<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 March 31, 1996
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 3-9 below.)
- 2 -
<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 as of March 31, 1996 and the related
statements of operations and of changes in net assets for the three-month
periods ended March 31, 1996 and 1995. These financial statements are the
responsibility of the Trustee.
We conducted our reviews 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 reviews, 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, 1995, 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 19, 1996, 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, 1995 is
fairly stated, in all material respects, in relation to the statement of
condition from which it has been derived.
May 8, 1996
-3-
<PAGE> 4
THE EQUITY INCOME FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, DECEMBER 31,
1996 1995
<S> <C> <C>
TRUST PROPERTY:
Investment in marketable securities - at market value
(Notes 1 and 2):
1995 cost - $348,494,818 .................................... $1,471,293,175
1996 cost - $344,270,457 .................................... $1,343,914,006
Dividends receiveable ......................................... 3,510,433 4,740,110
Cash .......................................................... 2,836,611 2,808,808
-------------- --------------
Total ................................................... 1,350,261,050 1,478,842,093
-------------- --------------
LESS LIABILITIES:
Distribution payable (Note 3) ................................. 3,876,301 3,891,651
Redemptions payable ........................................... 2,149
Other ......................................................... 59,279 44,441
-------------- --------------
Total ................................................... 3,937,729 3,936,092
-------------- --------------
TOTAL TRUST PROPERTY ............................................ $1,346,323,321 $1,474,906,001
============== ==============
NET ASSETS, REPRESENTED BY:
Units of fractional undivided interest outstanding:
1995 - 16,670,493 (Note 6) ................................. $1,471,271,038
1996 - 16,492,530 (Note 6) ................................. $1,343,879,644
Undistributed net investment income ........................... 2,443,677 3,634,963
------------- --------------
NET ASSETS ...................................................... $1,346,323,321 $1,474,906,001
============== ==============
UNIT VALUE:
1995 - $1,474,906,001/16,670,493 units ....................... $88.47
======
1996 - $1,346,323,321/16,492,530 units ....................... $81.63
======
</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 MARCH 31,
1996 1995
<S> <C> <C>
INVESTMENT INCOME:
Dividend income............................ $ 10,634,269 $10,997,089
Trustee's fees and expenses................ (123,127) (147,554)
Sponsors' fees............................. (13,743) (15,318)
------------- -----------
Net investment income...................... 10,497,399 10,834,217
------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain on securities sold........... 10,807,153 13,044,044
Unrealized appreciation (depreciation)
of investments........................... (123,154,808) 42,307,434
------------- -----------
Net realized and unrealized gain (loss)
on investments........................... (112,347,655) 55,351,478
------------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS.................. $(101,850,256) $66,185,695
============= ===========
See Independent Accountants' Review Report and
Notes to Financial Statements.
</TABLE>
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<PAGE> 6
THE EQUITY INCOME FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
1996 1995
<S> <C> <C>
OPERATIONS:
Net investment income ............................ $ 10,497,399 $ 10,834,217
Realized gain on securities sold ................. 10,807,153 13,044,044
Unrealized appreciation (depreciation) of
investments .................................... (123,154,808) 42,307,434
-------------- --------------
Net increase (decrease) in net assets
resulting from operations ...................... (101,850,256) 66,185,695
INCOME DISTRIBUTIONS TO HOLDERS (Note 3) ........... (11,677,061) (12,141,371)
CAPITAL SHARE TRANSACTIONS:
Redemptions of 177,963 and 284,864 units,
respectively (Note 5) .......................... (15,055,363) (19,030,158)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS .............. (128,582,680) 35,014,166
NET ASSETS AT BEGINNING OF PERIOD .................. 1,474,906,001 1,138,226,472
-------------- --------------
NET ASSETS AT END OF PERIOD ........................ $1,346,323,321 $1,173,240,638
============== ==============
PER UNIT:
Income distributions during period ............... $ .70 $ .69
====== =======
Net asset value at end of period ................. $81.63 $67.36
====== ======
UNITS OUTSTANDING AT END OF PERIOD ................. 16,492,530 17,416,975
========== ==========
</TABLE>
See Independent Accountants' Review Report and
Notes to Financial Statements.
