Bulls & Bears, Inc., a securities dealer, had E&P of $2,000 when it distributed securities with a basis of $3,000 and a value of $10,000 to a 30 percent shareholder, Eunice. As a result of the distribution, E&P is:

		Reduced by $3,000
		Increased by $7,000
		Increased by $7,000, then reduced by $9,000
		Reduced by $10,000