of the compensation paid to eligible BlackRock employees may be voluntarily deferred into an account that tracks the performance of certain of the firm’s investment products. Each participant in the deferred compensation program is permitted to allocate his deferred amounts among the various investment options. Each portfolio manager has participated in the deferred compensation program.



 

 

 

Other compensation benefits. In addition to base compensation and discretionary incentive compensation, portfolio managers may be eligible to receive or participate in one or more of the following:

 

 

 

          Incentive Savings Plans — BlackRock, Inc. has created a variety of incentive savings plans in which BlackRock employees are eligible to participate, including a 401(k) plan, the BlackRock Retirement Savings Plan (RSP), and the BlackRock Employee Stock Purchase Plan (ESPP). The employer contribution components of the RSP include a company match equal to 50% of the first 6% of eligible pay contributed to the plan capped at $4,000 per year, and a company retirement contribution equal to 3% of eligible compensation, plus an additional contribution of 2% for any year in which BlackRock has positive net operating income. The RSP offers a range of investment options, including registered investment companies managed by the firm. BlackRock contributions follow the investment direction set by participants for their own contributions or, absent employee investment direction, are invested into a balanced portfolio. The ESPP allows for investment in BlackRock common stock at a 5% discount on the fair market value of the stock on the purchase date. Annual participation in the ESPP is limited to the purchase of 1,000 shares or a dollar value of $25,000. Each portfolio manager is eligible to participate in these plans.

 

 

 

(a)(4) Beneficial Ownership of Securities. As of December 31, 2008, none of Ms. Jelilian, Mr. Russo or Mr. McClements beneficially owned any stock issued by the Fund.

 

 

Item 9 –

Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers –


 

 

 

 

 

 

 

 

 

Period

 

(a) Total Number of Shares Purchased

 

(b) Average Price Paid per Share

 

(c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

 

(d) Maximum Number (or Approx. Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs

 

 

 

 

 

 

 

 

 

July 1-31, 2008

 

 

 

 

 

 

 

 

August 1-31, 2008

 

 

 

 

 

 

 

 

September 1-30, 2008

 

 

 

 

 

 

 

 

October 1-31, 2008

 

 

 

 

 

 

 

 

November 1-30, 2008

 

186,904

 

$9.71 1

 

186,904 2

 

0

December 1-31, 2008

 

 

 

 

 

 

 

 

Total:

 

186,904

 

$9.71 1

 

186,904 2

 

0


 

 

1 Subject to a repurchase fee of up to 2% of the net asset value per share.

2 On September 9, 2008, the repurchase offer was announced to repurchase up to 5% of outstanding shares. The expiration date of the offer was October 23, 2008. 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 – The registrant’s Nominating and Corporate Governance Committee will consider nominees to the board of directors recommended by shareholders when a vacancy becomes available. Shareholders who wish to recommend a nominee should send nominations that include biographical information and set forth the qualifications of the proposed nominee to the registrant’s Secretary. There have been no material changes to these procedures.

 

 

Item 11 –

Controls and Procedures

 

 

11(a) –

The registrant’s principal executive and principal financial officers or persons performing similar functions have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing of this report based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended.

 

 

11(b) –

There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

 

 

Item 12 –

Exhibits attached hereto

 

 

12(a)(1) –

Code of Ethics – 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 ® GEARED SM Fund Inc.

 

 

 

By:

 

 

 

/s/ Mitchell M. Cox

 

 

 

Mitchell M. Cox

 

 

Chief Executive Officer of

 

 

S&P 500 ® GEARED SM Fund Inc.

 

 

 

 

Date: February 25, 2009

 

 

 

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 (principal executive officer) of

 

 

S&P 500 ® GEARED SM Fund Inc.

 

 

 

 

Date: February 25, 2009

 

 

 

By:

 

 

 

/s/ James E. Hillman

 

 

 

James E. Hillman

 

 

Chief Financial Officer (principal financial officer) of

 

 

S&P 500 ® GEARED SM Fund Inc.

 

 

 

 

Date: February 25, 2009



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