<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
June 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 as of June 30, 1997 and the related
statements of operations and of changes in net assets for the three-month and
six-month periods ended June 30, 1997 and 1996. 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, 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 March 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.
August 7, 1997
- 3 -
<PAGE> 4
THE EQUITY INCOME FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 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 - $311,551,023 $ 1,414,470,464
Dividends receivable 3,317,006 4,105,785
Cash 2,561,344 2,545,404
Receivable from securities sold 44,557
Prepaid expenses 24,262
--------------- ---------------
Total 1,420,373,076 1,310,459,438
--------------- ---------------
LESS LIABILITIES:
Distribution payable (Note 3) 3,542,991 3,623,693
Redemptions payable (2,029) 27,279
Accrued expenses 14,171
--------------- ---------------
Total 3,540,962 3,665,143
--------------- ---------------
TOTAL TRUST PROPERTY $ 1,416,832,114 $ 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 - 15,087,610 (Note 6) $ 1,414,454,809
Undistributed net investment income 2,377,305 3,030,470
--------------- ---------------
NET ASSETS $ 1,416,832,114 $ 1,306,794,295
=============== ===============
UNIT VALUE:
1996 - $1,306,794,295 / 15,726,053 units $ 83.10
===============
1997 - $1,416,832,114 / 15,087,610 units $ 93.91
===============
</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 JUNE 30,
1997 1996
<S> <C> <C>
INVESTMENT INCOME:
Dividend income $ 8,859,157 $ 11,796,938
Trustee's fees and expenses (82,552) (117,281)
Sponsors' fees 42,095 (12,427)
------------- -------------
Net investment income 8,818,700 11,667,230
------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold 22,321,115 11,601,278
Unrealized appreciation of investments 163,285,907 23,315,030
------------- -------------
Realized and unrealized gain on investments 185,607,022 34,916,308
------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 194,425,722 $ 46,583,538
============= =============
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
1997 1996
<S> <C> <C>
INVESTMENT INCOME:
Dividend income $ 21,206,261 $ 22,431,207
Trustee's fees and expenses (195,662) (240,408)
Sponsors' fees (26,324) (26,170)
------------- -------------
Net investment income 20,984,275 22,164,629
------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Realized gain on securities sold 41,188,153 22,408,431
Unrealized appreciation (depreciation) of
investments 125,001,022 (99,839,778)
------------- -------------
Realized and unrealized gain (loss) on investments 166,189,175 (77,431,347)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ 187,173,450 $ (55,266,718)
============= =============
</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
JUNE 30,
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income $ 8,818,700 $ 11,667,230
Realized gain on securities sold 22,321,115 11,601,278
Unrealized appreciation of investments 163,285,907 23,315,030
--------------- ---------------
Net increase in net assets resulting from
operations 194,425,722 46,583,538
INCOME DISTRIBUTIONS TO HOLDERS (Note 3) (10,699,621) (11,646,266)
CAPITAL SHARE TRANSACTIONS:
Redemptions of 340,403 and 197,103 units,
respectively (Note 5) (29,997,759) (16,284,625)
--------------- ---------------
NET INCREASE IN NET ASSETS 153,728,342 18,652,647
NET ASSETS AT BEGINNING OF PERIOD 1,263,103,772 1,346,323,321
--------------- ---------------
NET ASSETS AT END OF PERIOD $ 1,416,832,114 $ 1,364,975,968
=============== ===============
PER UNIT:
Income distributions during period $ .70 $ .71
=============== ===============
Net asset value at end of period $ 93.91 $ 83.76
=============== ===============
UNITS OUTSTANDING AT END OF PERIOD 15,087,610 16,295,427
=============== ===============
</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)
SIX MONTHS ENDED
JUNE 30,
1997 1996
OPERATIONS:
<S> <C> <C>
Net investment income $ 20,984,274 $ 22,164,629
Realized gain on securities sold 41,188,153 22,408,431
Unrealized appreciation (depreciation) of
investments 125,001,022 (99,839,778)
--------------- ---------------
Net increase (decrease) in net assets resulting
from operations 187,173,449 (55,266,718)
INCOME DISTRIBUTIONS TO HOLDERS (Note 3) (21,507,333) (23,323,327)
