UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-Q

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED

MANAGEMENT INVESTMENT COMPANY

Investment Company Act file number: 811-21432

REAVES UTILITY INCOME FUND

(Exact name of Registrant as specified in charter)

1290 Broadway, Suite 1100, Denver, Colorado 80203

(Address of principal executive offices) (Zip code)

J. Tison Cory

Reaves Utility Income Fund

1290 Broadway, Suite 1100

Denver, Colorado 80203

(Name and address of agent for service)

Registrant’s telephone number, including area code: (303) 623-2577

Date of fiscal year end: October 31

Date of reporting period: November 1, 2013 – January 31, 2014

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Item 1. Schedule of Investments.

 

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REAVES UTILITY INCOME FUND

STATEMENT OF INVESTMENTS

January 31, 2014 (Unaudited)

 

		SHARES				VALUE
COMMON STOCKS 127.33%
Diversified Telecommunication Services 21.71%
AT&T, Inc.(1)(2)			1,441,900				$48,044,108
BCE, Inc.(1)			985,000				41,340,450
BT Group PLC			1,845,000				11,625,463
BT Group PLC - ADR			45,000				2,837,250
CenturyLink, Inc.			324,000				9,350,640
TELUS Corp.:
			30,000				1,046,700
			300,000				10,486,195
Verizon Communications, Inc.(1)(2)			1,070,000				51,381,400
							176,112,206
Electric Utilities 36.95%
Duke Energy Corp.(1)			571,999				40,394,570
Edison International(1)			220,000				10,595,200
Entergy Corp.(1)(2)			500,000				31,515,000
ITC Holdings Corp.(1)(2)			510,000				52,785,000
NextEra Energy, Inc.(1)(2)			600,000				55,158,000
Northeast Utilities(1)			450,000				19,710,000
Pinnacle West Capital Corp.(1)			635,000				33,420,050
Portland General Electric Co.			210,000				6,337,800
PPL Corp.(1)			750,000				22,927,500
SSE PLC			200,000				4,297,151
The Southern Co.(1)			550,000				22,682,000
							299,822,271
Equipment & Services 0.55%
Seadrill, Ltd.			125,000				4,463,750
Gas Utilities 5.85%
Energen Corp.			35,000				2,475,200
National Fuel Gas Co.			60,000				4,521,600
ONE Gas, Inc.*			4,500				153,540
ONEOK, Inc.(1)			507,000				34,724,430
Snam SpA			204,000				1,119,806
South Jersey Industries, Inc.			84,900				4,528,566
							47,523,142
Independent Power Producers & Energy Traders 0.13%
NRG Yield, Inc., Class A			27,500				1,070,850
Media 1.45%
Comcast Corp., Class A(1)			150,000				8,167,500
Liberty Global PLC, Class A*			20,000				1,598,600
Time Warner Cable, Inc.			15,000				1,999,050
							11,765,150

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		SHARES				VALUE
Multi-Utilities 30.37%
Ameren Corp.(1)			200,000				$7,568,000
Dominion Resources, Inc.(1)(2)			540,000				36,671,400
DTE Energy Co.(1)			730,000				49,800,600
Infraestructura Energetica Nova SAB de CV			550,000				2,365,485
Integrys Energy Group, Inc.(1)(2)			420,000				22,822,800
National Grid PLC			350,000				4,539,626
National Grid PLC - ADR(1)			381,200				24,694,136
NiSource, Inc.			730,000				25,090,100
PG & E Corp.			195,000				8,219,250
SCANA Corp.(1)			800,000				37,816,000
Sempra Energy(1)			147,000				13,628,370
TECO Energy, Inc.			285,000				4,668,300
Wisconsin Energy Corp.(1)			200,000				8,534,000
							246,418,067
Oil, Gas & Consumable Fuels 5.93%
The Williams Cos., Inc.(1)			1,000,000				40,490,000
TransCanada Corp.			175,000				7,602,000
							48,092,000
Real Estate Investment Trusts (REITS) 5.05%
American Tower Corp.(1)			240,000				19,411,200
Annaly Capital Management, Inc.(1)			2,000,000				21,540,000
							40,951,200
Road & Rail 5.58%
Union Pacific Corp.(1)(2)			260,000				45,302,400
Semiconductors 0.13%
First Solar, Inc.*			20,000				1,011,600
Tobacco 0.69%
Altria Group, Inc.			160,000				5,635,200
Water Utilities 5.74%
American Water Works Co., Inc.(1)			880,000				37,461,600
Aqua America, Inc.			190,000				4,550,500
Cia de Saneamento Basico do Estado de Sao Paulo - ADR			500,000				4,565,000
							46,577,100
Wireless Telecommunication Services 7.20%
Telefonica Brasil S.A. - ADR(1)			518,000				9,842,000
Vodafone Group PLC			3,100,000				11,545,182
Vodafone Group PLC - ADR(1)			1,000,000				37,060,000
							58,447,182
TOTAL COMMON STOCKS     (Cost $831,537,759)							1,033,192,118

