<PAGE> 1
FORM 10-Q [TWELVE PAGES]
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended September 30, 1995
----------------------------------------------------
Commission file number 2-83192
----------------------------------------------------------
The Equity Income Fund, First Exchange Series - AT&T Shares
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 13-6824382
- ------------------------------ ------------------------------
(State or other jurisdiction (I.R.S. Employee
of incorporation) Identification No.)
Merrill Lynch, Pierce, Fenner Prudential Securities
& Smith Incorporated Incorporated
P.O. Box 9051 One Seaport Plaza
Princeton, New Jersey 08543-9051 199 Water Street
New York, New York 10292
Dean Witter Reynolds Inc. Smith Barney Inc.
Two World Trade Center-69th Floor 388 Greenwich Street
New York, New York 10048 New York, New York 10013
- --------------------------------------------------------------------------------
(Addresses of principal executive office of Sponsors)
The Bank of New York, 101 Barclay Street, New York, N.Y. 10286
- --------------------------------------------------------------------------------
(Addresses of principal executive office of Trustee)
(212) 815-2749
- --------------------------------------------------------------------------------
(Trustee's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 Days. Yes X. No .
--- ---
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
(See pages 3-8 below.)
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<PAGE> 3
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Sponsors, Trustee and Holders
of The Equity Income Fund,
First Exchange Series - AT&T Shares:
We have reviewed the accompanying statement of condition of The Equity Income
Fund, First Exchange Series - AT&T Shares (the "Fund") as of September 30,
1995, and the related statements of operations and of changes in net assets
for the three-month and nine-month periods ended September 30, 1995 and 1994.
These financial statements are the responsibility of the Trustee.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to such financial statements for them to be in conformity with
generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the statement of condition of The Equity Income Fund, First Exchange
Series - AT&T Shares as of December 31, 1994, and the related statements of
operations and of changes in net assets for the year then ended (not presented
herein); and, in our report dated February 13, 1995, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying statement of condition as of
December 31, 1994 is fairly stated, in all material respects, in relation to
the statement of condition from which it has been derived.
/s/ Deloitte & Touche LLP
October 30, 1995
-3-
<PAGE> 4
THE EQUITY INCOME FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1995 1994
<S> <C> <C>
TRUST PROPERTY:
Investment in marketable securities - at market value
(Notes 1 and 2):
1994 cost - $370,466,995............................... $1,133,105,337
1995 cost - $352,807,421............................... $1,383,650,856
Dividends receivable..................................... 3,487,159 6,300,901
Cash..................................................... 2,788,435 2,939,183
Other.................................................... 82
-------------- --------------
Total.......................................... 1,389,926,532 1,142,345,421
-------------- --------------
LESS LIABILITIES:
Distribution payable (Note 3)............................ 3,911,052 4,057,511
Other.................................................... 14,069 61,438
-------------- --------------
Total.......................................... 3,925,121 4,118,949
-------------- --------------
TOTAL TRUST PROPERTY....................................... $1,386,001,411 $1,138,226,472
============== ==============
NET ASSETS, REPRESENTED BY:
Units of fractional undivided interest outstanding:
1994 - 17,701,839 (Note 6)............................. $1,133,104,323
1995 - 16,857,700 (Note 6)............................. $1,383,632,393
Undistributed net investment income...................... 2,369,018 5,122,149
-------------- --------------
NET ASSETS................................................. $1,386,001,411 $1,138,226,472
============== ==============
UNIT VALUE:
1994 - $1,138,226,472/17,701,839 units................... $64.30
======
1995 - $1,386,001,411/16,857,700 units................... $82.22
======
</TABLE>
See Independent Accountants' Review Report and
Notes to Financial Statements.
