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As
filed with the Securities and Exchange Commission on September 10, 2024
Securities
Act File No. 333-[●]
Investment Company Act File No. 811-21432
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
N-2
(check
appropriate box or boxes)
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933 |
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☒ |
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Pre-Effective
Amendment No. |
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☐ |
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Post-Effective
Amendment No. |
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☐ |
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and/or |
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REGISTRATION
STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |
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☒ |
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Amendment
No. 23 |
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☒ |
Reaves
Utility Income Fund
(Exact name of registrant as specified in charter)
1700
Broadway, Suite
1850
Denver,
Colorado
80290
(Address
of principal executive offices)
(800)
644-5571
(Registrant’s
Telephone Number)
Chris
Moore
Reaves
Utility Income Fund
1700
Broadway, Suite 1850
Denver,
Colorado 80290
(Names
and addresses of agents for service)
Copies
to:
Allison
M. Fumai
Dechert
LLP
1095
Avenue of the Americas
New
York, NY
10036
Approximate
Date of Proposed Public Offering: As soon as practicable after the effective date of the Registration Statement.
If
appropriate, check the following box:
| ☐ | The
only securities being registered on the form are being offered pursuant to a dividend or interest reinvestment plan. |
☒ Any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under
the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan.
| ☐ | This
form is a registration statement or a post-effective amendment thereto. |
☒ This form is a registration statement or a post-effective amendment thereto that will become effective upon filing with the
Commission pursuant to Rule 462(e) under the Securities Act.
☐ This form is a post-effective amendment to a registration statement filed to register additional securities or additional classes
of securities pursuant to Rule 413(b) under the Securities Act.
It
is proposed that this filing will become effective (check appropriate box)
| ☐ | when
declared effective pursuant to Section 8(c) of the Securities Act |
If
appropriate, check the following box:
| ☐ | This
[post-effective] amendment designates a new effective date for a previously filed [post-effective amendment] [registration statement]. |
| ☐ | This
form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act and the Securities
Act registration statement number of the earlier effective registration statement for the same offering is ______. |
| ☐ | This
form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, and the Securities Act registration
statement number of the earlier effective registration statement for the same offering is ______. |
Check
each box that appropriately characterizes the Registrant:
| ☒ | Registered
Closed-End Fund (closed-end company that is registered under the Investment Company Act). |
| ☐ | Business
Development Company (closed-end company that intends or has elected to be regulated as a business development company under the
Investment Company Act). |
| ☐ | Interval
Fund (Registered Closed-End Fund or a Business Development Company that makes periodic repurchase offers under Rule 23c-3 under
the Investment Company Act). |
| ☒ | Well-Known
Seasoned Issuer (as defined by Rule 405 under the Securities Act). |
| ☐ | Emerging
Growth Company (as defined by Rule 12b-2 under the Securities Exchange Act of 1934 (“Exchange Act”). |
| ☐ | New
Registrant (registered or regulated under the Investment Company Act for less than 12 calendar months preceding this filing). |
September
10, 2024
Reaves
Utility Income Fund
$900,000,000
Common
Shares of Beneficial Interest
Subscription
Rights for Common Shares of Beneficial Interest
Follow-on Offerings
The
Reaves Utility Income Fund (the “Fund”) is a diversified, closed-end management investment company registered under
the Investment Company Act of 1940, as amended (the “1940 Act”). 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 Fund pursues this objective by investing at least 80% of its total assets in the securities of domestic and foreign companies
involved to a significant extent in providing products, services or equipment for (i) the generation or distribution of electricity,
gas or water, (ii) telecommunications activities or (iii) infrastructure operations, such as airports, toll roads and
municipal services (“Utilities” or the “Utility Industry”). A company will be deemed to be involved in
the Utility Industry to a significant extent if at least 50% of its assets, gross income or profits are committed to or derived
from activities in the areas described above. As of August 28, 2024, the last reported sale price for the Fund’s common
shares was $30.05 per common share, and the last reported net asset value (“NAV”) for the Fund’s common shares
was $29.64 per common share, representing a premium to NAV of 1.38%.
W.H.
Reaves & Co., Inc. (the “Investment Adviser” or “Reaves”) serves as the Fund’s investment
adviser. As of June 30, 2024, Reaves had approximately $3.247 billion of assets under management. The Investment Adviser’s
address is 10 Exchange Place, Jersey City, New Jersey 07302. The Fund’s address is 1700 Broadway, Suite 1850, Denver, Colorado
80290, and its telephone number is 800-644-5571.
The
Fund may offer, from time to time, up to $900,000,000 aggregate initial offering price of common shares of beneficial interest,
no par value (“Common Shares”), subscription rights to purchase Common Shares (“Rights”) and/or any follow-on
offering (“Follow-on Offering” and together with the Common Shares and Rights, “Securities”) in one or
more offerings in amounts, at prices and on terms set forth in one or more supplements to this Prospectus (each a “Prospectus
Supplement”). Follow-on Offerings may include offerings of Common Shares, offerings of Rights, and offerings made in transactions
that are deemed to be “at the market” as defined in Rule 415 under the Securities Act, including sales made directly
on the NYSE American LLC (“NYSE American”) or sales made to or through a market maker other than on an exchange. You
should read this Prospectus and any related Prospectus Supplement carefully before you decide to invest in the Securities.
The
Fund may offer Securities (1) directly to one or more purchasers, (2) through agents that the Fund may designate from time to
time or (3) to or through underwriters or dealers. The Prospectus Supplement relating to a particular offering of Securities will
identify any agents or underwriters involved in the sale of Securities, and will set forth any applicable purchase price, fee,
commission or discount arrangement between the Fund and agents or underwriters or among underwriters or the basis upon which such
amount may be calculated. The Fund may not sell Securities through agents, underwriters or dealers without delivery of this Prospectus
and a Prospectus Supplement. See “Plan of Distribution.”
An
investment in the Fund is not appropriate for all investors. No assurances can be given that the Fund will achieve its investment
objective. Further, the Fund’s ability to pursue its investment objective, the value of the Fund’s investments and
the Fund’s NAV may be adversely affected by changes in tax rates and policies. Because the Fund’s investment objective
is to provide a high level of after-tax yield and total return consisting primarily of dividend and interest income and capital
appreciation, the Fund’s ability to invest, and the attractiveness of investing in, equity securities that pay qualified
dividend income in relation to other investment alternatives will be affected by changes in federal income tax laws and regulations,
including changes in the qualified dividend income provisions. Any proposed or actual changes in such rates, therefore, can significantly
and adversely affect the after-tax returns of the Fund’s investments in equity securities. Any such changes also could significantly
and adversely affect the Fund’s NAV, as well as the Fund’s ability to acquire and dispose of equity securities at
desirable returns and price levels and the Fund’s ability to pursue its investment objective. The Fund cannot assure you
as to the portion, if any, of the Fund’s dividends that will be qualified dividend income.
Investing
in the Fund’s Common Shares involves certain risks. See “Risk Factors” beginning on page 27 of this Prospectus.
This
Prospectus sets forth concisely the information about the Fund and the Securities that a prospective investor ought to know before investing
in the Fund and participating in an offer. You should read this Prospectus, which contains important information about the Fund, before
deciding whether to invest in the Fund’s Common Shares and retain it for future reference. A Statement of Additional Information
dated September 10, 2024 (the “SAI”), containing additional information about the Fund, has been filed with the Securities
and Exchange Commission (“SEC”) and is incorporated by reference in its entirety into this Prospectus, which means that it
is part of this Prospectus for legal purposes. You may request a free copy of the SAI, the Fund’s Annual and Semi-Annual Reports,
request other information about the Fund and make shareholder inquiries by calling (800) 644-5571 (toll-free) or by writing to Paralel
Technologies LLC, 1700 Broadway, Suite 1850, Denver, Colorado 80290, or obtain a copy of such documents (and other information regarding
the Fund) by visiting the Fund’s website (www.utilityincomefund.com) or the SEC’s
web site (http://www.sec.gov).
The
amount of distributions that the Fund may pay is not guaranteed. The Fund may pay distributions in a significant part from sources
that may not be available in the future and that are unrelated to the Fund’s performance such as a return of capital.
This
Prospectus is part of a registration statement on Form N-2 that the Fund filed with the SEC using a “shelf” registration
process. Under this process, the Fund may offer, from time to time, up to $900,000,000 aggregate initial offering price of Securities
in one or more offerings in amounts, at prices and on terms set forth in one or more Prospectus Supplements. The Prospectus Supplement
may also add, update or change information contained in this Prospectus. You should carefully read this Prospectus and any accompanying
Prospectus Supplement, together with the additional information described under the heading “Where You Can Find More Information.”
You
should rely only on the information contained or incorporated by reference in this Prospectus and any accompanying Prospectus
Supplement. The Fund has not authorized any other person to provide you with different information. If anyone provides you with
different or inconsistent information, you should not rely on it. The Fund is not making an offer to sell these securities in
any jurisdiction where the offer or sale is not permitted. You should assume that the information contained or the representations
made herein are accurate only as of the date on the cover page of this Prospectus. The Fund’s business, financial condition
and prospects may have changed since that date. The Fund will amend this Prospectus and any accompanying Prospectus Supplement
if, during the period that this Prospectus and any accompanying Prospectus Supplement is required to be delivered, there are any
subsequent material changes.
WHERE
YOU CAN FIND MORE INFORMATION
The
Fund is subject to the informational requirements of the Securities Exchange Act of 1934 (the “Exchange Act”) and
the Investment Company Act of 1940 (“1940 Act”) and in accordance therewith files, or will file, reports and other
information with the SEC. Reports, proxy statements and other information filed by the Fund with the SEC pursuant to the informational
requirements of the Exchange Act and the 1940 Act can be inspected and copied at the public reference facilities maintained
by the SEC, 100 F Street, N.E., Washington, D.C. 20549. The SEC maintains a web site at www.sec.gov containing
reports, proxy and information statements and other information regarding registrants, including the Fund, that file electronically
with the SEC
This
Prospectus constitutes part of a Registration Statement filed by the Fund with the SEC under the Securities Act of 1933, as amended
(“Securities Act”) and the 1940 Act. This Prospectus omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement and related exhibits for further information with respect
to the Fund and the Common Shares offered hereby. Any statements contained herein concerning the provisions of any document are
not necessarily complete, and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration
Statement or otherwise filed with the SEC. Each such statement is qualified in its entirety by such reference. The complete Registration
Statement may be obtained from the SEC upon payment of the fee prescribed by its rules and regulations or free of charge through
the SEC’s website (www.sec.gov).
The
Fund will provide without charge to each person, including any beneficial owner, to whom this Prospectus is delivered, upon written or
oral request, a copy of any and all of the information that has been incorporated by reference in this Prospectus or any accompanying
Prospectus Supplement. You may request such information by calling toll-free 1-800-644-5571 or you may obtain a copy (and other information
regarding the Fund) from the SEC’s website (www.sec.gov). Free copies of the Fund’s Prospectus, SAI and any incorporated
information will also be available from the Fund’s website at www.utilityincomefund.com.
Information contained on the Fund’s website is not incorporated by reference into this Prospectus or any Prospectus Supplement
and should not be considered to be part of this Prospectus or any Prospectus Supplement.
INCORPORATION
BY REFERENCE
This
Prospectus is part of a registration statement that the Fund has filed with the SEC. The Fund is permitted
to “incorporate by reference” the information that it files with the SEC, which means that the Fund can
disclose important information to you by referring you to those documents. The information incorporated by reference is an important
part of this Prospectus, and later information that the Fund files with the SEC will automatically update and supersede
this information.
The
documents listed below, and any reports and other documents subsequently filed with the SEC pursuant to Rule 30(b)(2) under the
1940 Act and Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering, are incorporated
by reference into this Prospectus and deemed to be part of this Prospectus from the date of the filing of such reports and documents:
|
● |
the Fund’s
Statement of Additional Information, dated September 10, 2024, filed with this Prospectus (“SAI”); |
|
● |
the Fund’s
Annual Report on Form
N-CSR for the fiscal year ended October 31, 2023, filed with the SEC on January 5, 2024 (“Annual Report”); |
|
● |
the Fund’s
Semi-Annual Report on Form N-CSR
for the period ended April 30, 2024, filed with the SEC on July 3, 2024; |
|
● |
the Fund’s
definitive proxy statement on Schedule
14A for our 2024 annual meeting of shareholders, filed with the SEC on February 16, 2024 (“Proxy Statement”);
and |
|
● |
the Fund’s
description of common shares contained in our Registration Statement on Form
8-A (File No. 333-109089) filed with the SEC on February 20, 2004. |
To
obtain copies of these filings, see “Where You Can Find More Information.”
The
Fund’s securities do not represent a deposit or obligation of, and are not guaranteed or endorsed by, any bank or other
insured depository institution and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve
Board or any other government agency.
The
Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus.
Any representation to the contrary is a criminal offense.
TABLE
OF CONTENTS
You
should rely only on the information contained or incorporated by reference in this Prospectus. The Fund has not authorized any
other person to provide you with different information. If anyone provides you with different or inconsistent information, you
should not rely on it. The Fund is not making an offer to sell these securities in any jurisdiction where the offer or sale is
not permitted. You should not assume that the information provided by this Prospectus and any related Prospectus Supplement is
accurate as of any date other than the date on the cover page of this Prospectus and any related Prospectus Supplement. The Fund’s
business, financial condition and prospects may have changed since that date.
PROSPECTUS
SUMMARY
The
following summary is qualified in its entirety by reference to the more detailed information appearing elsewhere in this Prospectus.
This summary does not contain all of the information that you should consider before exercising your Rights and investing in the
Fund. You should review the more detailed information contained in this Prospectus and in the Statement of Additional Information,
especially the information set forth under the heading “Risk Factors.”
The
Fund |
|
Reaves
Utility Income Fund (the “Fund”) is a diversified, closed-end management investment company. The Fund’s
outstanding common shares are listed on the NYSE American LLC (the “NYSE American”) under the symbol “UTG”.
As of August 28, 2024, the net assets of the Fund were $2,566,611,240. As of August 28, 2024, the Fund had outstanding 86,607,381
common shares. The Fund has no other outstanding securities. See “The Fund.” As of August 28, 2024, the last reported
sale price for the Fund’s common shares was $30.05 per common share, and the last reported net asset value (“NAV”)
for the Fund’s common shares was $29.64 per common share, representing a premium to NAV of 1.38%. In connection with
any offering of Rights, the Fund will provide information in the Prospectus Supplement of the expected trading market, if
any, for Rights. |
|
|
|
The
Offering |
|
The
Fund may offer, from time to time, up to $900,000,000 aggregate initial offering price
of common shares, no par value (“Common Shares”), subscription rights to
purchase common shares (“Rights”) and/or any follow-on offering (“Follow-on
Offering” and together with the common shares and Rights, “Securities”)
in one or more offerings in amounts, at prices and on terms set forth in one or more
supplements to this Prospectus (each a “Prospectus Supplement”). Follow-on
Offerings may include offerings of common shares, offerings of Rights, and offerings
made in transactions that are deemed to be “at the market” as defined in
Rule 415 under the Securities Act of 1933, as amended (the “1933 Act”), including
sales made directly on the NYSE American or sales made to or through a market maker other
than on an exchange. You should read this Prospectus and any related Prospectus Supplement
carefully before you decide to invest in the Securities.
The
Fund may offer Securities (1) directly to one or more purchasers, (2) through agents that the Fund may designate from time to
time or (3) to or through underwriters or dealers. The Prospectus Supplement relating to a particular offering of Securities will
identify any agents or underwriters involved in the sale of Securities, and will set forth any applicable purchase price, fee,
commission or discount arrangement between the Fund and agents or underwriters or among underwriters or the basis upon which such
amount may be calculated. The Fund may not sell Securities through agents, underwriters or dealers without delivery of this Prospectus
and a Prospectus Supplement. See “Plan of Distribution.” |
|
|
|
Use
of Proceeds |
|
Unless
otherwise specified in a Prospectus Supplement, W.H. Reaves & Co., Inc. (the “Investment Adviser” or “Reaves”),
the Fund’s investment adviser, anticipates that investment of the proceeds will be made in accordance with the Fund’s
investment objective and policies as appropriate investment opportunities are identified. It is currently anticipated that
the Fund will be able to invest substantially all of the net proceeds of an offering of Securities in accordance with its
investment objective and policies within three months after the completion of such offering. Pending such investment, the
proceeds will be held in high quality short-term debt securities and instruments. A delay in the anticipated use of proceeds
could lower returns and reduce the Fund’s distribution to holders of common shares (“Common Shareholders”). |
Investment
Objective and Policies |
|
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 Fund pursues this objective by investing at least 80% of its total assets in the
securities of domestic and foreign companies involved to a significant extent in providing
products, services or equipment for (i) the generation or distribution of electricity,
gas or water, (ii) telecommunications activities or (iii) infrastructure operations,
such as airports, toll roads and municipal services (“Utilities” or the “Utility
Industry”).
A
company will be deemed to be involved in the Utility Industry to a significant extent if at least 50% of its assets, gross
income or profits are committed to or derived from activities in the areas described above. The remaining 20% of the Fund’s
total assets may be invested in other securities including stocks, debt obligations and money market instruments, as well
as certain derivative instruments (described below) and other investments.
As
used in this Prospectus and the Statement of Additional Information, the terms “debt securities” and “debt
obligations” refer to bonds, debentures and similar long and intermediate term debt investments and do not include
short-term fixed income securities such as money market instruments in which the Fund may invest temporarily pending investment
of the proceeds of an offering and during periods of abnormal market conditions. The Fund may invest in preferred stocks
and bonds of below investment grade quality (i.e., “junk bonds”).
Under
normal market conditions, the Fund invests at least 80% of its total assets in dividend-paying common and preferred stocks
of companies in the Utility Industry. In pursuing its objective, the Fund invests primarily in common and preferred stocks
that pay dividends that qualify for federal income taxation at rates applicable to long-term capital gains (“tax-advantaged
dividends”).
The
Fund may invest in the securities of both domestic and foreign issuers, including those located in emerging market countries
(i.e., a country not included in the MSCI World Index, a free float-adjusted market capitalization weighted index that
is designed to measure the equity market performance of developed markets).
As
an alternative to holding foreign-traded securities, the Fund may invest in dollar-denominated securities of foreign companies
that trade on U.S. exchanges or in the U.S. over-the-counter market (including depositary receipts, which evidence ownership
in underlying foreign securities).
To
date, the Fund’s derivatives usage has been limited to equity options, including writing covered calls, the purchase of
calls and the sale of puts. Options may be used as both hedges against the value of existing holdings or as speculative trades
as part of the Fund’s overall investment strategy.
In
addition, the Fund may choose to use interest rate swaps (or options thereon) from time to time for hedging purposes.
Although the Fund does not currently use interest rate swaps (or options thereon), the Fund may do so in the future, depending
on the interest rate outlook of the Investment Adviser and other factors. Such usage would be limited to no more than
20% of the Fund’s total assets. The Fund may choose to use other derivatives from time to time, as described in
the Statement of Additional Information.
|
|
|
There
is no assurance that the Fund will achieve its investment objective. Further, the Fund’s ability to pursue its investment
objective, the value of the Fund’s investments and the Fund’s NAV may be adversely affected by changes in tax rates
and policies. Because the Fund’s investment objective is to provide a high level of after-tax yield and total return consisting
primarily of dividend and interest income and capital appreciation, the Fund’s ability to invest, and the attractiveness
of investing in, equity securities that pay qualified dividend income in relation to other investment alternatives will be affected
by changes in federal income tax laws and regulations, including changes in the qualified dividend income provisions. Any proposed
or actual changes in such rates, therefore, can significantly and adversely affect the after-tax returns of the Fund’s investments
in equity securities. Any such changes also could significantly and adversely affect the Fund’s NAV, as well as the Fund’s
ability to acquire and dispose of equity securities at desirable returns and price levels and the Fund’s ability to pursue
its investment objective. The Fund cannot assure you as to the portion, if any, of the Fund’s dividends that will be qualified
dividend income. |
|
|
|
Investment
Adviser |
|
W.H.
Reaves & Co., Inc. serves as the Fund’s investment adviser. Reaves is registered
with the Securities and Exchange Commission (“SEC”) as an investment adviser
under the Investment Advisers Act of 1940, as amended. As of June 30, 2024, Reaves had
approximately $3.247 billion of assets under management. Reaves’ address is 10
Exchange Place, Jersey City, New Jersey 07302.
The
Fund pays Reaves a management fee payable on a monthly basis at the annual rate of 0.575% of the Fund’s average daily total
assets on assets up to and including $2.5 billion and 0.525% of the Fund’s average daily total assets on assets over $2.5
billion. |
|
|
|
Administrator |
|
Paralel
Technologies LLC (“Paralel”), located at 1700 Broadway, Suite 1850, Denver, Colorado 80290, serves as administrator
to the Fund. Under an administration and accounting agreement between Paralel and the Fund, Paralel is responsible for providing
the Fund with fund accounting, tax, fund administration, and compliance services, providing the Fund with certain executive
officers, and generally managing the business affairs of the Fund. The administration and accounting agreement provides that,
from its fees earned, Paralel will pay all expenses incurred by the Fund, with the exception of advisory fees; taxes and governmental
fees; expenses related to portfolio transactions and management of the portfolio; expenses associated with secondary offerings
of shares; trustee fees and expenses; expenses associated with tender offers and other share repurchases; and other extraordinary
expenses. Paralel is entitled to receive a monthly fee at the annual rate of 0.15% on the first $2 billion of the average
daily total assets of the Fund and 0.10% on any amount in excess of $2 billion of the average daily total assets of the Fund. |
|
|
|
Use
of Leverage |
|
The
Fund currently uses leverage through borrowing. More specifically, the Fund has entered
into a credit agreement (the “Credit Agreement”) with State Street Bank and
Trust Company (the “Bank”). As of April 30, 2024, the Fund had outstanding
$545,000,000 in principal amount of borrowings from the Credit Agreement representing
approximately 25.6% of the Fund’s net assets and 20.3% of the Fund’s total
assets. The Bank has the ability to terminate the Credit Agreement upon 360-days’
notice or following an event of default. |
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The
Fund has no present intention of issuing preferred shares, although it has done so in the past and may choose to do so
in the future.
The
Fund also may borrow money as a temporary measure for extraordinary or emergency purposes.
Leverage
creates risks for common shareholders, including the likelihood of greater volatility of NAV and market price of, and
dividends paid on, the common shares. There is a risk that fluctuations in the dividend rates on any preferred shares
issued by the Fund may adversely affect the return to the common shareholders. If the income from the securities purchased
with such funds is not sufficient to cover the cost of leverage, the return on the Fund will be less than if leverage
had not been used, and therefore the amount available for distribution to common shareholders as dividends and other distributions
will be reduced.
Changes
in the value of the Fund’s portfolio (including investments bought with the proceeds of the leverage program) will
be borne entirely by the common shareholders. If there is a net decrease (or increase) in the value of the Fund’s
investment portfolio, the leverage will decrease (or increase) the NAV per share to a greater extent than if the Fund
were not leveraged.
The
issuance of a class of preferred shares or incurrence of borrowings having priority over the common shares creates an
opportunity for greater return per common share, but at the same time such leveraging is a speculative technique in that
it will increase the Fund’s exposure to capital risk. Unless the income and appreciation, if any, on assets acquired
with leverage proceeds exceed the associated costs of the leverage program (and other Fund expenses), the use of leverage
will diminish the investment performance of the common shares compared with what it would have been without leverage.
The
fees received by Reaves and Paralel are based on the total assets of the Fund, including assets represented by leverage.
During periods in which the Fund is using leverage, the fees paid to Reaves for investment advisory services (and separately,
to Paralel for administrative services) will be higher than if the Fund did not use leverage because the fees paid will
be calculated on the basis of the Fund’s total assets, including proceeds from borrowings and the issuance of any
preferred shares. Therefore, Reaves and Paralel may have a financial incentive to use leverage, which creates a conflict
of interest between Reaves and Paralel and common shareholders. Reaves and Paralel will seek to manage this conflict of
interest by utilizing leverage only when they determine such action is in the best interests of the Fund. The Board of
Trustees of the Fund (the “Board”) reviews the Fund’s leverage on a periodic basis, and the Fund’s
use of leverage may be increased or decreased subject to the Board’s oversight and applicable law.
Under
the Investment Company Act of 1940, as amended, and the rules and regulations thereunder (the “1940 Act”),
the Fund is not permitted to issue preferred shares unless immediately after such issuance the total asset value of the
Fund’s portfolio is at least 200% of the liquidation value of the outstanding preferred shares (i.e., such liquidation
value may not exceed 50% of the Fund’s total assets). In addition, the Fund is not permitted to declare any cash
dividend or other distribution on its common shares unless, at the time of such declaration, the NAV of the Fund’s
portfolio (determined after deducting the amount of such dividend or other distribution) is at least 200% of such liquidation
value.
To
qualify for federal income taxation as a “regulated investment company,” the Fund must satisfy certain requirements
relating to sources of its income and diversification of its assets, and must distribute in each taxable year at least
90% of its net investment income (including net interest income and net short-term gain). The Fund also will be required
to distribute annually substantially all of its income and capital gain, if any, to avoid imposition of a nondeductible
4% federal excise tax.
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The
Fund’s willingness to issue new securities for investment purposes, and the amount the Fund will
issue, depends on many factors, the most important of which are market conditions and interest rates.
There
is no assurance that a leveraging strategy will be successful during any period in which it is employed.
The
Fund may increase the amount of leverage following the completion of an offering, subject to applicable law. |
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Risk Factors |
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This
is a summary of only certain of the risks associated with an offering of the Fund’s common shares and with an investment
in the Fund. See “Risk Factors” below.
Risk
is inherent in all investing. Investing in any investment company security involves risk, including the risk that you
may receive little or no return on your investment or even that you may lose part or all of your investment. Therefore,
before investing you should consider carefully the following risks that you assume when you invest in the Fund’s
common shares:
Risks
Associated with Offerings of Additional Common Shares. The voting power of current shareholders will be diluted to
the extent that current shareholders do not purchase shares in any future offerings of shares or do not purchase sufficient shares
to maintain their percentage interest. If the Fund is unable to invest the proceeds of such offering as intended, the Fund’s
per common share distribution may decrease and the Fund may not participate in market advances to the same extent as if such proceeds
were fully invested as planned. If the Fund sells common shares at a price below NAV pursuant to the consent of shareholders,
shareholders will experience a dilution of the aggregate NAV per common share because the sale price will be less than the Fund’s
then-current NAV per common share. Similarly, were the expenses of the offering to exceed the amount by which the sale price exceeded
the Fund’s then current NAV per common share, shareholders would experience a dilution of the aggregate NAV per common share.
This dilution will be experienced by all shareholders, irrespective of whether they purchase common shares in any such offering.
See “Description of the Common Shares–Common Shares.”
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Additional
Risks of Rights. There are additional risks associated with an offering of Rights. Shareholders who do not
exercise their Rights may, at the completion of such an offering, own a smaller proportional interest in the Fund than
if they exercised their Rights. As a result of such an offering, a shareholder may experience dilution in NAV per share
if the subscription price per share is below the NAV per share on the expiration date. If the subscription price per share
is below the NAV per share of the Fund’s common shares on the expiration date, a shareholder will experience an
immediate dilution of the aggregate NAV of such shareholder’s common shares if the shareholder does not participate
in such an offering and the shareholder will experience a reduction in the NAV per share of such shareholder’s common
shares whether or not the shareholder participates in such an offering. Such a reduction in NAV per share may have the
effect of reducing market price of the common shares. The Fund cannot state precisely the extent of this dilution (if
any) if the shareholder does not exercise such shareholder’s Rights because the Fund does not know what the NAV
per share will be when the offer expires or what proportion of the Rights will be exercised. If the subscription price
is substantially less than the then current NAV per common share at the expiration of a rights offering, such dilution
could be substantial. Any such dilution or accretion will depend upon whether (i) such shareholders participate in the
rights offering and (ii) the Fund’s NAV per common share is above or below the subscription price on the expiration
date of the rights offering. In addition to the economic dilution described above, if a Common Shareholder does not exercise
all of their rights, the Common Shareholder will incur voting dilution as a result of this rights offering. This voting
dilution will occur because the Common Shareholder will own a smaller proportionate interest in the Fund after the rights
offering than prior to the rights offering. There is a risk that changes in market conditions may result in the underlying
common shares purchasable upon exercise of the subscription rights being less attractive to investors at the conclusion
of the subscription period. This may reduce or eliminate the value of the subscription rights. If investors exercise only
a portion of the rights, the number of common shares issued may be reduced, and the common shares may trade at less favorable
prices than larger offerings for similar securities. Subscription rights issued by the Fund may be transferable or non-transferable
rights. In a non-transferable rights offering, Common Shareholders who do not wish to exercise their rights will be unable
to sell their rights. In a transferrable rights offering, the Fund will use its best efforts to ensure an adequate trading
market for the rights; however, investors may find that there is no market to sell rights they do not wish to exercise.
Investment
and Market Risk. An investment in common shares is subject to investment risk, including the possible loss
of the entire principal amount invested. An investment in common shares represents an indirect investment in the securities
owned by the Fund, which are generally traded on a securities exchange or in the over-the-counter markets. The value of
these securities, like other market investments, may move up or down, sometimes rapidly and unpredictably. The Fund anticipates
using leverage, which will magnify the Fund’s investment, market and certain other risks. The common shares at any
point in time may be worth less than the original investment, even after taking into account any reinvestment of dividends
and distributions.
Issuer
Risk. The value of common and preferred stocks may decline for a number of reasons which directly relate
to the issuer, such as management performance, financial leverage and reduced demand for the issuer’s goods and
services.
Income
Risk. The income that common shareholders receive from the Fund is based primarily on the dividends and interest
it earns from its investments, which can vary widely over the short and long-term. If prevailing market interest rates
drop, distribution rates of the Fund’s holdings and common shareholder’s income from the Fund could drop as
well. The Fund’s income also would likely be affected adversely if prevailing short-term interest rates increase
and the Fund is utilizing leverage.
Leverage
Risk. Described in the “Use of Leverage” section above.
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Tax
Risk. The Fund’s investment program and the tax treatment of Fund distributions may be affected by
Internal Revenue Service (“IRS”) interpretations of the Internal Revenue Code of 1986, as amended (the “Code”),
future changes in tax laws and regulations. There can be no assurance that any portion of the Fund’s income distributions
will not be fully taxable as ordinary income. The Fund’s ability to pursue its investment objective, the value of
the Fund’s investments and the Fund’s NAV may be adversely affected by changes in tax rates and policies.
Because the Fund’s investment objective is to provide a high level of after-tax yield and total return consisting
primarily of dividend and interest income and capital appreciation, the Fund’s ability to invest, and the attractiveness
of investing in, equity securities that pay qualified dividend income in relation to other investment alternatives will
be affected by changes in federal income tax laws and regulations, including changes in the qualified dividend income
provisions. Any proposed or actual changes in such rates, therefore, can significantly and adversely affect the after-tax
returns of the Fund’s investments in equity securities. Any such changes also could significantly and adversely
affect the Fund’s NAV, as well as the Fund’s ability to acquire and dispose of equity securities at desirable
returns and price levels and the Fund’s ability to pursue its investment objective. The Fund cannot assure you as
to the portion, if any, of the Fund’s dividends that will be qualified dividend income. Further, in order to avoid
corporate income tax at the level of the Fund, it must qualify each year as a regulated investment company under the Code.
Sector/Industry
Risk. The “Utility Industry” generally includes companies involved in providing products, services
or equipment for (i) the generation or distribution of electricity, gas or water, (ii) telecommunications activities
or (iii) infrastructure operations, such as airports, toll roads and municipal services. The Fund invests a significant
portion of its total assets in securities of utility companies, which may include companies in the electric, gas, water,
telecommunications sectors, as well as other companies engaged in other infrastructure operations. This may make the Fund
more susceptible to adverse economic, political or regulatory occurrences affecting those sectors. As concentration of
the Fund’s investments in a sector increases, so does the potential for fluctuation in the NAV of common shares.
Risks
that are intrinsic to utility companies include difficulty in obtaining an adequate return on invested capital, difficulty in
financing large construction programs during an inflationary period, restrictions on operations and increased cost and delays
attributable to environmental considerations and regulation, difficulty in raising capital in adequate amounts on reasonable terms
in periods of high inflation and unsettled capital markets, technological innovations that may render existing plants, equipment
or products obsolete, the potential impact of natural or man-made disasters, increased costs and reduced availability of certain
types of fuel, occasional reduced availability and high costs of natural gas and other fuels, the effects of energy conservation,
the effects of a national energy policy and lengthy delays and greatly increased costs and other problems associated with the
design, construction, licensing, regulation and operation of nuclear facilities for electric generation, including, among other
considerations, the problems associated with the use of radioactive materials, the disposal of radioactive wastes, shutdown of
facilities or release of radiation resulting from catastrophic events, disallowance of costs by regulators which may reduce profitability,
and changes in market structure that increase competition. |
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In
many regions, including the United States, the Utility Industry is experiencing increasing competitive pressures, primarily
in wholesale markets, as a result of consumer demand, technological advances, greater availability of natural gas with
respect to electric utility companies and other factors. For example, the Federal Energy Regulatory Commission (the “FERC”)
has implemented regulatory changes to increase access to the nationwide transmission grid by utility and non-utility purchasers
and sellers of electricity. A number of countries, including the United States, are considering or have implemented methods
to introduce and promote retail competition. Changes in regulation may result in consolidation among domestic utilities
and the disaggregation of many vertically integrated utilities into separate generation, transmission and distribution
businesses. As a result, additional significant competitors could become active in certain parts of the Utility Industry.
Due
to the high costs of developing, constructing, operating and distributing assets and facilities many utility companies
are highly leveraged. As such, movements in the level of interest rates may affect the returns from these assets. See
“Risk Factors—Sector/Industry Risk—Interest Rate Risk.”
Concentration
Risk. The Fund’s investments will be concentrated in the Utility Industry. The focus of the Fund’s
portfolio on this sector may present more risks than if the Fund’s portfolio were broadly spread over numerous sectors
of the economy. A downturn in this sector (or any sub-sectors within it) would have a larger impact on the Fund than on an
investment company that does not concentrate solely in this specific sector (or in specific sub-sectors). At times, the
performance of companies in the Utility Industry (or a specific sub-sector) may lag the performance of other sectors or the
broader market as a whole.
