10-Q 1 y42762qe10-q.txt FORM 10-Q 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, 2000 ------------------ Commission file number 001-08642 --------- 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 [ ] 2 PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. (See pages 3-10 below.) - 2 - 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 4 THE EQUITY INVESTOR FUND, FIRST EXCHANGE SERIES - AT&T SHARES STATEMENTS OF CONDITION

(UNAUDITED) ~~JUNE~~SEPTEMBER 30, DECEMBER 31, 2000 1999 TRUST PROPERTY: Investment in marketable securities - at market value (Notes 1 and 2): 1999 cost - $267,206,552~~.............................~~ $ 2,652,463,693 2000 cost - $~~255~~251,~~807~~795,~~739.............................~~817 $21,~~094~~918,~~685~~228,~~273~~790 Dividends receivable~~...................................~~ 21,~~120~~644,876 1,863,433 Cash~~...................................................~~ 23,~~624~~217,~~099~~567 2,751,838 ~~Due from Trustee....................................... 64,354,152~~ -------------- ---------------- Total~~....................................~~ 21,~~163~~923,~~784~~091,~~400~~233 2,657,078,964 -------------- ---------------- LESS LIABILITIES: Distribution payable (Note 3)~~..........................~~ 32,~~213~~948,~~926~~351 3,288,178 Unit Redemptions Payable~~...............................~~ ~~1,953~~630 20,719 Accrued expenses~~.......................................~~ ~~331~~102,~~348~~400 193,792 -------------- ---------------- Total~~....................................~~ 3,~~547~~051,~~227~~381 3,502,689 -------------- ---------------- TOTAL TRUST PROPERTY~~.....................................~~ $21,~~160~~920,~~237~~039,~~173~~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,~~538~~248,~~273~~961 (Note 6)~~...........................~~ $21,~~158~~918,~~906~~776,~~919~~175 Undistributed net investment income~~....................~~ 1,~~330~~263,~~254~~677 1,128,610 -------------- ---------------- NET ASSETS~~...............................................~~ $21,~~160~~920,~~237~~039,~~173~~852 $ 2,653,576,275 ============== ================ UNIT VALUE: 1999 - $2,653,576,275 / 13,016,125 units~~...............~~ $203.87 ======= 2000 - $21,~~160~~920,~~237~~039,~~173~~ 852/ 12,~~538~~248,~~273~~961 units~~...............~~ $~~172~~156.2975 =======

See Independent Accountants' Review Report and Notes to Financial Statements. 4 5 THE EQUITY INVESTOR FUND, FIRST EXCHANGE SERIES - AT&T SHARES STATEMENTS OF OPERATIONS

(UNAUDITED) THREE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2000 1999 INVESTMENT INCOME: Dividend income~~................................................~~ $ 108,~~465~~897,~~851~~126 $ 1013,~~087~~888,~~382~~455 Trustee's fees and expenses~~....................................~~ ~~(201~~77,~~048)~~176 (~~138~~150,~~772~~537) Sponsors' fees~~.................................................~~ (6,~~945~~895) (7,~~188~~338) --------------- -------------- Net investment income~~..........................................~~ 108,~~257~~967,~~858~~407 913,~~941~~730,~~422~~580 --------------- -------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain on securities sold~~..............................~~ ~~106~~42,~~073~~314,~~149~~598 4527,~~859~~016,~~188~~598 Unrealized appreciation (depreciation) ~~appreciation~~ of investments~~.........~~ (~~403~~172,~~029~~444,~~677~~561) ~~401~~(193,~~070~~772,~~088~~997) --------------- -------------- Net realized and unrealized gain (loss) on investments~~........~~ (~~296~~130,~~956~~129,~~528~~963) ~~446~~(166,~~929~~756,~~276~~399) --------------- -------------- NET ~~INCREASE (~~DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS~~................................................~~ $ (~~286~~121,~~698~~162,~~670~~556) $~~456~~(153,~~870~~025,~~698~~819) =============== ============== (~~Unaudited~~UNAUDITED) ~~Six~~NINE ~~Months~~MONTHS ~~Ended~~ENDED ~~June~~SEPTEMBER 30, 2000 1999 INVESTMENT INCOME: Dividend income~~................................................~~ $ 2029,~~189~~086,~~067~~193 $ 1832,~~499~~388,~~554~~009 Trustee's fees and expenses~~....................................~~ (~~319~~241,~~093~~917) (~~145~~296,~~475~~012) Sponsors' fees~~.................................................~~ (1320,~~957~~852) (1118,~~541~~879) --------------- ------------ Net investment income~~..........................................~~ 1928,~~856~~823,~~017~~424 1832,~~342~~073,~~538~~118 --------------- ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain on securities sold~~..............................~~ ~~141~~183,~~049~~363,~~228~~826 7097,~~758~~775,~~442~~040 Unrealized appreciation (depreciation) of investments~~.........~~ (~~546~~718,~~379~~824,~~606~~166) ~~280~~87,~~974~~201,~~945~~948 --------------- ------------ Net realized and unrealized gain (loss) on investments~~........~~ (~~405~~535,~~330~~460,~~378~~340) ~~351~~184,~~733~~976,~~387~~988 --------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS~~................................................~~ $ (~~385~~506,~~474~~636,~~361~~916) $~~370~~217,~~075~~050,~~925~~106 ~~--------------~~=============== ~~------------~~============

