UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-21432
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REAVES UTILITY INCOME FUND
--------------------------
(exact name of registrant as specified in charter)
1625 Broadway, Suite 2200, Denver, Colorado 80202
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(Address of principal executive offices) (Zip code)
Tane T. Tyler, Secretary
Reaves Utility Income Fund
1625 Broadway, Suite 2200
Denver, Colorado 80202
(Name and address of agent for service)
Registrant's 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: October 31, 2004
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Item 1. REPORTS TO STOCKHOLDERS.
REAVES UTILITY INCOME FUND
[GRAPHIC]
ANNUAL REPORT
OCTOBER 31, 2004
SHAREHOLDER LETTER
October 31, 2004 (unaudited)
Dear Shareholders:
On behalf of the Board of Trustees, I am pleased to announce that all of the
monthly dividends paid out of the Reaves Utility Income Fund have been 100%
qualified dividend income and the Fund's portfolio managers at W.H Reaves
continue to seek out this type of dividend income. Qualifying dividend income
has a tax advantage in the fact that individual taxpayers are taxed at a maximum
15% federal rate. Conversely, non-qualifying dividend income and other types of
investment income can be taxed as high as 35%.
When the Reaves Utility Income Fund was launched in February 2004, over $400
million was raised for investment. In May, the Fund was leveraged by issuing
auction market preferred shares and has grown to approximately $687 million in
total assets as of October 31. Leverage is a part of the overall investment
strategy to potentially enhance yield.
The Fund has a focus on utilities which have been and during the last quarter
were the highest yielding sector of the domestic stock market. At this time, the
Fund is mostly invested in common stock and the complete detail on the entire
portfolio is available in the statement of investments within this report. The
portfolio managers have also provided a commentary and analysis to better help
you understand where the Fund has been positioned and where it may be headed.
Please feel free to contact us with any questions about the Fund by calling
1-800-644-5571 or by visiting www.utilityincomefund.com.
Sincerely,
/s/ Ned Burke
Ned Burke
President
1
MANAGEMENT DISCUSSION & ANALYSIS
October 31, 2004 (unaudited)
GOALS AND ACHIEVEMENTS W. H. Reaves & Co. established two goals when it
introduced the Reaves Utility Income Fund (UTG) in February of 2004. First, we
worked to manage the Fund to maximize shareholder value. Second, we worked to
protect the Fund's net asset value (NAV) from the negative impact of increasing
interest rates, commodity price pressure, reawakening inflation and regulatory
reform.
W. H. Reaves had expected a coming wave of inflation, commodity price pressures,
and interest rate increases. Nonetheless, the timing of UTG's initial
investments was influenced by a commitment to declare an earned dividend by
mid-April. Consequently, the Fund had to be fully invested in order to earn the
dividend. The dividend was declared on April 12 and paid on April 30.
Unfortunately, rising interest rates roiled the markets in early April after a
robust non-farm payroll report surprised investors. All interest rate sensitive
investments were hit particularly hard. As a result UTG's NAV declined 13.6%
peak to trough. UTG's market price also declined as closed-end funds sold at
steep discounts. Consistent with its goal to attempt to preserve principal, UTG
was defensively positioned.
DEFENSIVE POSITIONING AMID RISING RATES The Fund was defensively positioned
through a combination of less interest rate sensitive sectors and lower than
maximum leverage. Up to 40%* of UTG's initial portfolio was available for
investment when interest rates peaked and stock values became more compelling.
SBC, our largest telecom position, is the clearest example of the benefits of
our portfolio managers' defensive strategy. It held its value through the period
of rising rates and then increased in value through the combination of a
dividend increase and an improving regulatory environment. Altria Group is a
second example of our defensive position to protect the Fund as rates climbed.
Altria was included in the Fund because of its low correlation to interest rate
movements, because of reasonable valuation as demonstrated by strong and growing
cash flow and because of its history of dividend increases, 9% annualized over
the last five years. While Altria's share price suffered a temporary set-back as
the result of legal issues its price has recovered well above the Fund's cost.
The defensive stock strategy was complemented by a conservative leverage
strategy. UTG was permitted to use up to 38% leverage. However, UTG's $240
million auction preferred sale closed in late June, four months after the close
of the Fund common shares. Leverage during the volatile spring was at a minimal
24%, not at the allowed maximum 38%. The risk of leverage during periods of
rising interest rates was thereby minimized until that risk became more
acceptable during the summer.
The economy clearly weakened during the summer. Interest rates began to decline
and utility stock price pressure began to abate. W. H. Reaves aggressively used
this opportunity to invest in companies which we believe had higher growth
profiles than normally found in a high-yielding fund. These investments offered
the potential for capital appreciation, as well as some measure of protection
against interest-rate risk.
2
SPECIAL DIVIDEND OPPORTUNITIES IDENTIFIED Additionally, W. H. Reaves has
captured special opportunities afforded by dividend payments. One example is the
investment in ENEL, the largest Italian electric utility. W. H. Reaves
anticipates special dividends from the sale of its interest in Terna, a
transmission facility and from the sale of Wind, the third largest wireless
operator in Italy. Another example of capital redeployment is an investment in
Citizen's Communication, a rural telecom operating in 24 states, serving 2.5
million access lines. Citizens paid a one time special dividend of $2.00 in
August 2004 as well as declared a $1.00 annual dividend. Citizen's annual yield
exceeds 7%. Going forward, increases in interest rates have been included in our
sensitivity analysis and portfolio planning.
PORTFOLIO COMPOSITION As of October 31, 2004, 85.6% of the Fund's total
investments was invested in common stock; 7.4% in preferred stock, and 4.0% in
fixed income securities. Electric utilities comprised 60.5% of the portfolio;
telecom represented 15.6% and gas utilities, 6.6% for a total investment in
utilities of 82.7%. Non-utilities investment was primarily concentrated in
consumer staples, 7.4% and energy, 3.5%.
The top five investments in the portfolio (as a percentage of total investments)
were Duke Energy Corp., 7.0%; Public Service Enterprise Group, 6.7%; Ameren
Corp., 5.8%; Great Plains Energy, 5.4%; and Consolidated Edison, 5.2%.
The Fund's leverage remains less than the maximum permitted. W. H. Reaves
regularly monitors the cost of leverage as well as tactics to minimize cost
increases. Interest rate swaps, caps and other products are analyzed frequently
and will be used if cost effective. Since July 2004 the Fund's NAV has increased
steadily despite three Federal Funds increases and a November non-farm payroll
increase similar to April's market shocking increase.
The initial portfolio of holdings has performed as designed. The Fund's ability
to absorb an interest rate shock in its earliest days suggests that it has been
built with what we believe to be sturdy companies. Most importantly, its ability
to regain lost NAV we believe bodes well for its future. 2005 may experience
additional shocks ranging from currency risk/dollar devaluation to renewed
inflationary pressures. Regardless of the economic challenge, W. H. Reaves will
continue to focus on our goal of enhancing shareholder value.