CAPITAL SHARE TRANSACTIONS:
Redemptions of 638,443 and 375,066 units,
respectively (Note 5) (55,628,297) (31,339,988)
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS 110,037,819 (109,930,033)
NET ASSETS AT BEGINNING OF PERIOD 1,306,794,295 1,474,906,001
--------------- ---------------
NET ASSETS AT END OF PERIOD $ 1,416,832,114 $ 1,364,975,968
=============== ===============
PER UNIT:
Income distributions during period $ 1.39 $ 1.41
=============== ===============
Net asset value at end of period $ 93.91 $ 83.76
=============== ===============
UNITS OUTSTANDING AT END OF PERIOD 15,087,610 16,295,427
=============== ===============
</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 JUNE 30, 1997 (UNAUDITED):
<TABLE>
<CAPTION>
TOTAL MARKET
NAME OF ISSUER SHARES COST VALUE
<S> <C> <C> <C>
AT&T 4,953,828 $ 61,191,933 $173,693,594
Airtouch Communications 1,981,546 11,167,932 54,244,822
Ameritech Corp. 2,972,310 32,617,379 201,931,311
Bell Atlantic Corporation 1,981,546 33,123,881 150,349,803
BellSouth Corporation 4,458,445 37,800,445 206,760,387
Lucent Technologies 1,605,470 26,225,502 115,694,182
NCR Corporation 309,637 3,186,813 9,211,701
NYNEX Corporation 1,981,546 31,071,025 114,186,588
SBC Communications Inc.
(formerly Southwestern
Bell Corporation) 4,421,693 46,887,892 273,592,254
U.S. West Communications 1,981,546 16,915,116 74,679,515
U.S. West Media Group 1,981,546 11,363,105 40,126,307
------------ --------------
$311,551,023 $1,414,470,464
============ ==============
</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 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.
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 second quarter ended June 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 $8.8 million and
net realized and unrealized gain on investments of approximately $185.6 million
for the quarter ended June 30, 1997, providing the Fund with a net increase in
net assets resulting from operations of approximately $194.4 million. In
contrast, net investment income of approximately $11.7 million and net realized
and unrealized gain on investments of approximately $34.9 million for the
quarter ended June 30, 1996, resulted in a net increase in net assets resulting
from operations of approximately $46.6 million. For the quarter ended March 31,
1997, net investment income of approximately $12.2 million and net realized and
unrealized loss on investments of approximately $19.4 million resulted in a net
decrease in net assets resulting from operations of approximately $7.2 million.
Income distributions during the second quarter of 1997 totalled
approximately $0.70 per Unit, compared with income distributions of
approximately $0.71 per Unit during the second quarter of 1996.
As of the end of the second quarter of 1997, the per Unit net asset
value of the fund had increased to $93.91 from its $83.76 level at the end of
the second quarter of 1996, and increased from its $81.87 level at the end of
the first quarter of 1997. There was a decrease of 340,403 Units outstanding
during the second quarter of 1997 due to redemptions, and there were 15,087,610
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
Al Irving
Dated: August 14, 1997 By_____________________________
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>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> Jun-30-1997
<PERIOD-END> Jun-30-1997
<INVESTMENTS-AT-COST> 311,551,023
<INVESTMENTS-AT-VALUE> 1,414,470,464
<RECEIVABLES> 3,317,006
<ASSETS-OTHER> 2,561,344
<OTHER-ITEMS-ASSETS> 24,262
<TOTAL-ASSETS> 1,420,373,076
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 3,540,962
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,289,453,787
<SHARES-COMMON-STOCK> 15,087,610
<SHARES-COMMON-PRIOR> 15,726,053
<ACCUMULATED-NII-CURRENT> 2,377,305
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 125,001,022
<NET-ASSETS> 1,416,832,114
<DIVIDEND-INCOME> 21,206,261
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (221,986)
<NET-INVESTMENT-INCOME> 20,984,275
<REALIZED-GAINS-CURRENT> 41,188,153
<APPREC-INCREASE-CURRENT> 125,001,022
<NET-CHANGE-FROM-OPS> 187,173,450
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (21,507,333)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 638,443
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 110,037,819
<ACCUMULATED-NII-PRIOR> 3,030,470
<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>
