<PAGE> 1
THE DOW INDUSTRIALS(SM) ("DIAMONDS")(SM)
DIAMONDS TRUST SERIES 1
A UNIT INVESTMENT TRUST
ANNUAL REPORT
OCTOBER 31, 2000
"Dow Jones Industrial Average", "DJIA", "Dow Jones", "The Dow", "THE DOW
INDUSTRIALS", and "DIAMONDS" are trademarks and service marks of Dow Jones &
Company, Inc. ("Dow Jones") and have been licensed for use for certain purposes
by PDR Services LLC and the American Stock Exchange LLC pursuant to a License
Agreement with Dow Jones. The Trust, based on the DJIA, is not sponsored,
endorsed, sold, or promoted by Dow Jones and Dow Jones makes no representation
regarding the advisability of investing in the Trust.
<PAGE> 2
DIAMONDS TRUST SERIES 1
TRUST OVERVIEW
--------------------------------------------------------------------------------
For the fiscal year ended October 31, 2000, the Diamonds Trust (the "Trust")
returned a positive 3.7%. The Trust finished 1999 with a 7.2% gain for the
months of November and December. Increases in worker productivity with little
resulting signs of inflationary pressures made the outlook attractive for
investors. However, the Federal Reserve continued to raise short-term rates in
an effort to prevent the economy from overheating while attempting to
orchestrate a "soft-landing" for the economy. As a result, the ride for the
equity markets in 2000 has been anything but smooth. The Trust declined 11.8% in
the months of January and February wiping out its positive start to the fiscal
year. A rise in March of 7.8% was followed by three consecutive months of
negative returns. Technology stocks finally began to fall back to earth as
investors realized that the incredibly high valuations for some of these
companies could no longer be justified. The technology sector had a more
significant impact on the Trust's performance than in prior years due to the
additions of Microsoft and Intel to the index at the beginning of the year. With
the economy continuing to grow and unemployment hovering around 4%, fears of
inflation lingered and sustained periods of rapid earnings growth seemed to be
in jeopardy. This sparked the Federal Reserve to increase interest rates again
in May, and this time by 50 basis points. The Trust came charging back in August
with a return of 6.7%, but a slew of earnings disappointments caused a pullback
in the market in September. This was characteristic of the entire year as the
equity market could not seem to sustain any momentum as it had done so easily in
the past few years. The fiscal year saw increasing volatility and lighter than
usual volumes. The Dow Jones Industrial Average had nearly 40% of it's trading
days posting returns in excess of +/- 1%, while the NASDAQ had nearly 70% of
it's trading days end with the same results.
The largest positive performers in the Dow Jones Industrial Average ("Dow")
during this twelve month period included Hewlett Packard (68.1%), Philip Morris
(53.2%), and Boeing (48.4%). The largest negative performers in the Dow over the
same period were AT&T (-48.5%), Caterpillar (-34.2%), and Eastman Kodak
(-32.4%).
