Note 1 Organization
SPDR S&P 500 ETF Trust (the Trust) is a unit investment trust created under the laws of
the State of New York and registered under the Investment Company Act of 1940, as amended. The Trust was created to provide investors with the opportunity to purchase a security representing a proportionate undivided interest in a portfolio of
securities consisting of substantially all of the component common stocks, in substantially the same weighting, which comprise the Standard & Poors 500 Index (the S&P 500 Index). Each unit of fractional undivided
interest in the Trust is referred to as a Unit. The Trust commenced operations on January 22, 1993 upon the initial issuance of 150,000 Units (equivalent to three Creation Units see Note 4) in exchange for a
portfolio of securities assembled to reflect the intended portfolio composition of the Trust.
Under the Amended and Restated Standard Terms
and Conditions of the Trust, as amended (the Trust Agreement), PDR Services, LLC, as sponsor of the Trust (the Sponsor), and State Street Bank and Trust Company, as trustee of the Trust (the Trustee), are
indemnified against certain liabilities arising out of the performance of their duties to the Trust. Additionally, in the normal course of business, the Trust enters into contracts that contain general indemnification clauses. The Trusts
maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Trust that have not yet occurred. However, based on experience, the Trust expects the risk of material loss to be remote.
Note 2 Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Trust in the preparation of its financial statements:
The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ from those estimates. The financial statements are presented in United States dollars.
Security Valuation
The value of the Trusts portfolio securities is based on the
market price of the securities, which generally means a valuation obtained from an exchange or other market (or based on a price quotation or other equivalent indication of value supplied by an exchange or other market) or a valuation obtained from
an independent pricing service. If a securitys market price is not readily available or does not otherwise accurately reflect the fair value of the security, the security will be valued by another method that the Trustee believes will better
reflect fair value in accordance with the Trusts valuation policies and procedures. The Trustee has established a Pricing and Investment Committee (the Committee) for the purpose of valuing securities for which market quotations
are not readily available or do not otherwise accurately reflect the fair value of the security. The Committee, subject to oversight by the Trustee, may use fair value pricing in a variety of circumstances, including but not limited to, situations
when trading in a security has been suspended or halted. Accordingly, the Trusts net asset value (NAV) may reflect certain portfolio securities fair values rather than their market prices. Fair value pricing involves
subjective judgments and it is possible that the fair value determination for a security is materially different than the value that could be received on the sale of the security.
The Trust continues to follow the authoritative guidance for fair value measurements and the fair value option for financial assets and financial liabilities. The guidance for the fair value option for
financial assets and financial
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SPDR S&P 500 ETF Trust
Notes to Financial Statements (continued)
September 30, 2012
Note 2 Significant Accounting Policies (continued)
liabilities provides the Trust with the irrevocable option to measure many financial assets and liabilities at fair value with changes in fair value recognized in earnings. The guidance also
establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. The guidance establishes
three levels of inputs that may be used to measure fair value:
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Level 1 quoted prices in active markets for identical investments
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Level 2 other significant observable inputs (including, but not limited to, quoted prices for similar investments, interest rates, prepayment
speeds, credit risk, etc.)
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Level 3 significant unobservable inputs (including the Trusts own assumptions in determining the fair value of investments)
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Investments that use Level 2 or Level 3 inputs may include, but are not limited to: (i) an unlisted security related to
corporate actions; (ii) a restricted security (i.e., one that may not be publicly sold without registration under the Securities Act of 1933, as amended); (iii) a security whose trading has been suspended or which has been de-listed from
its primary trading exchange; (iv) a security that is thinly traded; (v) a security in default or bankruptcy proceedings for which there is no current market quotation; (vi) a security affected by currency controls or restrictions;
and (vii) a security affected by a significant event (i.e., an event that occurs after the close of the markets on which the security is traded but before the time as of which the Trusts net assets are computed and that may materially
affect the value of the Trusts investments). Examples of events that may be significant events are government actions, natural disasters, armed conflicts, acts of terrorism, and significant market fluctuations.
