UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number |
811-21432 |
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REAVES UTILITY INCOME FUND |
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(Exact name of registrant as specified in charter) |
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1290 Broadway, Suite 1100, Denver, Colorado |
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80203 |
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(Address of principal executive offices) |
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(Zip code) |
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JoEllen L. Legg Reaves Utility Income Fund 1290 Broadway, Suite 1100 Denver, Colorado 80203 |
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(Name and address of agent for service) |
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Registrants telephone number, including area code: |
(303) 623-2577 |
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Date of fiscal year end: |
October 31 |
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Date of reporting period: |
November 1, 2009 January 31, 2010 |
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Item 1. Schedule of Investments.
REAVES UTILITY INCOME FUND
STATEMENT of INVESTMENTS
January 31, 2010 (Unaudited)
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SHARES |
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VALUE |
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COMMON STOCKS 144.07% |
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Consumer Staples 2.54% |
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Altria Group, Inc. |
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500,000 |
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$ |
9,930,000 |
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Reynolds American, Inc. |
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5,000 |
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266,000 |
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10,196,000 |
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Electric 57.96% |
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CMS Energy Corp. |
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925,000 |
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14,032,250 |
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Consolidated Edison, Inc. |
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220,000 |
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9,622,800 |
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Duke Energy Corp. |
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449,300 |
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7,426,929 |
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Integrys Energy Group, Inc. |
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825,000 |
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34,526,250 |
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ITC Holdings Corp. |
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40,000 |
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2,148,800 |
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National Grid PLC |
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525,000 |
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5,295,401 |
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National Grid PLC - ADR |
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90,000 |
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4,533,300 |
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NSTAR |
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406,800 |
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13,969,512 |
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OGE Energy Corp. |
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105,000 |
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3,803,100 |
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Pinnacle West Capital Corp. |
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900,000 |
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32,238,000 |
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PPL Corp. |
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568,000 |
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16,750,320 |
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Progress Energy, Inc. |
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711,000 |
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27,707,670 |
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SCANA Corp. |
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265,000 |
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9,436,650 |
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TECO Energy, Inc. |
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1,566,400 |
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24,388,848 |
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The Southern Co. |
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840,000 |
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26,880,000 |
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232,759,830 |
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Energy 3.99% |
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BP Amoco PLC - ADR |
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45,000 |
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2,525,400 |
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Cenovus Energy, Inc. |
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130,000 |
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3,009,500 |
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Diamond Offshore Drilling, Inc. |
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101,000 |
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9,244,530 |
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Ultra Petroleum Corp.(a) |
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27,000 |
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1,240,380 |
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16,019,810 |
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Financials 4.37% |
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Annaly Capital Management, Inc. |
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571,000 |
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9,923,980 |
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Berkshire Hathaway, Inc., Class B(a) |
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100,000 |
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7,643,000 |
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17,566,980 |
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Gas 20.72% |
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EQT Corp. |
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28,000 |
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1,232,560 |
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NiSource, Inc. |
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1,475,000 |
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21,018,750 |
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ONEOK, Inc. |
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546,300 |
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23,048,397 |
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Sempra Energy |
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170,000 |
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8,627,500 |
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Spectra Energy Corp. |
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1,235,000 |
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26,243,750 |
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Vectren Corp. |
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130,000 |
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3,026,400 |
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83,197,357 |
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Pharmaceuticals 1.31% |
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Merck & Co., Inc |
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60,000 |
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2,290,800 |
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Pfizer, Inc. |
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160,000 |
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2,985,600 |
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5,276,400 |
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Telephone 44.26% |
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AT&T Corp. |
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1,220,000 |
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30,939,200 |
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BCE, Inc. |
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1,174,000 |
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30,230,500 |
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Cellcom Israel, Ltd. |
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50,000 |
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1,603,500 |
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CenturyTel, Inc. |
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823,000 |
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27,990,230 |
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Frontier Communications Corp. |
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4,100,400 |
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31,204,044 |
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Qwest Communications International, Inc. |
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860,000 |
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3,620,600 |
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Telecom Corp. of New Zealand - ADR |
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1 |
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9 |