-4-
<PAGE> 5
THE EQUITY INCOME FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
1995 1994
<S> <C> <C>
INVESTMENT INCOME:
Dividend income.......................................... $ 10,611,100 $11,127,309
Trustee's fees and expenses.............................. (96,413) (119,059)
Sponsors' fees........................................... (11,736) (15,426)
------------ -----------
Net investment income.................................... 10,502,951 10,992,824
------------ -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold......................... 6,357,559 9,681,345
Unrealized appreciation (depreciation) of investments.... 188,402,761 (25,800,472)
------------ -----------
Net realized and unrealized gain (loss) on investments... 194,760,320 (16,119,127)
------------ -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................... $205,263,271 $(5,126,303)
============ ===========
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1994
<S> <C> <C>
INVESTMENT INCOME:
Dividend income.......................................... $ 33,728,537 $36,487,208
Trustee's fees and expenses.............................. (383,200) (376,832)
Sponsors' fees........................................... (42,372) (47,250)
------------ -----------
Net investment income.................................... 33,302,965 36,063,126
------------ -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold......................... 35,105,100 26,121,347
Unrealized appreciation (depreciation) of investments.... 268,205,085 (35,240,574)
------------ -----------
Net realized and unrealized gain (loss) on investments... 303,310,185 (9,119,227)
------------ -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS....... $336,613,150 $26,943,899
============ ===========
</TABLE>
See Independent Accountants' Review Report and
Notes to Financial Statements.
-5-
<PAGE> 6
THE EQUITY INCOME FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
1995 1994
<S> <C> <C>
OPERATIONS:
Net investment income...................................... $ 10,502,951 $ 10,992,824
Realized gain on securities sold........................... 6,357,559 9,681,345
Unrealized appreciation (depreciation) of investments...... 188,402,761 (25,800,472)
-------------- --------------
Net increase (decrease) in net assets resulting from
operations............................................... 205,263,271 (5,126,303)
INCOME DISTRIBUTIONS TO HOLDERS (Note 3)..................... (11,794,324) (12,405,747)
CAPITAL SHARE TRANSACTIONS - Redemptions of 226,575 and
206,719 units, respectively................................ (11,165,896) (14,046,442)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS........................ 182,303,051 (31,578,492)
NET ASSETS AT BEGINNING OF PERIOD............................ 1,203,698,360 1,240,937,369
-------------- --------------
NET ASSETS AT END OF PERIOD.................................. $1,386,001,411 $1,209,358,877
============== ==============
PER UNIT:
Income distributions during period......................... $.69 $.69
==== ====
Net asset value at end of period........................... $82.22 $67.38
====== ======
TRUST UNITS OUTSTANDING AT END OF PERIOD..................... 16,857,700 17,948,197
========== ==========
</TABLE>
See Independent Accountants' Review Report and
Notes to Financial Statements.
-6-
<PAGE> 7
THE EQUITY INCOME FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1995 1994
<S> <C> <C>
OPERATIONS:
Net investment income..................................... $ 33,302,965 $ 36,063,126
Realized gain on securities sold.......................... 35,105,100 26,121,347
Unrealized appreciation (depreciation) of investments..... 268,205,085 (35,240,574)
-------------- --------------
Net increase in net assets resulting from operations...... 336,613,150 26,943,899
INCOME DISTRIBUTIONS TO HOLDERS (Note 3).................... (35,938,236) (37,500,752)
CAPITAL SHARE TRANSACTIONS - Redemptions of 559,274 and
491,583 units, respectively (Note 5)...................... (52,899,975) (38,021,725)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS....................... 247,774,939 (48,578,578)
NET ASSETS AT BEGINNING OF PERIOD........................... 1,138,226,472 1,257,937,455
-------------- --------------
NET ASSETS AT END OF PERIOD................................. $1,386,001,411 $1,209,358,877
-------------- --------------
PER UNIT:
Income distributions during period........................ $2.07 $2.06
===== =====
Net asset value at end of period.......................... $82.22 $67.38
====== ======
TRUST UNITS OUTSTANDING AT END OF PERIOD.................... 16,857,700 17,948,197
========== ==========
</TABLE>
See Independent Accountants' Review Report and
Notes to Financial Statements.
-7-
<PAGE> 8
THE EQUITY INCOME FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
The Fund is registered under the Investment Company Act of 1940 as a Unit
Investment Trust. A summary of the significant accounting policies, which
are in conformity with generally accepted accounting principles, followed
by the Fund in the preparation of its financial statements since July 7,
1983, its initial date of deposit, is as follows:
(a) Securities are stated at market value based on the last sales price
reported at the close of business on the New York Stock Exchange.