Common
Stock Risk. The Fund will have substantial exposure to common stocks. Although common stocks have historically
generated higher average returns than fixed-income securities over the long-term, common stocks also have experienced
significantly more volatility in returns. An adverse event, such as an unfavorable earnings report, may depress the value
of a particular common stock held by the Fund. Also, the price of common stocks are sensitive to general movements in
the stock market and a drop in the stock market may depress the price of common stocks to which the Fund has exposure.
Common stock prices fluctuate for many reasons, including changes in investors’ perceptions of the financial condition
of an issuer or the general condition of the relevant stock market, or when political or economic events affecting the
issuer occur. Common stock is subordinated to preferred stock and debt in a company’s capital structure with respect
to priority in the right to a share of corporate income, and therefore will be subject to greater dividend risk than preferred
stock or debt instruments. In addition, common stock prices may be sensitive to rising interest rates, as the costs of
capital rise and borrowing costs increase.
Foreign
Securities Risk. Investments in securities of non-U.S. issuers will be subject to risks not usually associated
with owning securities of U.S. issuers. These risks can include fluctuations in foreign currencies, foreign currency exchange
controls, social, political and economic instability, differences in securities regulation and trading, expropriation or nationalization
of assets, and foreign taxation issues. In addition, changes in government administrations or economic or monetary policies in
the United States or abroad could result in appreciation or depreciation of the Fund’s securities. It may also be more difficult
to obtain and enforce a judgment against a non-U.S. issuer. Foreign investments made by the Fund must be made in compliance with
U.S. and foreign currency restrictions and tax laws restricting the amounts and types of foreign investments. The risks of foreign
investing may be magnified for investments in issuers located in emerging market countries. |
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To
the extent the Fund invests in depositary receipts, the Fund will be subject to many of the same risks as when investing
directly in non-U.S. securities. The holder of an unsponsored depositary receipt may have limited voting rights and may
not receive as much information about the issuer of the underlying securities as would the holder of a sponsored depositary
receipt.
Foreign
Currency Risk. Investments in securities that trade in and receive revenues in foreign currencies are subject
to the risk that those currencies will decline in value relative to the U.S. dollar. Currency rates in foreign countries
may fluctuate significantly over short periods of time. A decline in the value of foreign currencies relative to the U.S.
dollar will reduce the value of securities held by the Fund and denominated in those currencies. Some foreign governments
levy withholding taxes against dividend and interest income. Although in some countries portions of these taxes are recoverable,
any amounts not recovered will reduce the income received by the Fund, and may reduce distributions to common shareholders.
These risks are generally heightened for investments in emerging market countries.
Small
and Mid-Cap Stock Risk. The Fund may invest in companies of any market capitalization. The Fund considers
small companies to be those with a market capitalization up to $2 billion and medium-sized companies to be those with
a market capitalization between $2 billion and $10 billion. Smaller and medium-sized company stocks may be more volatile
than, and perform differently from, larger company stocks. There may be less trading in the stock of a smaller or medium-sized
company, which means that buy and sell transactions in that stock could have a larger impact on the stock’s price
than is the case with larger company stocks. Smaller and medium-sized companies may have fewer business lines; changes
in any one line of business, therefore, may have a greater impact on a smaller or medium-sized company’s stock price
than is the case for a larger company. As a result, the purchase or sale of more than a limited number of shares of a
small or medium-sized company may affect its market price. The Fund may need a considerable amount of time to purchase
or sell its positions in these securities. In addition, smaller or medium-sized company stocks may not be well known to
the investing public and may be held primarily by insiders or institutional investors.
Non-Investment
Grade Securities Risk. Investments in securities of below investment grade quality, if any, are predominantly speculative
because of the credit risk of their issuers. While offering a greater potential opportunity for capital appreciation and higher
yields, preferred stocks and bonds of below investment grade quality (also known as “junk bonds”) entail greater potential
price volatility and may be less liquid than higher-rated securities. Issuers of below investment grade quality preferred stocks
and bonds are more likely to default on their payments of dividends/interest and liquidation value/principal owed to the Fund,
and such defaults will reduce the Fund’s NAV and income distributions.
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Interest
Rate Risk. Interest rate risk is the risk that preferred stocks paying fixed dividend rates and fixed-rate
debt securities will decline in value because of changes in market interest rates. When interest rates rise the market
value of such securities generally will fall. An investment by the Fund in preferred stocks or fixed-rate debt securities
means that the NAV and price of the common shares may decline if market interest rates rise. In typical interest rate
environments, the prices of longer term debt securities generally fluctuate more than the prices of shorter-term debt
securities as interest rates change. These risks may be greater in the current market environment because certain interest
rates are near historically low levels. During periods of declining interest rates, an issuer of preferred stock or fixed-rate
debt securities may exercise its option to redeem securities prior to maturity, forcing the Fund to reinvest in lower
yielding securities. During periods of rising interest rates, the average life of certain types of securities may be extended
because of slower than expected payments. This may lock in a below market yield, increase the security’s duration,
and reduce the value of the security. The value of the Fund’s common stock investments may also be influenced by
changes in interest rates.
Credit
Risk. Credit risk is the risk that an issuer of a preferred or debt security will become unable to meet its
obligation to make dividend, interest and principal payments. In general, lower rated preferred or debt securities carry
a greater degree of credit risk. If rating agencies lower their ratings of preferred or debt securities in the Fund’s
portfolio, the value of those obligations could decline. In addition, the underlying revenue source for a preferred or
debt security may be insufficient to pay dividends, interest or principal in a timely manner.
Derivatives
Risk. Although it may use other derivative instruments from time to time as described in the Statement of Additional
Information, the Fund’s derivatives usage to date has generally been limited to equity options, including writing covered
calls, the purchase of calls and the sale of puts. A decision as to whether, when and how to use options involves the exercise
or skill and judgment, and even a well-conceived transaction may be unsuccessful to some degree because of market behavior or
unexpected events. The Fund may also, from time to time, choose to use interest rate swaps (or options thereon). Derivatives transactions
of the types described above subject the Fund to increased risk of principal loss due to imperfect correlation or unexpected price
or interest rate movements. The Fund’s use of derivative instruments involves investments risks and transactions costs to
which the Fund would not be subject absent the use of these instruments and, accordingly, may result in losses greater than if
they had not been used. The Fund also will be subject to credit risk with respect to the counterparties to the over-the-counter
derivatives contracts purchased by the Fund. If a counterparty becomes bankrupt or otherwise fails to perform its obligations
under a derivative contract due to financial difficulties, the Fund may experience significant delays in obtaining any recovery
under the derivative contract in a bankruptcy or other reorganization proceeding. The Fund may obtain only a limited recovery
or may obtain no recovery in such circumstances. As a general matter, dividends received on hedged stock positions are characterized
as ordinary income and are not eligible for favorable tax treatment. In addition, use of derivatives may give rise to short-term
capital gains and other income that would not qualify for payments by the Fund of tax-advantaged dividends.
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Preferred
Stock Risk. The Fund may have exposure to preferred stocks. In addition to credit risk, investments in preferred
stocks involve certain other risks. Certain preferred stocks contain provisions that allow an issuer under certain conditions
to skip distributions (in the case of “noncumulative” preferred stocks) or defer distributions (in the case
of “cumulative” preferred stocks). If the Fund owns a preferred stock that is deferring its distributions,
the Fund may be required to report income for tax purposes while it is not receiving income on this position. Preferred
stocks often contain provisions that allow for redemption in the event of certain tax or legal changes or at the issuers’
call. In the event of redemption, the Fund may not be able to reinvest the proceeds at comparable rates of return. Preferred
stocks typically do not provide any voting rights, except in cases when dividends are in arrears beyond a certain time
period, which varies by issue. Preferred stocks are subordinated to bonds and other debt instruments in a company’s
capital structure in terms of priority to corporate income and liquidation payments, and therefore will be subject to
greater credit risk than those debt instruments. Preferred stocks may be significantly less liquid than many other securities,
such as U.S. government securities, corporate debt or common stock.
Debt
Securities Risk. In addition to credit risk, investments in debt securities carry certain risks including:
redemption risk (debt securities sometimes contain provisions that allow for redemption in the event of tax or security
law changes in addition to call features at the option of the issuer. In the event of a redemption, the Fund may not be
able to reinvest the proceeds at comparable rates of return); limited voting rights (debt securities typically do not
provide any voting rights, except in cases when interest payments have not been made and the issuer is in default; and
liquidity (certain debt securities may be substantially less liquid than many other securities, such as U.S. government
securities or common stocks).
Inflation
Risk. Inflation risk is the risk that the purchasing power of assets or income from investment will be worth
less in the future as inflation decreases the value of money. As inflation increases, the real value of the common shares
and distributions thereon can decline.
Illiquid
Securities Risk. The Fund may invest in securities for which there is no readily available trading market
or which are otherwise illiquid. The Fund may not be able readily to dispose of such securities at prices that approximate
those at which the Fund could sell such securities if they were more widely traded and, as a result of such illiquidity,
the Fund may have to sell other investments or engage in borrowing transactions if necessary to raise cash to meet its
obligations. In addition, the limited liquidity could affect the market price of the securities, thereby adversely affecting
the Fund’s NAV.
Market
Price of Common Shares. The shares of closed-end management investment companies often trade at a discount
from their NAV, and the Fund’s common shares may likewise trade at a discount from NAV. The trading price of the
Fund’s common shares may be less than the public offering price. The returns earned by common shareholders who sell
their common shares below NAV will be reduced. As of April 30, 2024, the Fund’s common shares are trading at a premium
to NAV.
Management
Risk. The Fund is subject to management risk because it has an actively managed portfolio. Reaves and the individual
portfolio managers apply investment techniques and risk analyses in making investment decisions for the Fund, but there can be
no guarantee that these will produce the desired results.
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Market
Disruption and Geopolitical Risk. The value of your investment in the Fund is based on the values of the
Fund’s investments, which may change due to economic and other events that affect markets generally, as well as
those that affect particular regions, countries, industries, companies or governments. These movements, sometimes called
volatility, may be greater or less depending on the types of securities the Fund owns and the markets in which the securities
trade. The increasing interconnectivity between global economies and financial markets increases the likelihood that events
or conditions in one region or financial market may adversely impact issuers in a different country, region or financial
market. Securities in the Fund’s portfolio may underperform due to inflation (or expectations for inflation), interest
rates, global demand for particular products or resources, natural disasters, pandemics, epidemics, terrorism, regulatory
events and governmental or quasi-governmental actions. The occurrence of global events similar to those in recent years,
such as the escalated conflict in the Middle East and the ongoing Russia-Ukraine conflict, terrorist attacks around the
world, natural disasters, social and political discord or debt crises and downgrades, among others, may result in market
volatility and may have long term effects on both the U.S. and global financial markets. The occurrence of such events
may be sudden and unexpected, and it is difficult to predict when similar events affecting the U.S. or global financial
markets may occur, the effects that such events may have and the duration of those effects. Any such event(s) could have
a significant adverse impact on the value, liquidity and risk profile of the Fund’s portfolio, as well as its ability
to sell securities to meet redemptions. There is a risk that you may lose money by investing in the Fund.
Social,
political, economic and other conditions and events, such as natural disasters, health emergencies (e.g., epidemics and pandemics),
terrorism, wars, conflicts and social unrest, may occur and could significantly impact issuers, industries, governments and other
systems, including the financial markets. As global systems, economies and financial markets are increasingly interconnected,
events that once had only local impact are now more likely to have regional or even global effects. Events that occur in one country,
region or financial market will, more frequently, adversely impact issuers in other countries, regions or markets. These impacts
can be exacerbated by failures of governments and societies to adequately respond to an emerging event or threat. These types
of events quickly and significantly impact markets in the U.S. and across the globe leading to extreme market volatility and disruption.
The extent and nature of the impact on supply chains or economies and markets from these events is unknown. These events could
reduce consumer demand or economic output, result in market closures, travel restrictions or quarantines, and generally have a
significant impact on the economies and financial markets and the Adviser’s investment advisory activities and services
of other service providers, which in turn could adversely affect the Fund’s investments and other operations. The value
of the Fund’s investments may decrease as a result of such events, particularly if these events adversely impact the operations
and effectiveness of the Adviser or key service providers or if these events disrupt systems and processes necessary or beneficial
to the investment advisory or other activities on behalf the Fund.
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Legislation, Policy and Regulatory Risk. At any time after the date of this Prospectus, legislation or additional regulations may be enacted that could negatively affect the assets of the Fund or the issuers of such assets. Recent changes in the U.S. political landscape and changing approaches to regulation may have a negative impact on the entities and/or securities in which the Fund invests. Legislation or regulation may also change the way in which the Fund itself is regulated. New or amended regulations may be imposed by the Commodity Futures Trading Commission (“CFTC”), the SEC, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) or other financial regulators, other governmental regulatory authorities or self-regulatory organizations that supervise the financial markets that could adversely affect the Fund. In particular, these agencies are empowered to promulgate a variety of new rules pursuant to financial reform legislation in the United States. There can be no assurance that future legislation, regulation or deregulation will not have a material adverse effect on the Fund or will not impair the ability of the Fund to achieve its investment objective. The Fund also may be adversely affected by changes in the enforcement or interpretation of existing statutes and rules by these governmental agencies.
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Anti-Takeover Provisions |
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The Fund’s
Agreement and Declaration of Trust, dated September 15, 2003 (the “Declaration of Trust”), includes provisions
that could have the effect of inhibiting the Fund’s possible conversion to open-end status and limiting the ability
of other entities or persons to acquire control of the Board. In certain circumstances, these provisions might also inhibit
the ability of shareholders to sell their common shares at a premium over prevailing market prices. See “Description
of Capital Structure — Anti-Takeover Provisions in the Declaration of Trust.” |
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Distributions |
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The Fund intends
to make a level dividend distribution each month to common shareholders after payment of interest on any outstanding borrowings.
The level dividend rate is determined, and may be modified by the Board of Trustees, from time to time. Any net capital gains
earned by the Fund are distributed at least annually. Distributions to shareholders are recorded by the Fund on the ex-dividend
date. In August 2009, the SEC issued an order approving exemptive relief for the Fund, from Section 19(b) and Rule 19b-1 under
the 1940 Act (the “Order”). The Order allows the Fund to employ a managed distribution plan (the “Managed
Distribution Plan”) rather than a level distribution plan. The Fund implemented the Managed Distribution Plan for the
fiscal year ended October 31, 2011. The Board’s most recent approval of the Plan was in September 2011. Common shareholders
who elect not to participate in the Fund’s dividend reinvestment plan will receive all 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). See “Distributions.” |
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Dividend Reinvestment Plan |
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Common shareholders
may elect automatically to reinvest some or all of their distributions in additional common shares under the Fund’s
dividend reinvestment plan. Whenever the Fund declares a dividend or other distribution payable in cash, participants in the
dividend reinvestment plan will receive the equivalent in common shares. See “Dividend Reinvestment Plan.” |
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Common Share Purchases and Tenders |
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From time to time,
the Fund’s Board may consider repurchasing common shares in the open market or in private transactions, or tendering
for shares, in an attempt to reduce or eliminate a market value discount from NAV, if one should occur. |
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Custodian and Transfer Agent |
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State Street Bank
and Trust Company (“State Street”) serves as the Fund’s custodian. SS&C Global Investor & Distribution
Solutions, Inc. (“SS&C GIDS”) serves as the Fund’s transfer agent, dividend paying agent and registrar.
See “Custodian, Transfer Agent, Dividend Paying Agent and Registrar.” |
SUMMARY
OF FUND EXPENSES
The
following table is intended to assist investors in understanding the fees and expenses (annualized) that an investor in common
shares of the Fund would bear, directly or indirectly. The table is based on the capital structure of the Fund as of April 30,
2024.
The
table assumes the use of leverage in the form of amounts borrowed by the Fund under a credit agreement in an amount equal to 20.3%
of the Fund’s total assets as of April 30, 2024 (including the amounts of any additional leverage obtained through the use
of borrowed funds) and shows Fund expenses as a percentage as a percentage of net assets attributable to common shares. The following
table should not be considered a representation of the Fund’s future expenses. Actual expenses may be greater or less than
those shown below. Interest payments on borrowings are included in the total annual expenses of the Fund.
Shareholder
Transaction Expenses (as a percentage of offering price) |
|
|
Sales
Load1 |
|
— |
Offering
Expenses Borne by Common Shareholders1 |
|
0.00%6 |
Dividend
Reinvestment Plan Fees2 |
|
None |
|
|
|
Annual Expenses |
|
Percentage of Net Assets
Attributable to Common
Shares1 |
Investment
Advisory Fees3 |
|
0.72% |
Interest
Payments on Borrowed Funds4 |
|
1.58% |
Other
Expenses5 |
|
0.23% |
Total
Annual Fund Operating Expenses |
|
2.53% |
| (2) | There
will be no brokerage charges with respect to common shares of beneficial interest issued
directly by the Fund under the dividend reinvestment plan. You will pay brokerage charges
in connection with open market purchases or if you direct the plan agent to sell your
common shares held in a dividend reinvestment account. |
| (6) | Amount
represents less than 0.00% of the offering price. |
Example
The
purpose of the following table is to help a holder of common shares understand the fees and expenses that such holder would bear
directly or indirectly. The following example illustrates the expenses that you would pay on a $1,000 investment in common shares
of the Fund assuming (1) that the Fund incurs total annual expenses of 2.53% of its net assets in years 1 through 10 (assuming
borrowing equal to 20.3% of the Fund’s total assets) and (2) a 5% annual return.
1 Year |
|
3 Years |
|
5 Years |
|
10 Years |
|
|
|
|
|
|
|
$26 |
|
$79 |
|
$134 |
|
$286 |
The
example should not be considered a representation of future expenses or rate of return and includes the expenses of the offering.
Actual expenses may be higher or lower than those shown. The example assumes that the estimated “Other Expenses”
set forth in the Annual Expenses table are accurate and that all dividends and distributions are reinvested at NAV. Moreover,
the Fund’s actual rate of return may be greater or less than the hypothetical 5% annual return shown in the example.
FINANCIAL
HIGHLIGHTS
The
Fund’s audited Financial Highlights for the fiscal years ended October 31, 2014, 2015, 2016, 2017, 2018, 2019, 2020, 2021,
2022 and 2023 and the unaudited Financial Highlights for the six months ended April 30, 2024 are incorporated by reference from
the Fund’s Semi-Annual Report for the six months ended April 30, 2024 and in the future, will be incorporated by reference
from the Fund’s Form N-CSR filings.
INFORMATION
REGARDING SENIOR SECURITIES
The
following table sets forth certain unaudited information regarding the Fund’s senior securities as of the end of each of
the Fund’s prior ten fiscal years. The Fund’s senior securities during this time period are comprised of outstanding
indebtedness, which constitutes a “senior security” as defined in the 1940 Act, and any then-outstanding auction market
preferred shares.
Senior
Securities Representing Indebtedness
Fiscal Year Ended | |
Principal Amount Outstanding1 | |
Asset Coverage Per $1,0002 |
October 31, 2023 | |
$520,000,000 | |
$4,642 |
October 31, 2022 | |
$500,000,000 | |
$4,989 |
October 31, 2021 | |
$450,000,000 | |
$5,796 |
October 31, 2020 | |
$345,000,000 | |
$5,811 |
October 31, 2019 | |
$445,000,000 | |
$5,000 |
October 31, 2018 | |
$445,000,000 | |
$4,472 |
October 31, 2017 | |
$320,000,000 | |
$6,040 |
October 31, 2016 | |
$320,000,000 | |
$4,489 |
October 31, 2015 | |
$320,000,000 | |
$3,747 |
October 31, 2014 | |
$290,000,000 | |
$4,273 |
| (1) | Principal
amount outstanding represents the principal amount owed by the Fund to lenders under
credit facility arrangements in place at the time. |
| (2) | Asset
coverage per $1,000 of debt is calculated by subtracting the Fund’s liabilities
and indebtedness not represented by senior securities from the Fund’s total assets,
dividing the result by the aggregate amount of the Fund’s senior securities representing
indebtedness then outstanding, and multiplying the result by 1,000. |
Senior
Securities Representing Stock (Auction Market Preferred Shares)
Fiscal Year Ended | |
Total Amount Outstanding1 | |
Asset Coverage Per Unit2 | |
Involuntary Liquidating Preference Per Unit3 | |
Average Market Value Per Unit |
October 31, 2023 | |
None | |
N/A | |
N/A | |
N/A |
October 31, 2022 | |
None | |
N/A | |
N/A | |
N/A |
October 31, 2021 | |
None | |
N/A | |
N/A | |
N/A |
October 31, 2020 | |
None | |
N/A | |
N/A | |
N/A |
October 31, 2019 | |
None | |
N/A | |
N/A | |
N/A |
October 31, 2018 | |
None | |
N/A | |
N/A | |
N/A |
October 31, 2017 | |
None | |
N/A | |
N/A | |
N/A |
October 31, 2016 | |
None | |
N/A | |
N/A | |
N/A |
October 31, 2015 | |
None | |
N/A | |
N/A | |
N/A |
October 31, 2014 | |
None | |
N/A | |
N/A | |
N/A |
| (1) | Total
amount outstanding represents the aggregate principal amount of auction market preferred
shares then outstanding. |
| (2) | “Asset
coverage per unit” means the ratio that the value of the total assets of the Fund,
less all liabilities and indebtedness not represented by the then-outstanding auction
market preferred shares, bears to the aggregate of the involuntary liquidation preference
of the then outstanding preferred shares, expressed as a dollar amount per preferred
share. |
| (3) | “Involuntary
liquidating preference per unit” means the amount to which a then-current holder
of auction market preferred shares would be entitled upon the involuntary liquidation
of the Fund in preference to the holders of common shares, expressed as a dollar amount
per preferred share. |
THE
OFFERING
The
Fund may offer, from time to time, up to $900,000,000 aggregate initial offering price of common shares, Rights and/or any Follow-on
Offering in one or more offerings in amounts, at prices and on terms set forth in one or more Prospectus Supplements. Follow-on
Offerings may include offerings of common shares, offerings of Rights, and offerings made in transactions that are deemed to be
“at the market” as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE American
or sales made to or through a market maker other than on an exchange. You should read this Prospectus and any related Prospectus
Supplement carefully before you decide to invest in the Securities.
The
Fund may offer Securities (1) directly to one or more purchasers, (2) through agents that the Fund may designate from time to
time or (3) to or through underwriters or dealers. The Prospectus Supplement relating to a particular offering of Securities will
identify any agents or underwriters involved in the sale of Securities, and will set forth any applicable purchase price, fee,
commission or discount arrangement between the Fund and agents or underwriters or among underwriters or the basis upon which such
amount may be calculated. The Fund may not sell Securities through agents, underwriters or dealers without delivery of this Prospectus
and a Prospectus Supplement. See “Plan of Distribution.”
USE
OF PROCEEDS
Unless
otherwise specified in a Prospectus Supplement, the Investment Adviser anticipates that the investment of the proceeds will be
made in accordance with the Fund’s investment objective and policies as appropriate investment opportunities are identified.
It is currently anticipated that the Fund will be able to invest substantially all of the net proceeds of any offering of Securities
in accordance with its investment objective and policies within three months after the completion of such offering, however specific
information regarding the use of proceeds and timing of such investment will be set forth within any Prospectus Supplement setting
forth the information regarding such offering.
Adverse
market conditions could cause certain investments to be made after three months but no later than six months. Pending such investment,
the proceeds will be held in high quality short-term debt securities and instruments. A delay in the anticipated use of proceeds
could lower returns and reduce the Fund’s distribution to Common Shareholders.
THE
FUND
The
Fund is a closed-end, diversified management investment company registered under the 1940 Act. The Fund was organized as a Delaware
statutory trust on September 15, 2003 pursuant to the Declaration of Trust governed by the laws of the state of Delaware.
The Fund’s principal office is located at 1700 Broadway, Suite 1850, Denver, Colorado 80290 and its telephone number is
(800) 644-5571 (toll-free).
INVESTMENT
OBJECTIVE AND POLICIES
General
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 Fund pursues this objective by investing at least 80% of its total assets in the
securities of domestic and foreign companies involved to a significant extent in providing products, services or equipment for
(i) the generation or distribution of electricity, gas or water, (ii) telecommunications activities or (iii) infrastructure
operations, such as airport, toll roads and municipal services (“Utilities” or the “Utility Industry”).
A company will be deemed to be involved in the Utility Industry to a significant extent if at least 50% of its assets, gross income
or profits are committed to or derived from activities in the areas described above. The remaining 20% of the Fund’s total
assets may be invested in other securities including stocks, debt obligations, money market securities and money market instruments,
as well as certain derivative instruments (as described in “Investment Techniques” below) and other investments. Moreover,
should extraordinary conditions affecting the Utility Industry or securities markets as a whole warrant, the Fund may temporarily
hold cash or be primarily invested in money market instruments. When the Fund is invested in these instruments for temporary or
defensive purposes, it may not be pursuing its investment objective.
The
Fund may invest in debt securities if deemed advisable by Reaves to increase income or total return or reduce risk. Reaves retains
broad discretion to alter the allocation of the Fund’s investments among common stocks, preferred stocks and debt securities
in the manner it believes will best effectuate the Fund’s investment objective.
The
Fund seeks dividend income that qualifies for favorable federal income tax treatment. Under current federal income tax law, tax-advantaged
dividends received by individual shareholders are taxed at rates equivalent to long-term capital gain tax rates, which reach a
maximum of 20%. Tax-advantaged dividends generally include dividends from domestic corporations and dividends from foreign corporations
that meet certain specified criteria. The Fund generally can pass the tax treatment of tax-advantaged dividends it receives through
to its common shareholders. For the Fund to receive tax-advantaged dividend income, the Fund must hold stock paying an otherwise
tax-advantaged dividend for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date (or more
than 90 days during the associated 180-day period, in the case of certain preferred stocks). In addition, the Fund cannot be obligated
to make related payments (pursuant to a short sale or otherwise) with respect to substantially similar or related property. Similar
provisions apply to each common shareholder’s investment in the Fund. In order for otherwise tax-advantaged dividends from
the Fund received by a common shareholder to be taxable at long-term capital gains rates, the common shareholder must hold his
or her Fund shares for more than 60 days during the 120-day period surrounding the ex-dividend date.
In
addition to investing in stocks that pay tax-advantaged dividends, the Fund may also invest a portion of its assets in stocks
and other securities that generate fully taxable ordinary income. For any year, so long as the Fund’s fully taxable ordinary
income and net realized short-term gains are offset by expenses of the Fund, all of the Fund’s income distributions would
be characterized as tax-advantaged dividends. There can be no assurance as to what portion of the Fund’s income distributions
will be tax-advantaged.
The
Fund may seek to enhance the level of tax-advantaged dividend income it receives by engaging in dividend capture trading. In a
dividend capture trade, the Fund would sell a stock that it held past its ex-dividend date to purchase another stock paying a
dividend before the next dividend of the stock being sold. By entering into such trades, the Fund could augment the amount of
dividend income it receives over the course of a year. In order for dividends to qualify as tax-advantaged dividends, the Fund
must comply with the holding period requirements described herein. The use of dividend capture strategies will expose the Fund
to increased trading costs and potential for capital loss.
The
investment policy of the Fund of investing at least 80% of the Fund’s total assets in common and preferred stocks and debt
instruments of companies involved to a significant extent in the Utility Industry may be changed by the Board without shareholder
approval. Common shareholders will, however, receive at least 60 days prior notice of any change in this policy.
The
Fund may invest in securities of issuers located in countries other than the United States and may invest in such foreign securities
without limitation. Investing in securities of foreign issuers, which generally are denominated in foreign currencies, may involve
certain risk and opportunity considerations not typically associated with investing in domestic companies and could cause the
Fund to be affected favorably or unfavorably by changes in currency exchange rates and revaluations of currencies.
The
Fund’s investment objective may not be changed without shareholder approval. In addition, certain investment policies and
restrictions of the Fund may not be changed without shareholder approval. See “Additional Investment Information and Restrictions”
in the Statement of Additional Information.
Investment
Strategy
The
Fund invests primarily in dividend-paying common and preferred stocks that are producing what Reaves considers to be attractive
current levels of tax-advantaged dividend income. Common stock investments are generally made if Reaves believes there is potential
for growth of income and capital appreciation over time. Preferred stock investments take into consideration Reaves’ assessment
of the interest rate sensitivity of the investments. The Fund may invest in debt securities where Reaves determines that such
investments are advisable to increase income or total return or to reduce risk.
Reaves’
underlying investment belief is that stocks of companies with conservative capital structures, a solid balance sheet, a strong
earnings outlook, secure and growing dividends and good relative market valuations will tend to outperform the market over the
long term. A team of professionals at Reaves apply this investment approach in managing the Fund’s investment portfolio
and allocating its investments among common and preferred stocks and other types of securities. Different groups within the team
with specialized expertise in the Utility Industry and other market sectors are assigned responsibility for day-to-day management
of different portions of the portfolio.
In
making investment decisions, the portfolio managers utilize the expertise of and information provided by Reaves’ staff of
research analysts. The analysts screen the equity universe and apply quantitative and qualitative analysis to identify mid-cap
and large cap companies in the Utility Industry and other market sectors that meet Reaves’ general investment standards,
provide critical products and services and pay above average dividends. The analysts also look for and evaluate informally on
a daily basis and more formally at weekly meetings a variety of factors, including a company’s earnings and cash flow capabilities,
dividend prospects and tax treatment of dividends, strength of business franchises and estimates of net value. In selecting investments
from among companies recommended by the analysts, the portfolio managers also consider positive catalysts that may unlock market
value, such as industry consolidation, management and regulatory change and other developments that may result in future broad
market recognition. Many of the considerations entering into the analysts’ recommendations and the portfolio managers’
decisions are subjective.
The
Fund’s portfolio is actively managed and securities may be bought or sold on a daily basis. Investments are added to the
portfolio if they satisfy value-based criteria or contribute to the portfolio’s risk profile. Investments are removed from
the portfolio if they exceed full value, add inefficient risk or the initial investment thesis fails. In general, stocks with
lower than market volatility, correlation and similar characteristics are preferred in an equity investment process that focuses
on bottom-up stock selection.
Securities
of the Utility Industry
The
Fund generally invests at least 80% of its total assets in the securities of domestic and foreign companies involved to a significant
extent in providing products, services or equipment for (i) the generation or distribution of electricity, gas or water,
(ii) telecommunications activities or (iii) infrastructure operations, such as airports, toll roads and municipal services.
Utilities securities are currently the highest yielding equity sector and have experienced less volatile historic returns relative
to the broader stock market. Because of their historically low correlation to the broader equity market, bond market and other
types of investments, utilities securities can provide effective diversification to an overall investment portfolio.
Certain
segments of the industry and individual companies within such segments may not perform as well as the industry as a whole. Many
utility companies historically have been subject to risks of increases in fuel and other operating costs, high interest costs
on borrowings needed for capital improvement programs and costs associated with compliance with and changes in environmental and
other governmental regulations Rates of return on investment of certain utility companies are subject to approval by government
regulators. There can be no assurance that changes in regulatory policies or accounting standards will not negatively affect utility
companies’ earnings or dividends. Costs incurred by utilities, such as fuel and purchased power costs, often are subject
to immediate market action resulting from such things as political or military forces operating in geographic regions where oil
production is concentrated or global or regional weather conditions, such as droughts, while the rates of return of utility companies
generally are subject to review and limitation by state public utility commissions, which often results in a lag or an absence
of correlation between costs and return. It is also possible that costs may not be offset by return. Certain utilities may have
exposure to unregulated operations which may have a higher risk profile than traditional utility operations. These include the
marketing and trading of commodities including electricity and gas, as well as the ownership and operation of unregulated, “merchant”
generation. The marketing and trading of commodities involve a variety of risks, principally exposure to commodity prices and
access to capital. During the 2008-2009 financial crisis a number of industry participants came under severe duress as they struggled
to maintain access to capital markets. To the extent that such events were not temporary or continue (or even worsen), this may
have an adverse impact on the availability of credit to industry participants. Merchant generation is a highly cyclical industry
with a high degree of operating leverage — that is, a small change in the price of power can have a significant impact on
profitability. Merchant generators, especially those generating electricity from nuclear reactors and coal plants, have recently
been materially weakened by the decline in power prices which has been a direct result of the decline in natural gas prices caused
by the development of significant new gas reserves in the United States and Canada. Additionally, the price of oil has recently
declined significantly and experienced significant volatility. Further, many of the plants that utilize coal as a fuel could face
increased expense complying with environmental regulations that they may or may not be able to recover in the market. There can
be no assurance as to the duration of any perceived current dislocation.
Portfolio
Investments
Common
Stocks
Common
stock represents an equity ownership interest in an issuer. The Fund has substantial exposure to common stocks. Although common
stocks have historically generated higher average returns than fixed-income securities over the long term, common stocks also
have experienced significantly more volatility in returns. An adverse event, such as an unfavorable earnings report, may depress
the value of a particular common stock held by the Fund. Also, the price of common stocks are sensitive to general movements in
the stock market and a drop in the stock market may depress the price of common stocks to which the Fund has exposure. Common
stock prices fluctuate for many reasons, including changes in investors’ perceptions of the financial condition of an issuer
or the general condition of the relevant stock market, or the occurrence of political or economic events which affect the issuer.
In addition, common stock prices may be sensitive to rising interest rates, as the costs of capital rise and borrowing costs increase.
Preferred
Stocks
Preferred
stock, like common stock, represents an equity ownership in an issuer. Generally, preferred stock has a priority of claim over
common stock in dividend payments and upon liquidation of the issuer. Unlike common stock, preferred stock does not usually have
voting rights. Preferred stock in some instances is convertible into common stock.
Although
they are equity securities, preferred stocks have certain characteristics of both debt and common stock. They are debt-like in
that their promised income is contractually fixed. They are common stock-like in that they do not have rights to precipitate bankruptcy
proceedings or collection activities in the event of missed payments. Furthermore, they have many of the key characteristics of
equity due to their subordinated position in an issuer’s capital structure and because their quality and value are heavily
dependent on the profitability of the issuer rather than on any legal claims to specific assets or cash flows.
