SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q

(Mark One)

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31,June 30, 2012
or

[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission File No. 001-14761

GAMCO INVESTORS, INC.
(Exact name of Registrant as specified in its charter)
    
New York  13-4007862
(State of other jurisdiction of incorporation or organization)  (I.R.S. Employer Identification No.)
      
One Corporate Center, Rye, NY  10580-1422
(Address of principle executive offices)  (Zip Code)
    
(914) 921-3700
Registrant’s telephone number, including area code
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YesxNoo
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yesx    Noo
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer", "accelerated filer", and "smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer ¨
 
Accelerated filer x
 
    
Non-accelerated filer o
 
Smaller reporting company o
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YesoNox
 
Indicate the number of shares outstanding of each of the Registrant’s classes of Common Stock, as of the latest practical date.
Class Outstanding at April 30,July 31, 2012 
Class A Common Stock, .001 par value 6,592,7166,609,863 
Class B Common Stock, .001 par value 20,040,74620,020,730 

 
 
 
 
INDEX
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
  
  
PART I.FINANCIAL INFORMATION 
  
  
Item 1.Unaudited Condensed Consolidated Financial Statements
  
 Condensed Consolidated Statements of Income:
 -    Three months ended March 31,June 30, 2012 and 2011
-    Six months ended June 30, 2012 and 2011
  
 Condensed Consolidated Statements of Comprehensive Income:
 -    Three months ended March 31,June 30, 2012 and 2011
-    Six months ended June 30, 2012 and 2011
  
 Condensed Consolidated Statements of Financial Condition:
 -    March 31,June 30, 2012
 -    December 31, 2011
 -    March 31,June 30, 2011
  
 Condensed Consolidated Statements of Equity:
 -    ThreeSix months ended March 31,June 30, 2012 and 2011
  
 Condensed Consolidated Statements of Cash Flows:
 -    ThreeSix months ended March 31,June 30, 2012 and 2011
  
 Notes to Unaudited Condensed Consolidated Financial Statements
  
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations
  
Item 3.Quantitative and Qualitative Disclosures About Market Risk (Included in Item 2)
  
Item 4.Controls and Procedures
  
PART II.OTHER INFORMATION 
  
Item 1.Legal Proceedings
  
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
  
Item 6.Exhibits
  
SIGNATURES 
  

 
 
2
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF INCOME  
UNAUDITED  
(Dollars in thousands, except per share data)  
              
              
  Three Months Ended  Six Months Ended  
  June 30,  June 30,  
  2012  2011  2012  2011  
Revenues             
  Investment advisory and incentive fees $67,210  $69,252  $134,993  $132,163  
  Distribution fees and other income  11,006   11,588   22,629   21,933  
  Institutional research services  2,808   4,241   5,151   7,890  
Total revenues  81,024   85,081   162,773   161,986  
Expenses                 
  Compensation  32,921   34,365   67,475   67,782  
  Management fee  2,615   3,626   6,799   6,739  
  Distribution costs  10,012   9,588   20,189   23,017  
  Other operating expenses  5,109   7,005   10,931   13,191  
Total expenses  50,657   54,584   105,394   110,729 (a)
                  
Operating income  30,367   30,497   57,379   51,257  
Other income (expense)                 
  Net gain/(loss) from investments  (4,171)  3,669   9,707   12,409  
  Interest and dividend income  1,782   1,861   3,018   3,797  
  Interest expense  (4,429)  (3,403)  (8,833)  (6,270) 
Total other income (expense), net  (6,818)  2,127   3,892   9,936  
Income before income taxes  23,549   32,624   61,271   61,193  
Income tax provision  8,686   11,945   22,442   22,233  
Net income  14,863   20,679   38,829   38,960  
Net income/(loss) attributable to noncontrolling interests  (242)  32   (112)  670  
Net income attributable to GAMCO Investors, Inc.'s shareholders $15,105  $20,647  $38,941  $38,290  
                  
Net income attributable to GAMCO Investors, Inc.'s shareholders                 
  per share:                 
Basic $0.58  $0.77  $1.48  $1.43  
                  
Diluted $0.57  $0.77  $1.47  $1.42  
                  
Weighted average shares outstanding:                 
Basic  26,258   26,665   26,338   26,783  
                  
Diluted  26,426   26,733   26,501   26,872  
                  
Dividends declared: $0.29  $0.04  $0.33  $0.07  
                  
(a) Includes $5.6 million in costs directly related to the launch of a new closed-end fund.          
                  
See accompanying notes.                 

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(Dollars in thousands, except per share data)
        
        
  Three Months Ended  
  March 31,  
  2012  2011  
Revenues       
  Investment advisory and incentive fees $67,783  $62,911  
  Distribution fees and other income  11,623   10,345  
  Institutional research services  2,343   3,649  
Total revenues  81,749   76,905  
Expenses         
  Compensation  34,554   33,417  
  Management fee  4,184   3,113  
  Distribution costs  10,177   13,429  
  Other operating expenses  5,822   6,186  
Total expenses  54,737   56,145 (a)
          
Operating income  27,012   20,760  
Other income (expense)         
  Net gain from investments  13,878   8,740  
  Interest and dividend income  1,236   1,936  
  Interest expense  (4,404)  (2,867) 
Total other income, net  10,710   7,809  
Income before income taxes  37,722   28,569  
Income tax provision  13,756   10,288  
Net income  23,966   18,281  
Net income attributable to noncontrolling interests  130   638  
Net income attributable to GAMCO Investors, Inc.'s shareholders $23,836  $17,643  
          
Net income attributable to GAMCO Investors, Inc.'s shareholders         
  per share:         
Basic $0.90  $0.66  
          
Diluted $0.90  $0.65  
          
Weighted average shares outstanding:         
Basic  26,415   26,901  
          
Diluted  26,533   27,008  
          
Dividends declared: $0.04  $0.03  
(a) Includes $5.6 million in costs directly related to the launch of a new closed-end fund.  
          
See accompanying notes.         
 
3
 

GAMCO INVESTORS, INC. AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
UNAUDITED 
(Dollars in thousands, except per share data) 
             
             
  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2012  2011  2012  2011 
             
Net income $14,863  $20,679  $38,829  $38,960 
Other comprehensive income/(loss), net of tax:                
  Foreign currency translation  22   (1)  5   23 
  Net unrealized gains/(losses) on securities available for sale  (2,579)  (1,550)  878   937 
Other comprehensive income/(loss)  (2,557)  (1,551)  883   960 
                 
Comprehensive income  12,306   19,128   39,712   39,920 
Less: Comprehensive income/(loss) attributable to noncontrolling interests  242   (32)  112   (670)
                 
Comprehensive income attributable to GAMCO Investors, Inc. $12,548  $19,096  $39,824  $39,250 
                 
See accompanying notes.                
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 
UNAUDITED 
(Dollars in thousands, except per share data) 
       
       
  Three Months Ended 
  March 31, 
  2012  2011 
       
Net income $23,966  $18,281 
Other comprehensive income, net of tax:        
  Foreign currency translation  (17)  24 
  Net unrealized gains on securities available for sale  3,457   2,487 
Other comprehensive income  3,440   2,511 
         
Comprehensive income  27,406   20,792 
Less: Comprehensive income attributable to noncontrolling interests  (130)  (638)
         
Comprehensive income attributable to GAMCO Investors, Inc. $27,276  $20,154 
         
See accompanying notes.        

 
4
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIESGAMCO INVESTORS, INC. AND SUBSIDIARIES GAMCO INVESTORS, INC. AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITIONCONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION 
UNAUDITEDUNAUDITED UNAUDITED 
(Dollars in thousands, except per share data)(Dollars in thousands, except per share data) (Dollars in thousands, except per share data) 
                  
 March 31,  December 31,  March 31,  June 30,  December 31,  June 30, 
 2012  2011  2011  2012  2011  2011 
ASSETS                  
Cash and cash equivalents $324,630  $276,340  $164,671  $324,440  $276,340  $260,839 
Investments in securities  257,607   238,333   279,713   249,630   238,333   298,425 
Investments in sponsored registered investment companies  62,305   59,214   65,903   59,561   59,214   64,880 
Investments in partnerships  101,685   100,893   94,584   102,119   100,893   98,598 
Receivable from brokers  29,298   20,913   43,308   41,513   20,913   35,968 
Investment advisory fees receivable  27,193   32,156   24,992   26,026   32,156   25,746 
Income tax receivable  39   39   302   402   39   238 
Other assets  23,668   28,861   24,030   23,039   28,861   25,964 
Total assets $826,425  $756,749  $697,503  $826,730  $756,749  $810,658 
                        
LIABILITIES AND EQUITY                        
Payable to brokers $22,366  $10,770  $7,998  $20,113  $10,770  $2,950 
Income taxes payable and deferred tax liabilities  24,782   15,296   25,035   12,846   15,296   21,622 
Capital lease obligation  5,043   5,072   5,151   5,013   5,072   5,126 
Compensation payable  28,834   17,695   22,883   28,985   17,695   29,484 
Securities sold, not yet purchased  9,657   5,488   15,550   7,010   5,488   10,244 
Mandatorily redeemable noncontrolling interests  1,390   1,386   1,466   1,352   1,386   1,478 
Accrued expenses and other liabilities  28,692   24,441   28,351   29,641   24,441   34,620 
Sub-total  120,764   80,148   106,434   104,960   80,148   105,524 
                        
5.5% Senior notes (due May 15, 2013)  99,000   99,000   99,000   99,000   99,000   99,000 
5.875% Senior notes (due June 1, 2021)  100,000   100,000   -   100,000   100,000   100,000 
Zero coupon subordinated debentures, Face value: $86.3 million at March 31, 2012 and            
December 31, 2011 and $86.4 million at March 31, 2011 (due December 31, 2015)  65,300   64,119   60,697 
Zero coupon subordinated debentures, Face value: $86.3 million at June 30, 2012 and            
December 31, 2011 and $86.4 million at June 30, 2011 (due December 31, 2015)  66,598   64,119   61,814 
Total liabilities  385,064   343,267   266,131   370,558   343,267   366,338 
                        
Redeemable noncontrolling interests  16,828   6,071   28,884   26,162   6,071   35,519 
Commitments and contingencies (Note J)                        
Equity                        
GAMCO Investors, Inc. stockholders' equity                        
Preferred stock, $.001 par value; 10,000,000 shares authorized;                        
none issued and outstanding                        
Class A Common Stock, $0.001 par value; 100,000,000 shares authorized;                        
13,760,697, 13,627,397 and 13,256,203 issued, respectively; 6,592,716,            
6,684,149 and 6,872,333 outstanding, respectively  13   13   13 
13,781,213, 13,627,397 and 13,569,703 issued, respectively; 6,609,863,            
6,684,149 and 6,647,212 outstanding, respectively  13   13   13 
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized;                        
24,000,000 shares issued; 20,040,746, 20,070,746 and 20,190,140 shares            
24,000,000 shares issued; 20,020,730, 20,070,746 and 20,142,640 shares            
outstanding, respectively  20   20   20   20   20   20 
Additional paid-in capital  265,280   264,409   262,686   266,231   264,409   263,371 
Retained earnings  431,963   409,191   387,101   439,292   409,191   406,666 
Accumulated other comprehensive income  25,960   22,520   27,900   23,403   22,520   26,349 
Treasury stock, at cost (7,167,981, 6,943,248 and 6,653,870 shares, respectively)  (302,152)  (292,181)  (278,870)
Treasury stock, at cost (7,171,350, 6,943,248 and 6,922,491 shares, respectively)  (302,300)   (292,181)   (291,287)
Total GAMCO Investors, Inc. stockholders' equity  421,084   403,972   398,850   426,659   403,972   405,132 
Noncontrolling interests  3,449   3,439   3,638   3,351   3,439   3,669 
Total equity  424,533   407,411   402,488   430,010   407,411   408,801 
                        
Total liabilities and equity $826,425  $756,749  $697,503  $826,730  $756,749  $810,658 
                        
See accompanying notes.                        
 