Very Truly Yours,
Portfolio Co-Managers
-WILLIAM H. REAVES
-RONALD J. SORENSON
-WILLIAM A. FERER
*As of March 31, 2004, holdings in our consumer staples and telecommunication
stocks as well as unused borrowings (leverage) were available for
investment.
3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF TRUSTEES AND SHAREHOLDERS OF THE REAVES UTILITY INCOME FUND:
In our opinion, the accompanying statement of assets and liabilities, including
the statement of investments, and the related statements of operations, of cash
flows and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Reaves Utility Income Fund
(hereafter referred to as the "Fund") at October 31, 2004, and the results of
its operations, the changes in its net assets and the financial highlights for
the period February 24, 2004 (commencement of operations) through October 31,
2004, in conformity with accounting principles generally accepted in the United
States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of securities at October
31, 2004 by correspondence with the custodian and brokers, provides a reasonable
basis for our opinion.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
December 17, 2004
4
STATEMENT OF INVESTMENTS
October 31, 2004
SHARES VALUE
--------------------------------------------------------------------------------
COMMON STOCK - 134.12%
CONSUMER STAPLES - 11.55%
Altria Group, Inc. 710,000 $ 34,406,600
Reynolds American Inc. 73,000 5,026,780
UST, Inc. 270,000 11,113,200
------------
50,546,580
------------
ELECTRIC - 84.33%
AES Corp.* 100,000 1,090,000
Ameren Corp. 825,000 39,600,000
American Electric Power Co. Inc. 125,000 4,116,250
Cleco Corp. 25,000 455,500
Consolidated Edison, Inc. 826,800 35,924,460
Constellation Energy Group, Inc. 100,000 4,062,000
Duke Energy Corp. 1,960,000 48,078,800
Enel S.P.A*** 200,000 1,813,415
Enel S.P.A, ADR 461,600 20,859,704
Exelon Corp. 525,000 20,800,500
Great Plains Energy, Inc. 1,300,000 37,037,000
OGE Energy Corp. 1,050,000 26,638,500
PPL Corp. 395,000 20,540,000
Public Service Enterprise Group, Inc. 1,070,000 45,571,300
Southern Co. 850,000 26,851,500
TECO Energy, Inc. 1,000,000 14,000,000
Transalta Corp. 231,800 3,138,572
WPS Resources Corp. 217,200 10,317,000
Xcel Energy Inc. 470,000 8,037,000
------------
368,931,501
------------
ENERGY - 5.43%
BP Amoco PLC, ADR 210,000 12,232,500
Royal Dutch Petroleum Co., ADR 125,000 6,780,000
Transocean Inc.* 135,000 4,758,750
------------
23,771,250
------------
FINANCIALS - 1.27%
Citigroup Inc. 125,000 5,546,250
Z ------------
GAS - 9.41%
ONEOK, Inc. 340,000 9,118,800
Peoples Energy Corp. 605,000 25,881,900
Sempra Energy 140,000 4,695,600
Southern Union Co.* 20,000 439,400
Vectren Corp. 39,600 1,024,452
------------
41,160,152
------------
5
SHARES VALUE
--------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
TELEPHONE - 22.13%
AT&T Corp. 1,315,000 $ 22,499,650
BCE, Inc. 825,000 19,156,500
Citizens Communications Co. 1,245,000 16,683,000
SBC Communications Inc. 1,120,000 28,291,200
TDC A/S, ADR 175,500 3,278,340
Telecom Corp., ADR 44,400 1,411,476
Verizon Communications Inc. 140,000 5,474,000
------------
96,794,166
------------
TOTAL COMMON STOCK 586,749,899
------------
(Cost $578,840,637)
PREFERRED STOCK - 11.60%
CONSUMER DISCRETIONARY - 0.72%
Corts Ford Trust, 7.40%, 11/01/46 125,200 3,148,780
------------
ELECTRIC - 5.71%
AES Trust III, 6.75%, 10/15/29 133,100 6,122,600
BGE Capital Trust II, 6.20%, 10/15/43 180,000 4,554,000
Consumers Energy Co.Funding Trust IV,
9.00%, 06/30/31 138,700 3,683,872
Entergy Gulf States Inc., Series A,
7.00%, 12/15/04** 4,472 454,327
Georgia Power Capital Trust V,
7.13%, 03/31/42 141,400 3,817,800
Great Plains Energy Inc, 8.00%, 02/16/07 50,000 1,250,000
NVP Capital Trust III, 7.75%, 09/30/38 52,400 1,309,476
PSEG Funding Trust II,
8.75%, 12/31/32 90,100 2,504,780
Public Service Co. of New Mexico,
Series 1965, 4.58% 8,937 735,907
Puget Sound Energy Capital Trust, 8.40%,
06/30/41 20,000 531,600
------------
24,964,362
------------
FINANCIALS- 2.46%
ABN AMRO Capital Funding Trust VII, 6.08% 120,000 2,970,000
Lehman Brothers Holdings Capital Trust,
Series M, 6.00%, 04/22/53 76,400 1,871,800
Renaissance Holdings Ltd., Series C, 6.08% 250,000 5,922,500
------------
10,764,300
------------
GAS - 0.96%
ONEOK, Inc., 8.50%, 02/16/06 125,000 4,210,000
------------
6
SHARES VALUE
--------------------------------------------------------------------------------
PREFERRED STOCK (CONTINUED)
INFORMATION TECHNOLOGY - 0.17%
Corporate- Backed Trust Certificates, Series MOT,
7.88%, 10/01/97 27,900 $ 723,726
------------
REAL ESTATE INVESTMENT TRUSTS - 0.79%
Duke Realty Corp., Series K, 6.50% 138,700 3,467,500
------------
TELEPHONE - 0.79%
Preferred Plus Trust
Series SPR1, 7.00%, 11/15/28 12,624 324,563
Series T1, 7.35%, 03/15/29 63,800 1,578,412
Trust Certificates 2001-1, Series T, 7.45%,
03/15/29 61,900 1,547,500
------------
3,450,475
------------
TOTAL PREFERRED STOCK 50,729,143
------------
(Cost $50,500,595)
BOND RATING PRINCIPAL
MOODY/S&P AMOUNT
-------------------------
CORPORATE BONDS - 6.28%
ELECTRIC - 4.77%
Calpine Corp., 7.88%, 04/01/08 Caa1/CCC+ $ 3,000,000 1,822,500
Calpine Generating Co., 11.50%,
04/01/11^ B3/CCC+ 22,000,000 19,030,000
----------
20,852,500
----------
TELEPHONE - 1.51%
US West Communications Inc., 7.50%,
06/15/23 Ba3/BB- 7,000,000 6,615,000
----------
TOTAL CORPORATE BONDS 27,467,500
----------
(Cost $30,011,780)
SHARES
--------------------------------------------------------------------------------
MUTUAL FUNDS - 4.64%
Goldman Financial Square Money Market Fund 2,046,983 2,046,983
J.P. Morgan Prime Money Market Fund 15,000,000 15,000,000
Loomis Sayles High Income Fund 424,929 3,254,958
----------
TOTAL MUTUAL FUNDS 20,301,941
----------
(Cost $20,046,983)
7
TOTAL INVESTMENTS
(Cost $679,399,995) 156.64% $ 685,248,483
Liabilities in Excess of Other Assets -1.78% (7,768,950)
Liquidation Preference of Auction Market
Preferred Shares: Series M7, F7, W28 -54.86% (240,000,000)
