<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
March 31, 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.)
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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 as of March 31, 1997 and the related
statements of operations and of changes in net assets for the three-month
periods ended March 31, 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.
May 8, 1997
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<PAGE> 4
THE EQUITY INCOME FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(UNAUDITED)
MARCH 31, 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 - $319,147,710 ................................ $1,258,781,244
Dividends receivable ...................................... 5,412,536 4,105,785
Cash ...................................................... 2,522,035 44,557
Receivable from securities sold 2,545,404
-------------- --------------
Total ........................................... 1,266,715,815 1,310,459,438
-------------- --------------
LESS LIABILITIES:
Distribution payable (Note 3) ............................. 3,579,311 3,623,693
Redemptions payable 14,171
Accrued expenses .......................................... 32,732 27,279
-------------- --------------
Total ........................................... 3,612,043 3,665,143
-------------- --------------
TOTAL TRUST PROPERTY ........................................ $1,263,103,772 $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 - 15,428,013 (Note 6) .............................. $1,258,778,163
Undistributed net investment income ....................... 4,325,609 3,030,470
-------------- --------------
NET ASSETS .................................................. $1,263,103,772 $1,306,794,295
============== ==============
UNIT VALUE:
1996 - $1,306,794,295 / 15,726,053 units .................. $83.10
======
1997 - $1,263,103,772 / 15,428,013 units .................. $81.87
======
</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,
1997 1996
<S> <C> <C>
INVESTMENT INCOME:
Dividend income ............................ $ 12,347,104 $ 10,634,269
Trustee's fees and expenses ................ (113,110) (123,127)
Sponsors' fees ............................. (68,419) (13,743)
------------ -------------
Net investment income ...................... 12,165,575 10,497,399
------------ -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain on securities sold ........... 18,867,038 10,807,153
Unrealized depreciation of investments ..... (38,284,885) (123,154,808)
------------ -------------
Net realized and unrealized loss on
investments .............................. (19,417,847) (112,347,655)
------------ -------------
NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS ............................ $ (7,252,272) $(101,850,256)
============ =============
</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 MARCH 31,
1997 1996
<S> <C> <C>
OPERATIONS:
Net investment income ......................... $ 12,165,575 $ 10,497,399
Realized gain on securities sold .............. 18,867,038 10,807,153
Unrealized depreciation of investments ........ (38,284,885) (123,154,808)
-------------- --------------
Net decrease in net assets resulting
from operations ............................. (7,252,272) (101,850,256)
INCOME DISTRIBUTIONS TO HOLDERS (Note 3) ........ (10,807,712) (11,677,061)
CAPITAL SHARE TRANSACTIONS:
Redemptions of 298,040 and 177,963 units,
respectively (Note 5) ....................... (25,630,539) (15,055,363)
-------------- --------------
NET DECREASE IN NET ASSETS ...................... (43,690,523) (128,582,680)
NET ASSETS AT BEGINNING OF PERIOD ............... 1,306,794,295 1,474,906,001
-------------- --------------
NET ASSETS AT END OF PERIOD ..................... $1,263,103,772 $1,346,323,321
============== ==============
PER UNIT:
Income distributions during period ............ $.693 $.70
===== ====
Net asset value at end of period .............. $81.87 $81.63
====== ======
UNITS OUTSTANDING AT END OF PERIOD .............. 15,428,013 16,492,530
========== ==========
</TABLE>
See Independent Accountants' Review Report and
Notes to Financial Statements.
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<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, 1997 (UNAUDITED):
<TABLE>
<CAPTION>
TOTAL MARKET
NAME OF ISSUER SHARES COST VALUE
<S> <C> <C> <C>
AT&T 5,065,542 $ 62,574,800 $ 176,027,585
Airtouch Communications 2,026,220 11,419,716 46,603,060
Ameritech Corp. 3,039,328 33,352,767 186,918,672
Bell Atlantic Corporation 2,026,220 33,870,577 123,346,143
BellSouth Corporation 4,558,989 39,727,297 192,617,285
Lucent Technologies 1,641,663 26,432,526 86,597,723
NCR Corp. 316,602 3,191,131 11,160,221
NYNEX Corporation 2,026,220 31,771,453 92,446,287
Pacific Telesis Group 2,026,220 17,251,628 76,489,805
SBC Communications Inc.
(formerly Southwestern
Bell Corporation) 3,039,328 30,641,437 159,944,636
U.S. West Communications 2,026,220 17,295,738 68,891,480
U.S. West Media Group 2,026,220 11,618,640 37,738,347
------------ --------------
$319,147,710 $1,258,781,244
============ ==============
</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, 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 Incorporated 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.
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, 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 $12.2 million and
net realized and unrealized loss on investments of approximately $19.4 million
for the quarter ended March 31, 1997, causing a net decrease in net assets
resulting from operations of approximately $7.2 million. In contrast, 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, resulted in a net decrease in net assets resulting from operations of
approximately $101.8 million. For the year ended December 31, 1996, net
investment income of approximately $44.8 million and net realized and unrealized
loss on investments of approximately $91.6 million resulted in a net decrease in
net assets resulting from operations of approximately $46.8 million.
Income distributions during the first quarter of 1997 totalled $0.69
per Unit, compared with income distributions of $0.70 per Unit during the first
quarter of 1996.
As of the end of the first quarter of 1997, the per Unit net asset
value of the fund had increased to $81.87 from its $81.63 level at the end of
the first quarter of 1996, and decreased from its $83.10 level at the end of the
fourth quarter of 1996. There was a decrease of 298,040 Units outstanding during
the first quarter of 1997 due to redemptions, and there were 15,428,013 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, 1997 By /s/ Jeffrey Cohen
------------------------------
Name: Jeffrey Cohen
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> MAR-31-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 319,147,710
<INVESTMENTS-AT-VALUE> 1,258,781,244
<RECEIVABLES> 5,412,536
<ASSETS-OTHER> 2,522,035
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,266,715,815
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 3,612,043
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,220,493,278
<SHARES-COMMON-STOCK> 15,428,013
<SHARES-COMMON-PRIOR> 16,492,530
<ACCUMULATED-NII-CURRENT> 4,325,609
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (38,284,885)
<NET-ASSETS> 1,263,103,772
<DIVIDEND-INCOME> 12,347,104
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (181,529)
<NET-INVESTMENT-INCOME> 12,165,575
<REALIZED-GAINS-CURRENT> 18,867,038
<APPREC-INCREASE-CURRENT> (38,284,885)
<NET-CHANGE-FROM-OPS> (7,252,272)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (10,807,712)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 298,040
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (43,690,523)
<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>
