<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
September 30, 1996
For Quarterly Period Ended ................................
2-83192
Commission file number ......................................
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 __.
- 1 -
<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 (the "Fund") as of September 30,
1996, and the related statements of operations and of changes in net assets for
the three-month and nine-month periods ended September 30, 1996 and 1995.
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, 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 13, 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.
November 5, 1996
-3-
<PAGE> 4
THE EQUITY INCOME FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, 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 - $334,101,471. . . . . . . . . . . . . . . . $1,215,805,716
Dividends receivable. . . . . . . . . . . . . . . . . . . 3,424,883 4,740,110
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,643,607 2,808,808
-------------- --------------
Total . . . . . . . . . . . . . . . . . . . . . 1,221,874,206 1,478,842,093
-------------- --------------
LESS LIABILITIES:
Distribution payable (Note 3) . . . . . . . . . . . . . . 3,641,478 3,891,651
Redemption payable. . . . . . . . . . . . . . . . . . . . 6,204
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 5,675 44,441
-------------- --------------
Total . . . . . . . . . . . . . . . . . . . . . 3,653,357 3,936,092
-------------- --------------
TOTAL TRUST PROPERTY. . . . . . . . . . . . . . . . . . . . $1,218,220,849 $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 - 16,064,593 (Note 6). . . . . . . . . . . . . . . $1,215,780,138
Undistributed net investment income . . . . . . . . . . . 2,440,711 3,634,963
-------------- --------------
NET ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . $1,218,220,849 $1,474,906,001
============== ==============
UNIT VALUE:
1995 - $1,474,906,001/16,670,493 units. . . . . . . . . . $88.47
======
1996 - $1,218,220,849/16,064,593 units. . . . . . . . . . $75.83
======
</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,
1996 1995
<S> <C> <C>
INVESTMENT INCOME:
Dividend income. . . . . . . . . . . . . . . . . . . . . $ 11,148,940 $ 10,611,100
Trustee's fees and expenses. . . . . . . . . . . . . . . (110,574) (96,413)
Sponsors' fees . . . . . . . . . . . . . . . . . . . . . (16,136) (11,736)
------------- ------------
Net investment income. . . . . . . . . . . . . . . . . . 11,022,230 10,502,951
------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold . . . . . . . . . . . . 12,604,962 6,357,559
Unrealized appreciation (depreciation) of investments. . (141,254,334) 188,402,761
------------- ------------
Net realized and unrealized gain (loss) on investments . (128,649,372) 194,760,320
------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . $(117,627,142) $205,263,271
============= ============
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
<S> <C> <C>
INVESTMENT INCOME:
Dividend income. . . . . . . . . . . . . . . . . . . . . $ 33,580,147 $ 33,728,537
Trustee's fees and expenses. . . . . . . . . . . . . . . (350,982) (383,200)
Sponsors' fees . . . . . . . . . . . . . . . . . . . . . (42,306) (42,372)
------------- ------------
Net investment income. . . . . . . . . . . . . . . . . . 33,186,859 33,302,965
------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold . . . . . . . . . . . . 35,013,393 35,105,100
Unrealized appreciation (depreciation) of investments. . (241,094,112) 268,205,085
------------- ------------
Net realized and unrealized gain (loss) on investments . (206,080,719) 303,310,185
------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . $(172,893,860) $336,613,150
============= ============
</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,
1996 1995
<S> <C> <C>
OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . $ 11,022,230 $ 10,502,951
Realized gain on securities sold . . . . . . . . . . . . 12,604,962 6,357,559
Unrealized appreciation (depreciation) of investments. . (141,254,334) 188,402,761
-------------- --------------
Net increase (decrease) in net assets resulting from
operations . . . . . . . . . . . . . . . . . . . . . . (117,627,142) 205,263,271
INCOME DISTRIBUTIONS TO HOLDERS (Note 3) . . . . . . . . . (10,983,308) (11,794,324)
CAPITAL SHARE TRANSACTIONS - Redemptions of 230,834 and
226,575 units, respectively (Note 5) . . . . . . . . . . (18,144,669) (11,165,896)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . (146,755,119) 182,303,051
NET ASSETS AT BEGINNING OF PERIOD. . . . . . . . . . . . . 1,364,975,968 1,203,698,360
-------------- --------------
NET ASSETS AT END OF PERIOD. . . . . . . . . . . . . . . . $1,218,220,849 $1,386,001,411
============== ==============
PER UNIT:
Income distributions during period . . . . . . . . . . . $.69 $.69
==== ====
Net asset value at end of period . . . . . . . . . . . . $75.83 $82.22
====== ======
TRUST UNITS OUTSTANDING AT END OF PERIOD . . . . . . . . . 16,064,593 16,857,700
========== ==========
</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,
1996 1995
<S> <C> <C>
OPERATIONS:
Net investment income. . . . . . . . . . . . . . . . . . $ 33,186,859 $ 33,302,965
Realized gain on securities sold . . . . . . . . . . . . 35,013,393 35,105,100
Unrealized appreciation (depreciation) of investments. . (241,094,112) 268,205,085
-------------- --------------
Net increase (decrease) in net assets resulting from