------------------------
NET ASSETS ATTRIBUTABLE TO COMMON SHARES 100.00% $ 437,479,533
========================
ADR- American Depositary Receipt
*Non-income producing security
**Floating or variable rate security- rate disclosed as of October 31, 2004.
Maturity date represents the next rate reset date.
*** Foreign security denominated in Euros.
^ Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At October 31, 2004, these
securities amounted to a value of $19,030,000 or 4.35% of net assets.
RATINGS:
The Moody's and S&P ratings are believed to be the most recent ratings as of
October, 31, 2004. Ratings are not covered by the report of the Independent
Registered Public Accounting Firm.
See Notes to Financial Statements.
8
STATEMENT OF ASSETS & LIABILITIES
October 31, 2004
ASSETS:
Investments, at value (Cost - see below) $ 685,248,483
Dividends receivable 1,768,603
Interest receivable 463,916
Other assets 15,061
--------------------------------------------------------------------------------------------------
Total assets 687,496,063
--------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for investments purchased 9,332,772
Preferred dividends payable 101,097
Accrued investment advisory fee 310,848
Accrued administration fee 143,260
Accrued trustees fee 20,712
Accrued offering costs 48,245
Other payables 59,596
--------------------------------------------------------------------------------------------------
Total Liabilities 10,016,530
--------------------------------------------------------------------------------------------------
PREFERRED STOCK (UNLIMITED SHARES AUTHORIZED):
Auction market preferred shares, Series M7 80,000,000
($25,000 liquidation value per share, no par value,
3,200 shares issued and outstanding)
Auction market preferred shares, Series F7 80,000,000
($25,000 liquidation value per share, no par value,
3,200 shares issued and outstanding)
Auction market preferred shares, Series W28 80,000,000
($25,000 liquidation value per share, no par value,
3,200 shares issued and outstanding)
--------------------------------------------------------------------------------------------------
Total Preferred Stock 240,000,000
--------------------------------------------------------------------------------------------------
Net Assets $ 437,479,533
==================================================================================================
COST OF INVESTMENTS $ 679,399,995
==================================================================================================
COMPOSITION OF NET ASSETS ATTRIBUTABLE TO COMMON SHARES:
Paid in capital $ 429,406,407
Undistributed net investment income 2,073,240
Accumulated net realized gain on investments and foreign
currency transactions 151,398
Net unrealized appreciation in value of investments and translation of
assets and liabilities denominated in foreign currencies 5,848,488
--------------------------------------------------------------------------------------------------
Net Assets $ 437,479,533
==================================================================================================
Shares of common stock outstanding of no par value,
unlimited shares authorized 22,677,001
==================================================================================================
Net asset value per share $ 19.29
==================================================================================================
See Notes to Financial Statements.
9
STATEMENT OF OPERATIONS
For the Period February 24, 2004* to October 31, 2004
INVESTMENT INCOME:
Dividends $ 21,786,643
Interest 1,938,986
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Total Income 23,725,629
--------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fee 2,336,725
Administration fee 1,076,925
Trustees fee 41,901
Interest on loan 850,587
Broker/dealer fees 196,099
Miscellaneous 11,892
--------------------------------------------------------------------------------------------------
Net Expenses 4,514,129
--------------------------------------------------------------------------------------------------
Net Investment Income 19,211,500
--------------------------------------------------------------------------------------------------
Net realized loss on:
Investments (216,213)
Foreign currency transactions (2,752)
Change in net unrealized appreciation/depreciation on:
Investments 5,850,445
Translation of assets and liabilities denominated in foreign currencies (1,957)
--------------------------------------------------------------------------------------------------
Net gain on investments 5,629,523
--------------------------------------------------------------------------------------------------
Net increase in Net Assets from Operations 24,841,023
Total Distributions to Preferred Shareholders (1,420,777)
--------------------------------------------------------------------------------------------------
Net Increase in Net Assets Attributable to Common Shares
from Operations $ 23,420,246
==================================================================================================
*Commencement of operations.
See Notes to Financial Statements.
10
STATEMENT OF CHANGES IN NET ASSETS
For the Period February 24, 2004* to October 31, 2004
COMMON SHAREHOLDER OPERATIONS:
Net investment income $ 19,211,500
Net realized loss on:
Investments (216,213)
Foreign currency transactions (2,752)
Change in net unrealized appreciation/depreciation on investments and
translation of assets and liabilities denominated in foreign currencies 5,848,488
--------------------------------------------------------------------------------------------------
Net increase in net assets from operations 24,841,023
--------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS:
From net investment income (1,420,777)
--------------------------------------------------------------------------------------------------
Net decrease in net assets from distributions (1,420,777)
--------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
From net investment income (15,347,120)
--------------------------------------------------------------------------------------------------
Net decrease in net assets from distributions (15,347,120)
--------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of common shares, net of offering costs 381,200,000
Proceeds from the underwriters' over-allotment
option of common shares excerised, net of offering costs 50,509,000
Net asset value of common stock issued to stockholders
from reinvestment of dividends 386,407
Costs from issuance of preferred shares (2,789,000)
--------------------------------------------------------------------------------------------------
Net increase in net assets from capital share transactions 429,306,407
--------------------------------------------------------------------------------------------------
NET INCREASE IN NET ASSETS 437,379,533
--------------------------------------------------------------------------------------------------
NET ASSETS ATTRIBUTABLE TO COMMON SHARES:
Beginning of period** 100,000
--------------------------------------------------------------------------------------------------
End of period *** $ 437,479,533
==================================================================================================
* Commencement of operations.
** Initial seed capital.
*** Includes undistributed net investment income of: $ 2,443,603
See Notes to Financial Statements.
