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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 September 30, 2000
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Commission file number 001-08642
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The Equity Investor Fund, First Exchange Series - AT&T Shares
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(Exact Name of Registrant as Specified in Its Charter)
New York 13-6824382
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(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
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(Addresses of Principal Executive Offices of Sponsors)
The Bank of New York, 101 Barclay Street, New York, NY 10286
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(Addresses of Principal Executive Office of Trustee) (Zip Code)
Trustee's Telephone Number, Including Area Code: (212) 815-2887
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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 [ ]
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
(See pages 3-10 below.)
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<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, 2000
and the related statements of operations and of changes in net assets for the
three-month and six-month periods ended September 30, 2000 and 1999. 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 auditing standards generally accepted in the
United States of America, 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 accordance with
accounting principles generally accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the statement of condition of The
Equity Investor Fund, First Exchange Series - AT&T Shares as of December 31,
1999, 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
7, 2000; 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, 1999 is fairly stated, in all material respects,
in relation to the statement of condition from which it has been derived.
Deloitte & Touche LLP
New York, NY
November 12, 2000
3
<PAGE> 4
THE EQUITY INVESTOR FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
2000 1999
<S> <C> <C>
TRUST PROPERTY:
Investment in marketable securities - at market value
(Notes 1 and 2):
1999 cost - $267,206,552 $ 2,652,463,693
2000 cost - $251,795,817 $1,918,228,790
Dividends receivable 1,644,876 1,863,433
Cash 3,217,567 2,751,838
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Total 1,923,091,233 2,657,078,964
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LESS LIABILITIES:
Distribution payable (Note 3) 2,948,351 3,288,178
Unit Redemptions Payable 630 20,719
Accrued expenses 102,400 193,792
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Total 3,051,381 3,502,689
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TOTAL TRUST PROPERTY $1,920,039,852 $ 2,653,576,275
============== ================
NET ASSETS, REPRESENTED BY:
Units of fractional undivided interest outstanding:
1999 - 13,016,125 (Note 6) $ 2,652,447,665
2000 - 12,248,961 (Note 6) $1,918,776,175
Undistributed net investment income 1,263,677 1,128,610
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NET ASSETS $1,920,039,852 $ 2,653,576,275
============== ================
UNIT VALUE:
1999 - $2,653,576,275 / 13,016,125 units $203.87
=======
2000 - $1,920,039,852/ 12,248,961 units $156.75
=======
</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,
2000 1999
<S> <C> <C>
INVESTMENT INCOME:
Dividend income $ 8,897,126 $ 13,888,455
Trustee's fees and expenses 77,176 (150,537)
Sponsors' fees (6,895) (7,338)
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Net investment income 8,967,407 13,730,580
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REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain on securities sold 42,314,598 27,016,598
Unrealized appreciation (depreciation) of
investments (172,444,561) (193,772,997)
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Net realized and unrealized gain (loss) on
investments (130,129,963) (166,756,399)
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NET DECREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ (121,162,556) $(153,025,819)
=============== ==============
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
INVESTMENT INCOME:
Dividend income $ 29,086,193 $ 32,388,009
Trustee's fees and expenses (241,917) (296,012)
Sponsors' fees (20,852) (18,879)
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Net investment income 28,823,424 32,073,118
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REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Realized gain on securities sold 183,363,826 97,775,040
Unrealized appreciation (depreciation)
of investments (718,824,166) 87,201,948
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Net realized and unrealized gain (loss)
on investments (535,460,340) 184,976,988
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NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $ (506,636,916) $217,050,106
=============== ============
</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,
2000 1999
<S> <C> <C>
OPERATIONS:
Net investment income $ 8,967,407 $ 13,730,580
Realized gain on securities sold 42,314,598 27,016,598
Unrealized (depreciation) appreciation of
investments (172,444,561) (193,772,997)
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Net (decrease) increase in net assets resulting
from operations (121,162,556) (153,025,819)
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DISTRIBUTIONS TO HOLDERS (Note 3):
Income (8,951,906) (10,032,688)
Principal (63,302,028) (15,749,174)
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Total distributions (72,253,934) (25,781,862)
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CAPITAL SHARE TRANSACTIONS:
Redemptions of 289,312 and 147,411 units,
respectively (Note 5) (46,780,831) (30,093,540)
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NET DECREASE IN NET ASSETS (240,197,321) (208,901,221)
NET ASSETS AT BEGINNING OF PERIOD 2,160,237,173 2,801,813,122