1
<PAGE> 3
DIAMONDS TRUST SERIES 1
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCKS SHARES VALUE
--------------------------------------------------------------------------------
<S> <C> <C>
Alcoa, Inc. .................................. 1,106,937 $ 31,755,255
American Express Co. ......................... 1,106,937 66,416,220
AT & T Corp. ................................. 1,106,937 25,667,102
Boeing Co. ................................... 1,106,937 75,064,165
Caterpillar, Inc. ............................ 1,106,937 38,811,979
Citigroup, Inc. .............................. 1,106,937 58,252,560
Coca-Cola Co. ................................ 1,106,937 66,831,321
Disney (Walt) Co. (The) ...................... 1,106,937 39,642,181
Du Pont (E.I.) de Nemours & Co., Inc. ........ 1,106,937 50,227,266
Eastman Kodak Co. ............................ 1,106,937 49,673,798
Exxon Mobil Corp. ............................ 1,106,937 98,724,944
General Electric Co. ......................... 1,106,937 60,673,984
General Motors Corp. ......................... 1,106,937 68,768,461
Hewlett-Packard Co. .......................... 1,106,937 51,403,341
Home Depot, Inc. ............................. 1,106,937 47,598,291
Honeywell International, Inc. ................ 1,106,937 59,567,047
Intel Corp. .................................. 1,106,937 49,812,165
International Business Machines Corp. ........ 1,106,937 109,033,295
International Paper Co. ...................... 1,106,937 40,541,568
Johnson & Johnson ............................ 1,106,937 101,976,571
McDonald's Corp. ............................. 1,106,937 34,315,047
Merck & Co., Inc. ............................ 1,106,937 99,555,146
Microsoft Corp. * ............................ 1,106,937 76,240,286
Minnesota Mining & Manufacturing Co. ......... 1,106,937 106,957,788
Morgan (J.P.) & Co., Inc. .................... 1,106,937 183,198,073
Philip Morris Cos., Inc. ..................... 1,106,937 40,541,568
Procter & Gamble Co. ......................... 1,106,937 79,076,812
SBC Communications, Inc. ..................... 1,106,937 63,856,428
United Technologies Corp. .................... 1,106,937 77,278,039
Wal-Mart Stores, Inc. ........................ 1,106,937 50,227,266
--------------
Total Investments - (Cost $2,134,300,985) .... $2,001,687,967
==============
</TABLE>
(*) Denotes non-income producing security.
See accompanying notes to financial statements
2
<PAGE> 4
DIAMONDS TRUST SERIES 1
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value (cost $2,134,300,985) ................... $ 2,001,687,967
Cash ........................................................................ 3,021,005
Receivable for investments sold ............................................. 46,836,770
Dividends receivable ........................................................ 1,326,460
Deferred organization costs ................................................. 1,106,361
---------------
TOTAL ASSETS .................................................................... 2,053,978,563
LIABILITIES
Payable for investments purchased ........................................... 47,082,426
Payable for income delivered for DIAMONDS issued/redeemed in-kind ........... 9,700
Distributions payable ....................................................... 2,508,889
Due to Sponsor .............................................................. 1,073,870
Accrued Trustee fees ........................................................ 156,622
Accrued expenses and other liabilities ...................................... 541,601
---------------
TOTAL LIABILITIES ............................................................... 51,373,108
---------------
NET ASSETS ...................................................................... $ 2,002,605,455
===============
NET ASSETS REPRESENTED BY:
Paid in surplus relating to 18,250,758 units of fractional undivided interest
("DIAMONDS") outstanding; unlimited units authorized .................... $ 2,165,538,763
Distribution in excess of net investment income ............................. (724,447)
Accumulated net realized loss on investments ................................ (29,595,843)
Net unrealized depreciation on investments .................................. (132,613,018)
---------------
NET ASSETS ...................................................................... $ 2,002,605,455
===============
Net asset value per DIAMOND ($2,002,605,455 / 18,250,758 DIAMONDS) .............. $ 109.73
===============
</TABLE>
See accompanying notes to financial statements
3
<PAGE> 5
DIAMONDS TRUST SERIES 1
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE PERIOD
ENDED ENDED ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999 OCTOBER 31, 1998*
---------------- ---------------- -----------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividend income .............................. $ 27,110,365 $ 9,701,986 $ 3,218,084
------------- ------------- -------------
EXPENSES
Marketing expense ............................ 2,800,000 712,625 2,780,541
Trustee expense .............................. 1,677,261 912,453 240,341
DJIA license fee ............................. 1,000,000 1,000,000 797,260
Amortization of organization costs ........... 503,642 502,266 195,661
SEC registration expense ..................... 235,534 152,003 93,200
Printing and postage expense ................. 162,000 154,540 641,161
Legal and audit services ..................... 56,389 39,097 136,370
Miscellaneous expense ........................ 700 1,280 100
------------- ------------- -------------
Total expenses ................................... 6,435,526 3,474,264 4,884,634
Rebate from Sponsor .......................... (2,597,968) (1,418,867) (4,301,113)
Rebate from Trustee .......................... (599,740) (912,453) (231,341)
------------- ------------- -------------
Net expenses ..................................... 3,237,818 1,142,944 352,180
Trustee earnings credit ...................... (133,506) (22,000) (5,168)
------------- ------------- -------------
Net expenses after Trustee earnings credit ....... 3,104,312 1,120,944 347,012
------------- ------------- -------------
NET INVESTMENT INCOME ............................ 24,006,053 8,581,042 2,871,072
------------- ------------- -------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investment transactions 189,376,879 115,756,556 27,304,522
Net change in unrealized depreciation ........ (119,522,465) (7,307,187) (5,783,366)
------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS .. 69,854,414 108,449,369 21,521,156
------------- ------------- -------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ....... $ 93,860,467 $ 117,030,411 $ 24,392,228
============= ============= =============
</TABLE>
* The Trust commenced operations on January 14, 1998.