See Independent Accountants' Review Report and Notes to Financial Statements. 5 6 THE EQUITY INVESTOR FUND, FIRST EXCHANGE SERIES - AT&T SHARES STATEMENTS OF CHANGES IN NET ASSETS

(UNAUDITED) THREE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2000 1999 OPERATIONS: Net investment income~~..............................................~~ $ 108,~~257~~967,~~858~~407 $ 913,~~941~~730,~~422~~580 Realized gain on securities sold~~....................~~ ~~.............. 106~~42,~~073~~314,~~149~~598 4527,~~859~~016,~~188~~598 Unrealized ~~appreciation~~ (depreciation) appreciation of investments~~..............~~ (~~403~~172,~~029~~444,~~677~~561) ~~401~~(193,~~070~~772,~~088~~997) -------------- -------------- Net ~~increase~~ (decrease) increase in net assets resulting from operations~~....~~ (~~286~~121,~~698~~162,~~670~~556) ~~456~~(153,~~870~~025,~~698~~819) ~~INCOME~~-------------- -------------- DISTRIBUTIONS TO HOLDERS (Note 3)~~.............................~~: Income (98,~~718~~951,~~702~~906) (910,~~913~~032,~~875~~688) Principal (63,302,028) (15,749,174) -------------- -------------- Total distributions (72,253,934) (25,781,862) -------------- -------------- CAPITAL SHARE TRANSACTIONS: Redemptions of ~~261~~289,~~400~~312 and ~~174~~147,~~275~~411 units, respectively (Note 5)~~....~~ (4846,~~193~~780,~~801~~831) (3330,~~704~~093,~~109~~540) -------------- -------------- NET ~~INCREASE (~~DECREASE) IN NET ASSETS~~................................~~ (~~344~~240,~~611~~197,~~173~~321) ~~413~~(208,~~252~~901,~~714~~221) NET ASSETS AT BEGINNING OF PERIOD~~....................................~~ 2,~~504~~160,~~848~~237,~~346~~173 2,~~388~~801,~~560~~813,~~408~~122 -------------- -------------- NET ASSETS AT END OF PERIOD~~..........................................~~ $21,~~160~~920,~~237~~039,~~173~~852 $2,~~801~~592,~~813~~911,~~122~~901 ============== ============== PER UNIT: Income distributions during period $.72 $.~~...............................~~76 ==== ==== Principal distributions during period $5.~~768~~10 $1.~~738~~18 ~~-----~~===== ~~-----~~===== Net asset value at end of period~~...................................~~ $~~172~~156.2975 $~~210~~196.1061 ~~-------~~======= ~~-------~~======= UNITS OUTSTANDING AT END OF PERIOD~~...................................~~ 12,~~538~~248,~~273~~961 13,~~335~~188,~~652~~241 ========== ==========

See Independent Accountants' Review Report and Notes to Financial Statements. 6 7 THE EQUITY INVESTOR FUND, FIRST EXCHANGE SERIES - AT&T SHARES STATEMENTS OF CHANGES IN NET ASSETS