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NET ASSETS AT END OF PERIOD $1,920,039,852 $2,592,911,901
============== ==============
PER UNIT:
Income distributions during period $.72 $.76
==== ====
Principal distributions during period $5.10 $1.18
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Net asset value at end of period $156.75 $196.61
======= =======
UNITS OUTSTANDING AT END OF PERIOD 12,248,961 13,188,241
========== ==========
</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,
2000 1999
<S> <C> <C>
OPERATIONS:
Net investment income $ 28,823,424 $ 32,073,118
Realized gain on securities sold 183,363,826 97,775,040
Unrealized appreciation of investments (718,824,166) 87,201,948
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Net increase in net assets resulting
from operations (506,636,916) 217,050,106
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DISTRIBUTIONS TO HOLDERS (Note 3):
Income (28,440,883) (29,890,996)
Principal (63,302,028) (15,749,174)
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Total distributions (91,742,911) (45,640,170)
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CAPITAL SHARE TRANSACTIONS:
Redemptions of 767,164 and 469,591 units,
respectively (Note 5) (135,156,596) (91,789,600)
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NET (DECREASE) INCREASE IN NET ASSETS (733,536,423) 79,620,336
NET ASSETS AT BEGINNING OF PERIOD 2,653,576,275 2,513,291,565
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NET ASSETS AT END OF PERIOD $1,920,039,852 $2,592,911,901
============== ==============
PER UNIT:
Income distributions during period $3.65 $2.23
===== =====
Principal distributions during period $5.10 $1.18
===== =====
Net asset value at end of period $156.75 $196.61
======= =======
UNITS OUTSTANDING AT END OF PERIOD 12,248,961 13,188,241
========== ==========
</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 accordance with accounting principles generally accepted in
the United States of America, 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, 2000 (UNAUDITED):
<TABLE>
<CAPTION>
TOTAL MARKET
NAME OF ISSUER SHARES COST VALUE
<S> <C> <C> <C>
AT&T (merged with Media One) 7,474,149 $ 58,565,171 $ 219,553,127
BellSouth Corporation 7,240,000 29,143,303 291,410,000
Lucent Technologies 5,214,335 21,557,395 159,363,113
NCR Corp. 251,503 2,685,909 9,509,957
QWest Communications 2,858,426 14,080,545 137,383,100
SBC Communications Inc. 13,532,257 64,458,006 676,612,850
Verizon Communications (formerly Bell Atlantic) 5,689,125 52,236,039 275,566,992
Vodafone Group (formerly Vodafore Airtouch) 4,022,423 9,069,449 148,829,651
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$251,795,817 $1,918,228,790
============ ==============
</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, 1999:
<TABLE>
<CAPTION>
TOTAL MARKET
NAME OF ISSUER SHARES COST VALUE
<S> <C> <C> <C>
AT&T 6,410,600 $ 52,790,382 $ 325,337,950
Bell Atlantic Corporation 6,044,830 55,501,410 372,134,847
BellSouth Corporation 7,692,691 30,963,121 360,114,097
Lucent Technologies 5,540,343 22,903,808 414,486,911
NCR Corp. 267,196 2,853,510 10,120,049
SBC Communications Inc. 14,378,400 68,669,664 700,947,000
U.S. West Incorporated 1,756,244 14,961,050 126,449,568
MediaOne Group 1,709,556 9,437,707 131,315,270
Vodafone Airtouch 4,273,899 9,125,900 211,558,001
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$267,206,552 $2,652,463,693
============ ==============
</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.
6. INTERIM FINANCIAL STATEMENTS
In the opinion of the management of the Fund, the unaudited financial
statements as of September 30, 2000, and for the three-month and six-month
periods then ended, reflect all adjustments necessary for the fair
presentation of the results of the interim period.
See Independent Accountants' Review Report.
9
<PAGE> 10
THE EQUITY INVESTOR FUND,
FIRST EXCHANGE SERIES - AT&T SHARES
NOTES TO FINANCIAL STATEMENTS
7. 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, 2000, The Equity
Investor Fund, First Exchange Series - AT&T Shares (the "Fund") continued to
hold securities of AT&T and each of the seven companies.
The Fund had net investment income of approximately $9.0 million and
net realized and unrealized loss on investments of approximately $130 million
for the quarter ended September 30, 2000, causing a net decrease in net assets
resulting from operations of approximately $121 million. In contrast, 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, resulted in a net decrease in net assets resulting
from operations of approximately $153 million. For the year ended December 31,
1999, net investment income of approximately $38.6 million and net realized
and unrealized gain on investments of approximately $283.1 million resulted in
a net increase in net assets resulting from operations of approximately $321.7
million.
Income distributions during the third quarter of 2000 totaled $0.72
per Unit, compared with income distributions of $0.76 per Unit during the
third quarter of 1999.
As of the end of the third quarter of 2000, the per Unit net asset
value of the fund had decreased to $156.75 from its $196.61 level at the end
of the third quarter of 1999.
There was a decrease of 289,312 Units outstanding during the third
quarter of 2000 due to redemptions, and there were 12,248,961 Units
outstanding at the end of that quarter.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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<PAGE> 12
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 Exchange Series - AT&T
Shares, 1934 Act file No. 001-08642).
23 - Consents (incorporated by reference to Registration Statement of
The Equity Investor Fund,
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<PAGE> 13
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, 2000.
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<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/ Alfred Irving
----------------------
Alfred Irving
Vice President
Dated: November 15, 2000
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