THE DOW(R) INDUSTRIALS ("DIAMONDS(R)")
DIAMONDS TRUST, SERIES 1
A UNIT INVESTMENT TRUST
SEMI-ANNUAL REPORT
APRIL 30, 2009
(UNAUDITED)
"Dow Jones Industrial Average(SM)", "DJIA(R)", "Dow Jones(R)", "The Dow(R)" and
"DIAMONDS(R)" are trademarks and service marks of Dow Jones & Company, Inc. and
have been licensed for use for certain purposes by State Street Global Markets,
LLC pursuant to a "Licence Agreement" with Dow Jones and have been sublicensed
for use for certain purposes to State Street Bank and Trust Company, as trustee
for DIAMONDS Trust, Series 1, PDR Services LLC and NYSE Amex LLC. The Trust 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
SCHEDULE OF INVESTMENTS
APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
COMMON STOCKS SHARES VALUE
--------------------------------------------------------------------------------------
3M Co. ................................................. 6,797,684 $ 391,546,598
Alcoa, Inc. ............................................ 6,797,684 61,654,994
American Express Co. ................................... 6,797,684 171,437,590
AT&T, Inc. ............................................. 6,797,684 174,156,664
Bank of America Corp. .................................. 6,797,684 60,703,318
Boeing Co. ............................................. 6,797,684 272,247,244
Caterpillar, Inc. ...................................... 6,797,684 241,861,597
Chevron Corp. .......................................... 6,797,684 449,326,912
Citigroup, Inc. ........................................ 6,797,684 20,732,936
Coca-Cola Co. .......................................... 6,797,684 292,640,296
Du Pont (E.I.) de Nemours & Co. ........................ 6,797,684 189,655,384
Exxon Mobil Corp. ...................................... 6,797,684 453,201,592
General Electric Co. ................................... 6,797,684 85,990,703
General Motors Corp. ................................... 6,797,684 13,051,553
Hewlett-Packard Co. .................................... 6,797,684 244,580,670
Home Depot, Inc. ....................................... 6,797,684 178,915,043
Intel Corp. ............................................ 6,797,684 107,267,454
International Business Machines Corp. .................. 6,797,684 701,588,966
Johnson & Johnson....................................... 6,797,684 355,926,734
JPMorgan Chase & Co. ................................... 6,797,684 224,323,572
Kraft Foods, Inc. (Class A)............................. 6,797,684 159,065,806
McDonald's Corp. ....................................... 6,797,684 362,248,580
Merck & Co., Inc. ...................................... 6,797,684 164,775,860
Microsoft Corp. ........................................ 6,797,684 137,721,078
Pfizer, Inc. ........................................... 6,797,684 90,817,058
Procter & Gamble Co. ................................... 6,797,684 336,077,497
United Technologies Corp. .............................. 6,797,684 331,998,887
Verizon Communications, Inc. ........................... 6,797,684 206,241,733
Wal-Mart Stores, Inc. .................................. 6,797,684 342,603,274
Walt Disney Co. ........................................ 6,797,684 148,869,279
--------------
Total Common Stocks -- (Cost $11,521,031,346)........... $6,971,228,872
==============
See accompanying notes to financial statements.
1
DIAMONDS TRUST, SERIES 1
STATEMENT OF ASSETS AND LIABILITIES
APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
ASSETS
Investments in securities, at value.......................... $6,971,228,872
Cash......................................................... 10,419,930
Receivable for DIAMONDS issued in-kind....................... 36,291
Dividends receivable......................................... 13,381,855
---------------
Total Assets................................................... 6,995,066,948
---------------
LIABILITIES
Income distribution payable.................................. 11,003,959
Accrued Trustee expense...................................... 337,349
Accrued expenses and other liabilities....................... 2,988,847
---------------
Total Liabilities.............................................. 14,330,155
---------------
NET ASSETS..................................................... $6,980,736,793
===============
NET ASSETS CONSIST OF:
Paid in surplus.............................................. 12,323,013,246
Undistributed net investment income.......................... 8,077,503
Accumulated net realized loss on investments................. (800,551,482)
Net unrealized depreciation on investments................... (4,549,802,474)
---------------
NET ASSETS..................................................... $6,980,736,793
===============
NET ASSET VALUE PER DIAMOND.................................... $81.66
======
UNITS OF FRACTIONAL UNDIVIDED INTEREST
("DIAMONDS") OUTSTANDING, UNLIMITED UNITS AUTHORIZED, $0.00
PAR VALUE.................................................... 85,480,423
---------------
COST OF INVESTMENTS............................................ $11,521,031,346
===============
See accompanying notes to financial statements.
