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
REAVES UTILITY INCOME FUND
--------------------------
(Exact name of registrant as specified in charter)
1625 BROADWAY, SUITE 2200, DENVER, COLORADO 80202
-------------------------------------------------
(Address of principal executive offices) (Zip code)
Erin E. Douglas, 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
--------------
Date of fiscal year end: October 31
Date of reporting period: February 24, 2004 - April 30, 2004
----------------------------------
ITEM 1 - REPORTS TO STOCKHOLDERS
REAVES UTILITY INCOME FUND
The following information supplements and should be read in conjunction with the
information provided in the Fund's Semi-Annual Report dated April 30, 2004.
Page 10 entitled "Financial Highlights" of the Semi-Annual Report should be
deleted in its entirety and replaced with the following:
FINANCIAL HIGHLIGHTS
For the Period February 24, 2004 to April 30, 2004 (unaudited)
PER COMMON SHARE OPERATING PERFORMANCE
Net asset value - beginning of period $ 19.10
---------------
Income from investment operations:
Net investment income (loss) 0.23
Net realized and unrealized gain (loss) on investments (1.23)
---------------
Total from investment operations (1.00)
---------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (0.10)
---------------
Total distributions (0.10)
---------------
CAPITAL SHARE TRANSACTIONS:
Common share offering costs charged to paid in capital (0.04)
---------------
Total capital share transactions (0.04)
---------------
Net asset value - end of period $ 17.96
===============
Market price - end of period $ 17.65
===============
TOTAL RETURN (1) (11.75)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000) $ 406,911
Ratio of expenses to average net assets 1.18%(2)
Ratio of net investment income to average net assets 7.29%(2)
Ratio of expenses to average net assets without fee waivers 1.18%(2)
Ratio of net investment income to average net assets without
fee waivers 7.29%(2)
Portfolio turnover rate 29.19%
(1) Total investment return is calculated assuming a purchase of a common share
at the current market price on the first day and a sale at the current
market price on the last day of each period reported. 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.
See notes to financial statements.
REAVES UTILITY INCOME FUND
SEMI-ANNUAL REPORT
APRIL 30, 2004 (UNAUDITED)
SHAREHOLDER LETTER
April 30, 2004 (unaudited)
Dear Shareholders:
February 25, 2004 marked the first day of trading of the Reaves Utility Income
Fund on the American Stock Exchange under the ticker symbol UTG. On behalf of
the Board of Trustees, we thank the shareholders for making this a successful
initial public offering ("IPO") with over $400 million raised for investment. In
addition to capital appreciation, the Fund's primary objective is to capture
tax-advantaged dividend income and in fact declared its first dividend on April
12 and paid it out on April 30.
With an investment emphasis in the utility sector of the market, the Reaves
Utility Income Fund marked the first IPO of its kind in over 17 years. The Fund
is managed by W.H. Reaves & Company, an investment advisor with 42 years of
utility investment management experience. Commentary from Reaves on the Fund's
dividends, investments and market environment is included along with the
financial highlights and holdings.
We hope that you find this first shareholder report useful and we encourage you
to gather more information through an investment professional, by calling the
Fund at 1-800-644-5571 or by visiting www.utilityincomefund.com.
Sincerely,
/s/ Ned Burke
Ned Burke
President
1
MANAGEMENT DISCUSSION & ANALYSIS
April 30, 2004 (unaudited)
DISTRIBUTIONS TO COMMON SHAREHOLDERS The Reaves Utility Income Fund was
approximately 9 weeks old as of April 30th and on April 12th it declared its
first regular monthly dividend of $ 0.0967 per share for the months of April,
May and June. The dividends provide an annualized yield of approximately 5.8%
based upon the Fund's initial offering price of $20.00 per share. The current
before-tax yield compares favorably to the 4.5% yield on the 10 year United
States Treasury Note on April 30th. Applying ordinary income tax rates to the
Treasury Note Income of 4.5% and the preferential tax rate to qualified dividend
income at an annual rate 5.8% highlights the after tax value of your Fund's
dividend.