Fair value pricing could result in a difference between the prices used to calculate the Trusts NAV and the prices used by the S&P 500 Index,
which, in turn, could result in a difference between the Trusts performance and the performance of the S&P 500 Index. The inputs or methodology used for valuation are not necessarily an indication of the risk associated with investing in
those investments. The types of inputs used to value each security are identified in the Schedule of Investments, which also includes a breakdown of the Trusts investments by industry.
The Trust did not hold any investments valued using Level 2 or Level 3 inputs as of September 30, 2012 and did not have any transfers between levels for the year ended September 30, 2012.
Subsequent Events
Events or
transactions occurring after the year end through the date the financial statements were issued have been evaluated by management in the preparation of the financial statements and no items were noted requiring additional disclosure or adjustment.
Investment Risk
The
Trusts investments are exposed to risks, such as market risk. Due to the level of risk associated with certain investments it is at least reasonably possible that changes in the values of investment securities will occur in the near term and
that such changes could materially affect the amounts reported in the financial statements.
An investment in the Trust involves risks similar
to those of investing in any fund of equity securities, such as market fluctuations caused by such factors as economic and political developments, changes in interest rates and
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SPDR S&P 500 ETF Trust
Notes to Financial Statements (continued)
September 30, 2012
Note 2 Significant Accounting Policies (continued)
perceived trends in stock prices. The value of a Unit will decline, more or less, in correlation with any decline in value of the S&P 500 Index. The values of equity securities could decline
generally or could underperform other investments. The Trust would not sell an equity security because the securitys issuer was in financial trouble unless that security were removed from the S&P 500 Index.
Investment Transactions
Investment
transactions are recorded on the trade date. Realized gains and losses from the sale or disposition of securities are recorded on the identified cost basis. Dividend income is recorded on the ex-dividend date.
Distributions to Unitholders
The Trust
declares and distributes dividends from net investment income to its holders of Units (Unitholders) quarterly. The Trust declares and distributes net realized capital gains, if any, at least annually.
Broker-dealers, at their own discretion, may offer a dividend reinvestment service under which additional Units may be purchased in the secondary market
at current market prices. Investors should consult their broker-dealer for further information regarding any dividend reinvestment service offered by such broker-dealer.
Equalization
The Trust follows the accounting practice known as Equalization
by which a portion of the proceeds from sales and costs of reacquiring the Trusts Units, equivalent on a per Unit basis to the amount of distributable net investment income on the date of the transaction, is credited or charged to
undistributed net investment income. As a result, undistributed net investment income per Unit is unaffected by sales or reacquisitions of the Trusts Units.
U.S. Federal Income Tax and Certain Other Tax Matters
For U.S. federal income tax
purposes, the Trust has qualified as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (a RIC) and intends to continue to qualify as a RIC. As a RIC, the Trust will generally
not be subject to U.S. federal income tax for any taxable year on income, including net capital gains, that it distributes to its Unitholders, provided that it distributes on a timely basis at least 90% of its investment company taxable
income (generally, its taxable income other than net capital gain) for such taxable year. In addition, provided that the Trust distributes during each calendar year substantially all of its ordinary income and capital gains, the Trust will not
be subject to U.S. federal excise tax.
The Trust has reviewed the tax positions for the open tax years as of September 30, 2012 and has
determined that no provision for income tax is required in the Trusts financial statements. The Trusts U.S. federal tax returns for the prior three fiscal years remain subject to examination by the Trusts major tax jurisdictions,
which include the United States of America and the State of New York. The Trust would recognize interest and penalties, if any, related to tax liabilities as income tax expense in the Statements of Operations. There were no such expenses for the
year ending September 30, 2012.
Under rules in effect for taxable years beginning before December 22, 2010, the capital loss
carryforward period of a RIC was limited to eight years. Capital loss carryforwards of RICs for subsequent taxable years may be carried forward indefinitely, but capital loss carryforwards generated in taxable years subject to the prior rules must
be fully used before those generated in subsequent taxable years. Therefore, under certain circumstances, capital loss carryforwards available as of the report date, as described below, may expire unused.