 
5
 

 
GAMCO INVESTORS, INC. AND SUBSIDIARIESGAMCO INVESTORS, INC. AND SUBSIDIARIES GAMCO INVESTORS, INC. AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF EQUITYCONDENSED CONSOLIDATED STATEMENTS OF EQUITY CONDENSED CONSOLIDATED STATEMENTS OF EQUITY 
UNAUDITEDUNAUDITED UNAUDITED 
(In thousands)(In thousands) (In thousands) 
                                                
For the three months ended March 31, 2012 
For the six months ended June 30, 2012For the six months ended June 30, 2012 
    GAMCO Investors, Inc. stockholders        GAMCO Investors, Inc. stockholders    
             Accumulated                       Accumulated          
       Additional     Other        Redeemable        Additional     Other        Redeemable 
 Noncontrolling  Common  Paid-in  Retained  Comprehensive  Treasury     Noncontrolling  Noncontrolling  Common  Paid-in  Retained  Comprehensive  Treasury     Noncontrolling 
 Interests  Stock  Capital  Earnings  Income  Stock  Total  Interests  Interests  Stock  Capital  Earnings  Income  Stock  Total  Interests 
Balance at December 31, 2011 $3,439  $33  $264,409  $409,191  $22,520  $(292,181) $407,411  $6,071  $3,439  $33  $264,409  $409,191  $22,520  $(292,181) $407,411  $6,071 
Redemptions of redeemable                                                                
noncontrolling interests  -   -   -   -   -   -   -   (3)  -   -   -   -   -   -   -   (393)
Contributions from redeemable                                                                
noncontrolling interests  -   -   -   -   -   -   -   10,640   -   -   -   -   -   -   -   20,508 
Net income (loss)  10   -   -   23,836   -   -   23,846   120   (88)  -   -   38,941   -   -   38,853   (24)
Net unrealized gains on                                                                
securities available for sale,                                                                
net of income tax ($2,031)  -   -   -   -   3,457   -   3,457   - 
net of income tax ($515)  -   -   -   -   878   -   878   - 
Foreign currency translation  -   -   -   -   (17)  -   (17)  -   -   -   -   -   5   -   5   - 
Dividends declared ($0.04 per                                
Dividends declared ($0.33 per                                
share)  -   -   -   (1,064)  -   -   (1,064)  -   -   -   -   (8,840)  -   -   (8,840)  - 
Stock based compensation                                                                
expense  -   -   871   -   -   -   871   -   -   -   1,740   -   -   -   1,740   - 
Exercise of stock options                                
including tax benefit  -   -   82   -   -   -   82   - 
Purchase of treasury stock  -   -   -   -   -   (9,971)  (9,971)  -   -   -   -   -   -   (10,119)  (10,119)  - 
Balance at March 31, 2012 $3,449  $33  $265,280  $431,963  $25,960  $(302,152) $424,533  $16,828 
Balance at June 30, 2012 $3,351  $33  $266,231  $439,292  $23,403  $(302,300) $430,010  $26,162 
                                                                
See accompanying notes.                                                                
 
 
6
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIESGAMCO INVESTORS, INC. AND SUBSIDIARIES GAMCO INVESTORS, INC. AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF EQUITYCONDENSED CONSOLIDATED STATEMENTS OF EQUITY CONDENSED CONSOLIDATED STATEMENTS OF EQUITY 
UNAUDITEDUNAUDITED UNAUDITED 
(In thousands)(In thousands) (In thousands) 
                                                
For the three months ended March 31, 2011 
For the six months ended June 30, 2011For the six months ended June 30, 2011 
    GAMCO Investors, Inc. stockholders        GAMCO Investors, Inc. stockholders    
             Accumulated                       Accumulated          
       Additional     Other        Redeemable        Additional     Other        Redeemable 
 Noncontrolling  Common  Paid-in  Retained  Comprehensive  Treasury     Noncontrolling  Noncontrolling  Common  Paid-in  Retained  Comprehensive  Treasury     Noncontrolling 
 Interests  Stock  Capital  Earnings  Income  Stock  Total  Interests  Interests  Stock  Capital  Earnings  Income  Stock  Total  Interests 
Balance at December 31, 2010 $3,579  $33  $262,108  $370,272  $25,389  $(271,773) $389,608  $26,984  $3,579  $33  $262,108  $370,272  $25,389  $(271,773) $389,608  $26,984 
Redemptions of redeemable                                                                
noncontrolling interests  -   -   -   -   -   -   -   (839)  -   -   -   -   -   -   -   (839)
Contributions from redeemable                                                                
noncontrolling interests  -   -   -   -   -   -   -   6,263   -   -   -   -   -   -   -   12,897 
Deconsolidation of                                                                
Partnership  -   -   -   -   -   -   -   (4,103)  -   -   -   -   -   -   -   (4,103)
Net income  59   -   -   17,643   -   -   17,702   579   90   -   -   38,290   -   -   38,380   580 
Net unrealized gains on                                                                
securities available for sale,                                                                
net of income tax ($1,460)  -   -   -   -   2,487   -   2,487   - 
net of income tax ($550)  -   -   -   -   937   -   937   - 
Foreign currency translation  -   -   -   -   24   -   24   -   -   -   -   -   23   -   23   - 
Dividends declared                                                                
($0.03 per share)  -   -   -   (814)  -   -   (814)  - 
($0.07 per share)  -   -   -   (1,896)  -   -   (1,896)  - 
Stock based compensation                                                                
expense  -   -   578   -   -   -   578   -   -   -   1,263   -   -   -   1,263   - 
Purchase of treasury stock  -   -   -   -   -   (7,097)  (7,097)  -   -   -   -   -   -   (19,514)  (19,514)  - 
Balance at March 31, 2011 $3,638  $33  $262,686  $387,101  $27,900  $(278,870) $402,488  $28,884 
Balance at June 30, 2011 $3,669  $33  $263,371  $406,666  $26,349  $(291,287) $408,801  $35,519 
                                                                
See accompanying notes.                                                                
 
 
7
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIESGAMCO INVESTORS, INC. AND SUBSIDIARIES GAMCO INVESTORS, INC. AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
UNAUDITEDUNAUDITED UNAUDITED 
(In thousands)(In thousands) (In thousands) 
            
 Three Months Ended  Six Months Ended 
 March 31,  June 30, 
 2012  2011  2012  2011 
Operating activities            
Net income $23,966  $18,281  $38,829  $38,960 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:        
Adjustments to reconcile net income to net cash provided by operating activities:        
Equity in net gains from partnerships  (3,351)  (2,977)  (2,651)  (3,094)
Depreciation and amortization  180   274   359   456 
Stock based compensation expense  871   578   1,740   1,263 
Deferred income taxes  1,515   1,649   1,434   1,220 
Foreign currency translation gain/(loss)  (17)  24 
Tax benefit from exercise of stock options  24   - 
Foreign currency translation  5   23 
Other-than-temporary loss on available for sale securities  20   - 
Fair value of donated securities  83   -   181   56 
Gains on sales of available for sale securities  (279)  (101)  (408)  (584)
Accretion of zero coupon debentures  1,180   1,117   2,497   2,234 
Loss on extinguishment of debt  1   -   1   - 
(Increase) decrease in assets:                
Investments in trading securities  (13,604)  (44,589)  (10,137)  (70,979)
Investments in partnerships:                
Contributions to partnerships  (23,293)  (6,583)  (25,743)  (10,683)
Distributions from partnerships  25,852   3,026   27,168   3,226 
Receivable from brokers  (8,385)  (2,373)  (20,601)  4,966 
Investment advisory fees receivable  4,963   19,798   6,131   19,044 
Income tax receivable and deferred tax assets  -   23   (362)  87 
Other assets  5,023   (1,129)  5,466   (2,312)
Increase (decrease) in liabilities:                
Payable to brokers  11,596   6,444   9,343   1,396 
Income taxes payable and deferred tax liabilities  5,940   (1,035)  (4,401)  (3,108)
Compensation payable  11,139   (891)  11,289   5,710 
Mandatorily redeemable noncontrolling interests  4   23   (34)  35 
Accrued expenses and other liabilities  4,227   6,531   4,988   12,776 
Total adjustments  23,645   (20,191)  6,309   (38,268)
Net cash provided by (used in) operating activities $47,611  $(1,910)
Net cash provided by operating activities $45,138  $692 
        
 
 
8
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIESGAMCO INVESTORS, INC. AND SUBSIDIARIES GAMCO INVESTORS, INC. AND SUBSIDIARIES 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 
UNAUDITED (continued)UNAUDITED (continued) UNAUDITED (continued) 
(In thousands)(In thousands) (In thousands) 
            
 Three Months Ended  Six Months Ended 
 March 31,  June 30, 
 2012  2011  2012  2011 
Investing activities            
Purchases of available for sale securities $(4) $(4) $(8) $(4,370)
Proceeds from sales of available for sale securities  525   101   780   5,685 
Return of capital on available for sale securities  571   631   842   777 
Net cash provided by investing activities  1,092   728   1,614   2,092 
                
Financing activities                
Contributions from redeemable noncontrolling interests  10,640   6,263   20,508   12,897 
Redemptions of redeemable noncontrolling interests  (3)  (839)  (393)  (839)
Issuance of 5.875% Senior notes due June 1, 2021  -   100,000 
Issuance costs on the 5.875% Senior notes due June 1, 2021  -   (934)
Proceeds from exercise of stock options  58   - 
Repurchase of zero coupon subordinated debentures  (18)  - 
Dividends paid  (1,070)  (814)  (8,685)  (1,896)
Purchase of treasury stock  (9,971)  (7,097)  (10,119)  (19,514)
Net cash used in financing activities  (404)  (2,487)
Net cash provided by financing activities  1,351   89,714 
Effect of exchange rates on cash and cash equivalents  (9)  (10)  (3)  (9)
Net increase (decrease) in cash and cash equivalents  48,290   (3,679)
Net increase in cash and cash equivalents  48,100   92,489 
Cash and cash equivalents at beginning of period  276,340   169,601   276,340   169,601 
Decrease in cash from deconsolidation of partnership  -   (1,251)  -   (1,251)
Cash and cash equivalents at end of period $324,630  $164,671  $324,440  $260,839 
Supplemental disclosures of cash flow information:                
Cash paid for interest $322  $271  $4,979  $3,267 
Cash paid for taxes $6,038  $9,167  $25,479  $23,433 
                
Non-cash activity:                
- On January 1, 2011, GAMCO Investors, Inc. was no longer deemed to have control over a certain partnership which 
resulted in the deconsolidation of that partnership and decreases of approximately $1,251 of cash and cash 
equivalents, $2,852 of net assets and $4,103 of noncontrolling interests.        
- For the three months ended March 31, 2012 and March 31, 2011, the Company accrued restricted stock 
award dividends of $13 and $7, respectively.        
- On January 1, 2011, GAMCO Investors, Inc. was no longer deemed to have control over a certain partnership which resulted in the deconsolidation
- On January 1, 2011, GAMCO Investors, Inc. was no longer deemed to have control over a certain partnership which resulted in the deconsolidation
 
of that partnership and decreases of approximately $1,251 of cash and cash equivalents, $2,852 of net assets and $4,103 of noncontrolling interests. of that partnership and decreases of approximately $1,251 of cash and cash equivalents, $2,852 of net assets and $4,103 of noncontrolling interests. 
- For the six months ended June 30, 2012 and June 30, 2011, the Company accrued restricted stock award dividends of $106 and $17, respectively.
- For the six months ended June 30, 2012 and June 30, 2011, the Company accrued restricted stock award dividends of $106 and $17, respectively.
 