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Telefonica S.A. - ADR |
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90,000 |
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6,444,000 |
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Verizon Communications, Inc. |
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867,500 |
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25,521,850 |
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Windstream Corp. |
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1,955,000 |
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20,156,050 |
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177,709,983 |
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Utilities 4.25% |
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Aqua America, Inc. |
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85,000 |
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1,410,150 |
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Calpine Corp.(a) |
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100,000 |
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1,095,000 |
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DTE Energy Co. |
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346,000 |
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14,545,840 |
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17,050,990 |
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Water Utilities 4.67% |
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American Water Works Co., Inc. |
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860,000 |
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18,748,000 |
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TOTAL COMMON STOCKS |
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578,525,350 |
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PREFERRED STOCKS 2.38% |
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Electric 2.20% |
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AES Trust III, 6.750%, 10/15/29 |
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44,050 |
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2,017,490 |
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BGE Capital Trust II, 6.200%, 10/15/43 |
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180,000 |
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3,954,600 |
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Entergy Mississippi, Inc. |
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4.560% |
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3,520 |
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251,020 |
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6.250% |
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10,000 |
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209,063 |
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Entergy New Orleans, Inc., 4.360% |
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4,500 |
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294,469 |
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NSTAR Electric Co., 4.250% |
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11,500 |
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736,000 |
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Public Service Co. of New Mexico, Series 1965, 4.580% |
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11,667 |
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926,077 |
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Southern Cal Edison, 4.320% |
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24,300 |
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443,475 |
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8,832,194 |
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Utilities 0.18% |
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Central Illinois Public Service Co., 4.250% |
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10,300 |
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706,838 |
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TOTAL PREFERRED STOCKS |
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9,539,032 |
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LIMITED PARTNERSHIPS 5.70% |
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Copano Energy LLC |
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130,000 |
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2,953,600 |
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Enbridge Energy Partners LP |
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125,000 |
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6,491,250 |
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Enterprise Products Partners LP |
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90,000 |
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2,760,300 |
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MarkWest Energy Partners LP |
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45,500 |
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1,318,135 |
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ONEOK Partners LP |
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54,400 |
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3,374,976 |
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Regency Energy Partners LP |
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190,000 |
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4,284,500 |
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Williams Partners LP |
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45,000 |
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1,723,050 |
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TOTAL LIMITED PARTNERSHIPS |
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22,905,811 |
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BOND RATING |
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PRINCIPAL |
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MOODY/S&P |
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AMOUNT |
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VALUE |
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CORPORATE BONDS 3.98% |
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Gas 0.38% |
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Copano Energy LLC/FINANCE Co., Guaranteed Notes, 8.125%, 3/1/16 |
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B1/B+ |
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$ |
1,500,000 |
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1,518,750 |
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Telephone 3.60% |
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Level 3 Financing, Inc., Guaranteed Notes, 9.250%, 11/1/14 |
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Caa1/CCC |
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8,000,000 |
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7,540,000 |
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Qwest Corp., Senior Unsecured Notes, 7.500%, 6/15/23 |
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Ba1/BBB- |
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7,000,000 |
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6,930,000 |
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14,470,000 |
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TOTAL CORPORATE BONDS |
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15,988,750 |
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SHARES |
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VALUE |
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MUTUAL FUNDS 1.01% |
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Loomis Sayles Institutional High Income Fund |
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548,386 |
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4,052,572 |
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TOTAL MUTUAL FUNDS |
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4,052,572 |
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SHARES |
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VALUE |
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SHORT TERM INVESTMENTS 1.74% |
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Goldman Sachs Financial Square Treasury Instruments Fund, 0.010% (7-Day Yield) |
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6,983,430 |
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6,983,430 |
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TOTAL SHORT TERM
INVESTMENTS |
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6,983,430 |
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Total Investments |
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$ |
637,994,945 |
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Other Assets in Excess of Liabilities - 0.92% |
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3,676,893 |
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Liquidation Preference of Auction Market Preferred Shares - (59.80%) Series M7, F7, W28 (including distributions payable on preferred shares) |
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(240,124,478 |
) |
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NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS - 100.00% |
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$ |
401,547,360 |
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(a) Non Income Producing Security
ADR - American Depositary Receipt
Ratings:
Moodys and S&Ps ratings are believed to be the most recent as of January 31, 2010.
For Fund compliance purposes, the Funds industry classifications refer to any one of the industry sub-classifications used by one or more widely recognized market indexes, and /or as defined by Fund management. This definition may not apply for purposes of this report, which may combine industry sub-classifications for reporting case. Industries are shown as a percentage of net assets. These industry classifications are unaudited.