11
STATEMENT OF CASH FLOWS
For the Period February 24, 2004* to October 31, 2004
CASH FLOWS FROM OPERATING ACTIVITY
Net Increase in Net Assets from Operations $ 24,841,023
--------------------------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET DECREASE IN NET ASSETS ATTRIBUTABLE TO COMMON
SHARES FROM OPERATIONS TO NET CASH USED IN OPERATING ACTIVITIES:
Purchase of long-term investment securities (1,008,776,623)
Proceeds from sale of long-term securities 346,256,426
Net purchase of short-term investment securities (17,046,983)
Increase in dividends and interest receivable (2,232,519)
Increase in other assets (15,061)
Accretion of discount (51,780)
Payable for investments purchased 9,332,772
Increase in advisory fee payable 310,848
Increase in administration fee payable 143,260
Increase in trustee fee payable 20,712
Increase in offering costs payable 48,245
Increase in other payables 59,596
Increase in preferred dividends payable 101,097
Net realized loss on investments 216,213
Net realized loss on foreign currency transactions 2,752
Net change in unrealized appreciation/depreciation on
investments and translation of assets and liabilities
denominated in foreign currencies (5,848,488)
--------------------------------------------------------------------------------------------------
Net Cash Used in Operating Activities (652,638,510)
--------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from common shares issued 432,615,000
Offering costs on common shares (906,000)
Offering costs on preferred shares (2,789,000)
Proceeds from preferred shares issued 240,000,000
Cash dividends paid to common shareholders (14,960,713)
Cash dividends paid to preferred shareholders (1,420,777)
--------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities 652,538,510
--------------------------------------------------------------------------------------------------
Net decrease in cash (100,000)
--------------------------------------------------------------------------------------------------
CASH AT BEGINNING OF PERIOD 100,000
--------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ -
==================================================================================================
Supplemental disclosure of cash flow information:
Non-cash financing activities not included herein consist of reinvestment
of dividends of $386,407.
*Commencement of operations.
See Notes to Financial Statements.
12
FINANCIAL HIGHLIGHTS
For the Period February 24, 2004* to October 31, 2004
PER COMMON SHARE OPERATING PERFORMANCE
Net asset value - beginning of period $ 19.10
--------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.85
Net realized and unrealized gain on investments 0.24
--------------------------------------------------------------------------------------------------
Total income from investment operations 1.09
--------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO PREFERRED SHAREHOLDERS:
From net investment income (0.06)
--------------------------------------------------------------------------------------------------
Total distributions (0.06)
--------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
From net investment income (0.68)
--------------------------------------------------------------------------------------------------
Total distributions (0.68)
--------------------------------------------------------------------------------------------------
CAPITAL SHARE TRANSACTIONS:
Common share offering costs charged to paid in capital (0.04)
Preferred share offering costs and sales load charged to paid in capital (0.12)
--------------------------------------------------------------------------------------------------
Total capital share transactions (0.16)
--------------------------------------------------------------------------------------------------
Net asset value per common share - end of period $ 19.29
==================================================================================================
Market price per common share - end of period $ 18.00
==================================================================================================
TOTAL INVESTMENT RETURN - NET ASSET VALUE (1) 4.93%
TOTAL INVESTMENT RETURN - MARKET PRICE (1) -6.50%
RATIOS AND SUPPLEMENTAL DATA
Net assets attributable to common shares, end of period (000) $ 437,480
Ratio of expenses to average net assets attributable to common shares (3) 1.64%(2)
Ratio of net investment income to average net assets attributable
to common shares (3) 6.96%(2)
Ratio of expenses to average managed assets (4) 1.02%(2)
Portfolio turnover rate 63%
AUCTION MARKET PREFERRED SHARES
Liquidation value, end of period (000) $ 240,000
Total shares outstanding (000) 9.6
Asset coverage per share $ 70,571
Liquidation preference per share $ 25,000
Average market value per share (5) $ 25,000
--------------------------------------------------------------------------------------------------
*Commencement of operations.
(1) Total investment return is calculated assuming a purchase of a common share
at the opening on the first day and a sale at the closing on the last day
of each period reported. Total investment return on net asset value
reflects the sales load of $.90 per share. Dividends and distributions, if
any, are assumed for purposes of this calculation to be reinvested at
prices obtained under the Trust's dividend reinvestment plan. Total
investment returns do not reflect brokerage commissions. Total investment
returns for less than a full year are not annualized. Past performance is
not a guarantee of future results.
(2) Annualized.
(3) Ratios do not reflect dividend payments to preferred shareholders.
(4) Average managed assets represent net assets attributable to common shares
plus liquidation value of preferred shares.
(5) Based on weekly prices.
See Notes to Financial Statements.
13
NOTES TO FINANCIAL STATEMENTS
October 31, 2004
1. SIGNIFICANT ACCOUNTING AND OPERATING POLICIES
Reaves Utility Income Fund is a closed-end management investment company (the
"Fund") 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 series 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 American Stock Exchange and trade under the ticker symbol "UTG."
The Fund may have elements of risk, including the risk of loss of principal.
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 Share of the Fund is determined no
less frequently than daily, on each day that the American Stock Exchange (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. Over-the-counter securities traded
on NASDAQ are valued based upon the NASDAQ Official Closing Price. 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 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.
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.
14
The accounting records of the Fund are maintained in U.S. dollars. Prices of
securities denominated in foreign currencies are translated into U.S. dollars at
the closing rates of exchange at period end. Amounts related to the purchase and
sale of foreign securities and investment income are translated at the rates of
exchange prevailing on the respective dates of such transactions.
The effect of changes in foreign currency exchange rates on investments is
separately identified from the fluctuations arising from changes in market
values of securities held and reported with all other foreign currency gains and
losses in the Fund's Statement of Operations.
DISTRIBUTIONS TO SHAREHOLDERS: Distributions from net investment income for the
Fund are declared and paid monthly to common shareholders. Any net capital gains
earned by the Fund are distributed at least annually to the extent necessary to
avoid federal income and excise taxes. Distributions to shareholders are
recorded by the Fund on the ex-dividend date.
INCOME TAXES: The Fund's policy is to comply with the provisions of the Internal
Revenue Code applicable to regulated investment companies and to distribute all
of its taxable income to its shareholders. Therefore, no federal income tax
provision is required.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Investment security transactions
are accounted for as of trade date. Dividend income is recorded on the
ex-dividend date. Interest income, which includes amortization of premium and
accretion of discount, is accrued as earned. Realized gains and losses from
securities transactions and unrealized appreciation and depreciation of
securities are determined using the First In First Out basis for both financial
reporting and income tax purposes.
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 of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of increases and decreases in net assets from operations during the reporting
period. Actual results could differ from these estimates.
CASH FLOWS: The cash amount shown in the Statement of Cash Flows is the amount
reported as cash in the Statement of Assets and Liabilities and represents cash
on hand in the Fund's Custodian bank account. This amount does not include any
short-term investments at October 31, 2004.
