Shareholder Commentary December 31, 2011 GLOBAL UTILITY & INCOME TRUST

Transcription

1 Shareholder Commentary December 31, 2011 GLOBAL UTILITY & INCOME TRUST

2 Our cover icon represents the underpinnings of Gabelli. The Teton mountains in Wyoming represent what we believe in in America that creativity, ingenuity, hard work, and a global uniqueness provide enduring values. They also stand out in an increasingly complex, interconnected, and interdependent economic world. Investment Objective: The Gabelli Global Utility & Income Trust is a non-diversified, closed-end management investment company. The Fund s investment objective is to seek a consistent level of after-tax total return for its investors with an emphasis on tax advantaged dividend income under current tax law. Under normal market conditions, the Fund invests at least 80% of its assets in equity securities of domestic and foreign companies involved in the utilities industry and other industries that are expected to pay periodic dividends. This report is printed on recycled paper.

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5 Utility stocks do face some headwinds going forward, including ongoing uncertainty about the 15% dividend tax-rate, which is scheduled to end at year end 2012, and the 100% bonus depreciation rate, which declines to a still favorable 50% in We expect the dividend tax rate to become a presidential campaign issue, and the uncertainty regarding the potential for a reversion to ordinary income tax rates, or 35%, will likely dampen utility stock enthusiasm. In addition, we expect investors will continue to worry about the potential for higher interest rates, lower allowed returns in upcoming rate decisions, and market receptivity to external financing. We consider these to be normal and ongoing risks for utility investments. We continue to closely monitor the forward power and gas markets, given our belief that 2012 is likely the power margin cyclical trough. However, the U.S. economy and electric demand have grown more slowly than anticipated over the last couple of years. As a result, the time frame in which regional power markets become tight has been pushed out until 2013/2014 and more likely 2014/2015. In addition, forward natural gas prices remain depressed (<$5.00/mmbtu) and minimize potential margins for nuclear and coal-fired generation. All that said, the 4.2% median utility current return is compelling relative to U.S. Treasury rates, particularly given that the utility return is more than double the 2.0% return of the 10-year U.S. Treasury yield. After reaching historical lows in March of 2009, electric utility P/E s have risen over the past couple of years and are above the 18-year median. In addition, electric utilities trade at a historically high relative P/E ratio (the Utility P/E as a percent of S&P 500 P/E). However, valuations appear inexpensive when adjusted for the low interest rate environment, especially when considering the strong fundamental outlook for earnings and dividend growth. We consider electric utilities to be reasonably valued on forward multiples, including 15.0X and 14.1X our 2012 and 2013 earnings estimates, respectively, and inexpensive relative to U.S. Treasury yields. Finally, utility stocks will continue to benefit from ongoing consolidation, particularly selected smaller and mid cap utilities, which are more likely to be purchased at premium prices. While there are fewer European utilities, they are significantly larger than the U.S. based utilities and are often more geographically diversified. European utilities such as Iberdrola, Electricidade de Portugal, and Endesa are among the global leaders in renewable generation development. Electricité de France is the world s largest nuclear operator, and National Grid is among the world s better transmission operators. Developing global regions, such as Latin America, offer greater demand growth, infrastructure investment opportunities, and potentially greater return potential. We expect continued investment and consolidation from abroad to provide opportunities in the sector and allow for cross integration of certain valuable core competencies, such as nuclear and renewable generation technological advancement. However, we also note that, while in the past large European utilities looked for investments in the U.S., they have also demonstrated, through divestitures and reorganizations, that they may not view regulated U.S. operations as favorably as potential investments in other developing power markets. Deal Activity Over the past couple of years, consolidation has re-emerged as an investment theme. This most recent round of consolidation is driven by increased pressure to deliver cleaner energy at reasonable prices. Environmental compliance, the need for cleaner large baseload generating plants, and the benefits of new transmission lines require significant investment. Larger players with greater financial resources and portfolios of assets can turn these challenges into opportunities. Economies of scale can help minimize the customer rate impact. The recent and growing success in developing the significant shale natural gas reserves in the U.S. requires new pipeline routes and more midstream infrastructure. These forces are driving mergers and placing greater value on strategic assets. We highlight some of the more significant or notable consolidation activity over the past twelve to eighteen months below: Kinder Morgan, one of the larger energy pipeline and storage companies in North America, agreed to buy El Paso Corporation, a major energy pipeline and exploration & production company, at a 37% premium. The October 16, 2011 announcement highlights the value of owning pipeline footprints to connect new shale supplies and major consumption markets, as well as supporting the long term viability of shale production. 3

