<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 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)
New York 13-6824382
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(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 September 30, 1999 and the
related statements of operations and of changes in net assets for the three-
month and nine-month periods ended September 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.
November 8, 1999
- 3 -
<PAGE> 4
THE EQUITY INVESTOR FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
STATEMENTS OF CONDITION
<TABLE>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
1999 1998
<S> <C> <C>
TRUST PROPERTY:
Investment in marketable securities - at market value
(Notes 1 and 2):
1998 cost - $280,910,516 $2,510,764,391
1999 cost - $271,252,474 $2,588,308,297
Dividends receivable 4,970,645 3,188,431
Cash 3,037,970 2,732,763
-------------- --------------
Total 2,596,316,912 2,516,685,585
-------------- --------------
LESS LIABILITIES:
Distribution payable (Note 3) 3,330,190 3,309,627
Accrued expenses 74,821 84,393
-------------- --------------
Total 3,405,011 3,394,020
-------------- --------------
TOTAL TRUST PROPERTY $2,592,911,901 $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 - 13,188,241 (Note 6) $2,588,315,956
Undistributed net investment income 4,595,945 2,561,528
============== ==============
NET ASSETS $2,592,911,901 $2,513,291,565
============== ==============
UNIT VALUE:
1998 - $2,513,291,565 / 13,657,832 units $184.02
-------
1999 - $2,592,911,901 / 13,188,241 units $196.61
-------
</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 SEPTEMBER 30,
1999 1998
<S> <C> <C>
INVESTMENT INCOME:
Dividend income $ 13,888,455 $ 10,202,631
Trustee's fees and expenses (150,537) (58,730
Sponsors' fees (7,338) (42,664)
------------- ------------
Net investment income 13,730,580 10,101,237
------------- ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain on securities sold 27,016,598 20,244,486
Unrealized (depreciation) appreciation of investments (193,772,997) 53,107,399
------------- ------------
Net realized and unrealized (loss) gain on
investments (166,756,399) 73,351,885
------------- ------------
NET (DECREASE) INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $(153,025,819) $ 83,453,122
============= ============
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
<S> <C> <C>
INVESTMENT INCOME:
Dividend income $ 32,388,009 $ 30,929,920
Trustee's fees and expenses (296,012) (339,797)
Sponsors' fees (18,879) (70,812)
------------- ------------
Net investment income 32,073,118 30,519,311
------------- ------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Realized gain on securities sold 97,775,040 70,327,760
Unrealized appreciation of investments 87,201,948 283,198,944
------------- ------------
Realized and unrealized gain on investments 184,976,988 353,526,704
------------- ------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 217,050,106 $384,046,015
============= ============
</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 SEPTEMBER 30,
1999 1998
<S> <C> <C>
OPERATIONS:
Net investment income $ 13,730,580 $ 10,101,237
Realized gain on securities sold 27,016,598 20,244,486
Unrealized (depreciation) appreciation of
investments (193,772,997) 53,107,399
-------------- --------------
Net (decrease) increase in net assets resulting
from operations (153,025,819) 83,453,122
-------------- --------------
DISTRIBUTIONS TO HOLDERS (Note 3):
Income (10,032,688) (10,049,370)
Principal (15,749,174) -
-------------- --------------
Total distributions (25,781,862) (10,049,370)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Redemptions of 147,411 and 172,432 units,
respectively (Note 5) (30,093,540) (24,549,298)
-------------- --------------
NET DECREASE IN NET ASSETS (208,901,221) (48,854,454)
NET ASSETS AT BEGINNING OF PERIOD 2,801,813,122 1,955,167,978
-------------- --------------
NET ASSETS AT END OF PERIOD $2,592,911,901 $2,004,022,432
============== ==============
PER UNIT:
Income distributions during period $.76 $.72
---- ----
Principal distributions during period $1.18
=====
Net asset value at end of period $196.61 $144.50
======= =======
UNITS OUTSTANDING AT END OF PERIOD 13,188,241 13,868,886
---------- ----------
</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)
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
<S> <C> <C>
OPERATIONS:
Net investment income $ 32,073,118 $ 30,519,311
Realized gain on securities sold 97,775,040 70,327,760
Unrealized appreciation of investments 87,201,948 283,198,944
-------------- --------------
Net increase in net assets resulting
from operations 217,050,106 384,046,015
-------------- --------------
DISTRIBUTIONS TO HOLDERS (Note 3):
Income (29,890,996) (30,301,986)
Principal (15,749,174) -
-------------- --------------
Total distributions (45,640,170) (30,301,986)
-------------- --------------
CAPITAL SHARE TRANSACTIONS:
Redemptions of 469,591 and 636,509 units,
respectively (Note 5) (91,789,600) (84,955,691)
-------------- --------------
NET INCREASE IN NET ASSETS 79,620,336 268,788,338
NET ASSETS AT BEGINNING OF PERIOD 2,513,291,565 1,735,234,094
-------------- --------------
NET ASSETS AT END OF PERIOD $2,592,911,901 $2,004,022,432
============== ==============