INVESTMENT PORTFOLIO Total net assets of the Fund amounted to approximately $407
million on April 30th. In addition to the proceeds of the common stock offering,
a bank line of credit was drawn upon to increase the Fund's investment,
primarily in dividend paying utility securities. The net asset value of the Fund
was $ 17.96 on April 30th. The Fund will not be fully invested until the
proceeds from the sale of auction market preferred securities are received. The
amount of the preferred securities to be issued will be determined by the market
value of the fund's assets at date of issue and our requirement that two credit
rating agencies issue a AAA credit rating for the preferred shares.
MARKET AND FUND COMMENTARY In the long run, the future returns for the Fund's
shareholders depend primarily on how well we manage the investment portfolio to
achieve a tax-advantaged yield and grow the net asset value. In the short run,
changes in the market price of the Fund's common shares which deviate from the
underlying changes arising in net asset value can enhance or diminish
shareholder returns. April's market performance suffered when a sharp decline in
bond prices, out of fear of rising interest rates, precipitated broad based
selling of most interest rate sensitive securities.
The first nine weeks of the Fund's existence were challenging given the
volatility of interest rates during that period. Rates declined sharply in March
and rose sharply in April. On a positive note, the initial dividend yield was
established above the mid range of our early expectations, and the Fund was
invested along our original guidelines: (90% common stocks and 10% preferred and
fixed income securities). The Fund was not fully leveraged in April. The
interest rate increases in April contributed to the worst total return month for
preferred stocks since
2
1990, which justified our decision to keep the preferred portion of the
portfolio to well below its permissible long term allocation.
The Reaves Utility Income Fund is not considered a short-term investment and the
longer the period of time involved the more important portfolio investment
returns will be in determining shareholder returns. The majority of companies
represented in the portfolio have three primary characteristics which work to
overcome the negative effects of rising interest rates and inflation. First,
they are steadily growing their earnings and reinvesting their retained
earnings. Second, approximately 75% of the common stock holdings are
periodically raising their dividends, resulting in an increase in yield on their
original cost of purchase. And third, there is the potential for capital gains
from successful investments.
We are constructive on the investment outlook for selected utilities. As a
result of the difficulties utilities experienced in 2001 and 2002, many utility
companies have strengthened their capital structures. In some cases new
management has been brought in to improve operating performance and returns to
shareholders. Reduced dividend payout ratios make possible not only continued
but in some cases, better dividend growth in the future. Margins are improving
as excess generation capacity is reduced. In certain states, politicians and /or
regulators have recognized the need to better balance demands of consumers and
the needs of utilities for rates of return on investment adequate to provide
needed infrastructure investment. The result can be better returns for utility
common stock investors. Lastly, investors have become increasingly aware that
the ability and the commitment of a company to raise its dividend may lead to
strong stock performance.
Respectfully submitted,
Portfolio Co-Managers
-WILLIAM H. REAVES
-RONALD J. SORENSON
-WILLIAM A. FERER
3
STATEMENT OF INVESTMENTS
April 30, 2004 (unaudited)
SHARES VALUE (NOTE 1)
-------------- --------------
COMMON STOCK - 124.32%
CONSUMER STAPLES - 11.53%
Altria Group, Inc. 605,000 $ 33,504,900
UST, Inc. 360,000 13,395,600
--------------
46,900,500
--------------
