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

 

 

REAVES UTILITY INCOME FUND

(Exact name of registrant as specified in charter)

 

1290 Broadway, Suite 1100, Denver, Colorado

 

80203

(Address of principal executive offices)

 

(Zip code)

 

JoEllen L. Legg

Reaves Utility Income Fund

1290 Broadway, Suite 1100

Denver, Colorado 80203

(Name and address of agent for service)

 

Registrant’s telephone number, including area code:

(303) 623-2577

 

 

Date of fiscal year end:

October 31

 

 

 

 

Date of reporting period:

November 1, 2009 – January 31, 2010

 

 



 

Item 1.  Schedule of Investments.

 



 

REAVES UTILITY INCOME FUND

STATEMENT of INVESTMENTS

January 31, 2010 (Unaudited)

 

 

 

SHARES

 

VALUE

 

COMMON STOCKS 144.07%

 

 

 

 

 

Consumer Staples 2.54%

 

 

 

 

 

Altria Group, Inc.

 

500,000

 

$

9,930,000

 

Reynolds American, Inc.

 

5,000

 

266,000

 

 

 

 

 

10,196,000

 

Electric 57.96%

 

 

 

 

 

CMS Energy Corp.

 

925,000

 

14,032,250

 

Consolidated Edison, Inc.

 

220,000

 

9,622,800

 

Duke Energy Corp.

 

449,300

 

7,426,929

 

Integrys Energy Group, Inc.

 

825,000

 

34,526,250

 

ITC Holdings Corp.

 

40,000

 

2,148,800

 

National Grid PLC

 

525,000

 

5,295,401

 

National Grid PLC - ADR

 

90,000

 

4,533,300

 

NSTAR

 

406,800

 

13,969,512

 

OGE Energy Corp.

 

105,000

 

3,803,100

 

Pinnacle West Capital Corp.

 

900,000

 

32,238,000

 

PPL Corp.

 

568,000

 

16,750,320

 

Progress Energy, Inc.

 

711,000

 

27,707,670

 

SCANA Corp.

 

265,000

 

9,436,650

 

TECO Energy, Inc.

 

1,566,400

 

24,388,848

 

The Southern Co.

 

840,000

 

26,880,000

 

 

 

 

 

232,759,830

 

Energy 3.99%

 

 

 

 

 

BP Amoco PLC - ADR

 

45,000

 

2,525,400

 

Cenovus Energy, Inc.

 

130,000

 

3,009,500

 

Diamond Offshore Drilling, Inc.

 

101,000

 

9,244,530

 

Ultra Petroleum Corp.(a)

 

27,000

 

1,240,380

 

 

 

 

 

16,019,810

 

Financials 4.37%

 

 

 

 

 

Annaly Capital Management, Inc.

 

571,000

 

9,923,980

 

Berkshire Hathaway, Inc., Class B(a)

 

100,000

 

7,643,000

 

 

 

 

 

17,566,980

 

Gas 20.72%

 

 

 

 

 

EQT Corp.

 

28,000

 

1,232,560

 

NiSource, Inc.

 

1,475,000

 

21,018,750

 

ONEOK, Inc.

 

546,300

 

23,048,397

 

Sempra Energy

 

170,000

 

8,627,500

 

Spectra Energy Corp.

 

1,235,000

 

26,243,750

 

Vectren Corp.

 

130,000

 

3,026,400

 

 

 

 

 

83,197,357

 

Pharmaceuticals 1.31%

 

 

 

 

 

Merck & Co., Inc

 

60,000

 

2,290,800

 

Pfizer, Inc.

 

160,000

 

2,985,600

 

 

 

 

 

5,276,400

 

Telephone 44.26%

 

 

 

 

 

AT&T Corp.

 

1,220,000

 

30,939,200

 

BCE, Inc.

 

1,174,000

 

30,230,500

 

Cellcom Israel, Ltd.

 

50,000

 

1,603,500

 

CenturyTel, Inc.

 

823,000

 

27,990,230

 

Frontier Communications Corp.

