UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF
REGISTERED MANAGEMENT INVESTMENT COMPANIES
811-09897
------------------------------------
(Investment Company Act file number)
EQUITY SECURITIES TRUST I
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(Exact name of registrant as specified in charter)
c/o The Bank of New York
101 Barclay Street
New York, New York 10286
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(Address of principal executive offices) (Zip code)
Ms. Betty Cocozza
The Bank of New York
101 Barclay Street
New York, New York 10286
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(Name and address of agent for service)
212-815-2909
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(Registrant's telephone number, including area code)
December 31, 2004
-------------------------
(Date of fiscal year end)
June 30, 2004
-------------------------
(Date of reporting period)
ITEM 1. REPORT TO STOCKHOLDERS
EQUITY SECURITIES TRUST I
SEMIANNUAL REPORT
June 30, 2004
EQUITY SECURITIES TRUST I
SEMIANNUAL REPORT
JUNE 30, 2004
TRUSTEES
Donald J. Puglisi, Managing Trustee
William R. Latham III
James B. O'Neill
ADMINISTRATOR, CUSTODIAN, TRANSFER AGENT
AND PAYING AGENT
The Bank of New York
101 Barclay Street
New York, New York 10286
2
SUMMARY INFORMATION
Equity Securities Trust I (the "Trust") is a Delaware business trust. It was
created to issue Equity Trust Securities and to carry out the transactions
described in this summary. The Equity Trust Securities are securities that
represent all of the beneficial interest in the Trust. On October 23, 2001, the
Trust sold 26,918,195 Equity Trust Securities to the public at a price of $36.05
each. With part of the net proceeds received from the sale of the Equity Trust
Securities, the Trust purchased a portfolio of U.S. Treasury securities and,
with the remainder of the proceeds, it purchased prepaid forward contracts for
the purchase of Cablevision NY Group Class A Common Stock ("Class A Stock")
issued by Cablevision Systems Corporation ("Cablevision") from certain
subsidiaries of AT&T Corp. These subsidiaries are referred to in this summary as
the "Sellers."
The terms of the Equity Trust Securities are designed to give the holders a
higher current yield than they would receive by owning the Class A Stock, while
also giving them the chance to share in the increased value of Class A Stock if
its price goes up. Cablevision does not currently pay dividends on its common
stock and has stated that it does not intend to do so, but in the future
Cablevision might pay dividends that are higher than the distributions holders
will receive from the Trust. Holders of the Equity Trust Securities will receive
less than they paid for their securities if the price of Class A Stock is below
that price when the Trust terminates on or shortly after November 15, 2004
(which is referred to below as the "Exchange Date"), but they will receive only
part of the increased value if the price of the Class A Stock goes up, and then
only if the price is above $43.981 per share shortly before the Exchange Date.
Each Equity Trust Security entitles the holder to a cash distribution of $0.5858
on each February 15, May 15, August 15 and November 15, ending on November 15,
2004. Those payments are made from maturing U.S. Treasury securities that the
Trust acquired when it issued the Equity Trust Securities.
On the Exchange Date, holders of the Equity Trust Securities will receive
between 0.8197 and 1.0 shares of Class A Stock for each Equity Trust Security
owned. If, shortly before the Exchange Date, the price of the Class A Stock is
more than $43.981 per share, holders will receive 0.8197 shares of Class A
Stock, or the cash equivalent, for each Equity Trust Security owned. If the
price of the Class A Stock is more than $36.05 per share but less than or equal
to $43.981 per share, holders will receive Class A Stock worth $36.05, or the
cash equivalent, for each Equity Trust Security. Finally, if the price of Class
A Stock is $36.05 per share or less, holders will receive one share of Class A
Stock, or the cash equivalent, for each Equity Trust Security owned. Those
amounts will be adjusted if Cablevision splits its stock, pays a stock dividend,
issues warrants or distributes certain types of assets or if certain other
events occur.