2
DIAMONDS TRUST, SERIES 1
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
APRIL 30, 2009 FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
(UNAUDITED) OCTOBER 31, 2008 OCTOBER 31, 2007 OCTOBER 31, 2006
------------------------ ------------------ ------------------ ------------------
INVESTMENT INCOME
Dividend income............. $ 146,469,373 $ 234,266,377 $ 172,683,551 $ 154,659,959
--------------- --------------- -------------- --------------
EXPENSES
Trustee expense............. 2,286,263 4,878,701 4,232,050 4,562,765
Marketing expense........... 2,350,966 5,319,946 4,437,144 3,903,738
DJIA license fee............ 1,616,899 4,152,507 2,555,000 2,555,000
Legal and audit services.... 96,667 181,128 174,890 100,378
Other expenses.............. 155,563 389,842 218,083 384,919
--------------- --------------- -------------- --------------
Total expenses................... 6,506,358 14,922,124 11,617,167 11,506,800
Trustee earnings credits.... -- -- (965,742) (418,803)
--------------- --------------- -------------- --------------
Net expenses after Trustee
earnings credits............... 6,506,358 14,922,124 10,651,425 11,087,997
--------------- --------------- -------------- --------------
NET INVESTMENT INCOME............ 139,963,015 219,344,253 162,032,126 143,571,962
--------------- --------------- -------------- --------------
REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net realized gain (loss) on
investment
transactions........... (364,088,011) (172,099,218) 854,766,927 413,807,291
Net change in unrealized
appreciation
(depreciation)......... (862,953,617) (3,238,666,792) 139,514,977 517,345,427
--------------- --------------- -------------- --------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS.......... (1,227,041,628) (3,410,766,010) 994,281,904 931,152,718
--------------- --------------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS..................... $(1,087,078,613) $(3,191,421,757) $1,156,314,030 $1,074,724,680
=============== =============== ============== ==============
See accompanying notes to financial statements.
3
DIAMONDS TRUST, SERIES 1
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED
APRIL 30, 2009 FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
(UNAUDITED) OCTOBER 31, 2008 OCTOBER 31, 2007 OCTOBER 31, 2006
------------------------ ------------------ ------------------ ------------------
INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
OPERATIONS:
Net investment income.. $ 139,963,015 $ 219,344,253 $ 162,032,126 $ 143,571,962
Net realized gain
(loss) on
investment
transactions...... (364,088,011) (172,099,218) 854,766,927 413,807,291
Net change in
unrealized
appreciation
(depreciation).... (862,953,617) (3,238,666,792) 139,514,977 517,345,427
--------------- --------------- -------------- ---------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS................ (1,087,078,613) (3,191,421,757) 1,156,314,030 1,074,724,680
--------------- --------------- -------------- ---------------
NET EQUALIZATION CREDITS AND
CHARGES................... (6,171,245) 1,639,517 (13,594,558) (1,800,594)
--------------- --------------- -------------- ---------------
DISTRIBUTIONS TO UNITHOLDERS
FROM NET INVESTMENT
INCOME.................... (134,378,632) (218,527,182) (147,731,248) (141,435,357)
--------------- --------------- -------------- ---------------
NET INCREASE (DECREASE) IN
NET ASSETS FROM ISSUANCE
AND REDEMPTION OF
DIAMONDS.................. (905,864,993) 3,182,648,908 1,785,284,683 (1,781,857,294)
--------------- --------------- -------------- ---------------
NET INCREASE (DECREASE) IN
NET ASSETS................ (2,133,493,483) (225,660,514) 2,780,272,907 (850,368,565)
NET ASSETS AT BEGINNING OF
YEAR...................... 9,114,230,276 9,339,890,790 6,559,617,883 7,409,986,448
--------------- --------------- -------------- ---------------
NET ASSETS END OF PERIOD*... $ 6,980,736,793 $ 9,114,230,276 $9,339,890,790 $ 6,559,617,883
=============== =============== ============== ===============
*INCLUDES UNDISTRIBUTED NET
INVESTMENT INCOME......... $ 8,077,503 $ 2,493,120 $ 17,835,012 $ 3,534,134
--------------- --------------- -------------- ---------------
See accompanying notes to financial statements.
