<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, 1997
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) 815-2887
..............................................................
(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 (the "Fund") as of September 30, 1997,
and the related statements of operations and of changes in net assets for the
three-month and nine-month periods ended September 30, 1997 and 1996. 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, 1996, 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, 1997, 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, 1996 is fairly
stated, in all material respects, in relation to the statement of condition from
which it has been derived.
November 10, 1997
-3-
<PAGE> 4
THE EQUITY INCOME FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1997 1996
<S> <C> <C>
TRUST PROPERTY:
Investment in marketable securities - at market value
(Notes 1 and 2):
1996 cost - $325,845,273........................................... $1,303,763,692
1997 cost - $303,408,326........................................... $1,472,045,859
Dividends receivable................................................. 3,233,493 4,105,785
Cash................................................................. 2,505,269 2,545,404
Receivable from securities sold...................................... 44,557
Prepaid expenses..................................................... 38,698
-------------- --------------
Total...................................................... 1,477,823,319 1,310,459,438
-------------- --------------
LESS LIABILITIES:
Distribution payable (Note 3)........................................ 3,466,593 3,623,693
Redemption payable................................................... 27,279
Accrued expenses..................................................... 14,171
-------------- --------------
Total...................................................... 3,466,593 3,665,143
-------------- --------------
TOTAL TRUST PROPERTY................................................... $1,474,356,726 $1,306,794,295
============== ==============
NET ASSETS, REPRESENTED BY:
Units of fractional undivided interest outstanding:
1996 - 15,726,053 (Note 6)......................................... $1,303,763,825
1997 - 14,720,478 (Note 6)......................................... $1,472,021,304
Undistributed net investment income.................................. 2,335,422 3,030,470
-------------- --------------
NET ASSETS............................................................. $1,474,356,726 $1,306,794,295
============== ==============
UNIT VALUE:
1996 - $1,306,794,295/15,726,053 units............................... $83.10
======
1997 - $1,474,356,726/14,720,478 units............................... $100.16
=======
</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,
1997 1996
<S> <C> <C>
INVESTMENT INCOME:
Dividend income........................................................ $ 10,627,033 $ 11,148,940
Trustee's fees and expenses............................................ (86,897) (110,574)
Sponsors' fees......................................................... (4,407) (16,136)
------------ -------------
Net investment income.................................................. 10,535,729 11,022,230
------------ -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold....................................... 26,492,279 12,604,962
Unrealized appreciation (depreciation) of investments.................. 65,718,092 (141,254,334)
------------ -------------
Net realized and unrealized gain (loss) on investments................. 92,210,371 (128,649,372)
------------ -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................................. $102,746,100 $(117,627,142)
============ =============
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
1997 1996
<S> <C> <C>
INVESTMENT INCOME:
Dividend income........................................................ $ 31,833,294 $ 33,580,147
Trustee's fees and expenses............................................ (282,559) (350,982)
Sponsors' fees......................................................... (30,731) (42,306)
------------ -------------
Net investment income.................................................. 31,520,004 33,186,859
------------ -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold....................................... 67,680,432 35,013,393
Unrealized appreciation (depreciation) of investments.................. 190,719,114 (241,094,112)
------------ -------------
Net realized and unrealized gain (loss) on investments................. 258,399,546 (206,080,719)
------------ -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS............................................................. $289,919,550 $(172,893,860)
============ =============
</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,
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income................................................ $ 10,535,729 $ 11,022,230
Realized gain on securities sold..................................... 26,492,279 12,604,962
Unrealized appreciation (depreciation) of investments................ 65,718,092 (141,254,334)
-------------- --------------
Net increase (decrease) in net assets resulting from
operations......................................................... 102,746,100 (117,627,142)
INCOME DISTRIBUTIONS TO HOLDERS (Note 3)............................... (10,472,508) (10,983,308)
CAPITAL SHARE TRANSACTIONS - Redemptions of 367,132 and
230,834 units, respectively (Note 5)................................. (34,748,980) (18,144,669)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS.................................. 57,524,612 (146,755,119)
NET ASSETS AT BEGINNING OF PERIOD...................................... 1,416,832,114 1,364,975,968
-------------- --------------
NET ASSETS AT END OF PERIOD............................................ $1,474,356,726 $1,218,220,849
============== ==============
PER UNIT:
Income distributions during period................................... $.703 $.69
===== ====
Net asset value at end of period..................................... $100.16 $75.83
======= ======
TRUST UNITS OUTSTANDING AT END OF PERIOD............................... 14,720,478 16,064,593
========== ==========
</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,
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income................................................ $ 31,520,004 $ 33,186,859
Realized gain on securities sold..................................... 67,680,432 35,013,393
Unrealized appreciation (depreciation) of investments................ 190,719,114 (241,094,112)
-------------- --------------
Net increase (decrease) in net assets resulting from
operations......................................................... 289,919,550 (172,893,860)
INCOME DISTRIBUTIONS TO HOLDERS (Note 3)............................... (31,979,841) (34,306,635)
CAPITAL SHARE TRANSACTIONS - Redemptions of 1,005,575 and
605,900 units, respectively (Note 5)................................. (90,377,278) (49,484,657)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS.................................. 167,562,431 (256,685,152)
NET ASSETS AT BEGINNING OF PERIOD...................................... 1,306,794,295 1,474,906,001
-------------- --------------
NET ASSETS AT END OF PERIOD............................................ $1,474,356,726 $1,218,220,849
============== ==============
PER UNIT:
Income distributions during period................................... $2.095 $2.10
====== =====
Net asset value at end of period..................................... $100.16 $75.83
======= ======
TRUST UNITS OUTSTANDING AT END OF PERIOD............................... 14,720,478 16,064,593
========== ==========
</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, 1997 (UNAUDITED):
<TABLE>
<CAPTION>
TOTAL MARKET
SECURITY SHARES COST VALUE
<S> <C> <C> <C>
AT&T 4,833,306 $ 59,701,143 $ 214,175,872
Airtouch Communications 1,933,347 10,896,282 68,512,984
Ameritech Corp. 2,900,003 31,823,955 192,850,200
Bell Atlantic Corporation 3,418,144 62,685,590 274,946,958
BellSouth Corporation 4,349,976 35,721,716 201,186,390
Lucent Technologies 1,566,420 26,002,136 127,467,428
NCR Corporation 302,118 3,182,152 10,555,248
SBC Communications Inc. 4,314,120 45,803,485 264,779,115
U.S. West Communications 1,933,347 16,504,460 74,433,859
U.S. West Media Group 1,933,347 11,087,407 43,137,805
------------ --------------
$303,408,326 $1,472,045,859
============ ==============
</TABLE>
See Independent Accountants' Review Report.