6 Energy Transfer Equity (ETE), a Dallas based diversified energy partnership, emerged as the winning bidder for Southern Union Gas (SUG), a Houston based diversified gas pipeline/distribution/midstream company, following a two month and five round bidding war with Williams Company (WMB), a Tulsa based pipeline/midstream company. SUG agreed to be purchased by ETE for $44.25 per share in cash and/or ETE stock (1-for-1 exchange ratio) on July 19, As a result, WMB s final bid of $44 per share in cash was withdrawn. The agreement represented over a 55% premium from SUG s pre-merger activity trading range. Central Vermont Public Service ( CV ) agreed to accept a $35.25 per share cash bid from Montreal based Gaz Metro on July 12, CV had initially agreed to be acquired by Fortis, another large Canadian utility, for $35.10 per share. The winning bid represented a 44% premium to CV s pre-merger announcement stock price Exelon, the nation s largest nuclear owner and Illinois/Pennsylvania electric utility, agreed to acquire Baltimore based Constellation Energy for an enterprise value of $10.5 billion, or $38.59 per share, on April 28, The bid represented a 12.5% premium to the pre-merger announcement stock price. DPL Inc., the holding company for Dayton Power & Light, was acquired on November 28, 2011 by Virginia based AES Corporation, a global power company and owner of Indianapolis Power & Light. The $30 cash bid was announced on April 20, 2011 and represented a 9% premium. FirstEnergy, a multi state electric utility based in Akron, OH, completed its acquisition of Allegheny Energy on February 25, 2011, in a stock for stock transaction at a 32% premium. Progress Energy, based in Raleigh, NC and serving the Carolinas and central Florida, agreed to be acquired by Duke Energy, a multi state utility based in Charlotte, NC, on January 10, The merger of equals will be accomplished in a stock for stock transaction at a modest 3% premium. In December 2011, AGL, a multi state gas utility based in Atlanta, GA, completed the acquisition of the northern Illinois gas utility Nicor in a cash and stock transaction at a 22% premium. In October 2010, Northeast Utilities and NSTAR agreed to a merger of equals to create the largest energy delivery company in New England. COMMENTARY In 2011, some of the top performers among the major holdings of the Fund were engaged in consolidation activity and/or developing the nation s natural gas infrastructure. El Paso Corporation and Southern Union Gas s strategic assets in developing and transporting new natural gas supplies led to their acquisition at significant premiums. Additionally, some of the top performers among the electric utility holdings resulted from the ongoing consolidation in the industry, including Constellation Energy, which is being acquired for a premium by Exelon Corporation, and Progress Energy, which is merging with Duke Energy. National Fuel Gas was one of the weaker performers for the year, primarily due to its August 2011 decision not to sell an ownership position or joint venture its considerable shale assets. A venture could have accelerated shareholder value creation, but we remain excited about the company s unrecognized value from accelerating natural gas production and the rapid expansion of its pipeline network strategically located in the heart of the Marcellus. Future Green World Policies a Key Long Term Consideration Global warming remains an important public policy concern, but recessionary and economic challenges have indefinitely delayed federal climate change legislation. However, the Environmental Protection Agency ( EPA ) is taking aggressive action to reduce greenhouse gases and other pollutants, including sulfur and nitrogen oxides (SOx and NOx), and mercury, as well as more stringently regulating coal ash disposal, cooling towers, and water. 4

7 On December 21, 2011, the EPA finalized its Mercury and Air Toxics Standards (MATS), previously referred to as Mercury/HAP rules or Electric Generating Unit (EGU) Maximum Available Control Technology (MACT). The final MATS do not differ materially from those proposed in March of 2011, and they are the first national standards to minimize power plant emissions of mercury (90% reduction) and toxic air pollutants (88% reduction) like arsenic, acid gas, and nickel, amongst others. The standards allow for some flexibility to a three year compliance window. On December 31, 2011, the U.S. Court of Appeals granted requests to stay the EPA s controversial Cross State Air Pollution Rule (CSAPR), which was scheduled to become effective January 1, CSAPR was written to replace and strengthen the 2005 Clean Air Interstate Rule (CAIR), which the U.S. Court of Appeals for the D.C. Circuit ordered EPA to revise in CSAPR requires twenty-seven states in the eastern half of the country to cut SO 2 and NOx emissions that contribute to pollution problems in downwind states. We expect more clarity as to the implementation of CSAPR in the spring of Compliance with more stringent emission rules represents a challenge for many coal-fired producers, and will result in numerous coal plant retirements. In addition, larger coal plants require the installation of scrubbers, baghouses, and/or Selective Catalytic Reducers (SCR s). Larger and more efficient plants can normally be equipped in a more economical manner than smaller and less efficient plants. We expect 30,000-50,000 MWs of older and less efficient coal-fired generation to be retired over the next several years and minimal new coal capacity to come online. Environmental concerns, as well as the recent events at Fukushima Daiichi, shine the spotlight on the long term challenges that the power industry faces in meeting the public s demand for low cost and reliable electricity. Coal-fired generation provides roughly 45% of U.S. electricity, natural gas 25%, nuclear 20%, and hydro, oil, wind, solar, and other sources contribute approximately 10%. As output from coal-fired generation diminishes and near term hopes for a nuclear renaissance have been tempered, we expect natural gas to increase as a percentage of overall generation and represent the majority of new build. Over the long term, we expect new nuclear generation to be added. Actual construction of the first new nuclear plants in Georgia and South Carolina could begin in early 2012, with commercial operation expected in 2016 and We believe that the value of existing nuclear plants, as well as those currently being developed, will only increase as the number of coal-fired plants diminishes over time. Fortunately for utility customers, most regions of the U.S. have adequate generating capacity for the next couple of years, and natural gas prices remain depressed. Advances in drilling technology have made the enormous natural gas shale reserves drillable, and it appears that natural gas prices will remain low for some time. Natural gas supply and prices also face ongoing environmental challenges associated with potential water table contamination caused by fracking. Expanding the archaic U.S. electric grid to free up existing bottlenecks in the system, as well as moving power from unpopulated wind regions to load centers, represents one of the better investment opportunities for the sector. The Federal Energy Regulatory Commission (FERC), not state public utility commissions, regulates transmission, and it wants more investment in the grid. Transmission investment generally receives higher profit levels, more incentives, and easier recovery than investment in the jurisdictions regulated by state public utility commissions. Utilities are building and have proposed billions of dollars in projects for longer power highways that will enhance future earnings growth potential. Advancing efforts and technology improvements offer longer term potential to develop an electric vehicle, which could lead to substantial increases in future electric consumption. Widespread use of an electric vehicle would provide a significant boon to the sector, given that a material portion of higher electric demand would take place in off peak hours. In other words, power plants that normally sit unused at night would run around the clock and produce returns with minimal new investment. 5