operations . . . . . . . . . . . . . . . . . . . . . . (172,893,860) 336,613,150
INCOME DISTRIBUTIONS TO HOLDERS (Note 3) . . . . . . . . . (34,306,635) (35,938,236)
CAPITAL SHARE TRANSACTIONS - Redemptions of 605,900 and
559,274 units, respectively (Note 5) . . . . . . . . . . (49,484,657) (52,899,975)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS. . . . . . . . . . . (256,685,152) 247,774,939
NET ASSETS AT BEGINNING OF PERIOD. . . . . . . . . . . . . 1,474,906,001 1,138,226,472
-------------- --------------
NET ASSETS AT END OF PERIOD. . . . . . . . . . . . . . . . $1,218,220,849 $1,386,001,411
============== ==============
PER UNIT:
Income distributions during period . . . . . . . . . . . $2.10 $2.07
===== =====
Net asset value at end of period . . . . . . . . . . . . $75.83 $82.22
====== ======
TRUST UNITS OUTSTANDING AT END OF PERIOD . . . . . . . . . 16,064,593 16,857,700
========== ==========
</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 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 SEPTEMBER 30, 1996 (UNAUDITED):
<TABLE>
<CAPTION>
TOTAL MARKET
SECURITY SHARES COST VALUE
<S> <C> <C> <C>
AT&T 5,274,631 $ 95,820,343 $ 275,599,470
Airtouch Communications 2,109,864 11,891,204 58,284,993
Ameritech Corp. 3,164,787 34,729,427 166,546,916
Bell Atlantic Corporation 2,109,864 35,268,617 126,328,107
BellSouth Corporation 4,747,169 43,333,629 175,645,253
NYNEX Corporation 2,109,864 33,082,878 91,779,084
Pacific Telesis Group 2,109,864 17,963,781 70,944,177
SBC Communications Inc.
(formerly Southwestern Bell
Corporation) 3,164,787 31,906,146 152,305,374
U.S. West Communications 2,109,864 18,008,385 62,768,454
U.S. West Media Group 2,109,860 12,097,061 35,603,888
------------ --------------
$334,101,471 $1,215,805,716
============ ==============
</TABLE>
See Independent Accountants' Review Report.
-8-
<PAGE> 9
THE EQUITY INCOME FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MARKETABLE SECURITIES, AT DECEMBER 31, 1995:
<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 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 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.
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.
7. SUBSEQUENT EVENT
AT&T declared a spin off, with ex-date of October 1, 1996, of .324084
shares of Lucent Technologies for each share held.
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, 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 $11.0 million and net
realized and unrealized loss on investments of approximately $128.6 million for
the quarter ended September 30, 1996, providing the Fund with a net decrease in
net assets resulting from operations of approximately $117.6 million. In
contrast, net investment income of approximately $10.5 million and net realized
and unrealized gain on investments of approximately $194.8 million for the
quarter ended September 30, 1995, resulted in a net increase in net assets
resulting from operations of approximately $205.3 million.
Income distributions during the third quarter of 1996 totalled $0.69 per
Unit, compared with income distributions of $0.69 per Unit during the third
quarter of 1995.
For the nine month period ended September 30, 1996, the Fund had net
investment income of approximately $33.2 million and net realized and
unrealized loss on investments of approximately $206.1 million resulting in a
net decrease in net assets resulting from operations of approximately $172.9
million, compared with 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 for the nine month period ending September 30,
1995. Income distributions during the nine months ended September 30, 1996
totalled $2.10 per Unit compared with income distributions of $2.07 per Unit
during the nine months ended September 30, 1995.
As of the end of the third quarter of 1996, the per Unit net asset value of
the Fund had decreased to $75.83 from its $82.22 level at the end of the third
quarter of 1995, and decreased from its $83.76 level at the end of the second
quarter of 1996. There was a decrease of 230,834 Units outstanding during the
third quarter of 1996 due to redemptions, and there were 16,064,593 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, 1996 By /s/ Christopher Peer
----------------------------
Name: Christopher Peer
Title: Assistant Vice President
- 12 -
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AT&T - FIRST
EXCHANGE SERIES IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 334,101,471
<INVESTMENTS-AT-VALUE> 1,215,805,716
<RECEIVABLES> 3,424,883
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,643,607
<TOTAL-ASSETS> 1,221,874,206
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,653,357
<TOTAL-LIABILITIES> 3,653,357
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 334,075,893
<SHARES-COMMON-STOCK> 16,064,593
<SHARES-COMMON-PRIOR> 16,670,493
<ACCUMULATED-NII-CURRENT> 2,440,711
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 881,704,245
<NET-ASSETS> 1,218,220,849
<DIVIDEND-INCOME> 33,580,147
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (393,288)
<NET-INVESTMENT-INCOME> 33,186,859
<REALIZED-GAINS-CURRENT> 35,013,393
<APPREC-INCREASE-CURRENT> (241,094,112)
<NET-CHANGE-FROM-OPS> (172,893,860)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 34,306,635
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 605,900
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (256,685,152)
<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
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