2. INCOME TAXES
Net investment income (loss) and net realized gain (loss) may differ for
financial statement and tax purposes. The character of distributions made during
the year from net investment income or net realized gains may differ from its
ultimate characterization for federal income tax purposes. Also, due to the
timing of dividend distributions, the fiscal year in which amounts are
distributed may differ from the fiscal year in which the income or realized gain
was recorded by the Fund.
15
The tax character of the distributions paid by the Fund during the period ended
October 31, 2004, was as follows:
2004
--------------------------------------------------------------------------------------------------
DISTRIBUTIONS PAID FROM:
Ordinary Income $ 16,767,897
Tax-Exempt Income -
Long-Term Capital Gain -
--------------------------------------------------------------------------------------------------
Total $ 16,767,897
==================================================================================================
As of October 31, 2004, the components of distributable earnings were as
follows:
Accumulated net investment income (loss) $ 2,646,284
Accumulated net realized gain (loss) 0
Net unrealized appreciation 5,426,842
--------------------------------------------------------------------------------------------------
Total $ 8,073,126
==================================================================================================
The tax basis components of capital differ from the amounts reflected in the
Statement of Assets and Liabilities due to temporary book/tax differences
primarily arising from wash sales and the tax treatment of certain preferred
holdings.
Net unrealized appreciation/depreciation of investments based on federal tax
cost were as follows:
AS OF OCTOBER 31, 2004
--------------------------------------------------------------------------------------------------
Gross appreciation (excess of value over tax cost) $ 25,842,906
Gross depreciation (excess of tax cost over value) (20,416,064)
Net unrealized appreciation $ 5,426,842
--------------------------------------------------------------------------------------------------
Cost of investments for income tax purposes $ 679,821,641
==================================================================================================
3. CAPITAL TRANSACTIONS
COMMON SHARES: There are an unlimited number of no par value common shares of
beneficial interest authorized. Of the 22,677,001 common shares outstanding on
October 31, 2004, ALPS Distributors, Inc. owned 5,236 shares. The Fund issued
20,000,000 common shares in its initial public offering on February 24, 2004.
These common shares were issued at $20.00 per share before the underwriting
discount of $0.90 per share. An additional 1,250,000 common shares and 1,400,000
common shares were issued on March 23, 2004 and April 14, 2004, respectively.
These common shares were also issued at $20.00 per share before the underwriting
discount of $0.90 per share. Offering costs of $906,000 (representing $.04 per
common share) were offset against proceeds of the offering and have been charged
to paid-in capital of the common shares. ALPS Mutual Funds Services, Inc.
("ALPS") agreed to pay those offering costs of the Fund (other than sales load,
but inclusive of the reimbursement of the underwriter expenses of $.0067 per
common share) that exceeded $.04 per common share.
16
Transactions in common shares for the period ended October 31, 2004, were as
follows:
FOR THE PERIOD ENDED OCTOBER 31, 2004
--------------------------------------------------------------------------------------------------
Common shares outstanding - beginning of period 5,236
Common shares issued in connection with initial public offering 20,000,000
Common shares issued from underwriters' over-allotment option exercised 2,650,000
Common shares issued as reinvestment of dividends 21,765
--------------------------------------------------------------------------------------------------
Common shares outstanding - end of period 22,677,001
==================================================================================================
PREFERRED SHARES: On April 27, 2004, the Fund's Board of Trustees authorized the
issuance of an unlimited number of no par value preferred shares, in addition to
the existing common shares, as part of the Fund's leverage strategy. Preferred
shares issued by the Fund have seniority over the common shares. Offering costs
associated with the issuance of preferred shares, estimated at $389,000, and the
underwriters' sales load totaling $2,400,000, have been borne by the common
shareholders as a direct reduction to paid-in-capital.
The Fund is subject to certain limitations and restrictions while preferred
shares are outstanding. Failure to comply with these limitations and
restrictions could preclude the Fund from declaring any dividends or
distributions to common shareholders or repurchasing common shares and/or could
trigger the mandatory redemption of Preferred Shares at their liquidation value.
Specifically, the Fund is required under the Investment Company Act of 1940 to
maintain an asset coverage with repsect to the outstanding preferred shares of
200% or greater.
The Fund has three series of Auction Market Preferred Shares: M7, F7, and W28.
On June 30, 2004, the Fund issue 3,200 shares of Series M7, 3,200 shares of
Series F7, and 3,200 shares of Series W28 each with a net asset and liquidation
value of $25,000 per share plus accrued dividends. Dividends on the preferred
shares are cumulative and are paid based on an annual rate set through auction
procedures. Distributions of net realized capital gains, if any, are paid
annually. As of October 31, 2004, the annualized dividend rates for Series M7,
F7 and W28 were 1.85%, 1.90% and 1.95%, respectively. The dividend rate, as set
by the auction process, is generally expected to vary with short-term interest
rates. These rates may vary in a manner unrelated to the income received on the
Fund's assets, which could have either a beneficial or detrimental impact on net
investment income and gains available to Common Shareholders.
Preferred Shares, which are entitled to one vote per share, generally vote with
the Common Shares but vote separately as a class to elect two Trustees and on
any matters affecting the rights of the Preferred Shares.
4. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term securities,
for the period ended October 31, 2004 aggregated $1,008,776,623 and
$346,256,426, respectively.
17
5. INVESTMENT ADVISORY AND ADMINISTRATION AGREEMENTS
W.H. Reaves & Co., Inc. ("Reaves") serves as the Fund's investment adviser
pursuant to an Investment Advisory Agreement with the Fund. As compensation for
its services to the Fund, Reaves receives an annual investment advisory fee of
0.575% based on the Fund's average daily total assets, computed daily and
payable monthly.
ALPS serves as the Fund's administrator pursuant to an Administration,
Bookkeeping and Pricing Services Agreement with the Fund. As compensation for
its services to the Fund, ALPS receives an annual administration fee of 0.265%
based on the Fund's average daily total assets, computed daily and payable
monthly. ALPS will pay all expenses incurred by the Fund, with the exception of
advisory fees, trustees' fees, portfolio transaction expenses, litigation
expenses, taxes, cost of preferred shares, expenses of conducting repurchase
offers for the purpose of repurchasing fund shares, and extraordinary expenses.
6. LINE OF CREDIT
On March 11, 2004, a Security Agreement between the Fund and The Bank of New
York ("BONY") was executed which allows the Fund to borrow against a secured
line of credit from BONY an aggregate amount of up to $190,000,000. The
borrowings under the BONY line of credit are secured by pledging the Fund's
portfolio securities as collateral. As of October 31, 2004, the Fund had a zero
balance with its secured line of credit. During the period ended October 31,
2004, the average borrowing was $60,839,739 with an average rate on borrowings
of 2.01%.
7. OTHER
The Independent Trustees of the Fund receive a quarterly retainer of $3,500 and
an additional $1,500 for each meeting attended.