8 Today s Investment Results in Tomorrow s Earnings The utility sector remains in the early stages of another round of investment and consolidation. Utilities build, own, and operate infrastructure: power plants, transmission lines, gas pipelines, distribution systems, gas storage facilities, and water treatment plants. Utilities have increased capital investment to operate in a more environmentally friendly manner and replace aging infrastructure while meeting growing demand. The politicians and general public are supportive, if not at least understanding, of the need for infrastructure investment. Regulated utilities generate income when regulators set rates that allow utilities a reasonable opportunity to earn a return on their investment or rate base. Therefore, there is a direct correlation between accelerating capital budgets and long term earnings prospects. The number of rate increase requests picked up significantly over the past couple of years, and resulting rate awards as well as future awards will drive earnings growth in the sector. Our Approach For several decades, utility companies have acquired other utilities and utility assets for the sake of gaining economies of scale and efficiency. The same forces that resulted in more than one hundred utility takeover announcements over the past two decades remain in place, and new forces have come into play, continuing to drive this long term trend. Climate change and environmental policy have pressured marginal players. The pickup in merger activity reinforces the long term bias of utilities to increase scale or gain a strategic benefit. The small companies are selling out at premium prices as the cost of staying in the game rises. The historical lengthy merger review and approval process appears to have eased as policy makers understand the new economic dynamics. Despite over ninety completed utility mergers/acquisitions since 1993, the electric and gas utility sector remains fragmented, with over sixty electric utilities and thirty gas utilities. This is fifty more than we need from the standpoint of economic efficiency. Our investments in regulated companies have primarily, though not exclusively, focused on fundamentally sound, reasonably priced mid cap and small cap utilities that are likely acquisition targets for large utilities seeking increased bulk. We prefer utilities that operate in more constructive regulatory environments, possess lower carbon footprints, and/or access to strategic geographies. We favor utilities with pending transmission line developments, and we focus on natural gas pipelines and storage operators as a way to take advantage of the growing demand for natural gas in the U.S. Let s Talk Stocks The following are stock specifics on selected holdings of our Fund. Favorable earnings prospects do not necessarily translate into higher stock prices, but they do express a positive trend that we believe will develop over time. Individual securities mentioned are not necessarily representative of the entire portfolio. The share prices of the following holdings are stated in U.S. dollars or U.S. dollar equivalent terms as of December 31, Enel SpA (ENEL IM - $ Milan Stock Exchange) is the largest electric utility in Italy and second largest electric utility in Europe based on its ownership of 97 GW of generation. Enel considers Italy and Iberia to be its core markets, but it has operations in forty countries. The company continues to strengthen its balance sheet and simplify its corporate structure. Further integration of its diverse ownership of assets, including its 92% ownership of Spain s largest utility, Endesa, will position Enel to expand its presence in the growing Latin American, Eastern European, and Russian markets. Enel s 70%-owned Enel Green Power SpA reached 7,000 MWs of clean generation at year end 2011 and the company has ambitious plans for future renewable development throughout the world. 6

9 Great Plains Energy Inc. (GXP - $ NYSE) is a mid-sized traditional regulated utility serving eastern Kansas and western Missouri as Kansas City Power & Light and KCP&L Greater Missouri Operations (GMO). In mid 2011, GXP received Missouri rate recognition of its recently completed clean coal plant, Iatan 2. Recognition of this highly efficient plant and other investments in environmental equipment are expected to lead to strongly enhanced earnings power. Over the long term, GXP has significant opportunity to invest in wind generation and transmission lines given its strategic location in the wind rich Midwest. Shares of GXP offer an attractive current return and solid near and long term earnings growth potential. Iberdrola SA (IBE SM - $ Madrid Stock Exchange) is a large international utility, with major ownership of Iberdrola, Scottish Power, and Energy East. Its generation portfolio consists of 45,000 MW of capacity including over 50% of Spain s hydroelectric generation capacity and 25% of overall capacity. The company derives roughly 47% of its EBITDA from its regulated businesses, 32% from its liberalised businesses, 20% from the renewables business and 1% from all others. In November of 2010, the Spanish Government eliminated its feed-in tariffs for solar array construction, sharply reducing the growth prospects of the solar energy sector in Spain. In mid 2011, Iberdrola repurchased the outstanding shares of its Iberdrola Renovables subsidiary. The company continues to use the funds owed to it from the elimination of renewable tariffs to offset its investment spending. National Fuel Gas Co. (NFG - $ NYSE) is a diversified natural gas company. NFG owns a regulated gas utility serving the region around Buffalo, NY, gas pipelines that move gas from the Midwest and Canada down to New York City and to New England, and an oil and gas exploration and production business. NFG s ownership of 800,000 acres in the Marcellus Shale, including 745,000 acres in the shale fairway of Pennsylvania, holds enormous natural gas reserve potential that were made recoverable by recent advances in drilling technology. We expect significant earnings and cash flow growth from gas production, and believe the position could be worth $4.0 billion based on recent comparable transactions. NFG s August 2011 decision not to sell an ownership position or joint venture that could have accelerated shareholder value creation was disappointing, but we remain excited about the company s unrecognized value from accelerating natural gas production and the rapid expansion of its pipeline network, which is strategically located in the heart of the Marcellus. The company has increased its dividend for forty consecutive years. NSTAR (NST - $ NYSE) is primarily an electric transmission and distribution utility serving the Boston and Cape Cod regions of Massachusetts, and it also owns a small gas utility. NST has agreed to merge with Northeast Utilities (NU) to create one of the stronger and faster growing utilities in the Northeast. NST shareholders will receive shares of NU when the merger closes, which was originally expected in mid-2011 but has been delayed until mid The company has benefited from a relatively strong Boston economy and modest annual rate adjustments. Merger synergies and transmission projects, including the Northern Pass project designed to bring enormous hydro capacity from Quebec into New England, offer long term growth potential. We believe NST warrants a premium multiple based on its highest in industry credit ratings, strong cash flow position, low risk business model, and long term transmission growth potential. Progress Energy Inc. (PGN - $ NYSE) Headquartered in Raleigh, NC, Progress Energy subsidiaries are Progress Energy Carolinas (PEC) and Progress Energy Florida (PEF). PGN owns more than 22,000 megawatts of electric generation capacity and serves 3.1 million retail electric customers, including 1.6 million in Florida and 1.5 million in the Carolinas. PGN is one of the nation s larger traditional regulated electric utilities with solid rate base growth opportunity driven by long term favorable demographics, customer growth, environmental/conservation investment, and future base load generation additions. On January 1, 2011, PGN agreed to merge with Duke Energy (DUK) where each PGN share will be exchanged for DUK shares. The combination was originally expected to close by year end 2011, but has been delayed until the spring of 2012 as the two companies work to resolve FERC s market power issues. Assuming fair regulatory treatment, we view the merger positively given the expectation of year one earnings accretion, potential synergies and the increased flexibility to meet growing environmental challenges. Both PGN and DUK benefit from favorable long term demographics and rate base investment opportunities and operate in constructive regulatory environments 7

