<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1999
-------------
Commission file number 001-08642
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The Equity Investor Fund, First Exchange Series - AT&T Shares
----------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<CAPTION>
New York 13-6824382
- --------------------------------------------------------------------------------
<S> <C>
(State or Other Jurisdiction (I.R.S. Employee
of Incorporation or Organization) Identification No.)
Merrill Lynch, Pierce, Fenner Prudential Securities
& Smith Incorporated Incorporated
P.O. Box 9051 One Seaport Plaza
Princeton, New Jersey 08543 199 Water Street
New York, New York 10292
Morgan Stanley Dean Witter Smith Barney Inc.
Two World Trade Center 388 Greenwich Street
New York, New York 10048 New York, New York 10013
</TABLE>
- --------------------------------------------------------------------------------
(Addresses of Principal Executive Offices of Sponsors)
The Bank of New York, 101 Barclay Street, New York, NY 10286
- --------------------------------------------------------------------------------
(Addresses of Principal Executive Office of Trustee) (Zip Code)
Trustee's Telephone Number, Including Area Code: (212) 815-2887
--------------
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 3-10 below.)
-2-
<PAGE> 3
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
The Sponsors, Trustee and Holders
of The Equity Investor Fund,
First Exchange Series - AT&T Shares:
We have reviewed the accompanying statement of condition of The Equity Investor
Fund, First Exchange Series - AT&T Shares as of June 30, 1999 and the related
statements of operations and of changes in net assets for the three-month and
six-month periods ended June 30, 1999 and 1998. 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 Investor Fund, First
Exchange Series - AT&T Shares as of December 31, 1998, 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 1, 1999; 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, 1998 is fairly stated, in all material respects, in relation to the
statement of condition from which it has been derived.
August 4, 1999
3
<PAGE> 4
THE EQUITY INVESTOR FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, DECEMBER 31,
1999 1998
TRUST PROPERTY:
<S> <C> <C>
Investment in marketable securities - at market value
(Notes 1 and 2):
1998 cost - $280,910,516............................. $2,510,764,391
1999 cost - $274,284,007............................. $2,785,112,827
Dividends receivable................................... 1,444,945 3,188,431
Cash................................................... 18,544,201 2,732,763
-------------- -------------
Total........................................ 2,805,101,973 2,516,685,585
-------------- -------------
LESS LIABILITIES:
Distribution payable (Note 3).......................... 3,288,018 3,309,627
Accrued expenses....................................... 833 84,393
-------------- -------------
Total........................................ 3,288,851 3,394,020
-------------- -------------
TOTAL TRUST PROPERTY $2,801,813,122 $2,513,291,565
============== =============
NET ASSETS, REPRESENTED BY:
Units of fractional undivided interest outstanding:
1998 - 13,657,832 (Note 6)........................... $2,510,730,037
1999 - 13,335,652 (Note 6)........................... $2,800,863,132
Undistributed net investment income.................... 949,990 2,561,528
-------------- -------------
NET ASSETS............................................... $2,801,813,122 $2,513,291,565
-------------- -------------
UNIT VALUE:
1998 - $2,513,291,565 / 13,657,832 units............... $184.02
1999 - $2,801,813,122 / 13,335,652 units............... $210.10 =======
-------
</TABLE>
See Independent Accountants' Review Report and
Notes to Financial Statements.
4
<PAGE> 5
THE EQUITY INVESTOR FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
1999 1998
<S> <C> <C>
INVESTMENT INCOME:
Dividend income........................................ $ 10,087,382 $ 10,323,665
Trustee's fees and expenses............................ (138,772) (131,824)
Sponsors' fees......................................... (7,188) (7,693)
------------ ------------
Net investment income.................................. 9,941,422 10,184,148
------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain on securities sold....................... 45,859,188 25,322,762
Unrealized appreciation (depreciation) of investments.. 401,070,088 (79,461,488)
------------ ------------
Net realized and unrealized gain (loss) on
investments.......................................... 446,929,276 (54,138,726)
------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS........................................ $456,870,698 $(43,954,578)
------------ ------------
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
1999 1998
INVESTMENT INCOME:
<S> <C> <C>
Dividend income........................................ $ 18,499,554 $ 20,727,289
Trustee's fees and expenses............................ (145,475) (281,067)
Sponsors' fees......................................... (11,541) (28,149)
------------ ------------
Net investment income.................................. 18,342,538 20,418,073
------------ ------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain on securities sold....................... 70,758,442 50,083,274
Unrealized appreciation of investments................. 280,974,945 230,091,545
------------ ------------
Realized and unrealized gain on investments............ 351,733,387 280,174,819
------------ ------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................................ $370,075,925 $300,592,892
------------ ------------
</TABLE>
See Independent Accountants' Review Report and
Notes to Financial Statements.