In
order to be payable, dividends on preferred stock must be declared by the issuer’s board of directors or trustees. In addition,
distributions on preferred stock may be subject to deferral and thus may not be automatically payable. Income payments on some
preferred stocks are cumulative, causing dividends and distributions to accrue even if not declared by the board of directors
or trustees or otherwise made payable. Other preferred stocks are non-cumulative, meaning that skipped dividends and distributions
do not continue to accrue. There is no assurance that dividends on preferred stocks in which the Fund invests will be declared
or otherwise made payable. The Fund may invest in non-cumulative preferred stock, although Reaves would consider, among other
factors, their non-cumulative nature in making any decision to purchase or sell such securities.
Shares
of preferred stock have a liquidation value that generally equals the original purchase price at the date of issuance. The market
values of preferred stock may be affected by favorable and unfavorable changes impacting the issuers’ industries or sectors.
They may also be affected by actual and anticipated changes or ambiguities in the tax status of the security and by actual and
anticipated changes or ambiguities in tax laws, such as changes in corporate and individual income tax rates and in the dividends
received deduction or the characterization of dividends as tax-advantaged as described herein.
Because
the claim on an issuer’s earnings represented by preferred stock may become onerous when interest rates fall below the rate
payable on the stock or for other reasons, the issuer may redeem preferred stock, generally after an initial period of call protection
in which the stock is not redeemable. Thus, in declining interest rate environments in particular, the Fund’s holdings of
higher dividend-paying preferred stocks may be reduced and the Fund may be unable to acquire securities paying comparable rates
with the redemption proceeds.
Corporate
Bonds and Other Debt Securities
If
deemed advisable by Reaves to increase income or total return or to reduce risk, the Fund may also invest in corporate bonds,
debentures and other debt securities of companies in the Utility Industry or other industries and sectors. Debt securities in
which the Fund may invest may pay fixed or variable rates of interest. Bonds and other debt securities generally are issued by
corporations and other issuers to borrow money from investors. The issuer pays the investor a fixed or variable rate of interest
and normally must repay the amount borrowed on or before maturity. Certain debt securities are “perpetual” in that
they have no maturity date.
The
Fund will not invest more than 15% of its total assets in securities rated below investment grade. The foregoing credit quality
policies apply only at the time a security is purchased, and the Fund is not required to dispose of securities already owned by
the Fund in the event of a change in assessment of credit quality or the removal of a rating.
The
Fund may invest in corporate bonds including below investment grade quality (e.g., rated below BBB- by Standard & Poor’s
Rating Group, a division of The McGraw-Hill Companies, Inc. (“S&P”), below Baa3 by Moody’s Investors Service,
Inc. (“Moody’s”) or below BBB- by Fitch Ratings Inc. (“Fitch”), or unrated securities that Reaves
considers to be their equivalent), commonly known as “junk bonds” (“Non-Investment Grade Bonds”). Investments
in Non-Investment Grade Bonds generally provide greater income and increased opportunity for capital appreciation than investments
in higher quality securities, but they also typically entail greater price volatility and principal and income risk, including
the possibility of issuer default and bankruptcy. Non-Investment Grade Bonds are regarded as predominantly speculative with respect
to the issuer’s continuing ability to meet principal and interest payments. Debt securities in the lowest investment grade
category also may be considered to possess some speculative characteristics by certain rating agencies. In addition, analysis
of the creditworthiness of issuers of Non-Investment Grade Bonds may be more complex than for issuers of higher quality securities.
Non-Investment
Grade Bonds may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment
grade securities. A projection of an economic downturn or of a period of rising interest rates, for example, could cause a decline
in Non-Investment Grade Bond prices because the advent of recession could lessen the ability of an issuer to make principal and
interest payments on its debt obligations. If an issuer of Non-Investment Grade Bonds defaults, in addition to risking payment
of all or a portion of interest and principal, the Fund may incur additional expenses to seek recovery. In the case of Non-Investment
Grade Bonds structured as zero-coupon, step-up or payment-in- kind securities, their market prices will normally be affected to
a greater extent by interest rate changes, and therefore tend to be more volatile than securities which pay interest currently
and in cash. Reaves seeks to reduce these risks through diversification, credit analysis and attention to current developments
in both the economy and financial markets.
The
secondary market on which Non-Investment Grade Bonds are traded may be less liquid than the market for investment grade securities.
Less liquidity in the secondary trading market could adversely affect the NAV of the Shares. Adverse publicity and investor perceptions,
whether or not based on fundamental analysis, may decrease the values and liquidity of Non-Investment Grade Bonds, especially
in a thinly traded market. When secondary markets for Non-Investment Grade Bonds are less liquid than the market for investment
grade securities, it may be more difficult to value the securities because such valuation may require more research, and elements
of judgment may play a greater role in the valuation because there is no reliable, objective data available. During periods of
thin trading in these markets, the spread between bid and asked prices is likely to increase significantly and the Fund may have
greater difficulty selling these securities. The Fund will be more dependent on Reaves’ research and analysis when investing
in Non-Investment Grade Bonds. Reaves seeks to minimize the risks of investing in all securities through in-depth credit analysis
and attention to current developments in interest rate and market conditions.
A
general description of the ratings of securities by S&P, Fitch and Moody’s is set forth in Appendix A to the Statement
of Additional Information. Such ratings represent these rating organizations’ opinions as to the quality of the securities
they rate. It should be emphasized, however, that ratings are general and are not absolute standards of quality. Consequently,
debt obligations with the same maturity, coupon and rating may have different yields while obligations with the same maturity
and coupon may have the same yield. For these reasons, the use of credit ratings as the sole method of evaluating Non-Investment
Grade Bonds can involve certain risks. For example, credit ratings evaluate the safety or principal and interest payments, not
the market value risk of Non-Investment Grade Bonds. Also, credit rating agencies may fail to change credit ratings in a timely
fashion to reflect events since the security was last rated. Reaves does not rely solely on credit ratings when selecting securities
for the Fund, and develops its own independent analysis of issuer credit quality.
In
the event that a rating agency or Reaves downgrades its assessment of the credit characteristics of a particular issue, the Fund
is not required to dispose of such security. In determining whether to retain or sell a downgraded security, Reaves may consider
such factors as Reaves’ assessment of the credit quality of the issuer of such security, the price at which such security
could be sold and the rating, if any, assigned to such security by other rating agencies. However, analysis of the creditworthiness
of issuers of Non-Investment Grade Bonds may be more complex than for issuers of high quality debt securities.
Warrants
The
Fund may invest in equity and index warrants of domestic and international issuers. Equity warrants are securities that give the
holder the right, but not the obligation, to subscribe for equity issues of the issuing company or a related company at a fixed
price either on a certain date or during a set period. Changes in the value of a warrant do not necessarily correspond to changes
in the value of its underlying security. The price of a warrant may be more volatile than the price of its underlying security,
and a warrant may offer greater potential for capital appreciation as well as capital loss.
Warrants
do not entitle a holder to dividends or voting rights with respect to the underlying security and do not represent any rights
in the assets of the issuing company. A warrant ceases to have value if it is not exercised prior to its expiration date. These
factors can make warrants more speculative than other types of investments.
Convertible
Securities and Bonds with Warrants Attached
The
Fund may invest in preferred stocks and fixed-income obligations that are convertible into common stocks of domestic and foreign
issuers, and bonds issued as a unit with warrants to purchase equity or fixed income securities. Convertible securities in which
the Fund may invest, comprised of both convertible debt and convertible preferred stock, may be converted at either a stated price
or at a stated rate into underlying shares of common stock. Because of this feature, convertible securities generally enable an
investor to benefit from increases in the market price of the underlying common stock. Convertible securities often provide higher
yields than the underlying equity securities, but generally offer lower yields than non-convertible securities of similar quality.
The value of convertible securities fluctuates in relation to changes in interest rates like bonds, and, in addition, fluctuates
in relation to the underlying common stock.
Bonds
with warrants attached to purchase equity securities have many characteristics of convertible bonds and their prices may, to some
degree, reflect the performance of the underlying stock. Bonds may also be issued with warrants attached to purchase additional
fixed income securities at the same coupon rate. A decline in interest rates would permit the Fund to buy additional bonds at
a favorable rate or to sell the warrants at a profit. If interest rates rise, the warrants would generally expire with no value.
Master
Limited Partnerships
The
Fund may invest in Master Limited Partnerships (“MLPs”). An MLP is a publicly traded company typically organized as
a limited partnership or limited liability company and treated as a partnership for federal income tax purposes. MLPs may derive
income and gains from the exploration, development, mining or production, processing, refining, transportation, storage or the
marketing of any mineral or natural resources. MLPs generally have two classes of owners, the general partner and limited partners.
When investing in an MLP, the Fund generally purchases publicly traded common units issued
to limited partners of the MLP. The general partner is typically owned by a major energy company, an investment fund, the
direct management of the MLP or is an entity owned by one or more of such parties. The general partner may be structured as a
private or publicly traded corporation or other entity. The general partner typically controls the operations and management of
the MLP through an up to 2% equity interest in the MLP plus, in many cases, ownership of common units and subordinated units.
Limited partners own the remainder of the partnership, through ownership of common units, and have a limited role in the partnership’s
operations and management. The limited partners also receive cash distributions.
Investment
Techniques
The
Fund may from time to time employ certain investment techniques, including those described below and under “Investment Techniques”
in the Statement of Additional Information, in an effort to hedge against fluctuations in the price of portfolio securities, enhance
total return or provide a substitute for the purchase or sale of securities. Some of these investment techniques (e.g., purchases
of put and call options, options on stock indices and stock index futures and entry into certain credit derivative transactions
and short sales, as each are described in the Statement of Additional Information) are intended to be hedges against or substitutes
for investments in equity investments. Other investment techniques (e.g., the purchase of interest rate futures and entry into
transactions involving interest rate swaps, options on interest rate swaps and certain credit derivatives, as described below
or in the Statement of Additional Information) are intended to be hedges against or substitutes for investments in debt securities.
In general, Reaves may choose to use these techniques related to investments in debt securities where Reaves determines that such
techniques are advisable to increase income or total return or to reduce risk.
The
Fund’s ability to utilize any of the techniques described below may be limited by restrictions imposed on its operations
in connection with obtaining and maintaining its qualification as a regulated investment company under the Code, compliance with
the 1940 Act and applicable SEC staff guidance.
Reaves
has claimed, with respect to the Fund, an exclusion from the definition of the term “commodity pool operator” (“CPO”)
pursuant to CFTC Regulation 4.5, as promulgated under the Commodity Exchange Act (“CEA”). Therefore, Reaves (with
respect to the Fund) is not subject to registration or regulation as a CPO under the CEA. If Reaves becomes subject to these requirements
with respect to the Fund, the Fund may incur additional compliance and other expenses.
Under
CFTC Regulation 4.5, if an investment company such as the Fund uses swaps, commodity futures, commodity options or certain other
derivatives used for purposes other than bona fide hedging purposes, it must meet one of the following tests: The aggregate initial
margin and premiums required to establish an investment company’s positions in such investments may not exceed five percent
(5%) of the liquidation value of the investment company’s portfolio (after accounting for unrealized profits and unrealized
losses on any such investments). Alternatively, the aggregate net notional value of such instruments, determined at the time of
the most recent position established, may not exceed one hundred percent (100%) of the liquidation value of the investment company’s
portfolio (after accounting for unrealized profits and unrealized losses on any such positions). In addition to meeting one of
the foregoing trading limitations, Reaves may not market the investment company as a commodity pool or otherwise as a vehicle
for trading in the commodity futures, commodity options or swaps and derivatives markets. In the event that Reaves is required
to register as a CPO, the disclosure and operations of the Fund would need to comply with all applicable CFTC regulations. Compliance
with these additional registration and regulatory requirements would increase operational expenses. Other potentially adverse
regulatory initiatives could also develop.
Many
of the instruments and techniques described below and in the Statement of Additional Information could constitute a form of potential
leverage and as such are subject to the risks described below, under “Use of Leverage,” and in the Statement of Additional
Information.
Importantly,
the Fund is permitted, but is not required, to utilize the instruments and techniques described below and in the Statement of
Additional Information. Accordingly, at any given time, the Fund’s portfolio might not be hedged against, or managed to
mitigate, risk, and Reaves might choose not to seek to increase income through the use of these instruments or techniques. In
addition, certain provisions of the Code, or other applicable laws, may limit the extent to which the Fund may enter into or otherwise
utilize these instruments and techniques.
Interest
Rate Swaps and Options Thereon (“Swaptions”)
The
Fund may enter into interest rate swap agreements and may purchase and sell put and call options on such swap agreements, commonly
referred to as swaptions. The Fund will enter into such transactions for hedging some or all of its interest rate exposure in
its holdings of preferred securities and debt securities. Interest rate swap agreements and swaptions are highly specialized investments,
and swaptions and certain types of interest rate swap agreements are not traded on or regulated by any securities exchange.
An
interest rate swap is an agreement between two parties where one party agrees to pay a contractually stated fixed income stream,
usually denoted as a fixed percentage of an underlying “notional” amount, in exchange for receiving a variable income
stream, usually based on the London Interbank Offered Rates, and denoted as a percentage of the underlying notional amount.
From
the perspective of a fixed rate payer, if interest rates rise, the payer will expect a rising level of income since the payer
is a receiver of floating rate income. This would cause the value of the swap contract to rise in value, from the payer’s
perspective, because the discounted present value of its obligatory payment stream is diminished at higher interest rates, all
at the same time it is receiving higher income. Alternatively, if interest rates fall, the reverse occurs and it simultaneously
faces the prospects of both a diminished floating rate income stream and a higher discounted present value of its fixed rate payment
obligation. For purposes of completing the analysis, these value changes all work in reverse from the perspective of a fixed rate
receiver.
A
swaption is an agreement between two parties where one party purchases the right from the other party to enter into an interest
rate swap at a specified date and for a specified fixed rate yield (or “exercise” yield). In a pay-fixed swaption,
the holder of the swaption has the right to enter into an interest rate swap as a payer of fixed rate and receiver of variable
rate, while the writer of the swaption has the obligation to enter into the other side of the interest rate swap. In a receive-fixed
swaption, the holder of the swaption has the right to enter into an interest rate swap as a receiver of fixed rate and a payer
of variable rate, while the writer of the swaption has the obligation to enter into the opposite side of the interest rate swap.
A
pay-fixed swaption is analogous to a put option on Treasury securities in that it rises in value as interest rate swap yields
rise. A receive-fixed swaption is analogous to a call option on Treasury securities in that it rises in value as interest rate
swap yields decline. As with other options on securities, indices, or futures contracts, the price of any swaption will reflect
both an intrinsic value component, which may be zero, and a time premium component. The intrinsic value component represents what
the value of the swaption would be if it were immediately exercisable into the underlying interest rate swap. The intrinsic value
component measures the degree to which an option is in-the-money, if at all. The time premium represents the difference between
the actual price of the swaption and the intrinsic value.
It
is customary market practice for swaptions to be “cash settled” rather than an actual position in an interest rate
swap being established at the time of swaption expiration. For reasons set forth more fully below, Reaves expects to enter strictly
into cash-settled swaptions, i.e., where the exercise value of the swaption is determined by reference to the market for interest
rate swaps then prevailing.
Temporary
Investments
During
unusual market circumstances, the Fund may invest temporarily in cash, money market securities, money market mutual funds or cash
equivalents, which may be inconsistent with the Fund’s investment objective. Cash equivalents are highly liquid, short-term
securities such as commercial paper, time deposits, certificates of deposit, short-term notes and short-term U.S. Government obligations.
Portfolio
Turnover
Reaves
may sell securities to realize capital losses that can be used to offset capital gains (but not tax-advantaged dividends or other
ordinary income) or in connection with dividend recapture strategies. Use of these strategies will increase portfolio turnover.
Although the Fund cannot accurately predict its portfolio turnover rate, it may exceed 100% from time to time (excluding turnover
of securities having a maturity of one year or less). A high turnover rate (100% or more) necessarily involves greater expenses
to the Fund and may result in realization of net short-term capital gains.
Illiquid
Securities
The
Fund may invest in securities for which there is no readily available trading market or are otherwise illiquid. Illiquid securities
include securities legally restricted as to resale, such as commercial paper issued pursuant to Section 4(2) of the 1933
Act, and securities eligible for resale pursuant to Rule 144A thereunder. Section 4(2) and Rule 144A securities may, however,
be treated as liquid by Reaves pursuant to procedures adopted by the Board, which require consideration of factors such as trading
activity, availability of market quotations and number of dealers willing to purchase the security. If the Fund invests in Rule
144A securities, the level of portfolio illiquidity may be increased to the extent that eligible buyers become uninterested in
purchasing such securities. The Fund may also, to a limited extent, invest in securities of U.S. and non-U.S. issuers that are
issued through offerings made pursuant to Regulation S of the 1933 Act.
It
may be difficult to sell such securities at a price representing their fair value until such time as such securities may be sold
publicly. Where registration is required, a considerable period may elapse between a decision to sell the securities and the time
when it would be permitted to sell. Thus, the Fund may not be able to obtain as favorable a price as that prevailing at the time
of the decision to sell. The Fund may also acquire securities through private placements under which it may agree to contractual
restrictions on the resale of such securities. Such restrictions might prevent their sale at a time when such sale would otherwise
be desirable.
Reverse
Repurchase Agreements
The
Fund may enter into reverse repurchase agreements. Under a reverse repurchase agreement, the Fund temporarily transfers possession
of a portfolio instrument to another party, such as a bank or broker-dealer, in return for cash. At the same time, the Fund agrees
to repurchase the instrument at an agreed upon time (normally within seven days) and price, which reflects an interest payment.
The Fund may enter into such agreements when it is able to invest the cash acquired at a rate higher than the cost of the agreement,
which would increase earned income.
When
the Fund enters into a reverse repurchase agreement, any fluctuations in the market value of either the securities transferred
to another party or the securities in which the proceeds may be invested would affect the market value of the Fund’s assets.
As a result, such transactions may increase fluctuations in the market value of the Fund’s assets. While there is a risk
that large fluctuations in the market value of the Fund’s assets could affect NAV, this risk is not significantly increased
by entering into reverse repurchase agreements, in the opinion of Reaves. Because reverse repurchase agreements may be considered
to be the practical equivalent of borrowing funds, they constitute a form of leverage. If the Fund reinvests the proceeds of a
reverse repurchase agreement at a rate lower than the cost of the agreement, entering into the agreement will lower the Fund’s
yield.
Dividend
Capture Trading
The
Fund may seek to enhance the level of dividend income it receives by engaging in dividend capture trading. In a dividend capture
trade, the Fund would sell a stock that it held past its ex-dividend date to purchase another stock paying a dividend before the
next dividend of the stock being sold. By entering into such trades, the Fund could augment the amount of dividend income it receives
over the course of a year. The use of dividend capture strategies will expose the Fund to increased trading costs and the potential
for capital loss.
USE
OF LEVERAGE
The
Fund currently uses leverage primarily through borrowing. More specifically, the Fund has entered into the Credit Agreement, as
described above and as described in more detail below. The Fund has no present intention of issuing preferred shares, although
it has done so in the past and may choose to do so in the future. The Fund may add leverage to its portfolio from time to time
by utilizing reverse repurchase agreements, dollar rolls or other forms of borrowings, such as bank loans or commercial paper.
The Fund may also enter into other transactions that may give rise to a form of leverage including, among others, credit default
or interest rate swap contracts, options contracts, futures and forward contracts and other derivative or potentially leveraged
transactions described above, loans of portfolio securities, short sales and when-issued, delayed delivery and other forward commitment
transactions.
The
Fund generally does not use leverage if Reaves anticipates that it would result in a lower return to common shareholders for any
significant amount of time. The Fund also may borrow money as a temporary measure for extraordinary or emergency purposes, including
the payment of dividends and the settlement of securities transactions, which otherwise might require untimely dispositions of
Fund securities.
Following
completion of an offering, the Fund may increase the amount of its outstanding leverage. The Fund may do so by engaging in additional
borrowings, including through the use of reverse repurchase agreements, in order to maintain the Fund’s desired leverage
ratio at that time, taking into account the additional assets raised through the issuance of common shares in an offering. The
Fund may also add leverage through the use of credit default or interest rate swaps and other derivative transactions and/or the
other techniques noted above. There is no assurance, however, that the Fund will determine to add leverage following an offering,
as the Fund intends to utilize leverage opportunistically and may choose to increase or decrease its use of leverage over time
and from time to time based on the Investment Adviser’s assessment of market conditions and other factors. In addition,
if the Fund determines to add leverage following an offering, it is not possible to predict with accuracy the precise amount of
leverage that would be added, in part, because it is not possible to predict the number of common shares that ultimately will
be subscribed for in an offering. Leverage creates risks for holders of the common shares, including the likelihood of greater
volatility of NAV and market price of the common shares. There is a risk that fluctuations in the dividend rates on any preferred
shares may adversely affect the return to the holders of the common shares. If the income from the securities purchased with such
funds is not sufficient to cover the cost of leverage, the return on the Fund will be less than if leverage had not been used,
and therefore the amount available for distribution to common shareholders as dividends and other distributions will be reduced.
Reaves in its best judgment nevertheless may determine to maintain the Fund’s leveraged position if it deems such action
to be appropriate in the circumstances.
Changes
in the value of the Fund’s portfolio (including investments bought with the proceeds of the preferred shares offering or
borrowing program) will be borne entirely by the common shareholders. If there is a net decrease (or increase) in the value of
the Fund’s investment portfolio, the leverage will decrease (or increase) the NAV per share to a greater extent than if
the Fund were not leveraged.
The
fees received by Reaves and Paralel are based on the total assets of the Fund, including assets represented by leverage. During
periods in which the Fund is using leverage, the fees paid to Reaves for investment advisory services and to Paralel for administrative
services will be higher than if the Fund did not use leverage because the fees paid will be calculated on the basis of the Fund’s
total assets, including proceeds from borrowings and the issuance of any preferred shares. Therefore, Reaves and Paralel may have
a financial incentive to use leverage, which creates a conflict of interest between Reaves and Paralel and common shareholders.
Reaves and Paralel will seek to manage this conflict of interest by utilizing leverage only when they determine such action is
in the best interests of the Fund. The Board reviews the Fund’s leverage on a periodic basis, and the Fund’s use of
leverage may be increased or decreased subject to the Board’s oversight and applicable law. As discussed under “Description
of Capital Structure — Preferred Shares,” the Fund’s issuance of any preferred shares may alter the voting power
of common shareholders.
Capital
raised through leverage will be subject to dividend or interest payments, which may exceed the income and appreciation on the
assets purchased. The issuance of preferred shares or entering into a borrowing program involves expenses and other costs and
may limit the Fund’s freedom to pay dividends on common shares or to engage in other activities. The issuance of a class
of preferred shares or incurrence of borrowings having priority over the Fund’s common shares creates an opportunity for
greater return per common share, but at the same time such leveraging is a speculative technique in that it will increase the
Fund’s exposure to capital risk. Unless the income and appreciation, if any, on assets acquired with leverage proceeds exceed
the associated costs of such preferred shares or borrowings (and other Fund expenses), the use of leverage will diminish the investment
performance of the Fund’s common shares compared with what it would have been without leverage.
The
Fund may be subject to certain restrictions on investments imposed by guidelines of one or more rating agencies that may issue
ratings for any preferred shares issued by the Fund and by borrowing program covenants. These guidelines and covenants may impose
asset coverage or Fund composition requirements that are more stringent than those imposed on the Fund by the 1940 Act. It is
not anticipated that these covenants or guidelines will significantly impede Reaves from managing the Fund’s portfolio in
accordance with the Fund’s investment objective and policies.
Under
the 1940 Act, the Fund is not permitted to issue preferred shares unless immediately after such issuance the total asset value
of the Fund’s portfolio is at least 200% of the liquidation value of the outstanding preferred shares (i.e., such
liquidation value may not exceed 50% of the Fund’s total assets). In addition, the Fund is not permitted to declare any
cash dividend or other distribution on its common shares unless, at the time of such declaration, the NAV of the Fund’s
portfolio (determined after deducting the amount of such dividend or other distribution) is at least 200% of such liquidation
value of the preferred stock. If preferred shares are issued, the Fund intends, to the extent possible, to purchase or redeem
preferred shares, from time to time, to maintain coverage of any preferred shares of at least 200%. Common shareholders elect
each of the Trustees of the Fund. However, if the Fund issues preferred shares, the holders of the preferred shares will elect
two of the Trustees of the Fund. In the event the Fund failed to pay dividends on its preferred shares for two years, preferred
shareholders would be entitled to elect a majority of the Trustees until the dividends are paid.
To
qualify for federal income taxation as a “regulated investment company,” the Fund must satisfy certain requirements
relating to the sources of its income and diversification of its assets, and must distribute in each taxable year at least 90%
of its investment company taxable income (including net interest income and net short-term gain). The Fund also will be required
to distribute annually substantially all of its income and capital gain, if any, to avoid imposition of a nondeductible 4% federal
excise tax.
The
Fund’s willingness to issue new securities for investment purposes, and the amount the Fund will issue, will depend on many
factors, the most important of which are market conditions and interest rates. Successful use of a leveraging strategy may depend
on Reaves’ ability to predict correctly interest rates and market movements, and there is no assurance that a leveraging
strategy will be successful during any period in which it is employed.
The
Fund’s use of leverage creates special risks not associated with unleveraged funds having similar investment objectives
and policies. These include the possibility of higher volatility of the Fund’s NAV and the asset coverage of the Fund’s
indebtedness. There is a risk that fluctuations in the dividend rates on any preferred shares issued by the Fund may adversely
affect the return to the common shareholders. If the income and capital appreciation from the securities purchased with such funds
is not sufficient to cover the cost of leverage, the return on the Fund will be less than if leverage had not been used, and therefore
the amount available for distribution to common shareholders as dividends and other distributions will be reduced.
Changes
in the value of the Fund’s portfolio (including investments bought with the proceeds of the leverage program) will be borne
entirely by the common shareholders. If there is a net decrease in the value of the Fund’s investment portfolio, the use
of leverage will likely cause a greater decrease in the NAV per common share and the market value per common share than if the
Fund were not leveraged.
Use
of Leverage through the Credit Agreement — The Fund has entered into a Credit Agreement with the Bank. Under the terms
of the Credit Agreement, the Fund is allowed to borrow up to $650,000,000 (the “Commitment Amount”). Interest is charged
at a rate of the one month SOFR (“Secured Overnight Financing Rate”) plus 0.65%. Borrowings under the Credit Agreement
are secured by all or a portion of assets of the Fund that are held by the Fund’s custodian in a memo-pledged account (the
“pledged collateral”). Under the terms of the Credit Agreement, a commitment fee applies when the amount outstanding
is less than 80% of the Commitment Amount. This commitment fee is equal to 0.15% times the Commitment Amount less the amount outstanding
under the Credit Agreement and is computed daily and payable quarterly in arrears. Borrowing commenced under the terms of the
Credit Agreement on April 27, 2022.
For
the period ended April 30, 2024, the average amount borrowed under the Credit Agreement was $537,307,692 at a weighted average
rate of 5.99%. As of April 30, 2024, the amount of outstanding borrowings was $545,000,000, the interest rate was 5.97%, and the
fair value of pledged collateral was $1,090,000,016.
Effects
of Leverage — Fluctuations in interest rates on the Fund’s indebtedness will affect the dividend to Common Shareholders.
Holders of common shares receive all net income from the Fund remaining after payment of interest on the Fund’s indebtedness
and generally are entitled to a pro rata share of net realized capital gains, if any. Further, in the event the Fund were ever
to be liquidated, the holder(s) of the Fund’s indebtedness would be entitled to receive repayment of outstanding principal
plus accumulated and unpaid interest thereon before any distribution is made to the Fund’s common shareholders.
As
of April 30, 2024, the total amount of leverage through the Credit Agreement constituted approximately 20.3% of the Fund’s
total assets. The use of leverage has generally provided holders of common shares with a higher dividend than such holders would
have otherwise received. However, there can be no assurance that the Fund will be able to continue to realize such a higher net
return on its investment portfolio. Changes in certain factors could cause the relationship between the interest paid on the Fund’s
indebtedness to increase relative to the dividend and interest rates on the portfolio securities in which the Fund may be invested.
Under such conditions the benefit of leverage to Common Shareholders will be reduced and the Fund’s use of leverage could
result in a lower rate of return to Common Shareholders than if the Fund were not leveraged.
RISK
FACTORS
The
information contained under the heading “Summary of Updated Information Regarding the Fund—Risk Factors” in
the Fund’s Annual Report is incorporated herein by reference. Each of the risk factors contained thereunder is a principal
risk of the Fund. Investors should consider the specific risk factors and special considerations associated with investing in
the Fund. An investment in the Fund is subject to investment risk, including the possible loss of your entire investment. A Prospectus
Supplement relating to an offering of the Fund’s securities may identify additional risk associated with such offering.
MANAGEMENT
OF THE FUND
Trustees
And Officers
The
Board is responsible for the overall management of the Fund, including supervision of the duties performed by Reaves. There are
six trustees of the Fund, one of which is an “interested person” (as defined in the 1940 Act). The name and business
address of the trustees and officers of the Fund and their principal occupations and other affiliations during the past five years
are set forth under “Management of the Fund” in the Statement of Additional Information.
Investment
Adviser
W.H.
Reaves & Co., Inc., located at 10 Exchange Place, Jersey City, New Jersey 07302, serves as investment adviser to the
Fund.
Reaves
is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended. Reaves is also a broker-dealer,
registered with the SEC, and a member firm of the New York Stock Exchange and FINRA, Inc. Reaves began conducting business in
1961 and had approximately $3.247 billion under management as of June 30, 2024.
Since
1977, its principal advisory business has been providing investment management services to institutional investors such as corporations,
corporate pension funds, employee savings plans, foundations, and endowments. In the course of its business as a registered broker-dealer,
Reaves regularly effects transactions in equity securities for its investment advisory clients. While Reaves generally will not
act as executing broker for the Fund, it may execute trades for the Fund’s account from time to time.
Pursuant
to the Investment Advisory and Management Agreement between Reaves and the Fund, Reaves has agreed to provide a continuous investment
program for the Fund, including investment research and management with respect to the assets of the Fund. Reaves is entitled
to receive management fees of 0.575% on the first $2.5 billion of the average daily total assets of the Fund and 0.525% on any
amount in excess of $2.5 billion of the average daily total assets of the Fund.
A
discussion of the basis for the Board’s most recent renewal of the Investment Advisory Agreement is provided in the semi-annual
report for the period year ended April 30, 2024.
The
following individuals are the Fund’s portfolio managers:
John
P. Barlett
John
P. Bartlett is a Vice President with Reaves, and was named as a portfolio manager for the Fund effective April 1, 2017. He joined
Reaves in 1995 and serves as a portfolio manager and security analyst, specializing in electric and gas utilities. Mr. Bartlett
received a B.A. from Connecticut College and is a CFA Charterholder.
Timothy
O. Porter
Timothy
O. Porter is a Vice President with Reaves, and was named as a co-portfolio manager for the Fund beginning November 1, 2018. He
joined Reaves in 2004 and serves as a portfolio manager and security analyst, specializing in the energy sector. Mr. Porter received
a B.S. from SUNY Geneseo and is a CFA Charterholder.
Jay
Rhame
Jay
Rhame joined Reaves Asset Management in 2005 and was named Chief Executive Officer in January 2019. Previously he served as a
telecommunications, energy, and utility analyst. Mr. Rhame has been a co-portfolio manager of the Reaves Utility Income Fund since
2023 and the Virtus Reaves Utilities ETF since that Fund’s inception in 2015. In June 2021, Mr. Rhame was appointed to serve
as President of the Reaves Utility Income Fund. He is a member of the portfolio review and risk management committees. Mr. Rhame
received a B.A. from St. Mary’s College of Maryland and is a CFA Charterholder.
Administrator
Paralel,
located at 1700 Broadway, Suite 1850, Denver, Colorado 80290, serves as administrator to the Fund. Under an administration and
fund accounting agreement between Paralel and the Fund, Paralel is responsible for providing the Fund with fund accounting, tax,
fund administration, and compliance services, providing the Fund with certain executive officers, and generally managing the business
affairs of the Fund. The administration and fund accounting agreement provides that from its fees earned, Paralel will pay all
expenses incurred by the Fund, with the exception of advisory fees; taxes and governmental fees; expenses related to portfolio
transactions and management of the portfolio; expenses associated with secondary offerings of shares; trustee fees and expenses;
expenses associated with tender offers and other share repurchases; and other extraordinary expenses. Paralel is entitled to receive
a monthly fee at the annual rate of 0.15% on the first $2 billion of the average daily total assets of the Fund and 0.10% on any
amount in excess of $2 billion of the average daily total assets of the Fund.
Fund
Expenses
Reaves
and Paralel are each obligated to pay expenses associated with providing the services contemplated by the agreements to which
they are parties, including compensation of and office space for their respective officers and employees connected with investment
and economic research, trading and investment management and administration of the Fund. Reaves and Paralel are each obligated
to pay the fees of any Trustee of the Fund who is affiliated with it. Paralel will pay all expenses incurred by the Fund, with
the exception of advisory fees; taxes and governmental fees; expenses related to portfolio transactions and management of the
portfolio; expenses associated with secondary offerings of shares; trustee fees and expenses; expenses associated with tender
offers and other share repurchases; and other extraordinary expenses.
The
Advisory Agreement authorizes Reaves to select brokers or dealers (including affiliates) to arrange for the purchase and sale
of Fund securities, including principal transactions. Any commission, fee or other remuneration paid to an affiliated broker or
dealer is paid in compliance with the Fund’s procedures adopted in accordance with Rule 17e-1 of the 1940 Act.
The
fees and expenses of an offering will be paid by the Fund.
NET
ASSET VALUE
The
NAV per common share of the Fund is determined no less frequently than daily, on each day that the NYSE American is open for trading,
as of the close of regular trading on the NYSE American (normally 4:00 p.m. New York time). Paralel calculates the Fund’s
NAV by dividing the value of the Fund’s total assets (the value of the securities the Fund holds plus cash or other assets,
including interest accrued but not yet received), less the Fund’s total liabilities (including dividends payable, any borrowings
by the total number of common shares outstanding.