-8-
<PAGE> 9
THE EQUITY INCOME FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
NOTES TO FINANCIAL STATEMENTS
MARKETABLE SECURITIES, AT DECEMBER 31, 1996:
<TABLE>
<CAPTION>
TOTAL MARKET
NAME OF ISSUER SHARES COST VALUE
<S> <C> <C> <C>
AT&T 5,163,363 $ 66,979,418 $ 224,606,290
Airtouch Communications 2,065,367 11,640,367 52,150,517
Ameritech Corp. 3,098,036 33,996,969 187,818,433
Bell Atlantic Corporation 2,065,367 34,524,884 133,732,513
BellSouth Corporation 4,647,029 41,414,519 187,623,796
Lucent Technologies 1,673,372 26,613,902 77,393,455
NYNEX Corporation 2,065,367 32,385,225 99,395,787
Pacific Telesis Group 2,065,367 17,584,928 75,902,237
SBC Communications Inc.
(formerly Southwestern Bell
Corporation) 3,098,036 31,233,252 160,323,362
U.S. West Communications 2,065,367 17,629,271 66,608,086
U.S. West Media Group 2,065,363 11,842,538 38,209,216
------------ --------------
$325,845,273 $1,303,763,692
============ ==============
</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.
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, 1997, 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 $92.2 million for
the quarter ended September 30, 1997, providing the Fund with a net increase in
net assets resulting from operations of approximately $102.7 million. In
contrast, 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, resulted in a net decrease in net assets
resulting from operations of approximately $117.6 million.
Income distributions during the third quarter of 1997 totalled $0.703 per
Unit, compared with income distributions of $0.69 per Unit during the third
quarter of 1996.
For the nine month period ended September 30, 1997, the Fund had net
investment income of approximately $31.5 million and net realized and
unrealized gain on investments of approximately $258.4 million resulting in a
net increase in net assets resulting from operations of approximately $289.9
million, compared with 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 for the nine month period ending September 30,
1996. Income distributions during the nine months ended September 30, 1997
totalled $2.095 per Unit compared with income distributions of $2.10 per Unit
during the nine months ended September 30, 1996.
As of the end of the third quarter of 1997, the per Unit net asset value
of the Fund had increased to $100.16 from its $75.83 level at the end of the
third quarter of 1996, and increased from its $93.91 level at the end of the
second quarter of 1997. There was a decrease of 367,132 Units outstanding
during the third quarter of 1997 due to redemptions, and there were 14,720,478
Units outstanding at the end of that quarter.
- 10 -
<PAGE> 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk. - Not Applicable.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and Use of Proceeds - 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, 1997 By /s/ Al Irving
---------------------------
Name: Al Irving
Title: 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>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 303,408,326
<INVESTMENTS-AT-VALUE> 1,472,045,859
<RECEIVABLES> 3,233,493
<ASSETS-OTHER> 2,505,269
<OTHER-ITEMS-ASSETS> 38,598
<TOTAL-ASSETS> 2,477,823,319
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 3,466,593
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,662,740,418
<SHARES-COMMON-STOCK> 14,720,478
<SHARES-COMMON-PRIOR> 15,087,610
<ACCUMULATED-NII-CURRENT> 2,335,427
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 190,719,114
<NET-ASSETS> 1,474,356,726
<DIVIDEND-INCOME> 31,833,294
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (313,290)
<NET-INVESTMENT-INCOME> 21,520,004
<REALIZED-GAINS-CURRENT> 67,680,432
<APPREC-INCREASE-CURRENT> 190,719,114
<NET-CHANGE-FROM-OPS> 209,919,550
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 31,979,841
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 1,005,575
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 167,562,431
<ACCUMULATED-NII-PRIOR> 2,377,306
<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>