ELECTRIC - 77.12%
Alliant Energy Corp. 80,000 1,988,800
Ameren Corp. 855,000 37,380,600
Cinergy Corp. 460,000 17,452,400
Consolidated Edison, Inc. 645,000 26,580,450
Dominion Resources, Inc. 125,000 7,976,250
DTE Energy Co. 575,000 22,436,500
Duke Energy Corp. 1,733,000 36,496,980
Duquesne Light Holdings, Inc. 537,000 10,079,490
Exelon Corp. 45,000 3,012,300
FirstEnergy Corp. 60,000 2,346,000
Great Plains Energy, Inc. 537,600 16,778,496
Hawaiian Electric Industries, Inc. 190,000 9,454,400
NSTAR 286,300 13,856,920
OGE Energy Corp. 821,000 19,745,050
Pinnacle West Capital Corp. 269,900 10,542,294
Progress Energy, Inc. 450,000 19,246,500
Public Service Enterprise Group, Inc. 628,200 26,949,780
Southern Co. 740,000 21,282,400
TECO Energy, Inc. 257,800 3,281,794
Wisconsin Energy Corp. 23,000 722,200
WPS Resources Corp. 116,900 5,355,189
Xcel Energy, Inc. 50,000 836,500
--------------
313,801,293
--------------
ENERGY - 1.58%
Total S.A., ADR 70,000 6,448,400
--------------
FINANCIALS - 3.93%
Citigroup, Inc. 110,000 5,289,900
Regions Financial Corp. 25,000 867,750
Washington Mutual, Inc. 250,000 9,847,500
--------------
16,005,150
--------------
GAS - 9.62%
Keyspan Corp. 460,000 16,629,000
ONEOK, Inc. 125,000 2,618,750
Peoples Energy Corp. 441,200 18,442,160
Vectren Corp. 60,000 1,449,000
--------------
39,138,910
--------------
4
SHARES VALUE (NOTE 1)
-------------- --------------
COMMON STOCK (CONTINUED)
TELEPHONE - 20.54%
AT&T Corp. 1,134,000 $ 19,448,100
BCE, Inc. 755,000 15,054,700
BellSouth Corp. 172,000 4,439,320
SBC Communications, Inc. 1,530,000 38,097,000
TDC A/S, ADR 120,000 2,018,400
Verizon Communications, Inc. 120,000 4,528,800
--------------
83,586,320
--------------
TOTAL COMMON STOCK
(Cost $529,236,900) 505,880,573
--------------
PREFERRED STOCK - 10.50%
CONSUMER DISCRETIONARY - 0.76%
Corts Ford Trust, 7.40%, 11/01/46 125,200 3,077,416
--------------
ELECTRIC - 4.09%
AES Trust III, 6.75%, 10/15/29 91,500 3,877,312
BGE Capital Trust II, 6.20%, 10/15/43 160,000 3,870,400
Consumers Energy Co. Funding Trust IV,
9.00%, 06/30/31 125,000 3,231,250
Georgia Power Capital Trust V,
7.125%, 03/31/42 131,400 3,373,038
PSEG Funding Trust II,
8.75%, 12/31/32 82,800 2,277,000
--------------
16,629,000
--------------
FINANCIALS- 2.23%
ABN AMRO Capital Funding Trust VII, 6.08% 120,000 2,868,000
Lehman Brothers Holdings Capital Trust,
Series M, 6.00%, 04/22/53 70,000 1,646,400
Renaissance Holdings Ltd., Series C, 6.08% 200,000 4,584,000
--------------
9,098,400
--------------
GAS - 0.81%
ONEOK, Inc., 8.50%, 02/16/06 114,500 3,309,050
--------------
INFORMATION TECHNOLOGY - 0.17%
Corporate- Backed Trust Certificates, Series
2001-10, 7.875%, 10/01/97 26,800 686,750
--------------
REAL ESTATE INVESTMENT TRUSTS - 1.02%
AMB Property Corp., Series L, 6.50% 40,400 983,489
Duke Realty Corp., Series K, 6.50% 138,700 3,158,199
--------------
4,141,688
--------------
5
SHARES VALUE (NOTE 1)
-------------- --------------
PREFERRED STOCK (CONTINUED)
TELEPHONE - 1.42%
CenturyTel, Inc., 6.875%, 05/15/05 186,900 $ 4,649,138
Preferred Plus Trust, Series T1, 7.35%,
03/15/29 30,200 750,470
Trust Certificates 2001-1, Series T, 7.45%,
03/15/29 14,900 368,030
--------------
5,767,638
--------------
TOTAL PREFERRED STOCK
(Cost $44,853,450) 42,709,942
--------------
BOND RATING PRINCIPAL
MOODY/S&P AMOUNT
----------- --------------
CORPORATE BONDS - 4.96%
ELECTRIC - 4.31%
Calpine Generating Co., 11.50%,
04/01/11, 144A* B3/CCC+ $ 20,000,000 17,550,000
TELEPHONE - 0.65%
US West Communications Inc., 7.50%,
06/15/23 Ba3/B- 3,000,000 2,640,000
--------------
TOTAL CORPORATE BONDS
(Cost $22,803,867) 20,190,000
--------------
TOTAL INVESTMENTS
(Cost $596,894,217) 139.78% 568,780,515
Liabilities in Excess of Other Assets -39.78% (161,869,107)
------- --------------
NET ASSETS 100.00% $ 406,911,408
======= ==============
ADR- American Depositary Receipt
* 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 April 30, 2004, these securities
amounted to a value of $17,550,000 or 4.31% of net assets.