4
DIAMONDS TRUST, SERIES 1
FINANCIAL HIGHLIGHTS
SELECTED DATA FOR A DIAMOND OUTSTANDING DURING THE YEAR
--------------------------------------------------------------------------------
FOR THE SIX
MONTHS FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
APRIL 30, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2009* 2008 2007 2006 2005 2004
----------- ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, BEGINNING
OF YEAR................... $ 93.22 $ 139.17 $ 120.69 $ 104.31 $ 100.48 $ 98.20
---------- ---------- ---------- ---------- ---------- ----------
INVESTMENT OPERATIONS:
Net investment income
(1).................... 1.44 2.96 2.85 2.45 2.39 (5) 1.94
Net realized and
unrealized gain (loss)
on investments......... (11.51) (45.91) 18.57 16.37 3.91 2.28
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT
OPERATIONS................ (10.07) (42.95) 21.42 18.82 6.30 4.22
---------- ---------- ---------- ---------- ---------- ----------
NET EQUALIZATION CREDITS AND
CHARGES (1)............... (0.06) 0.02 (0.24) (0.03) (0.03) 0.00 (2)
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS FROM:
Net investment income..... (1.43) (3.02) (2.70) (2.41) (2.44) (1.94)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF
PERIOD.................... $ 81.66 $ 93.22 $ 139.17 $ 120.69 $ 104.31 $ 100.48
========== ========== ========== ========== ========== ==========
TOTAL INVESTMENT RETURN
(3)....................... (10.82)% (31.23)% 17.72% 18.23% 6.23% 4.27%
RATIOS AND SUPPLEMENTAL DATA
Ratio to average net assets:
Net investment income..... 3.57% (6) 2.49% 2.19% 2.21% 2.27% 1.89%
Total expenses............ 0.17% (6) 0.17% 0.16% 0.18% 0.18% 0.18%
Net expenses excluding
Trustee earnings
credit................. 0.17% (6) 0.17% 0.14% 0.17% 0.17% 0.18%
Portfolio turnover rate
(4)....................... 0.00% 11.27% 1.45% 0.01% 7.69% 13.88%
NET ASSETS, END OF PERIOD
(000'S)................... $6,980,737 $9,114,230 $9,339,891 $6,559,618 $7,409,986 $8,190,891
--------------------------------------------------------------------------------
* Unaudited
(1) Per unit numbers have been calculated using the average shares method.
(2) Amount shown represents less than $0.005.
(3) Total return is calculated assuming a purchase of shares at net asset
value per share on the first day and a sale at net asset value per share
on the last day of each period reported. Distributions are assumed, for
the purposes of this calculation, to be reinvested at the net asset value
per share on the respective payment dates of the Trust. Broker commission
charges are not included in the calculation.
(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 unit.
(6) Annualized
See accompanying notes to financial statements.
5
DIAMONDS TRUST, SERIES 1
NOTES TO FINANCIAL STATEMENTS
APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
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 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
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.
Under the Trust Agreement, the Sponsor and Trustee (each as defined below) are
indemnified against certain liabilities arising from 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 material loss to be remote.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America ("US GAAP") requires
management to make estimates and assumptions that affect 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
The value of the Trust's 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 security's 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 State Street Bank
and Trust Company, in its capacity as trustee for the Trust, (the "Trustee")
believes will better reflect fair value in accordance with the Trust's valuation
policies and procedures. The Trustee has delegated the process of valuing
securities for which market quotations are not readily available or do not
otherwise accurately reflect the fair value of the security to the Pricing and
Investment Committee (the "Committee"). 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 Trust's net asset value 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.