5
<PAGE> 6
THE EQUITY INVESTOR FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
THREE MONTHS ENDED JUNE 30,
1999 1998
<S> <C> <C>
OPERATIONS:
Net investment income............................... $ 9,941,422 $ 10,184,148
Realized gain on securities sold.................... 45,859,188 25,322,762
Unrealized appreciation (depreciation) of
investments....................................... 401,070,088 (79,461,488)
-------------- --------------
Net increase (decrease) in net assets resulting
from operations................................... 456,870,698 (43,954,578)
INCOME DISTRIBUTIONS TO HOLDERS (Note 3).............. (9,913,875) (10,088,526)
CAPITAL SHARE TRANSACTIONS:
Redemptions of 174,275 and 217,841 units,
respectively (Note 5)............................. (33,704,109) (29,897,422)
-------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS................. 413,252,714 (83,940,526)
NET ASSETS AT BEGINNING OF PERIOD..................... 2,388,560,408 2,039,108,504
-------------- --------------
NET ASSETS AT END OF PERIOD........................... $2,801,813,122 $1,955,167,978
============== ==============
PER UNIT:
Income distributions during period.................. $.738 $.71
----- ----
Net asset value at end of period.................... $210.10 $139.24
======= =======
UNITS OUTSTANDING AT END OF PERIOD.................... 13,335,652 14,041,318
========== ==========
</TABLE>
See Independent Accountants' Review Report and
Notes to Financial Statements.
6
<PAGE> 7
THE EQUITY INVESTOR FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
1999 1998
OPERATIONS:
<S> <C> <C>
Net investment income................................ $ 18,342,538 $ 20,418,073
Realized gain on securities sold..................... 70,758,442 50,083,274
Unrealized appreciation of investments............... 280,974,945 230,091,545
-------------- --------------
Net increase in net assets resulting
from operations.................................... 370,075,925 300,592,892
INCOME DISTRIBUTIONS TO HOLDERS (Note 3)............... (19,858,308) (20,252,616)
CAPITAL SHARE TRANSACTIONS:
Redemptions of 322,180 and 464,077 units,
respectively (Note 5).............................. (61,696,060) (60,406,392)
-------------- --------------
NET INCREASE IN NET ASSETS............................. 288,521,557 219,933,884
NET ASSETS AT BEGINNING OF PERIOD...................... 2,513,291,565 1,735,234,094
-------------- --------------
NET ASSETS AT END OF PERIOD............................ $2,801,813,122 $1,955,167,978
-------------- --------------
PER UNIT:
Income distributions during period................... $1.47 $1.41
===== =====
Net asset value at end of period..................... $210.10 $139.24
======= =======
UNITS OUTSTANDING AT END OF PERIOD..................... 13,335,652 14,041,318
========== ==========
</TABLE>
See Independent Accountants' Review Report and
Notes to Financial Statements.
7
<PAGE> 8
THE EQUITY INVESTOR 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, 1999 (UNAUDITED):
<TABLE>
<CAPTION>
TOTAL MARKET
NAME OF ISSUER SHARES COST VALUE
<S> <C> <C> <C>
AT&T 6,567,933 $ 54,085,232 $ 366,572,761
Ameritech Corp. 5,254,379 28,829,979 386,196,857
Bell Atlantic Corporation 6,193,185 56,863,309 404,879,469
BellSouth Corporation 7,881,501 31,722,137 369,445,359
Lucent Technologies 5,676,316 23,465,377 382,796,560
NCR Corp. 273,740 2,923,400 13,361,934
SBC Communications Inc. 7,816,527 41,525,787 453,358,566
U.S. West Communications 1,799,335 15,328,171 105,710,931
MediaOne Group 1,751,499 9,669,250 130,267,738
Vodafone Airtouch 875,749 9,871,365 172,522,652
------------ --------------
$274,284,007 $2,785,112,827
============ ==============
</TABLE>
8
<PAGE> 9
THE EQUITY INVESTOR FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
NOTES TO FINANCIAL STATEMENTS
MARKETABLE SECURITIES, AT DECEMBER 31, 1998:
<TABLE>
<CAPTION>
TOTAL MARKET
NAME OF ISSUER SHARES COST VALUE
<S> <C> <C> <C>
AT&T 4,484,416 $ 55,391,778 $ 337,452,304
Airtouch Communications 1,793,809 10,109,849 129,378,474
Ameritech Corp. 5,381,333 29,526,775 341,041,979
Bell Atlantic Corporation 6,342,826 58,237,121 336,169,778
BellSouth Corporation 8,071,942 32,488,131 402,588,107
Lucent Technologies 2,906,729 24,032,761 319,740,190
NCR Corp. 280,342 2,993,908 11,704,279
SBC Communications Inc. 8,005,395 42,528,895 429,289,307
U.S. West Incorporated 1,842,800 15,698,478 119,090,950
MediaOne Group 1,793,809 9,902,820 84,309,023
------------ --------------
$280,910,516 $2,510,764,391
============ ==============
</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, Morgan Stanley Dean Witter,
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.