 

4,100,400

 

31,204,044

 

Qwest Communications International, Inc.

 

860,000

 

3,620,600

 

Telecom Corp. of New Zealand - ADR

 

1

 

9

 

Telefonica S.A. - ADR

 

90,000

 

6,444,000

 

Verizon Communications, Inc.

 

867,500

 

25,521,850

 

Windstream Corp.

 

1,955,000

 

20,156,050

 

 

 

 

 

177,709,983

 

Utilities 4.25%

 

 

 

 

 

Aqua America, Inc.

 

85,000

 

1,410,150

 

Calpine Corp.(a)

 

100,000

 

1,095,000

 

DTE Energy Co.

 

346,000

 

14,545,840

 

 

 

 

 

17,050,990

 

 



 

Water Utilities 4.67%

 

 

 

 

 

American Water Works Co., Inc.

 

860,000

 

18,748,000

 

 

 

 

 

 

 

TOTAL COMMON STOCKS
(Cost $573,842,771)

 

 

 

578,525,350

 

 

 

 

 

 

 

PREFERRED STOCKS 2.38%

 

 

 

 

 

Electric 2.20%

 

 

 

 

 

AES Trust III, 6.750%, 10/15/29

 

44,050

 

2,017,490

 

BGE Capital Trust II, 6.200%, 10/15/43

 

180,000

 

3,954,600

 

Entergy Mississippi, Inc.

 

 

 

 

 

4.560%

 

3,520

 

251,020

 

6.250%

 

10,000

 

209,063

 

Entergy New Orleans, Inc., 4.360%

 

4,500

 

294,469

 

NSTAR Electric Co., 4.250%

 

11,500

 

736,000

 

Public Service Co. of New Mexico, Series 1965, 4.580%

 

11,667

 

926,077

 

Southern Cal Edison, 4.320%

 

24,300

 

443,475

 

 

 

 

 

8,832,194

 

Utilities 0.18%

 

 

 

 

 

Central Illinois Public Service Co., 4.250%

 

10,300

 

706,838

 

 

 

 

 

 

 

TOTAL PREFERRED STOCKS
(Cost $10,126,122)

 

 

 

9,539,032

 

 

 

 

 

 

 

LIMITED PARTNERSHIPS 5.70%

 

 

 

 

 

Copano Energy LLC

 

130,000

 

2,953,600

 

Enbridge Energy Partners LP

 

125,000

 

6,491,250

 

Enterprise Products Partners LP

 

90,000

 

2,760,300

 

MarkWest Energy Partners LP

 

45,500

 

1,318,135

 

ONEOK Partners LP

 

54,400

 

3,374,976

 

Regency Energy Partners LP

 

190,000

 

4,284,500

 

Williams Partners LP

 

45,000

 

1,723,050

 

 

 

 

 

 

 

TOTAL LIMITED PARTNERSHIPS
(Cost $20,012,396)

 

 

 

22,905,811

 

 

 

 

BOND RATING

 

PRINCIPAL

 

 

 

 

 

MOODY/S&P

 

AMOUNT

 

VALUE

 

CORPORATE BONDS 3.98%

 

 

 

 

 

 

 

Gas 0.38%

 

 

 

 

 

 

 

Copano Energy LLC/FINANCE Co., Guaranteed Notes, 8.125%, 3/1/16

 

B1/B+

 

$

1,500,000

 

1,518,750

 

 

 

 

 

 

 

 

 

Telephone 3.60%

 

 

 

 

 

 

 

Level 3 Financing, Inc., Guaranteed Notes, 9.250%, 11/1/14

 

Caa1/CCC

 

8,000,000

 

7,540,000

 

Qwest Corp., Senior Unsecured Notes, 7.500%, 6/15/23

 

Ba1/BBB-

 

7,000,000

 

6,930,000

 

 

 

 

 

 

 

14,470,000

 

TOTAL CORPORATE BONDS
(Cost $15,536,513)

 

 

 

 

 

15,988,750

 

 

 

 

 

 

 

 

 

 

 

 

 