Effective November 1, 2008, the Trust adopted Financial Accounting Standards
Board ("FASB") Statement of Financial Accounting Standards No. 157 ("FAS 157"),
"Fair Value Measurements." This standard defines fair value, establishes a
framework for measuring fair value in accordance with US GAAP and expands
disclosure about
6
DIAMONDS TRUST, SERIES 1
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
fair value measurements. Various inputs are used in determining the value of the
Trust's investments. These inputs are summarized in the three broad levels
listed below.
- Level 1-- quoted prices in active markets for identical investments
- Level 2-- other significant observable inputs (including, but not limited to,
quoted prices for similar investments, interest rates, prepayment speeds,
credit risk, etc.)
- Level 3-- significant unobservable inputs (including the Trust's own
assumptions in determining the fair value of investments)
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 (e.g., 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 (e.g., an event that occurs after the close of the markets
on which the security is traded but before the time as of which the Trust's net
assets are computed and that may materially affect the value of the Trust's
investments). Examples of events that may be "significant events" are government
actions, natural disasters, armed conflict, acts of terrorism, and significant
market fluctuations.
Fair value pricing could result in a difference between the prices used to
calculate a Trust's net asset value and the prices used by the Trust's benchmark
index, which, in turn, could result in a difference between the Trust's
performance and the performance of the Trust's benchmark index. The inputs or
methodology used for valuation are not necessarily an indication of the risk
associated with investing in those investments.
The following table summarizes the inputs used in valuing the Trust's
investments, as of April 30, 2009:
LEVEL 2- LEVEL 3-
LEVEL 1- OTHER SIGNIFICANT SIGNIFICANT
QUOTED OBSERVABLE UNOBSERVABLE
PRICES INPUTS INPUTS TOTAL
-------------- ----------------- ------------ --------------
$6,971,228,872 $-- $-- $6,971,228,872
In April 2009, FASB issued Staff Position No. 157-4, "Determining Fair Value
When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not Orderly" ("FSP
157-4"). FSP 157-4 provides additional guidance for estimating fair value in
accordance with FAS 157, when the volume and level of activity for the asset or
liability have significantly decreased as well as guidance on identifying
circumstances that indicate a transaction is not orderly. FSP 157-4 is effective
for fiscal years and interim periods ending after June 15, 2009. Management is
currently evaluating the impact the adoption of FSP 157-4 will have on the
Trust's financial statement disclosures.
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 possible that changes in the values of investment
7
DIAMONDS TRUST, SERIES 1
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
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 perceived
trends in stock prices. You should anticipate that the value of DIAMONDS will
decline, more or less, in correlation with any decline in value of the DJIA. The
values of equity securities could decline generally or could underperform other
investments. Further, the Trust would not sell an equity security because the
security's issuer was in financial trouble unless that security is removed from
the DJIA.
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.
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 continue 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 those determined in accordance with US
GAAP. 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 unit calculations in the financial highlights for all
years presented exclude these differences.
During the six months ended April 30, 2009, the Trust reclassified $364,210,983
of non-taxable security losses realized in the in-kind redemption of Creation
Units (Note 4) as a decrease to paid in surplus in the Statement of Assets and
Liabilities.
8
DIAMONDS TRUST, SERIES 1
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
At April 30, 2009, the Trust had the following capital loss carryforwards which
may be used to offset any net realized gains, expiring October 31:
2010...................................... $ 2,065,467
2011...................................... 68,716,435
2012...................................... 221,460,584
2014...................................... 52,316
2016...................................... 506,750,845
RECENT ACCOUNTING PRONOUNCEMENTS
In March, 2008, FASB issued Statement of Financial Accounting Standards No. 161,
"Disclosures about Derivative Instruments and Hedging Activities" ("FAS 161").
FAS 161 is effective for fiscal years and interim periods beginning after
November 15, 2008. FAS 161 requires enhanced disclosures about the Trust's
derivative and hedging activities. Management is currently evaluating the
impact, if any, the adoption of FAS 161 will have on the Trust's financial
statement disclosures.