10 Severn Trent plc (SVT - $ London Stock Exchange) is an international provider of water and wastewater services. Severn Trent Water, a UK-based regulated utility, serves over 3.7 million households in the Midlands and mid-wales. Severn Trent Services, the non regulated service company, has a growing presence in Europe, the Middle East, and Asia. As one of the UK s premier water and wastewater providers, Severn Trent is well positioned to provide needed expertise and infrastructure investment opportunities in less developed regions across the world. The Southern Co. (SO - $ NYSE) is one of the largest regulated electric utilities in the U.S., serving 4.4 million customers and owning more than 42,000 MW of generating capacity throughout four states in the Southeast. We consider SO to be one of the higher quality, lower risk utility companies in the U.S., due to its strong management team, historically constructive regulatory environment, and growing service territory. The company faces significant investment necessary to bring a large coal-fired generation portfolio into EPA compliance, but we expect such investment to be recognized by regulators. In addition, SO s Georgia Power expects to begin construction of the nation s first new nuclear plant in early We expect the company to continue its long term track record of strong earnings and dividend growth for the foreseeable future. Southern Union Co. (SUG - $ NYSE) operates in the gathering, processing, transportation, storage, and distribution of natural gas in Southern United States. The company distributes gas to 550,000 customers through its Missouri Gas Energy and New England Gas subsidiaries. It also has interests in gas storage facilities, including a large LNG terminal in Lake Charles, LA and over 20,000 miles of pipeline, mostly through its Panhandle Energy subsidiary and its 50% ownership of Florida Gas. Southern Union Gas Services is the company s transmission and gathering unit, which operates 5,500 miles of natural gas and NGL pipelines in Texas and New Mexico. Please see the Deal Activity section of the Commentary, in which we discuss the takeover of SUG by ETE. The deal is expected to close in the first quarter of Sincerely, January 12, 2012 Mario J. Gabelli, CFA Portfolio Manager and Chief Investment Officer The Southern Co. NSTAR Progress Energy Inc. Integrys Energy Group Inc. American Electric Power Co. Inc. Top Ten Holdings December 31, 2011 Millicom International Cellular SA DIRECTV Westar Energy Inc. Severn Trent plc Southern Union Co. Note: The views expressed in this Shareholder Commentary reflect those of the Portfolio Manager only through the end of the period stated in this Shareholder Commentary. The Portfolio Manager s views are subject to change at any time based on market and other conditions. The information in this Portfolio Manager s Shareholder Commentary represents the opinions of the individual Portfolio Manager and is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Views expressed are those of the Portfolio Manager and may differ from those of other portfolio managers or of the Firm as a whole. This Shareholder Commentary does not constitute an offer of any transaction in any securities. Any recommendation contained herein may not be suitable for all investors. Information contained in this Shareholder Commentary has been obtained from sources we believe to be reliable, but cannot be guaranteed. 8

11 Portfolio Manager Compensation Mr. Gabelli s incentive-based, variable compensation structure and dollar amount have been fully disclosed each year since April of 2000 in the annual proxy statement for GAMCO Investors, Inc. (NYSE:GBL). Mr. Gabelli receives no base salary, no annual bonus, and no stock options. As founder and portfolio manager of The Gabelli Global Utility & Income Trust, Mr. Gabelli received $108,735 in calendar year For the Fund s first twelve months of operation starting in May 2004, Mr. Gabelli received less than $130,000. Mario J. Gabelli and various entities he is deemed to control owned 171,491 common shares of the Fund with a total value of $3,615,027, as of December 31, Mr. Gabelli may not have one hundred percent pecuniary interest in some of the entities he is deemed to control. Monthly Distribution Policy The Board of Trustees of the Fund (the Board ) has reaffirmed the continuation of the Fund s monthly distribution policy for the first quarter of Pursuant to its distribution policy, the Fund paid $0.10 per share cash distributions on October 24, 2011, November 22, 2011, and December 16, 2011 to common shareholders of record on October 17, 2011, November 15, 2011, and December 13, 2011, respectively, for a total distribution of $0.30 per share during the fourth quarter of Under the Fund s initial distribution policy, the Fund pays a minimum annual distribution of 6% of the initial public offering price of $20.00 per share. Pursuant to this policy, the Fund intends to pay a distribution of $0.10 per share each month and, if necessary, an adjusting distribution in December which includes any additional income and net realized capital gains in excess of the monthly distributions for that year to satisfy the minimum distribution requirements of the Internal Revenue Code. Each quarter, the Board reviews the amount of any potential distribution and the income, capital gain, or capital available. The Board will continue to monitor the Fund s distribution level, taking into consideration the Fund s net asset value and the financial market environment. The Fund s distribution policy is subject to modification by the Board at any time. If the Fund does not generate sufficient earnings from dividends and interest received and net realized capital gains to satisfy the aggregate distributions paid by the Fund in a given year, then the amount distributed in excess of the Fund s investment income and net realized capital gains would be deemed a return of capital. Since this would be considered a return of a portion of a shareholder s original investment, it is generally not taxable and is treated as a reduction in the shareholder s cost basis. Under federal tax regulations, some or all of the return of capital distributed by the Fund may be taxable as ordinary income in certain circumstances. This may occur when the Fund has a capital loss carry forward, net capital gains are realized in a fiscal year, and distributions are made in excess of investment company taxable income. Despite the challenges of the extra record keeping, a distribution that is occasionally supplemented with a return of capital serves as a smoothing mechanism resulting in a more stable and consistent cash flow available to shareholders. A portion of the distribution may be treated as long-term capital gain and qualified dividend income for individuals, each subject to the maximum federal income tax rate, which is currently 15% in taxable accounts for individuals. Long-term capital gains, qualified dividend income, ordinary income, and paid-in capital, if any, are allocated on a pro-rata basis to all distributions to common shareholders for the year. Based on the distribution allocations of the Fund as of December 31, 2011, the total distributions paid in 2011 represent approximately 51% from net investment income, 31% from net capital gains and 18% from paid-in capital. The estimated components of each distribution are provided to shareholders of record in a notice accompanying the distribution and are available on our website ( All shareholders with taxable accounts will receive written notification regarding the components and tax treatment for all 2011 distributions in early 2012 via Form 1099-DIV. 9