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				SHARES				VALUE
PREFERRED STOCKS 0.33%
Electric Utilities 0.22%
Entergy Louisiana Holdings LLC, 6.950%					7,900				$793,950
Entergy Mississippi, Inc.:
6.250%					10,000				247,188
4.560%					3,520				337,700
Entergy New Orleans, Inc., 4.360%					4,500				392,625
									1,771,463
Multi-Utilities 0.11%
Ameren Illinois Co., 4.250%					10,300				903,503
TOTAL PREFERRED STOCKS     (Cost $2,233,892)									2,674,966
LIMITED PARTNERSHIPS 6.35%
Enbridge Energy Partners LP					250,000				7,345,000
Enterprise Products Partners LP					475,000				31,530,500
MarkWest Energy Partners LP					92,000				6,457,480
Talara Opp II, LP(3)(4)					28,653				2,435,480
Williams Partners LP					75,000				3,757,500
TOTAL LIMITED PARTNERSHIPS     (Cost $35,117,852)									51,525,960
		BOND RATING MOODY/S&P (UNAUDITED)		PRINCIPAL AMOUNT				VALUE
CORPORATE BONDS 0.12%
Diversified Telecommunication Services 0.12%
Frontier Communications Corp. 7.125%, 1/15/2023		Ba2/BB-			$1,000,000				997,500
TOTAL CORPORATE BONDS     (Cost $1,048,517)									997,500
				SHARES				VALUE
MUTUAL FUNDS 0.52%
Loomis Sayles Institutional High Income Fund					548,386				4,228,056
TOTAL MUTUAL FUNDS     (Cost $4,000,000)									4,228,056

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MONEY MARKET FUNDS 0.86%
Federated Treasury Obligations Money Market Fund, 0.010% (7-Day Yield)			6,960,032				6,960,032
TOTAL MONEY MARKET FUNDS     (Cost $6,960,032)							6,960,032
						VALUE
TOTAL INVESTMENTS - 135.51%     (Cost $880,898,052)							$1,099,578,632
LEVERAGE FACILITY - (35.74%)							(290,000,000)
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.23%							1,877,858
NET ASSETS - 100.00%							$811,456,490

 

*	Non Income Producing Security.

(1)	Pledged security; a portion or all of the security is pledged as collateral for borrowings as of January 31, 2014. (See Note 3)

(2)	Loaned security; a portion or all of the security is on loan at January 31, 2014. (See Note 3)

(3)

Security fair valued by management, pursuant to procedures approved by the Board of Trustees. (See Note 1) Excludes an unfunded commitment of $2,134,730 representing an agreement which obligates the Fund to meet capital calls in the future. Capital calls can only be made if and when certain requirements have been fulfilled; thus, the timing and the amount of such capital calls cannot readily be determined.

(4)	Restricted security. (See Note 4)

Common Abbreviations:

ADR - American Depositary Receipt.

LLC - Limited Liability Company.

LP - Limited Partnership.

PLC - Public Limited Company.

S.A. - Generally designates corporations in various countries, mostly those employing the civil law.

  This translates literally in all languages mentioned as anonymous company.

SAB de CV - A variable rate company.

SpA - Societa Per Azioni is an Italian shared company.

See Notes to Quarterly Statement of Investments.