Under their prepaid forward contracts with the Trust, the Sellers have the
option to deliver cash to the Trust instead of shares of Class A Stock. If the
Sellers decide to deliver cash, holders will receive the cash value of the Class
A Stock they would have received under the Sellers' contracts instead of the
shares themselves. If Cablevision merges into another company or liquidates,
holders may receive shares of the other company or cash instead of Class A Stock
on the exchange date. If a Seller defaults under its prepaid forward contract
with the Trust, the obligations of the Sellers under their contracts will be
accelerated and the Trust will immediately
3
distribute to holders the Class A Stock or cash received by the Trust under the
prepaid forward contracts plus the proceeds from the sale of the U.S. Treasury
securities then held by the Trust.
The Sellers may elect to deliver cash instead of the Class A Stock subject to
their contracts by completing an offering of securities to refinance the Equity
Trust Securities (a "rollover offering"). The Sellers may extend the Exchange
Date under their prepaid forward contracts to February 15, 2005, but only in
connection with a rollover offering. If the Sellers extend the Exchange Date,
they must deliver cash to be distributed as an additional partial distribution
at the rate of $0.5858 per quarter for the period beginning on November 15, 2004
and ending on the extended Exchange Date. If the Sellers complete a rollover
offering and have extended the Exchange Date, the Sellers will deliver the cash
due under their prepaid forward contracts by the fifth business day after the
extended Exchange Date. If the Sellers have elected to extend the Exchange Date
to February 15, 2005, the Sellers will also have the option, in connection with
the consummation of the rollover offering, of later accelerating the Exchange
Date to between November 15, 2004 and February 15, 2005, in which case the
Sellers will deliver the cash due under their prepaid forward contracts by the
fifth business day after the accelerated Exchange Date.
This is only a summary of certain provisions and features of the Equity Trust
Securities and is not a complete statement of their terms. For a more complete
description of the terms of these securities, you should refer to the Trust's
prospectus dated October 17, 2001. A copy of this prospectus may be found in the
Securities and Exchange Commission's Electronic Data Gathering, Analysis and
Retrieval (EDGAR) system at http://www.sec.gov.
4
EQUITY SECURITIES TRUST I
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 2004
(UNAUDITED)
ASSETS
Investments, at value (cost $787,718,890) $ 559,427,974
Cash 11,887
Prepaid expenses 27,046
------------------
TOTAL ASSETS $ 559,466,907
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LIABILITIES
Unearned expense reimbursement 27,046
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TOTAL LIABILITIES 27,046
------------------
NET ASSETS $ 559,439,861
==================
COMPOSITION OF NET ASSETS
Equity Trust Securities
26,918,196 shares issued and outstanding (Note 9) $ 787,730,777
Unrealized depreciation of investments (228,290,916)
------------------
NET ASSETS $ 559,439,861
==================
NET ASSET VALUE PER SHARE ($559,439,861/26,918,196 shares outstanding) $ 20.78
==================
The accompanying notes are an integral part of these financial statements.
5
EQUITY SECURITIES TRUST I
SCHEDULE OF INVESTMENTS
JUNE 30, 2004
(UNAUDITED)
PAR MATURITY MARKET
SECURITIES DESCRIPTION VALUE DATE COST VALUE
UNITED STATES GOVERNMENT SECURITIES
United States Treasury STRIPS $ 15,770,000 08/15/04 $ 15,707,437 $ 15,747,449
United States Treasury STRIPS 15,770,000 11/15/04 15,567,193 15,680,111
---------------- ---------------- ----------------
$ 31,540,000 31,274,630 31,427,560
================
FORWARD PURCHASE CONTRACT:
26,918,195 shares of Cablevision NY
Group Class A Common Stock 756,444,260 528,000,414
---------------- ----------------
Total $ 787,718,890 $ 559,427,974
================ ================
The accompanying notes are an integral part of these financial statements.
6
EQUITY SECURITIES TRUST I
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2004
(UNAUDITED)
INTEREST INCOME $ 744,414
EXPENSES:
Administrative fees and expenses $ 18,687
Legal fees 4,875
Trustees' fees 5,850
Other expenses 6,256
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TOTAL FEES AND EXPENSES 35,668
Expense Reimbursement (Note 7) (35,668)
-----------------
TOTAL EXPENSES - NET -
-----------------
NET INVESTMENT INCOME 744,414
NET CHANGE IN UNREALIZED DEPRECIATION
OF INVESTMENTS (85,167,286)
-----------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (84,422,872)
=================
The accompanying notes are an integral part of these financial statements.