The
Board has established the following procedures for valuation of the Fund’s asset values under normal market conditions.
For domestic equity securities, foreign 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 a domestic and foreign equity security not traded
on an exchange, or if such closing prices are not otherwise available, the mean of the closing bid and ask price will be used.
The fair value for debt obligations is generally the evaluated mean price supplied by the Fund’s primary and/or secondary
independent third-party pricing service, approved by the Board. An evaluated mean is considered to be a daily fair valuation price
which may use a matrix, formula or other objective method that takes into consideration various factors, including, but not limited
to: structured product markets, fixed income markets, interest rate movements, new issue information, trading, cash flows, yields,
spreads, credit quality and other pertinent information as determined by the pricing services evaluators and methodologists. If
the Fund’s primary and/or secondary independent third-party pricing services 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 broker-dealers
that make a market in the security. Investments in non-exchange traded funds are fair valued at their respective net asset values.
Exchange-traded options are valued at the close price.
Pursuant
to Rule 2a-5 under the 1940 Act, the Board has designated the Fund’s investment adviser, Reaves, as the valuation designee
with respect to the fair valuation of the Fund’s portfolio securities, subject to oversight by and periodic reporting to
the Board. Fair valued securities are those for which market quotations are not readily available, including circumstances under
which the Adviser determines that prices received are not reflective of their market values. In fair valuing the Fund’s
investments, consideration is given to several factors, which may include, among others, the following: the fundamental business
data relating to the issuer, borrower or counterparty; an evaluation of the forces which influence the market in which the investments
are purchased and sold; the type, size and cost of the investment; the information as to any transactions in or offers for the
investment; the price and extent of public trading in similar securities (or equity securities) of the issuer, or comparable companies;
the coupon payments, yield data/cash flow data; the quality, value and saleability of collateral, if any, securing the investment;
the business prospects of the issuer, borrower or counterparty, as applicable, including any ability to obtain money or resources
from a parent or affiliate and an assessment of the issuer’s, borrower’s or counterparty’s management; the prospects
for the industry of the issuer, borrower or counterparty, as applicable, and multiples (of earnings and/or cash flow) being paid
for similar businesses in that industry; one or more non-affiliated independent broker quotes for the sale price of the portfolio
security; and other relevant factors.
DISTRIBUTIONS
The
Board approved its Managed Distribution Plan in September 2011. The Managed Distribution Plan provides for the Fund to make a
monthly distribution to holders of its common shares at a rate determined by the Board from time to time, subject to the right
of the Board to suspend, modify, or terminate the Managed Distribution Plan without notice at any time. As of April 30, 2024,
the distribution rate was $0.19 per common share.
Under
the Managed Distribution Plan, the Fund will distribute all available investment income to shareholders, consistent with the Fund’s
primary investment objective. If and when sufficient investment income is not available on a monthly basis, the Fund will distribute
long-term capital gains and/or return capital to its shareholders. Whenever any portion of any Fund distribution is derived from
a source other than net investment income, Section 19(a) of the 1940 Act and Rule 19a-1 thereunder require the Fund to furnish
shareholders with a written statement disclosing what portion of the payment per share is derived from net investment income,
net short-term capital gains, net long-term capital gains and return of capital.
Section 19(b)
of the 1940 Act and Rule 19b-1 thereunder generally make it unlawful for any registered investment company to make long-term capital
gains distributions more than once each year. Rule 19b-1 limits the number of capital gains dividends, as defined in section 852(b)(3)(C)
of the Code (“distributions”), that a fund may make with respect to any one taxable year to one, plus a supplemental
“clean up” distribution made pursuant to section 855 of the Code not exceeding 10% of the total amount distributed
for the year, plus one additional capital gain dividend made in whole or in part to avoid the excise tax under section 4982 of
the Code.
Funds
that have adopted a Managed Distribution Plan often seek exemptive relief from the SEC, permitting them to distribute long-term
capital gains more than once a year. On July 14, 2011, the SEC granted the Fund’s request for an order under Section 6(a)
of the 1940 Act, exempting the Fund from Section 19(b) of the 1940 Act and Rule 19b-1 thereunder and permitting the Fund
to make periodic distributions of long-term capital gains with respect to its outstanding common shares as frequently as twelve
times each year, and as frequently as distributions are specified by or in accordance with the terms of any outstanding preferred
shares of the Fund. Even though the Fund has received this exemptive relief from the SEC, a return of capital could occur if the
Fund were to distribute more than the aggregate of its income and net realized capital gains.
A
return of capital distribution does not necessarily reflect the Fund’s investment performance and should not be confused
with “yield” or “income”. Rather, a return of capital distribution represents a reduction of a shareholder’s
principal investment in the Fund. To the extent that the Fund uses capital gains and/or returns of capital to supplement its investment
income, shareholders should not draw any conclusions about the Fund’s investment performance from the amount of the Fund’s
distributions or from the terms of the Managed Distribution Plan.
The
characterization of the Fund’s distributions in statements furnished pursuant to Section 19(a) of the 1940 Act and
Rule 19a-1 thereunder based on U.S. generally accepted accounting principles and may differ from the treatment of those distributions
for tax purposes. The determination of the character of all Fund distributions for tax purposes (specifying which portion is ordinary
income, qualifying dividend income, short-or long-term capital gains, or return of capital) is made each year-end and is reported
to shareholders subject to tax reporting on Form 1099-DIV. Return of capital is not taxable to shareholders in the year it is
paid. Rather, shareholders are required to reduce the cost basis of their shares by the amount of the return of capital so that,
when the shares are ultimately sold, they will have properly accounted for the return of capital. Such an adjustment may cause
a shareholder’s gain to be greater, or loss to be smaller, depending on the sales proceeds received.
The
Board may amend, suspend or terminate the Managed Distribution Plan without prior notice to shareholders if it deems such action
to be in the best interests of the Fund and its shareholders. For example, the Board might take such action if the Managed Distribution
Plan had the effect of shrinking the Fund’s assets to a level that was determined to be detrimental to Fund shareholders.
The suspension or termination of the Managed Distribution Plan could have the effect of creating a trading discount (if the Fund’s
common shares are trading at or above NAV) or widening an existing trading discount.
Common
shareholders may elect automatically to reinvest some or all of their distributions in additional common shares under the Fund’s
dividend reinvestment plan. See “Dividend Reinvestment Plan.” While there are any borrowings or preferred shares outstanding,
the Fund may not be permitted to declare any cash dividend or other distribution on its common shares in certain circumstances.
See “Description of Capital Structure.”
PLAN
OF DISTRIBUTION
The
Fund may sell up to $900,000,000 in aggregate initial offering price of common shares, Rights and any Follow-on Offering from
time to time under this Prospectus and any related Prospectus Supplement (1) directly to one or more purchases, including existing
shareholders in a rights offering; (2) through agents; (3) through underwriters; (4) through dealers; or (5) pursuant to the Plan.
Each Prospectus Supplement relating to an offering of securities will state the terms of the offering, including:
| ● | the
names of any agents, underwriters or dealers; |
| ● | any
sales loads or other items constituting underwriters’ compensation; |
| ● | any
discounts, commissions, or fees allowed or paid to dealers or agents; |
| ● | the
public offering or purchase price of the offered Securities and the net proceeds the
Fund will receive from the sale; and |
| ● | any
securities exchange on which the offered Securities may be listed. |
In
the case of a rights offering, the applicable Prospectus Supplement will set forth the number of common shares issuable upon the
exercise of each right and the other terms of such rights offering. The transferable subscription rights offered by means of this
Prospectus and applicable Prospectus Supplement, including any related over-subscription privilege and any follow-on offering,
if applicable, may be convertible or exchangeable into common shares at a ratio not to exceed one Common Share received for every
three rights converted, exercised or exchanged on an aggregate basis such that the exercise of all rights in any transferable
subscription rights offering will not cumulatively result in more than a 33 1/3 percentage increase in the outstanding common
shares of the Fund.
Direct
Sales
The
Fund may sell Securities directly to, and solicit offers from, institutional investors or others who may be deemed to be underwriters
as defined in the Securities Act for any resales of the securities. In this case, no underwriters or agents would be involved.
The Fund may use electronic media, including the Internet, to sell offered securities directly. The Fund will describe the terms
of any of those sales in a Prospectus Supplement.
By
Agents
The
Fund may offer Securities through agents that the Fund may designate. The Fund will name any agent involved in the offer and sale
and describe any commissions payable by the Fund in the Prospectus Supplement. Unless otherwise indicated in the Prospectus Supplement,
the agents will be acting on a best efforts basis for the period of their appointment.
By
Underwriters
The
Fund may offer and sell Securities from time to time to one or more underwriters who would purchase the Securities as principal
for resale to the public, either on a firm commitment or best efforts basis. If the Fund sells Securities to underwriters, the
Fund will execute an underwriting agreement with them at the time of the sale and will name them in the Prospectus Supplement.
In connection with these sales, the underwriters may be deemed to have received compensation from the Fund in the form of underwriting
discounts and commissions. The underwriters also may receive commissions from purchasers of Securities for whom they may act as
agent. Unless otherwise stated in the Prospectus Supplement, the underwriters will not be obligated to purchase the Securities
unless the conditions set forth in the underwriting agreement are satisfied, and if the underwriters purchase any of the Securities,
they will be required to purchase all of the offered Securities. The underwriters may sell the offered Securities to or through
dealers, and those dealers may receive discounts, concessions or commissions from the underwriters as well as from the purchasers
for whom they may act as agent. Any public offering price and any discounts or concessions allowed or reallowed or paid to dealers
may be changed from time to time.
In
connection with an offering of common shares, if a Prospectus Supplement so indicates, the Fund may grant the underwriters an
option to purchase additional common shares at the public offering price, less the underwriting discounts and commissions, within
45 days from the date of the Prospectus Supplement, to cover any overallotments.
By
Dealers
The
Fund may offer and sell Securities from time to time to one or more dealers who would purchase the securities as principal. The
dealers then may resell the offered Securities to the public at fixed or varying prices to be determined by those dealers at the
time of resale. The Fund will set forth the names of the dealers and the terms of the transaction in the Prospectus Supplement.
General
Information
Agents,
underwriters, or dealers participating in an offering of Securities may be deemed to be underwriters, and any discounts and commission
received by them and any profit realized by them on resale of the offered Securities for whom they act as agent, may be deemed
to be underwriting discounts and commissions under the Securities Act.
The
Fund may offer to sell securities either at a fixed price or at prices that may vary, at market prices prevailing at the time
of sale, at prices related to prevailing market prices or at negotiated prices.
To
facilitate an offering of common shares in an underwritten transaction and in accordance with industry practice, the underwriters
may engage in transactions that stabilize, maintain, or otherwise affect the market price of the common shares or any other Security.
Those transactions may include overallotment, entering stabilizing bids, effecting syndicate covering transactions, and reclaiming
selling concessions allowed to an underwriter or a dealer.
| ● | An
overallotment in connection with an offering creates a short position in the common shares
for the underwriter’s own account. |
| ● | An
underwriter may place a stabilizing bid to purchase the common shares for the purpose
of pegging, fixing, or maintaining the price of the common shares. |
| ● | Underwriters
may engage in syndicate covering transactions to cover overallotments or to stabilize
the price of the common shares by bidding for, and purchasing, the common shares or any
other Securities in the open market in order to reduce a short position created in connection
with the offering. |
| ● | The
managing underwriter may impose a penalty bid on a syndicate member to reclaim a selling
concession in connection with an offering when the common shares originally sold by the
syndicate member is purchased in syndicate covering transactions or otherwise. |
Any
of these activities may stabilize or maintain the market price of the Securities above independent market levels. The underwriters
are not required to engage in these activities, and may end any of these activities at any time.
In
connection with any rights offering, the Fund may also enter into a standby underwriting arrangement with one or more underwriters
pursuant to which the underwriter(s) will purchase common shares remaining unsubscribed for after the rights offering.
Any
underwriters to whom the offered Securities are sold for offering and sale may make a market in the offered Securities, but the
underwriters will not be obligated to do so and may discontinue any market-making at any time without notice. There can be no
assurance that there will be a liquid trading market for the offered Securities.
Under
agreements entered into with the Fund, underwriters and agents may be entitled to indemnification by the Fund and the Adviser
against certain civil liabilities, including liabilities under the Securities Act, or to contribution for payments the underwriters
or agents may be required to make.
The
underwriters, agents, and their affiliates may engage in financial or other business transactions with the Fund in the ordinary
course of business.
Pursuant
to a requirement of the Financial Industry Regulatory Authority, Inc. (“FINRA”), the maximum compensation to be received
by any FINRA member or independent broker-dealer may not be greater than eight percent (8%) of the gross proceeds received by
the Fund for the sale of any securities being registered pursuant to SEC Rule 415 under the Securities Act.
The
aggregate offering price specified on the cover of this Prospectus relates to the offering of the Securities not yet issued as
of the date of this Prospectus.
To
the extent permitted under the 1940 Act and the rules and regulations promulgated thereunder, the underwriters may from time to
time act as a broker or dealer and receive fees in connection with the execution of portfolio transactions on behalf of the Fund
after the underwriters have ceased to be underwriters and, subject to certain restrictions, each may act as a broker while it
is an underwriter.
A
Prospectus and accompanying Prospectus Supplement in electronic form may be made available on the websites maintained by underwriters.
The underwriters may agree to allocate a number of Securities for sale to their online brokerage account holders. Such allocations
of Securities for internet distributions will be made on the same basis as other allocations. In addition, Securities may be sold
by the underwriters to securities dealers who resell Securities to online brokerage account holders.
DIVIDEND
REINVESTMENT PLAN
Unless
the registered owner of Common Shares elects to receive cash by contacting SS&C Global Investor & Distribution Solutions,
Inc. (“SS&C GIDS”) (the “Plan Administrator”), 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 the Plan Administrator as dividend disbursing agent. You may elect not to participate in the Plan
and to receive all dividends in cash by contacting the Plan Administrator, 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, nonparticipants 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 NYSE American LLC 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-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, SS&C GIDS, Inc., W 7th
Street, Kansas City, MO 64105.
FEDERAL
INCOME TAX MATTERS
The
following is a summary discussion of certain U.S. federal income tax consequences that may be relevant to a common shareholder
that acquires, holds and/or disposes of common shares of the Fund, and reflects provisions of the Code, existing Treasury regulations,
rulings published by the IRS, and other applicable authority, as of the date of this Prospectus. These authorities are subject
to change by legislative or administrative action, possibly with retroactive effect. The following discussion is only a summary
of some of the important tax considerations generally applicable to investments in the Fund. For more detailed information regarding
tax considerations, see the Statement of Additional Information. There may be other tax considerations applicable to particular
investors. In addition, income earned through an investment in the Fund may be subject to state, local and foreign taxes.
The
Fund has elected to be treated and has qualified each year for taxation as a regulated investment company eligible for treatment
under the provisions of Subchapter M of the Code and intends to so qualify in the future. In order for the Fund to qualify as
a regulated investment company, it must meet certain income and asset diversification tests each year. If the Fund continues to
so qualify and satisfies certain distribution requirements, the Fund will not be subject to federal income tax on income distributed
in a timely manner to its shareholders in the form of dividends or capital gain distributions.
In
order to avoid incurring a federal excise tax obligation, the Code requires that the Fund distribute (or be deemed to have distributed)
by December 31 of each calendar year an amount at least equal to the sum of (i) 98% of its ordinary income for such year (taking
into account certain deferrals and elections) and (ii) 98.2% of its capital gain net income (which is the excess of its realized
net long-term capital gain over its realized net short-term capital loss), generally computed on the basis of the one-year period
ending on October 31 of such year, after reduction by any available capital loss carryforwards, plus (iii) 100% of any ordinary
income and capital gain net income from the prior year (as previously computed) that were not paid out during such year and on
which the Fund paid no federal income tax. A regulated investment company which fails to meet these requirements is liable for
a nondeductible 4% excise tax on the portion of the undistributed amounts of such income that are less than the required distributions.
For these purposes, the Fund will be deemed to have distributed any income or gain on which it paid U.S. federal income tax.
If
the Fund does not qualify as a RIC for any taxable year, the Fund’s taxable income will be subject to corporate income taxes,
and all distributions from earnings and profits, including distributions of net capital gain (if any), will be taxable to the
shareholder as ordinary income. Such distributions generally will be eligible (i) for the dividends received deduction in the
case of corporate shareholders and (ii) for treatment as “qualified dividends” in the case of individual shareholders.
In addition, in order to requalify for taxation as a RIC, the Fund may be required to recognize unrealized gains, pay substantial
taxes and interest, and make certain distributions.
The
Fund intends to make monthly distributions of either net investment income or capital gains. The Fund also intends to distribute
annually any remaining net investment income, net short-term capital gain (which are taxable as ordinary income) and any net capital
gain that have not been distributed as part of the monthly distributions. Unless a shareholder is ineligible to participate or
elects otherwise, all distributions will be automatically reinvested in additional common shares of the Fund pursuant to the Dividend
Reinvestment Plan (the “Plan”). For U.S. federal income tax purposes, all dividends are generally taxable whether
a shareholder takes them in cash or they are reinvested pursuant to the Plan in additional shares of the Fund. Distributions of
the Fund’s net capital gains which are properly reported as “capital gain dividends”, if any, are taxable to
common shareholders as long-term capital gains, regardless of the length of time common shares have been held by common shareholders.
Distributions, if any, in excess of the Fund’s earnings and profits will first reduce the adjusted tax basis of a holder’s
common shares and, after that basis has been reduced to zero, will constitute capital gains to the common shareholder (assuming
the common shares are held as a capital asset). See below for a summary of the maximum tax rates applicable to capital gains (including
capital gain dividends). A corporation that owns Fund shares generally will not be entitled to the dividends received deduction
with respect to all the dividends it receives from the Fund. Fund dividend payments that are attributable to qualifying dividends
received by the Fund from certain domestic corporations may be designated by the Fund as being eligible for the dividends received
deduction.
Dividends
and other distributions paid by the Fund are generally treated as received at the time the dividend or distribution is made. However,
certain dividends and other distributions declared in October, November or December and paid in the following January will be
taxed to shareholders as if received on December 31 of the year in which they were declared.
Certain
income distributions paid by the Fund to individual taxpayers are taxed at rates equal to those applicable to net long-term capital
gains (currently at a maximum rate of 20%). This tax treatment applies only if certain holding period requirements are satisfied
by the common shareholder and the dividends are attributable to qualified dividends received by the Fund itself. For this purpose,
“qualified dividends” means dividends received by the Fund from United States corporations and qualifying foreign
corporations, provided that the Fund satisfies certain holding period and other requirements in respect of the stock of such corporations.
In the case of securities lending transactions, payments in lieu of dividends are not qualified dividends. Dividends received
by the Fund from real estate investment trusts (“REITs”) are qualified dividends eligible for this lower tax rate
only in limited circumstances.
A
dividend paid by the Fund to a common shareholder will not be treated as qualified dividend income of the common shareholder if
(1) the dividend is received with respect to any share held for fewer than 61 days during the 121-day period beginning on
the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend, (2) to the
extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with
respect to positions in substantially similar or related property or (3) if the recipient elects to have the dividend treated
as investment income for purposes of the limitation on deductibility of investment interest.
The
Fund will inform common shareholders of the source and tax status of all distributions promptly after the close of each calendar
year.
Selling
common shareholders will generally recognize gain or loss in an amount equal to the difference between the common shareholder’s
adjusted tax basis in the common shares sold and the amount received. If the common shares are held as a capital asset, the gain
or loss will be a capital gain or loss. The maximum tax rate applicable to net capital gains recognized by individuals and other
non-corporate taxpayers is (i) the same as the maximum ordinary income tax rate for gains recognized on the sale of capital
assets held for one year or less or (ii) 20% for gains recognized on the sale of capital assets held for more than one year
(as well as certain capital gain dividends) (zero for certain individuals in lower tax brackets). Any loss on a disposition of
common shares held for six months or less will be treated as a long-term capital loss to the extent of any capital gain dividends
received with respect to those common shares. For purposes of determining whether common shares have been held for six months
or less, the holding period is suspended for any periods during which the common shareholder’s risk of loss is diminished
as a result of holding one or more other positions in substantially similar or related property, or through certain options or
short sales. Any loss realized on a sale or exchange of common shares will be disallowed to the extent those common shares are
replaced by other common shares within a period of 61 days beginning 30 days before and ending 30 days after the date of
disposition of the common shares (whether through the reinvestment of distributions, which could occur, for example, if the common
shareholder is a participant in the Plan (as defined below) or otherwise). In that event, the basis of the replacement common
shares will be adjusted to reflect the disallowed loss.
An
investor should be aware that, if common shares are purchased shortly before the record date for any taxable dividend (including
a capital gain dividend), the purchase price likely will reflect the value of the dividend and the investor then would receive
a taxable distribution likely to reduce the trading value of such common shares, in effect resulting in a taxable return of some
of the purchase price. Taxable distributions to individuals and certain other non-corporate common shareholders, including those
who have not provided their correct taxpayer identification number and other required certifications, may be subject to “backup”
federal income tax withholding (currently, at a rate of 24%).
An
investor should also be aware that the benefits of the reduced tax rate applicable to long-term capital gains and qualified dividend
income may be impacted by the application of the alternative minimum tax to individual shareholders.
In
addition to the taxes set forth above, a tax of 3.8% is imposed on the “net investment income” of certain individuals,
trusts and estates. Among other items, net investment income generally includes gross income from both ordinary income dividends
as well as capital gains dividends.
Benefit
Plans and other tax-exempt entities, including governmental plans, should also be aware that if they borrow in order to finance
their exercise of Rights, they may become subject to the tax on unrelated business taxable income under Section 511 of the
Code.
The
foregoing briefly summarizes some of the important federal income tax consequences to common shareholders of investing in common
shares, reflects the federal tax law as of the date of this Prospectus, and does not address special tax rules applicable to certain
types of investors, such as corporate and foreign investors. Investors should consult their tax advisers regarding other federal,
state or local tax considerations that may be applicable in their particular circumstances, as well as any proposed tax law changes.
DESCRIPTION
OF CAPITAL STRUCTURE
The
Fund is an unincorporated statutory trust established under the laws of the state of Delaware by an Agreement and Declaration
of Trust dated September 15, 2003 (the “Declaration of Trust”). The Declaration of Trust provides that the Trustees
of the Fund may authorize separate classes of shares of beneficial interest. The Trustees have authorized an unlimited number
of common shares. The Fund intends to hold annual meetings of common shareholders in compliance with the requirements of the NYSE
American.
Common
Shares
The
Declaration of Trust permits the Fund to issue an unlimited number of full and fractional common shares of beneficial interest,
no par value. Each common share represents an equal proportionate interest in the assets of the Fund with each other common share
in the Fund. Holders of common shares will be entitled to the payment of dividends when, as and if declared by the Board. The
1940 Act or the terms of any borrowings or preferred shares may limit the payment of dividends to the Common Shareholders. Each
whole common share shall be entitled to one vote and each fractional common share shall be entitled to a vote equal to its fraction
of a whole share as to matters on which it is entitled to vote pursuant to the terms of the Declaration of Trust on file with
the SEC. Upon liquidation of the Fund, after paying or adequately providing for the payment of all liabilities of the Fund and
the liquidation preference with respect to any outstanding preferred shares, and upon receipt of such releases, indemnities and
refunding agreements as they deem necessary for their protection, the Trustees may distribute the remaining assets of the Fund
among the holders of the common shares. The Declaration of Trust provides that common shareholders are not liable for any liabilities
of the Fund. Although shareholders of an unincorporated statutory trust established under Delaware law, in certain limited circumstances,
may be held personally liable for the obligations of the Fund as though they were general partners, the provisions of the Declaration
of Trust described in the foregoing sentence make the likelihood of such personal liability remote.
While
there are any borrowings or preferred shares outstanding, the Fund may not be permitted to declare any cash dividend or other
distribution on its common shares, unless at the time of such declaration, (i) all accrued dividends on preferred shares
or accrued interest on borrowings have been paid and (ii) the value of the Fund’s total assets (determined after deducting
the amount of such dividend or other distribution), less all liabilities and indebtedness of the Fund not represented by senior
securities, is at least 300% of the aggregate amount of such securities representing indebtedness and at least 200% of the aggregate
amount of securities representing indebtedness plus the aggregate liquidation value of the outstanding preferred shares (expected
to equal the aggregate original purchase price of the outstanding preferred shares plus redemption premium, if any, together with
any accrued and unpaid dividends thereon, whether or not earned or declared and on a cumulative basis). In addition to the requirements
of the 1940 Act, the Fund may be required to comply with other asset coverage requirements as a condition of the Fund obtaining
a rating of the preferred shares from a rating agency. These requirements may include an asset coverage test more stringent than
under the 1940 Act. This limitation on the Fund’s ability to make distributions on its common shares could in certain circumstances
impair the ability of the Fund to maintain its qualification for taxation as a regulated investment company for federal income
tax purposes. The Fund intends, however, to the extent possible to purchase or redeem preferred shares or reduce borrowings from
time to time to maintain compliance with such asset coverage requirements and may pay special dividends to the holders of the
preferred shares in certain circumstances in connection with any such impairment of the Fund’s status as a regulated investment
company. Depending on the timing of any such redemption or repayment, the Fund may be required to pay a premium in addition to
the liquidation preference of the preferred shares to the holders thereof.
The
provisions of the 1940 Act generally require that the public offering price (less underwriting commissions and discounts) of common
shares sold by a closed-end investment company must equal or exceed the NAV of such company’s common shares (calculated
within 48 hours of the pricing of such offering), unless such sale is made in connection with an offering to existing holders
of common shares or with the consent of a majority of its common shareholders. The Fund may, from time to time, seek the consent
of Common Shareholders to permit the issuance and sale by the Fund of common shares at a price below the Fund’s then-current
NAV, subject to certain conditions. If such consent is obtained, the Fund may, contemporaneous with and in no event more than
one year following the receipt of such consent, sell common shares at price below NAV in accordance with any conditions adopted
in connection with the giving of such consent. Additional information regarding any consent of Common Shareholders obtained by
the Fund and the applicable conditions imposed on the issuance and sale by the Fund of common shares at a price below NAV will
be disclosed in the Prospectus Supplement relating to any such offering of common shares at a price below NAV. Until such consent
of Common Shareholders, if any, is obtained, the Fund may not sell common shares at a price below NAV. Because the Fund’s
advisory fee is based upon average Managed Assets, the Adviser’s interest in recommending the issuance and sale of common
shares at a price below NAV may conflict with the interests of the Fund and its Common Shareholders.
Subscription
Rights to Purchase Common Shares
The
Fund may issue subscription rights to holders of common shares to purchase common shares. Subscription rights may be issued independently
or together with any other offered security and may or may not be transferable by the person purchasing or receiving the subscription
rights. In connection with a subscription rights offering to holders of common shares, the Fund would distribute certificates
evidencing the subscription rights and a Prospectus Supplement, containing all of the material terms of the subscription rights
agreement relating to such subscription rights (the “Subscription Rights Agreement”), to our common or preferred shareholders
as of the record date that we set for determining the shareholders eligible to receive subscription rights in such subscription
rights offering. For complete terms of the subscription rights, please refer to the actual terms of such subscription rights which
will be set forth in the Subscription Rights Agreement.
The
applicable Prospectus Supplement would describe the following terms of subscription rights in respect of which this Prospectus
is being delivered:
| ● | the
period of time the offering would remain open (which will be open a minimum number of
days such that all record holders would be eligible to participate in the offering and
will not be open longer than 120 days); |
| ● | the
exercise price for such subscription rights (or method of calculation thereof); |
| ● | the
number of such subscription rights issued in respect of each Common Share; |
| ● | the
extent to which such subscription rights are transferable and the market on which they
may be traded if they are transferable; |
| ● | if
applicable, a discussion of the material U.S. federal income tax considerations applicable
to the issuance or exercise of such subscription rights; |
| ● | the
date on which the right to exercise such subscription rights will commence, and the date
on which such right will expire (subject to any extension); |
| ● | the
extent to which such subscription rights include an over-subscription privilege with
respect to unsubscribed securities and the terms of such over-subscription privilege; |
| ● | any
termination right the Fund may have in connection with such subscription rights offering; |
| ● | the
expected trading market, if any, for rights; and |
| ● | any
other terms of such subscription rights, including exercise, settlement and other procedures
and limitations relating to the transfer and exercise of such subscription rights. |
Exercise
of Subscription Rights. Each subscription right would entitle the holder of the subscription right to purchase for cash such
number of shares at such exercise price as in each case is set forth in, or be determinable as set forth in the Prospectus Supplement
relating to the subscription rights offered thereby. Subscription rights would be exercisable at any time up to the close of business
on the expiration date for such subscription rights set forth in the Prospectus Supplement. After the close of business on the
expiration date, all unexercised subscription rights would become void.
Upon
expiration of the rights offering and the receipt of payment and the subscription rights certificate properly completed and duly
executed at the corporate trust office of the subscription rights agent or any other office indicated in the Prospectus Supplement,
the Fund would issue, as soon as practicable, the common shares purchased as a result of such exercise. To the extent permissible
under applicable law, the Fund may determine to offer any unsubscribed offered securities directly to persons other than shareholders,
to or through agents, underwriters or dealers or through a combination of such methods, as set forth in the applicable Prospectus
Supplement.
The
Fund generally will not issue common share certificates. However, upon written request to the Fund’s transfer agent, a share
certificate will be issued for any or all of the full common shares credited to an investor’s account. Common share certificates
that have been issued to an investor may be returned at any time.
Trading
Information
The
common shares are listed on the NYSE American under the symbol “UTG” and began trading on the NYSE American on February 24,
2004. In connection with any offering of Rights, the Fund will provide information in the Prospectus Supplement for the expected
trading market, if any, for Rights. The average daily trading volume of the common shares on the NYSE American during the period
from November 1, 2021 through July 31, 2024 was 256,600 common shares. Shares of closed-end investment companies often trade on
an exchange at prices lower than NAV. The Fund’s common shares have traded in the market at both premiums to and discounts
from NAV. The following table shows, for each fiscal quarter beginning with the quarter ended January 31, 2022; (i) high
and low NAVs per common share, (ii) the high and low sale prices per common share, as reported in the consolidated transaction
reporting system, and (iii) the percentage by which the common shares traded at a premium over, or discount from, the high
and low NAVs per common share. The Fund’s NAV per common share is determined on a daily basis.
Quarter Ended | |
Market Price | |
Net Asset Value at | |
Market Premium (Discount) to Net Asset Value at |
| |
| |
High | |
Low | |
Market High | |
Market Low | |
Market High | |
Market Low |
2024 | |
July 31 | |
$28.75 | |
$26.11 | |
$27.97 | |
$26.26 | |
2.79% | |
(0.57)% |
| |
April 30 | |
$27.10 | |
$25.26 | |
$26.62 | |
$25.14 | |
1.80% | |
0.48% |
| |
January 31 | |
$27.88 | |
$24.47 | |
$27.54 | |
$24.87 | |
1.23% | |
(1.61)% |
2023 | |
October 31 | |
$28.18 | |
$23.24 | |
$27.57 | |
$23.38 | |
2.21% | |
(1.11)% |
| |
July 31 | |
$29.07 | |
$26.57 | |
$28.91 | |
$26.42 | |
0.55% | |
0.53% |
| |
April 30 | |
$30.32 | |
$26.32 | |
$29.96 | |
$26.41 | |
1.20% | |
(3.02)% |
| |
January 31 | |
$30.71 | |
$27.02 | |
$30.44 | |
$27.45 | |
0.01% | |
(0.02)% |
2022 | |
October 31 | |
$34.02 | |
$24.55 | |
$33.85 | |
$25.10 | |
0.51% | |
(5.58)% |
| |
July 31 | |
$34.50 | |
$28.85 | |
$34.02 | |
$28.56 | |
2.59% | |
1.02% |
| |
April 30 | |
$35.43 | |
$30.76 | |
$36.13 | |
$30.71 | |
(1.94)% | |
(0.65)% |
| |
January 31 | |
|
$32.20 | |
$34.79 | |
$31.95 | |
1.90% | |
(1.08)% |
On
August 28, 2024, the NAV per common share was $29.64, trading prices ranged between $30.18 and $29.95 (representing a premium
to NAV of 1.82% and 1.05%, respectively) and the closing price per common share was $30.05 (representing a premium to NAV of 1.38%).
Preferred
Shares
The
Declaration of Trust authorizes the issuance of an unlimited number of shares of beneficial interest with preference rights, including
preferred shares (the “preferred shares”), having no par value, in one or more series, with rights as determined by
the Board, by action of the Board without the approval of the common shareholders. The Board presently has no intention authorizing
the issuance of preferred shares by the Fund. Historically, the Fund issued auction market preferred shares in 2004. In December
2010, as approved by the Board, all such shares were redeemed at their liquidation value of $25,000 per share, plus accrued dividends.
The aggregate amount of the 9,600 preferred shares redeemed was $240,000,000, plus accrued dividends. Financing for the redemption
of the preferred shares was obtained through the prior credit facility. The Prospectus Supplement for any potential offering of
preferred shares will describe the terms and conditions for those shares.
Under
the requirements of the 1940 Act, the Fund must, immediately after the issuance of any preferred shares, have an “asset
coverage” of at least 200%. Asset coverage means the ratio which the value of the total assets of the Fund, less all liability
and indebtedness not represented by senior securities (as defined in the 1940 Act), bears to the aggregate amount of senior securities
representing indebtedness of the Fund, if any, plus the aggregate liquidation preference of the preferred shares. If the Fund
seeks a rating of the preferred shares, asset coverage requirements, in addition to those set forth in the 1940 Act, may be imposed.
The liquidation value of the preferred shares is expected to equal their aggregate original purchase price plus redemption premium,
if any, together with any accrued and unpaid dividends thereon (on a cumulative basis), whether or not earned or declared. The
terms of the preferred shares, including their dividend rate, voting rights, liquidation preference and redemption provisions,
will be determined by the Board (subject to applicable law and the Fund’s Declaration of Trust) if and when it authorizes
the preferred shares. The Fund may issue preferred shares that provide for the periodic redetermination of the dividend rate at
relatively short intervals through an auction or remarketing procedure, although the terms of the preferred shares may also enable
the Fund to lengthen such intervals. At times, the dividend rate as redetermined on the Fund’s preferred shares may approach
or exceed the Fund’s return after expenses on the investment of proceeds from the preferred shares and the Fund’s
leverage structure would result in a lower rate of return to common shareholders than if the Fund were not so structured.