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Notes to Quarterly Statement of Investments

January 31, 2014 (Unaudited)

1. SIGNIFICANT ACCOUNTING AND OPERATING POLICIES

 

Reaves Utility Income Fund (the “Fund”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”) as a non-diversified, closed-end management investment company. The Fund was organized under the laws of the state of Delaware by an Agreement and Declaration of Trust dated September 15, 2003. The Fund’s investment objective is 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’s common shares are listed on the NYSE MKT (“Exchange”) and trade under the ticker symbol “UTG.”

The Fund may have elements of risk, including the risk of loss of equity. There is no assurance that the investment process will consistently lead to successful results. An investment concentrated in sectors and industries may involve greater risk and volatility than a more diversified investment.

The following is a summary of significant accounting policies followed by the Fund in the preparation of its Statement of Investments. The preparation of the Statement of Investments is in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”), which requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

Investment Valuation: The net asset value per common share (“NAV”) of the Fund is determined no less frequently than daily, on each day that the Exchange is open for trading, as of the close of regular trading on the Exchange (normally, 4:00 p.m. Eastern time).

For equity securities and funds that are traded on an exchange, the market price is usually the closing sale or official closing price on that exchange. In the case of equity securities not traded on an exchange, or if such closing prices are not otherwise available, the mean of the closing bid and asked price will be used. The market price for debt obligations is generally the price supplied by an independent third-party pricing service approved by the Board of Trustees (the “Board”), which may use a matrix, formula or other objective method that takes into consideration market indices, yield curves and other specific adjustments. Short-term debt obligations that will mature in 60 days or less are valued at amortized cost, unless it is determined that using this method would not reflect an investment’s fair value. If vendors are unable to supply a price, or if the price supplied is deemed to be unreliable, the market price may be determined using quotations received from one or more brokers-dealers that make a market in the security. Investments in non-exchange traded funds are fair valued at their respective net asset values. Securities for which market quotations or valuations are not available are valued at fair value in good faith by or at the direction of the Board. 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 Fund discloses the classification of its fair value measurements following a three-tier hierarchy based on the inputs used to measure fair value. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability that are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability that are developed based on the best information available.

Various inputs are used in determining the value of the Fund’s investments as of the end of the reporting period. When inputs used fall into different levels of the fair value hierarchy, the level in the hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The designated input levels are not necessarily an indication of the risk or liquidity associated with these investments. These inputs are categorized in the following hierarchy under applicable financial accounting standards:

 

		Level 1		–		Unadjusted quoted prices in active markets for identical, unrestricted assets or liabilities that the Fund has ability to access at the measurement date;

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		Level 2		–		Quoted prices which are not active, quoted prices for similar assets or liabilities in active markets or inputs other than quoted prices that are observable (either directly or indirectly) for substantially the full term of the asset or liability; and
		Level 3		–		Significant unobservable prices or inputs (including the Fund’s own assumptions in determining the fair value of investments) where there is little or no market activity for the asset or liability at the measurement date.

The following is a summary of the Fund’s investments in the fair value hierarchy as of January 31, 2014:

 

		Valuation Inputs
Investments in Securities at Value*		Level 1				Level 2				Level 3				Total
Common Stocks		$	1,033,192,118			$	–			$	–			$	1,033,192,118
Preferred Stocks
Electric Utilities			–				1,771,463				–				1,771,463
Multi-Utilities			–				903,503				–				903,503
Limited Partnerships			49,090,480				–				2,435,480				51,525,960
Corporate Bonds			–				997,500				–				997,500
Mutual Funds			4,228,056				–				–				4,228,056
Money Market Funds			6,960,032				–				–				6,960,032
Total		$	1,093,470,686			$	3,672,466			$	2,435,480			$	1,099,578,632

*See Statement of Investments for industry classification.

As of January 31, 2014, the Fund applied the cost approach to value its Level 3 securities, with an additional liquidity discount. The fair valuation procedures used to value Level 3 securities are in accordance with the Fund’s Board approved fair valuation policies.

During the three months ended January 31, 2014, there were no significant transfers between Level 1 and 2 securities. The Fund evaluates transfers into or out of Level 1, Level 2 and 3 as of the end of the reporting period.