7
EQUITY SECURITIES TRUST I
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND
YEAR ENDED DECEMBER 31, 2003
(UNAUDITED)
SIX MONTHS
ENDED Year ended
JUNE 30, December 31,
2004 2003
--------------- ----------------
OPERATIONS:
Net investment income $ 744,414 $ 2,733,617
Net change in unrealized depreciation of investments (85,167,286) 218,776,162
--------------- ----------------
NET (DECREASE) INCREASE IN NET ASSETS FROM OPERATIONS (84,422,872) 221,509,779
--------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (744,414) (2,733,617)
Return of capital (30,792,944) (60,341,100)
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TOTAL DISTRIBUTIONS (31,537,358) (63,074,717)
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TOTAL (DECREASE) INCREASE IN NET ASSETS FOR THE PERIOD (115,960,230) 158,435,062
--------------- ----------------
NET ASSETS, BEGINNING OF PERIOD 675,400,091 516,965,029
--------------- ----------------
NET ASSETS, END OF PERIOD $ 559,439,861 $ 675,400,091
--------------- ----------------
The accompanying notes are an integral part of these financial statements.
8
EQUITY SECURITIES TRUST I
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. ORGANIZATION
Equities Securities Trust I ("Trust") was established on April 11, 2000 and is
registered as a non-diversified, closed-end management investment company under
the Investment Company Act of 1940 (the "Act"). In October 2001, the Trust sold
Equity Trust Securities to the public pursuant to a Registration Statement on
Form N-2 under the Securities Act of 1933 and the Act. The Trust used the
proceeds to purchase a portfolio comprised of stripped U.S. Treasury securities
and to pay the purchase price for prepaid forward purchase contracts for shares
of Cablevision NY Group Class A Common Stock ("Cablevision") from existing
stockholders (the "Sellers") of the Cablevision. Each Equity Trust Security
represents between 0.8197 and 1.00 shares of Cablevision or cash equal to the
value of those shares. The number of shares, or amount of cash, will vary,
depending on the average market price of Cablevision over the twenty business
days before the Exchange Date. The common stock, or its cash equivalent, is
deliverable pursuant to the contract on November 5, 2004 (the "Exchange Date")
but may be extended by the Sellers to any date through February 15, 2005 and the
Trust will thereafter terminate.
Pursuant to the Administration Agreement between the Trust and The Bank of New
York (the "Administrator"), the Trustees have delegated to the Administrator the
administrative duties with respect to the Trust.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant accounting policies followed by
the Trust, which are in conformity with accounting principles generally accepted
in the United States of America.
Valuation of investments: The U.S. Treasury STRIPS are valued at the mean of the
bid and ask price at the close of the period. Amortized cost is calculated using
the effective interest method. The forward purchase contracts are valued, in
accordance with procedures approved by the Trustees of the Trust, at the mean of
the bid prices received by the Trust at the end of each period from two
independent broker-dealer firms unaffiliated with the Trust who are in the
business of making bids on financial instruments similar to the contracts and
with terms comparable thereto. The estimated value may differ significantly from
the value that would have been used had a ready market for the contract existed,
and the difference could be material.
Investment transactions: Securities transactions are accounted for on a trade
date basis. Interest income is recorded as earned and consists of amortization
of discount. Realized gains and losses are accounted for on the specific
identification method.
Use of estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
9
EQUITY SECURITIES TRUST I
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3. DISTRIBUTIONS
The face amounts and maturities of U.S. Treasury STRIPS held by the Trust
correspond to the amounts and payment dates of scheduled distributions to
shareholders. Equity Trust Security holders are entitled to receive
distributions from the maturity of U.S. Treasury STRIPS of $2.3433 per annum or
$0.585825 per quarter (except for the first distribution on February 15, 2002
which was $0.727352). The U.S. Treasury STRIPS must be held to maturity unless
termination of the Trust is accelerated in which case the U.S. Treasury STRIPS
would be sold and the proceeds distributed pro rata to the shareholders. For the
six months ended June 30, 2004, the total distribution to shareholders was
$31,537,358. The distribution includes return of capital and net investment
income of $30,792,944 and $744,414, respectively.