All shares of securities by the Fund are pledged as collateral for the
borrowings under the loan agreement.
6
STATEMENT OF ASSETS & LIABILITIES
April 30, 2004 (unaudited)
ASSETS:
Investments, at value (Cost - see below) $ 568,780,515
Dividends receivable 3,169,482
Interest receivable 341,806
Receivable for investments sold 2,404,654
Other assets 15,061
---------------
Total assets 574,711,518
---------------
LIABILITIES:
Payable for investments purchased 8,725,146
Loan payable to bank (Note 5) 158,059,757
Interest on loan payable to bank 192,652
Accrued investment advisory fee 205,769
Accrued administration fee 94,833
Accrued trustees fee 7,299
Accrued offering costs 514,654
---------------
Total Liabilities 167,800,110
---------------
Net Assets $ 406,911,408
===============
COST OF INVESTMENTS $ 596,894,217
===============
COMPOSITION OF NET ASSETS:
Paid in capital $ 431,809,000
Undistributed net investment income 3,132,067
Accumulated net realized gain (loss) on investments 84,043
Net unrealized appreciation (depreciation) in value of investments (28,113,702)
---------------
Net Assets 406,911,408
===============
Shares of common stock outstanding of no par value,
unlimited shares authorized 22,655,236
===============
Net asset value per share $ 17.96
===============
See notes to financial statements.
7
STATEMENT OF OPERATIONS
For the Period February 24, 2004 to April 30, 2004 (unaudited)
INVESTMENT INCOME:
Dividends $ 5,882,063
Interest 302,047
---------------
Total Income 6,184,110
---------------
EXPENSES:
Investment advisory fee (Note 4) 419,717
Administration fee (Note 4) 193,435
Trustees fee 7,299
Interest on outstanding loan payable (Note 5) 240,831
---------------
Net Expenses 861,282
---------------
Net Investment Income 5,322,828
---------------
Net realized gain (loss) on investments 84,043
Change in net unrealized appreciation/depreciation (28,113,702)
---------------
Net gain (loss) on investments (28,029,659)
---------------
Net Increase (Decrease) in Net Assets From Operations $ (22,706,831)
===============
See notes to financial statements.
8
STATEMENT OF CHANGES IN NET ASSETS
For the Period February 24, 2004 to April 30, 2004 (unaudited)
COMMON SHAREHOLDER OPERATIONS:
Net investment income $ 5,322,828
Net realized gain (loss) on investments 84,043
Change in net unrealized appreciation/depreciation (28,113,702)
---------------
Net increase (decrease) in net assets from operations (22,706,831)
---------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS:
From net investment income (2,190,761)
---------------
Net decrease in net assets from distributions (2,190,761)
---------------
CAPITAL SHARE TRANSACTIONS (NOTE 2):
Proceeds from sales of shares, net of offering costs 381,300,000
Proceeds from the underwriters' over-allotment
option exerised, net of offering costs 50,509,000
Net asset value of common stock issued to stockholders
from reinvestment of dividends -
---------------
Net increase in net assets from capital share transactions 431,809,000
---------------
NET INCREASE (DECREASE) IN NET ASSETS 406,911,408
---------------
NET ASSETS:
Beginning of period -
---------------
End of period * $ 406,911,408
===============
* Includes undistributed net investment income of: $ 3,132,067
---------------
See notes to financial statements.