PER UNIT:
Income distributions during period $2.23 $2.13
===== =====
Principal distributions during period $1.18
-----
Net asset value at end of period $196.61 $144.50
------- -------
UNITS OUTSTANDING AT END OF PERIOD 13,188,241 13,868,886
========== ==========
</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 SEPTEMBER 30, 1999 (UNAUDITED):
<TABLE>
<CAPTION>
TOTAL MARKET
NAME OF ISSUER SHARES COST VALUE
<S> <C> <C> <C>
AT&T 6,495,306 $ 53,487,512 $ 282,545,811
Ameritech Corp. 5,196,281 28,511,021 349,125,130
Bell Atlantic Corporation 6,124,702 56,234,635 412,269,003
BellSouth Corporation 7,794,342 31,371,758 350,745,390
Lucent Technologies 5,613,549 23,206,149 364,178,991
NCR Corp. 270,722 2,891,168 8,950,746
SBC Communications Inc. 7,730,089 41,066,801 394,717,670
U.S. West Communications 1,779,445 15,158,708 101,539,580
MediaOne Group 1,732,141 9,562,394 118,326,882
Vodafone Airtouch 866,074 9,762,328 205,909,094
------------ --------------
$271,252,474 $2,588,308,297
============ ==============
</TABLE>
See Independent Accountants' Review Report.
- 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.
See Independent Accountants' Review Report.
- 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.
See Independent Accountants' Review Report.
- 10 -
<PAGE> 11
ITEM 2 TRUSTEE'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
During the third quarter ended September 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 $13.7 million and net
realized and unrealized loss on investments of approximately $166.8 million for
the quarter ended September 30, 1999, causing a net decrease in net assets
resulting from operations of approximately $153.0 million. In contrast, net
investment income of approximately $10.1 million and net realized and unrealized
gain on investments of approximately $73.4 million for the quarter ended
September 30, 1998, resulted in a net increase in net assets resulting from
operations of approximately $83.5 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 third quarter of 1999 totaled $0.76 per
Unit, compared with income distributions of $0.72 per Unit during the third
quarter of 1998.
There was also a $1.18 per Unit principal distribution during
the three and ninth months ended September 30, 1999. No such principal
distribution occurred in the respective periods of 1998.
For the nine month period ended September 30, 1999, the Fund had net
investment income of approximately $32.1 million and net realized and unrealized
gain on investments of approximately $185.0 million resulting in a net increase
in net assets resulting from operations of approximately $217.1 million,
compared with net investment income of approximately $30.5 million and net
realized and unrealized gain on investments of approximately $353.5 million
resulting in a net increase in net assets resulting from operations of
approximately $384.0 million for the nine month period ending September 30,
1998. Income distributions during the nine months ended September 30, 1999
totaled $2.23 per Unit compared with income distributions of $2.13 per Unit
during the nine months ended September 30, 1998.
As of the end of the third quarter of 1999, the per Unit net asset value
of the fund had increased to $196.61 from its $144.50 level at the end of the
third quarter of 1998, and
- 11 -
<PAGE> 12
decreased from its $210.10 level at the end of the second quarter of 1999. There
was a decrease of 147,411 Units outstanding during the third quarter of 1999 due
to redemptions, and there were 13,188,241 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 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.
- 12 -
<PAGE> 13
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 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
- 13 -
<PAGE> 14
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 September 30, 1999.
- 14 -
<PAGE> 15
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/ ALFRED IRVING
----------------------
Alfred Irving
Vice President
Dated: November 12, 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>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> SEP-30-1999
<INVESTMENTS-AT-COST> 271,252,474
<INVESTMENTS-AT-VALUE> 2,588,308,297
<RECEIVABLES> 4,970,645
<ASSETS-OTHER> 3,037,970
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 2,596,316,912
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 3,405,011
<TOTAL-LIABILITIES> 3,405,011
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,588,315,956
<SHARES-COMMON-STOCK> 13,188,241
<SHARES-COMMON-PRIOR> 13,657,832
<ACCUMULATED-NII-CURRENT> 4,595,945
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,229,853,875
<NET-ASSETS> 2,592,911,901
<DIVIDEND-INCOME> 13,888,455
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> (157,875)
<NET-INVESTMENT-INCOME> 13,730,580
<REALIZED-GAINS-CURRENT> 27,016,598
<APPREC-INCREASE-CURRENT> (193,772,997)
<NET-CHANGE-FROM-OPS> (153,025,819)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,032,688
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 15,749,174
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 147,411
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> (208,901,221)
<ACCUMULATED-NII-PRIOR> 2,500,668
<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>