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SPDR S&P 500 ETF Trust
Notes to Financial Statements (continued)
September 30, 2012
Note 2 Significant Accounting Policies (continued)
At September 30, 2012, the Trust had the following capital loss carryforwards that may be utilized
to offset any net realized gains, expiring September 30:
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2013
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$
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380,379,645
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2014
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1,174,140,896
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2015
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1,056,971,322
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2016
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917,820,735
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2017
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2,553,965,847
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2018
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188,539,023
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Non-Expiring Short Term
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378,595,650
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Non-Expiring Long Term
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345,451,782
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During the tax year ended September 30, 2012, the Trust utilized capital loss carryforwards of $0 and had
$445,024,832 of capital loss carryforwards expire.
During the year ended September 30, 2012, the Trust reclassified $9,190,902,066 of
non-taxable security gains realized from the in-kind redemption of Creation Units (Note 4) as an increase to paid in capital in the Statement of Assets and Liabilities. At September 30, 2012, the cost of investments for U.S. federal income tax
purposes was $120,716,392,931. Accordingly, gross unrealized appreciation was $5,196,171,442 and gross unrealized depreciation was $7,795,590,487, resulting in net unrealized depreciation of $2,599,419,045.
The tax character of distributions paid during the year ended September 30, 2012 was $2,209,395,148 of ordinary income.
The tax character of distributions paid during the year ended September 30, 2011 was $1,859,515,384 of ordinary income.
The tax character of distributions paid during the year ended September 30, 2010 was $1,549,861,683 of ordinary income.
As of September 30, 2012, the components of distributable earnings (excluding unrealized appreciation/(depreciation)) were undistributed ordinary
income of $7,162,620, undistributed long-term capital gain of $0 and unrealized depreciation of $2,599,419,045.
Capital losses realized by the
Trust after October 31 and ordinary income losses realized by the Trust after December 31, may be deferred and treated as occurring on the first day of the following fiscal year. The Trust elected for U.S. federal income tax purposes to
defer the following current year post October 31 and post December 31 losses, as applicable, as though the losses were incurred on the first day of the next fiscal year:
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Post October Loss Deferral
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$
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0
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Late Year Ordinary Loss Deferral
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0
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Note 3 Transactions with the Trustee and Sponsor
In accordance with the Trust Agreement, the Trustee maintains the Trusts accounting records, acts as custodian and transfer agent to the Trust, and provides administrative services, including filing
of certain regulatory reports. The Trustee is also responsible for determining the composition of the portfolio of securities which must be delivered and/or received in exchange for the issuance and/or redemption of Creation Units of the Trust, and
for
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SPDR S&P 500 ETF Trust
Notes to Financial Statements (continued)
September 30, 2012
Note 3 Transactions with the Trustee and Sponsor (continued)
adjusting the composition of the Trusts portfolio from time to time to conform to changes in the composition and/or weighting structure of the S&P 500 Index. For these services, the
Trustee received a fee at the following annual rates for the year ended September 30, 2012:
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Net asset value of the Trust
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Fee as a percentage of net asset value of the Trust
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$0 $499,999,999
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0.10% per annum plus or minus the Adjustment Amount
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$500,000,000 $2,499,999,999
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0.08% per annum plus or minus the Adjustment Amount
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$2,500,000,000 and above
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0.06% per annum plus or minus the Adjustment Amount
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The Adjustment Amount is the sum of (a) the excess or deficiency of transaction fees received by the Trustee, less
the expenses incurred in processing orders for creation and redemption of Units and (b) the amounts earned by the Trustee with respect to the cash held by the Trustee for the benefit of the Trust. During the year ended September 30, 2012,
the Adjustment Amount reduced the Trustees fee by $4,602,275. The Adjustment Amount included an excess of net transaction fees from processing orders of $4,169,916 and a Trustee earnings credit of $432,359.