NOTE 4. PURCHASES, SALES AND MATURITIES OF INVESTMENTS
Maturities of U.S. Treasury Strips for the six months ended June 30, 2004
totaled $31,540,000. There were no sales or purchases of U.S. Treasury Strips or
forward purchase contracts during the six months ended June 30, 2004.
NOTE 5. TRUSTEES FEES
Each of the three Trustees has been paid a one-time, up front fee of $10,800 for
their services during the life of the Trust. The Managing Trustee has been paid
an additional one-time, up front fee of $3,600 for serving in such capacity. The
total prepaid fees of $36,000 have been paid by the Trust's Sponsor.
NOTE 6. INCOME TAXES
The Trust is treated as a Grantor Trust for Federal income tax purposes;
accordingly, no provision is required for such taxes.
As of June 30, 2004, net unrealized depreciation of investments, based on cost
for Federal income tax purposes of $787,718,890, aggregated $228,290,916,
consisting of gross unrealized appreciation and depreciation of investments of
$152,930, and $228,443,846, respectively.
NOTE 7. EXPENSES
The Trust's Sponsor has paid each of the Administrator, the Custodian and the
Paying Agent, and each Trustee, at the closing of the offering of the Equity
Trust Securities a one-time, up-front amount, and, in the case of the
Administrator, anticipated expenses of the Trust over the term of the Trust. The
Trust's Sponsor has agreed to pay any on-going expenses of the Trust in excess
of these estimated amounts and to reimburse the Trust for any amounts it may be
required to pay as indemnification to any Trustee, the Administrator, the
Custodian or the Paying Agent.
NOTE 8. FORWARD PURCHASE CONTRACT
The Trust has acquired and holds forward purchase contracts with existing
shareholders of Cablevision and paid them $756,444,260 in connection therewith.
Pursuant to such contracts, on the Exchange Date the Sellers are obligated to
deliver to the Trust a number of shares of Cablevision or, at the Sellers'
option, its cash equivalent equal to the product of the Exchange Rate times the
initial number of shares
10
EQUITY SECURITIES TRUST I
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
subject to the Sellers' contracts. The Exchange Rate will vary depending on the
average market price of Cablevision over the twenty business days before the
Exchange Date (the "Average Market Price). The Exchange Rate will be 1 if the
Average Market Price is $36.05 or less, will be .8197 if the Average Market
Price is more than $43.981, and will be the rate that would result in the number
of shares of Cablevision that would be equal to $36.05 if the Average Market
Price is equal to or less than $43.981 but greater than $36.05. The forward
purchase contracts are illiquid and cannot be sold by the Trust.
Offering expenses of $541,010 were paid by the sellers. This amount has been
recorded as a reduction in the cost of the forward contract.
The Sellers obligations under the forward purchase contracts are collateralized
by shares of Cablevision NY Group Class A Common Stock which are being held in
the custody of the Trust's Custodian, The Bank of New York. At June 30, 2004,
the Custodian held 26,918,195 shares with an aggregate value of $528,942,532.
NOTE 9. CAPITAL SHARE TRANSACTIONS
During the offering period, the Trust sold 26,918,195 Equity Trust Securities to
the public and received net proceeds of $940,747,898 ($970,400,930 less sales
commissions and offering expenses of $29,653,038). As of June 30, 2004, there
were 26,918,196 Equity Trust Securities issued and outstanding.
11
DECS TRUST IX
FINANCIAL HIGHLIGHTS
The Trust's financial highlights are presented below. The per share operating
performance data is designed to allow investors to trace the operating
performance, on a per share basis, from the Trust's beginning net asset value to
the ending net asset value so that they can understand what effect the
individual items have on their investment assuming it was held throughout the
period. Generally, the per share amounts are derived by converting the actual
dollar amounts incurred for each item as disclosed in the financial statements
to their equivalent per share amounts.
