THE DOW INDUSTRIALS(SM) ("DIAMONDS")(SM)
 
                            DIAMONDS TRUST, SERIES 1
 
                            A UNIT INVESTMENT TRUST
 
                                 ANNUAL REPORT
 
                                OCTOBER 31, 2005
 
"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, the American Stock Exchange LLC, and State Street Global
Markets, 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.

 
DIAMONDS TRUST, SERIES 1
TRUST OVERVIEW
 
--------------------------------------------------------------------------------
 
OBJECTIVE:
To replicate, before expenses, the total return of the Dow Jones Industrial
Average.
 
STRATEGY:
The Trust's holdings are comprised of the 30 stocks in the Dow Jones Industrial
Average, which is designed to capture the price performance of 30 US blue-chip
stocks that are generally considered leaders within their respective industries.
 
PERFORMANCE OVERVIEW:
The Diamonds Trust, Series 1 (the "Trust") seeks to match the total return of
the Dow Jones Industrial Average. To accomplish this, the Trust utilizes a full
replication approach. With this strategy, all 30 securities of the Dow Jones
Industrial Average are owned by the Trust. A replication management approach
results in low expected tracking error of the Trust relative to its benchmark.
 
For the year ended October 31, 2005, the Diamonds Trust (the "Trust") rose 6.23%
versus the Dow Jones Industrials Index (the "Index", the "Dow") gain of 6.45%.
The Trust realized much of the year's return from a strong November and December
2004 as it gained close to 8.00% over that two month period. The catalysts for
this initial surge included several solid corporate earnings reports, an end to
the uncertainty surrounding the presidential election, and a decline in energy
prices which sparked a rebound in consumer confidence. For the remainder of the
twelve-month period, the market remained range-bound, by and large, as oil
prices resumed their steep ascent, rising first through the $60 per barrel level
and then quickly approaching the $70 per barrel level after Hurricane Katrina
made landfall in the Gulf area on August 29, 2005. This sparked increasing
inflation concerns and fears of a slowdown in global growth. As a result of
these inflationary fears, the Federal Reserve continued its steady rate-hiking
campaign, as it raised the federal funds rate in eight 25 basis point increments
during the twelve months ended October, bringing the fed funds rate level to
3.75%.
 
The biggest contributors to the Trust's performance included Altria Group, Inc.,
Caterpillar, Inc., and Boeing Co. On the downside, the biggest detractors to
performance were General Motors Corp., Alcoa, Inc., and Pfizer, Inc.
 
The performance information presented does not reflect the deduction of taxes
that a unitholder would pay on Trust distributions or the redemption of Trust
units. Performance data quoted represents past performance and past performance
does not guarantee future results. An investment return and principal value of
an investment will fluctuate so that an investor's units, when redeemed, may be
worth more or less than their original cost. Current performance may be lower or
higher than performance data quoted.
 
                                        1

 
DIAMONDS TRUST, SERIES 1
SCHEDULE OF INVESTMENTS
OCTOBER 31, 2005
 
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COMMON STOCKS                                                  SHARES          VALUE
-----------------------------------------------------------------------------------------
                                                                     
3M Co. .....................................................  5,677,261    $  431,358,291
Alcoa, Inc. ................................................  5,677,261       137,900,670
Altria Group, Inc. .........................................  5,677,261       426,078,438
American Express Co. .......................................  5,677,261       282,557,280
American International Group, Inc. .........................  5,677,261       367,886,513
Boeing Co. .................................................  5,677,261       366,978,151
Caterpillar, Inc. ..........................................  5,677,261       298,567,156
Citigroup, Inc. ............................................  5,677,261       259,905,009
Coca-Cola Co. (The).........................................  5,677,261       242,873,226
Disney (Walt) Co. (The).....................................  5,677,261       138,354,851
Du Pont (E.I.) de Nemours...................................  5,677,261       236,685,011
Exxon Mobil Corp. ..........................................  5,677,261       318,721,433
General Electric Co. .......................................  5,677,261       192,515,921
General Motors Corp. .......................................  5,677,261       155,556,951
Hewlett-Packard Co. ........................................  5,677,261       159,190,398
Home Depot, Inc. ...........................................  5,677,261       232,994,791
Honeywell International, Inc. ..............................  5,677,261       194,162,326
Intel Corp. ................................................  5,677,261       133,415,633
International Business Machines Corp. ......................  5,677,261       464,854,131
Johnson & Johnson Co. ......................................  5,677,261       355,510,084
JPMorgan Chase & Co. .......................................  5,677,261       207,901,298
McDonald's Corp. ...........................................  5,677,261       179,401,448
Merck & Co., Inc. ..........................................  5,677,261       160,212,305
Microsoft Corp. ............................................  5,677,261       145,905,608
Pfizer, Inc. ...............................................  5,677,261       123,423,654
Procter & Gamble Co. .......................................  5,677,261       317,869,843
SBC Communications, Inc. ...................................  5,677,261       135,402,675
United Technologies Corp. ..................................  5,677,261       291,129,944
Verizon Communications, Inc. ...............................  5,677,261       178,890,494
Wal-Mart Stores, Inc. ......................................  5,677,261       268,591,217
                                                                           --------------
Total Common Stocks (Cost $8,509,837,219)...................               $7,404,794,750
                                                                           ==============