9
FINANCIAL HIGHLIGHTS
For the Period February 24, 2004 to April 30, 2004 (unaudited)
PER COMMON SHARE OPERATING PERFORMANCE
Net asset value - beginning of period $ 19.10
---------------
Income from investment operations:
Net investment income (loss) 0.23
Net realized and unrealized gain (loss) on investments (1.23)
---------------
Total from investment operations (1.00)
---------------
DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (0.10)
---------------
Total distributions (0.10)
---------------
CAPITAL SHARE TRANSACTIONS:
Common share offering costs charged to paid in capital (0.04)
---------------
Total capital share transactions (0.04)
---------------
Net asset value - end of period $ 17.96
===============
Market price - end of period $ 17.65
===============
TOTAL RETURN (1) (11.75)%
RATIOS AND SUPPLEMENTAL DATA
Net assets, end of period (000) $ 406,911
Ratio of expenses to average net assets 1.18%(2)
Ratio of net investment income to average net assets 7.29%(2)
Ratio of expenses to average net assets without fee waivers 1.18%(2)
Ratio of net investment income to average net assets without
fee waivers 7.29%(2)
Portfolio turnover rate 29.19%
(1) Total investment return is calculated assuming a purchase of a common share
at the current market price on the first day and a sale at the current
market price on the last day of each period reported. 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.
See notes to financial statements.
10
NOTES TO FINANCIAL STATEMENTS
April 30, 2004 (unaudited)
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 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
either at amortized cost or at original cost plus accrued interest, both of
which approximate market value. Other-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.
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.
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.
11
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.
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.
OTHER: 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.
2. CAPITAL TRANSACTIONS
There are an unlimited number of no par value common shares of beneficial
interest authorized. Of the 22,655,236 common shares outstanding on April 30,
2004, ALPS Distributors, Inc. owned 5,236 shares. The Fund issued 20,000,000
common shares in its initial public offering on February 27, 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") has
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 exceed $.04 per common share.
Transactions in common shares for the period ended April 30, 2004, were as
follows:
FOR THE PERIOD ENDED APRIL 30, 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 -
---------------
Common shares outstanding - end of period 22,655,236
===============
12
3. PORTFOLIO SECURITIES
Purchases and sales of investment securities, other than short-term securities,
for the period ended April 30, 2004 aggregated $670,633,193 and $73,740,428,
respectively. Purchases and sales of U.S. government and agency securities,
other than short-term securities, for the period ended April 30, 2004 aggregated
$22,886,458 and $0, respectively.
Net unrealized appreciation/depreciation of investments based on federal tax
cost were as follows:
FOR THE PERIOD ENDED APRIL 30, 2004
----------------------------------------------------------------------------------------
Gross appreciation (excess of value over tax cost) $ 1,679,347
Gross depreciation (excess of tax cost over value) (29,945,622)
---------------
Net unrealized appreciation (depreciation) $ (28,113,702)
---------------
Cost of investments for income tax purposes $ 597,046,790
===============
4. 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.
5. OUTSTANDING LOAN
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 from BONY an
aggregate amount of up to $190,000,000. The borrowings under the BONY loan are
secured by pledging the Fund's portfolio securities as collateral. As of April
30, 2004, the Fund had a loan payable in the amount of $158,059,757 with a daily
interest rate of 2.03%, which represents Federal Funds Rate plus 1.00%. The
amount of the loan represented 27.50% of the Fund's total assets as of April 30,
2004.
13
6. DIVIDEND REINVESTMENT PLAN
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
14
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-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.
15
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, 20th Floor, Transfer Agent Services, (800) 433-8191.
7. OTHER
The Independent Trustees of the Fund receive a quarterly retainer of $3,500 and
an additional $1,500 for each meeting attended.
16
TRUSTEES & OFFICERS
April 30, 2004 (unaudited)
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 Mr. Alexander is the Chief Executive Officer 1
Age - 76 Chairman/Less & Chairman of ALPS. Mr. Alexander was Vice
1625 Broadway, Ste. 2200 than three months Chairman of First Interstate Bank of Denver,
Denver, CO 80202 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 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 Mr. Burke is President and a Director of
Age - 43 than three months ALPS. Mr. Burke joined ALPS in 1991 as Vice
1625 Broadway, Ste. 2200 President and National Sales Manager. Because
Denver, CO 80202 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 Financial Investors Trust
and Financial Investors Variable Insurance
Trust.