        
See accompanying notes.                
 
 
9
 
 
GAMCO INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 2012
(Unaudited)
A.  Significant Accounting Policies

Basis of Presentation
 
Unless we have indicated otherwise, or the context otherwise requires, references in this report to “GAMCO Investors, Inc.,” “GAMCO,” “the Company,” “GBL,” “we,” “us” and “our” or similar terms are to GAMCO Investors, Inc., its predecessors and its subsidiaries.
 
The unaudited interim condensed consolidated financial statements of GAMCO included herein have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP in the United States for complete financial statements.  In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of financial position, results of operations and cash flows of GAMCO for the interim periods presented and are not necessarily indicative of a full year’s results.
 
The condensed consolidated financial statements include the accounts of GAMCO and its subsidiaries, including our new broker-dealer, G.distributors, LLC, a wholly-owned subsidiary of GAMCO, which became the distributor for the Gabelli/GAMCO family of funds on August 1, 2011.  Intercompany accounts and transactions are eliminated.
 
These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011 from which the accompanying condensed consolidated financial statements were derived.

TheBeginning with the period ended March 31, 2012 the Company has now separately disclosed the amount of investments in sponsored registered investment companies as a new line item in the condensed consolidated statements of financial condition.  These amounts were previously included within investments in securities in the condensed consolidated statements of financial condition.

Use of Estimates
 
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported on the condensed consolidated financial statements and accompanying notes.  Actual results could differ from those estimates.

Recent Accounting Developments

In May 2011, the Financial Accounting Standards Board (“FASB”) issued guidance on fair value measurement which expands existing disclosure requirements for fair value measurements and makes other amendments.  The guidance requires, for level 3 fair value measurements, (1) a quantitative disclosure of the unobservable inputs and assumptions used in the measurement, (2) a description of the valuation processes in place, and (3) a narrative description of the sensitivity of the fair value to changes in unobservable inputs and interrelationships between those inputs.  Additionally, the guidance requires disclosure of the level in the fair value hierarchy of items that are not measured at fair value in the statement of financial condition but whose fair value must be disclosed and clarifies that the valuation premise and highest and best use concepts are not relevant to financial assets or liabilities.  The guidance is effective for interim and annual periods beginning after December 15, 2011.  The Company adopted this guidance on January 1, 2012 and has reflected the new disclosures in the condensed consolidated financial statements.

In June 2011, the FASB issued guidance which revises the manner in which entities present comprehensive income in their financial statements.  The new guidance requires entities to report comprehensive income in either (1) a continuous statement of comprehensive income or (2) two separate but consecutive statements.  Under the two-statement approach, the first statement would include components of net income, which is consistent with the income statement format used currently, and the second statement would include components of other comprehensive income (“OCI”).  The guidance does not change the items that must be reported in OCI.  In December 2011, the FASB indefinitely deferred a portion of the guidance that would have required entities to present reclassification adjustments out of accumulated other comprehensive income by component in both the statement in which the net income is presented and the statement in which other comprehensive income is presented.  The guidance is effective for fiscal years beginning after December 15, 2011, and for interim periods within those fiscal years.  The Company adopted the guidance on January 1, 2012 and opted for the two separate but consecutive statements approach.  Accordingly, the Company now presents the condensed consolidated statements of comprehensive income immediately following the condensed consolidated statements of income.
 
 
10
 

 
In December 2011, the FASB issued guidance which creates new disclosure requirements about the nature of an entity’s right of offset and related arrangements associated with its financial instruments and derivative instruments.  The disclosure requirements are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods therein, with retrospective application required.  The new disclosures are designed to make financial statements that are prepared under U.S. GAAP more comparable to those prepared under International Financial Reporting Standards.  The Company is currently evaluating the impact that the application of this guidance will have on its disclosures.

In July 2012, the FASB issued guidance allowing companies to first perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired.  If a company determines, on the basis of qualitative factors, that the fair value of such asset is not more likely than not impaired, it would not need to calculate the fair value of such asset.  However, if a company concludes otherwise, it must calculate the fair value of the asset, compare the value with its carrying amount and record an impairment charge, if any.  To perform the qualitative assessment, a company must identify and evaluate events and circumstances that could affect the significant inputs used to determine the fair value of an indefinite-lived intangible asset.  This guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, with early adoption permitted.  The application of this guidance is not expected to be material to the condensed consolidated financial statements.

B.  Investment in Securities

Investments in securities at March 31,June 30, 2012, December 31, 2011 and March 31,June 30, 2011 consisted of the following:
 
  March 31, 2012  December 31, 2011  March 31, 2011 
  Cost  Fair Value  Cost  Fair Value  Cost  Fair Value 
  (In thousands) 
Trading securities:                  
  Government obligations $48,624  $48,630  $42,124  $42,126  $12,069  $12,076 
  Common stocks  156,206   170,224   153,294   159,314   210,956   225,589 
  Mutual funds  1,086   1,495   1,084   1,307   1,190   1,629 
  Convertible bonds  -   -   -   -   163   175 
  Preferred stocks  -   -   -   -   -   - 
  Other investments  601   571   466   399   465   476 
Total trading securities  206,517   220,920   196,968   203,146   224,843   239,945 
                         
Available for sale securities:                        
  Common stocks  16,158   34,578   16,487   33,282   16,835   37,408 
  Mutual funds  1,362   2,109   1,362   1,905   1,503   2,360 
Total available for sale securities  17,520   36,687   17,849   35,187   18,338   39,768 
                         
Total investments in securities $224,037  $257,607  $214,817  $238,333  $243,181  $279,713 

  June 30, 2012  December 31, 2011  June 30, 2011 
  Cost  Fair Value  Cost  Fair Value  Cost  Fair Value 
  (In thousands) 
Trading securities:                  
  Government obligations $50,119  $50,139  $42,124  $42,126  $7,924  $7,925 
  Common stocks  154,470   162,883   153,294   159,314   238,689   251,118 
  Mutual funds  1,086   1,406   1,084   1,307   1,081   1,501 
  Other investments  323   374   466   399   459   487 
Total trading securities  205,998   214,802   196,968   203,146   248,153   261,031 
                         
Available for sale securities:                        
  Common stocks  15,934   32,815   16,487   33,282   16,780   35,296 
  Mutual funds  1,361   2,013   1,362   1,905   1,362   2,098 
Total available for sale securities  17,295   34,828   17,849   35,187   18,142   37,394 
                         
Total investments in securities $223,293  $249,630  $214,817  $238,333  $266,295  $298,425 
                         
Securities sold, not yet purchased at March 31,June 30, 2012, December 31, 2011 and March 31,June 30, 2011 consisted of the following:
 
  March 31, 2012  December 31, 2011  March 31, 2011 
  Cost  Fair Value  Cost  Fair Value  Cost  Fair Value 
Trading securities: (In thousands) 
  Common stocks $9,016  $9,553  $5,271  $5,415  $14,044  $15,550 
  Other  21   104   49   73   -   - 
Total securities sold, not yet purchased $9,037  $9,657  $5,320  $5,488  $14,044  $15,550 

  June 30, 2012  December 31, 2011  June 30, 2011 
  Proceeds  Fair Value  Proceeds  Fair Value  Proceeds  Fair Value 
Trading securities: (In thousands) 
  Common stocks $6,194  $6,687  $5,271  $5,415  $9,416  $10,238 
  Other  12   323   49   73   1   6 
Total securities sold, not yet purchased $6,206  $7,010  $5,320  $5,488  $9,417  $10,244 
                         
 
 
11
 

Investments in sponsored registered investment companies at March 31,June 30, 2012, December 31, 2011 and March 31,June 30, 2011 consisted of the following:
 
  March 31, 2012  December 31, 2011  March 31, 2011 
  Cost  Fair Value  Cost  Fair Value  Cost  Fair Value 
  (In thousands) 
Trading securities:                  
  Mutual funds $15  $17  $15  $18  $15  $25 
Total trading securities  15   17   15   18   15   25 
                         
Available for sale securities:                        
  Closed-end funds  36,546   58,721   37,104   55,855   39,232   61,734 
  Mutual funds  2,204   3,567   2,213   3,341   2,345   4,144 
Total available for sale securities  38,750   62,288   39,317   59,196   41,577   65,878 
                         
Total investments in sponsored                        
  registered investment companies $38,765  $62,305  $39,332  $59,214  $41,592  $65,903 

  June 30, 2012  December 31, 2011  June 30, 2011 
  Cost  Fair Value  Cost  Fair Value  Cost  Fair Value 
  (In thousands) 
Trading securities:                  
  Mutual funds $19  $19  $15  $18  $15  $24 
Total trading securities  19   19   15   18   15   24 
                         
Available for sale securities:                        
  Closed-end funds  36,266   56,171   37,104   55,855   38,588   60,900 
  Mutual funds  2,198   3,371   2,213   3,341   2,249   3,956 
Total available for sale securities  38,464   59,542   39,317   59,196   40,837   64,856 
                         
Total investments in sponsored                        
  registered investment companies $38,483  $59,561  $39,332  $59,214  $40,852  $64,880 
                         
Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of each balance sheet date.  Investments in United States Treasury Bills and Notes with maturities of greater than three months at the time of purchase are classified as investments in securities, and those with maturities of three months or less at the time of purchase are classified as cash equivalents.  A substantial portion of investments in securities areis held for resale in anticipation of short-term market movements and therefore areis classified as trading securities.  Trading securities are stated at fair value, with any unrealized gains or losses reported in current period earnings.  Available for sale (“AFS”) investments are stated at fair value, with any unrealized gains or losses, net of taxes, reported as a component of equity except for losses deemed to be other than temporary which are recorded as unrealized losses in the condensed consolidated statements of income.