 
See accompanying notes to financial statements.
 
                                        2

 
DIAMONDS TRUST, SERIES 1
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 2005
 
--------------------------------------------------------------------------------
 

                                                             
ASSETS
  Investments in securities, at value.......................    $7,404,794,750
  Cash......................................................        11,333,031
  Receivable for income delivered for DIAMONDS in-kind
     transactions...........................................             4,331
  Dividends receivable......................................         7,250,939
                                                                --------------
TOTAL ASSETS................................................     7,423,383,051
                                                                --------------
LIABILITIES
  Payable for income delivered for DIAMONDS in-kind
     transactions...........................................             1,433
  Income distribution payable...............................         9,166,804
  Accrued Trustee expense...................................           305,227
  Accrued expenses and other liabilities....................         3,923,139
                                                                --------------
TOTAL LIABILITIES...........................................        13,396,603
                                                                --------------
NET ASSETS..................................................    $7,409,986,448
                                                                ==============
NET ASSETS REPRESENTED BY:
  Paid in surplus...........................................    $8,812,190,121
  Undistributed net investment income.......................         1,397,529
  Accumulated net realized loss on investments..............      (298,558,733)
  Net unrealized depreciation on investments................    (1,105,042,469)
                                                                --------------
NET ASSETS..................................................    $7,409,986,448
                                                                ==============
NET ASSET VALUE PER DIAMOND.................................           $104.31
                                                                       =======
UNITS OF FRACTIONAL UNDIVIDED INTEREST
  ("DIAMONDS") OUTSTANDING, UNLIMITED UNITS AUTHORIZED,
     $0.00 PAR VALUE........................................        71,036,226
                                                                --------------
COST OF INVESTMENTS.........................................    $8,509,837,219
                                                                ==============

 
See accompanying notes to financial statements.
 
                                        3

 
DIAMONDS TRUST, SERIES 1
STATEMENTS OF OPERATIONS
 
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                                           FOR THE YEAR ENDED    FOR THE YEAR ENDED    FOR THE YEAR ENDED
                                            OCTOBER 31, 2005      OCTOBER 31, 2004      OCTOBER 31, 2003
                                           ------------------    ------------------    ------------------
                                                                              
INVESTMENT INCOME
     Dividend income.....................     $177,120,908          $145,895,782         $  120,911,703
                                              ------------          ------------         --------------
EXPENSES:
     Trustee expense.....................        4,928,790             4,708,689              3,480,020
     Marketing expense...................        4,307,114             4,019,534              3,230,848
     DJIA license fee....................        2,655,783             3,750,004              1,947,815
     SEC registration fee................          324,223                73,883                116,131
     Legal and audit services............          149,889                89,900                249,444
     Printing and postage expense........          403,199                43,194                338,844
     Other expenses......................          120,310                   661                    715
     Amortization of organization
          costs..........................               --                    --                101,829
                                              ------------          ------------         --------------
Total expenses...........................       12,889,308            12,685,865              9,465,646
     Trustee earnings credit.............         (280,392)              (88,355)               (61,870)
                                              ------------          ------------         --------------
Net expenses after Trustee earnings
  credits................................       12,608,916            12,597,510              9,403,776
                                              ------------          ------------         --------------
NET INVESTMENT INCOME (LOSS).............      164,511,992           133,298,272            111,507,927
                                              ------------          ------------         --------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON
  INVESTMENTS
     Net realized gain/(loss) on
       investment transactions...........      651,853,900           213,134,509            276,147,528
     Net change in unrealized
       appreciation (depreciation).......     (297,315,375)         (133,449,812)           636,501,507
                                              ------------          ------------         --------------
NET REALIZED AND UNREALIZED GAIN/(LOSS)
  ON INVESTMENTS.........................      354,538,525            79,684,697            912,649,035
                                              ------------          ------------         --------------
NET INCREASE (DECREASE) IN NET ASSETS
  RESULTING FROM OPERATIONS..............     $519,050,517          $212,982,969         $1,024,156,962
                                              ============          ============         ==============

