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