(UNAUDITED) ~~SIX~~NINE MONTHS ENDED ~~JUNE~~SEPTEMBER 30, 2000 1999 OPERATIONS: Net investment income~~....................................................~~ $ 1928,~~856~~823,~~017~~424 $ 1832,~~342~~073,~~538~~118 Realized gain on securities sold~~.........................................~~ ~~141~~183,~~049~~363,~~228~~826 7097,~~758~~775,~~442~~040 Unrealized appreciation ~~(depreciation)~~ of investments~~....................~~ (~~546~~718,~~379~~824,~~606~~166) ~~280~~87,~~974~~201,~~945~~948 -------------- -------------- Net increase ~~(decrease)~~ in net assets resulting from operations~~..........~~ (~~385~~506,~~474~~636,~~361~~916) ~~370~~217,~~075~~050,~~925~~106 ~~INCOME~~-------------- -------------- DISTRIBUTIONS TO HOLDERS (Note 3)~~...................................~~: Income (1928,~~488~~440,~~975~~883) (1929,~~858~~890,~~308~~996) Principal (63,302,028) (15,749,174) -------------- -------------- Total distributions (91,742,911) (45,640,170) -------------- -------------- CAPITAL SHARE TRANSACTIONS: Redemptions of ~~477~~767,~~852~~164 and ~~322~~469,~~180~~591 units, respectively (Note 5)~~..........~~ (88135,~~375~~156,~~766~~596) (6191,~~696~~789,~~060~~600) -------------- -------------- NET ~~INCREASE~~ (DECREASE) INCREASE IN NET ASSETS~~......................................~~ (~~493~~733,~~339~~536,~~102~~423) ~~288~~79,~~521~~620,~~557~~336 NET ASSETS AT BEGINNING OF PERIOD~~..........................................~~ 2,653,576,275 2,513,291,565 -------------- -------------- NET ASSETS AT END OF PERIOD~~................................................~~ $21,~~160~~920,~~237~~039,~~173~~852 $2,~~801~~592,~~813~~911,~~122~~901 ============== ============== PER UNIT: Income distributions during period $3.65 $2.~~.....................................~~23 ===== ===== Principal distributions during period $15.5210 $1.4718 ===== ===== Net asset value at end of period~~.........................................~~ $~~172~~156.2975 $~~210~~196.1061 ======= ======= UNITS OUTSTANDING AT END OF PERIOD~~.........................................~~ 12,~~538~~248,~~273~~961 13,~~335~~188,~~652~~241 ========== ==========

See Independent Accountants' Review Report and Notes to Financial Statements. 7 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):

TOTAL MARKET NAME OF ISSUER SHARES COST VALUE AT&T (merged with Media One) 7,~~650~~474,~~174~~149 $ 5958,~~945~~565,~~473~~171 $ ~~241~~219,~~936~~553,~~753~~127 BellSouth Corporation 7,~~410~~240,~~544~~000 29,~~828~~143,~~890~~303 ~~315~~291,~~874~~410,~~438~~000 Lucent Technologies 5,~~337~~214,~~149~~335 2221,~~064~~557,~~617~~395 ~~316~~159,~~226~~363,~~075~~113 NCR Corp. ~~257~~251,~~410~~503 2,~~748~~685,~~996~~909 109,~~022~~509,~~902~~957 ~~SBC~~QWest Communications ~~Inc. 13~~2,~~851~~858,~~031~~426 6514,~~981~~080,~~746~~545 ~~599~~137,~~057~~383,~~091~~100 ~~U.S.~~SBC ~~West~~ Communications 1Inc. 13,~~691~~532,~~843~~257 1464,~~412~~458,~~393~~006 ~~145~~676,~~075~~612,~~537~~850 Verizon Communications (formerly Bell Atlantic) 5,~~823~~689,~~129~~125 5352,~~466~~236,~~195~~039 ~~295~~275,~~887~~566,~~742~~992 Vodafone Group (formerly Vodafore Airtouch) 4,~~117~~022,~~158~~423 79,~~359~~069,~~429~~449 ~~170~~148,~~604~~829,~~735~~651 ------------ -------------- $~~255~~251,~~807~~795,~~739~~817 $21,~~094~~918,~~685~~228,~~273~~790 ============ ==============

See Independent Accountants' Review Report. 8 9 THE EQUITY INVESTOR FUND, FIRST EXCHANGE SERIES - AT&T SHARES NOTES TO FINANCIAL STATEMENTS MARKETABLE SECURITIES, AT DECEMBER 31, 1999:

TOTAL MARKET NAME OF ISSUER SHARES COST VALUE 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 ------------ -------------- $267,206,552 $2,652,463,693 ============ ==============

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 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 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. - 11 - 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, - 12 - 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. - 13 - 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 - 14 -

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