 
See accompanying notes to financial statements.
 
                                        4

 
DIAMONDS TRUST, SERIES 1
STATEMENTS OF CHANGES IN NET ASSETS
 
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                                           FOR THE YEAR ENDED    FOR THE YEAR ENDED    FOR THE YEAR ENDED
                                            OCTOBER 31, 2005      OCTOBER 31, 2004      OCTOBER 31, 2003
                                           ------------------    ------------------    ------------------
                                                                              
INCREASE (DECREASE) IN NET ASSETS
  RESULTING FROM OPERATIONS:
     Net investment income (loss)........   $   164,511,992        $  133,298,272        $  111,507,927
     Net realized gain/(loss) on
       investment transactions...........       651,853,900           213,134,509           276,147,528
     Net change in unrealized
       appreciation (depreciation).......      (297,315,375)         (133,449,812)          636,501,507
                                            ---------------        --------------        --------------
NET INCREASE (DECREASE) IN NET ASSETS
  RESULTING FROM OPERATIONS..............       519,050,517           212,982,969         1,024,156,962
                                            ---------------        --------------        --------------
UNDISTRIBUTED NET INVESTMENT INCOME
  (LOSS) INCLUDED IN PRICE OF UNITS
  ISSUED AND REDEEMED....................        (2,410,446)           (1,282,877)             (398,863)
                                            ---------------        --------------        --------------
DISTRIBUTIONS TO UNITHOLDERS FROM NET
  INVESTMENT INCOME......................      (168,178,022)         (130,617,261)         (110,187,836)
                                            ---------------        --------------        --------------
NET INCREASE (DECREASE) IN NET ASSETS
  FROM ISSUANCE AND REDEMPTION OF
  DIAMONDS...............................    (1,129,366,247)        2,118,716,178           959,445,015
                                            ---------------        --------------        --------------
NET INCREASE (DECREASE) IN NET ASSETS
  DURING YEAR............................      (780,904,198)        2,199,799,009         1,873,015,278
NET ASSETS AT BEGINNING OF YEAR..........     8,190,890,646         5,991,091,637         4,118,076,359
                                            ---------------        --------------        --------------
 
NET ASSETS END OF YEAR*..................   $ 7,409,986,448        $8,190,890,646        $5,991,091,637
                                            ===============        ==============        ==============
*INCLUDES UNDISTRIBUTED NET INVESTMENT
  INCOME.................................   $     1,397,529        $    5,063,559        $    2,382,548
                                            ---------------        --------------        --------------

 
See accompanying notes to financial statements.
 
                                        5

 
DIAMONDS TRUST, SERIES 1
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A DIAMOND OUTSTANDING DURING THE YEAR
 
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                                       FOR THE YEAR   FOR THE YEAR   FOR THE YEAR   FOR THE YEAR   FOR THE YEAR
                                          ENDED          ENDED          ENDED          ENDED          ENDED
                                         10/31/05       10/31/04       10/31/03       10/31/02       10/31/01
                                       ------------   ------------   ------------   ------------   ------------
                                                                                    