See accompanying notes to financial statements
4
<PAGE> 6
DIAMONDS TRUST SERIES 1
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE PERIOD
ENDED ENDED ENDED
OCTOBER 31, 2000 OCTOBER 31, 1999 OCTOBER 31, 1998*
---------------- ---------------- -----------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS:
Net investment income .................................. $ 24,006,053 $ 8,581,042 $ 2,871,072
Net realized gain on investment transactions ........... 189,376,879 115,756,556 27,304,522
Net change in unrealized depreciation .................. (119,522,465) (7,307,187) (5,783,366)
--------------- --------------- ---------------
NET INCREASE IN NET ASSETS FROM OPERATIONS ................. 93,860,467 117,030,411 24,392,228
--------------- --------------- ---------------
UNDISTRIBUTED NET INVESTMENT INCOME INCLUDED IN
PRICE OF UNITS ISSUED AND REDEEMED, NET ................ 63,116 459,889 206,316
--------------- --------------- ---------------
DISTRIBUTIONS TO UNITHOLDERS FROM:
Net investment income .................................. (24,006,053) (8,581,042) (2,871,072)
In excess of net investment income ..................... (411,609) (262,907) (103,209)
--------------- --------------- ---------------
TOTAL DISTRIBUTIONS TO UNITHOLDERS ......................... (24,417,662) (8,843,949) (2,974,281)
--------------- --------------- ---------------
NET INCREASE IN NET ASSETS FROM ISSUANCE
AND REDEMPTION OF DIAMONDS ............................. 892,111,223 575,660,769 296,396,278
--------------- --------------- ---------------
NET INCREASE IN NET ASSETS DURING PERIOD ................... 961,617,144 684,307,120 318,020,541
NET ASSETS AT BEGINNING OF PERIOD .......................... 1,040,988,311 356,681,191 38,660,650
--------------- --------------- ---------------
NET ASSETS END OF PERIOD(A) ................................ $ 2,002,605,455 $ 1,040,988,311 $ 356,681,191
=============== =============== ===============
(a) Includes distribution in excess of net investment income $ (724,447) $ (366,116) $ (103,209)
--------------- --------------- ---------------
</TABLE>
* The Trust commenced operations on January 14, 1998.