The Company recognizes all derivatives as either assets or liabilities measured at fair value and includes them in either investments in securities or securities sold, not yet purchased on the condensed consolidated statements of financial condition.  From time to time, the Company and/or the partnerships and offshore funds that the Company consolidates will enter into hedging transactions to manage their exposure to foreign currencies and equity prices related to their proprietary investments.  For the three and six months ended March 31,June 30, 2012, the Company had derivative transactions in equity derivatives which resulted in net gains of $15,000 and net losses of $29,000.$14,000, respectively.  For the three and six months ended June 30, 2011, the Company had no derivative transactions.  At March 31,June 30, 2011, the Company did not hold any derivatives.  At March 31, 3012June 30, 2012 and December 31, 2011, we held derivative contracts on 14.7 million equity shares and 142,000 equity shares, respectively, and the fair value was $105,000($72,000) and $24,000, respectively; these are included in investments in securities in the condensed consolidated statements of financial condition.  These transactions are not designated as hedges for accounting purposes, and therefore changes in fair values of these derivatives are included in net gaingain/(loss) from investments in the condensed consolidated statements of income.
 
 
 
12
 

The following is a summary of the cost, gross unrealized gains, gross unrealized losses and fair value of available for sale investments as of March 31,June 30, 2012, December 31, 2011 and March 31,June 30, 2011:
 
  March 31, 2012 
     Gross  Gross    
     Unrealized  Unrealized  Fair 
  Cost  Gains  Losses  Value 
  (In thousands) 
Common stocks $16,158  $18,420  $-  $34,578 
Closed-end Funds  36,546   22,189   (14)  58,721 
Mutual funds  3,566   2,110   -   5,676 
Total available for sale securities $56,270  $42,719  $(14) $98,975 
                 
  December 31, 2011 
      Gross  Gross     
      Unrealized  Unrealized  Fair 
  Cost  Gains  Losses  Value 
  (In thousands) 
Common stocks $16,487  $16,795  $-  $33,282 
Closed-end Funds  37,104   18,779   (28)  55,855 
Mutual funds  3,575   1,671   -   5,246 
Total available for sale securities $57,166  $37,245  $(28) $94,383 
                 
  March 31, 2011 
      Gross  Gross     
      Unrealized  Unrealized  Fair 
  Cost  Gains  Losses  Value 
  (In thousands) 
Common stocks $16,835  $20,573  $-  $37,408 
Closed-end Funds  39,232   22,502       61,734 
Mutual funds  3,848   2,656   -   6,504 
Total available for sale securities $59,915  $45,731  $-  $105,646 

  June 30, 2012 
     Gross  Gross    
     Unrealized  Unrealized  Fair 
  Cost  Gains  Losses  Value 
  (In thousands) 
Common stocks $15,934  $16,881  $-  $32,815 
Closed-end Funds  36,266   19,905   -   56,171 
Mutual funds  3,559   1,825   -   5,384 
Total available for sale securities $55,759  $38,611  $-  $94,370 
                 
  December 31, 2011 
      Gross  Gross     
      Unrealized  Unrealized  Fair 
  Cost  Gains  Losses  Value 
  (In thousands) 
Common stocks $16,487  $16,795  $-  $33,282 
Closed-end Funds  37,104   18,779   (28)  55,855 
Mutual funds  3,575   1,671   -   5,246 
Total available for sale securities $57,166  $37,245  $(28) $94,383 
                 
  June 30, 2011 
      Gross  Gross     
      Unrealized  Unrealized  Fair 
  Cost  Gains  Losses  Value 
  (In thousands) 
Common stocks $16,780  $18,516  $-  $35,296 
Closed-end Funds  38,588   22,312   -   60,900 
Mutual funds  3,611   2,443   -   6,054 
Total available for sale securities $58,979  $43,271  $-  $102,250 
                 
Unrealized changes to fair value, net of taxes, for the three months ended March 31,June 30, 2012 and March 31,June 30, 2011 of $3.5$2.6 million and $2.5$1.6 million in gains,losses, respectively, have been included in other comprehensive income, a component of equity, at March 31,June 30, 2012 and March 31,June 30, 2011.  Return of capital on available for sale securities were $0.6was $0.3 million and $0.2 million for both the three months ended March 31,June 30, 2012 and March 31, 2011.June 30, 2011, respectively.  Proceeds from sales of investments available for sale were approximately $0.5$0.3 million and $0.1$5.6 million for the three month periods ended March 31,June 30, 2012 and March 31,June 30, 2011, respectively.  For the three months ended March 31,June 30, 2012 and March 31,June 30, 2011, gross gains on the sale of investments available for sale amounted to $0.3$0.1 million and $0.1$0.5 million, respectively, and were reclassed from other comprehensive income into the condensed consolidated statements of income.  There were no losses on the sale of investments available for sale for the three months ended March 31,June 30, 2012 or March 31,June 30, 2011.  Unrealized changes to fair value, net of taxes, for the six months ended June 30, 2012 and June 30, 2011 of $0.9 million and $0.9 million in gains, respectively, have been included in other comprehensive income, a component of equity, at June 30, 2012 and June 30, 2011. Return of capital on available for sale securities was $0.8 million and $0.8 million for the six months ended June 30, 2012 and June 30, 2011, respectively.  Proceeds from sales of investments available for sale were approximately $0.8 million and $5.7 million for the six month periods ended June 30, 2012 and June 30, 2011, respectively.  For the six months ended June 30, 2012 and June 30, 2011, gross gains on the sale of investments available for sale amounted to $0.4 million and $0.6 million, respectively, and were reclassed from other comprehensive income into the condensed consolidated statements of income.  There were no losses on the sale of investments available for sale for the six months ended June 30, 2012 or June 30, 2011.  The basis on which the cost of a security sold is determined is specific identification.
13

Investments classified as available for sale that are in an unrealized loss position for which other-than-temporary impairment has not been recognized consisted of the following:
 
  March 31, 2012  December 31, 2011  March 31, 2011 
     Unrealized        Unrealized        Unrealized    
  Cost  Losses  Fair Value  Cost  Losses  Fair Value  Cost  Losses  Fair Value 
(in thousands)                           
Mutual Funds $97  $(14) $83  $101  $(28) $73  $-  $-  $- 

  June 30, 2012  December 31, 2011  June 30, 2011 
     Unrealized        Unrealized        Unrealized    
  Cost  Losses  Fair Value Cost  Losses  Fair Value Cost  Losses  Fair Value 
(in thousands)                           
Mutual Funds $-  $-  $-  $101  $(28) $73  $-  $-  $- 
                                     
At March 31, 2012 and December 31, 2011, there was one holding in a loss position which was not deemed to be other-than-temporarily impaired due to the length of time that it had been in a loss position and because it passed scrutiny in our evaluation of issuer-specific and industry-specific considerations.  In this specific instance, the investment at March 31, 2012 and December 31, 2011 was a closed-end fund with diversified holdings across multiple companies and across multiple industries.  The one holding was impaired for ten and seven consecutive months, respectively.months.  The value of this holding at March 31, 2012 and December 31, 2011 was $0.1 million for both periods.million.

13
At March 31,June 30, 2012 and June 30, 2011, there were no available for sale holdings in loss positions.

For the three and six months ended March 31,June 30, 2012, and 2011, there were nowas $20,000 of losses on available for sale securities deemed to be other than temporary.

C. Investments in Partnerships, Offshore Funds and Variable Interest Entities
 
The Company is general partner or co-general partner of various sponsored limited partnerships and the investment manager of various sponsored offshore funds, and havehas investments in these totaling $86.9$88.0 million, $86.9 million and $74.4$78.3 million at March 31,June 30, 2012, December 31, 2011 and March 31,June 30, 2011, respectively, whose underlying assets consist primarily of marketable securities (the “affiliated entities”).  We also have investments in unaffiliated partnerships, offshore funds and other entities of $14.8$14.1 million, $14.0 million and $20.2$20.3 million at March 31,June 30, 2012, December 31, 2011 and March 31,June 30, 2011, respectively (the “unaffiliated entities”).  We evaluate each entity for the appropriate accounting treatment and disclosure.  Certain of the affiliated entities are consolidated.  In addition, our statement of financial condition caption “Investments in partnerships” includes those investments, in both affiliated and unaffiliated entities, which the Company accounts for under the equity method of accounting, as well as certain investments that the feeder funds hold that are carried at fair value, as described in Note D.  The Company reflects the equity in earnings of these equity method investees and the change in fair value of the consolidated feeder funds under the caption “Net gaingain/(loss) from investments” on the condensed consolidated statements of income.

The following table highlights the number of entities that we consolidate as well as under which accounting guidance they are consolidated, including consolidated feeder funds (“CFFs”), which retain their specialized investment company accounting, partnerships and offshore funds.
 
Entities consolidated                                                
 CFFs  Partnerships  Offshore Funds  Total  CFFs  Partnerships  Offshore Funds  Total 
 VIEs  VOEs  VIEs  VOEs  VIEs  VOEs  VIEs  VOEs  VIEs  VOEs  VIEs  VOEs  VIEs  VOEs  VIEs  VOEs 
Entities consolidated at December 31, 2010  1   2   -   2   1   -   2   4   1   2   -   2   1   -   2   4 
Additional consolidated entities  -   -   -   -   -   1   -   1   -   -   -   -   -   1   -   1 
Deconsolidated entities  -   -   -   (1)  -   -   -   (1)  -   -   -   (1)  -   -   -   (1)
Entities consolidated at March 31, 2011  1   2   -   1   1   1   2   4 
Entities consolidated at June 30, 2011  1   2   -   1   1   1   2   4 
Additional consolidated entities  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   - 
Deconsolidated entities  -   -   -   -   (1)  -   (1)  -   -   -   -   -   (1)  -   (1)  - 
Entities consolidated at December 31, 2011  1   2   -   1   -   1   1   4   1   2   -   1   -   1   1   4 
Additional consolidated entities  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   - 
Deconsolidated entities  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   - 
Entities consolidated at March 31, 2012  1   2   -   1   -   1   1   4 
Entities consolidated at June 30, 2012  1   2   -   1   -   1   1   4 
                                
14

On January 1, 2011, upon analysis of several factors, including the additional contribution of capital from unrelated third parties into a partnership that we consolidated for the year ended and as of December 31, 2010, we determined that the Company was no longer deemed to control theone particular partnership, resulting in the deconsolidation of this partnership, effective January 1, 2011.  The deconsolidation did not result in the recognition of any gain or loss.  The Company continues to serve as the general partner and earn fees for this role, and it also maintains an investment in the deconsolidated partnership which is included in investments in partnerships on the condensed consolidated statements of financial condition and is accounted for under the equity method (which approximates fair value).
14

The following table includes the net impact by line item on the condensed consolidated statements of financial condition for each category of entity consolidated (in thousands):