12 Please visit us on the Internet. Our homepage at contains information about GAMCO Investors, Inc., the Gabelli/GAMCO Mutual Funds, IRAs, 401(k)s, current and historical quarterly reports, closing prices, and other current news. We welcome your comments and questions via at You may sign up for our alerts at and receive early notice of quarterly report availability, news events, media sightings, and mutual fund prices and performance. e-delivery We are pleased to offer electronic delivery of Gabelli fund documents. Shareholders of our closed-end funds can now elect to receive announcements regarding available materials, including shareholder commentaries and fund reports. For more information or to register for e-delivery, please visit our website at Cost Basis Reporting Under IRS regulations, the effective date for the new cost basis reporting requirements affecting closed-end funds is January 1, A new Form 1099-B, providing cost basis and gain/loss information at the lot level, will be provided to each direct shareholder of the Fund by February 15, All closed-end fund purchases made after January 1, 2012 will be covered by the new regulations. Further information will be provided to direct shareholders by the Fund s transfer agent. Beneficial shareholders may contact their individual brokers for more information. The Annual Meeting of The Gabelli Global Utility & Income Trust s shareholders will be held on Monday, May 14, 2012 at the Greenwich Library in Greenwich, Connecticut. 10

13 AUTOMATIC DIVIDEND REINVESTMENT AND VOLUNTARY CASH PURCHASE PLANS Enrollment in the Plan It is the policy of The Gabelli Global Utility & Income Trust (the Fund ) to automatically reinvest dividends payable to common shareholders. As a registered shareholder you automatically become a participant in the Fund s Automatic Dividend Reinvestment Plan (the Plan ). The Plan authorizes the Fund to credit common shares to participants upon an income dividend or a capital gains distribution regardless of whether the shares are trading at a discount or a premium to net asset value. All distributions to shareholders whose shares are registered in their own names will be automatically reinvested pursuant to the Plan in additional shares of the Fund. Plan participants may send their share certificates to Computershare Trust Company, N.A. ( Computershare ) to be held in their dividend reinvestment account. Registered shareholders wishing to receive their distributions in cash must submit this request in writing to: The Gabelli Global Utility & Income Trust c/o Computershare P.O. Box Providence, RI Shareholders requesting this cash election must include the shareholder s name and address as they appear on the share certificate. Shareholders with additional questions regarding the Plan or requesting a copy of the terms of the Plan, may contact Computershare at (800) If your shares are held in the name of a broker, bank, or nominee, you should contact such institution. If such institution is not participating in the Plan, your account will be credited with a cash dividend. In order to participate in the Plan through such institution, it may be necessary for you to have your shares taken out of street name and re-registered in your own name. Once registered in your own name your distributions will be automatically reinvested. Certain brokers participate in the Plan. Shareholders holding shares in street name at participating institutions will have dividends automatically reinvested. Shareholders wishing a cash dividend at such institution must contact their broker to make this change. The number of common shares distributed to participants in the Plan in lieu of cash dividends is determined in the following manner. Under the Plan, whenever the market price of the Fund s common shares is equal to or exceeds net asset value at the time shares are valued for purposes of determining the number of shares equivalent to the cash dividends or capital gains distribution, participants are issued common shares valued at the greater of (i) the net asset value as most recently determined or (ii) 95% of the then current market price of the Fund s common shares. The valuation date is the dividend or distribution payment date or, if that date is not a NYSE Amex trading day, the next trading day. If the net asset value of the common shares at the time of valuation exceeds the market price of the common shares, participants will receive common shares from the Fund valued at market price. If the Fund should declare a dividend or capital gains distribution payable only in cash, Computershare will buy common shares in the open market, or on the NYSE Amex or elsewhere, for the participants accounts, except that Computershare will endeavor to terminate purchases in the open market and cause the Fund to issue shares at net asset value if, following the commencement of such purchases, the market value of the common shares exceeds the then current net asset value. The automatic reinvestment of dividends and capital gains distributions will not relieve participants of any income tax which may be payable on such distributions. A participant in the Plan will be treated for federal income tax purposes as having received, on a dividend payment date, a dividend or distribution in an amount equal to the cash the participant could have received instead of shares. 11

14 Voluntary Cash Purchase Plan The Voluntary Cash Purchase Plan is yet another vehicle for our shareholders to increase their investment in the Fund. In order to participate in the Voluntary Cash Purchase Plan, shareholders must have their shares registered in their own name. Participants in the Voluntary Cash Purchase Plan have the option of making additional cash payments to Computershare for investments in the Fund s common shares at the then current market price. Shareholders may send an amount from $250 to $10,000. Computershare will use these funds to purchase shares in the open market on or about the 1st and 15th of each month. Computershare will charge each shareholder who participates $0.75, plus a pro rata share of the brokerage commissions. Brokerage charges for such purchases are expected to be less than the usual brokerage charge for such transactions. It is suggested that any voluntary cash payments be sent to Computershare, P.O. Box 43010, Providence, RI such that Computershare receives such payments approximately 10 days before the 1st and 15th of the month. Funds not received at least five days before the investment date shall be held for investment until the next purchase date. A payment may be withdrawn without charge if notice is received by Computershare at least 48 hours before such payment is to be invested. Shareholders wishing to liquidate shares held at Computershare must do so in writing or by telephone. Please submit your request to the above mentioned address or telephone number. Include in your request your name, address, and account number. The cost to liquidate shares is $2.50 per transaction as well as the brokerage commission incurred. Brokerage charges are expected to be less than the usual brokerage charge for such transactions. For more information regarding the Automatic Dividend Reinvestment Plan and Voluntary Cash Purchase Plan, brochures are available by calling (914) or by writing directly to the Fund. The Fund reserves the right to amend or terminate the Plan as applied to any voluntary cash payments made and any dividend or distribution paid subsequent to written notice of the change sent to the members of the Plan at least 90 days before the record date for such dividend or distribution. The Plan also may be amended or terminated by Computershare on at least 90 days written notice to participants in the Plan. 12