NOTE 3 -- TRANSACTIONS WITH THE TRUSTEE AND SPONSOR
In accordance with the Trust Agreement, the Trustee maintains the Trust's
accounting records, acts as custodian and transfer agent to the Trust, and
provides certain administrative services. 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 six months ended April 30, 2009:
FEE AS A PERCENTAGE OF NET ASSET VALUE
NET ASSET VALUE OF THE TRUST 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 six months ended April 30, 2009, the Adjustment Amount reduced
the Trustee's fee by $362,237. The Adjustment Amount included an excess of net
transaction fees from processing orders of $340,610 and a Trustee earning credit
of $21,627. Prior to 2008, the Trustee earnings credits were presented
separately on the Statements of Operation.
PDR Services LLC (the "Sponsor"), a wholly-owned subsidiary of NYSE Amex LLC
("NYSE Amex"), formerly the American Stock Exchange LLC, agreed to reimburse the
Trust for, or assume, the ordinary operating expenses of the Trust which
exceeded 18/100 of 1% per annum of the daily net asset value of the Trust. There
were
9
DIAMONDS TRUST, SERIES 1
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
no such reimbursements by the Sponsor for the fiscal years ended October 31,
2006, October 31, 2007, October 31, 2008, and the six months ended April 30,
2009.
Dow Jones & Company, Inc. ("Dow Jones") and State Street Global Markets, LLC
("SSgM") have entered into a License Agreement. The License Agreement grants
SSgM, an affiliate of the Trustee, a license to use the DJIA as a basis for
determining the composition of the Portfolio and to use certain trade names and
trademarks of Dow Jones in connection with the Portfolio. The Trustee on behalf
of the Trust, the Sponsor and NYSE Amex have each received a sublicense from
SSgM for the use of the DJIA and such 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 DIAMONDS, as shown on, and effected only through, records maintained by the
Depository Trust Company ("DTC") and DTC's Participants, as defined in the
prospectus ("Beneficial Owners"). 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 Beneficial Owners of DIAMONDS. The Trust pays an annual
sublicense fee to Dow Jones of an amount equal to 0.05% on the first $1 billion
of the then rolling average asset balance, and 0.04% on any excess rolling
average asset balance over and above $1 billion. The minimum annual sublicense
fee for the Trust is $1 million.
NOTE 4 -- TRUST TRANSACTIONS IN DIAMONDS
Transactions in DIAMONDS were as follows:
SIX MONTHS ENDED APRIL 30,
2009*
-------------------------------
DIAMONDS AMOUNTS
------------ ----------------
DIAMONDS sold................................... 130,700,000 $ 10,573,251,888
DIAMONDS issued upon dividend reinvestment...... 9,575 766,788
DIAMONDS redeemed............................... (143,000,000) (11,486,054,914)
Net income equalization......................... -- 6,171,245
------------ ----------------
Net decrease.................................... (12,290,425) $ (905,864,993)
============ ================
YEAR ENDED OCTOBER 31, 2008
-------------------------------
DIAMONDS AMOUNTS
------------ ----------------
DIAMONDS sold................................... 366,850,000 $ 43,007,862,019
DIAMONDS issued upon dividend reinvestment...... 11,778 1,388,124
DIAMONDS redeemed............................... (336,200,000) (39,824,961,718)
Net income equalization......................... -- (1,639,517)
------------ ----------------
Net increase.................................... 30,661,778 $ 3,182,648,908
============ ================
--------
* Unaudited
10
DIAMONDS TRUST, SERIES 1
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, 2007
-------------------------------
DIAMONDS AMOUNTS
------------ ----------------
DIAMONDS sold................................... 283,800,000 $ 37,094,855,531
DIAMONDS issued upon dividend reinvestment...... 9,870 1,275,186
DIAMONDS redeemed............................... (271,050,000) (35,324,440,592)
Net income equalization......................... -- 13,594,558
------------ ----------------
Net increase.................................... 12,759,870 $ 1,785,284,683
============ ================
YEAR ENDED OCTOBER 31, 2006
-------------------------------
DIAMONDS AMOUNTS
------------ ----------------
DIAMONDS sold................................... 142,300,000 $ 15,848,129,501
DIAMONDS issued upon dividend reinvestment...... 12,974 1,429,406
DIAMONDS redeemed............................... (159,000,000) (17,633,216,795)
Net income equalization......................... -- 1,800,594
------------ ----------------
Net decrease.................................... (16,687,026) $ (1,781,857,294)
============ ================
With the exception of 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. For creations and redemptions outside the DIAMONDS Clearing
Process, an additional amount not to exceed three (3) times the Transaction Fee
applicable for one Creation Unit is charged per Creation Unit per day. Under the
current schedule, therefore, the total fee charged in connection with creation
or redemption outside of the DIAMONDS Clearing Process would be $1,000 (the
Transaction Fee for the creation or redemption of one Creation Unit) plus an
additional amount up to $3,000 (3 times $1,000), for a total not to exceed
$4,000. Transaction fees are received by the Trustee and used to defray the
expense of processing orders.