In
the event of any voluntary or involuntary liquidation, dissolution or winding up of the Fund, the terms of any preferred shares
may entitle the holders of preferred shares to receive a preferential liquidating distribution (expected to equal the original
purchase price per share plus redemption premium, if any, together with accrued and unpaid dividends, whether or not earned or
declared and on a cumulative basis) before any distribution of assets is made to Common Shareholders. After payment of the full
amount of the liquidating distribution to which they are entitled, the preferred shareholders would not be entitled to any further
participation in any distribution of assets by the Fund.
Holders
of preferred shares, if and when issued, shall be entitled to elect two of the Fund’s Trustees, voting as a class. Under
the 1940 Act, if at any time dividends on the preferred shares are unpaid in an amount equal to two full years’ dividends
thereon, the holders of all outstanding preferred shares, voting as a class, will be allowed to elect a majority of the Fund’s
Trustees until all dividends in default have been paid or declared and set apart for payment. In addition, if required by the
rating agency rating the preferred shares or if the Board determines it to be in the best interests of the common shareholders,
issuance of the preferred shares may result in more restrictive provisions than required by the 1940 Act being imposed. In this
regard, holders of the preferred shares may be entitled to elect a majority of the Board in other circumstances, for example,
if one payment on the preferred shares is in arrears.
Outstanding
Securities
As
of August 28, 2024, the Fund’s common shares were the only outstanding securities issued by the Fund. As of the same date,
the Fund had 86,607,381 common shares outstanding:
(1) |
(2) |
(3) |
(4) |
|
|
|
|
|
|
Amount Held by Fund or for |
Amount Outstanding
Exclusive of Amount Shown
under
(3) |
Title of Class |
Amount Authorized |
its
account |
As
of August 28, 2024 |
|
|
|
|
Common
shares of
beneficial interest |
Unlimited |
None |
86,607,381 |
Anti-Takeover
Provisions in the Declaration of Trust
The
Declaration of Trust includes provisions that could have the effect of limiting the ability of other entities or persons to acquire
control of the Fund or to change the composition of the Board, and could have the effect of depriving common shareholders of an
opportunity to sell their common shares at a premium over prevailing market prices by discouraging a third party from seeking
to obtain control of the Fund. These provisions may have the effect of discouraging attempts to acquire control of the Fund, which
attempts could have the effect of increasing the expenses of the Fund and interfering with the normal operation of the Fund. The
Board is divided into three classes, with the term of one class expiring at each annual meeting of common shareholders. At each
annual meeting, one class of Trustees is elected to a three-year term. This provision could delay for up to two years the replacement
of a majority of the Board. A Trustee may be removed from office without cause only by a written instrument signed or adopted
by two-thirds of the remaining Trustees or by a vote of the holders of at least two-thirds of the class of shares of the Fund
that elected such Trustee and are entitled to vote on the matter.
The
Fund’s Declaration of Trust provides that the Fund may not merge with another entity, or sell, lease or exchange all or
substantially all of its assets without the approval of at least two-thirds of the Trustees and 75% of the affected shareholders.
In
addition, the Declaration of Trust requires the favorable vote of the holders of at least 80% of the outstanding shares of each
class of the Fund, voting as a class, then entitled to vote to approve, adopt or authorize certain transactions with 5%-or-greater
holders of the Fund’s outstanding shares and their affiliates or associates, unless two-thirds of the Board have approved
by resolution a memorandum of understanding with such holders (prior to the time any such person became a 5%-or-greater shareholder),
in which case normal voting requirements would be in effect. For purposes of these provisions, a 5%-or-greater holder of outstanding
shares (a “Principal Shareholder”) refers to any person who, whether directly or indirectly and whether alone or together
with its affiliates and associates, beneficially owns 5% or more of the outstanding shares of beneficial interest of the Fund.
The transactions subject to these special approval requirements are: (i) the merger or consolidation of the Fund or any subsidiary
of the Fund with or into any Principal Shareholder; (ii) the issuance of any securities of the Fund to any Principal Shareholder
for cash (other than pursuant to any automatic dividend reinvestment plan or pursuant to any offering in which such Principal
Shareholder acquires securities that represent no greater a percentage of any class or series of securities being offered than
the percentage of any class of shares beneficially owned by such Principal Shareholder immediately prior to such offering or,
in the case of securities, offered in respect of another class or series, the percentage of such other class or series beneficially
owned by such Principal Shareholder immediately prior to such offering); (iii) the sale, lease or exchange of all or any
substantial part of the assets of the Fund to any Principal Shareholder (except assets having an aggregate fair market value of
less than $1,000,000, aggregating for the purpose of such computation all assets sold, leased or exchanged in any series of similar
transactions within a twelve-month period); (iv) the sale, lease or exchange to the Fund or any subsidiary thereof, in exchange
for securities of the Fund, of any assets of any Principal Shareholder (except assets having an aggregate fair market value of
less than $1,000,000, aggregating for the purposes of such computation all assets sold, leased or exchanged in any series of similar
transactions within a twelve-month period) or (v) the purchase by the Fund, or any entity controlled by the Fund, of any
common shares from any Principal Shareholder or any person to whom any Principal Shareholder transferred common shares.
The
Board has determined that provisions with respect to the Board and the 80% voting requirements described above, which voting requirements
are greater than the minimum requirements under Delaware law or the 1940 Act, are in the best interest of common shareholders
generally. Reference should be made to the Declaration of Trust on file with the SEC for the full text of these provisions. See
“Additional Information.”
Conversion
to Open-End Fund
The
Fund may be converted to an open-end management investment company at any time if approved by each of the following: (i) a
majority of the Trustees then in office, (ii) the holders of not less than 75% of the Fund’s outstanding shares entitled
to vote thereon and (iii) by such vote or votes of the holders of any class or classes or series of shares as may be required
by the 1940 Act. The composition of the Fund’s portfolio likely would prohibit the Fund from complying with regulations
of the SEC applicable to open-end management investment companies. Accordingly, conversion likely would require significant changes
in the Fund’s investment policies and liquidation of a substantial portion of the relatively illiquid portion of its portfolio.
Conversion of the Fund to an open-end management investment company also would require the redemption of any outstanding preferred
shares and could require the repayment of borrowings, which would eliminate the leveraged capital structure of the Fund with respect
to the common shares. In the event of conversion, the common shares would cease to be listed on the NYSE American or other national
securities exchange or market system. The Board believes, however, that the closed-end structure is desirable, given the Fund’s
investment objective and policies. Investors should assume, therefore, that it is unlikely that the Board would vote to convert
the Fund to an open-end management investment company. Shareholders of an open-end management investment company may require the
company to redeem their shares at any time (except in certain circumstances as authorized by or under the 1940 Act) at their NAV,
less such redemption charge, if any, as might be in effect at the time of a redemption. The Fund expects to pay all such redemption
requests in cash, but intends to reserve the right to pay redemption requests in a combination of cash or securities. If such
partial payment in securities were made, investors may incur brokerage costs in converting such securities to cash. If the Fund
were converted to an open-end management investment company, it is likely that new common shares would be sold at NAV plus a sales
load.
CUSTODIAN,
TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
State
Street Bank & Trust Company, 1 Congress Street, Boston, MA 02114, is the custodian of the Fund and maintains custody of the
Fund’s securities, cash and other assets. SS&C GIDS serves as the Fund’s transfer agent, dividend paying agent
and registrar. Paralel maintains the Fund’s general ledger and computes NAV per share daily.
LEGAL
MATTERS
Certain
legal matters in connection with the common shares will be passed upon for the Fund by Dechert LLP, New York, New York.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Cohen
& Company, Ltd. is the Fund’s independent registered public accounting firm and audits the Fund’s financial statements.
CONTROL
PERSONS
Based
on a review of Schedule 13D and Schedule 13G filings as of the date of this Prospectus, there are no persons who control the Fund.
For purposes of the foregoing statement, “control” means (1) the beneficial ownership, either directly or through
one or more controlled companies, of more than 25% of the voting securities of a company; (2) the acknowledgment or assertion
by either the controlled or controlling party of the existence of control; or (3) an adjudication under Section 2(a)(9)
of the 1940 Act, which has become final, that control exists.
ADDITIONAL
INFORMATION
The
Fund is subject to the informational requirements of the Securities Exchange Act of 1934 and the 1940 Act and in accordance therewith
files reports and other information with the SEC. Reports, proxy statements and other information filed by the Fund with the SEC
pursuant to the informational requirements of such Acts can be inspected and copied at the public reference facilities maintained
by the SEC, 100 F Street, N.E., Washington, D.C. 20549. The SEC maintains a web site at http://www.sec.gov containing reports,
proxy and information statements and other information regarding registrants, including the Fund, that file electronically with
the SEC.
This
Prospectus constitutes part of a Registration Statement filed by the Fund with the SEC under the Securities Act and the 1940 Act.
This Prospectus omits certain of the information contained in the Registration Statement, and reference is hereby made to the
Registration Statement and related exhibits for further information with respect to the Fund and the Common Shares offered hereby.
Any statements contained herein concerning the provisions of any document are not necessarily complete, and, in each instance,
reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the SEC.
Each such statement is qualified in its entirety by such reference. The complete Registration Statement may be obtained from the
SEC upon payment of the fee prescribed by its rules and regulations or free of charge through the SEC’s website (http://www.sec.gov).
INCORPORATION
BY REFERENCE
This
Prospectus is part of a registration statement that the Fund has filed with the SEC. The Fund is permitted
to “incorporate by reference” the information that it files with the SEC, which means that the Fund can
disclose important information to you by referring you to those documents. The information incorporated by reference is an important
part of this Prospectus, and later information that the Fund files with the SEC will automatically update and supersede
this information.
The
documents listed below, and any reports and other documents subsequently filed with the SEC pursuant to Rule 30(b)(2) under the
1940 Act and Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering, are incorporated
by reference into this Prospectus and deemed to be part of this Prospectus from the date of the filing of such reports and documents:
|
● |
the Fund’s
Statement of Additional Information, dated September 10, 2024, filed with this Prospectus (“SAI”); |
|
● |
the Fund’s
Annual Report on Form
N-CSR for the fiscal year ended October 31, 2023, filed with the SEC on January 5, 2024 (“Annual Report”); |
|
● |
the Fund’s
Semi-Annual Report on Form N-CSR
for the period ended April 30, 2024, filed with the SEC on July 3, 2024; |
|
● |
the Fund’s
definitive proxy statement on Schedule
14A for our 2024 annual meeting of shareholders, filed with the SEC on February 16, 2024 (“Proxy Statement”);
and |
|
● |
the Fund’s
description of common shares contained in our Registration Statement on Form
8-A (File No. 333-109089) filed with the SEC on February 20, 2004. |
To
obtain copies of these filings, see “Where You Can Find More Information.”
TABLE
OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
A
Statement of Additional Information dated as of September 10, 2024 (“Statement of Additional Information”), has been
filed with the SEC and is incorporated by reference into this Prospectus. The Statement of Additional Information may be obtained
without charge by writing to the Fund at its address at 1700 Broadway, Suite 1850, Denver, Colorado 80290 or by calling the Fund
toll-free at (800) 644-5571. The Table of Contents of the Statement of Additional Information is as follows:
THE
FUND’S PRIVACY POLICY
The
Fund is committed to ensuring your financial privacy. This notice is being sent to comply with privacy regulations of the SEC.
The Fund has in effect the following policy with respect to nonpublic personal information about its customers:
| ● | Only
such information received from you, through application forms or otherwise, and information
about your Fund transactions will be collected. |
| ● | None
of such information about you (or former customers) will be disclosed to anyone, except
as permitted by law (which includes disclosure to employees necessary to service your
account). |
| ● | Policies
and procedures (including physical, electronic and procedural safeguards) are in place
that are designed to protect the confidentiality of such information. |
For
more information about the Fund’s privacy policies call (800) 644-5571 (toll-free).
Reaves
Utility Income Fund
PROSPECTUS
September
10, 2024
STATEMENT
OF ADDITIONAL INFORMATION
September
10, 2024
Reaves
Utility Income Fund
1700
Broadway, Suite 1850
Denver,
Colorado 80290
(800)
644-5571
TABLE
OF CONTENTS
This
Statement of Additional Information is not a prospectus and is authorized for distribution to prospective investors only if preceded
or accompanied by the prospectus of the Reaves Utility Income Fund (the “Fund”) dated September 10, 2024, as may be
supplemented from time to time (the “Prospectus”), which is incorporated herein by reference. This Statement of Additional
Information should be read in conjunction with the Prospectus, a copy of which may be obtained without charge by contacting your
financial intermediary or calling the Fund at (800) 644-5571.
Capitalized
terms used in this Statement of Additional Information and not otherwise defined have the meanings given them in the Prospectus.
ADDITIONAL
INVESTMENT INFORMATION AND RESTRICTIONS
Primary
investment strategies are described in the Prospectus. The following is a description of the various investment policies that
may be engaged in, whether as a primary or secondary strategy, and a summary of certain attendant risks. W.H. Reaves &
Co., Inc. (“Reaves” or the “Adviser”) may not buy any of the following instruments or use any of the following
techniques unless it believes that doing so will help to achieve the Fund’s investment objective.
Derivative
Instruments
Derivative
instruments (which are instruments that derive their value from another instrument, security, index or currency) may be purchased
or sold to enhance return (which may be considered speculative), to hedge against fluctuations in securities prices, market conditions
or currency exchange rates, or as a substitute for the purchase or sale of securities or currencies. Such transactions may be
in the U.S. or abroad and may include the purchase or sale of futures contracts on indices and options on stock index futures,
the purchase of put options and the sale of call options on securities held, equity swaps and the purchase and sale of currency
futures and forward foreign currency exchange contracts. Transactions in derivative instruments involve a risk of loss or depreciation
due to: unanticipated adverse changes in securities prices, interest rates, indices, the other financial instruments’ prices
or currency exchange rates; the inability to close out a position; default by the counterparty; imperfect correlation between
a position and the desired hedge; tax constraints on closing out positions; and portfolio management constraints on securities
subject to such transactions. The loss on derivative instruments (other than purchased options) may substantially exceed an investment
in these instruments. In addition, the entire premium paid for purchased options may be lost before they can be profitably exercised.
Transaction costs are incurred in opening and closing positions. Derivative instruments may sometimes increase or leverage exposure
to a particular market risk, thereby increasing price volatility. Over-the-counter (“OTC”) derivative instruments,
equity swaps and forward sales of stocks involve an enhanced risk that the issuer or counterparty will fail to perform its contractual
obligations. Some derivative instruments are not readily marketable or may become illiquid under adverse market conditions. In
addition, during periods of market volatility, a commodity exchange may suspend or limit trading in an exchange-traded derivative
instrument, which may make the contract temporarily illiquid and difficult to price. Commodity exchanges may also establish daily
limits on the amount that the price of a futures contract or futures option can vary from the previous day’s settlement
price. Once the daily limit is reached, no trades may be made that day at a price beyond the limit. This may prevent the closing
out of positions to limit losses. The staff of the Securities and Exchange Commission (“SEC”) takes the position that
certain OTC derivatives, and assets used as cover for certain OTC derivatives, are illiquid. The ability to terminate OTC derivative
transactions may depend on the cooperation of the counterparties to such contracts. For thinly traded derivative instruments,
the only source of price quotations may be the selling dealer or counterparty. In addition, certain provisions of the Code limit
the use of derivative instruments. There can be no assurance that the use of derivative instruments will be advantageous.
Derivatives
involve special risks, including possible default by the other party to the transaction, illiquidity and, to the extent Reaves’
view as to certain market movements is incorrect, the risk that the use of derivatives could result in significantly greater losses
than if it had not been used. Losses resulting from the use of derivatives will reduce a Fund’s net asset value, and possibly
income, and the losses may be significantly greater than if derivatives had not been used. The degree of a Fund’s use of
derivatives may be limited by certain provisions of the Internal Revenue Code of 1986, as amended (the “Code”). When
used, derivatives may increase the amount and affect the timing and character of taxes payable by shareholders. See “Taxes.”
Foreign
exchange traded futures contracts and options thereon generally may be used only if Reaves determines that trading on such foreign
exchange does not entail risks, including credit and liquidity risks, that are materially greater than the risks associated with
trading on exchanges regulated by the Commodity Futures Trading Commission (“CFTC”).
Regulatory
developments affecting the exchange-traded and OTC derivatives markets may impair the Fund’s ability to manage or hedge
its investment portfolio through the use of derivatives. The Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank
Act”) and the rules promulgated thereunder may limit the ability of the Fund to enter into one or more exchange-traded or
OTC derivatives transactions.
Reaves
has claimed, with respect to the Fund, an exclusion from the definition of the term “commodity pool operator” (“CPO”)
pursuant to CFTC Regulation 4.5, as promulgated under the Commodity Exchange Act (“CEA”). Therefore, Reaves (with
respect to the Fund) is not subject to registration or regulation as a commodity pool or CPO under the CEA. If the Fund becomes
subject to these requirements, the Fund may incur additional compliance and other expenses. The Fund’s use of derivatives
may also be limited by the requirements of the Code, for qualification as a regulated investment company for U.S. federal income
tax purposes.
Under
CFTC Regulation 4.5, if an investment company such as the Fund uses swaps, commodity futures, commodity options or certain other
derivatives used for purposes other than bona fide hedging purposes, it must meet one of the following tests: The aggregate initial
margin and premiums required to establish an investment company’s positions in such investments may not exceed five percent
(5%) of the liquidation value of the investment company’s portfolio (after accounting for unrealized profits and unrealized
losses on any such investments). Alternatively, the aggregate net notional value of such instruments, determined at the time of
the most recent position established, may not exceed one hundred percent (100%) of the liquidation value of the investment company’s
portfolio (after accounting for unrealized profits and unrealized losses on any such positions). In addition to meeting one of
the foregoing trading limitations, the investment company may not market itself as a commodity pool or otherwise as a vehicle
for trading in the commodity futures, commodity options or swaps and derivatives markets. In the event that Reaves is required
to register as a CPO, the disclosure and operations of the Fund would need to comply with all applicable CFTC regulations. Compliance
with these additional registration and regulatory requirements would increase operational expenses. Other potentially adverse
regulatory initiatives could also develop.
Foreign
exchange traded futures contracts and options thereon generally may be used only if Reaves determines that trading on such foreign
exchange does not entail risks, including credit and liquidity risks, that are materially greater than the risks associated with
trading on exchanges regulated by the CFTC.
See
also “Certain Investment Techniques” and “Hedging Strategy” below.
Certain
Investment Techniques
The
Fund may from time to time employ certain investment techniques, including those described below and under “Investment Techniques”
in the Prospectus, in an effort to hedge against fluctuations in the price of portfolio securities, enhance total return or provide
a substitute for the purchase or sale of securities. Some of these techniques, such as purchases of put and call options, options
on stock indices and stock index futures and entry into certain credit derivative transactions and short sales, are intended to
be hedges against or substitutes for investments in equity investments. Other techniques such as the purchase of interest rate
futures and entry into transactions involving interest rate swaps, options on interest rate swaps and certain credit derivatives
are intended to be hedges against or substitutes for investments in debt securities. In general, Reaves may choose to use these
techniques related to investments in debt securities where Reaves determines that such techniques are advisable to increase income
or total return or to reduce risk.
Many
of these investment techniques could constitute a form of potential leverage and as such are subject to the risks described below,
and under “Risk Factors” and “Use of Leverage” in the Prospectus. In October 2020, the SEC adopted Rule
18f-4, which regulates the use of derivatives, reverse repurchase agreements and certain other transactions by registered investment
companies. A Fund’s trading of derivatives and other transactions that create future payment or delivery obligations is
subject to value-at-risk (“VaR”) leverage limits and derivatives risk management program and reporting requirements.
Generally, these requirements apply unless a Fund satisfies a “limited derivatives users” exception that is included
in the final rule. Under the rule, when a Fund trades reverse repurchase agreements or similar financing transactions, including
certain tender option bonds, it needs to aggregate the amount of indebtedness associated with the reverse repurchase agreements
or similar financing transactions with the aggregate amount of any other senior securities representing indebtedness when calculating
a Fund’s asset coverage ratio or treat all such transactions as derivatives transactions. Reverse repurchase agreements
or similar financing transactions aggregated with other indebtedness do not need to be included in the calculation of whether
a Fund satisfies the limited derivatives users exception, but for funds subject to the VaR testing requirement, reverse repurchase
agreements and similar financing transactions must be included for purposes of such testing whether treated as derivatives transactions
or not. The SEC also provided guidance in connection with the rule regarding the use of securities lending collateral that may
limit a Fund’s securities lending activities. In addition, under the rule, a Fund is permitted to invest in a security on
a when-issued or forward-settling basis, or with a non-standard settlement cycle, and the transaction will be deemed not to involve
a senior security (as defined under Section 18(g) of the 1940 Act), provided that, (i) the Fund intends to physically settle the
transaction and (ii) the transaction will settle within 35 days of its trade date (the “Delayed-Settlement Securities Provision”).
A Fund may otherwise engage in when-issued, forward-settling and non-standard settlement cycle securities transactions that do
not meet the conditions of the Delayed-Settlement Securities Provision so long as the Fund treats any such transaction as a “derivatives
transaction” for purposes of compliance with the rule. Furthermore, under the rule, the Fund is permitted to enter into
an unfunded commitment agreement, and such unfunded commitment agreement will not be subject to the asset coverage requirements
under the 1940 Act, if the Fund reasonably believes, at the time it enters into such agreement, that it will have sufficient cash
and cash equivalents to meet its obligations with respect to all such agreements as they come due. These and other proposed and
adopted regulatory requirements may limit the ability of a Fund to use derivatives, reverse repurchase agreements and similar
financing transactions, when-issued, delayed delivery and forward commitment transactions, and unfunded commitment agreements
as part of its investment strategies. Importantly, the Fund is permitted, but is not required to, utilize the instruments and
techniques described below and in the Prospectus. Accordingly, at any given time, the Fund’s portfolio might not be hedged
against, or managed to mitigate, the risks discussed below, and Reaves might choose not to seek to increase income through the
use of these instruments or techniques. In addition, certain provisions of the Code, or other applicable laws, may limit the extent
to which the Fund may enter into or otherwise utilize these instruments and techniques.
As
a general matter, dividends received on hedged stock positions are characterized as ordinary income and are not eligible for favorable
tax treatment. In addition, use of derivatives may give rise to short-term capital gains and other income that would not qualify
for payments by the Fund of tax-advantaged dividends.
Options
on Securities
In
an effort to hedge against adverse market shifts, the Fund may purchase put and call options on securities. In addition, the Fund
may seek to increase its income or may hedge a portion of its portfolio investments through writing (i.e., selling) covered
put and call options. A put option embodies the right of its purchaser to compel the writer of the option to purchase from the
option holder an underlying security or its equivalent at a specified price at any time during the option period. In contrast,
a call option gives the purchaser the right to buy the underlying security or its equivalent covered by the option or its equivalent
from the writer of the option at the stated exercise price.
The
Fund would receive a premium when it writes put and call options, which increases the Fund’s return on the underlying security
in the event the option expires unexercised or is closed out at a profit. By writing a call, the Fund will limit its opportunity
to profit from an increase in the market value of the underlying security above the exercise price of the option for as long as
the Fund’s obligation as the writer of the option continues. Upon the exercise of a put option written by the Fund, the
Fund may suffer an economic loss equal to the difference between the price at which the Fund is required to purchase the underlying
security and its market value at the time of the option exercise, less the premium received for writing the option. Upon the exercise
of a call option written by the Fund, the Fund may suffer an economic loss equal to an amount not less than the excess of the
security’s market value at the time of the option exercise over the Fund’s acquisition cost of the security, less
the sum of the premium received for writing the option and the difference, if any, between the call price paid to the Fund and
the Fund’s acquisition cost of the security. Thus, in some periods the Fund might receive less total return and in other
periods greater total return from its hedged positions than it would have received from leaving its underlying securities unhedged.
The
Fund may purchase and write options on securities that are listed on national securities exchanges or are traded over the counter,
although it expects, under normal circumstances, to effect such transactions on national securities exchanges.
As
a holder of a put option, the Fund would have the right to sell the securities underlying the option and as the holder of a call
option, the Fund would have the right to purchase the securities underlying the option, in each case at their exercise price at
any time prior to the option’s expiration date. The Fund may choose to exercise the options it holds, permit them to expire
or terminate them prior to their expiration by entering into closing sale transactions. In entering into a closing sale transaction,
the Fund would sell an option of the same series as the one it has purchased. The ability of the Fund to enter into a closing
sale transaction with respect to options purchased and to enter into a closing purchase transaction with respect to options sold
depends on the existence of a liquid secondary market. There can be no assurance that a closing purchase or sale transaction can
be effected if and when the Fund so desires. The Fund’s ability to terminate option positions established in the over-the-counter
market may be more limited than in the case of exchange-traded options and may also involve the risk that securities dealers participating
in such transactions would fail to meet their obligations to the Fund. Similarly, because foreign security exchanges are generally
not as liquid as U.S. exchanges, it may be more difficult for the Fund to terminate any options positions that are listed solely
on a foreign securities exchange.
In
purchasing a put option, the Fund would generally seek to benefit from a decline in the market price of the underlying security,
while in purchasing a call option, the Fund would generally seek to benefit from an increase in the market price of the underlying
security. If an option purchased is not sold or exercised when it has remaining value, or if the market price of the underlying
security remains equal to or greater than the exercise price, in the case of a put, or remains equal to or below the exercise
price, in the case of a call, during the life of the option, the option will expire worthless. For the purchase of an option to
be profitable, the market price of the underlying security must decline sufficiently below the exercise price, in the case of
a put, and must increase sufficiently above the exercise price, in the case of a call, to cover the premium and transaction costs.
Because option premiums paid by the Fund are small in relation to the market value of the instruments underlying the options,
buying options can result in large amounts of leverage. The leverage offered by trading in options could cause the Fund’s
net asset value to be subject to more frequent and wider fluctuations than would be the case if the Fund did not invest in options.
A
put option on a security generally may be written only if Reaves intends to acquire the security. Call options written on securities
generally are covered by ownership of the securities subject to the call option or an offsetting option. As the writer of a put
option, the Fund may be compelled by the purchaser of the put option to purchase from the option holder an underlying security
or its equivalent at a specified price at any time during the option period. Upon exercise of a put option written by the Fund,
the Fund may suffer an economic loss equal to the difference between the price at which the Fund is required to purchase the underlying
security and its market value at the time of the option exercise, less the premium received for writing the option. In purchasing
a call option, the Fund will seek to benefit from an increase in the market price of the underlying security. If an option is
purchased and not sold or exercised when it has remaining value, or the market price of the underlying security remains equal
to or below the exercise price during the life of the option, the option will expire worthless.
As
the writer of a covered call option, during the option’s life the Fund gives up the opportunity to profit from increases
in the market value of the security covering the call option above the sum of the premium and the strike price of the call, but
the Fund retains the risk of loss should the price of the underlying security decline.
The
writer of an option has no control over the time when it may be required to fulfill its obligation as a writer of the option.
Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its
obligation under the option and must deliver the underlying security at the exercise price. There is no assurance that a liquid
market will exist when the Fund seeks to close out an option position. If trading were suspended in an option the Fund purchased,
the Fund would not be able to close out the option. If the Fund were unable to close out a covered call option that it had written
on a security, the Fund would not be able to sell the underlying security unless the option expired without exercise.
Options
on Stock Indices
The
Fund may utilize up to 5% of its total assets to purchase put and call options on domestic stock indices in an effort to hedge
against risks of market-wide price movements affecting its assets. In addition, the Fund may write covered put and call options
on stock indices. A stock index measures the movement of a certain group of stocks by assigning relative values to the common
stocks included in the index. Options on stock indices are similar to options on securities. Because no underlying security can
be delivered, however, the option represents the holder’s right to obtain from the writer, in cash, a fixed multiple of
the amount by which the exercise price exceeds (in the case of a put) or is less than (in the case of a call) the closing value
of the underlying index on the exercise date. The advisability of using stock index options to hedge against the risk of market-wide
movements generally depends on the extent of diversification of the Fund’s investments and the sensitivity of its investments
to factors influencing the underlying index. The effectiveness of purchasing or writing stock index options as a hedging technique
generally depends upon the extent to which price movements in the Fund’s securities investments correlate with price movements
in the stock index selected. In addition, any successful use by the Fund of options on stock indices is subject to the ability
of Reaves to predict correctly changes in the relationship of the underlying index to the Fund’s portfolio holdings. No
assurance can be given that Reaves’ judgment in this respect will be correct.
Interest
Rate Swaps, Swaptions, and Credit Derivatives (General)
As
described in the Prospectus, the Fund may, from time to time, choose to utilize interest rate swaps and swaptions for hedging
purposes. The pricing and valuation terms of interest rate swaps, swaptions and credit derivatives are not standardized, in the
case of swaptions and certain other limited circumstances, and there may be no clearinghouse whereby a party to the agreement
can enter into an offsetting position to close out a contract. Interest rate swaps, swaptions and credit derivatives are usually
(1) between an institutional investor and a broker-dealer firm or bank or (2) between institutional investors. In addition, substantially
all over-the-counter swaps are entered into subject to the standards set forth by the International Swaps & Derivatives Association
(“ISDA”). ISDA represents participants in the privately negotiated derivatives industry. It helps formulate the investment
industry’s position on regulatory and legislative issues, develops international contractual standards and offers arbitration
on disputes concerning market practice.
Under
the rating agency guidelines imposed in connection with any future issuance of preferred shares by the Fund, it is expected that
the Fund will be authorized to enter into swaptions and to purchase credit default swaps without limitation but will be subject
to limitations on entering into interest rate swap agreements or selling credit protection. Certain rating agency guidelines may
be changed from time to time, and it is expected that those relating to interest rate swaps, swaptions, and credit derivatives
would be able to be revised by the Board, without a shareholder vote, so long as the relevant rating agency has given written
notice that such revisions would not adversely affect the rating of the Fund’s preferred shares then in effect.
In
addition to any limitations set forth in the Prospectus, the Fund’s use of any interest rate and credit swaps and swaptions
is currently limited as follows: (1) swaps and swaptions must be U.S. dollar denominated and used for hedging purposes only;
(2) no more than 5% of the Fund’s total assets, at the time of purchase, may be invested in time premiums paid for
swaptions; (3) swaps and swaptions must conform to the standards of the ISDA Master Agreement or be cleared; and (4) the
counterparty must be a bank, broker-dealer firm, swap dealer, security-based swap dealer, derivatives clearing organization or
clearing agency that, in each case, is regulated under the laws of the United States of America that is (a) on a list approved
by the Board, (b) with capital of at least $100 million, and (c) which is rated investment grade by both Moody’s
and S&P. These criteria can be modified by the Board at any time in its discretion.
The
market value of the Fund’s investments in credit derivatives and/or premiums paid therefor as a buyer of credit protection generally
will not exceed 10% of the Fund’s total assets, and the notional value of the credit exposure to which the Fund is subject when
it sells credit derivatives generally will not exceed 331/3%
of the Fund’s total assets.
The
Fund is generally subject to initial and subsequent mark-to-market collateral requirements. These requirements help insure that
the party who is a net obligor at current market value has pledged for safekeeping, for the benefit of the counterparty or its
agent, sufficient collateral to cover any losses should the obligor become incapable, for whatever reason, of fulfilling its commitments
under the swap or swaption agreements. This is analogous, in many respects, to the collateral requirements in place on regular
futures and options exchanges. The Fund is responsible for monitoring the market value of all derivative transactions to insure
that they are properly collateralized.
If
Reaves determines it is advisable for the Fund to enter into such transactions, the Fund will institute procedures for valuing
interest rate swap, swaption, or credit derivative positions to which it is party. Interest rate swaps, swaptions, and credit
derivatives are valued in the first instance by the counterparty to the swap or swaption in question. Such valuation is then be
compared with the valuation provided by a broker-dealer or bank that is not a party to the contract. In the event of material
discrepancies, the Fund has procedures in place for valuing the swap or swaption, subject to the direction of the Board, which
include reference to (1) third-party information services, such as Bloomberg, and (2) comparison with Reaves’
valuation models.
The
use of interest rate swaps, swaptions and credit derivatives, as the foregoing discussion suggests, is subject to risks and complexities
beyond what might be encountered in standardized, exchange-traded options and futures contracts. Such risks include operational
risks, valuation risks, credit risks and/or counterparty risk (i.e., the risk that the counterparty (whether a clearing
corporation in the case of exchange-traded instruments or another third party in the case of over-the-counter instruments) cannot
or will not perform its obligations under the agreement). In addition, at the time the interest rate swap, swaption or credit
derivative reaches its scheduled termination date, there is a risk that the Fund will not be able to obtain a replacement transaction
or that the terms of the replacement will not be as favorable as on the expiring transaction. If this occurs, it could have a
negative impact on the performance of the Fund.
While
the Fund may utilize interest rate swaps, swaptions and credit derivatives for hedging purposes, their use might result in poorer
overall performance for the Fund than if it had not engaged in any such transactions. If, for example, the Fund had insufficient
cash, it might have to sell or pledge a portion of its underlying portfolio of securities in order to meet daily mark-to-market
collateralization requirements at a time when it might be disadvantageous to do so. There may be an imperfect correlation between
the Fund’s portfolio holdings and swaps, swaptions, or credit derivatives entered into by the Fund, which may prevent the
Fund from achieving the intended hedge or expose the Fund to risk of loss. Further, the Fund’s use of swaps, swaptions,
and credit derivatives to reduce risk involves costs and will be subject to Reaves’ ability to predict correctly changes
in interest rate relationships, volatility, credit quality, liquidity, market conditions or other factors. No assurance can be
given that Reaves’ judgment in this respect will be correct.