NET ASSET VALUE, BEGINNING OF YEAR...   $   100.48     $    98.20     $    84.12     $    90.84     $   109.73
                                        ----------     ----------     ----------     ----------     ----------
INVESTMENT OPERATIONS:
    Net investment income(1).........         2.39(5)        1.94           1.91           1.73           1.56
    Net realized and unrealized
       gain/(loss) on investments....         3.91           2.28          14.06          (6.77)        (18.86)
                                        ----------     ----------     ----------     ----------     ----------
TOTAL FROM INVESTMENT OPERATIONS.....         6.30           4.22          15.97          (5.04)        (17.30)
                                        ----------     ----------     ----------     ----------     ----------
UNDISTRIBUTED NET INVESTMENT INCOME
  (LOSS) INCLUDED IN PRICE OF UNITS
  ISSUED AND REDEEMED................        (0.03)         (0.00)(2)      (0.01)          0.00(2)        0.00(2)
                                        ----------     ----------     ----------     ----------     ----------
LESS DISTRIBUTIONS FROM:
    Net investment income............        (2.44)         (1.94)         (1.88)         (1.68)         (1.59)
                                        ----------     ----------     ----------     ----------     ----------
NET ASSET VALUE, END OF YEAR.........   $   104.31     $   100.48     $    98.20     $    84.12     $    90.84
                                        ==========     ==========     ==========     ==========     ==========
TOTAL INVESTMENT RETURN(3)...........         6.23%          4.27%         19.22%         (5.71)%       (15.91)%
RATIOS AND SUPPLEMENTAL DATA
Ratios to average net assets:
    Net investment income............         2.27%          1.89%          2.12%          1.85%          1.51%
    Total expenses...................         0.18%          0.18%          0.18%          0.18%          0.18%
    Net expenses after trustee
       earnings credit...............         0.17%          0.18%          0.18%          0.18%          0.18%
    Net expenses after rebates,
       trustee earnings credit and
       waivers.......................         0.17%          0.18%          0.18%          0.18%          0.17%
Portfolio turnover rate(4)...........         7.69%         13.88%          8.71%          0.26%         12.66%
NET ASSET VALUE, END OF YEAR
  (000'S)............................   $7,409,986     $8,190,891     $5,991,092     $4,118,076     $2,734,476

 
--------------------------------------------------------------------------------
(1) Per share numbers have been calculated using the average shares method,
    which more appropriately presents the per unit data for the period.
 
(2) Amount shown represents less than $0.005.
 
(3) Total returns do not reflect broker commission charges.
 
(4) Portfolio turnover ratio excludes securities received or delivered from
    processing creations or redemptions of DIAMONDS.
 
(5) Net investment income per unit reflects receipt of a one time dividend from
    a portfolio holding (Microsoft Corp.). The effect of this dividend amounted
    to $0.22 per share.
 
See accompanying notes to financial statements.
 
                                        6

 
DIAMONDS TRUST, SERIES 1
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2005
 
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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, as amended. 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 "DIAMOND". 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, except for
securities listed on the NASDAQ which are valued at the NASDAQ official closing
price. If no closing sale price or official closing 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, or at the previous official
closing price if the security is listed on the NASDAQ. If there is no closing
sale price available or official closing price, valuation will be determined by
the Trustee in good faith based on available information.
 
INVESTMENT RISK
The Trust invests in various investments which are exposed to risks, such as
market risk. Due to the level of risk associated with certain investments it is
at least reasonably possibly 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.
 
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.
 
                                        7

DIAMONDS TRUST, SERIES 1
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 2005
 
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EQUALIZATION
The Trust follows the accounting practice known as "Equalization" by which a
portion of the proceeds from sales and costs of reacquiring the Trust's 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 Trust's units.
 
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 and electing, 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. Net
investment income per share calculations in the financial highlights for all
years presented exclude these differences.
 
During the fiscal year ended October 31, 2005, the Trust reclassified
$637,203,568 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.
 
At October 31, 2005, the Trust had the following capital loss carryforwards
which may be used to offset any net realized gains, expiring October 31:
 

                                              
2008..........................................   $  5,933,194
2010..........................................      2,065,467
2011..........................................     68,716,435
2012..........................................    221,460,585

 
The tax character of distributions paid during the year ended October 31, 2005,
2004, and 2003 were as follows:
 


DISTRIBUTIONS PAID FROM:                                 2005           2004           2003
------------------------                             ------------   ------------   ------------
                                                                          
Ordinary Income...................................   $168,178,022   $130,617,261   $110,187,836

 
As of October 31, 2005, the components of distributable earnings (excluding
unrealized appreciation (depreciation)) on a federal income tax basis were
undistributed ordinary income of $10,564,333 and undistributed long term capital
gain of $0.
 