See accompanying notes to financial statements
5
<PAGE> 7
DIAMONDS TRUST SERIES 1
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A DIAMOND OUTSTANDING DURING THE PERIOD
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE PERIOD
ENDED ENDED ENDED
OCTOBER 31, 2000(5) OCTOBER 31, 1999(5) OCTOBER 31, 1998(1)
------------------- ------------------- -------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD ..................... $ 107.31 $ 85.94 $ 77.32
------------- --------------- --------------
INVESTMENT OPERATIONS:
Net investment income ................................ 1.43 1.41 0.98
Net realized and unrealized gain on investments ...... 2.47 21.36 8.59
------------- --------------- --------------
TOTAL FROM INVESTMENT OPERATIONS ......................... 3.90 22.77 9.57
------------- --------------- --------------
UNDISTRIBUTED NET INVESTMENT INCOME
INCLUDED IN PRICE OF UNITS ISSUED AND
REDEEMED, NET ........................................ 0.00(6) 0.08 0.05
------------- --------------- --------------
LESS DISTRIBUTIONS FROM:
Net investment income ................................ (1.43) (1.41) (0.98)
In excess of net investment income ................... (0.05) (0.07) (0.02)
------------- --------------- --------------
TOTAL DISTRIBUTIONS ...................................... (1.48) (1.48) (1.00)
------------- --------------- --------------
NET ASSET VALUE, END OF PERIOD ........................... $ 109.73 $ 107.31 $ 85.94
------------- --------------- --------------
TOTAL INVESTMENT RETURN(4) ............................... 3.68% 26.71% 12.44%
RATIOS AND SUPPLEMENTAL DATA
Ratios to average net assets:
Net investment income ................................ 1.34% 1.37% 1.49%(2)
Total expenses ....................................... 0.17% 0.18% 0.18%(2)
Portfolio turnover rate(3) ........................... 23.85% 34.70% 3.23%
Total expenses excluding trustee
earnings credit ................................. 0.18% 0.18% 0.18%(2)
Total expenses excluding rebates, trustee earnings
credit and waivers(7) ........................... 0.36% 0.37% 2.35%(2)
NET ASSET VALUE, END OF PERIOD (000'S) ................... $ 2,002,605 $ 1,040,988 $ 356,681
</TABLE>
(1) The Trust commenced operations on January 14, 1998.
(2) Annualized.
(3) Portfolio turnover ratio excludes securities received or delivered from
processing creations or redemptions of DIAMONDS.
(4) Total returns for periods of less than one year are not annualized and
do not include transaction fees.
(5) Per share numbers have been calculated using the average shares method,
which more appropriately presents the per share data for the period.
(6) Amount shown represents less than $0.01.
(7) Excludes expenses reimbursed by the Sponsor and Trustee from the period
January 14, 1998 through February 29, 2000 and the Sponsor from the
period March 1, 2000 through October 31, 2000.
See accompanying notes to financial statements
6
<PAGE> 8
DIAMONDS TRUST SERIES 1
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2000
--------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION
DIAMONDS Trust Series 1 (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. The Trust was created to provide investors with the opportunity to
purchase units of beneficial interest in the Trust representing proportionate
undivided interests in the portfolio of securities consisting of substantially
all of the component common stocks, which comprise the Dow Jones Industrial
Average (the "DJIA"). Each unit of fractional undivided interest in the Trust is
referred to as a "DIAMONDS Unit". The Trust commenced operations on January 14,
1998 upon the initial issuance of 500,000 DIAMONDS (equivalent to ten "Creation
Units" - see Note 4) in exchange for a portfolio of securities assembled to
reflect the intended portfolio composition of the Trust.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that effect the reported amounts and disclosures in
the financial statements. Actual results could differ from these estimates. The
following is a summary of significant accounting policies followed by the Trust.
SECURITY VALUATION
Portfolio securities are valued based on the closing sale price on the exchange
which is deemed to be the principal market for the security. If no closing sale
price is available, then the security is valued at the previous closing sale
price on the exchange which is deemed to be the principal market for the
security. If there is no closing sale price available, valuation will be
determined by the Trustee in good faith based on available information.
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
unitholders monthly. The Trust will distribute net realized capital gains, if
any, at least annually.
ORGANIZATION COSTS
The Trust incurred organization costs of $2,307,929, which have been capitalized
and are being charged to operations ratably over a period of 60 months.