SHARES

 

VALUE

 

MUTUAL FUNDS 1.01%

 

 

 

 

 

 

 

Loomis Sayles Institutional High Income Fund

 

 

 

548,386

 

4,052,572

 

 

 

 

 

 

 

 

 

TOTAL MUTUAL FUNDS
(Cost $4,000,000)

 

 

 

 

 

4,052,572

 

 



 

 

 

SHARES

 

VALUE

 

SHORT TERM INVESTMENTS 1.74%

 

 

 

 

 

Goldman Sachs Financial Square Treasury Instruments Fund, 0.010% (7-Day Yield)

 

6,983,430

 

6,983,430

 

 

 

 

 

 

 

TOTAL SHORT TERM INVESTMENTS
(Cost $6,983,430)

 

 

 

6,983,430

 

 

 

 

 

 

 

Total Investments
(Cost $630,501,232) - 158.88%

 

 

 

$

637,994,945

 

 

 

 

 

 

 

Other Assets in Excess of Liabilities - 0.92%

 

 

 

3,676,893

 

 

 

 

 

 

 

Liquidation Preference of Auction Market Preferred Shares - (59.80%) Series M7, F7, W28 (including distributions payable on preferred shares)

 

 

 

(240,124,478

)

NET ASSETS APPLICABLE TO COMMON SHAREHOLDERS - 100.00%

 

 

 

$

401,547,360

 

 


(a)           Non Income Producing Security

 

ADR - American Depositary Receipt

 

Ratings:

Moody’s and S&P’s ratings are believed to be the most recent as of January 31, 2010.

 

For Fund compliance purposes, the Fund’s 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:

 

 

 

Net unrealized appreciation/depreciation of investments based on federal tax costs were as follows:

 

 

 

As of January 31, 2010

 

 

 

Gross appreciation (excess of value over tax cost)

 

$

55,296,346

 

Gross depreciation (excess of tax cost over value)

 

(46,855,969

)

Net unrealized appreciation

 

8,440,377

 

Cost of investments for income tax purposes

 

$

629,554,568

 

 

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 Fund’s 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 security’s 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 Fund’s NAV may differ from the security’s 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 entity’s 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 Fund’s 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 Fund’s investments carried at value:

 

Investments in Securities at
Value

 

Level 1 - Quoted
Prices

 

Level 2 - Significant
Observable Inputs

 

Level 3 - Significant
Unobservable
Inputs

 

Total

 

Common Stocks

 

$

578,525,350

 

$

 

$

 

$

578,525,350

 

Preferred Stock

 

6,415,565

 

3,123,467

 

 

9,539,032

 

Limited Partnerships

 

22,905,811

 

 

 

22,905,811

 

Corporate Bonds

 

 

15,988,750

 

 

15,988,750

 

Mutual Funds

 

4,052,572

 

 

 

4,052,572

 

Short Term Securities

 

6,983,430

 

 

 

6,983,430

 

Total

 

$

618,882,728

 

19,112,217

 

$

 

637,994,945

 

 

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 SecuritiesThe 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 Fund’s 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 holder’s 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 Fund’s 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 Registrant’s principal executive officer and principal financial officer have evaluated the Registrant’s 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 Registrant’s disclosure controls and procedures were effective as of that date.

 

(b)                                 There were no changes in the Registrant’s 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 Registrant’s last fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

 

Item 3.  Exhibits.

 

Separate certifications for the Registrant’s 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.

 

 

REAVES UTILITY INCOME FUND

 

 

 

 

By:

/s/ Jeremy O. May

 

 

Jeremy O. May

 

 

President (principal executive officer)

 

 

 

 

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.

 

 

 

By:

/s/ Jeremy O. May

 

 

Jeremy O. May

 

 

President (principal executive officer)

 

 

 

 

Date:

April 1, 2010

 

 

 

 

 

 

 

By:

/s/ Lauren E. Johnson

 

 

Lauren E. Johnson

 

 

Treasurer (principal financial officer)

 

 

 

 

Date:

April 1, 2010