Income Tax Information: |
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Net unrealized appreciation/depreciation of investments based on federal tax costs were as follows: |
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As of January 31, 2010 |
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Gross appreciation (excess of value over tax cost) |
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$ |
55,296,346 |
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Gross depreciation (excess of tax cost over value) |
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(46,855,969 |
) |
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Net unrealized appreciation |
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8,440,377 |
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Cost of investments for income tax purposes |
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$ |
629,554,568 |
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See Notes to Quarterly Statement of Investments.
Notes to Quarterly Statement of Investments
January 31, 2010 (unaudited)
1. Significant Accounting and Operating Policies
Reaves Utility Income Fund (the Fund) is a closed-end management investment company that was organized under the laws of the state of Delaware by an Agreement and Declaration of Trust dated September 15, 2003. The Fund is a non-diversified fund with an investment objective to provide a high level of after-tax income and total return consisting primarily of tax-advantaged dividend income and capital appreciation. The Declaration of Trust provides that the Trustees may authorize separate classes of shares of beneficial interest. The Fund commenced operations on February 24, 2004. The Funds common shares are listed on the New York Stock Exchange Amex (Exchange) and trade under the ticker symbol UTG.
The Fund may have elements of risk, including the risk of loss of equity. There is no assurance that the investment process will consistently lead to successful results.
An investment concentrated in sectors and industries may involve greater risk and volatility than a more diversified investment.
The following summarizes the significant accounting policies of the Fund.
Security Valuation: The net asset value per common share of the Fund is determined no less frequently than daily, on each day that the Exchange is open for trading, as of the close of regular trading on the Exchange (normally 4:00 p.m. New York time). Securities held by the Fund for which exchange quotations are readily available are valued at the last sale price, or if no sale price or if traded on the over-the-counter market, at the mean of the bid and asked prices on such day. Debt securities for which the over-the-counter market is the primary market are normally valued on the basis of prices furnished by one or more pricing services at the mean between the latest available bid and asked prices. As authorized by the Trustees, debt securities (other than short-term obligations) may be valued on the basis of valuations furnished by a pricing service which determines valuations based upon market transactions for normal, institutional-size trading units of securities. Short-term obligations maturing within 60 days are valued at amortized cost which approximates market value. Over-the- counter options are valued at the mean between bid and asked prices provided by dealers. Financial futures contracts listed on commodity exchanges and exchange-traded options are valued at closing settlement prices. Securities for which there is no such quotation or valuation and all other assets are valued at fair value in good faith by or at the direction of the Trustees. Various factors may be reviewed in order to make a good faith determination of a securitys fair value. These factors may include, but are not limited to, the type and cost of the security; the fundamental analytical data relating to the investment; an evaluation of the forces which influence the market in which the security is sold, including the liquidity and depth of the market; information as to any transactions or offers with respect to the security; price, yield and the extent of public or private trading in similar securities of the issuer or comparable companies. The valuation assigned to fair-valued securities for purposes of calculating the Funds NAV may differ from the securitys most recent closing market price and from the prices used by other funds to calculate their NAVs.
The Fund has adopted the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC), issued in June 2009. The Fund follows the provisions of ASC 820, Fair Value Measurements and Disclosures (ASC 820). ASC 820 established a three-tier hierarchy to create classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, for example, the risk inherent in a particular valuation technique used to measure fair value including such a pricing model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entitys own assumptions about the assumptions market participants would use in pricing the asset or
liability developed based on the best information available in the circumstances. The three-tier hierarchy of inputs is summarized in the three broad levels listed below.
· Level 1 quoted prices in active markets for identical investments
· Level 2 significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, credit risk, etc.)
· Level 3 significant unobservable inputs (including the Funds own assumptions in determining the fair value of investments)
The following is a summary of the inputs used as of January 31, 2010 in valuing the Funds investments carried at value:
Investments in Securities at |
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Level 1 - Quoted |
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Level 2 - Significant |
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Level 3 - Significant |
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Total |
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Common Stocks |
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$ |
578,525,350 |
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$ |
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$ |
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$ |
578,525,350 |
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Preferred Stock |
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6,415,565 |
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3,123,467 |
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9,539,032 |
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Limited Partnerships |
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22,905,811 |
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22,905,811 |
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Corporate Bonds |
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15,988,750 |
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15,988,750 |
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Mutual Funds |
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4,052,572 |
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4,052,572 |
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Short Term Securities |
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6,983,430 |
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6,983,430 |
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Total |
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$ |
618,882,728 |
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19,112,217 |
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$ |
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637,994,945 |
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For the three months ended January 31, 2010, the Fund did not have significant unobservable inputs (Level 3) used in determining fair value. Thus, a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value is not applicable.