15 TRUSTEES AND OFFICERS THE GABELLI GLOBAL UTILITY & INCOME TRUST One Corporate Center, Rye, NY Trustees Anthony J. Colavita President, Anthony J. Colavita, P.C. James P. Conn Former Managing Director & Chief Investment Officer, Financial Security Assurance Holdings Ltd. Mario d Urso Former Italian Senator Vincent D. Enright Former Senior Vice President & Chief Financial Officer, KeySpan Corp. Michael J. Melarkey Attorney-at-Law, Avansino, Melarkey, Knobel & Mulligan Salvatore M. Salibello Certified Public Accountant, Salibello & Broder LLP Salvatore J. Zizza Chairman, Zizza & Co., Ltd. Officers Bruce N. Alpert President & Acting Chief Compliance Officer Agnes Mullady Treasurer & Secretary David I. Schachter Vice President Adam E. Tokar Vice President & Ombudsman Investment Adviser Gabelli Funds, LLC One Corporate Center Rye, New York Custodian State Street Bank and Trust Company Counsel Skadden, Arps, Slate, Meagher & Flom, LLP Transfer Agent and Registrar Computershare Trust Company, N.A. Stock Exchange Listing Common NYSE Amex Symbol: GLU Shares Outstanding: 3,079,306 The Net Asset Value per share appears in the Publicly Traded Funds column, under the heading Specialized Equity Funds, in Monday s The Wall Street Journal. It is also listed in Barron s Mutual Funds/Closed End Funds section under the heading Specialized Equity Funds. The Net Asset Value per share may be obtained each day by calling (914) or visiting The NASDAQ symbol for the Net Asset Value per share is XGLUX. For general information about the Gabelli Funds, call 800-GABELLI ( ), fax us at , visit Gabelli Funds Internet homepage at: or us at: closedend@gabelli.com Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that the Fund may, from time to time, purchase its common shares in the open market when the Fund s shares are trading at a discount of 10% or more from the net asset value of the shares.

16 THE GABELLI GLOBAL UTILITY & INCOME TRUST One Corporate Center, Rye, NY Phone: 800-GABELLI ( ) Fax: Internet: GLU Dec/2011

17 The Gabelli Global Utility & Income Trust Annual Report December 31, 2011 Mario J. Gabelli, CFA To Our Shareholders, The Sarbanes-Oxley Act requires a fund s principal executive and financial officers to certify the entire contents of the semiannual and annual shareholder reports in a filing with the Securities and Exchange Commission ( SEC ) on Form N-CSR. This certification would cover the portfolio manager s commentary and subjective opinions if they are attached to or a part of the financial statements. Many of these comments and opinions would be difficult or impossible to certify. Because we do not want our portfolio manager to eliminate his opinions and/or restrict his commentary to historical facts, we have separated his commentary from the financial statements and investment portfolio and have sent it to you separately. Both the commentary and the financial statements, including the portfolio of investments, will be available on our website at Investment Performance For the year ended December 31, 2011, the net asset value ( NAV ) total return of The Gabelli Global Utility & Income Trust (the Fund ) was 6.4%, compared with a total return of 19.9% for the Standard & Poor s ( S&P ) 500 Utilities Index. The total return for the Fund s publicly traded shares was 10.1%. On December 31, 2011, the Fund s NAV per share was $20.57, while the price of the publicly traded shares closed at $21.08 on the NYSE Amex. Enclosed are the schedule of investments and financial statements as of December 31, Sincerely yours, February 22, 2012 Comparative Results Bruce N. Alpert President Average Annual Returns through December 31, 2011 (a) (Unaudited) 1 Year 3 Year 5 Year Since Inception (05/28/04) Gabelli Global Utility & Income Trust NAV Total Return (b) % 10.25% 2.57% 7.27% Investment Total Return (c) S&P 500 Utilities Index Lipper Utility Fund Average S&P500Index (0.25) 3.63 (a) Returns represent past performance and do not guarantee future results. Investment returns and the principal value of an investment will fluctuate. When shares are sold, they may be worth more or less than their original cost. Current performance may be lower or higher than the performance data presented. Visit for performance information as of the most recent month end. Performance returns for periods of less than one year are not annualized. Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. The S&P 500 Utilities Index is an unmanaged indicator of electric and gas utility stock performance. The Lipper Utility Fund Average reflects the average performance of open-end mutual funds classified in this particular category. The S&P 500 Index is an unmanaged indicator of stock market performance. Dividends are considered reinvested. You cannot invest directly in an index. (b) Total returns and average annual returns reflect changes in the NAV per share and reinvestment of distributions at NAV on the exdividend date and are net of expenses. Since inception return is based on an initial NAV of $ (c) Total returns and average annual returns reflect changes in closing market values on the NYSE Amex and reinvestment of distributions. Since inception return is based on an initial offering price of $20.00.

18 THE GABELLI GLOBAL UTILITY & INCOME TRUST Summary of Portfolio Holdings (Unaudited) The following table presents portfolio holdings as a percent of total investments as of December 31, 2011: Energy and Utilities: Integrated % Telecommunications % Energy and Utilities: Natural Gas Integrated % Cable and Satellite % Energy and Utilities: Electric Transmission and Distribution % U.S. Government Obligations % Energy and Utilities: Natural Gas Utilities % Energy and Utilities: Water % Wireless Communications % Energy and Utilities: Oil % Aerospace % Entertainment % Diversified Industrial % Energy and Utilities: Services % Metals and Mining % Independent Power Producers and Energy Traders % Transportation % Real Estate % Environmental Services % Energy and Utilities: Alternative Energy % Business Services % Building and Construction % 100.0% The Fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Shareholders may obtain this information at or by calling the Fund at 800-GABELLI ( ). The Fund s Form N-Q is available on the SEC s website at and may also be reviewed and copied at the SEC s Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 800-SEC Proxy Voting The Fund files Form N-PX with its complete proxy voting record for the twelve months ended June 30th, no later than August 31st of each year. A description of the Fund s proxy voting policies, procedures, and how the Fund voted proxies relating to portfolio securities is available without charge, upon request, by (i) calling 800-GABELLI ( ); (ii) writing to The Gabelli Funds at One Corporate Center, Rye, NY ; or (iii) visiting the SEC s website at 2