The following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:

 

Investments in Securities at Value*		Balance as of 10/31/2013		Return of capital				Realized gain/(loss)		Change in unrealized appreciation/ (depreciation)		Purchases		Transfer in and/or (out) of Level 3		Balance as of 1/31/2014		Net change in unrealized appreciation/ (depreciation) attributable to Level 3 investments held at 1/31/2014
Preferred Stocks		$139,000			$(154,560)			$      -		$15,560		$        -		$      -		$            -		$      -
Limited Partnerships		2,417,685			-			-		(3,140)		20,935		-		2,435,480		(3,140)
Total		$2,556,685			$(154,560)			$      -		$12,420		$20,935		$      -		$2,435,480		$(3,140)

*See Statement of Investments for industry classifications.

Foreign Securities: The Fund may directly purchase securities of foreign issuers. Investing in securities of foreign issuers involves special risks not typically associated with investing in securities of U.S. issuers. The risks include possible reevaluation of currencies, the inability to repatriate foreign currency, less complete financial information about companies and possible future adverse political and economic developments. Moreover, securities of many foreign issuers and their markets may be less liquid and their prices more volatile than those of securities of comparable U.S. issuers.

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Foreign Currency Translation: The books and records of the Fund are maintained in U.S. dollars. Investment valuations and other assets and liabilities initially expressed in foreign currencies are converted each business day into U.S. dollars based upon current exchange rates. Prevailing foreign exchange rates may generally be obtained at the close of the New York Stock Exchange (normally, 4:00 p.m. Eastern time). The portion of realized and unrealized gains or losses on investments due to fluctuations in foreign currency exchange rates is not separately disclosed and is included in realized and unrealized gains or losses on investments, when applicable.

Investment Transactions: Investment security transactions are accounted for as of trade date. Dividend income is recorded on the ex-dividend date, or as soon as information is available to the Fund. Interest income, which includes amortization of premium and accretion of discount, is accrued as earned. Realized gains and losses from investment 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. UNREALIZED APPRECIATION / (DEPRECIATION)

 

The differences between book-basis and tax-basis are primarily due to the deferral of wash sale losses. As of January 31, 2014, the cost of securities on a tax basis and gross unrealized appreciation/(depreciation) on investments for federal income tax purposes were as follows:

 

Gross unrealized appreciation (excess of value over tax cost)		$	250,874,196
Gross unrealized depreciation (excess of tax cost over value)			(17,396,090)
Net unrealized appreciation		$	233,478,106
Cost of investments for income tax purposes		$	866,100,526

3. BORROWINGS

 

In December 2010, as approved by the Board of Trustees, all Auction Market Preferred Shares (“Preferred Shares”) were redeemed at their liquidation value plus accrued dividends. Concurrently, the Fund entered into a financing package in December 2010 that includes a Committed Facility Agreement (the “Agreement”) with BNP Paribas Prime Brokerage, Inc. (“BNP”) that allowed the Fund to borrow up to $240,000,000 (“Initial Maximum Commitment”) and a Lending Agreement, as defined below. Borrowings under the Agreement are secured by assets of the Fund that are held by the Fund’s custodian in a separate account (the “pledged collateral”).

Under the terms of the Agreement, BNP was permitted, with 180 days advance notice (the “Notice Period”), to reduce or call the entire Initial Maximum Commitment. Interest on the borrowing is charged at the one month LIBOR (London Inter-bank Offered Rate) plus 1.10% on the amount borrowed (the “Variable Commitment”) and 1.00% on any undrawn balance. The Agreement contained an initial renewal date of May 2, 2012, 540 days after the closing date of the Agreement. On May 2, 2012, the Fund renewed the Agreement and paid a renewal fee of 0.25% on the Initial Maximum Commitment. This renewal fee was amortized over a six month period, ended October 29, 2012.

The Agreement was amended on September 14, 2012 (the “Amendment”) to (i) increase the Initial Maximum Commitment to $290,000,000 (the “Current Maximum Commitment”), (ii) expand the Notice Period to 270 days and (iii) waive the arrangement fee on the increased borrowing made available under the Current Maximum Commitment.

The Agreement was again amended on October 25, 2013 to allow for fixed rate borrowing along with the Variable Commitment; $72,500,000 of the Current Maximum Commitment is at a rate of 1.7512% for three years (the “Fixed Commitment”). The Fund paid a 0.20% arrangement fee on the Fixed Commitment. The terms on the remaining balance of $217,500,000 remain unchanged. The fund paid a renewal fee of 0.25% on the Variable Commitment on October 25, 2013.

