Information on SPDRs

What is SPDR? It stands for Standard & Poor's Depositary Receipt. They are shares of a security that are designed to track the value of the S&P 500. S&P refers to Standard & Poor and SPDR refers to Standard & Poor's Depositary Receipt.

How does it work? When an investor is buying SPDRs pronounced spiders, the person is buying shares in a unit investment trust (UIT) that owns a portfolio of stocks included in Standard & Poor's 500-stock Index (S&P 500). It is a convenient way to buy and sell the S&P 500, S&P 400 and select S&P sectors.

Spiders trade on the American Stock Exchange under the symbol SPY. 1 SPDR unit is valued at approximately 1/10 of the value of the S&P 500. Dividends on the stocks in the underlying portfolio are distributed quarterly and are based on the accumulated stock dividends that have been held in the trust, minus any expenses of the trust. The investor can also reinvest those dividends to buy additional shares.

They are in ways similar to an index mutual fund that tracks the S&P 500. SPDRs give investors the opportunity to diversify the investment portfolio without having to own shares in all the S&P 500 companies. One important difference is that, while the net asset value or NAV of an index fund is set only once a day, at the end of trading session, the price of SPDRs, which are listed on the American Stock Exchange (AMEX), changes throughout the day, reflecting the constant changes in the index.

Another interesting development in the area is in European SPDRs. However they cannot be registered under the United States Securities Act of 1933. European SPDRs, or interests earned from them cannot be offered, sold, resold or delivered directly or indirectly in the US or to the account or benefit of any U.S. person.