19 THE GABELLI GLOBAL UTILITY & INCOME TRUST SCHEDULE OF INVESTMENTS December 31, 2011 Shares Cost Market Value COMMON STOCKS 94.1% ENERGY AND UTILITIES 68.7% Energy and Utilities: Alternative Energy 0.2% U.S. Companies 7,000 Ormat Technologies Inc.... $ 246,346 $ 126,210 Energy and Utilities: Electric Transmission and Distribution 6.0% Non U.S. Companies 5,000 Algonquin Power & Utilities Corp ,119 31, AtlanticPowerCorp.... 5,899 5,060 8,775 National Grid plc, ADR , ,412 3,500 Red Electrica Corporacion SA , ,780 U.S. Companies 4,000 CH Energy Group Inc , ,520 2,000 Consolidated Edison Inc , ,060 42,000 NSTAR ,518 1,972,320 38,000 Pepco Holdings Inc , ,400 1,666 UIL Holdings Corp ,364 58,927 2,635,893 3,771,988 Energy and Utilities: Integrated 43.7% Non U.S. Companies 150,000 A2A SpA , ,041 7,500 Areva SA , ,304 9,000 Chubu Electric Power Co. Inc , , ,000 Datang International Power Generation Co.Ltd.,Cl.H... 59,610 50,297 2,700 E.ON AG ,041 58,253 9,000 E.ON AG, ADR , ,510 9,760 EDP Energias de Portugal SA,ADR , ,536 10,000 Electric Power Development Co. Ltd , ,948 6,000 Emera Inc , ,592 10,000 Endesa SA , ,138 68,400 Enel SpA , ,327 29,000 Enersis SA, ADR , , ,000 Hera SpA , ,858 10,000 Hokkaido Electric Power Co. Inc , ,393 10,000 Hokuriku Electric Power Co , ,696 14,000 Huaneng Power International Inc.,ADR , ,280 82,153 Iberdrola SA , ,513 11,000 Iberdrola SA, ADR , ,100 3,000 International Power plc... 25,732 15,710 28,000 Korea Electric Power Corp., ADR , ,440 10,000 Kyushu Electric Power Co. Inc , ,173 10,000 Shikoku Electric Power Co. Inc , ,605 10,000 The Chugoku Electric Power Co. Inc , ,263 16,000 The Kansai Electric Power Co. Inc , ,498 5,000 The Tokyo Electric Power Co. Inc ,223 11,888 10,000 Tohoku Electric Power Co. Inc ,025 96,011 4,572 Verbund AG , ,695 U.S. Companies 2,000 ALLETE Inc ,269 83,960 20,000 Ameren Corp , ,600 30,000 American Electric Power Co.Inc ,467 1,239,300 1,500 Avista Corp ,915 38,625 7,000 Black Hills Corp , , ClecoCorp.... 9,790 19, CMSEnergyCorp.... 4,875 11,040 10,000 Dominion Resources Inc , ,800 38,000 Duke Energy Corp , ,000 4,000 El Paso Electric Co , ,560 Shares Cost Market Value 1,334 FirstEnergy Corp.... $ 47,829 $ 59,096 44,000 Great Plains Energy Inc.... 1,049, ,320 22,000 Hawaiian Electric Industries Inc , ,560 29,500 Integrys Energy Group Inc.... 1,408,474 1,598,310 13,500 MGE Energy Inc , ,395 14,000 NextEra Energy Inc , ,320 45,000 NiSource Inc ,189 1,071,450 12,000 NorthWestern Corp , ,480 19,500 OGE Energy Corp ,891 1,105,845 14,000 Otter Tail Corp , ,280 1,000 PG&E Corp ,930 41,220 16,000 Pinnacle West Capital Corp , ,880 4,200 PPL Corp , ,564 31,000 Progress Energy Inc.... 1,324,875 1,736,620 32,000 Public Service Enterprise Group Inc.... 1,065,920 1,056,320 18,000 SCANA Corp , ,080 1,000 TECO Energy Inc ,970 19,140 30,000 The AES Corp , ,200 2,000 The Empire District Electric Co ,522 42,180 45,000 The Southern Co.... 1,322,848 2,083,050 14,000 UniSource Energy Corp , ,880 15,000 Vectren Corp , ,450 40,000 Westar Energy Inc ,089 1,151,200 10,000 Wisconsin Energy Corp , ,600 40,000 Xcel Energy Inc ,944 1,105,600 23,540,225 27,569,401 Energy and Utilities: Natural Gas Integrated 7.4% Non U.S. Companies 80,000 Snam Rete Gas SpA , ,656 U.S. Companies 40,000 El Paso Corp ,725 1,062,800 1,000 Energen Corp ,935 50,000 18,000 National Fuel Gas Co ,706 1,000,440 2,000 ONEOK Inc , ,380 27,000 Southern Union Co ,876 1,136,970 30,000 Spectra Energy Corp , ,500 2,447,613 4,698,746 Energy and Utilities: Natural Gas Utilities 3.8% Non U.S. Companies 1,500 Enagas SA... 37,053 27,742 1,890 GDF Suez... 62,915 51,662 11,454 GDF Suez, ADR , ,205 6,867 GDF Suez U.S. Companies 16,764 AGL Resources Inc , ,447 11,500 Atmos Energy Corp , ,525 3,000 Chesapeake Utilities Corp , ,050 5,000 Piedmont Natural Gas Co. Inc , ,900 10,000 Southwest Gas Corp , ,900 5,000 The Laclede Group Inc , ,350 2,027,601 2,409,790 Energy and Utilities: Oil 2.6% Non U.S. Companies 1,000 Niko Resources Ltd ,277 47,342 1,000 PetroChina Co. Ltd., ADR... 79, ,310 10,000 Petroleo Brasileiro SA, ADR , ,500 9,000 Royal Dutch Shell plc, Cl. A, ADR , ,810 U.S. Companies 2,000 Chevron Corp , ,800 2,000 ConocoPhillips... 74, ,740 2,000 Devon Energy Corp , ,000 1,000 Exxon Mobil Corp ,500 84,760 1,178,610 1,645,262 See accompanying notes to financial statements. 3