8. INDEMNIFICATIONS
In the normal course of business, the Fund enters into contracts that contain a
variety of representations which provide general indemnifications. The Fund's
maximum exposure under these arrangements is unknown as this would involve
future claims that may be made against the Fund that have not yet occurred.
9. SUBSEQUENT DISTRIBUTIONS (UNAUDITED)
Subsequent to October 31, 2004, the Fund paid a distribution of $0.0967 per
common share on November 29, 2004 to common shareholders of record on November
12, 2004.
Subsequent to October 31, 2004, dividends paid on preferred shares totaled
$491,424 for the outstanding preferred share series through December 13, 2004.
18
DIVIDEND REINVESTMENT PLAN
October 31, 2004 (unaudited)
Unless the registered owner of Common Shares elects to receive cash by
contacting The Bank of New York (the "Plan Administrator" or "BONY"), all
dividends declared on Common Shares will be automatically reinvested by the Plan
Administrator for shareholders in the Fund's Dividend Reinvestment Plan (the
"Plan"), in additional Common Shares. Shareholders who elect not to participate
in the Plan will receive all dividends and other distributions in cash paid by
check mailed directly to the shareholder of record (or, if the Common Shares are
held in street or other nominee name, then to such nominee) by BONY as dividend
disbursing agent. You may elect not to participate in the Plan and to receive
all dividends in cash by contacting BONY, as dividend disbursing agent, at the
address set forth below. Participation in the Plan is completely voluntary and
may be terminated or resumed at any time without penalty by notice if received
and processed by the Plan Administrator prior to the dividend record date;
otherwise such termination or resumption will be effective with respect to any
subsequently declared dividend or other distribution. Some brokers may
automatically elect to receive cash on your behalf and may re-invest that cash
in additional Common Shares for you. If you wish for all dividends declared on
your Common Shares to be automatically reinvested pursuant to the Plan, please
contact your broker.
The Plan Administrator will open an account for each Common Shareholder under
the Plan in the same name in which such Common Shareholder's Common Shares are
registered. Whenever the Fund declares a dividend or other distribution
(together, a "Dividend") payable in cash, non-participants in the Plan will
receive cash and participants in the Plan will receive the equivalent in Common
Shares. The Common Shares will be acquired by the Plan Administrator for the
participants' accounts, depending upon the circumstances described below, either
(i) through receipt of additional unissued but authorized Common Shares from the
Fund ("Newly Issued Common Shares") or (ii) by purchase of outstanding Common
Shares on the open market ("Open-Market Purchases") on the American Stock
Exchange or elsewhere. If, on the payment date for any Dividend, the closing
market price plus estimated brokerage commissions per Common Share is equal to
or greater than the net asset value per Common Share, the Plan Administrator
will invest the Dividend amount in Newly Issued Common Shares on behalf of the
participants. The number of Newly Issued Common Shares to be credited to each
participant's account will be determined by dividing the dollar amount of the
Dividend by the net asset value per Common Share on the payment date; provided
that, if the net asset value is less than or equal to 95% of the closing market
value on the payment date, the dollar amount of the Dividend will be divided by
95% of the closing market price per Common Share on the payment date. If, on the
payment date for any Dividend, the net asset value per Common Share is greater
than the closing market value plus estimated brokerage commissions, the Plan
Administrator will invest the Dividend amount in Common Shares acquired on
behalf of the participants in Open-Market Purchases. In the event of a market
discount on the payment date for any Dividend, the Plan Administrator will have
until the last business day before the next date on which the Common Shares
trade on an "ex-dividend" basis or 30 days after the payment date for such
Dividend, whichever is sooner (the "Last Purchase Date"), to invest the Dividend
amount in Common Shares acquired in Open-Market Purchases. It is contemplated
that the Fund will pay monthly income Dividends. Therefore, the period during
which Open-
19
Market Purchases can be made will exist only from the payment date of each
Dividend through the date before the next "ex-dividend" date which typically
will be approximately ten days. If, before the Plan Administrator has completed
its Open-Market Purchases, the market price per Common Share exceeds the net
asset value per Common Share, the average per Common Share purchase price paid
by the Plan Administrator may exceed the net asset value of the Common Shares,
resulting in the acquisition of fewer Common Shares than if the Dividend had
been paid in Newly Issued Common Shares on the Dividend payment date. Because of
the foregoing difficulty with respect to Open-Market Purchases, the Plan
provides that if the Plan Administrator is unable to invest the full Dividend
amount in Open-Market Purchases during the purchase period or if the market
discount shifts to a market premium during the purchase period, the Plan
Administrator may cease making Open-Market Purchases and may invest the
uninvested portion of the Dividend amount in Newly Issued Common Shares at the
net asset value per Common Share at the close of business on the Last Purchase
Date provided that, if the net asset value is less than or equal to 95% of the
then current market price per Common Share; the dollar amount of the Dividend
will be divided by 95% of the market price on the payment date.
The Plan Administrator maintains all shareholders' accounts in the Plan and
furnishes written confirmation of all transactions in the accounts, including
information needed by shareholders for tax records. Common Shares in the account
of each Plan participant will be held by the Plan Administrator on behalf of the
Plan participant, and each shareholder proxy will include those shares purchased
or received pursuant to the Plan. The Plan Administrator will forward all proxy
solicitation materials to participants and vote proxies for shares held under
the Plan in accordance with the instructions of the participants.
In the case of Common Shareholders such as banks, brokers or nominees which hold
shares for others who are the beneficial owners, the Plan Administrator will
administer the Plan on the basis of the number of Common Shares certified from
time to time by the record shareholder's name and held for the account of
beneficial owners who participate in the Plan.
There will be no brokerage charges with respect to Common Shares issued directly
by the Fund. However, each participant will pay a pro rata share of brokerage
commissions incurred in connection with Open-Market Purchases. The automatic
reinvestment of Dividends will not relieve participants of any federal, state or
local income tax that may be payable (or required to be withheld) on such
Dividends. Participants that request a sale of Common Shares through the Plan
Administrator are subject to brokerage commissions.
The Fund reserves the right to amend or terminate the Plan. There is no direct
service charge to participants with regard to purchases in the Plan; however,
the Fund reserves the right to amend the Plan to include a service charge
payable by the participants.
All correspondence or questions concerning the Plan should be directed to the
Plan Administrator, The Bank of New York, 101 Barclay Street, New York, New York
10286, 20 th Floor, Transfer Agent Services, 1-800-433-8191.
20
FUND PROXY VOTING POLICIES & PROCEDURES
October 31, 2004 (unaudited)
Fund policies and procedures used in determining how to vote proxies relating to
portfolio securities and a summary of proxies voted by the Fund for the period
ended June 30, 2004, are available without a charge, upon request, by contacting
the Fund at 1-800-644-5571 and on the Commission's website at
http://www.sec.gov.