FOR THE
SIX For the
MONTHS For the For the Period from
ENDED Year Ended Year Ended October 23,2001
JUNE December December (Commencement
30, 31, 31, of Operations) to
2004 2003 2002 December 31 2001,
----------- ----------- ----------- ------------------
Net asset value, beginning of period $ 25.09 $ 19.20 $ 45.23 $ 34.97*
INCOME FROM INVESTMENT OPERATIONS:
Net investment income .03 .10 .15 .04
Unrealized (loss)/gain on investments (3.17) 8.13 (23.69) 10.24
----------- ----------- ----------- ----------------
Net (decrease)/increase in net asset value (3.14) 8.23 (23.54) 10.28
LESS: DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (.03) (.10) (.19) -
Return of capital (1,14) (2.24) (2.30) -
----------- ----------- ----------- ----------------
Total distributions (1.17) (2.34) (2.49) -
(.02)
----------- ----------- ----------- ----------------
Ending net asset value $ 20.78 $ 25.09 $ 19.20 45.23
=========== =========== =========== ================
Ending market value ** $ 20.78 $ 24.97 $ 20.05 44.50
=========== =========== =========== ================
Total investment return (2) (12.61)% 38.49% (48.77)% 23.44%
Ratios/supplemental data
Ratio of expenses to average net assets:
Before reimbursement (1) .01% .02% .01% .02%
After reimbursement (1) .00% .00% .00% .00%
Ratio of net investment income to average net assets:
Before reimbursement (1) .23% .45% .58% .40%
After reimbursement (1) .24% .47% .59% .42%
Net assets, end of period (in thousands) $ 559,440 $ 675,400 $ 519,965 $ 1,217,392
(1) Annualized
(2) The total return based on market value measures the Trust's performance
assuming investors purchased shares at market value as of the beginning of the
period, reinvested dividends and other distributions at market value, and then
sold their shares at the market value per share on the last day of the period.
The total return computations do not reflect any sales charges investors may
incur in purchasing or selling shares of the Trust. The total return for a
period of less than one year is not annualized.
* Net proceeds less selling commissions and offering expenses ($1.18 per share)
** Closing price on NYSE at end of period.
12
ITEM 2. CODE OF ETHICS
Not applicable to this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
Not applicable to this report.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Not applicable to this report.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable to this report.
ITEM 6. SCHEDULE OF INVESTMENTS
See "SCHEDULE OF INVESTMENTS" in the Semiannual Report filed under Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not applicable. The registrant invests exclusively in non-voting
securities.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
Not applicable. Neither the registrant nor any "affiliated purchaser" has
purchased any equity security of the registrant registered pursuant to section
12 of the Securities Exchange Act of 1934.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable to this report.
ITEM 10. CONTROLS AND PROCEDURES
(a) The registrant's managing trustee has concluded that the registrant's
disclosure controls and procedures (as defined in Rule 30a-2(c) under the 1940
Act (17 CFR 270.30a-2(c))) are effective, as of a date within 90 days of the
filing date of the report that includes the disclosure required by this
paragraph, based on his evaluation of these controls and procedures required by
Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or
15d-15(b) under the Securities Exchange Act of 1934 (17 CFR 240.13a-15(b) or
240.15d-15(b)).
(b) There were no changes in the registrant's internal controls over
financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR
270.30a-3(d)) that occurred during the registrant's last fiscal half-year that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
13
ITEM 11. EXHIBITS
(a)(2) Certification required by Rule 30a-2(a) under the 1940 Act.
(b) Certification required by Rule 30a-2(b) under the 1940 Act.
14
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: September 9, 2004
EQUITY SECURITIES TRUST I
By: /s/ Donald J. Puglisi
------------------------
Name: Donald J. Puglisi
Title: Managing Trustee
Pursuant to the requirements of the Investment Company Act of 1940, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: September 9, 2004
By: /s/ Donald J. Puglisi
------------------------
Name: Donald J. Puglisi
Title: Managing Trustee
15
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
99.CERT Certification required by Rule 30a-2(a) under the 1940 Act.
99.CERT906 Certification required by Rule 30a-2(b) under the 1940 Act.