Credit
Derivatives
The
Fund may enter into credit derivative transactions, in an effort to either hedge credit exposure or gain exposure to an issuer
or group of issuers more economically than can be achieved by investing directly in preferred or debt securities. Credit derivatives
fall into two broad categories: credit default swaps and market spread swaps, both of which can reference either a single issuer
or obligor or a portfolio of preferred and/or debt securities. In a credit default swap, which is the most common form of credit
derivative, the purchaser of credit protection makes a periodic payment to the seller (swap counterparty) in exchange for a payment
by the seller should a referenced security or loan, or a specified portion of a portfolio of such instruments, default during
the life of the swap agreement. If there were a default event as specified in the swap agreement, the buyer either (i) would
receive from the seller the difference between the par (or other agreed-upon) value of the referenced instrument(s) and the then-current
market value of the instrument(s) or (ii) have the right to make delivery of the reference instrument(s) to the counterparty
in exchange for the par (or other agreed-upon) value of the reference instrument(s). If there were no default, the buyer of credit
protection would have spent the stream of payments and received no benefit from the contract. Market spread swaps are based on
relative changes in market rates, such as the yield spread between a preferred security and a benchmark Treasury security, rather
than default events.
In
a market spread swap, two counterparties agree to exchange payments at future dates based on the spread between a reference security
(or index) and a benchmark security (or index). The buyer (fixed-spread payer) would receive from the seller (fixed-spread receiver)
the difference between the market rate and the reference rate at each payment date, if the market rate were above the reference
rate. If the market rate were below the reference rate, then the buyer would pay to the seller the difference between the reference
rate and the market rate. The Fund may utilize market spread swaps to “lock in” the yield (or price) of a security
or index without having to purchase the reference security or index. Market spread swaps may also be used to mitigate the risk
associated with a widening of the spread between the yield or price of a security in the Fund’s portfolio relative to a
benchmark Treasury security. Market spread options, which are analogous to swaptions, give the buyer the right but not the obligation
to buy (in the case of a call) or sell (in the case of a put) the referenced market spread at a fixed price from the seller. Similarly,
the seller of a market spread option has the obligation to sell (in the case of a call) or buy (in the case of a put) the referenced
market spread at a fixed price from the buyer. Credit derivatives are highly specialized investments for which liquid secondary
markets (such as the regulated exchanges on which securities are traded) do not exist.
Short
Sales
The
Fund may sell a security short. If it sells a security short, it generally will own at least an equal amount of the security sold
short or another security convertible or exchangeable for an equal amount of the security sold short without payment of further
compensation (known as a “a short sale against-the-box”). In a short sale against-the-box, the short seller is exposed
to the risk of being forced to deliver stock that it holds to close the position if the borrowed stock is called in by the lender,
which would cause gain or loss to be recognized on the delivered stock. The Fund expects normally to close its short sales against-the-box
by delivering newly acquired stock.
The
ability to use short sales against-the-box strategies as a tax-efficient management technique with respect to holdings of appreciated
securities is limited to circumstances in which the hedging transaction is closed out within thirty days of the end of the Fund’s
taxable year and the underlying appreciated securities position is held unhedged for at least the next sixty days after the hedging
transaction is closed. Not meeting these requirements would trigger the recognition of gain on the underlying appreciated securities
position under the federal tax laws applicable to constructive sales. Dividends received on securities with respect to which the
Fund is obligated to make related payments (pursuant to short sales or otherwise) will be treated as fully taxable ordinary income.
Purchasing securities to close out a short position can itself cause the price of the securities to rise further, thereby exacerbating
the loss. Short-selling exposes the Fund to unlimited risk with respect to that security due to the lack of an upper limit on
the price to which an instrument can rise.
Futures
Contracts and Options on Futures Contracts
The
Fund may enter into interest rate and stock index futures contracts and may purchase and sell put and call options on such futures
contracts. The Fund may enter into such transactions for hedging and other appropriate risk-management purposes or in an effort
to increase return.
An
interest rate futures contract is a standardized contract for the future delivery of a specified security (such as a U.S. Treasury
Bond or U.S. Treasury Note) or its equivalent at a future date at a price set at the time of the contract. A stock index futures
contract is an agreement to take or make delivery of an amount of cash based on the contract’s settlement price. The Fund
may only enter into futures contracts traded on regulated commodity exchanges.
Parties
to a futures contract must make “initial margin” deposits to secure performance of the contract. There are also requirements
to make “variation margin” deposits from time to time as the value of the futures contract fluctuates.
The
Fund may either accept or make delivery of cash or the underlying instrument specified at the expiration of an interest rate futures
contract or cash at the expiration of a stock index futures contract or, prior to expiration, enter into a closing transaction
involving the purchase or sale of an offsetting contract. Closing transactions with respect to futures contracts are effected
on the exchange on which the contract was entered into (or a linked exchange).
The
Fund may purchase and write put and call options on interest rate futures contracts and stock index futures contracts in order
to hedge all or a portion of its investments and may enter into closing purchase transactions with respect to options written
by the Fund in order to terminate existing positions. There is no guarantee that such closing transactions can be effected at
any particular time or at all. In addition, daily limits on price fluctuations on exchanges on which the Fund conducts its futures
and options transactions may prevent the prompt liquidation of positions at the optimal time, thus subjecting the Fund to the
potential of greater losses.
An
option on an interest rate futures contract or stock index futures contract, as contrasted with the direct investment in such
a contract, gives the purchaser of the option the right, in return for the premium paid, to assume a position in a stock index
futures contract or interest rate futures contract at a specified exercise price at any time on or before the expiration date
of the option. Upon exercise of an option, the delivery of the futures position by the writer of the option to the holder of the
option will be accompanied by delivery of the accumulated balance in the writer’s futures margin account, which represents
the amount by which the market price of the futures contract exceeds, in the case of a call, or is less than, in the case of a
put, the exercise price of the option on the futures contract. The potential loss related to the purchase of an option on a futures
contract is limited to the premium paid for the option (plus transaction costs).
With
respect to options purchased by the Fund, there are no daily cash payments made by the Fund to reflect changes in the value of
the underlying contract; however, the value of the option does change daily and that change would be reflected in the net asset
value of the Fund.
The
use of options and futures transactions entails risks. In particular, the variable degree of correlation between price movements
of futures contracts and price movements in the related portfolio position of the Fund could create the possibility that losses
on the derivative will be greater than gains in the value of the Fund’s position. In addition, futures and options markets
could be illiquid in some circumstances and certain OTC options could have no markets. The Fund might not be able to close out
certain positions without incurring substantial losses. While the Fund may intend to enter into certain futures contracts and
options on futures contracts for hedging purposes, the use of such futures contracts and options on futures contracts might result
in a poorer overall performance for the Fund than if it had not engaged in any such transactions. If, for example, the Fund had
insufficient cash, it might have to sell a portion of its underlying portfolio of securities in order to meet daily variation
margin requirements on its futures contracts or options on futures contracts at a time when it might be disadvantageous to do
so. There may be an imperfect correlation between the Fund’s portfolio holdings and futures contracts or options on futures
contracts entered into by the Fund, which may prevent the Fund from achieving the intended hedge or expose the Fund to risk of
loss. Further, the Fund’s use of futures contracts and options on futures contracts to reduce risk involves costs and will
be subject to Reaves’ ability to predict correctly changes in interest rate relationships or other factors. No assurance
can be given that Reaves’ judgment in this respect will be correct.
When-Issued,
Delayed Delivery and Forward Commitment Transactions
New
issues of preferred and debt securities may be offered on a when-issued, forward commitment or delayed delivery basis, which means
that delivery and payment for the security normally take place within a certain period of time (e.g., 45 days) after the date
of the commitment to purchase. The payment obligation and the dividends that will be received on the security are fixed at the
time the buyer enters into the commitment. The Fund would make commitments to purchase securities on a when-issued, forward or
delayed delivery basis only with the intention of acquiring the securities, but may sell these securities before the settlement
date if Reaves deems it advisable. No additional when-issued, forward or delayed delivery commitments would be made if more than
20% of the Fund’s total assets would be so committed.
Securities
purchased on a when-issued, forward or delayed delivery basis may be subject to changes in value based upon the public’s
perception of the creditworthiness of the issuer and changes, real or anticipated, in the level of interest rates. Securities
purchased or sold on a when-issued, forward or delayed delivery basis may expose the Fund to risk because they may experience
these fluctuations prior to their actual delivery. The Fund would not accrue income with respect to a debt security it has purchased
on a when-issued, forward commitment or delayed delivery basis prior to its stated delivery date but would accrue income on a
delayed delivery security it has sold. Purchasing or selling securities on a when-issued, forward or delayed delivery basis can
involve the additional risk that the yield available in the market when the delivery takes place actually may be higher than that
obtained in the transaction itself.
Foreign
Currency Transactions
The
value of foreign assets as measured in U.S. dollars may be affected favorably or unfavorably by changes in foreign currency rates
and exchange control regulations. Currency exchange rates can also be affected unpredictably by intervention by U.S. or foreign
governments or central banks, or the failure to intervene, or by currency controls or political developments in the United States
or abroad. Foreign currency exchange transactions may be conducted on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market or through entering into derivative currency transactions. Currency futures contracts
are exchange-traded and change in value to reflect movements of a currency or a basket of currencies. Settlement must be made
in a designated currency.
Forward
foreign currency exchange contracts are individually negotiated and privately traded so they are dependent upon the creditworthiness
of the counterparty. Such contracts may be used when a security denominated in a foreign currency is purchased or sold, or when
the Fund anticipates receipt in a foreign currency of dividend or interest payments on such a security. A forward contract can
then “lock in” the U.S. dollar price of the security or the U.S. dollar equivalent of such dividend or interest payment,
as the case may be. Additionally, when Reaves believes that the currency of a particular foreign country may suffer a substantial
decline against the U.S. dollar, it may enter into a forward contract to sell, for a fixed amount of dollars, the amount of foreign
currency approximating the value of some or all of the securities held that are denominated in such foreign currency. The precise
matching of the forward contract amounts and the value of the securities involved will not generally be possible. In addition,
it may not be possible to hedge against long-term currency changes. The Fund may engage in cross-hedging by using forward contracts
in one currency (or basket of currencies) to hedge against fluctuations in the value of securities denominated in a different
currency if Reaves determines that there is an established historical pattern of correlation between the two currencies (or the
basket of currencies and the underlying currency). Use of a different foreign currency magnifies exposure to foreign currency
exchange rate fluctuations. The Fund may use forward contracts to shift exposure to foreign currency exchange rate changes from
one currency to another. Short-term hedging provides a means of fixing the dollar value of only a portion of portfolio assets.
Currency
transactions are subject to the risk of a number of complex political and economic factors applicable to the countries issuing
the underlying currencies. Furthermore, unlike trading in many other types of instruments, there is no systematic reporting of
last sale information with respect to the foreign currencies underlying the derivative currency transactions. As a result, available
information may not be complete. In an over-the-counter trading environment, there are no daily price fluctuation limits. There
may be no liquid secondary market to close out options purchased or written, or forward contracts entered into, until their exercise,
expiration or maturity. There is also the risk of default by, or the bankruptcy of, the financial institution serving as a counterparty.
Corporate
Bonds and Other Debt Securities
The
Fund may invest in corporate bonds including below investment grade quality, commonly known as “junk bonds” (“Non-Investment
Grade Bonds”). Investments in Non-Investment Grade Bonds generally provide greater income and increased opportunity for
capital appreciation than investments in higher quality securities, but they also typically entail greater price volatility and
principal and income risk, including the possibility of issuer default and bankruptcy. Non-Investment Grade Bonds are regarded
as predominantly speculative with respect to the issuer’s continuing ability to meet principal and interest payments. Debt
securities in the lowest investment grade category also may be considered to possess some speculative characteristics by certain
rating agencies. In addition, analysis of the creditworthiness of issuers of Non-Investment Grade Bonds may be more complex than
for issuers of higher quality securities.
Non-Investment
Grade Bonds may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment
grade securities. A projection of an economic downturn or of a period of rising interest rates, for example, could cause a decline
in Non-Investment Grade Bond prices because the advent of recession could lessen the ability of an issuer to make principal and
interest payments on its debt obligations. If an issuer of Non-Investment Grade Bonds defaults, in addition to risking payment
of all or a portion of interest and principal, the Fund may incur additional expenses to seek recovery. In the case of Non-Investment
Grade Bonds structured as zero-coupon, step-up or payment-in-kind securities, their market prices will normally be affected to
a greater extent by interest rate changes, and therefore tend to be more volatile than securities which pay interest currently
and in cash. Reaves seeks to reduce these risks through diversification, credit analysis and attention to current developments
in both the economy and financial markets.
The
secondary market on which Non-Investment Grade Bonds are traded may be less liquid than the market for investment grade securities.
Less liquidity in the secondary trading market could adversely affect the net asset value of the Shares. Adverse publicity and
investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of Non-Investment Grade
Bonds, especially in a thinly traded market. When secondary markets for Non-Investment Grade Bonds are less liquid than the market
for investment grade securities, it may be more difficult to value the securities because such valuation may require more research,
and elements of judgment may play a greater role in the valuation because there is no reliable, objective data available. During
periods of thin trading in these markets, the spread between bid and asked prices is likely to increase significantly and the
Fund may have greater difficulty selling these securities. The Fund will be more dependent on Reaves’ research and analysis
when investing in Non-Investment Grade Bonds. Reaves seeks to minimize the risks of investing in all securities through in-depth
credit analysis and attention to current developments in interest rate and market conditions.
A
general description of the ratings of securities by Standard & Poor’s Financial Services LLP, a subsidiary of The
McGraw-Hill Companies, Inc. (“S&P”), Fitch, Inc. (“Fitch”) and Moody’s Investors Service, Inc.
(“Moody’s”) is set forth in Appendix A to this Statement of Additional Information. Such ratings represent these
rating organizations’ opinions as to the quality of the securities they rate. It should be emphasized, however, that ratings
are general and are not absolute standards of quality. Consequently, debt obligations with the same maturity, coupon and rating
may have different yields while obligations with the same maturity and coupon may have the same yield. For these reasons, the
use of credit ratings as the sole method of evaluating Non-Investment Grade Bonds can involve certain risks. For example, credit
ratings evaluate the safety or principal and interest payments, not the market value risk of Non-Investment Grade Bonds. Also,
credit rating agencies may fail to change credit ratings in a timely fashion to reflect events since the security was last rated.
Reaves does not rely solely on credit ratings when selecting securities for the Fund, and develops its own independent analysis
of issuer credit quality.
In
the event that a rating agency or Reaves downgrades its assessment of the credit characteristics of a particular issue, the Fund
is not required to dispose of such security. In determining whether to retain or sell a downgraded security, Reaves may consider
such factors as Reaves’ assessment of the credit quality of the issuer of such security, the price at which such security
could be sold and the rating, if any, assigned to such security by other rating agencies. However, analysis of the creditworthiness
of issuers of Non-Investment Grade Bonds may be more complex than for issuers of high quality debt securities.
Temporary
Investments
The
Fund may invest temporarily in cash, money market funds or cash equivalents. Cash equivalents are highly liquid, short-term securities
such as commercial paper, certificates of deposit, short-term notes and short-term U.S. Government obligations.
Foreign
Securities
Investments
in securities of foreign issuers may be subject to risks not usually associated with owning securities of U.S. issuers. For example,
the value of foreign securities is affected by changes in currency rates, foreign tax laws (including withholding tax), government
policies (in this country or abroad), relations between nations and trading, settlement, custodial and other operational risks.
In addition, the costs of investing abroad are generally higher than in the United States, and foreign securities markets may
be less liquid, more volatile and less subject to governmental supervision than markets in the United States. As an alternative
to holding foreign-traded securities, the Fund may invest in dollar-denominated securities of foreign companies that trade on
U.S. exchanges or in the U.S. over-the-counter market (including depositary receipts, which evidence ownership in underlying foreign
securities).
Because
foreign companies are not subject to uniform accounting, auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less publicly available information about a foreign company than
about a domestic company. Volume and liquidity in most foreign debt markets is less than in the United States and securities of
some foreign companies are less liquid and more volatile than securities of comparable U.S. companies. There is generally less
government supervision and regulation of securities exchanges, broker-dealers and listed companies than in the United States.
Mail service between the United States and foreign countries may be slower or less reliable than within the United States, thus
increasing the risk of delayed settlements of portfolio transactions or loss of certificates for portfolio securities. Payment
for securities before delivery may be required. In addition, with respect to certain foreign countries, there is the possibility
of expropriation or confiscatory taxation, political or social instability, or diplomatic developments, which could affect investments
in those countries. Moreover, individual foreign economics may differ favorably or unfavorably from the U.S. economy in such respects
as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments
position. Foreign securities markets, while growing in volume and sophistication, are generally not as developed as those in the
United States, and securities of some foreign issuers (particularly those located in developing countries) may be less liquid
and more volatile than securities of comparable U.S. companies.
The
Fund may purchase American Depositary Receipts (“ADRs”), European Depositary Receipts (“EDRs”) and Global
Depositary Receipts (“GDRs”). ADRs, EDRs and GDRs are certificates evidencing ownership of shares of foreign issuers
and are alternatives to purchasing directly the underlying foreign securities in their national markets and currencies. However,
they continue to be subject to many of the risks associated with investing directly in foreign securities. These risks include
foreign exchange risk as well as the political and economic risks of the underlying issuer’s country. ADRs, EDRs and GDRs
may be sponsored or unsponsored. Unsponsored receipts are established without the participation of the issuer. Unsponsored receipts
may involve higher expenses, they may not pass-though voting or other shareholder rights, and they may be less liquid.
Master
Limited Partnerships
The
Fund may invest in master limited partnership (“MLP”) common units. MLPs are typically structured such that common
units and general partner interests have first priority to receive quarterly cash distributions up to an established minimum amount
(“minimum quarterly distributions” or “MQD”). Common and general partner interests also accrue arrearages
in distributions to the extent the MQD is not paid. Once common and general partner interests have been paid, subordinated units
receive distributions of up to the MQD; however, subordinated units do not accrue arrearages. Distributable cash in excess of
the MQD paid to both common and subordinated units is distributed to both common and subordinated units generally on a pro rata
basis.
The
general partner is also eligible to receive incentive distributions if the general partner operates the business in a manner that
results in distributions paid per common unit surpassing specified target levels. As the general partner increases cash distributions
to the limited partners, the general partner receives an increasingly higher percentage of the incremental cash distributions.
A common arrangement provides that the general partner can reach a tier where it receives 50% of every incremental dollar paid
to common and subordinated unit holders. These incentive distributions encourage the general partner to streamline costs, increase
capital expenditures and acquire assets in order to increase the partnership’s cash flow and raise the quarterly cash distribution
in order to reach higher tiers. Such results benefit all security holders of the MLP.
To
qualify as a partnership for U.S. federal income tax purposes, an MLP must receive at least 90% of its income from qualifying
sources such as interest, dividends, real estate rents, gain from the sale or disposition of real property, income and gain from
mineral or natural resources activities, income and gain from the transportation or storage of certain fuels, gain from the sale
or disposition of a capital asset held for the production of income described in the foregoing and, in certain circumstances,
income and gain from commodities or futures, forwards and options with respect to commodities. Mineral or natural resources activities
include exploration, development, production, mining, refining, marketing and transportation (including pipelines), of oil and
gas, minerals, geothermal energy, fertilizer, timber or industrial source carbon dioxide. Currently, most MLPs operate in the
energy, natural resources or real estate sectors. Due to their partnership structure, MLPs generally do not pay income taxes.
Thus, unlike investors in corporate securities, direct MLP investors are generally not subject to double taxation (i.e. corporate
level tax and tax on corporate dividends).
MLP
Common Units. MLP common units represent a limited partnership interest in the MLP. Common units are listed and traded
on U.S. securities exchanges or OTC, with their value fluctuating predominantly based on prevailing market conditions and
the success of the MLP. We may purchase common units in market transactions as well as directly from the MLP or other parties.
Unlike owners of common stock of a corporation, owners of common units have limited voting rights and have no ability annually
to elect directors. MLPs generally distribute all available cash flow (cash flow from operations less maintenance capital expenditures)
in the form of quarterly distributions. Common units along with general partner units, have first priority to receive quarterly
cash distributions up to the MQD and have arrearage rights. In the event of liquidation, common units have preference over subordinated
units, but not debt or preferred units, to the remaining assets of the MLP.
I-Shares. I-Shares
represent an ownership interest issued by an affiliated party of an MLP. The MLP affiliate uses the proceeds from the sale of
I-Shares to purchase limited partnership interests in the MLP in the form of i-units. I-units have similar features as MLP common
units in terms of voting rights, liquidation preference and distributions. However, rather than receiving cash, the MLP affiliate
receives additional i-units in an amount equal to the cash distributions received by MLP common units. Similarly, holders of I-Shares
will receive additional I-Shares, in the same proportion as the MLP affiliates receipt of i-units, rather than cash distributions.
I-Shares themselves have limited voting rights which are similar to those applicable to MLP common units. The MLP affiliate issuing
the I-Shares is structured as a corporation for U.S. federal income tax purposes. I-Shares are traded on the New York Stock Exchange.
Hedging
Strategy
Certain
of the investment techniques that the Fund may employ for hedging or, under certain circumstances, to increase income will expose
the Fund to risks.
There
are economic costs of hedging reflected in the pricing of futures, swaps, options, and swaption contracts which can be significant,
particularly when long-term interest rates are substantially above short-term interest rates. The desirability of moderating these
hedging costs is a factor (but not the only factor) in Reaves’s choice of hedging strategies (and whether to employ a hedging
strategy at all). In addition, the Fund may select individual investments based upon their potential for appreciation without
regard to the effect on current income in an attempt to mitigate the impact on the Fund’s assets of the expected normal
cost of hedging.
There
may be an imperfect correlation between changes in the value of the Fund’s portfolio holdings and hedging positions entered
into by the Fund, which may prevent the Fund from achieving an intended hedge or expose the Fund to risk of loss. In addition,
the Fund’s success in using hedge instruments will be subject to Reaves’s ability to predict correctly changes in
the relationships of such hedge instruments to the Fund’s portfolio holdings, and we cannot assure you that Reaves’s
judgment in this respect will be accurate. Consequently, any use of hedging transactions might result in a poorer overall performance
for the Fund, whether or not adjusted for risk, than if the Fund had not hedged its portfolio holdings.
Cyber
Security
In
connection with the increased use of technologies such as the Internet and the dependence on computer systems to perform necessary
business functions, the Fund is susceptible to operational, information security, and related risks due to the possibility of
cyber-attacks or other incidents. Cyber incidents may result from deliberate attacks or unintentional events. Cyber-attacks include,
but are not limited to, infection by computer viruses or other malicious software code, gaining unauthorized access to systems,
networks, or devices that are used to service the Fund’s operations through hacking or other means for the purpose of misappropriating
assets or sensitive information, corrupting data, or causing operational disruption. Cyber-attacks may also be carried out in
a manner that does not require gaining unauthorized access, such as causing denial-of-service attacks (which can make a website
unavailable) on the Fund’s website. In addition, authorized persons could inadvertently or intentionally release confidential
or proprietary information stored on the Fund’s systems.
Cyber
security failures or breaches by the Fund’s third party service providers (including, but not limited to, ALPS, the custodian
and transfer agent) or the NYSE American, may cause disruptions and impact the service providers’ and the Fund’s business
operations, potentially resulting in financial losses, the inability of Fund shareholders to transact business or process transactions,
inability to calculate the Fund’s net asset value, violations of applicable privacy and other laws, regulatory fines, penalties,
reputational damage, reimbursement or other compensation costs, and/or additional compliance costs. The Fund and its shareholders
could be negatively impacted as a result of successful cyber-attacks against, or security breakdowns of, the Fund or its third
party service providers.
The
Fund may incur substantial costs to prevent or address cyber incidents in the future. In addition, there is a possibility that
certain risks have not been adequately identified or prepared for. Furthermore, the Fund cannot directly control any cyber security
plans and systems put in place by third party service providers. Cyber security risks are also present for issuers of securities
in which the Fund invests, which could result in material adverse consequences for such issuers, and may cause the Fund’s
investment in such securities to lose value.
Investment
Restrictions
The
following investment restrictions of the Fund are designated as fundamental policies and as such cannot be changed without the
approval of the holders of a majority of the Fund’s outstanding voting securities, which as used in this Statement of Additional
Information means the lesser of (a) 67% of the shares of the Fund present or represented by proxy at a meeting if the holders
of more than 50% of the outstanding shares are present or represented at the meeting or (b) more than 50% of outstanding
shares of the Fund. As a matter of fundamental policy the Fund may not:
| (1) | Borrow
money, except as permitted by the Investment Company Act of 1940, as amended (the “1940
Act”) and the rules promulgated thereunder, as in effect from time to time, or
interpretations or modifications thereof by the SEC, the staff of the SEC or any other
authority with appropriate jurisdiction; |
| (2) | Issue
senior securities, as defined in the 1940 Act, other than (a) preferred shares which
immediately after issuance will have asset coverage of at least 200%, (b) indebtedness
which immediately after issuance will have asset coverage of at least 300% or (c) the
borrowings permitted by investment restriction (1) above. The 1940 Act currently
defines “senior security” as any bond, debenture, note or similar obligation
or instrument constituting a security and evidencing indebtedness, and any stock of a
class having priority over any other class as to distribution of assets or payment of
dividends. Debt and equity securities issued by a closed-end investment company meeting
the foregoing asset coverage provisions are excluded from the general 1940 Act prohibition
on the issuance of senior securities; |
| (3) | Purchase
securities on margin (but the Fund may obtain such short-term credits as may be necessary
for the clearance of purchases and sales of securities). The purchase of investment assets
with the proceeds of a permitted borrowing or securities offering will not be deemed
to be the purchase of securities on margin; |
| (4) | Underwrite
securities issued by other persons, except insofar as it may technically be deemed to
be an underwriter under the Securities Act in selling or disposing of a portfolio investment; |
| (5) | Make
loans to other persons, except by (a) the acquisition of loan interests, debt securities
and other obligations in which the Fund is authorized to invest in accordance with its
investment objectives and policies, (b) entering into repurchase agreements and
(c) lending its portfolio securities; |
| (6) | Purchase
or sell real estate, although it may purchase and sell securities which are secured by
interests in real estate and securities of issuers which invest or deal in real estate.
The Fund reserves the freedom of action to hold and to sell real estate acquired as a
result of the ownership of securities; and |
| (7) | Purchase
or sell physical commodities or contracts for the purchase or sale of physical commodities.
Physical commodities do not include futures contracts with respect to securities, securities
indices, currencies, interest or other financial instruments. |
In
addition, as a matter of fundamental policy and as discussed in the Prospectus, the Fund will concentrate its investments in the
Utility Industry.
The
Fund may borrow money as a temporary measure for extraordinary or emergency purposes, including the payment of dividends and the
settlement of securities transactions which otherwise might require untimely dispositions of Fund securities. The 1940 Act currently
requires that the Fund have 300% asset coverage with respect to all borrowings other than temporary borrowings. In addition, the
Fund may engage in certain derivatives transactions that have economic characteristics similar to leverage, subject to Rule 18f-4
under the 1940 Act. Derivatives transactions entered into by the fund in compliance with Rule 18f-4 will not be considered for
purposes of computing asset coverage, as defined in Section 18(h) of the 1940 Act.
The
Fund has adopted the following nonfundamental investment policy which may be changed by the Board without approval of the Fund’s
shareholders. As a matter of nonfundamental policy, the Fund may not make short sales of securities or maintain a short position,
unless at all times when a short position is open it either owns an equal amount of such securities or owns securities convertible
into or exchangeable, without payment of any further consideration, for securities of the same issue as, and equal in amount to,
the securities sold short.
Whenever
an investment policy or investment restriction set forth in the Prospectus or this Statement of Additional Information states
a maximum percentage of assets that may be invested in any security or other assets or describes a policy regarding quality standards,
such percentage limitation or standard shall be determined immediately after and as a result of the Fund’s acquisition of
such security or asset. Accordingly, any later increase or decrease resulting from a change in values, assets or other circumstances
or any subsequent rating change made by a rating service (or as determined by Reaves if the security is not rated by a rating
agency) will not compel the Fund to dispose of such security or other asset. Notwithstanding the foregoing, the Fund must always
be in compliance with the borrowing policies set forth above.
TRUSTEES
AND OFFICERS
The
Trustees of the Fund are responsible for the overall management and supervision of the affairs of the Fund. The Trustees and officers
of the Fund are listed below. The “Non-interested Trustees” or “Independent Trustees” consist of those
Trustees who are not “interested persons” of the Fund, as that term is defined under the 1940 Act. These Trustees
are also “independent trustees or directors” as defined under NYSE American Listing Standards.
Name,
Position(s) Held with the Fund, Address,1 and Year of Birth |
Term
of Office and Length of Time Served2 |
Principal
Occupation(s) During Past Five Years |
Number
of Portfolios in Fund Complex Overseen by Trustee |
Other
Directorships Held by Trustee or Nominee3 |
Non-Interested
Trustees |
Mary
K. Anstine
Trustee
1940 |
Since
Inception* |
Ms.
Anstine is also a trustee of A.V. Hunter Trust. Ms. Anstine was formerly a Director of the Bank of Colorado (later purchased
and now known as Northern Trust Bank), and a member of The American Bankers Association and Trust Executive Committee. |
1 |
Ms.
Anstine is a Trustee of ALPS ETF Trust (24 funds); Financial Investors Trust (17 funds); and ALPS Variable Investment Trust
(7 funds). |
Jeremy
W. Deems
Chairman
and Trustee
1976
|
Chairman
Since 2017
Trustee
Since 2008***
|
Mr.
Deems is the Co-Founder, Chief Financial Officer of Green Alpha Advisors, LLC, a registered investment adviser, and Co-Portfolio
Manager of the AXS Green Alpha ETF. Prior to joining Green Alpha Advisors, Mr. Deems was Chief Financial Officer and Treasurer
of Forward Management, LLC, ReFlow Management, Co. LLC, ReFlow Fund, LLC, a private investment fund, and Sutton Place Management,
LLC, an administrative services company from 2004 to 2007. |
1 |
Mr.
Deems is a Trustee of ALPS ETF Trust (24 funds); Financial Investors Trust (17 funds); and ALPS Variable Investment Trust
(7 funds). |
Michael
F. Holland
Trustee
1944 |
Since
Inception* |
Mr.
Holland is Chairman of Holland & Company, an investment management company. |
1 |
None. |
Name,
Position(s) Held with the Fund, Address,1 and Year of Birth |
Term
of Office and Length of Time Served2 |
Principal
Occupation(s) During Past Five Years |
Number
of Portfolios in Fund Complex Overseen by Trustee |
Other
Directorships Held by Trustee or Nominee3 |
JoEllen
L. Legg
Trustee
1961 |
Since
2022*** |
Ms.
Legg was formerly Counsel with Practus, LLP, a law firm (2017-2019). |
1 |
Principal Real Estate Income Fund (since February 2024) |
E.
Wayne Nordberg
Trustee
1938
|
Since
2012** |
Mr.
Nordberg is currently the Chairman and Co-Chief Investment Officer of Hollow Brook Wealth Management, LLC, a private investment
management firm and is a Director/Trustee for Riley Exploration Permian. Mr. Nordberg was formerly a Senior Director at Ingalls
& Snyder LLC, a privately owned registered investment adviser. |
1 |
Mr.
Nordberg is a Director/ Trustee for Riley Exploration Permian, Inc. |
Officers |
Joseph
Rhame, III
President
1981 |
President
Since 2021 |
Mr.
Rhame is currently the CEO at Reaves Asset Management. and prior to 2019 was Portfolio Manager and Analyst at Reaves. |
N/A |
N/A |
Jill
Kerschen
Treasurer
1975 |
Treasurer
Since 2022
|
Ms.
Kerschen joined Paralel in 2021 and is currently Director of Fund Administration. Prior to joining Paralel she was Vice President
at ALPS Advisors, Inc. from 2019 to 2021 and from 2013 to 2019 she served as Vice President and Fund Controller at ALPS Fund
Services, Inc. |
N/A |
N/A |
Bradley
J. Swenson
Chief
Compliance Officer
1972 |
Chief
Compliance Officer
Since 2022
|
Mr.
Swenson is President and Chief Compliance Officer, Paralel Distributors LLC, since May 2022; Chief Compliance Officer, Paralel
Technologies, since May 2022; President, TruePeak Consulting, LLC, since August 2021; President, ALPS Fund Services, Inc.
(“ALPS”) June 2019 to June 2021; Chief Operating Officer, ALPS 2015 to 2019 |
N/A |
N/A |
Name,
Position(s) Held with the Fund, Address,1 and Year of Birth |
Term
of Office and Length of Time Served2 |
Principal
Occupation(s) During Past Five Years |
Number
of Portfolios in Fund Complex Overseen by Trustee |
Other
Directorships Held by Trustee or Nominee3 |
Christopher
Moore
Secretary
1984 |
Secretary
Since 2022 |
Mr.
Moore is General Counsel of Paralel Technologies LLC and Paralel Advisors LLC since 2021. Mr. Moore served as Deputy General
Counsel and Legal Operations Manager of RiverNorth Capital Management, LLC from 2020-2021; VP and Senior Counsel of ALPS Fund
Services, Inc. from 2016-2020. |
N/A |
N/A |
| (1) | Address:
1700 Broadway, Suite 1850, Denver, Colorado 80290. |
| (2) | The
Fund commenced operations on February 24, 2004. The Fund’s Board of Trustees
is divided into three classes, each class serves for a term of three years. Each year
the term of office of one class expires and the successors elected to such class serve
for a term of three years. |
| * | Term
expires at the Fund’s 2026 Annual Meeting of Shareholders. |
| ** | Term
expires at the Fund’s 2027 Annual Meeting of Shareholders. |
| *** | Term
expires at the Fund’s 2025 Annual Meeting of Shareholders. |
| (3) | The
numbers enclosed in the parentheticals represent the number of funds overseen in each
respective directorship held by the Trustee. |
Additional
Information About Each Trustee’s Professional Experience And Qualifications
Provided
below is a brief summary of the specific experience, qualifications, attributes or skills for each Trustee that warranted their
consideration as a Trustee candidate to the Board, which is structured as an individual investment company under the 1940 Act.