20 THE GABELLI GLOBAL UTILITY & INCOME TRUST SCHEDULE OF INVESTMENTS (Continued) December 31, 2011 Shares Cost Market Value COMMON STOCKS (Continued) ENERGY AND UTILITIES (Continued) Energy and Utilities: Services 0.4% Non U.S. Companies 10,000 ABB Ltd., ADR... $ 123,092 $ 188,300 U.S. Companies 2,500 Halliburton Co ,195 86, , ,575 Energy and Utilities: Water 3.6% Non U.S. Companies 1,500 Consolidated Water Co. Ltd ,565 12,870 49,000 Severn Trent plc ,939 1,138,402 37,090 United Utilities Group plc , ,058 U.S. Companies 8,666 Aqua America Inc , ,085 5,400 California Water Service Group... 76,295 98,604 4,000 Middlesex Water Co ,033 74,640 17,000 SJW Corp , ,880 1,811,699 2,266,539 Diversified Industrial 0.5% Non U.S. Companies 9,000 Bouygues SA , ,576 Environmental Services 0.2% Non U.S. Companies 500 Suez Environnement Co. SA ,760 13,000 Veolia Environnement , , , ,253 Independent Power Producers and Energy Traders 0.3% U.S. Companies 12,000 NRG Energy Inc , ,440 TOTAL ENERGY AND UTILITIES... 35,043,373 43,411,780 COMMUNICATIONS 21.4% Cable and Satellite 7.0% Non U.S. Companies 35,000 British Sky Broadcasting Group plc , ,147 10,000 Cogeco Inc , ,994 2,500 Rogers Communications Inc., Cl. B... 25,532 96,275 1,000 Zon Multimedia Servicos de Telecomunicacoes e Multimedia SGPSSA... 9,800 3,005 U.S. Companies 3,500 AMC Networks Inc., Cl. A... 87, ,530 14,000 Cablevision Systems Corp., Cl. A , ,080 13,000 Comcast Corp., Cl. A, Special , ,280 28,000 DIRECTV, Cl. A ,994 1,197,280 36,000 DISH Network Corp., Cl. A ,301 1,025,280 6,000 EchoStar Corp., Cl. A , ,640 6,000 Liberty Global Inc., Cl. A , ,180 6,000 Liberty Global Inc., Cl. C , ,120 3,083,720 4,440,811 Telecommunications 11.7% Non U.S. Companies 25,000 BCE Inc ,555 1,041,750 5,000 Belgacom SA , ,863 2,102 Bell Aliant Inc. (b)... 51,669 58,990 25,000 BT Group plc, ADR , ,000 38,000 Deutsche Telekom AG, ADR , ,100 4,000 France Telecom SA, ADR... 93,510 62,640 15,000 Koninklijke KPN NV, ADR , ,800 8,000 Manitoba Telecom Services Inc , ,991 29,651 Orascom Telecom Holding SAE, GDR (c) ,291 85,691 Shares Cost Market Value 45,000 Portugal Telecom SGPS SA... $ 508,921 $ 259,173 1,200 Swisscom AG , ,679 20,000 Telecom Italia SpA... 45,015 21,510 9,300 Telefonica Brasil SA, ADR , ,169 48,000 Telefonica SA, ADR , ,120 4,000 Telefonos de Mexico SAB de CV, Cl. L, ADR... 42,258 57,760 17,000 Telekom Austria AG , ,256 16,000 VimpelCom Ltd., ADR , ,520 U.S. Companies 28,000 AT&T Inc , ,720 70,000 Sprint Nextel Corp , ,800 10,000 Telephone & Data Systems Inc , ,900 22,000 Verizon Communications Inc , ,640 7,161,706 7,373,072 Wireless Communications 2.7% Non U.S. Companies 2.7% 4,000 America Movil SAB de CV, Cl.L,ADR... 95,286 90,400 12,000 Millicom International Cellular SA, SDR ,764 1,202,258 4,000 Mobile TeleSystems OJSC, ADR... 54,874 58,720 10,000 Turkcell Iletisim Hizmetleri A/S,ADR , ,600 8,000 Vodafone Group plc, ADR , ,240 1,273,024 1,693,218 TOTAL COMMUNICATIONS... 11,518,450 13,507,101 OTHER 4.0% Aerospace 1.7% Non U.S. Companies 90,000 Rolls-Royce Holdings plc ,651 1,043,375 6,210,000 Rolls-Royce Holdings plc, Cl. C (d)... 9,882 9, ,533 1,053,019 Building and Construction 0.0% Non U.S. Companies 400 AccionaSA... 42,173 34,546 Business Services 0.1% Non U.S. Companies 3,200 Sistema JSFC, GDR (c)... 77,846 53,792 Entertainment 1.3% Non U.S. Companies 38,000 Vivendi SA... 1,063, ,149 Metals and Mining 0.4% Non U.S. Companies 6,400 Compania de Minas Buenaventura SA, ADR... 66, ,376 Real Estate 0.3% Non U.S. Companies 6,000 Brookfield Asset Management Inc., Cl.A , ,880 Transportation 0.2% U.S. Companies 3,500 GATX Corp , ,810 TOTAL OTHER... 2,130,769 2,536,572 TOTAL COMMON STOCKS... 48,692,592 59,455,453 CONVERTIBLE PREFERRED STOCKS 0.2% COMMUNICATIONS 0.1% Telecommunications 0.1% U.S. Companies 2,000 Cincinnati Bell Inc., 6.750% Cv. Pfd., Ser. B... 57,376 77,720 See accompanying notes to financial statements. 4