Substantially all of the aggregate cost of securities represents the
market value of the shares of common stock of American Telephone and
Telegraph Company (AT&T) on the days the shares were exchanged for
units of the Fund; such aggregate cost was subsequently allocated
among the portfolio holdings in shares of AT&T and the seven regional
holding companies following their divestiture by AT&T in accordance
with its Plan of Reorganization. Realized gains or losses on sales of
securities are determined using the identified cost basis.
(b) The Fund is not subject to income taxes. Accordingly, no provision
for such taxes is required.
(c) Dividend income has been recognized on the ex-dividend date.
2. MARKETABLE SECURITIES, AT SEPTEMBER 30, 1995 (UNAUDITED):
<TABLE>
<CAPTION>
TOTAL MARKET
SECURITY SHARES COST VALUE
<S> <C> <C> <C>
AT&T 5,535,000 $100,549,316 $363,926,250
Airtouch Communications 2,214,020 12,478,245 67,804,363
Ameritech Corp. (formerly American
Information Technologies Corporation) 3,320,970 36,443,714 173,105,561
Bell Atlantic Corporation 2,214,020 37,009,446 135,885,478
BellSouth Corporation 2,490,764 47,738,115 182,137,117
NYNEX Corporation 2,214,020 34,715,904 105,719,455
Pacific Telesis Group 2,214,020 18,850,554 68,081,115
SBC Communications Inc. 3,321,015 33,481,027 182,655,825
U.S. West Incorporated 2,214,020 31,541,100 104,335,692
------------ --------------
$352,807,421 $1,383,650,856
============ ==============
<CAPTION>
MARKETABLE SECURITIES, AT DECEMBER 31, 1994:
<S> <C> <C> <C>
AT&T 5,812,107 $105,582,663 $ 292,058,377
Airtouch Communications 2,324,844 13,102,850 67,711,082
Ameritech Corp. 3,487,223 38,268,008 140,796,629
Bell Atlantic Corporation 2,324,844 38,861,745 115,660,988
BellSouth Corporation 2,615,449 50,127,612 141,561,177
NYNEX Corporation 2,324,844 36,453,475 85,438,017
Pacific Telesis Group 2,324,844 19,794,090 66,258,054
SBC Communications Inc.
(formerly Southwestern Bell Corporation) 3,487,268 35,156,967 140,798,445
U.S. West Incorporated 2,324,844 33,119,585 82,822,568
------------ --------------
$370,466,995 $1,133,105,337
============ ==============
</TABLE>
See Independent Accountants' Review Report.
-8-
<PAGE> 9
THE EQUITY INCOME FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
NOTES TO FINANCIAL STATEMENTS
3. DISTRIBUTIONS
Any monthly distributions to Holders, who have not elected to participate
in the Fund's Reinvestment Plan, are made on or about the first day of each
month.
4. REINVESTMENT PLAN
Holders could reinvest any distributions in the Fund prior to April 1,
1984, or in certain subsequent series of Defined Asset Funds - Equity
Income Fund after March 31, 1984, by executing an appropriate notice of
election to participate in the Fund's Reinvestment Plan. The Sponsors
(Merrill Lynch, Pierce, Fenner & Smith Inc., Dean Witter Reynolds Inc.,
Prudential Securities Incorporated and Smith Barney Inc.) may, in their
sole discretion, cancel the Fund's Reinvestment Plan at any time.
5. REDEMPTIONS
Holders may request redemptions of units by presentation thereof to the
Trustee, The Bank of New York. Redemptions of units are made in kind by
the Trustee; fractional undivided interests are redeemed in cash. Under
certain circumstances, Holders may request redemptions of units in cash.
Units of the Fund are listed and traded on the American and Pacific Stock
Exchanges.
6. INCOME TAXES
All Fund items of income received, expenses paid, and realized gains and
losses on securities sold are attributable to the Holders, on a pro rata
basis, for Federal income tax purposes in accordance with the grantor trust
rules of the United States Internal Revenue Code.
See Independent Accountants' Review Report.
-9-
<PAGE> 10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
During the third quarter ended September 30, 1995, the Equity Income Fund,
First Exchange Series - AT&T Shares (the "Fund") continued to hold securities of
AT&T and each of the seven regional holding companies.