                                        8

DIAMONDS TRUST, SERIES 1
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 2005
 
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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 and/or received in exchange for the issuance and/or redemption 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 fiscal year ended October 31, 2005:
 


NET ASSET VALUE OF THE TRUST                FEE AS A PERCENTAGE OF NET ASSET VALUE OF THE TRUST
----------------------------                ---------------------------------------------------
                                         
$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

 
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 DIAMONDS 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 fiscal year ended October 31, 2005, the Adjustment Amount
reduced the Trustee's fee by $301,365. The Adjustment Amount included an excess
of net transaction fees from processing orders of $20,973 and a Trustee earnings
credit of $280,392.
 
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 amounts of such reimbursements by the
Sponsor for the fiscal years ended October 31, 2002, October 31, 2003, October
31, 2004 and October 31, 2005 were $0.
 
Dow Jones & Company, Inc. ("Dow Jones"), the American Stock Exchange LLC (the
"AMEX"), PDR Services (the "Sponsor") and State Street Global Markets, LLC
("SSGM") 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. SSGM is a subsidiary of the Trustee.
 
INDEMNIFICATIONS
Under the Trust's organizational documents, its officers and trustees 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 with service providers that contain general
indemnification clauses. The Trust's 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 loss to be remote.
 
                                        9

DIAMONDS TRUST, SERIES 1
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
OCTOBER 31, 2005
 
--------------------------------------------------------------------------------
 
NOTE 4 -- TRUST TRANSACTIONS IN DIAMONDS
Transactions in DIAMONDS were as follows:
 


                                                         YEAR ENDED OCTOBER 31, 2005
                                                       -------------------------------
                                                         DIAMONDS         AMOUNTS
                                                       ------------   ----------------
                                                                
DIAMONDS sold........................................   117,800,000   $ 12,383,980,226
DIAMONDS issued upon dividend reinvestment...........        16,090          1,702,587
DIAMONDS redeemed....................................  (128,300,000)   (13,517,459,506)
Net income equalization..............................            --          2,410,446
                                                       ------------   ----------------
Net Decrease.........................................   (10,483,910)  $ (1,129,366,247)
                                                       ============   ================

 


                                                         YEAR ENDED OCTOBER 31, 2004
                                                       -------------------------------
                                                         DIAMONDS         AMOUNTS
                                                       ------------   ----------------
                                                                
DIAMONDS sold........................................    72,900,000   $  7,485,525,585
DIAMONDS issued upon dividend reinvestment...........        11,705          1,201,305
DIAMONDS redeemed....................................   (52,400,000)    (5,369,293,589)
Net income equalization..............................            --          1,282,877
                                                       ------------   ----------------
Net Increase.........................................    20,511,705   $  2,118,716,178
                                                       ============   ================

 


                                                         YEAR ENDED OCTOBER 31, 2003
                                                       -------------------------------
                                                         DIAMONDS         AMOUNTS
                                                       ------------   ----------------
                                                                
DIAMONDS sold........................................    70,850,000   $  6,167,457,123
DIAMONDS issued upon dividend reinvestment...........         4,321            385,016
DIAMONDS redeemed....................................   (58,800,000)    (5,208,795,987)
Net income equalization..............................            --            398,863
                                                       ------------   ----------------
Net Increase.........................................    12,054,321   $    959,445,015
                                                       ============   ================

 
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, 2005, the Trust had net in-kind
contributions, net in-kind redemptions, purchases and sales of investment
securities of $9,787,971,671, $10,918,870,304, $560,233,982 and $557,038,832,
respectively. At October 31, 2005, the cost of investments for federal income
tax purposes was $8,510,220,271 accordingly, gross unrealized appreciation was
$80,644,939, and gross unrealized depreciation was $1,186,070,460, resulting in
net unrealized depreciation of $1,105,425,521.
 
                                        10

 
DIAMONDS TRUST, SERIES 1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
--------------------------------------------------------------------------------
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, 2005, 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 the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits 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 the Trustee,
and evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at October 31, 2005 by
correspondence with the custodian, provide a reasonable basis for our opinion.
 