NOTE 5 -- INVESTMENT TRANSACTIONS
For the six months ended April 30, 2009, the Trust had net in-kind
contributions, net in-kind redemptions, purchases and sales of investment
securities of $5,498,309,753, $6,046,055,719, $1,039,576 and $0 respectively. At
April 30, 2009, the cost of investments for federal income tax purposes was
substantially the same as the cost for financial reporting purposes.
Accordingly, the cost was $11,521,031,346, gross unrealized appreciation was $0
and gross unrealized depreciation was $4,549,802,474, resulting in net
unrealized depreciation of $4,549,802,474.
11
DIAMONDS TRUST, SERIES 1
OTHER INFORMATION
APRIL 30, 2009 (UNAUDITED)
--------------------------------------------------------------------------------
FREQUENCY DISTRIBUTION OF DISCOUNTS AND PREMIUMS
BID/ASK PRICE (1) VS NET ASSET VALUE
AS OF APRIL 30, 2009
BID/ASK PRICE BID/ASK 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
------ ------- ------ ------ ------- ------
2009................................. 0 0 0 1 0 0
2008................................. 3 2 2 2 0 0
2007................................. 1 0 0 0 0 0
2006................................. 0 0 0 0 0 0
2005................................. 0 0 0 0 0 0
COMPARISON OF TOTAL RETURNS BASED ON NAV AND BID/ASK PRICE (1)
The table below is provided to compare the Trust's total pre-tax returns at NAV
with the total pre-tax returns based on bid/ask price and the performance of the
DJIA. Past performance is not necessarily an indication of how the Trust will
perform in the future.
CUMULATIVE TOTAL RETURN
1 YEAR 5 YEAR 10 YEAR
------ ------ -------
DIAMONDS Trust, Series 1
Return Based on NAV.................................. -34.18% -10.25% -7.19%
Return Based on Bid/Ask Price........................ -34.16% -10.35% -7.20%
DJIA................................................. -34.19% -9.60% -5.94%
AVERAGE ANNUAL TOTAL RETURN
1 YEAR 5 YEAR 10 YEAR
------ ------ -------
DIAMONDS Trust, Series 1
Return Based on NAV................................... -34.18% -2.14% -0.74%
Return Based on Bid/Ask Price......................... -34.16% -2.16% -0.74%
DJIA.................................................. -34.19% -2.00% -0.61%
--------
(1) The Bid/Ask Price is calculated based on the best bid and best offer on
the NYSE Arca, the Trust's primary listing exchange, at 4:00 p.m.
12
DIAMONDS TRUST, SERIES 1
--------------------------------------------------------------------------------
SPONSOR
PDR Services LLC
c/o NYSE Euronext
11 Wall Street
New York, NY 10005
TRUSTEE
State Street Bank and Trust Company
One Lincoln Street
Boston, MA 02111
DISTRIBUTOR
ALPS Distributors, Inc.
1290 Broadway, Suite 1100
Denver, CO 80203
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PricewaterhouseCoopers LLP
125 High Street
Boston, MA 02110
LEGAL COUNSEL
Katten Muchin Rosenman LLP
575 Madison Avenue
New York, NY 10022
DIASAR