 March 31, 2012  June 30, 2012 
 Prior to              Prior to         
 Consolidation  CFFs  Partnerships  Offshore Funds  As Reported  Consolidation CFFs Partnerships Offshore Funds As Reported 
Assets                          
Cash and cash equivalents $322,523  $-  $2,107  $-  $324,630  $323,560 $- $880 $- $324,440 
Investments in securities  236,387   -   6,503   14,717   257,607   223,198  -  6,993  19,439  249,630 
Investments in sponsored investment companies  62,289   -   16   -   62,305 
Investments in sponsored registered investment companies  59,561  -  -  -  59,561 
Investments in partnerships  109,136   990   (8,441)  -   101,685   109,055  1,237  (8,173) -  102,119 
Receivable from brokers  18,400   -   121   10,777   29,298   25,337  -  573  15,603  41,513 
Investment advisory fees receivable  27,189   5   (1)  -   27,193   26,028  (1) (1) -  26,026 
Other assets  23,691   16   -   -   23,707   23,226  9  -  206  23,441 
Total assets $799,615  $1,011  $305  $25,494  $826,425  $789,965 $1,245 $272 $35,248 $826,730 
Liabilities and equity                                    
Securities sold, not yet purchased $9,633  $-  $-  $24  $9,657  $6,788 $- $- $222 $7,010 
Accrued expenses and other liabilities  101,149   59   38   9,861   111,107   87,569  56  20  10,305  97,950 
Total debt  264,300   -   -   -   264,300   265,598  -  -  -  265,598 
Redeemable noncontrolling interests  -   952   267   15,609   16,828   -  1,189  252  24,721  26,162 
Total equity  424,533   -   -   -   424,533   430,010  -  -  -  430,010 
Total liabilities and equity $799,615  $1,011  $305  $25,494  $826,425  $789,965 $1,245 $272 $35,248 $826,730 
                                    
 December 31, 2011  December 31, 2011 
 Prior to                  Prior to             
 Consolidation  CFFs  Partnerships  Offshore Funds  As Reported  Consolidation CFFs Partnerships Offshore Funds As Reported 
Assets                                    
Cash and cash equivalents $259,531  $15,000  $1,809  $-  $276,340  $259,531 $15,000 $1,809 $- $276,340 
Investments in securities  225,599   -   6,211   6,523   238,333   225,599  -  6,211  6,523  238,333 
Investments in sponsored investment companies  59,197   -   17   -   59,214 
Investments in sponsored registered investment companies  59,197  -  17  -  59,214 
Investments in partnerships  107,981   933   (8,021)  -   100,893   107,981  933  (8,021) -  100,893 
Receivable from brokers  17,593   -   270   3,050   20,913   17,593  -  270  3,050  20,913 
Investment advisory fees receivable  32,157   1   (2)  -   32,156   32,157  1  (2) -  32,156 
Other assets  43,889   (14,989)  -   -   28,900   43,889  (14,989) -  -  28,900 
Total assets $745,947  $945  $284  $9,573  $756,749  $745,947 $945 $284 $9,573 $756,749 
Liabilities and equity                                    
Securities sold, not yet purchased $5,488  $-  $-  $-  $5,488  $5,488 $- $- $- $5,488 
Accrued expenses and other liabilities  69,929   51   28   4,652   74,660   69,929  51  28  4,652  74,660 
Total debt  263,119   -   -   -   263,119   263,119  -  -  -  263,119 
Redeemable noncontrolling interests  -   894   256   4,921   6,071   -  894  256  4,921  6,071 
Total equity  407,411   -   -   -   407,411   407,411  -  -  -  407,411 
Total liabilities and equity $745,947  $945  $284  $9,573  $756,749  $745,947 $945 $284 $9,573 $756,749 
                                    
 March 31, 2011  June 30, 2011 
 Prior to                  Prior to             
 Consolidation  CFFs  Partnerships  Offshore Funds  As Reported  Consolidation CFFs Partnerships Offshore Funds As Reported 
Assets                                    
Cash and cash equivalents $162,685  $-  $32  $1,954  $164,671  $260,740 $- $98 $1 $260,839 
Investments in securities  196,142   -   6,542   77,029   279,713   218,330  -  7,048  73,047  298,425 
Investments in sponsored investment companies  65,879   -   24   -   65,903 
Investments in sponsored registered investment companies  64,858  -  22  -  64,880 
Investments in partnerships  155,507   1,124   (8,587)  (53,460)  94,584   160,435  1,158  (8,892) (54,103) 98,598 
Receivable from brokers  24,631   -   2,390   16,287   43,308   11,155  -  1,932  22,881  35,968 
Investment advisory fees receivable  25,043   9   (2)  (58)  24,992   25,801  19  (1) (73) 25,746 
Other assets  24,258   10   -   64   24,332   26,134  11  -  57  26,202 
Total assets $654,145  $1,143  $399  $41,816  $697,503  $767,453 $1,188 $207 $41,810 $810,658 
Liabilities and equity                                    
Securities sold, not yet purchased $3,279  $-  $-  $12,271  $15,550  $2,910 $- $- $7,334 $10,244 
Accrued expenses and other liabilities  88,681   95   55   2,053   90,884   94,928  117  31  204  95,280 
Total debt  159,697   -   -   -   159,697   260,814  -  -  -  260,814 
Redeemable noncontrolling interests  -   1,048   344   27,492   28,884   -  1,071  176  34,272  35,519 
Total equity  402,488   -   -   -   402,488   408,801  -  -  -  408,801 
Total liabilities and equity $654,145  $1,143  $399  $41,816  $697,503  $767,453 $1,188 $207 $41,810 $810,658 
                
 
 
15
 
 

The following table includes the net impact by line item on the condensed consolidated statements of income for each category of entity consolidated (in thousands):

 Three Months Ended March 31, 2012  Three Months Ended June 30, 2012 
 Prior to              Prior to             
 Consolidation  CFFs  Partnerships  Offshore Funds  As Reported  Consolidation CFFs  Partnerships  Offshore Funds As Reported 
Total revenues $82,579  $(1) $(1) $(828) $81,749  $80,703  $(1) $-  $322  $81,024 
Total expenses  54,521   23   11   182   54,737   50,649   25   8   (25)  50,657 
Operating income  28,058   (24)  (12)  (1,010)  27,012   30,054   (26)  (8)  347   30,367 
Total other income, net  9,544   85   23   1,058   10,710 
Total other income (expense), net  (6,361)  12   (6)  (463)  (6,818)
Income before income taxes  37,602   61   11   48   37,722   23,693   (14)  (14)  (116)  23,549 
Income tax provision  13,756   -   -   -   13,756   8,686   -   -   -   8,686 
Net income  23,846   61   11   48   23,966   15,007   (14)  (14)  (116)  14,863 
Net income attributable to noncontrolling interests  10   61   11   48   130 
Net loss attributable to noncontrolling interests  (98)  (14)  (14)  (116)  (242)
Net income attributable to GAMCO $23,836  $-  $-  $-  $23,836  $15,105  $-  $-  $-  $15,105 
                                        
 Three Months Ended March 31, 2011  Three Months Ended June 30, 2011 
 Prior to                  Prior to                 
 Consolidation  CFFs  Partnerships  Offshore Funds  As Reported  Consolidation CFFs  Partnerships  Offshore Funds As Reported 
Total revenues $76,968  $(4) $(1) $(58) $76,905  $85,152  $-  $-  $(71) $85,081 
Total expenses  55,974   31   15   125   56,145   54,432   28   8   116   54,584 
Operating income  20,994   (35)  (16)  (183)  20,760   30,720   (28)  (8)  (187)  30,497 
Total other income, net  6,996   251   96   466   7,809   1,903   (72)  (160)  456   2,127 
Income before income taxes  27,990   216   80   283   28,569   32,623   (100)  (168)  269   32,624 
Income tax provision  10,288   -   -   -   10,288   11,945   -   -   -   11,945 
Net income  17,702   216   80   283   18,281   20,678   (100)  (168)  269   20,679 
Net income attributable to noncontrolling interests  59   216   80   283   638 
Net income/(loss) attributable to noncontrolling interests  31   (100)  (168)  269   32 
Net income attributable to GAMCO $17,643  $-  $-  $-  $17,643  $20,647  $-  $-  $-  $20,647 
                    
                    
 Six Months Ended June 30, 2012 
 Prior to                 
 Consolidation CFFs  Partnerships  Offshore Funds As Reported 
Total revenues $163,282  $(2) $(1) $(506) $162,773 
Total expenses  105,170   48   19   157   105,394 
Operating income  58,112   (50)  (20)  (663)  57,379 
Total other income, net  3,183   97   17   595   3,892 
Income before income taxes  61,295   47   (3)  (68)  61,271 
Income tax provision  22,442   -   -   -   22,442 
Net income  38,853   47   (3)  (68)  38,829 
Net income/(loss) attributable to noncontrolling interests  (88)  47   (3)  (68)  (112)
Net income attributable to GAMCO $38,941  $-  $-  $-  $38,941 
                    
 Six Months Ended June 30, 2011 
 Prior to                 
 Consolidation CFFs  Partnerships  Offshore Funds As Reported 
Total revenues $162,120  $(4) $(1) $(129) $161,986 
Total expenses  110,406   59   23   241   110,729 
Operating income  51,714   (63)  (24)  (370)  51,257 
Total other income, net  8,899   179   (64)  922   9,936 
Income before income taxes  60,613   116   (88)  552   61,193 
Income tax provision  22,233   -   -   -   22,233 
Net income  38,380   116   (88)  552   38,960 
Net income/(loss) attributable to noncontrolling interests  90   116   (88)  552   670 
Net income attributable to GAMCO $38,290  $-  $-  $-  $38,290 
                    
 
Variable Interest Entities

We also have sponsored a number of investment vehicles where we are the general partner or investment manager.  These vehicles are variable interest entities (“VIEs”), and we are not the primary beneficiary because we do not absorb a majority of the entities’ expected losses or expected returns.  The Company has not provided any financial or other support to these entities.  The total assets of these entities at March 31,June 30, 2012, December 31, 2011 and March 31,June 30, 2011 were $74.5$80.0 million, $73.7 million and $9.8$23.5 million, respectively.  Our maximum exposure to loss as a result of our involvement with the VIEs is limited to the investment in one VIE and the deferred carried interest that we have in another.  On March 31,June 30, 2012 and December 31, 2011, we had an investment in one of the VIE offshore funds of approximately $8.2$8.1 million and $5.0 million, respectively, which was included in investments in partnerships on the condensed consolidated statements of financial condition.  On March 31,June 30, 2012, December 31, 2011 and March 31,June 30, 2011, we had a deferred carried interest in one of the VIE offshore funds of approximately $49,000,$43,000, $47,000 and $48,000,$49,000, respectively, which was included in investments in partnerships on the condensed consolidated statements of financial condition.  Additionally, as the general partner or investment manager to these VIEs the Company earns fees in relation to these roles, which given a decline in AUMs of the VIEs would result in lower fee revenues earned by the Company which would be reflected on the condensed consolidated statements of income, condensed consolidated statements of financial condition and condensed consolidated statements of cash flows.