7
<PAGE> 9
DIAMONDS TRUST SERIES 1
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Trust has qualified and intends to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as amended. By
so qualifying, the Trust will not be subject to federal income taxes to the
extent it distributes its taxable income, including any net realized capital
gains, for each fiscal year. In addition, by distributing during each calendar
year substantially all of its net investment income and capital gains, if any,
the Trust will not be subject to federal excise tax. Income and capital gain
distributions are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. These differences are
primarily due to differing treatments for income equalization, in-kind
transactions and losses deferred due to wash sales. During the fiscal year ended
October 31, 2000, the Trust reclassified $201,180,978 of non-taxable security
gains realized in the in-kind redemption of Creation Units (Note 4) as an
increase to paid in surplus in the Statements of Assets and Liabilities. The
Trust incurred net capital losses of $282,282 for the fiscal period ended
October 31, 1998, $17,127,379 for the fiscal year ended October 31, 1999, and
$11,386,434 for the fiscal year ended October 31, 2000. These losses may be
utilized to offset any net realized capital gains through October 31, 2006,
October 31, 2007, and October 31, 2008, respectively.
NOTE 3 -- TRANSACTIONS WITH THE TRUSTEE AND SPONSOR
In accordance with the Trust Agreement, State Street Bank and Trust Company (the
"Trustee") maintains the Trust's accounting records, acts as custodian and
transfer agent to the Trust, and provides administrative services, including
filing of all required regulatory reports. The Trustee is also responsible for
determining the composition of the portfolio of securities which must be
delivered in exchange for the issuance of Creation Units of the Trust, and for
adjusting the composition of the Trust's portfolio from time to time to conform
to changes in the composition and/or weighting structure of the DJIA. For these
services, the Trustee received a fee at the following annual rates for the
period November 1, 1999 through February 29, 2000:
<TABLE>
<CAPTION>
Net asset value of the Trust Fee as a percentage of net asset value of the Trust
---------------------------- ---------------------------------------------------
<S> <C>
$0 - $499,999,999 15/100 of 1% per annum plus or minus the Adjustment Amount
$500,000,000 - $999,999,999 13/100 of 1% per annum plus or minus the Adjustment Amount
$1,000,000,000 - and above 11/100 of 1% per annum plus or minus the Adjustment Amount
</TABLE>
Effective March 1, 2000, the Trustee contractually reduced, on a permanent
basis, the Trustee Fee to the following annual rates:
<TABLE>
<CAPTION>
Net asset value of the Trust Fee as a percentage of net asset value of the Trust
---------------------------- ---------------------------------------------------
<S> <C>
$0 - $499,999,999 10/100 of 1% per annum plus or minus the Adjustment Amount
$500,000,000 - $2,499,999,999 8/100 of 1% per annum plus or minus the Adjustment Amount
$2,500,000,000 - and above 6/100 of 1% per annum plus or minus the Adjustment Amount
</TABLE>
8
<PAGE> 10
DIAMONDS TRUST SERIES 1
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
NOTE 3 -- TRANSACTIONS WITH THE TRUSTEE AND SPONSOR (CONTINUED)
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 SPDRs 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 October 31, 2000, the Adjustment Amount decreased the
Trustee's fee by $197,821. The Adjustment Amount included an excess of net
transaction fees from processing orders of $64,315 and a Trustee earnings credit
of $133,506.
For the fiscal year ended October 31, 2000, PDR Services LLC (the "Sponsor", a
wholly-owned subsidiary of the American Stock Exchange LLC) agreed to reimburse
the Trust for, or assume, the ordinary operating expenses of the Trust which
exceeded 18.00/100 of 1% per annum of the daily net asset value of the Trust.
The amount of such reimbursement by the Sponsor for the fiscal year ended
October 31, 2000 was $2,597,968. From the period November 1, 1999 through
February 29, 2000, State Street Bank and Trust Company (the "Trustee") agreed to
waive the Trustee's fee. The amount of such waiver by the Trustee for the period
was $599,740.
Dow Jones & Company, Inc. ("Dow Jones"), the American Stock Exchange LLC (the
"AMEX"), and PDR Services (the "Sponsor") have entered into a License Agreement
pursuant to which certain Dow Jones marks may be used in connection with the
Trust subject to the payment of license fees.