The Fund had net investment income of approximately $10.5 million and net
realized and unrealized gain on investments of approximately $195.0 million for
the quarter ended September 30, 1995, providing the Fund with a net increase in
net assets resulting from operations of approximately $205.0 million. In
contrast, net investment income of approximately $11.0 million and net realized
and unrealized loss on investments of approximately $16.0 million for the
quarter ended September 30, 1994, resulted in a net decrease in net assets
resulting from operations of approximately $5.0 million.
Income distributions during the third quarter of 1995 totalled $0.69 per
Unit, compared with income distributions of $0.69 per Unit during the third
quarter of 1994.
For the nine month period ended September 30, 1995, the Fund had net
investment income of approximately $33.3 million and net realized and unrealized
gain on investments of approximately $303.3 million resulting in a net increase
in net assets resulting from operations of approximately $336.6 million,
compared with net investment income of approximately $36.1 million and net
realized and unrealized loss on investments of approximately $9.1 million
resulting in a net increase in net assets resulting from operations of
approximately $26.9 million for the nine month period ending September 30, 1994.
Income distributions during the nine months ended September 30, 1995 totalled
$2.07 per Unit compared with income distributions of $2.06 per Unit during the
nine months ended September 30, 1994.
As of the end of the third quarter of 1995, the per Unit net asset value of
the Fund had increased to $82.22 from its $67.38 level at the end of the third
quarter of 1994, and increased from its $70.46 level at the end of the second
quarter of 1995. There was a decrease of 226,575 Units outstanding during the
third quarter of 1995 due to redemptions, and there were 16,857,700 Units
outstanding at the end of that quarter.
- 10 -
<PAGE> 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on 8-K
a. 4.1 - Form of Trust Indenture (incorporated by reference to
Exhibit 1.1 to the Registration Statement of The Equity Income
Fund, First Exchange Series - AT&T Shares, 1933 Act File No.
2-83192).
4.1.1 - Form of Certificate of Amendment to Trust Indenture dated
August 8, 1983 (incorporated by reference to Registration
Statement on Form 8-A of the Equity Income Fund, First Exchange
Series - AT&T Shares, 1934 Act File No. 1-8642).
4.1.2 - Form of Standard Terms and Conditions of Trust effective
January 1, 1983 (incorporated by reference to Exhibit 1.1.1 to
the Registration Statement of The Equity Income Fund, First
Exchange Series - AT&T Shares, 1933 Act File No. 2-83192).
19 - Forms 10-Q and 10-K (incorporated by reference to such forms
filed under The Equity Income Fund, First Exchange Series - AT&T
Shares, No. 2-83192).
23 - Consents (incorporated by reference to Registration
Statement of The Equity Income Fund, First Exchange Series - AT&T
Shares, 1933 Act File No. 2-83192).
27 - Financial Data Schedule.
b. None.
- 11 -
<PAGE> 12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Trustee of the trust has duly caused this report to be signed on behalf of the
trust by the undersigned thereto duly authorized.
THE EQUITY INCOME FUND, First
Exchange Series - AT&T Shares
THE BANK OF NEW YORK, Trustee
Dated: November 14, 1995 By /s/ Jenifer A. Dicker
---------------------------------
Name: Jenifer A. Dicker
Title: Assistant Vice President
- 12 -
<PAGE> 13
EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EQUITY
INCOME FUND, FIRST EXCHANGE SERIES - AT&T SHARES AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 352,907,421
<INVESTMENTS-AT-VALUE> 1,383,650,856
<RECEIVABLES> 3,467,159
<ASSETS-OTHER> 2,788,517
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,389,926,532
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,925,121
<TOTAL-LIABILITIES> 3,925,121
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 352,788,958
<SHARES-COMMON-STOCK> 16,857,700
<SHARES-COMMON-PRIOR> 17,701,835
<ACCUMULATED-NII-CURRENT> 2,369,018
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 268,205,085
<NET-ASSETS> 1,386,001,411
<DIVIDEND-INCOME> 33,728,537
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 425,572
<NET-INVESTMENT-INCOME> 33,302,965
<REALIZED-GAINS-CURRENT> 35,105,100
<APPREC-INCREASE-CURRENT> 268,205,085
<NET-CHANGE-FROM-OPS> 336,613,150
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 35,938,236
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 559,274
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 247,774,935
<ACCUMULATED-NII-PRIOR> 5,122,149
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0.000
<PER-SHARE-NII> 0.000
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 0.000
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