PORTFOLIO HOLDINGS
October 31, 2004 (unaudited)
The Fund files its complete schedule of portfolio holdings with the Commission
for the first and third quarters of each fiscal year on Form N-Q within 60 days
after the end of the period. Copies of the Fund's Forms N-Q are available
without a charge, upon request, by contacting the Fund at 1-800-644-5571 and on
the Commission's website at http://www.sec.gov. You may also review and copy
Form N-Q at the Commission's Public Reference Room in Washington, D.C. For more
information about the operation of the Public Reference Room, please call the
Commission at 1-800-SEC-0330.
TAX INFORMATION FOR SHAREHOLDERS
October 31, 2004 (unaudited)
Certain tax information regarding the Fund is required to be provided to
shareholders based upon the Fund's income and distributions for the taxable year
ended October 31,2004. The information and distributions reported herein may
differ from information and distributions taxable to shareholders for the
calendar year ended December 31, 2004. During the fiscal period ended October
31, 2004, 93.29% of the dividends paid from net investment income qualify for
the corporate dividends received deduction. In addition, 100% of the dividends
paid from net investment income meet the requirements regarding qualified
dividend income.
NOTICE
October 31, 2004 (unaudited)
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940 that the Fund may purchase at market prices from time to
time shares of its common stock in the open market.
21
TRUSTEES & OFFICERS
October 31, 2004 (unaudited)
Except for their service on the Company's Board of Directors, the independent
directors named above have not held any positions during the past two years with
the Fund; any investment company; any investment adviser; any underwriter of the
Fund; or any affiliate of the Fund or its investment advisers or underwriters.
Each independent trustee serves on the Fund's Audit Committee.
INTERESTED TRUSTEES AND OFFICERS
PRINCIPAL OCCUPATION(S) NUMBER OF
POSITION(S) HELD DURING PAST 5 YEARS* AND PORTFOLIOS IN FUND
WITH FUNDS/LENGTH OTHER DIRECTORSHIPS HELD COMPLEX OVER-
NAME, AGE AND ADDRESS OF TIME SERVED BY TRUSTEE SEEN BY TRUSTEE
-------------------------------------------------------------------------------------------------------------------------
W. ROBERT ALEXANDER Trustee and Chairman/Less Mr. Alexander is the Chief Executive 1
Age - 77 than nine months Officer & Chairman of ALPS. Mr.
1625 Broadway, Ste. 2200 Alexander was Vice Chairman of First
Denver, CO 80202 Interstate Bank of Denver, responsible
for Trust, Private Banking, Retail
Banking, Cash Management Services and
Marketing. Mr. Alexander is currently a
member of the Board of Trustees of the
Hunter and Hughes Trusts as well as
Chairman of Clough Global Allocation
Fund, Financial Investors Trust and
Financial Investors Variable Insurance
Trust. Because of his affiliation with
ALPS, Mr. Alexander is considered an
"interested" Trustee of the Fund.
EDMUND J. BURKE President/Less than nine Mr. Burke is President and a Director of N/A
Age - 43 months ALPS. Mr. Burke joined ALPS in 1991 as
1625 Broadway, Ste. 2200 Vice President and National Sales
Denver, CO 80202 Manager. Because of his position with
ALPS, Mr. Burke is deemed an affiliate
of the Trust as defined under the 1940
Act. Mr. Burke is currently the
President of Clough Global Allocation
Fund, Financial Investors Trust and
Financial Investors Variable Insurance
Trust.
22
PRINCIPAL OCCUPATION(S) NUMBER OF
POSITION(S) HELD DURING PAST 5 YEARS* AND PORTFOLIOS IN FUND
WITH FUNDS/LENGTH OTHER DIRECTORSHIPS HELD COMPLEX OVER-
NAME, AGE AND ADDRESS OF TIME SERVED BY TRUSTEE SEEN BY TRUSTEE
-------------------------------------------------------------------------------------------------------------------------
JEREMY O. MAY Treasurer/Less than Mr. May is Managing Director of ALPS. N/A
Age - 34 nine months Mr. May joined ALPS in 1995 as a
1625 Broadway, Ste. 2200 Controller. Because of his position with
Denver, CO 80202 ALPS, Mr. May is deemed an affiliate of
the Trust as defined under the 1940 Act.
Mr. May is currently the Treasurer of
Clough Global Allocation Fund, Financial
Investors Trust, Financial Investors
Variable Insurance Trust and First
Funds.
EVERETT L. MORRIS Trustee/Less than Mr. Morris was a Vice President and 1
Age - 76 nine months Director of Reaves from 1993 to 2003.
1625 Broadway, Ste. 2200 Mr. Morris is currently a
Denver, CO 80202 Director/Trustee of the Phoenix Funds, a
Director of the Duff & Phelps Utilities
Tax-Free Income Fund, and a Director of
the Duff & Phelps Utilities Income Fund.
ERIN DOUGLAS Secretary/Less than Ms. Douglas is Associate Counsel of N/A
Age - 27 six months ALPS. Ms. Douglas joined ALPS as
1625 Broadway, Ste. 2200 Associate Counsel in January 2003. Ms.
Denver, CO 80202 Douglas is deemed an affiliate of the
Trust as defined under the 1940 Act.
Ms.Douglas is currently the Secretary of
the Clough Global Allocation Fund,
Financial Investors Trust, and Westcore
Funds.
23
INDEPENDENT TRUSTEES
PRINCIPAL OCCUPATION(S) NUMBER OF
POSITION(S) HELD DURING PAST 5 YEARS* AND PORTFOLIOS IN FUND
WITH FUNDS/LENGTH OTHER DIRECTORSHIPS HELD COMPLEX OVER-
NAME, AGE AND ADDRESS OF TIME SERVED BY TRUSTEE SEEN BY TRUSTEE
-------------------------------------------------------------------------------------------------------------------------
MARY K. ANSTINE Trustee/Less than nine Ms. Anstine is the President/Chief 1
Age - 63 months Executive Officer of HealthONE, Denver,
1625 Broadway, Ste. 2200 Colorado, and former Executive Vice
Denver, CO 80202 President of First Interstate Bank of
Denver. Ms. Anstine is also a
Trustee/Director of the following:
Denver Area Council of the Boy Scouts of
America; Colorado Uplift Board; AV
Hunter Trust; P/SL Auxiliary Board;
Financial Investors Trust; Financial
Investors Variable Trust; and a member
of the Advisory Boards for the Girl
Scouts Mile Hi Council. Ms. Anstine was
a Director of: the Northern Trust Bank
of Colorado from February 1998 until
February 2002; HealthONE; a member of
the American Bankers Association Trust
Executive Committee; and Director of the
Center for Dispute Resolution.