16
Prior to January 1, 2011, we were consolidating two VIEs since we had determined that we were the primary beneficiary of each because we had equity interests and absorbed a majority of each entity’s expected losses; therefore they were consolidated in the financial statements.  Effective October 1, 2011, we deconsolidated one of the VIEs upon analysis of several factors, including the redemption of $49.2 million of proprietary capital from this VIE by which, we determined that the Company was no longer deemed to be the primary beneficiary of the VIE.  The deconsolidation did not result in the recognition of any gain or loss.  The Company has not provided any financial support to these VIEs but does continue to serve as the investment manager and earn fees for this role, and it also maintains an investment in the deconsolidated VIE, which is included in investments in partnerships on the condensed consolidated statements of financial condition and is accounted for under the equity method (which approximates fair value).  The assets of these VIEs may only be used to satisfy obligations of the VIEs.  The following table presents the balances related to these VIEs that are consolidated and were included on the condensed consolidated statements of financial condition as well as GAMCO’s net interest in these VIEs:
16

VIEs.  Only one VIE is consolidated at June 30, 2012 and December 31, 2011 and two at June 30, 2011:
 
 March 31,  December 31,  March 31,  June 30,  December 31,  June 30, 
 2012  2011  2011  2012  2011  2011 
(In thousands)                  
Cash and cash equivalents $-  $15,000  $-  $-  $15,000  $1 
Investments in securities  -   -   -   -   -   73,047 
Investments in partnerships  17,183   1,433   1,598   21,831   1,433   1,576 
Receivable from brokers  -   -   -   -   -   22,881 
Other assets  -   -   -   -   -   57 
Securities sold, not yet purchased  -   -   -   -   -   (7,334)
Accrued expenses and other liabilities  (7)  (15,006)  (41)  (12)  (15,006)  (327)
Redeemable noncontrolling interests  (403)  (381)  (522)  (669)  (381)  (34,794)
GAMCO's net interests in consolidated VIEs $16,773  $1,046  $1,035  $21,150  $1,046  $55,107 
            
 
D. Fair Value

All of the instruments within cash and cash equivalents, investments in securities and securities sold, not yet purchased are measured at fair value.  Certain investments in partnerships are also measured at fair value.

The Company’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with the FASB’s guidance on fair value measurement.  The levels of the fair value hierarchy and their applicability to the Company are described below:

-  Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date.  Level 1 assets include cash equivalents, government obligations, open-end mutual funds, closed-end funds and equities.
-  Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.  Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities that are not active and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly-quoted intervals.  Assets that generally are included in this category may include certain limited partnership interests in private funds in which the valuations for substantially all of the investments within the fund are based upon Level 1 or Level 2 inputs and over the counter derivatives that have inputs to the valuations that can generally be corroborated by observable market data.
-  Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.  Assets included in this category generally include equities that trade infrequently and direct private equity investments held within consolidated partnerships.
 
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.  Investments are transferred into or out of any level at their beginning period values.

17
The availability of observable inputs can vary from product to product and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the transaction.  To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.  Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3.

The valuation process and policies reside with the financial reporting and accounting group which reports to the Chief Financial Officer.  The Company uses the “market approach” valuation technique to value its investments in Level 3 investments.  The Company’s valuation of the Level 3 investments has been based upon either i) the recent sale prices of the issuersissuer’s equity securities or ii) the net assets, book value or cost basis of the issuer when there is no recent sales prices available.

In the absence of a closing price, an average of the bid and ask price is used.  Bid prices reflect the highest price that the market is willing to pay for an asset.  Ask prices represent the lowest price that the market is willing to accept for an asset.
17

Cash equivalents – Cash equivalents primarily consist of an affiliated money market mutual fund which is invested solely in U.S. Treasuries.  U.S. Treasury Bills and Notes with maturities of three months or less at the time of purchase are also considered cash equivalents.  Cash equivalents are valued using quoted market prices.

Investments in securities and securities sold, not yet purchased – Investments in securities and securities sold, not yet purchased are generally valued based on quoted prices from an exchange.  To the extent these securities are actively traded, valuation adjustments are not applied, and they are categorized in Level 1 of the fair value hierarchy.  Securities categorized in Level 2 investments are valued using other observable inputs.  Nonpublic and infrequently traded investments are included in Level 3 of the fair value hierarchy because significant inputs to measure fair value are unobservable.

Investments in Partnerships – The Company’s investments include limited partner investments in consolidated feeder funds.  The Company considers the net asset value of the master funds held by the consolidated feeder fund to be the best estimate of fair value.  Investments in private funds that are redeemable at the measurement date or within the near term, are categorized in Level 2 of the fair value hierarchy.  These funds primarily invest in long and short investments in debt and equity securities that are traded in public and over-the-counter exchanges in the United States and are generally classified as Level 1 assets or liabilities in the master funds’ financial statements.  We may redeem our investments in these funds monthly with 30 days’ notice.

The following tables present information about the Company’s assets and liabilities by major categories measured at fair value on a recurring basis as of March 31,June 30, 2012, December 31, 2011 and March 31,June 30, 2011 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:
18

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of March 31,June 30, 2012 (in thousands)
 
 Quoted Prices in Active  Significant Other  Significant  Balance as of  Quoted Prices in Active Significant Other  Significant  Balance as of 
 Markets for Identical  Observable  Unobservable  March 31,  Markets for Identical Observable  Unobservable  June 30, 
Assets Assets (Level 1)  Inputs (Level 2)  Inputs (Level 3)  2012  Assets (Level 1)  Inputs (Level 2)  Inputs (Level 3)  2012 
Cash equivalents $324,333  $-  $-  $324,333  $324,156  $-  $-  $324,156 
Investments in partnerships  -   23,166   -   23,166   -   23,704   -   23,704 
Investments in securities:                                
AFS - Common stocks  34,578   -   -   34,578   32,815   -   -   32,815 
AFS - Mutual funds  2,109   -   -   2,109   2,013   -   -   2,013 
Trading - Gov't obligations  48,630   -   -   48,630   50,139   -   -   50,139 
Trading - Common stocks  169,463   114   647   170,224   161,956   256   671   162,883 
Trading - Mutual funds  1,495   -   -   1,495   1,406   -   -   1,406 
Trading - Other  293   -   278   571   23   -   351   374 
Total investments in securities  256,568   114   925   257,607   248,352   256   1,022   249,630 
Investments in sponsored registered investment companies:Investments in sponsored registered investment companies:             Investments in sponsored registered investment companies:         
AFS - Closed-end Funds  58,721   -   -   58,721   56,171   -   -   56,171 
AFS - Mutual Funds  3,567   -   -   3,567   3,371   -   -   3,371 
Trading - Mutual funds  17   -   -   17   19   -   -   19 
Total investments in sponsored                                
registered investment companies  62,305   -   -   62,305   59,561   -   -   59,561 
Total investments  318,873   23,280   925   343,078   307,913   23,960   1,022   332,895 
Total assets at fair value $643,206  $23,280  $925  $667,411  $632,069  $23,960  $1,022  $657,051 
Liabilities                                
Trading - Common stocks $9,553  $-  $-  $9,553  $6,687  $-  $-  $6,687 
Trading - Other  -   104   -   104   -   323   -   323 
Securities sold, not yet purchased $9,553  $104  $-  $9,657  $6,687  $323  $-  $7,010 
                
18

 
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2011 (in thousands)
 
  Quoted Prices in Active Significant Other  Significant  Balance as of 
  Markets for Identical Observable  Unobservable  December 31, 
Assets Assets (Level 1)  Inputs (Level 2)  Inputs (Level 3)  2011 
Cash equivalents $260,969  $-  $-  $260,969 
Investments in partnerships  -   27,122   -   27,122 
Investments in securities:                
  AFS - Common stocks  33,282   -   -   33,282 
  AFS - Mutual funds  1,905   -   -   1,905 
  Trading - Gov't obligations  42,126   -   -   42,126 
  Trading - Common stocks  158,623   21   670   159,314 
  Trading - Mutual funds  1,307   -   -   1,307 
  Trading - Other  55   60   284   399 
Total investments in securities  237,298   81   954   238,333 
Investments in sponsored registered investment companies:         
  AFS - Closed-end Funds  55,855   -   -   55,855 
  AFS - Mutual Funds  3,341   -   -   3,341 
  Trading - Mutual funds  18   -   -   18 
Total investments in sponsored                
  registered investment companies  59,214   -   -   59,214 
Total investments  296,512   27,203   954   324,669 
Total assets at fair value $557,481  $27,203  $954  $585,638 
Liabilities                
  Trading - Common stocks $5,415  $-  $-  $5,415 
  Trading - Other  -   73   -   73 
Securities sold, not yet purchased $5,415  $73  $-  $5,488 
                 
19

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of March 31,June 30, 2011 (in thousands)
 
  Quoted Prices in Active  Significant Other  Significant  Balance as of 
  Markets for Identical  Observable  Unobservable  March 31, 
Assets Assets (Level 1)  Inputs (Level 2)  Inputs (Level 3)  2011 
Cash equivalents $161,946  $-  $-  $161,946 
Investments in partnerships  -   28,473   -   28,473 
Investments in securities:                
  AFS - Common stocks  37,408   -   -   37,408 
  AFS - Mutual funds  2,360   -   -   2,360 
  Trading - Gov't obligations  12,076   -   -   12,076 
  Trading - Common stocks  225,008   13   568   225,589 
  Trading - Mutual funds  1,629   -   -   1,629 
  Trading - Convertible bonds  175   -   -   175 
  Trading - Other  120   -   356   476 
Total investments in securities  278,776   13   924   279,713 
Investments in sponsored registered investment companies:             
  AFS - Closed-end Funds  61,734   -   -   61,734 
  AFS - Mutual Funds  4,144   -   -   4,144 
  Trading - Mutual funds  25   -   -   25 
Total investments in sponsored                
  registered investment companies  65,903   -   -   65,903 
Total investments  344,679   28,486   924   374,089 
Total assets at fair value $506,625  $28,486  $924  $536,035 
Liabilities                
  Trading - Common stocks $15,550  $-  $-  $15,550 
Securities sold, not yet purchased $15,550  $-  $-  $15,550 

19
  Quoted Prices in Active Significant Other  Significant  Balance as of 
  Markets for Identical Observable  Unobservable  June 30, 
Assets Assets (Level 1)  Inputs (Level 2)  Inputs (Level 3)  2011 
Cash equivalents $260,177  $-  $-  $260,177 
Investments in partnerships  -   27,977   -   27,977 
Investments in securities:                
  AFS - Common stocks  35,296   -   -   35,296 
  AFS - Mutual funds  2,098   -   -   2,098 
  Trading - Gov't obligations  7,925   -   -   7,925 
  Trading - Common stocks  250,524   10   584   251,118 
  Trading - Mutual funds  1,501   -   -   1,501 
  Trading - Other  118   -   369   487 
Total investments in securities  297,462   10   953   298,425 
Investments in sponsored registered investment companies:         
  AFS - Closed-end Funds  60,900   -   -   60,900 
  AFS - Mutual Funds  3,956   -   -   3,956 
  Trading - Mutual funds  24   -   -   24 
Total investments in sponsored                
  registered investment companies  64,880   -   -   64,880 
Total investments  362,342   27,987   953   391,282 
Total assets at fair value $622,519  $27,987  $953  $651,459 
Liabilities                
  Trading - Common stocks $10,238  $-  $-  $10,238 
  Trading - Other  6   -   -   6 
Securities sold, not yet purchased $10,244  $-  $-  $10,244 
                 