Non-Interested
Trustees
Mary
K. Anstine – Ms. Anstine was President and Chief Executive Officer of HealthOne Alliance in Denver, Colorado from
1995 to 2004. Ms. Anstine has also served in various executive positions with several philanthropic organizations such as the
AV Hunter Trust, Colorado Uplift Board. Prior to that, Ms. Anstine was an Executive Vice President of First Interstate Bank of
Denver, Colorado and formerly a Director of Trust Bank of Colorado. In addition, Ms. Anstine served on the Executive Committee
of the American Bankers Association. Ms. Anstine also currently serves as a Trustee of ALPS ETF Trust, Financial Investors Trust,
and ALPS Variable Investment Trust. Ms. Anstine has served as a Trustee for the Fund since its inception. Ms. Anstine also serves
as a member of the Fund’s Audit Committee and Nominating and Corporate Governance Committee. Ms. Anstine has further enhanced
her experience and skills, in conjunction with the other Trustees, through the Board’s oversight of the Fund’s officers
in dealing with a diverse range of topics, to include but not limited to, portfolio management, legal and regulatory matters,
compliance oversight, preparation of financial statements and oversight of the Fund’s multiple service providers. The Board,
in its judgment of Ms. Anstine’s professional experience in management and oversight of a variety corporate and non-profit
organization and as a Trustee of several other investment companies, believes Ms. Anstine contributes a seasoned perspective to
the Board.
Jeremy
W. Deems – Mr. Deems is currently Co-Founder and Chief Financial Officer of Green Alpha Advisors, LLC, an investment
management firm, and a co-portfolio manager of the AXS Green Alpha ETF. Mr. Deems was formerly the Chief Financial Officer and
Treasurer of Forward Management, LLC, an investment management firm, ReFlow Management Co., LLC, a liquidity resourcing company,
and ReFlow Fund, LLC, a private investment fund. Mr. Deems was also Chief Financial Officer and Treasurer of Sutton Place Management,
LLC, an administrative services company, from 2004 and 2007. Prior to that, Mr. Deems served as Controller of Forward Management,
LLC, ReFlow Management Co., LLC, ReFlow Fund, LLC and Sutton Place Management, LLC. Mr. Deems currently serves as a Trustee of
ALPS ETF Trust, Financial Investors Trust, and ALPS Variable Investment Trust. In addition, Mr. Deems held a Certified Public
Accountant license from August 2001 to February 2017. Mr. Deems has been a Trustee since 2008 for the Fund. Mr. Deems also serves
as a Chairman of the Fund’s Audit Committee and as a member of the Fund’s Nominating & Corporate Governance Committee.
Mr. Deems has further enhanced his experience and skills, in conjunction with the other Trustees, through the Board’s oversight
of the Fund officers in dealing with a diverse range of topics, to include but not limited to, portfolio management, legal and
regulatory matters, compliance oversight, preparation of financial statements and oversight of the Fund’s multiple service
providers. The Board, in its judgment of Mr. Deems’ professional experience in management and oversight of firms specializing
in financial services and as a Trustee of several other investment companies with diverse product lines, believes Mr. Deems contributes
an extensive experience in investment company operations and accounting oversight to the Board.
Michael
F. Holland – Mr. Holland is currently the Chairman of Holland & Company, an investment management firm, since
1995 and has over 40 years of experience in the financial services industry. Mr. Holland began his career at J.P. Morgan in 1968
spending twelve years managing both equity and fixed income assets for major institutional clients and high net worth individuals.
He also served as Chief Executive Officer of First Boston Asset Management in the early 1980’s and later served as Chairman
of Salomon Brothers Asset Management. He has also been a General Partner of the Blackstone Group, Chief Executive Officer of Blackstone
Alternative Asset Management and a former Vice Chairman of Oppenheimer & Co., Inc. Mr. Holland has served as a Trustee for
the Fund since its inception. Mr. Holland also serves as a member of the Fund’s Audit Committee and Nominating and Corporate
Governance Committee. Mr. Holland has further enhanced his experience and skills, in conjunction with the other Trustees, through
the Board’s oversight of the Fund officers in dealing with a diverse range of topics, to include but not limited to, portfolio
management, legal and regulatory matters, compliance oversight, preparation of financial statements and oversight of the Fund’s
multiple service providers. The Board, in its judgment of Mr. Holland’s professional experience in efficient and effective
operations of an investment adviser and oversight of closed- end investment companies, believes Mr. Holland contributes a wealth
of industry experience in investment company operations to the Board.
JoEllen
L. Legg – Ms. Legg was formerly Counsel with Practus, LLP, a law firm (2017-2019). She previously served as Vice
President and Assistant General Counsel of ALPS Fund Services, Inc., an administrator and transfer agent, and of ALPS Distributors,
Inc., a broker-dealer, as Senior Counsel (Corporate and Securities) of Adelphia Communications Corporation, a public cable company,
and held Associate positions at Fried, Frank, Harris, Shriver & Jacobson, LLP and Patton Boggs LLP, law firms. Ms. Legg has
served a Trustee of the Fund since 2022. Ms. Legg also serves as a member of the Fund’s Audit Committee and the chairman of the Nominating and
Corporate Governance Committee. She has also served as a Trustee of the Principal Real Estate Income Fund (since 2024). Ms. Legg has further enhanced her experience and skills, in conjunction with the other Trustees,
through the Board’s oversight of the Fund’s officers in dealing with a diverse range of topics, to include but not
limited to, portfolio management, legal and regulatory matters, compliance oversight, preparation of financial statements and
oversight of the Fund’s multiple service providers. The Board, in its judgment of Ms. Legg’s professional experience
in management and oversight of firms specializing in corporate and legal administrative services, believes Ms. Legg contributes
an extensive experience in investment company legal operations to the Board.
E.
Wayne Nordberg – Mr. Nordberg is currently the Chairman and Co-Chief Investment Officer of Hollow Brook Wealth
Management, LLC, a private investment management firm serving family offices, foundations, charities and pensions and is a
Director/Trustee for Riley Exploration Permian. He has over 50 years of experience in investment research and portfolio management.
In addition, he also serves on the Board of Directors of Rily Permian Exploration, Inc. Mr. Nordberg has served as a Director of
Annaly Capital Management, Inc., the largest mortgage real estate investment trust listed on the New York Stock Exchange. In
addition, he has also served on the Board of Directors of PetroQuest Energy, Inc., an oil and gas exploration company. From 2003 to
2007, Mr. Nordberg was a Senior Director at Ingalls & Snyder LLC, a privately owned registered investment advisor. He also
formerly served on the Board of Directors of Lord, Abbett & Co., a mutual fund family, from 1988 to 1998. Mr. Nordberg has
served as Trustee of the Fund since 2012. Mr. Nordberg also serves as a member of the Fund’s Audit Committee and Nominating
and Corporate Governance Committee. The Board, in its judgment of Mr. Nordberg’s extensive experience in senior management
positions with a variety of portfolio management firms and as a board director for a variety of companies, believes that Mr.
Nordberg contributes a tenured perspective to the Board.
Leadership
Structure of the Board
The
Board, which has overall responsibility for the oversight of the Fund’s investment programs and business affairs, believes
that it has structured itself in a manner that allows it to effectively perform its oversight obligations. Mr. Deems, the Chairman
of the Board (“Chairman”), is an Independent Trustee. The Trustees also complete an annual self-assessment during
which the Trustees review their overall structure and consider where and how its structure remains appropriate in light of the
Fund’s current circumstances. The Chairman’s role is to preside at all meetings of the Board and in between Board
meetings to generally act as the liaison between the Board and the Fund’s officers, attorneys and various other service
providers, including but not limited to, the Fund’s investment adviser, administrator and other such third parties servicing
the Fund.
The
Board has two standing committees, each of which enhances the leadership structure of the Board: the Audit Committee and the Nominating
and Corporate Governance Committee. The Audit Committee and Nominating and Corporate Governance Committee are each chaired by,
and composed of, members who are Independent Trustees.
Audit
Committee. The role of the Fund’s Audit Committee is to assist the Board in its oversight of (i) the quality and
integrity of the Fund’s financial statements, reporting process and the independent registered public accounting firm (the
“independent accountants”) and reviews thereof, (ii) the Fund’s accounting and financial reporting policies
and practices, its internal controls and, as appropriate, the internal controls of certain service providers, (iii) the Fund’s
compliance with legal and regulatory requirements, and (iv) the independent accountants’ qualifications, independence
and performance. The Audit Committee is also required to prepare an audit committee report pursuant to the rules of the SEC for
inclusion in the Fund’s annual proxy statement. The Audit Committee operates pursuant to the Audit Committee Charter (the
“Charter”) that was most recently reviewed and approved by the Board on September 8, 2023. The Charter is available
at the Fund’s website, www.utilityincomefund.com. As set forth in the Charter, management is responsible for maintaining
appropriate systems for accounting and internal control, and the Fund’s independent accountants are responsible for planning
and carrying out proper audits and reviews. The independent accountants are ultimately accountable to the Board and to the Audit
Committee, as representatives of shareholders. The independent accountants for the Fund report directly to the Audit Committee.
The
Audit Committee met three times during the fiscal year ended October 31, 2023. The Audit Committee is composed of all five
of the Fund’s Independent Trustees (as such term is defined by the NYSE American listing standards); namely, Mss. Mary K.
Anstine and JoEllen L. Legg and Messrs. Jeremy W. Deems, Michael F. Holland and E. Wayne Nordberg. None of the members of the
Audit Committee is an “interested person” of the Fund.
Nominating
and Corporate Governance Committee. The Board has a Nominating and Corporate Governance Committee composed of all five Independent
Trustees as such term is defined by the NYSE American listing standards; namely, Mss. Mary K. Anstine and JoEllen L. Legg and
Messrs. Jeremy W. Deems, Michael F. Holland, and E. Wayne Nordberg. The Nominating and Corporate Governance Committee met one
time during the fiscal year ended October 31, 2023. None of the members of the Nominating and Corporate Governance Committee
are “interested persons” of the Fund. The Nominating and Corporate Governance Committee is responsible for identifying
and recommending to the Board individuals believed to be qualified to become Trustees in the event that a position is vacated
or created.
The
Nominating and Corporate Governance Committee will consider Trustee candidates recommended by shareholders. In considering candidates
submitted by shareholders, the Nominating and Corporate Governance Committee will take into consideration the needs of the Board,
the qualifications of the candidate and the interests of shareholders. The Nominating and Corporate Governance Committee has not
determined any minimum qualifications necessary to serve as a Trustee of the Fund, nor has it adopted a formal diversity policy,
but it may consider diversity of professional experience, education and skills when evaluating potential nominees. Any notice
by a shareholder that the shareholder wishes to recommend a person for election as a Trustee must include: (i) a brief description
of the business desired to be brought before the annual or special meeting and the reasons for conducting such business at the
annual or special meeting; (ii) the name and address, as they appear on the Fund’s books, of the shareholder proposing such
business or nomination; (iii) a representation that the shareholder is a holder of record of stock of the Fund entitled to vote
at such meeting and intends to appear by conference call or by proxy at the meeting to present such proposal or nomination; (iv)
the class and number of shares of the capital stock of the Fund, which are beneficially owned by the shareholder and, if applicable,
the proposed nominee to the Board; (v) any material interest of the shareholder or nominee in such business; (vi) the extent to
which such shareholder (including such shareholder’s principals) or the proposed nominee to the Board has entered into any
hedging transaction or other arrangement with the effect or intent of mitigating or otherwise managing profit, loss or risk of
changes in the value of the common stock or the daily quoted market price of the Fund held by such shareholder (including such
shareholder’s principals) or the proposed nominee, including independently verifiable information in support of the foregoing;
and (vii) in the case of a nomination of any person for election as a Trustee, such other information regarding such nominee proposed
by such shareholder as would be required to be included in a proxy statement filed pursuant to Regulation 14A under the 1934 Act.
The
shareholder recommendation described above must be sent to the Fund’s Secretary c/o Paralel Technologies LLC. The Fund’s
Nominating and Corporate Governance Committee has adopted a charter and is available on the Fund’s website www.utilityincomefund.com.
Oversight
of Risk Management
The
Fund is confronted with a multitude of risks, such as investment risk, counter party risk, valuation risk, political risk, risk
of operational failures, business continuity risk, regulatory risk, legal risk and other risks not listed here. The Board recognizes
that not all risk that may affect the Fund can be known, eliminated or even mitigated. In addition, there are some risks that
may not be cost effective or an efficient use of the Fund’s limited resources to moderate. As a result of these realities,
the Board, through its oversight and leadership, has and will continue to deem it necessary for shareholders of the Fund to bear
certain and undeniable risks, such as investment risk, in order for the Fund to operate in accordance with its Prospectus, Statement
of Additional Information and other related documents.
However,
as required under the 1940 Act, the Board has adopted on the Fund’s behalf a risk program that mandates the Funds various
service providers, including the investment adviser, to adopt a variety of processes, procedures and controls to identify various
risks, mitigate the likelihood of such adverse events from occurring and/or attempt to limit the effects of such adverse events
on the Fund. The Board fulfills its leadership role by receiving a variety of quarterly written reports prepared by the Fund’s
CCO that (1) evaluate the operation, policies and procedures of the Fund’s service providers, (2) makes known
any material changes to the policies and procedures adopted by the Fund or its service providers since the CCO’s last report,
and (3) disclose any material compliance matters that occurred since the date of the last CCO report. In addition, the Independent
Trustees meet quarterly in executive sessions without the presence of any Interested Trustees, the investment adviser, the administrator,
or any of their affiliates. This configuration permits the Independent Trustees to effectively receive information and have private
discussions necessary to perform its risk oversight role, exercise independent judgment, and allocate areas of responsibility
between the full Board, its various committees and certain officers of the Fund. Furthermore the Independent Trustees have engaged
independent legal counsel and auditors to assist the Independent Trustees in performing their oversight responsibilities. As discussed
above and in consideration of other factors not referenced herein, the Board has determined its leadership role concerning risk
management, as one of oversight and not active management of the Fund’s day-to-day risk management operations.
Fund
Share Ownership
Set
forth in the table below is the dollar range of equity securities held in the Fund by each of the Fund’s Trustees as of
December 31, 2023. Since the Fund is not affiliated or associated with any “Fund Complex,” as defined under the 1940
Act, the aggregate dollar range of equity securities in the Fund Complex beneficially owned by each Trustee and nominee for election
as Trustee is not applicable to the Fund.
Name
of Trustee |
Dollar
Range of Equity Securities
Held in the Fund1,2 |
Non-Interested
Trustees |
|
Mary
K. Anstine |
$10,001-$50,000 |
Jeremy
W. Deems |
None |
Michael
F. Holland |
$10,001-$50,000 |
E.
Wayne Nordberg |
$100,001-$500,000 |
JoEllen
L. Legg |
None |
| (1) | This
information has been furnished by each Trustee and Nominee for election as Trustee as
of December 31, 2023. “Beneficial Ownership” is determined in accordance
with Section 16a-1(a)(2) of the Securities Exchange Act of 1934, as amended (the “1934
Act”). |
| (2) | Ownership
amount constitutes less than 1% of the total shares outstanding. |
Independent
Trustee Transactions/Relationships with Fund Affiliates
As
of December 31, 2023, neither the Independent Trustees nor members of their immediate families owned securities, beneficially
or of record, of the Adviser, or an affiliate or person directly or indirectly controlling, controlled by, or under common control
with the Adviser. In addition, over the past five years, neither the Independent Trustees nor members of their immediate families
have had any direct or indirect interest, the value of which exceeds $120,000, in the Adviser or any of its affiliates. Further,
during each of the last two fiscal years, neither the Independent Trustees nor members of their immediate families have conducted
any transactions (or series or transactions) or maintained any direct or indirect relationship in which the amount involved exceeds
$120,000 and to which the Adviser or any of its affiliates was a party.
Compensation
of Officers and Trustees
The
following table sets forth certain information regarding the compensation of the Trustees for the fiscal year ended October 31,
2023. Trustees and Officers of the Fund who are employed by Paralel Technologies LLC (“Paralel”) or Reaves receive
no compensation from the Fund. The Fund is not a member or affiliate of any Fund Complex.
Compensation
Table For The Fiscal Year Ended October 31, 2023
Name
of Person and Position* |
Aggregate
Compensation Paid
From
the Fund* |
Non-Interested
Trustees |
Mary
K. Anstine
Trustee
|
$84,000 |
Jeremy
W. Deems
Chairman
of the Board and Trustee
|
$99,000 |
Michael
F. Holland
Trustee
|
$82,000 |
E.
Wayne Nordberg
Trustee
|
$82,000 |
JoEllen
L. Legg
Trustee
|
$82,000 |
| * | Represents
the total compensation paid to such persons during the fiscal year ended October 31,
2023 by the Fund. The Fund is not a member or affiliate of any Fund Complex. |
Effective
January 1, 2024, the Fund paid each Independent Trustee and Interested Trustee an annual retainer of $69,000 plus $9,500 per meeting
attended in person and by telephone, together with the Trustee’s actual out-of-pocket expenses relating to their attendance
at such meetings. Mr. Deems receives an additional per meeting fee equal to $5,000 per meeting attended in person and by telephone
as Chairman of the Board and an additional per meeting fee equal to $4,000 per meeting attended in person and by telephone as
the Audit Committee Chairman. Ms. Legg receives an additional per meeting fee equal to $2,500 per meeting attended in person
and by telephone as Chairman of the Nominating and Corporate Governance Committee. The aggregate remuneration (not including out-of-pocket
expenses) paid by the Fund to all Trustees during the fiscal year ended October 31, 2023 amounted to $429,000.
During
the fiscal year ended October 31, 2023, the Trustees of the Fund met four times. Each Trustee then serving in such capacity attended
at least 75% of the meetings of Trustees and of any committee of which he or she is a member.
Codes
of Ethics
Reaves
and the Fund have each adopted a code of ethics governing personal securities transactions. Under Reaves’ code of ethics,
Reaves employees may purchase and sell securities (including securities held or eligible for purchase by the Fund), subject to
certain pre-clearance and reporting requirements and other procedures. The Fund’s code of ethics permits personnel subject
thereto to invest in securities, including securities that may be purchased or held by the Fund. However, the Fund’s code
of ethics generally prohibits, among other things, persons subject thereto from purchasing or selling securities if they know
at the time of such purchase or sale that the security is being considered for purchase or sale by the Fund or is being purchased
or sold by the Fund.
The
codes of ethics can be reviewed on the EDGAR Database on the SEC’s Internet site (http://www.sec.gov) and copies may be
obtained from the SEC, after paying a fee, by electronic request at the following e-mail address: publicinfo@sec.gov.
Proxy
Voting Policy
Subject
to the right of a majority of the Fund’s non-interested Trustees to give Reaves written instructions as to the voting or
non-voting of proxies on any specific matter, including a matter presenting an actual or potential conflict of interest as described
below, the Fund has delegated the voting of proxies with respect to securities owned by it to Reaves. In the absence of such written
instructions, Reaves will vote proxies in a manner that it deems to be in the best interests of the Fund. Reaves will consider
only those factors that relate to the Fund’s investment in the securities to be voted, including how the vote will economically
impact and affect the value of the Fund’s investment in such securities (keeping in mind that, after conducting an appropriate
cost/benefit analysis, not voting at all on a particular matter may be in the best interest of the Fund). In general, Reaves believes
that voting proxies in accordance with the policies described below will be in the best interests of the Fund.
Reaves
will generally vote to support management recommendations relating to routine matters such as the election of directors (where
no corporate governance issues are implicated), the selection of independent auditors, an increase in or reclassification of common
shares, the addition or amendment of indemnification provisions in the company’s charter or by-laws, changes in the board
of directors and compensation of outside directors. Reaves will generally vote in favor of management or shareholder proposals
that Reaves believes will maintain or strengthen the shared interests of shareholders and management, increase shareholder value,
maintain or increase shareholder influence over the company’s board of directors and management and maintain or increase
the rights of shareholders.
On
non-routine matters, Reaves will generally vote in favor of management proposals for merger or reorganization if the transaction
appears to offer fair value, against shareholder proposals that consider only non-financial impacts of mergers or reorganizations
and against anti-greenmail provisions.
If
a proxy includes a routine matter that implicates corporate governance changes, a non-routine matter to which none of the specific
policies described above is applicable, or a matter involving an actual or potential conflict of interest as described below,
Reaves may engage an independent third party to determine whether and how the proxy should be voted.
In
exercising its voting discretion, Reaves and its employees will seek to avoid any direct or indirect conflict of interest presented
by the voting decision. If any substantive aspect or foreseeable result of the matter to be voted on presents an actual or potential
conflict of interest involving Reaves (or an affiliate of Reaves), any issuer of a security for which Reaves (or an affiliate
of Reaves) acts as sponsor, advisor, manager, custodian, distributor, underwriter, broker or other similar capacity or any person
with whom Reaves (or an affiliate of Reaves) has an existing material contract or business relationship not entered into in the
ordinary course of business (Reaves and such other persons having an interest in the matter being called “Interested Persons”),
Reaves will make written disclosure of the conflict to the disinterested Trustees of the Fund indicating how Reaves proposes to
vote on the matter and its reasons for doing so. If Reaves does not receive timely written instructions as to voting or non-voting
on the matter from the Fund’s disinterested Trustees, Reaves may take any of the following actions which it deems to be
in the best interests of the Fund: (i) engage an independent third party to determine whether and how the proxy should be
voted and vote or refrain from voting on the matter as determined by the third party; (ii) vote on the matter in the manner
proposed to the disinterested Trustees if the vote is against the interests of all Interested Persons; or (iii) refrain from
voting on the matter.
Information
regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is
available without charge, upon request, by calling (800) 644-5571, or on the SEC’s website at www.sec.gov.
INVESTMENT
ADVISORY AND OTHER SERVICES
Reaves
has been managing assets of investment companies since 1993. Reaves maintains a staff of experienced investment professionals
to service the needs of its clients.
Except
as provided in the administration and fund accounting agreement between Paralel and the Fund (the “Administration Agreement”),
the Fund will be responsible for all of its costs and expenses not expressly stated to be payable by Reaves under the Investment
Advisory and Management Agreement between Reaves and the Fund (the “Advisory Agreement’) or Paralel under the Administration
Agreement. Such costs and expenses to be borne by the Fund include, without limitation: advisory fees; taxes and governmental
fees; expenses related to portfolio transactions and management of the portfolio; expenses associated with secondary offerings
of shares; trustee fees and expenses; expenses associated with tender offers and other share repurchases; and other extraordinary
expenses.
The
Advisory Agreement became effective on August 26, 2010 for an initial period of two years and continues in effect from year
to year thereafter so long as such continuance is approved at least annually (i) by the vote of a majority of the noninterested
Trustees of the Fund or of Reaves cast in person at a meeting specifically called for the purpose of voting on such approval and
(ii) by the Board or by vote of a majority of the outstanding Shares of the Fund. The agreement may be terminated at any
time without penalty on sixty (60) days’ written notice by the Trustees of the Fund or Reaves, as applicable, or by
vote of the majority of the outstanding shares of the Fund. The agreement will terminate automatically in the event of its assignment.
The agreement provides that, in the absence of willful misfeasance, bad faith, gross negligence or reckless disregard of its obligations
or duties to the Fund under such agreements on the part of Reaves, or a loss resulting from a breach of fiduciary duty by Reaves
with respect to the receipt of compensation for services (in which case damages shall be limited by the 1940 Act), Reaves shall
not be liable to the Fund or any shareholder for any loss incurred, to the extent not covered by insurance.
Reaves
is an employee-owned corporation organized under the laws of Delaware. It is registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940, as amended. As of June 30, 2024, Reaves had approximately $3.247 billion in assets
under management. Messrs. John P. Bartlett, Timothy O. Porter, Joseph Rhame III, Brian W. Weeks, Stephen Gavlick and David M.
Pass are controlling persons of Reaves by virtue of their respective positions as President; Vice President; Chief Executive Officer;
Vice President; Chief Compliance Officer; and Vice President, Secretary, Chief Operating Officer and Chief Financial Officer of
Reaves.
The
total dollar amounts paid to Reaves by the Fund under the Advisory Agreement for the last three fiscal years ended October 31,
2023, 2022 and 2021 were $14,859,528, $15,361,570 and $13,561,200, respectively.
Investment
Advisory Services
Under
the general supervision of the Board, Reaves will carry out the investment and reinvestment of the assets of the Fund, will furnish
continuously an investment program with respect to the Fund, will determine which securities should be purchased, sold or exchanged,
and will implement such determinations. Reaves will furnish to the Fund investment advice and provide related office facilities
and personnel for servicing the investments of the Fund. Reaves will compensate all Trustees and officers of the Fund who are
members of the Reaves organization and who render investment services to the Fund, and will also compensate all other Reaves personnel
who provide research and investment services to the Fund.
Portfolio
Managers
Other
Accounts Managed by Portfolio Managers. There may be certain inherent conflicts of interest that arise in connection with the portfolio
managers’ management of the Fund’s investments and the investments of any other accounts they manage. Such conflicts could
include aggregation of orders for all accounts managed by a particular portfolio manager, the allocation of purchases across all such
accounts, the allocation of IPOs and any soft dollar arrangements that the Fund’s investment adviser may have in place that could
benefit the Fund and/or such other accounts. The investment adviser has adopted policies and procedures designed to address any such
conflicts of interest to ensure that all management time, resources and investment opportunities are allocated equitably.
The
table below identifies (as of October 31, 2023), for each portfolio manager, the number of accounts, other than the Fund for which
he or she has day-to-day management responsibilities and the total assets in such accounts, within each of the following categories:
registered investment companies, other pooled investment vehicles, and other accounts. Unless noted otherwise, none of the accounts
shown are subject to fees based on performance.
|
Registered
Investment
Companies1 |
Other
Pooled Investment
Vehicles2 |
Other
Accounts3 |
Name
of
Portfolio
Manager |
Number
of
Accounts |
Total
Assets |
Number
of
Accounts |
Total
Assets |
Number
of
Accounts |
Total
Assets |
John
P. Bartlett |
1 |
$
42,163,797 |
0 |
$0 |
0 |
$0 |
Timothy
O. Porter |
1 |
$
26,790,942 |
0 |
$0 |
494 |
$
331,649,330 |
Joseph
Rhame, III |
1 |
$
442,163,797 |
0 |
$0 |
494 |
$
331,649,330 |
| (1) | Registered
Investment Companies include all open and closed-end mutual funds. For Registered Investment
Companies, assets represent net assets of all open-end investment companies and gross
assets of all closed-end investment companies. |
| (2) | Other
Pooled Investment Vehicles include, but are not limited to, securities of issuers exempt
from registration under Section 3(c) of the 1940 Act, such as private placements
and hedge funds. |
| (3) | Other
Accounts include, but are not limited to, individual managed accounts, separate accounts,
institutional accounts, pension funds and collateralized bond obligations. |
Compensation
of Portfolio Managers. Compensation paid by the Adviser to the portfolio managers is designed to be competitive and attractive,
and primarily consists of a fixed base salary, based on market factors and each person’s level of responsibility, and a
bonus. The amount of the bonus is based on the overall after-tax profitability of the Firm, each fiscal-year, and the contribution
of each portfolio manager to the Firm’s overall performance.
Individual
compensation is designed to reward the overall contribution of portfolio managers to the performance of the Adviser. To date,
the Adviser has not linked bonuses to the performance of any particular portfolio. Compensation levels are set by senior
management following a review of overall performance. From time to time, the Adviser has engaged industry consultants
to ensure that compensation remains competitive and to identify and plan for new and emerging compensation trends. Equity
holders within the Adviser, including the portfolio managers, receive only a modest return on their capital investment, usually
a mid-single digit percentage of their share of the Adviser’s book value. The Adviser believes this practice is consistent
with industry standards and that it allows the Adviser to maximize the incentive compensation pool. This pool is critical
in the Adviser’s ability to continue to attract and retain professionals of the highest quality while simultaneously growing
the intrinsic value of the Adviser. The Adviser has no deferred compensation, stock option or other equity programs. Given the
portfolio manager compensation policy described above and the fact that the Adviser has no performance-based advisory relationships,
the Adviser does not believe that any material compensation conflicts exist.
Certain
Conflicts of Interest. The investment strategy for the Fund includes securities that could also be found in different investment
strategies utilized by the Adviser for other clients. As such, securities bought and sold for the Fund may be held and transacted
for other clients of the Adviser. No trades are executed between clients of the Adviser (cross trades), including the Fund. The
Adviser has policies and procedures in place to manage these investment activities.
Consistent
with its fiduciary duties, the Adviser allocates trades on an equitable basis with respect to both its investment company and
non-investment company clients (including clients in which the Adviser or a person associated with the Adviser may have an interest).
No advisory client, including those clients in which the Adviser or persons associated with the Adviser have a direct or indirect
beneficial interest is favored by the Adviser over any other client, and each client who participates in an aggregated order participates
at the average share price, with transaction costs charged to each such client in accordance with its then in effect commission
schedule.
The
Adviser’s allocation policies apply to fully and partially filled orders as directed by the Portfolio Manager(s) of the
applicable accounts.
The
Adviser does not aggregate transactions unless it believes that aggregation is consistent with its duty to seek best execution
(which includes the duty to seek best price) for its clients and is consistent with the terms of the Adviser’s investment
advisory agreement with each client for which trades are being aggregated. No advisory client is favored over any other client,
and each client that participates in an aggregated order participates at an average share price for all such transactions in that
security on a given business day, with transactions costs charged to each such client in accordance with its then in effect commission
schedule.
Although,
the Adviser rarely participates in Initial Public Offerings (“IPOs”), IPO allocations, whenever possible, will be
allocated on a pro-rata basis among all accounts that such allocation would be deemed appropriate given each account’s investment
strategy and other factors pursuant to the Adviser’s policies and procedures.
As
a result of such allocations, there may be instances where the Fund will not participate in a transaction that is allocated among
other accounts. Additionally, trades executed by different firms, including Reaves, will not be aggregated and allocated as to
price; thus, there may be instances where the Fund does not pay or receive the same price as other investment accounts managed
by the Adviser. While these aggregation and allocation policies could have a detrimental effect on the price or amount of the
securities available to the Fund from time to time, it is the opinion of the Trustees of the Fund that the benefits received from
Reaves’ organization outweigh any disadvantage that may arise from exposure to simultaneous transactions.
Portfolio
Manager Ownership of Fund Securities. The following table sets forth the dollar range of equity securities in the Fund beneficially
owned, as of October 31, 2023, by each of the portfolio managers identified in the Fund’s Prospectus.
Name
of Portfolio Manager |
Dollar
Range of Equity Securities in the Fund1 |
John
P. Bartlett |
$100,001
- $500,000 |
Timothy
O. Porter |
$10,001
- $50,000 |
Joseph
Rhame, III |
$100,001
- $500,000 |
(1)
“Beneficial Ownership” is determined in accordance with Section 16a-1(a)(2) of the Securities Exchange Act of
1934, as amended.
Administrative
Services
Under
the Administration Agreement, effective September 19, 2022, Paralel is responsible for providing the Fund with fund accounting,
tax, fund administration, and compliance services, providing the Fund with certain executive officers, and generally managing
the business affairs of the Fund, subject to the supervision of the Board. Paralel will furnish to the Fund all office facilities,
equipment and personnel for administering the affairs of the Fund. Paralel will compensate all Trustees and officers of the Fund
who are members of the Paralel organization and who render executive and administrative services to the Fund, and will also compensate
all other Paralel personnel who perform management and administrative services for the Fund. Paralel’s administrative services
include, preparation and filing of documents required to comply with federal and state securities laws, supervising the activities
of the Fund’s custodian and transfer agent, providing assistance in connection with the Trustees and shareholders’
meetings, providing services in connection with repurchase offers, if any, and other administrative services necessary to conduct
the Fund’s business. Under the Administration Agreement, Paralel is also obligated to pay all expenses incurred by the Fund,
with the exception of advisory fees; taxes and governmental fees; expenses related to portfolio transactions and management of
the portfolio; expenses associated with secondary offerings of shares; trustee fees and expenses; expenses associated with tender
offers and other share repurchases; and other extraordinary expenses. For its services under the Administration Agreement Paralel
receives a monthly fee at the annual rate of 0.15% on the first $2 billion of the average daily total assets of the Fund and 0.10%
on any amount in excess of $2 billion of the average daily total assets of the Fund. The total dollar amounts paid by the Fund
to Paralel under the Administration Agreement for the fiscal year ended October 31, 2023 and the period from September 19, 2022
through October 31, 2022 were $3,593,187 and $406,580, respectively.
Prior
to September 19, 2022, ALPS Fund Services, Inc. (“ALPS”) served as the Fund’s administrator and received a fee
based on the Fund’s average daily total assets. From its fees, ALPS paid all routine operating expenses incurred by the
Fund subject to materially similar exceptions as listed in the Administration Agreement. The total dollar amounts paid by the
Fund to ALPS for the period from November 1, 2021 through September 18, 2022 and fiscal year ended October 31, 2021 were $6,304,948
and $6,249,742, respectively.
Prior
to September 19, 2022, pursuant to a Chief Compliance Officer Services Agreement, the Fund paid ALPS for providing Chief Compliance
Officer services to the Fund an annual fee payable in monthly installments.
ADDITIONAL
INFORMATION ABOUT NET ASSET VALUE
For
purposes of determining the net asset value of the Fund’s common shares, exchange traded options are valued at the last
reported sale price at the close of the principal exchange or board of trade on which such option or contract is traded, or in
the absence of a sale, at the mean between the last reported bid and asked prices. Non-exchange traded options are also valued
at the mean between the last reported bid and asked prices. Forward currency contracts are valued at the mean between reported
bid and asked prices. Financial futures contracts listed on commodity exchanges and exchange-traded options are valued at closing
settlement prices.
Generally,
the Fund completes its trading in foreign securities (if any) each day at various times prior to the close of the NYSE American.
The values of these securities used in determining the net asset value of the Fund’s common shares generally are computed
as of such times. Occasionally, events affecting the value of foreign securities may occur between such times and the close of
the NYSE American which will not be reflected in the computation of the Fund’s net asset value (unless the Fund deems that
such events would materially affect its net asset value, in which case an adjustment would be made and reflected in such computation).
Foreign securities and currency held by the Fund will be valued in U.S. dollars; such values will be computed by the custodian
based on foreign currency exchange rate quotations supplied by an independent quotation service.