-6-
<PAGE> 7
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 average 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 MARCH 31, 1996 (UNAUDITED):
<TABLE>
<CAPTION>
TOTAL MARKET
NAME OF ISSUER SHARES COST VALUE
--------------------------- --------- ---------- -----------
<S> <C> <C> <C>
AT&T 5,415,153 $ 98,372,552 $ 331,678,121
Airtouch Communications 2,166,092 12,208,121 67,419,614
Ameritech Corp. 3,249,112 35,654,724 177,076,604
Bell Atlantic Corporation 2,166,092 36,208,393 133,756,181
BellSouth Corporation 4,873,664 45,757,813 180,325,568
NYNEX Corporation 2,166,092 33,964,457 108,033,839
Pacific Telesis Group 2,166,092 18,442,489 59,838,292
SBC Communications Inc.
(formerly Southwestern
Bell Corporation) 3,249,112 32,756,197 170,984,519
U.S. West Communications 2,166,092 18,487,447 70,127,229
U.S. West Media Group 2,166,014 12,418,264 44,674,039
------------ --------------
$344,270,457 $1,343,914,006
============ ==============
</TABLE>
See Independent Accountants' Review Report.
-7-
<PAGE> 8
THE EQUITY INCOME FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
NOTES TO FINANCIAL STATEMENTS
MARKETABLE SECURITIES, AT DECEMBER 31, 1995:
<TABLE>
<CAPTION>
TOTAL MARKET
NAME OF ISSUER SHARES COST VALUE
<S> <C> <C> <C>
AT&T 5,473,541 $ 99,432,993 $ 354,411,780
Airtouch Communications 2,189,442 12,339,723 61,851,737
Ameritech Corp. 3,284,098 36,039,118 193,761,782
Bell Atlantic Corporation 2,189,442 36,598,654 146,418,934
BellSouth Corporation 4,926,216 46,764,934 214,290,396
NYNEX Corporation 2,189,442 34,330,554 118,229,868
Pacific Telesis Group 2,189,442 18,641,294 73,619,987
SBC Communications Inc.
(formerly Southwestern
Bell Corporation) 3,284,143 33,109,333 188,838,223
U.S. West Communications 2,189,442 18,686,389 78,272,552
U.S. West Media Group 2,189,364 12,551,826 41,597,916
------------ --------------
$348,494,818 $1,471,293,175
============ ==============
</TABLE>
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 The 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 Incorporated, 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.
See Independent Accountants' Review Report.
-8-
<PAGE> 9
THE EQUITY INCOME FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
NOTES TO FINANCIAL STATEMENTS
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 first quarter ended March 31, 1996, 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 loss on investments of approximately $112.3 million for
the quarter ended March 31, 1996, causing a net decrease in net assets resulting
from operations of approximately $101.8 million. In contrast, net investment
income of approximately $10.8 million and net realized and unrealized gain on
investments of approximately $55.4 million for the quarter ended March 31, 1995,
resulted in a net increase in net assets resulting from operations of
approximately $66.2 million. For the year ended December 31, 1995, net
investment income of approximately $46.3 million and net realized and unrealized
gain on investments of approximately $406.5 million resulted in a net increase
in net assets resulting from operations of approximately $452.9 million.
Income distributions during the first quarter of 1996 totalled $0.70 per
Unit, compared with income distributions of $0.69 per Unit during the first
quarter of 1995.
As of the end of the first quarter of 1996, the per Unit net asset value of
the fund had increased to $81.63 from its $67.36 level at the end of the first
quarter of 1995, and decreased from its $88.47 level at the end of the fourth
quarter of 1995. There was a decrease of 177,963 Units outstanding during the
first quarter of 1996 due to redemptions, and there were 16,492,530 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: May 15, 1995 By
----------------------------------
Name: Christopher Peer
Title: Assistant Vice President
- 12
<PAGE> 13
EXHIBIT INDEX
Exhibit No. Description
---------- -----------
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.
<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> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<INVESTMENTS-AT-COST> 344,270,457
<INVESTMENTS-AT-VALUE> 1,343,914,006
<RECEIVABLES> 3,510,433
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,836,611
<TOTAL-ASSETS> 1,350,261,050
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,937,729
<TOTAL-LIABILITIES> 3,937,729
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 344,236,095
<SHARES-COMMON-STOCK> 16,492,530
<SHARES-COMMON-PRIOR> 17,416,975
<ACCUMULATED-NII-CURRENT> 2,443,677
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 999,643,549
<NET-ASSETS> 1,346,323,321
<DIVIDEND-INCOME> 10,634,269
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 136,870
<NET-INVESTMENT-INCOME> 10,497,399
<REALIZED-GAINS-CURRENT> 10,807,153
<APPREC-INCREASE-CURRENT> (123,154,808)
<NET-CHANGE-FROM-OPS> (101,850,256)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11,677,061
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 177,963
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (128,582,680)
<ACCUMULATED-NII-PRIOR> 3,634,963
<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>