 
The following tables present additional information about assets by major categories measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended March 31, 2012 (in thousands)
           Total                
           Unrealized                
           Gains or  Total             
     Total Realized and  (Losses)  Realized             
  December  Unrealized Gains or  Included in  and        Transfers    
   31, 2011  (Losses) in Income  Other  Unrealized        In and/or    
  Beginning     AFS  Comprehensive  Gains or        (Out) of  Ending 
Asset Balance  Trading  Investments Income  (Losses)  Purchases  Sales  Level 3  Balance 
Financial                            
instruments owned:                            
Trading - Common                            
  stocks $670  $-  $-  $-  $-  $57  $(80) $-  $647 
Trading - Other  284   (2)  -   -   (2)  4   (8)  -   278 
Total $954  $(2) $-  $-  $(2) $61  $(88) $-  $925 
There were no transfers between any Levels during the three months ended March 31, 2012.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended March 31, 2011June 30, 2012 (in thousands)
 
          Total                       Total           
          Unrealized                       Unrealized           
          Gains or  Total                    Gains or Total         
    Total Realized and  (Losses)  Realized                Total Realized and (Losses) Realized         
 December  Unrealized Gains or  Included in  and        Transfers     March Unrealized Gains or Included in and     Transfers   
  31, 2010  (Losses) in Income  Other  Unrealized        In and/or     31, 2012  (Losses) in Income Other Unrealized     In and/or   
 Beginning     AFS  Comprehensive  Gains or        (Out) of  Ending  Beginning   AFS Comprehensive Gains or     (Out) of Ending 
Asset Balance  Trading  Investments Income  (Losses)  Purchases  Sales  Level 3  Balance  Balance Trading Investments Income (Losses) Purchases Sales Level 3 Balance 
Financial                                                
instruments owned:                            instruments owned:                 
Trading - Common                            Trading - Common                 
stocks $147  $21  $-  $-  $21  $400  $-  $-  $568  $647 $24 $- $- $24 $- $- $- $671 
Trading - Other  278   126   -   -   126   -   (48)  -   356   278  59  -  -  59  14  -  -  351 
Total $425  $147  $-  $-  $147  $400  $(48) $-  $924  $925 $83 $- $- $83 $14 $- $- $1,022 
                            
 
There were no transfers between any Levels during the three months ended March 31,June 30, 2012.
20

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended June 30, 2011 (in thousands)
        Total           
        Unrealized           
        Gains or Total         
    Total Realized and (Losses) Realized         
  March Unrealized Gains or Included in and     Transfers   
  31, 2011  (Losses) in Income Other Unrealized     In and/or   
  Beginning   AFS Comprehensive Gains or     (Out) of Ending 
Asset Balance Trading Investments Income (Losses) Purchases Sales Level 3 Balance 
Financial                    
instruments owned:                 
Trading - Common                 
  stocks $568 $16 $- $- $16 $14 $(14)$- $584 
Trading - Other  356  (3) -  -  (3) 10  -  6  369 
Total $924 $13 $- $- $13 $24 $(14)$6 $953 
                             
There were no transfers between Level 1 and Level 2 during the three months ended June 30, 2011.  Transfers are based on the value at the beginning of the period.  During the three months ended June 30, 2011, the Company reclassed approximately $6,000 of investments from Level 1 to Level 3.  The reclassifications were due to decreased availability of market price quotations and were based on the values at the beginning of the period in which the reclass occurred.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Six Months Ended June 30, 2012 (in thousands)
        Total           
        Unrealized           
        Gains or Total         
    Total Realized and (Losses) Realized         
  December Unrealized Gains or Included in and     Transfers   
  31, 2011  (Losses) in Income Other Unrealized     In and/or   
  Beginning   AFS Comprehensive Gains or     (Out) of Ending 
Asset Balance Trading Investments Income (Losses) Purchases Sales Level 3 Balance 
Financial                    
instruments owned:                 
Trading - Common                 
  stocks $670 $24 $- $- $24 $57 $(80)$- $671 
Trading - Other  284  57  -  -  57  18  (8) -  351 
Total $954 $81 $- $- $81 $75 $(88)$- $1,022 
                             
There were no transfers between any Levels during the six months ended June 30, 2012.
21

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Six Months Ended June 30, 2011 (in thousands)
        Total           
        Unrealized           
        Gains or Total         
    Total Realized and (Losses) Realized         
  December Unrealized Gains or Included in and     Transfers   
  31, 2010  (Losses) in Income Other Unrealized     In and/or   
  Beginning   AFS Comprehensive Gains or     (Out) of Ending 
Asset Balance Trading Investments Income (Losses) Purchases Sales Level 3 Balance 
Financial                    
instruments owned:                 
Trading - Common                 
  stocks $147 $37 $- $- $37 $414 $(14)$- $584 
Trading - Other  278  123  -  -  123  10  (48) 6  369 
Total $425 $160 $- $- $160 $424 $(62)$6 $953 
                             
There were no transfers between Level 1 and Level 2 during the six months ended June 30, 2011.  Transfers are based on the value at the beginning of the period.  During the six months ended June 30, 2011, the Company reclassed approximately $6,000 of investments from Level 1 to Level 3.  The reclassifications were due to decreased availability of market price quotations and were based on the values at the beginning of the period in which the reclass occurred.

E. Debt

Debt consists of the following:
 
  March 31, 2012  December 31, 2011  March 31, 2011 
  Carrying  Fair Value  Carrying  Fair Value  Carrying  Fair Value 
  Value  Level 2  Value  Level 2  Value  Level 2 
(In thousands)                  
5.5% Senior notes $99,000  $100,733  $99,000  $93,070  $99,000  $102,614 
5.875% Senior notes  100,000   104,375   100,000   100,733   -   - 
0% Subordinated debentures  65,300   66,774   64,119   58,899   60,697   57,006 
Total $264,300  $271,882  $263,119  $252,702  $159,697  $159,620 
20
  June 30, 2012  December 31, 2011  June 30, 2011 
  Carrying  Fair Value  Carrying  Fair Value  Carrying  Fair Value 
  Value  Level 2  Value  Level 2  Value  Level 2 
(In thousands)                  
5.5% Senior notes $99,000  $100,955  $99,000  $100,733  $99,000  $103,455 
5.875% Senior notes  100,000   99,950   100,000   93,070   100,000   97,440 
0% Subordinated debentures  66,598   75,184   64,119   58,899   61,814   57,956 
Total $265,598  $276,089  $263,119  $252,702  $260,814  $258,851 
                         
 
On May 31, 2011, the Company issued $100 million of senior unsecured notes at par.  The net proceeds of $99.1 million were used for working capital and general corporate purposes.  The issuance costs of $0.9 million have been capitalized and will beare being amortized over the term of the debt.  The notes mature on June 1, 2021 and bear interest at 5.875% per annum, payable semi-annually on June 1 and December 1 of each year and commenced on December 1, 2011.  Upon the occurrence of a change of control triggering event, as defined in the indenture, the Company would be required to offer to repurchase the notes at 101% of their principal amount.

On December 31, 2010, the Company issued $86.4 million in par value of five year zero coupon subordinated debentures due December 31, 2015 (“Debentures”) to its shareholders of record on December 15, 2010 through the declaration of a special dividend of $3.20 per share.  The Debentures have a par value of $100 and are callable at the option of the Company, in whole or in part, at any time or from time to time, at a redemption price equal to 100% of the principal amount of the Debentures to be redeemed.  During the threesix months ended March 31,June 30, 2012, the Company repurchased 229 Debentures having a face value of $22,900.  The redemption was accounted for as an extinguishment of debt and resulted in a loss of $1,000, which was included in net gain from investments on the condensed consolidated statements of income.  There were no repurchases for the three months ended June 30, 2012 or for the three and six month periodperiods ended March 31,June 30, 2011.  The debt is being accreted to its face value using the effective rate on the date of issuance of 7.45%.  At March 31,June 30, 2012, December 31, 2011 and March 31,June 30, 2011, the debt was recorded at its accreted value of $65.3$66.6 million, $64.1 million and $59.6$61.8 million, respectively.

The fair value of the Company’s debt, which is a Level 2 valuation, is estimated based on either quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities or using market standard models.  Inputs in these standard models include credit rating, maturity and interest rate.
22
On May 30, 2012, the Securities and Exchange Commission (“SEC”) declared effective the “shelf” registration statement filed by the Company.  The “shelf” provides the Company with the flexibility of issuing any combination of senior and subordinated debt securities, convertible securities and common and preferred securities up to a total amount of $500 million and replaced the existing shelf registration which was due to expire in July 2012.  $400 million is available on the shelf.

F. Income Taxes
 
The effective tax rate for the three months ended March 31,June 30, 2012 was 36.5%36.9% compared to 36.0%36.6% for the prior year three month period.  Prior to the consolidation of certain partnerships and offshore entities, in which no tax liability or benefit is recorded at the corporate level but which flow directly to its partners, theThe effective tax rate was 36.5% and 36.8% for the first quarter ofsix months ended June 30, 2012 and 2011, respectively.was 36.6% compared to 36.3% for the prior year six month period.

G. Earnings Per Share
 
The computations of basic and diluted net income per share are as follows:
 
  Three Months Ended March 31, 
(in thousands, except per share amounts) 2012  2011 
Basic:      
Net income attributable to GAMCO Investors, Inc.'s shareholders $23,836  $17,643 
Weighted average shares outstanding  26,415   26,901 
Basic net income attributable to GAMCO Investors, Inc.'s        
  shareholders per share $0.90  $0.66 
         
Diluted:        
Net income attributable to GAMCO Investors, Inc.'s shareholders $23,836  $17,643 
         
Weighted average share outstanding  26,415   26,901 
Dilutive stock options and restricted stock awards  118   107 
Total  26,533   27,008 
Diluted net income attributable to GAMCO Investors, Inc.'s        
  shareholders per share $0.90  $0.65 

21
  Three Months Ended June 30,  Six Months Ended June 30, 
(in thousands, except per share amounts) 2012  2011  2012  2011 
Basic:            
Net income attributable to GAMCO Investors, Inc.'s shareholders $15,105  $20,647  $38,941  $38,290 
Weighted average shares outstanding  26,258   26,665   26,338   26,783 
Basic net income attributable to GAMCO Investors, Inc.'s                
  shareholders per share $0.58  $0.77  $1.48  $1.43 
                 
Diluted:                
Net income attributable to GAMCO Investors, Inc.'s shareholders $15,105  $20,647  $38,941  $38,290 
                 
Weighted average share outstanding  26,258   26,665   26,338   26,783 
Dilutive stock options and restricted stock awards  168   68   163   89 
Total  26,426   26,733   26,501   26,872 
Diluted net income attributable to GAMCO Investors, Inc.'s                
  shareholders per share $0.57  $0.77  $1.47  $1.42 
                 
                 
 
H. Stockholders’ Equity
 
Shares outstanding were 26.6 million on March 31,June 30, 2012, 26.8 million on December 31, 2011, and 27.126.8 million on March 31,June 30, 2011.

Dividends
 
PaymentRecord
DateDateAmount
Three months ended March 31, 2012March 27, 2012March 13, 2012 $    0.04
Three months ended March 31, 2011March 29, 2011March 15, 2011 $    0.03

 PaymentRecord   
 DateDate Amount 
      
Three months ended March 31, 2012March 27, 2012March 13, 2012 $0.04 
Three months ended June 30, 2012June 26, 2012June 12, 2012  0.29 
Six months ended June 30, 2012   $0.33 
       
Three months ended March 31, 2011March 29, 2011March 15, 2011 $0.03 
Three months ended June 30, 2011June 28, 2011June 14, 2011  0.04 
Six months ended June 30, 2011   $0.07 
       
Voting Rights

The holders of Class A Common stock (“Class A Shares”Stock”) and Class B Common stock (“Class B Stock”) have identical rights except that (i) holders of Class A Stock are entitled to one vote per share, while holders of Class B Stock are entitled to ten votes per share on all matters to be voted on by shareholders in general, and (ii) holders of Class A Stock are not eligible to vote on matters relating exclusively to Class B Stock and vice versa.

