S&P Depositary Receipts are usually shortened to SPDRs, and pronounced "spiders." The SPDR Trust is a unit investment trust based on the Standard & Poor's 500 Index, and it owns a fixed portfolio of all the stocks that make up the S&P 500.
Each SPDR represents a single unit of ownership in the S&P 500, and can be bought and sold, much like a stock, on the American Stock Exchange. For investors who are looking to match the performance of the overall market, as represented by the S&P 500, SPDRs may be a smart option to consider.
SPDRs were first created back in January 1993 by a subsidiary of the American Stock Exchange. They trade on the Amex, and you can find them listed in quote servers under the symbol SPY. However, it's easy to figure out the price of a unit in the trust -- it's always the current value of the S&P 500 Index divided by 10. If the S&P 500 Index stands at 1097.31, the unit price of a SPDR is $109.73.
You can buy shares in SPDRs at any time when the market is open. (In comparison, you can only buy mutual fund shares at the end of the trading day.) Any brokerage firm will happily assist you in purchasing SPDRs for your portfolio. (For a commission, of course).
SPDR holders receive quarterly "dividend equivalent amounts" of cash for each SPDR unit they own, based on the dividends paid by the stocks in the S&P 500. The dividends are paid to SPDR holders quarterly on the last business day in April, July, October and January.
State Street Bank & Trust of Boston holds the actual shares of stock that make up the SPDR Trust and deducts a small management fee from the dividend distributions paid to shareholders. SPDR Trust expenses are currently at 18.45 basis points (in English, that's 0.185 percent).
One way that SPDRs are different from an S&P 500 index fund is that SPDRs, like all unit investment trusts, expire after a certain length of time. What is particularly unusual about SPDRs is their expiration date, December 31, 2099 -- the end of the 21st century -- perfect for really long-term investors.
Two last incidental notes: SPDRs can be sold short in the market, so some investors use SPDRs as a vehicle to bet that the overall market is headed for a decline. And MidCap SPDRs are also available to track the value of the S&P MidCap 400 Index, a benchmark for middle capitalization companies.