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 16, 2005
 
                                        11

 
DIAMONDS TRUST, SERIES 1
OTHER INFORMATION (UNAUDITED)
OCTOBER 31, 2005
 
--------------------------------------------------------------------------------
 
TAX INFORMATION
For Federal income tax purposes, the percentage of Trust ordinary distributions
which qualify for the corporate dividends received deduction for the fiscal year
ended October 31, 2005 is 100%.
 
For the fiscal year ended October 31, 2005, certain dividends paid by the Trust
may be designated as qualified dividend income and subject to a maximum tax rate
of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of
2003. Complete information will be reported in conjunction with your 2005 Form
1099-DIV.
 
DISCLOSURE
On November 8, 2004, the Trustee declared a special dividend ("Special
Dividend") to be distributed to Beneficial Owners of record as of November 17,
2004. The Special Dividend was declared in light of the special dividend paid by
Microsoft Corporation on common shares held by the Trust. The ex-date for the
Special Dividend was November 15, 2004, and the payment date was December 2,
2004.
 
The Special Dividend was declared by the Trustee pursuant to authority granted
it by amendment, dated November 8, 2004 ("Amendment"), to the Standard Terms and
Conditions of the Trust dated as of January 1, 2004. The Amendment expands the
circumstances under which the Trustee may declare a special dividend to include
circumstances where, in the Trustee's discretion, doing so would be advantageous
to the Beneficial Owners of Trust units.
 
                FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
 
                      BID/ASK PRICE(1) VS NET ASSET VALUE
                             AS OF OCTOBER 31, 2005
 


                                 CLOSING PRICE                    CLOSING PRICE
                                   ABOVE NAV                        BELOW NAV
                                ----------------            -------------------------
                                50-99    100-199    >200    50-99    100-199    >200
                                BASIS     BASIS    BASIS    BASIS     BASIS    BASIS
                                POINTS   POINTS    POINTS   POINTS   POINTS    POINTS
                                ------   -------   ------   ------   -------   ------
                                                             
2005..........................    0         0        0        0         0        0
2004..........................    0         0        0        0         0        0
2003..........................    0         0        0        0         0        0
2002..........................    1         0        0        0         0        0
2001..........................    6         0        1        1         0        0

 
                                        12

DIAMONDS TRUST, SERIES 1
OTHER INFORMATION (UNAUDITED) -- (CONTINUED)
OCTOBER 31, 2005
 
--------------------------------------------------------------------------------
 
           COMPARISON OF TOTAL RETURNS BASED ON NAV AND BID/ASK PRICE
 
                            CUMULATIVE TOTAL RETURN
 


                                                      1 YEAR   5 YEAR   SINCE FIRST TRADE(2)
                                                      ------   ------   --------------------
                                                               
Return Based on NAV.................................   6.23%    4.71%          51.84%
Return Based on Bid/Ask Price.......................   6.13%    4.79%          51.49%
DJIA................................................   6.45%    5.47%          53.69%

 
                          AVERAGE ANNUAL TOTAL RETURN
 


                                                      1 YEAR   5 YEAR   SINCE FIRST TRADE(2)
                                                      ------   ------   --------------------
                                                               
Return Based on NAV.................................   6.23%    0.92%           5.52%
Return Based on Bid/Ask Price.......................   6.13%    0.94%           5.49%
DJIA................................................   6.45%    1.07%           5.68%

 
---------------
 
(1) Currently , the Bid/Ask Price is calculated based on the best bid and best
    offer on the AMEX at 4:00 p.m. However, prior to April 3, 2001, the
    calculation of the Bid/Ask Price was based on the midpoint of the best bid
    and best offer at the close of trading on the AMEX, ordinarily 4:15 p.m.
 
(2) The Trust commenced trading on the AMEX on January 20, 1998.
 
                                        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
State Street Financial Center
One Lincoln Street
Boston, MA 02111
 
DISTRIBUTOR
ALPS Distributors, Inc.
1625 Broadway, Suite 2200
Denver, CO 80202
 
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
125 High Street
Boston, MA 02110
 
LEGAL COUNSEL
Carter, Ledyard & Milburn
2 Wall Street
New York, NY 10005