NOTE 4 -- TRUST TRANSACTIONS IN DIAMONDS
Transactions in DIAMONDS were as follows.
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 2000
DIAMONDS Amounts
----------- ---------------
<S> <C> <C>
DIAMONDS sold 30,350,000 $ 3,242,757,491
DIAMONDS issued upon dividend reinvestment 378 40,754
DIAMONDS redeemed (21,800,000) (2,350,623,906)
Net income equalization -- (63,116)
----------- ---------------
Net Increase 8,550,378 $ 892,111,223
=========== ===============
</TABLE>
9
<PAGE> 11
DIAMONDS TRUST SERIES 1
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 2000
--------------------------------------------------------------------------------
NOTE 4 -- TRUST TRANSACTIONS IN DIAMONDS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED
OCTOBER 31, 1999
DIAMONDS Amounts
------------- ---------------
<S> <C> <C>
DIAMONDS sold 17,200,000 $ 1,822,509,789
DIAMONDS issued upon dividend reinvestment 194 19,408
DIAMONDS redeemed (11,650,000) (1,246,408,539)
Net income equalization -- (459,889)
------------- ---------------
Net Increase 5,550,194 $ 575,660,769
============= ===============
</TABLE>
<TABLE>
<CAPTION>
PERIOD FROM JANUARY 14, 1998 TO
OCTOBER 31, 1998
DIAMONDS Amounts
------------- -------------
<S> <C> <C>
DIAMONDS sold 6,900,000 $ 578,121,987
DIAMONDS issued upon dividend reinvestment 186 16,132
DIAMONDS redeemed (3,250,000) (281,535,525)
Net income equalization -- (206,316)
------------- -------------
Net Increase 3,650,186 $ 296,396,278
============= =============
</TABLE>
Except for under the Trust's dividend reinvestment plan, DIAMONDS are issued and
redeemed by the Trust only in Creation Unit size aggregations of 50,000
DIAMONDS. Such transactions are only permitted on an in-kind basis, with a
separate cash payment which is equivalent to the undistributed net investment
income per DIAMOND (income equalization) and a balancing cash component to
equate the transaction to the net asset value per unit of the Trust on the
transaction date. A transaction fee of $1,000 is charged in connection with each
creation or redemption of Creation Units through the DIAMONDS Clearing Process
per Participating party per day, regardless of the number of Creation Units
created or redeemed. Transaction fees are received by the Trustee and used to
offset the expense of processing orders.
NOTE 5 -- INVESTMENT TRANSACTIONS
For the fiscal year ended October 31, 2000, the Trust had in-kind contributions,
in-kind redemptions, purchases and sales of investment securities of
$2,970,965,688, $2,079,144,713, $425,129,792 and $421,324,815, respectively. At
October 31, 2000, the cost of investments for federal income tax purposes was
$2,135,100,735 accordingly, gross unrealized appreciation was $122,307,081, and
gross unrealized depreciation was $255,719,849, resulting in net unrealized
depreciation of $133,412,768.
10
<PAGE> 12
DIAMONDS TRUST SERIES 1
REPORT OF INDEPENDENT ACCOUNTANTS
--------------------------------------------------------------------------------
To the Trustee and Unitholders of
DIAMONDS Trust Series 1
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of DIAMONDS Trust Series 1 (the
"Trust") at October 31, 2000, and the results of its operations, the changes in
its net assets and the financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Trust's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 15, 2000
11
<PAGE> 13
DIAMONDS TRUST SERIES 1
--------------------------------------------------------------------------------
SPONSOR
PDR Services LLC
c/o American Stock Exchange LLC
86 Trinity Place
New York, NY 10006
TRUSTEE
State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02110
DISTRIBUTOR
ALPS Mutual Funds Services, Inc.
370 17th Street, Suite 3100
Denver, CO 80202
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
160 Federal Street
Boston, MA 02110
LEGAL COUNSEL
Carter, Ledyard & Milburn
2 Wall Street
New York, NY 10005