MICHAEL F. HOLLAND Trustee/Less than Mr. Holland is Chairman of Holland & 1
Age - 60 nine months Company. Mr. Holland is currently a
375 Park Avenue Director and Chairman of the Board,
New York, NY 10152 President and Treasurer of the Holland
Series Fund, Inc. Mr. Holland is also a
Trustee of State Street Master Funds,
Vanguard Charitable Endowment Program,
and the China Fund, Inc.
24
PRINCIPAL OCCUPATION(S) NUMBER OF
POSITION(S) HELD DURING PAST 5 YEARS* AND PORTFOLIOS IN FUND
WITH FUNDS/LENGTH OTHER DIRECTORSHIPS HELD COMPLEX OVER-
NAME, AGE AND ADDRESS OF TIME SERVED BY TRUSTEE SEEN BY TRUSTEE
-------------------------------------------------------------------------------------------------------------------------
ROBERT E. LEE Trustee/Less than nine Mr. Lee was a commercial bank executive 1
Age - 69 months of First Interstate Bank of Denver from
10510 Lakeview Drive 1980 through 1989. He is currently a
Hayden Lake, Idaho 83835 Director of the following: Storage
Technology Corporation; ING Financial
Services -- North America; Meredith
Corporation; and Emeritus Executive
Director -- The Denver Foundation. Mr.
Lee is also a Trustee of Financial
Investors Trust and Financial Investors
Variable Insurance Trust.
LARRY W. PAPASAN Trustee/Less than nine Mr. Papasan is the former Chairman of 1
Age - 63 months Smith & Nephew, Inc. (orthopedic
2670 Union Avenue division). Mr. Papasan is a former
Extended Suite 700 Director of First American National Bank
Memphis, TN 38112 of Memphis and The West Tennessee Board
of First American National Bank
(1988-1991) and was President of Memphis
Light Gas and Water Division of the city
of Memphis (1984-1991). Mr. Papasan is a
member of the Board of the Plough
Foundation, a non-profit trust, a
Trustee of First Funds, a mutual fund
complex, and a Trustee of Smith Seckman
Reid, Inc., an engineering services
company. Mr. Papasan is also Chairman of
the Board of the University of Memphis
Board of Visitors and Foundation,
Chairman of the Board of LeBonheur
Children's Hospital Foundation,
President of the Board of the Biblical
Resource Center and Museum, and a Board
Member of the Memphis Biotechnology
Group, a non-profit organization.
25
REAVES UTILITY INCOME FUND
1625 Broadway, Suite 2200
Denver, CO 80202
1-800-644-5571
[ALPS MUTUAL FUNDS SERVICES, INC. LOGO]
This Fund is neither insured nor guaranteed by the U.S. Government, the FDIC,
the Federal Reserve Board or any other governmental agency or insurer.
Must be accompanied or preceded by a current prospectus.
For more information, please call 1-800-644-5571.
Item 2. CODE OF ETHICS.
(a) The Registrant, as of the end of the period covered by this report,
has adopted a code of ethics that applies to the Registrant's
principal executive officer and principal financial officer (the
"Code of Ethics").
(b) Not applicable.
(c) During the period covered by this report, no amendments were made
to the provisions of the Code of Ethics.
(d) During the period covered by this report, no implicit or explicit
waivers to the provisions of this Code of Ethics were granted.
(e) Not applicable.
(f) The Registrant's Code of Ethics is attached as an exhibit hereto
under Item 11(a)(1) of this Form N-CSR.
Item 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees of the Registrant has determined that the Registrant
has at least one audit committee financial expert serving on its audit
committee. The Board of Trustees has designated Mike Holland and Robert E.
Lee as the Registrant's "audit committee financial experts." Messrs. Holland
and Lee are "independent" as defined in paragraph (a)(2) of Item 3 to Form
N-CSR
Item 4. PRINCIPAL ACCOUNTING FEES AND SERVICES.
(a) AUDIT FEES: The aggregate fees billed for each of the last two fiscal
years for professional services rendered by the principal accountant for
the audit of the registrant's annual financial statements or services
that are normally provided by the accountant in connection with statutory
and regulatory filings or engagements for fiscal years 2004 and 2003 were
$63,000 and $0, respectively.
(b) AUDIT-RELATED FEES: The aggregate fees billed in each of the last two
fiscal years for assurance and related services by the principal
accountant that are reasonably related to the performance of the audit of
the registrant's financial statements and are not reported under
paragraph (a) of this Item were $0 in 2004 and $0 in 2003.
(c) TAX FEES: The aggregate fees billed in each of the last two fiscal
years for professional services rendered by the principal accountant for
tax compliance, tax advice, and tax planning were $0 in 2004 and $0 in
2003.
(d) ALL OTHER FEES: The aggregate fees billed in each of the last two
fiscal years for products and services provided by the principal
accountant, other than the services reported in paragraphs (a) through
(c) of this Item are $0 in 2004 and $0 in 2003.
(e)(1) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES: All services to
be performed by the Registrant's principal auditors must be pre-approved
by the Registrant's audit committee.
(e)(2) No services described in paragraphs (b) through (d) were approved
pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser, and any entity controlling, controlled by, or under
common control with the adviser that provides ongoing services to the
registrant for each of the last two fiscal years of the registrant was $0
for 2004 and $0 for 2003.
(h) Not applicable.
Item 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
Item 6. SCHEDULE OF INVESTMENTS.
Schedule of Investments is included as part of the Report to Stockholders filed
under Item 1 of this form.
Item 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The proxy voting policies and procedures that the Registrant uses to
determine how to vote proxies relating to portfolio securities is attached
hereto as Ex. 7.
Item 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANIES.
Not applicable.
Item 9. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
The Board of Trustees has not yet adopted procedures by which shareholders
may recommend nominees to the Board of Trustees.
Item 10. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company
Act of 1940, as amended) are effective based on their evaluation of
these controls and procedures as of a date within 90 days of the
filing date of this document.
(b) There was no change in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the
Investment Company Act of 1940, as amended) during the second
fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial
reporting.
Item 11. EXHIBITS.
(a)(1) The code of ethics that applies to the Registrant's principal
executive officer and principal financial officer is attached hereto as
Ex.11.A.1.
(a)(2) The certifications required by Rule 30a-2(a) of the Investment
Company Act of 1940, as amended, and Section 302 of the Sarbanes-Oxley Act
of 2002 are attached hereto as Ex99.Cert.
(a)(3) Not applicable.
(b) A certification for the Registrant's Principal Executive Officer and
Principal Financial Officer, as required by Rule 30a-2(b) of the Investment
Company Act of 1940, as amended, and Section 906 of the Sarbanes-Oxley Act
of 2002 are attached hereto as Ex99.906Cert.
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/ Edmund J. Burke
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Edmund J. Burke
President
Date: January 7, 2005
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
Treasurer
Date: January 7, 2005