9
<PAGE> 10
THE EQUITY INVESTOR 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.
10
<PAGE> 11
ITEM 2 TRUSTEE'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
During the second quarter ended June 30, 1999, The Equity Investor
Fund, First Exchange Series - AT&T Shares (the "Fund") continued to hold
securities of AT&T and each of the nine companies.
The Fund had net investment income of approximately $9.9 million and
net realized and unrealized gain on investments of approximately $446.9 million
for the quarter ended June 30, 1999, causing a net increase in net assets
resulting from operations of approximately $456.9 million. In contrast, net
investment income of approximately $10.2 million and net realized and
unrealized loss on investments of approximately $54.1 million for the quarter
ended June 30, 1998, resulted in a net decrease in net assets resulting from
operations of approximately $44.0 million. For the year ended December 31,
1998, net investment income of approximately $40.6 million and net realized and
unrealized gain on investments of approximately $895.8 million resulted in a
net increase in net assets resulting from operations of approximately $936.4
million.
Income distributions during the second quarter of 1999 totaled $0.74
per Unit, compared with income distributions of $0.71 per Unit during the
second quarter of 1998.
As of the end of the second quarter of 1999, the per Unit net asset
value of the fund had increased to $210.10 from its $139.24 level at the end of
the second quarter of 1998, and increased from its $176.80 level at the end of
the first quarter of 1999.
There was a decrease of 174,275 Units outstanding during the second
quarter of 1999 due to redemptions, and there were 13,335,652 Units outstanding
at the end of that quarter.
YEAR 2000 PROBLEM
The Trustee has established a Year 2000 compliance program consisting
of, among other things, updating major proprietary application systems and
evaluating the Year 2000 compliance efforts of vendors of major vendor-supplied
systems and certain other business partners. The Trustee believes that its Year
2000 compliance program is currently on schedule to meet the needs of its
customers and the compliance deadlines defined by its regulators. As of
December 31, 1998, testing and renovation
-11-
<PAGE> 12
of the proprietary application systems that the Trustee deems "mission
critical" were substantially completed and these systems are currently being
used by the Trustee. In addition, all vendor supplied software systems that the
Trustee deems mission critical have been tested and, based upon such testing,
the Trustee believes that such systems will not be adversely affected in a
material way by the date change to the Year 2000.
Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of suppliers,
customers and other business partners, the Trustee is unable to determine at
this time whether the consequences of Year 2000 failures will have a material
impact on the Trustee and its ability to perform its obligations under the
Trust Indenture. The Year 2000 compliance program is intended to reduce
significantly the Trustee's level of uncertainty about the Year 2000 problem
and, in particular, the Year 2000 compliance and readiness of the Trustee and
its material business partners. The Trustee believes that, with completion of
its Year 2000 compliance program as scheduled, the possibility of significant
interruption of normal operations should be reduced. However, because of the
unprecedented nature of the Year 2000 problem, there can be no certainty as to
its impact.
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.
-12-
<PAGE> 13
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 Investor
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 Investor Fund, First Exchange
Series - AT&T Shares, 1934 Act File No. 001-08642).
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 Investor 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 Investor Fund, First Exchange Series -
AT&T Shares, 1934 Act file No. 001-08642).
23 - Consents (incorporated by reference to Registration
Statement of The Equity Investor Fund, First Exchange Series -
AT&T Shares, 1933 Act File No. 2-83192).
27 - Financial Data Schedule.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the quarter ended March 31, 1999.
-13-
<PAGE> 14
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 INVESTOR FUND, First
Exchange Series - AT&T Shares
By: THE BANK OF NEW YORK,
as Trustee
By: /s/ Steven P. Farlese
----------------------
Steven P. Farlese
Vice President
Dated: August 16, 1999
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<INVESTMENTS-AT-COST> 274,284,007
<INVESTMENTS-AT-VALUE> 2,785,112,827
<RECEIVABLES> 1,444,945
<ASSETS-OTHER> 18,544,201
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,805,101,973
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,288,851
<TOTAL-LIABILITIES> 3,288,851
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 13,335,652
<SHARES-COMMON-PRIOR> 13,657,832
<ACCUMULATED-NII-CURRENT> 949,990
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 401,070,088
<NET-ASSETS> 2,801,813,122
<DIVIDEND-INCOME> 10,087,382
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (145,960)
<NET-INVESTMENT-INCOME> 9,941,422
<REALIZED-GAINS-CURRENT> 45,859,188
<APPREC-INCREASE-CURRENT> 401,070,088
<NET-CHANGE-FROM-OPS> 456,870,698
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 9,913,875
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 174,275
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 413,252,714
<ACCUMULATED-NII-PRIOR> 971,776
<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
</TABLE>