17
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 Mr. May is Managing Director of ALPS. Mr. May
Age - 34 than three months joined ALPS in 1995 as a Controller. Because
1625 Broadway, Ste. 2200 of his position with ALPS, Mr. May is deemed
Denver, CO 80202 an affiliate of the Trust as defined under
the 1940 Act. Mr. May is currently the
Treasurer of Financial Investors Trust,
Financial Investors Variable Insurance Trust
and First Funds.
EVERETT L. MORRIS Trustee/Less than Mr. Morris was a Vice President and Director 1
Age - 75 three months of Reaves from 1993 to 2003. Mr. Morris is
1625 Broadway, Ste. 2200 currently a Director/Trustee of the Phoenix
Denver, CO 80202 Funds, a Director of the Duff & Phelps
Utilities Tax-Free Income Fund, and a
Director of the Duff & Phelps Utilities
Income Fund.
TRACI A. THELEN Secretary/Less Ms. Thelen is the General Counsel of ALPS.
Age - 31 than three months Ms. Thelen joined ALPS in October 1999 as
1625 Broadway, Ste. 2200 Associate Counsel. Because of her position
Denver, CO 80202 with ALPS, Ms. Thelen is deemed an affiliate
of the Trust as defined under the 1940 Act.
Ms. Thelen is currently the Secretary of
Financial Investors Trust, Financial
Investors Variable Insurance Trust, First
Funds and Westcore Trust.
18
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 Ms. Anstine is the President/Chief Executive 1
Age - 63 three months Officer of HealthONE, Denver, Colorado, and
1625 Broadway, Ste. 2200 former Executive Vice President of First
Denver, CO 80202 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 & Company. 1
Age - 59 three months Mr. Holland is currently a Director and
375 Park Avenue Chairman of the Board, President and
New York, NY 10152 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.
19
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 Mr. Lee was a commercial bank executive of 1
Age - 68 three months First Interstate Bank of Denver from 1980
10510 Lakeview Drive through 1989. He is currently a Director of
Hayden Lake, Idaho 83835 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 Mr. Papasan is the former Chairman of Smith & 1
Age - 62 three months Nephew, Inc. (orthopedic division). Mr.
2670 Union Avenue Papasan is a former Director of First
Extended Suite 700 American National Bank of Memphis and The
Memphis, TN 38112 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.
20
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.
21
REAVES UTILITY INCOME FUND [ALPS MUTUAL FUNDS SERVICES, INC. LOGO]
1625 Broadway, Suite 2200
Denver, CO 80202
1-800-644-5571
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
Not applicable to semi-annual report.
ITEM 3 - AUDIT COMMITTEE FINANCIAL EXPERT
Not applicable to semi-annual report.
ITEM 4 - PRINCIPAL ACCOUNTANT FEES AND SERVICES
Not applicable to semi-annual report.
ITEM 5 - AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable to semi-annual report.
ITEM 6 - SCHEDULE OF INVESTMENTS
Schedule of Investments is included as part of the report to shareholders
filed under item 1 of this form.
ITEM 7 - DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not applicable to semi-annual report.
ITEM 8 - PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
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.
2
ITEM 10 - 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) within 90 days of this filing and have concluded that
the Registrant's disclosure controls and procedures were effective,
as of that date.
(b) There was no change in the Registrant's internal control over
financial reporting during Registrant's most recent fiscal half-year
that has materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial reporting.
ITEM 11 - EXHIBITS
(a)(1) Not applicable to semi-annual report.
(a)(2) 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
Investment Company Act of 1940, are attached 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) under the
Investment Company Act of 1940, is attached as Ex99.906CERT. The
certification furnished pursuant to this paragraph is not deemed to
be "filed" for purposes of Section 18 of the Securities Exchange Act
of 1934, or otherwise subject to the liability of that section. Such
certification is not deemed to be incorporated by reference into any
filing under the Securities Act of 1933 or the Securities Exchange
Act of 1934, except to the extent that the Registrant specifically
incorporates it by reference.
3
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 UTILILTY INCOME FUND
By: /s/Edmund J. Burke
------------------
Edmund J. Burke
President
Date: July 8, 2004
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/ Edmund J. Burke
-------------------
Edmund J. Burke
President
Date: July 8, 2004
By: /s/ Jeremy O. May
-------------------
Jeremy O. May
Treasurer
Date: July 8, 2004
4