For the three months ended January 31, 2014, the average amount borrowed under the Agreement was $290,000,000 with an average interest rate on the Variable Commitment of 1.26%. The interest rate applicable to the Variable Commitment on January 31, 2014 was 1.26%. As of January 31, 2014, the amount of outstanding borrowings was $290,000,000 and the amount of pledged collateral was $636,746,050.

The Lending Agreement is a separate side-agreement between the Fund and BNP pursuant to which BNP may borrow a portion of the pledged collateral (the “Lent Securities”) in an amount not to exceed the outstanding borrowings owed by the Fund to BNP under the Agreement. The Lending Agreement is intended to permit the Fund to reduce the cost of its borrowings under the Agreement. BNP has the ability to reregister the Lent Securities in its own name or in another name other than the Fund to pledge, re-pledge, sell, lend or otherwise transfer or use the collateral with all attendant rights of ownership. The Fund may designate any security within the pledged collateral as ineligible to be a Lent Security, provided there are eligible securities within the pledged collateral in an amount equal to the outstanding borrowing owed by the

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Fund. During the period in which the Lent Securities are outstanding, BNP must remit payment to the Fund equal to the amount of all dividends, interest or other distributions earned or made by the Lent Securities. The Fund receives income from BNP based on the value of the Lent Securities.

Under the terms of the Lending Agreement, the Lent Securities are marked to market daily, and if the value of the Lent Securities exceeds the value of the then-outstanding borrowings owed by the Fund to BNP under the Agreement (the “Current Borrowings”), BNP must, on that day, either (1) return Lent Securities to the Fund’s custodian in an amount sufficient to cause the value of the outstanding Lent Securities to equal the Current Borrowings; or (2) post cash collateral with the Fund’s custodian equal to the difference between the value of the Lent Securities and the value of the Current Borrowings. If BNP fails to perform either of these actions as required, the Fund will recall securities, as discussed below, in an amount sufficient to cause the value of the outstanding Lent Securities to equal the Current Borrowings. The Fund can recall any of the Lent Securities and BNP shall, to the extent commercially possible, return such security or equivalent security to the Fund’s custodian no later than three business days after such request. If the Fund recalls a Lent Security pursuant to the Lending Agreement, and BNP fails to return the Lent Securities or equivalent securities in a timely fashion, BNP shall remain liable to the Fund’s custodian for the ultimate delivery of such Lent Securities, or equivalent securities, and for any buy-in costs that the executing broker for the sales transaction may impose with respect to the failure to deliver. The Fund shall also have the right to apply and set-off an amount equal to one hundred percent (100%) of the then-current fair market value of such Lent Securities against the Current Borrowings. As of January 31, 2014, the value of securities on loan was $241,071,809.

The Board of Trustees has approved the Agreement, as amended, and the Lending Agreement. No violations of the Agreement or the Lending Agreement occurred during the three months ended January 31, 2014.

4. RESTRICTED SECURITIES

 

As of January 31, 2014, investments in securities included issues that are considered restricted. Restricted securities are often purchased in private placement transactions, are not registered under the Securities Act of 1933, may have contractual restrictions on resale, and may be valued under methods approved by the Board of Trustees as reflecting fair value.

Restricted securities as of January 31, 2014 were as follows:

 

Description		Acquisition Date				Cost				Market Value				Market Value as Percentage of Net Assets
Talara Opp II, LP			8/30/2013 - 1/22/2014				$    2,865,270				$    2,435,480				0.30%
TOTAL							$      2,865,270				$      2,435,480				0.30%

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Item 2. Controls and Procedures.

 

(a)

The Registrant’s principal executive officer and principal financial officer have evaluated the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3(c))) within 90 days of the filing date of this report and have concluded that the Registrant’s disclosure controls and procedures were effective as of that date.

 

(b)

There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the Registrant’s last fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

Item 3. Exhibits.

Separate certifications for the Registrant’s principal executive officer and principal financial officer, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 30a-2(a) under the 1940 Act, are attached as Exhibit 99.Cert.

 

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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.

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

 

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