PORTFOLIO
TRADING
Decisions
concerning the execution of portfolio security transactions, including the selection of the market and the executing firm, are
made by Reaves. Reaves is also responsible for the execution of transactions for all other accounts managed by it. Reaves places
the portfolio security transactions of the Fund and of all other accounts managed by it for execution with many firms. While Reaves,
as a registered broker-dealer, regularly acts as executing broker in equity securities transactions for other clients, it generally
will not act as executing broker for the Fund. Whether Reaves acts as executing broker or places transactions for execution with
other firms, Reaves uses its best efforts to obtain execution of portfolio security transactions at prices which are advantageous
to the Fund and at reasonably competitive spreads or (when a disclosed commission is being charged) at reasonably competitive
commission rates. In seeking such execution, Reaves will use its best judgment in evaluating the terms of a transaction, and will
give consideration to various relevant factors, including without limitation the full range and quality of the executing firm’s
services, the value of the brokerage and research services provided, the responsiveness of the firm to Reaves, the size and type
of the transaction, the nature and character of the market for the security, the confidentiality, speed and certainty of effective
execution required for the transaction, the general execution and operational capabilities of the executing firm, the reputation,
reliability, experience and financial condition of the firm, the value and quality of the services rendered by the firm in this
and other transactions, and the reasonableness of the spread or commission, if any.
Transactions
on stock exchanges and other agency transactions involve the payment of negotiated brokerage commissions. Such commissions vary
among different broker-dealer firms, and a particular broker-dealer may charge different commissions according to such factors
as the difficulty and size of the transaction and the volume of business done with such broker-dealer. Transactions in foreign
securities often involve the payment of brokerage commissions, which may be higher than those in the United States. There is generally
no stated commission in the case of securities traded in the over-the- counter markets, but the price paid or received usually
includes an undisclosed dealer markup or markdown. In an underwritten offering the price paid often includes a disclosed fixed
commission or discount retained by the underwriter or dealer.
Fixed
income obligations which may be purchased and sold by the Fund are generally traded in the over-the-counter market on a net basis
(i.e., without commission) through broker-dealers or banks acting for their own account rather than as brokers, or otherwise
involve transactions directly with the issuers of such obligations. The Fund may also purchase fixed income and other securities
from underwriters, the cost of which may include undisclosed fees and concessions to the underwriters.
Although
spreads or commissions paid on portfolio security transactions will, in the judgment of Reaves, be reasonable in relation to the
value of the services provided, commissions exceeding those which another firm might charge may be paid to broker-dealers who
were selected to execute transactions on behalf of Reaves’ clients in part for providing brokerage and research services
to Reaves.
As
authorized in Section 28(e) of the 1934 Act, a broker or dealer who executes a portfolio transaction on behalf of the Fund
may receive a commission which is in excess of the amount of commission another broker or dealer would have charged for effecting
that transaction. Accordingly, Reaves may utilize brokers or dealers that provide additional brokerage or research services and
charge commissions in excess of other brokers or dealers (soft dollar arrangements) if it determines in good faith that such compensation
was reasonable in relation to the value of the brokerage and research services provided. This determination may be made on the
basis of that particular transaction or on the basis of overall responsibilities which Reaves and its affiliates have for accounts
over which they exercise investment discretion. In making any such determination, Reaves will not attempt to place a specific
dollar value on the brokerage and research services provided or to determine what portion of the commission should be related
to such services. Brokerage and research services may include advice as to the value of securities, the advisability of investing
in, purchasing, or selling securities, and the availability of securities or purchasers or sellers of securities; furnishing analyses
and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of
accounts; effecting securities transactions and performing functions incidental thereto (such as clearance and settlement); and
the “Research Services” referred to in the next paragraph.
It
is a common practice of the investment advisory industry and of the advisers of investment companies, institutions and other investors
to receive research, analytical, statistical and quotation services, data, information and other services, products and materials
which assist such advisers in the performance of their investment responsibilities (“Research Services”) from broker-dealer
firms which execute portfolio transactions for the clients of such advisers and from third parties with which such broker-dealers
have arrangements. Consistent with this practice, Reaves receives Research Services from many broker-dealer firms with which Reaves
places the Fund’s transactions. These Research Services include such matters as general economic, political, business and
market information, industry and company reviews, evaluations of securities and portfolio strategies and transactions, proxy voting
data and analysis services, technical analysis of various aspects of the securities market, recommendations as to the purchase
and sale of securities and other portfolio transactions, financial, industry and trade publications, news and information services,
pricing and quotation equipment and services, and research oriented computer hardware, software, data bases and services. Any
particular Research Service obtained through a broker-dealer may be used by Reaves in connection with client accounts other than
those accounts which pay commissions to such broker-dealer. Any such Research Service may be broadly useful and of value to Reaves
in rendering investment advisory services to all or a significant portion of its clients, or may be relevant and useful for the
management of only one client’s account or of a few clients’ accounts, or may be useful for the management of merely
a segment of certain clients’ accounts, regardless of whether any such account or accounts paid commissions to the broker-dealer
through which such Research Service was obtained. The advisory fee paid by the Fund is not reduced because Reaves receives such
Research Services. Reaves evaluates the nature and quality of the various Research Services obtained through broker-dealer firms
and attempts to allocate sufficient portfolio security transactions to such firms to ensure the continued receipt of Research
Services which Reaves believes are useful or of value to it in rendering investment advisory services to its clients.
Reaves
may also receive Research Services from underwriters and dealers in fixed-price offerings, which Research Services are reviewed
and evaluated by Reaves in connection with its investment responsibilities. The investment companies advised by Reaves or its
affiliates may allocate trades in such offerings to acquire information relating to the performance, fees and expenses of such
companies and other mutual funds, which information is used by the Trustees of such companies to fulfill their responsibility
to oversee the quality of the services provided by various entities, including Reaves, to such companies. Such companies may also
pay cash for such information.
Subject
to the requirement that Reaves shall use its best efforts to seek and execute portfolio security transactions at advantageous
prices and at reasonably competitive spreads or commission rates, Reaves is authorized to consider as a factor in the selection
of any broker-dealer firm with whom portfolio orders may be placed the fact that such firm has sold or is selling shares of the
Fund or of other investment companies advised by Reaves.
Securities
considered as investments for the Fund may also be appropriate for other investment accounts managed by Reaves or its affiliates.
Whenever decisions are made to buy or sell securities by the Fund and one or more of such other accounts simultaneously, Reaves
will allocate the security transactions (including “hot” issues) in a manner which it believes to be equitable under
the circumstances. As a result of such allocations, there may be instances where the Fund will not participate in a transaction
that is allocated among other accounts. Additionally, trades executed by different firms, including Reaves, will not be aggregated
and allocated as to price; thus, there may be instances where the Fund does not pay or receive the same price as other investment
accounts managed by Reaves. While these aggregation and allocation policies could have a detrimental effect on the price or amount
of the securities available to the Fund from time to time, it is the opinion of the Trustees of the Fund that the benefits received
from Reaves’ organization outweigh any disadvantage that may arise from exposure to simultaneous transactions.
The
Fund paid brokerage commissions in the aggregate amounts of $1,500,961, $544,583 and $359,619 during fiscal years ended October
31, 2023, 2022 and 2021, respectively, not including the gross underwriting spread on securities purchased in underwritten public
offerings.
The
Fund did not pay any brokerage commissions during fiscal years ended October 31, 2023, 2022 or 2023 to any broker that (1) is
an affiliated person of the Fund, (2) is an affiliated person of an affiliated person of the Fund or (3) has an affiliated
person that is an affiliated person of the Fund or the investment adviser.
During
the Fund’s last fiscal year, pursuant to agreements or understandings with brokers or otherwise through an internal allocation
procedure, the investment adviser directed certain of the Fund’s brokerage transactions to certain brokers because of the
research services provided by those brokers as described above. The aggregate principal amount of the transactions involved was
$7,596,017 and the aggregate amount of the related commissions was $1,500,961 for fiscal year ended October 31, 2023.
The
Fund had not acquired during its most recent fiscal year securities of its regular brokers or dealers as defined in Rule 10b-1
under the 1940 Act, or their parents.
PRINCIPAL
SHAREHOLDERS AND CONTROL PERSONS
As
of August 28, 2024, no persons beneficially owned five percent or more of the Fund’s outstanding common shares.
As
of August 28, 2024, the officers and Trustees of the Fund, as a group, own less than 1% of the Fund’s outstanding voting
securities.
TAXES
The
Fund has elected to be treated and has qualified each year as a regulated investment company (a “RIC”) under the Code,
and the Fund intends to so qualify in the future. Accordingly, the Fund must, among other things, (i) derive in each taxable
year at least 90% of its gross income (including tax-exempt interest) from dividends, interest, payments with respect to certain
securities loans, and gains from the sale or other disposition of stock, securities or foreign currencies, or other income (including
but not limited to gain from options, futures and forward contracts) derived with respect to its business of investing in such
stock, securities or currencies; (ii) diversify its holdings so that, at the end of each quarter of each taxable year (a) at
least 50% of the market value of the Fund’s total assets is represented by cash and cash items, U.S. government securities,
the securities of other regulated investment companies and other securities, with such other securities limited, in respect of
any one issuer, to an amount not greater than 5% of the value of the Fund’s total assets and not more than 10% of the outstanding
voting securities of such issuer and (b) not more than 25% of the market value of the Fund’s total assets is invested
in the securities of any issuer (other than U.S. government securities and the securities of other regulated investment companies)
or of any two or more issuers that the Fund controls and that are determined to be engaged in the same business or similar or
related trades or businesses and (iii) distribute substantially all of its net income and net short-term and long-term capital
gains (after reduction by any available capital loss carryforwards) in accordance with the timing requirements imposed by the
Code, so as to maintain its RIC status and to avoid paying any federal income or excise tax. To the extent it qualifies for treatment
as a RIC and satisfies the above-mentioned distribution requirements, the Fund will not be subject to federal income tax on income
paid to its shareholders in the form of dividends or capital gain distributions.
In
order to avoid incurring a federal excise tax obligation, the Code requires that the Fund distribute (or be deemed to have distributed)
by December 31 of each calendar year an amount at least equal to the sum of (i) 98% of its ordinary income for such
year (taking into account certain deferrals and elections) and (ii) 98.2% of its capital gain net income (which is the excess
of its realized net long-term capital gain over its realized net short-term capital loss), generally computed on the basis of
the one-year period ending on October 31 of such year, after reduction by any available capital loss carryforwards, plus
(iii) 100% of any ordinary income and capital gain net income from the prior year (as previously computed) that were not
paid out during such year and on which the Fund paid no federal income tax. A regulated investment company which fails to meet
these requirements is liable for a nondeductible 4% excise tax on the portion of the undistributed amounts of such income that
are less than the required distributions. For these purposes, the Fund will be deemed to have distributed any income or gain on
which it paid U.S. federal income tax.
If
the Fund does not qualify as a RIC for any taxable year, the Fund’s taxable income will be subject to corporate income taxes,
and all distributions from earnings and profits, including distributions of net capital gain (if any), will be taxable to the
shareholder as ordinary income. Such distributions generally will be eligible (i) for the dividends received deduction in
the case of corporate shareholders and (ii) for treatment as “qualified dividends” in the case of individual
shareholders. In addition, in order to requalify for taxation as a RIC, the Fund may be required to recognize unrealized gains,
pay substantial taxes and interest, and make certain distributions.
Distributions
from the Fund generally will be taxable to common shareholders as dividend income to the extent derived from investment income
and net short-term capital gains, as described below, and as determined at the end of the year. Distributions of net capital gains
(that is, the excess of net gains from the sale of capital assets held more than one year over net losses from the sale of capital
assets held for not more than one year) properly reported as “capital gain dividends” will be taxable to common shareholders
as long-term capital gain, regardless of how long a common shareholder has held the shares in the Fund.
If
a common shareholder’s distributions are automatically reinvested pursuant to the Plan and the Plan Administrator invests
the distribution in shares acquired on behalf of the shareholder in open-market purchases, for U.S. federal income tax purposes,
the common shareholder will generally be treated as having received a taxable distribution in the amount of the cash dividend
that the common shareholder would have received if the shareholder had elected to receive cash. If a common shareholder’s
distributions are automatically reinvested pursuant to the Plan and the Plan Administrator invests the distribution in newly issued
shares of the Fund, the common shareholder will generally be treated as receiving a taxable distribution equal to the fair market
value of the stock the common shareholder receives.
Certain
income distributions paid by the Fund to individual taxpayers are taxed at rates equal to those applicable to net long-term capital
gains (currently subject to a maximum rate of 20%). This tax treatment applies only if certain holding period requirements and
other requirements are satisfied by the common shareholder and the dividends are attributable to qualified dividends received
by the Fund itself. For this purpose, “qualified dividends” means dividends received by the Fund from U.S. corporations
and qualifying foreign corporations, provided that the Fund satisfies certain holding period and other requirements in respect
of the stock of such corporations. In the case of securities lending transactions, payments in lieu of dividends are not qualified
dividends. Dividends received by the Fund from REITs are qualified dividends eligible for this lower tax rate only in limited
circumstances.
A
dividend will not be treated as qualified dividend income (whether received by the Fund or paid by the Fund to a shareholder)
if (1) the dividend is received with respect to any share held for fewer than 61 days during the 121-day period beginning
on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend, (2) to
the extent that the recipient is under an obligation (whether pursuant to a short sale or otherwise) to make related payments
with respect to positions in substantially similar or related property or (3) if the recipient elects to have the dividend
treated as investment income for purposes of the limitation on deductibility of investment interest. Distributions of income by
the Fund other than qualified dividend income and distributions of net realized short-term gains (on stocks held for one year
or less) are taxed as ordinary income, at rates currently up to 37%.
The
benefits of the reduced tax rates applicable to long-term capital gains and qualified dividend income may be impacted by the application
of the alternative minimum tax to individual shareholders.
Individuals
and certain other noncorporate entities are generally eligible for a 20% deduction with respect to ordinary dividends received
from REITs (“qualified REIT dividends”) and certain taxable income from MLPs. Under final Treasury Regulations, a
regulated investment company may pass through to its shareholders qualified REIT dividends eligible for the 20% deduction, reduced
by allocable Fund expenses. However, the regulations do not provide a mechanism for a regulated investment company to pass through
to its shareholders income from MLPs that would be eligible for such deduction as if the income had been received directly by
the shareholders.
The
Fund’s investment in zero coupon and certain other securities will cause it to realize income prior to the receipt of cash
payments with respect to these securities. Such income will be accrued daily by the Fund and, in order to avoid a tax payable
by the Fund, the Fund may be required to liquidate securities that it might otherwise have continued to hold in order to generate
cash so that the Fund may make required distributions to its shareholders.
Investments
in lower rated or unrated securities may present special tax issues for the Fund to the extent that the issuers of these securities
default on their obligations pertaining thereto. The Code is not entirely clear regarding the federal income tax consequences
of the Fund’s taking certain positions in connection with ownership of such distressed securities.
Any
recognized gain or income attributable to market discount on long-term debt obligations (i.e., obligations with a term
of more than one year except to the extent of a portion of the discount attributable to original issue discount) purchased by
the Fund is taxable as ordinary income. A long-term debt obligation is generally treated as acquired at a market discount if purchased
after its original issue at a price less than (i) the stated principal amount payable at maturity, in the case of an obligation
that does not have original issue discount or (ii) in the case of an obligation that does have original issue discount, the
sum of the issue price and any original issue discount that accrued before the obligation was purchased, subject to a de minimis
exclusion.
The
Fund’s investments in options, futures contracts, hedging transactions, forward contracts (to the extent permitted) and
certain other transactions will be subject to special tax rules (including mark-to-market, constructive sale, straddle, wash sale,
short sale and other rules), the effect of which may be to accelerate income to the Fund, defer Fund losses, cause adjustments
in the holding periods of securities held by the Fund, convert capital gain into ordinary income and convert short-term capital
losses into long-term capital losses. These rules could therefore affect the amount, timing and character of distributions to
shareholders. The Fund may be required to limit its activities in options and futures contracts in order to enable it to maintain
its RIC status.
The
Fund’s transactions in foreign currencies, foreign currency-denominated debt obligations and certain foreign currency options,
futures contracts and forward contracts (and similar instruments) may give rise to ordinary income or loss to the extent such
income or loss results from fluctuations in the value of the foreign currency concerned.
Income
received by the Fund from sources within foreign countries may be subject to withholding and other taxes imposed by such countries.
Tax conventions between certain countries and the U.S. may reduce or eliminate such taxes. Common shareholders generally will
not be entitled to claim a credit or deduction with respect to foreign taxes.
If
the Fund acquires any equity interest in certain foreign corporations that receive at least 75% of their annual gross income from
passive sources (such as interest, dividends, certain rents and royalties, or capital gains) or that hold at least 50% of their
assets in investments producing such passive income (“passive foreign investment companies”), the Fund could be subject
to U.S. federal income tax and additional interest charges on “excess distributions” received from such companies
or on gain from the sale of stock in such companies, even if all income or gain actually received by the Fund is timely distributed
to its shareholders. The Fund would not be able to pass through to its shareholders any credit or deduction for such a tax. An
election may generally be available that would ameliorate these adverse tax consequences, but any such election could require
the Fund to recognize taxable income or gain (subject to tax distribution requirements) without the concurrent receipt of cash.
These investments could also result in the treatment of associated capital gains as ordinary income. The Fund may limit and/or
manage its holdings in passive foreign investment companies to limit its tax liability or maximize its return from these investments.
The
sale, exchange or redemption of Fund shares may give rise to a gain or loss. In general, any gain or loss realized upon a taxable
disposition of shares will be treated as long-term capital gain or loss if the shares have been held for more than twelve months.
Otherwise, the gain or loss on the taxable disposition of Fund shares will be treated as short-term capital gain or loss. Long-term
capital gain rates applicable to individuals have been reduced, in general, to 20% (or a lower rate for certain individuals in
lower tax brackets). The deductibility of capital losses is subject to limitations under the Code. Any loss realized upon the
sale or exchange of Fund shares with a holding period of 6 months or less will be treated as a long-term capital loss to the extent
of any capital gain distributions received with respect to such shares. In addition, all or a portion of a loss realized on a
redemption or other disposition of Fund shares may be disallowed under “wash sale” rules to the extent the shareholder
acquires other shares of the same Fund (whether through the reinvestment of distributions or otherwise) within the period beginning
30 days before the redemption of the loss shares and ending 30 days after such date. Any disallowed loss will result in an adjustment
to the shareholder’s tax basis in some or all of the other shares acquired.
Sales
charges paid upon a purchase of shares cannot be taken into account for purposes of determining gain or loss on a sale of the
shares before the 91st day after their purchase to the extent a sales charge is reduced or eliminated in a subsequent acquisition
of shares of the Fund (or of another fund) on or before January 31 of the following calendar year pursuant to the reinvestment
or exchange privilege. Any disregarded amounts will result in an adjustment to the shareholder’s tax basis in some or all
of any other shares acquired.
Dividends
and distributions on the Fund’s shares are generally subject to federal income tax as described herein to the extent they
do not exceed the Fund’s realized income and gains, even though such dividends and distributions may economically represent
a return of a particular shareholder’s investment. Such distributions are likely to occur in respect of shares purchased
at a time when the Fund’s net asset value reflects gains that are either unrealized, or realized but not distributed. Such
realized gains may be required to be distributed even when the Fund’s net asset value also reflects unrealized losses. Certain
distributions declared in October, November or December and paid in the following January will be taxed to shareholders as if
received on December 31 of the year in which they were declared. In addition, certain other distributions made after the
close of a taxable year of the Fund may be “spilled back” and treated as paid by the Fund (except for purposes of
the 4% excise tax) during such taxable year. In such case, shareholders will be treated as having received such dividends in the
taxable year in which the distributions were actually made.
Certain
distributions reported by the Fund as Section 163(j) interest dividends may be treated as interest income by shareholders for
purposes of the tax rules applicable to interest expense limitations under Section 163(j) of the Code. Such treatment by the shareholder
is generally subject to holding period requirements and other potential limitations, although the holding period requirements
are generally not applicable to dividends declared by money market funds and certain other funds that declare dividends daily
and pay such dividends on a monthly or more frequent basis. The amount that the Fund is eligible to report as a Section 163(j)
dividend for a tax year is generally limited to the excess of the Fund’s business interest income over the sum of the Fund’s
(i) business interest expense and (ii) other deductions properly allocable to the Fund’s business interest income.
In
addition to the taxes set forth above, a tax of 3.8% is imposed on the “net investment income” of certain individuals,
trusts and estates. Among other items, net investment income generally includes gross income from both ordinary income dividends
as well as capital gains dividends.
Amounts
paid by the Fund to individuals and certain other shareholders who have not provided the Fund with their correct taxpayer identification
number (“TIN”) and certain certifications required by the Internal Revenue Service (the “IRS”) as well
as shareholders with respect to whom the Fund has received certain information from the IRS or a broker may be subject to “backup”
withholding of federal income tax arising from the Fund’s taxable dividends and other distributions as well as the gross
proceeds of sales of shares, (currently, at a rate equal to 24%). An individual’s TIN is generally his or her social security
number. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from payments made
to a Shareholder may be refunded or credited against such Shareholder’s U.S. federal income tax liability, if any, provided
that the required information is timely furnished to the IRS.
The
foregoing discussion does not address the special tax rules applicable to certain classes of investors, such as tax-exempt entities,
foreign investors, insurance companies and financial institutions. Shareholders should consult their own tax advisers with respect
to special tax rules that may apply in their particular situations, as well as the state, local, and, where applicable, foreign
tax consequences of investing in the Fund.
The
Fund will inform shareholders of the source and tax status of all distributions promptly after the close of each calendar year.
The IRS has taken the position that if a RIC has more than one class of shares, it may designate distributions made to each class
in any year as consisting of no more than that class’s proportionate share of particular types of income for that year,
including ordinary income and net capital gain. A class’s proportionate share of a particular type of income for a year
is determined according to the percentage of total dividends paid by the RIC during that year to the class. Accordingly, the Fund
intends to designate a portion of its distributions in capital gain dividends in accordance with the IRS position.
Shareholders
are advised to consult with their own tax advisers for more detailed information concerning U.S. federal, state, local and foreign
income or other taxes.
State
and Local Taxes
Under
current law, provided that the Fund qualifies as a RIC for federal income tax purposes, the Fund should not be liable for any
income, corporate excise or franchise tax in the state of Delaware.
Shareholders
should consult their own tax advisers as to the state or local tax consequences of investing in the Fund.
OTHER
INFORMATION
The
Fund is an organization of the type commonly known as a “Delaware statutory trust.” Under Delaware law, shareholders
of such a trust may, in certain circumstances, be held personally liable as partners for the obligations of the trust. The Declaration
of Trust contains an express disclaimer of shareholder liability in connection with the Fund property or the acts, obligations
or affairs of the Fund. The Declaration of Trust also provides for indemnification out of the Fund property of any shareholder
held personally liable for the claims and liabilities to which a shareholder may become subject by reason of being or having been
a shareholder. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability is limited to circumstances
in which the Fund itself is unable to meet its obligations. The Fund has been advised by its counsel that the risk of any shareholder
incurring any liability for the obligations of the Fund is remote.
The
Declaration of Trust provides that the Trustees will not be liable for actions taken in good faith in the reasonable belief that
such actions were in the best interests of the Fund or, in the case of any criminal proceeding, as to which a Trustee did not
have reasonable cause to believe that such actions were unlawful; but nothing in the Declaration of Trust protects a Trustee against
any liability to the Fund or its shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of his office. Voting rights are not cumulative,
which means that the holders of more than 50% of the shares voting for the election of Trustees can elect 100% of the Trustees
and, in such event, the holders of the remaining less than 50% of the shares voting on the matter will not be able to elect any
Trustees.
The
Declaration of Trust provides that no person shall serve as a Trustee if shareholders holding two-thirds of the outstanding shares
entitled to vote on the election of such trustee have voted to remove him from that office.
The
Fund’s Prospectus and this Statement of Additional Information do not contain all of the information set forth in the Registration
Statement that the Fund has filed with the SEC. The complete Registration Statement may be obtained from the SEC upon payment
of the fee prescribed by its rules and regulations.
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
Cohen
& Company, Ltd. is the Fund’s independent registered public accounting firm, providing audit and tax services to the
Fund.
CUSTODIAN,
TRANSFER AGENT, DIVIDEND PAYING AGENT AND REGISTRAR
State
Street Bank and Trust Company (“State Street”), 1 Congress Street, Boston, MA 02114,
is the Fund’s custodian and as such maintains custody of the Fund’s securities, cash and other assets. State
Street is a global financial services company that provides various financial services to institutions, corporations and individuals.
Global Investor & Distribution Solutions, Inc. (“SS&C GIDS”), 333 West 11th Street, 5th Floor, Kansas City,
MO 64105, serves as the Fund’s transfer agent, dividend paying agent, and registrar. SS&C GIDS also serves as the plan
administrator for the Fund’s Dividend Reinvestment Plan.
INCORPORATION
BY REFERENCE
This
Prospectus is part of a registration statement that the Fund has filed with the SEC. The Fund is permitted
to “incorporate by reference” the information that it files with the SEC, which means that the Fund can
disclose important information to you by referring you to those documents. The information incorporated by reference is an important
part of this Prospectus, and later information that the Fund files with the SEC will automatically update and supersede
this information.
The
documents listed below, and any reports and other documents subsequently filed with the SEC pursuant to Rule 30(b)(2) under the
1940 Act and Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering, are incorporated
by reference into this Prospectus and deemed to be part of this Prospectus from the date of the filing of such reports and documents:
|
● |
the
Fund’s Statement of Additional Information, dated September 10, 2024, filed with this Prospectus (“SAI”); |
|
● |
the
Fund’s Annual Report on Form
N-CSR for the fiscal year ended October 31, 2023, filed with the SEC on January 5, 2024 (“Annual Report”); |
|
● |
the
Fund’s Semi-Annual Report on Form N-CSR
for the period ended April 30, 2024, filed with the SEC on July 3, 2024; |
|
● |
the
Fund’s definitive proxy statement on Schedule
14A for our 2024 annual meeting of shareholders, filed with the SEC on February 16, 2024 (“Proxy Statement”);
and |
|
● |
the
Fund’s description of common shares contained in our Registration Statement on Form
8-A (File No. 333-109089) filed with the SEC on February 20, 2004. |
FINANCIAL
STATEMENTS
The
Fund’s financial statements for the fiscal year ended October 31, 2023, incorporated in this Statement of Additional Information
by reference to the Fund’s Annual Report to Shareholders, have been audited by Deloitte & Touche LLP (“Deloitte”),
an independent registered public accounting firm, as stated in their report. Such financial statements are incorporated by reference
in reliance upon the report of such firm given their authority as experts in accounting and auditing. The address of Deloitte
is 1601 Wewatta Street, Suite 400 Denver, CO 80202. The services Deloitte, or one of its affiliates, provided included examination
of the financial statements of the Fund, services relating to filings by the Fund with the SEC, and consultation on matters related
to the preparation and filing of tax returns. Effective on March 7, 2024, Cohen & Company, Ltd. (“Cohen”) was engaged
as the Fund’s independent registered public accounting firm for the upcoming fiscal year ending October 31, 2024. The address
of Cohen is 1350 Euclid Avenue, Suite 800, Cleveland, Ohio 44115. The services Cohen, or one of its affiliates, provides include
the examination of the financial statements of the Fund, services relating to filings by the Fund with the SEC, and consultation
on matters related to the preparation and filing of tax returns.
The
Fund’s unaudited Semi-Annual Report for the fiscal period ended April 30, 2024, is incorporated by reference in this Statement
of Additional Information. A copy of the Fund’s Annual Report and unaudited Semi-Annual Report are available on the SEC’s
website at www.sec.gov. Copies may also be obtained free of charge by writing to the Fund at its address at 1700 Broadway, Suite
1850, Denver, Colorado 80290 or by calling the Fund’ toll free at (800) 644-5571.
APPENDIX
A
CREDIT
RATINGS
MOODY’S
RATINGS
Global
Long-Term Rating Scale
Long-term
ratings are opinions of the relative credit risk of financial obligations with an original maturity of one year or more. They
address the possibility that a financial obligation will not be honored as promised. Such ratings use Moody’s Ratings Global
Scale and reflect both the likelihood of default and any financial loss suffered in the event of default.
Aaa:
Obligations rated Aaa are judged to be of the highest quality, with minimal risk.
Aa:
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
A:
Obligations rated A are considered upper medium-grade and are subject to low credit risk.
Baa:
Obligations rated Baa are subject to moderate credit risk. They are considered medium-grade and as such may possess speculative
characteristics.
Ba:
Obligations rated Ba are judged to have speculative elements and are subject to substantial credit risk.
B:
Obligations rated B are considered speculative and are subject to high credit risk.
Caa:
Obligations rated Caa are judged to be of poor standing and are subject to very high credit risk.
Ca:
Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery in principal
and interest.
C:
Obligations rated C are the lowest-rated class of bonds and are typically in default, with little prospect for recovery of
principal and interest
Note:
Moody’s Ratings appends numerical modifiers 1, 2, and 3 to each generic rating classification from Aa through Caa. The
modifier 1 indicates that the obligation ranks in the higher end of its generic rating category; the modifier 2 indicates amid-range
ranking; and the modifier 3 indicates a ranking in the lower end of that generic rating category.
Global
Short-Term Ratings Scale
Short-term
ratings, unlike our long-term ratings, apply to an individual issuer’s capacity to repay all short-term obligations rather than
to specific short-term borrowing programs.
Moody’s
employs the following designations to indicate the relative repayment ability of rated issuers:
P-1:
Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
P-2:
Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
P-3:
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
NP:
Issuers (or supporting institutions) rated Not Prime do not fall within any of the Prime rating categories.
STANDARD &
POORS’ RATINGS
1. This
document contains S&P Global Ratings’ definitions of credit ratings and other credit-related opinions. The credit ratings
are classified into two types: general-purpose credit ratings and special-purpose ratings. S&P Global Ratings uses letters,
numbers, words, or combinations of these in each rating scale to summarize its opinion. The rating definitions provide the meaning
of the letters, numbers, and words. Additionally, some ratings feature qualifiers, suffixes, identifiers, prefixes, or a combination
of these. Definitions of this supplementary information are included. NR indicates that a rating has not been assigned or is no
longer assigned.
2. Section
I describes the general-purpose credit rating, both issue and issuer credit ratings, and the long-term and short-term credit ratings.
Section II provides information on CreditWatch, rating outlooks, and local currency and foreign currency ratings. Special-purpose
ratings are detailed in section III. Qualifiers are covered in section IV. Section V details national and regional scale ratings.
Other credit-related opinions are described in section VI. Section VII details seven identifiers. Section IX includes a list of
contacts for further information.
3. S&P
Global Ratings provides other services not covered in this ratings definitions document. Information about other products and services
is located on the S&P Global Ratings website at http://www.standardandpoors.com.
I.
GENERAL-PURPOSE CREDIT RATINGS
4. The
following sets of rating definitions are for long-term and short-term credit ratings for both issuer and issue ratings. These
types of credit ratings cover the broadest set of credit risk factors and are not limited in scope. Some refer to these as the
“traditional” credit ratings.
A.
Issue Credit Ratings
5. An
S&P Global Ratings issue credit rating is a forward-looking opinion about the creditworthiness of an obligor with respect
to a specific financial obligation, a specific class of financial obligations, or a specific financial program (including ratings
on medium-term note programs and commercial paper programs). It takes into consideration the creditworthiness of guarantors, insurers,
or other forms of credit enhancement on the obligation and takes into account the currency in which the obligation is denominated.
The opinion reflects S&P Global Ratings’ view of the obligor’s capacity and willingness to meet its financial commitments
as they come due, and this opinion may assess terms, such as collateral security and subordination, which could affect ultimate
payment in the event of default.
6. Issue
credit ratings can be either long-term or short-term. Short-term issue credit ratings are generally assigned to those obligations
considered short-term in the relevant market, typically with an original maturity of no more than 365 days. Short-term issue credit
ratings are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. We
would typically assign a long-term issue credit rating to an obligation with an original maturity of greater than 365 days. However,
the ratings we assign to certain instruments may diverge from these guidelines based on market practices.
1.
Long-Term Issue Credit Ratings
7. Issue
credit ratings are based, in varying degrees, on S&P Global Ratings’ analysis of the following considerations:
| ● | The
likelihood of payment--the capacity and willingness of the obligor to meet its financial
commitments on an obligation in accordance with the terms of the obligation; |
| ● | The
nature and provisions of the financial obligation, and the promise we impute; and |
| ● | The
protection afforded by, and relative position of, the financial obligation in the event
of a bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and
other laws affecting creditors’ rights. |
8. An
issue rating is an assessment of default risk but may incorporate an assessment of relative seniority or ultimate recovery in
the event of default. Junior obligations are typically rated lower than senior obligations, to reflect lower priority in bankruptcy,
as noted above. (Such differentiation may apply when an entity has both senior and subordinated obligations, secured and unsecured
obligations, or operating company and holding company obligations.)
Table
1
Long-Term
Issue Credit Ratings* |
Category |
|
Definition |
AAA |
|
An
obligation rated ‘AAA’ has the highest rating assigned by S&P Global Ratings. The obligor’s capacity to meet its financial
commitments on the obligation is extremely strong. |
AA |
|
An
obligation rated ‘AA’ differs from the highest-rated obligations only to a small degree. The obligor’s capacity to meet its
financial commitments on the obligation is very strong. |
A |
|
An
obligation rated ‘A’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions
than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitments on the obligation
is still strong. |
BBB |
|
An
obligation rated ‘BBB’ exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances
are more likely to weaken the obligor’s capacity to meet its financial commitments on the obligation. |
BB,
B, CCC,
CC, and C |
|
Obligations
rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded as having significant speculative characteristics. ‘BB’ indicates the least
degree of speculation and ‘C’ the highest. While such obligations will likely have some quality and protective characteristics,
these may be outweighed by large uncertainties or major exposure to adverse conditions. |
BB |
|
An
obligation rated ‘BB’ is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties
or exposure to adverse business, financial, or economic conditions that could lead to the obligor’s inadequate capacity to
meet its financial commitments on the obligation. |
B |
|
An
obligation rated ‘B’ is more vulner |