The Trustee voluntarily agreed to waive a portion of its fee, as needed, for one year until February 1, 2013, so that the total operating expenses
would not exceed 0.0945% per annum of the daily NAV. The total amount of such waivers by the Trustee for the years ended September 30, 2010, September 30, 2011 and September 30, 2012 are identified in the Statements of
Operations. The Trustee has not entered into an agreement with the Trust to recapture waived fees in subsequent periods and the Trustee may discontinue the voluntary waiver.
S&P Dow Jones Indices LLC (S&P), per a license from Standard & Poors Financial Services LLC, and State Street Global Markets, LLC (SSGM or the
Marketing Agent) have entered into a License Agreement. The License Agreement grants SSGM, an affiliate of the Trustee, a license to use the S&P 500 Index and to use certain trade names and trademarks of S&P in connection with
the Trust. The S&P 500 Index also serves as a basis for determining the composition of the portfolio. The Trustee, on behalf of the Trust, NYSE Arca, Inc. (NYSE Arca) and the Sponsor have each received a sublicense from SSGM for
the use of the S&P 500 Index and certain trade names and trademarks in connection with their rights and duties with respect to the Trust. The License Agreement may be amended without the consent of any of the owners of beneficial interests of
Units. Currently, the License Agreement is scheduled to terminate on December 31, 2017, but its term may be extended without the consent of any of the owners of beneficial interests of Units. Pursuant to such arrangements and in accordance with
the Trust Agreement, the Trust reimburses the Sponsor for payment of fees under the License Agreement to S&P equal to 0.03% of the daily size of the Trust (based on Unit closing price and outstanding Units) plus an annual fee of
$600,000.
The Sponsor has entered into an agreement with the Marketing Agent pursuant to which the Marketing Agent has agreed to market and
promote the Trust. The Marketing Agent is reimbursed by the Sponsor for the expenses it incurs for providing such services out of amounts that the Trust reimburses the Sponsor. Expenses incurred by the Marketing Agent include, but are not limited
to: printing and distribution of marketing materials describing the Trust, associated legal, consulting, advertising and marketing costs and other out-of-pocket expenses.
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SPDR S&P 500 ETF Trust
Notes to Financial Statements (continued)
September 30, 2012
Note 3 Transactions with the Trustee and Sponsor (continued)
Investments in Affiliates of the Trustee and the Sponsor
The Trust has invested in companies that may be considered affiliates of the Trustee (State Street Corp.) and Sponsor (NYSE Euronext). Such investments
were made according to the representative portion of the S&P 500 Index. The market value of these investments at September 30, 2012 is listed in the Schedule of Investments.
Note 4 Unitholder Transactions
Units are issued and redeemed by the Trust only in
Creation Unit size aggregations of 50,000 Units. Such transactions are only permitted on an in-kind basis, with a separate cash payment that is equivalent to the undistributed net investment income per Unit (income equalization) and a balancing cash
component to equate the transaction to the NAV per Unit of the Trust on the transaction date. A transaction fee of $3,000 is currently charged in connection with each creation or redemption of Creation Units through the clearing process per
participating party per day, regardless of the number of Creation Units created or redeemed. In the case of redemptions outside the clearing process, the transaction fee plus an additional amount not to exceed three (3) times the transaction
fee applicable for one Creation Unit per Creation Unit redeemed are deducted from the amount delivered to the redeemer. Transaction fees are received by the Trustee and used to defray the expense of processing orders.
Note 5 Investment Transactions
For the year ended September 30, 2012, the Trust had in-kind contributions, in-kind redemptions, purchases and sales of investment securities of
$165,220,876,841, $149,670,178,338, $3,974,999,740, and $3,771,861,069, respectively. Net realized gain (loss) on investment transactions in the Statements of Operations includes net gains resulting from in-kind transactions of $9,217,362,190.
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SPDR S&P 500 ETF Trust