Foreign Securities: The Fund may invest a portion of its assets in foreign securities. In the event that the Fund executes a foreign security transaction, the Fund will generally enter into a forward foreign currency contract to settle the foreign security transaction. Foreign securities may carry more risk than U.S. securities, such as political, market and currency risks.
Options: In order to hedge against adverse market shifts, the Fund may utilize up to 5% of its total assets to purchase put and call options on securities. When a Fund purchases a call or put option, an amount equal to the premium paid is included in the Funds Statement of Assets and Liabilities, which is included in the Annual and Semi-Annual reports to shareholders, as an investment, and is subsequently marked-to-market to reflect the current market value of the option. If an option expires on the stipulated expiration date or if the Fund enters into a closing sale transaction, a gain or loss is realized. If the Fund exercises a call, the cost of the security acquired is increased by the premium paid for the call. If the Fund exercises a put option, a gain or loss is realized from the sale of the underlying security, and the proceeds from such a sale are decreased by the premium originally paid.
In addition, the Fund may seek to increase its income or may hedge a portion of its portfolio investments through writing (i.e., selling) covered put and call options. When a Fund writes a put or call option, an amount equal to the premium received is included in the Statement of Assets and Liabilities, which is included in the Annual and Semi-Annual reports to shareholders, as a liability. The amount of the liability is subsequently marked-to-market to reflect the current market value of the option. If an option expires on its stipulated expiration date or if the Fund enters into a closing purchase transaction, a gain or loss is realized. If a written call option is exercised, a gain or loss is realized for the sale of the underlying security and the proceeds from the sale are increased by the premium originally received. If a written put option is exercised, the cost of the security acquired is decreased by the premium originally received. As a writer of an option, a Fund has no control over whether the underlying securities are subsequently sold (call) or purchased (put) and, as a result, bears the market risk of an unfavorable change in the price of the security underlying the written option. Written and purchased options are non-income producing securities.
The Fund may utilize up to 5% of its total assets to purchase put and call options on domestic
stock indices to hedge against risks of market-wide price movements affecting its assets. In addition, the Fund may write covered put and call options on stock indices. Because no underlying security can be delivered, however, the option represents the holders right to obtain from the writer, in cash, a fixed multiple of the amount by which the exercise price exceeds (in the case of a put) or is less than (in the case of a call) the closing value of the underlying index on the exercise date
There was no activity in the Fund related to written options for the three months ended January 31, 2010.
Use of Estimates: The Funds financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. This requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements Actual results could differ from these estimates.
2. Recently Issued Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update Improving Disclosures about Fair Value Measurements that requires additional disclosures regarding fair value measurements. Certain required disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, and other required disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Management is currently evaluating the impact it will have on its financial statement disclosures.
Item 2. Controls and Procedures.
(a) The Registrants principal executive officer and principal financial officer have evaluated the Registrants disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the 1940 Act) (17 CFR 270.30a-3(c))) within 90 days of the filing date of this report and have concluded that the Registrants disclosure controls and procedures were effective as of that date.
(b) There were no changes in the Registrants internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the Registrants last fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrants internal control over financial reporting.
Item 3. Exhibits.
Separate certifications for the Registrants principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the 1940 Act, are attached as Exhibit 99.Cert.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and 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.
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REAVES UTILITY INCOME FUND |
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By: |
/s/ Jeremy O. May |
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Jeremy O. May |
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President (principal executive officer) |
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Date: |
April 1, 2010 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and 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.
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By: |
/s/ Jeremy O. May |
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Jeremy O. May |
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President (principal executive officer) |
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Date: |
April 1, 2010 |
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By: |
/s/ Lauren E. Johnson |
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Lauren E. Johnson |
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Treasurer (principal financial officer) |
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Date: |
April 1, 2010 |