Stock Award and Incentive Plan
 
The Company maintains two Plansplans approved by the shareholders, which are designed to provide incentives which will attract and retain individuals key to the success of GAMCO through direct or indirect ownership of our common stock.  Benefits under the Plans may be granted in any one or a combination of stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, dividend equivalents and other stock or cash based awards.  A maximum of 1.5 million shares of Class A Stock have been reserved for issuance under each of the Plans by a committee of the Board of Directors responsible for administering the Plans (“Compensation Committee”).  Under the Plans, the committee may grant RSAs and either incentive or nonqualified stock options with a term not to exceed ten years from the grant date and at an exercise price that the committee may determine.  Options granted under the Plansplans typically vest 75% after three years and 100% after four years from the date of grant and expire after ten years.  Restricted stock award (“RSA”) shares granted under the Plans typically vest 30% after three years and 100% after five years.

On January 3, 2012, the Company approved the granting of 105,300 RSA shares at a grant date fair value of $43.49 per share.  On January 15, 2011, and February 9, 2011, the Company approved the granting of 193,900 RSA shares and 3,300 RSA shares, respectively, at a grant date fair value of $48.85 per share and $45.77 per share, respectively.  As of March 31,June 30, 2012, December 31, 2011 and March 31,June 30, 2011, there were 375,000373,500 RSA shares, 275,600 RSA shares and 293,800289,800 RSA shares, respectively, outstanding that were previously issued at an average weighted grant price of $45.14,$45.15, $45.56 and $45.54,$45.50, respectively.  All grants of the RSA shares were recommended by the Company's Chairman, who did not receive a RSA, and approved by the Compensation Committee.  This expense, net of forfeitures, is recognized over the vesting period for these awards which is 30% over three years from the date of grant and 70% over five years from the date of grant.  During the vesting period, dividends to RSA holders are held for them until the RSA vesting dates and are forfeited if the grantee is no longer employed by the Company on the vesting dates.  Dividends declared on these RSAs, less estimated forfeitures, are charged to retained earnings on the declaration date.
 
For the three months ended March 31,June 30, 2012 and March 31,June 30, 2011, we recognized stock-based compensation expense of $0.9 million and $0.6$0.7 million, respectively.  For the six months ended June 30, 2012 and June 30, 2011, we recognized stock-based compensation expense of $1.7 million and $1.3 million, respectively.  Actual and projected stock-based compensation expense for RSA shares and options for the years ended December 31, 2011 through December 31, 2016 (based on awards currently issued or granted) is as follows ($ in thousands):
 
   2011  2012  2013  2014  2015  2016 
 Q1  $577  $871  $870  $625  $494  $175 
 Q2   686   870   848   588   462   128 
 Q3   655   870   805   588   399   128 
 Q4   670   870   805   588   399   128 
Full Year  $2,588  $3,481  $3,328  $2,389  $1,754  $559 
   2011  2012  2013  2014  2015  2016 
 Q1  $577  $871  $870  $625  $494  $175 
 Q2   686   869   848   588   462   128 
 Q3   655   870   805   588   399   128 
 Q4   670   870   805   588   399   128 
Full Year  $2,588  $3,480  $3,328  $2,389  $1,754  $559 
                           
 
The total compensation costscost related to non-vested RSAs and options not yet recognized is approximately $10.6$9.8 million as of March 31,June 30, 2012.  For the three and six months ended June 30, 2012, proceeds from the exercise of 2,000 stock options were $58,000 resulting in a tax benefit to GAMCO of $3,000.  There were no options exercised in either the three or six month periodperiods ended March 31, 2012 or March 31,June 30, 2011.
22
  The Company recognized $21,000 in tax benefits from 3,900 RSAs that vested during the six months ended June 30, 2012.

Stock Repurchase Program
 
In March 1999, GAMCO's Board of Directors established the Stock Repurchase Program to grant management the authority to repurchase shares of our Class A Common Stock.  On May 6, 2011, our Board of Directors authorized an incremental 500,000 shares to be added to the current buyback authorization.  For the three months ended March 31,June 30, 2012 and March 31,June 30, 2011, the Company repurchased 224,7333,369 shares and 161,588268,621 shares, respectively, at an average price per share of $44.35$44.08 and $43.91,$46.21, respectively.  For the six months ended June 30, 2012 and June 30, 2011, the Company repurchased 228,102 shares and 430,209 shares, respectively, at an average price per share of $44.34 and $45.34, respectively.  From the inception of the program through March 31,June 30, 2012, 7,568,7857,572,154 shares have been repurchased at an average price of $40.74 per share.  At March 31,June 30, 2012, the total shares available under the program to be repurchased in the future were 348,634.345,265.
24

I. Goodwill and Identifiable Intangible Assets
 
At March 31,June 30, 2012, $3.5 million of goodwill is reflected within other assets on the condensed consolidated statements of financial condition with $3.3 million related to a 93%-owned subsidiary, Gabelli Securities, Inc. and $0.2 million related to G.distributors, LLC.  The Company assesses the recoverability of goodwill at least annually, or more often should events warrant, using a qualitative assessment of whether it is more likely than not that an impairment has occurred to determine if a quantitative analysis is required.  There were no indicators of impairment for the three and six months ended March 31,June 30, 2012 or the three and six months ended March 31,June 30, 2011, and as such there was no impairment analysis performed or charge recorded.

As a result of becoming the advisor to the Gabelli Enterprise Mergers and Acquisitions Fund and the associated consideration paid, the Company maintains an identifiable intangible asset of $1.9 million within other assets on the condensed consolidated statements of financial condition at March 31,June 30, 2012, December 31, 2011 and March 31,June 30, 2011.  The investment advisory agreement is subject to annual renewal by the fund's Board of Directors, which the Company expects to be renewed, and the Company does not expect to incur additional expense as a result, which is consistent with other investment advisory agreements entered into by the Company.  The advisory contract is next up for renewal in February 2013.  The Company assesses the recoverability of this intangible asset at least annually, or more often should events warrant.  There were no indicators of impairment for the three and six months ended March 31,June 30, 2012 or March 31,June 30, 2011, and as such there was no impairment analysis performed or charge recorded.

J.  Commitments and Contingencies
 
From time to time, the Company is named in legal actions and proceedings.  These actions may seek substantial or indeterminate compensatory as well as punitive damages or injunctive relief.  The Company is also subject to governmental or regulatory examinations or investigations.  The examinations or investigations could result in adverse judgments, settlements, fines, injunctions, restitutions or other relief.  The Company cannot predict the ultimate outcome of such matters.  The consolidated financial statements include the necessary provisions for losses that the Company believes are probable and estimable.  Furthermore, the Company evaluates whether there exist losses which may be reasonably possible and, if material, makes the necessary disclosures.  Such amounts, both those that are probable and those that are reasonably possible, are not considered material to the Company’s financial condition, operations or cash flows.

The Company indemnifies the clearing brokers of Gabelli & Company, our broker-dealer subsidiary, for losses they may sustain from the customer accounts that trade on margin introduced by our broker-dealer subsidiary.it.  At March 31,June 30, 2012, the total amount of customer balances subject to indemnification (i.e. unsecured margin debits) was immaterial.  The Company also has entered into arrangements with various other third parties many of which provide for indemnification of the third parties against losses, costs, claims and liabilities arising from the performance of obligations under the agreements.  The Company has had no claims or payments pursuant to these or prior agreements and believes the likelihood of a claim being made is remote.  The Company’s estimate of the value of such agreements is de minimis, and therefore an accrual has not been made on the condensed consolidated financial statements.
 
K. Subsequent Events
 
On July 2, 2012, the Company completed a tender offer (the “Offer”) for its 0% Subordinated Debentures due December 31, 2015 (“Debentures”).  In connection with the Offer, the Company purchased $64.1 million in face value of Debentures at a price of $870 per $1,000 principal amount for a total cash consideration of $55.8 million.  This transaction reduces the Company’s cash and cash equivalents by $55.8 million, debt outstanding by $49.5 million and results in a one-time loss on extinguishment of debt, net of management fees and tax benefit, of approximately $2.1 million or $0.08 per fully diluted share to be recorded during the third quarter of 2012.  Interest expense is expected to be reduced by $1.8 million in the second half of 2012 and, annually, by $4.0 million in 2013, $4.3 million in 2014 and $4.6 million in 2015.

On May 1,August 7, 2012, our Board of Directors declared a specialincreased its quarterly dividend of $0.25by 25% to $0.05 per share to all of its Class A and Class B shareholders in addition to its quarterlydeclaring a special dividend of $0.04$0.25 per share payable on June 26,September 25, 2012 to its Class A and Class B shareholders of record on June 12,September 11, 2012.

On May 1, 2012 our Board of Directors authorized the Company to renew its shelf registration, before the expiration of its current shelf in July 2012, that will allow it to issue up to $500 million in a combination of senior and subordinated debt securities, convertible debt securities and common and preferred securities.

 
2325
 

ITEM 2:  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (INCLUDING QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK)

Overview
 
GAMCO through the Gabelli brand, well known for its Private Market Value (PMV) with a CatalystTM investment approach, is a widely-recognized provider of investment advisory services to mutual funds, institutional and high net worth investors, and investment partnerships, principally in the United States.  Through Gabelli & Company, Inc. (“Gabelli & Company”), we provide institutional research and brokerage services to institutional clients and investment partnerships.  Through G.distributors, LLC (“G.distributors”), we provide mutual fund distribution.  We generally manage assets on a fully discretionary basis and invest in a variety of U.S. and international securities through various investment styles.  Our revenues are based primarily on the Company’s levels of assets under management and fees associated with our various investment products.
 
Our revenues are highly correlated to the level of assets under management and fees associated with our various investment products, rather than our own corporate assets.  Assets under management, which are directly influenced by the level and changes of the overall equity markets, can also fluctuate through acquisitions, the creation of new products, the addition of new accounts or the loss of existing accounts.  Since various equity products have different fees, changes in our business mix may also affect revenues.  At times, the performance of our equity products may differ markedly from popular market indices, and this can also impact our revenues.  General stock market trends will have the greatest impact on our level of assets under management and hence, on revenues.

We conduct our investment advisory business principally through: GAMCO Asset Management Inc. (Separate Accounts)(Institutional and High Net Worth), Gabelli Funds, LLC (Mutual Funds) and Gabelli Securities, Inc. (Investment Partnerships).  We also act as an underwriter and provide institutional research through Gabelli & Company, one of our broker-dealer subsidiaries.  The distribution of our open-end funds is conducted through G.distributors.
 
Assets under management (“AUM”) were $36.7$35.7 billion as of June 30, 2012, a decrease of 1.3% from AUM of $36.1 billion at June 30, 2011 and down 2.8% from the March 31, 2012 an increase of 3.6% from AUM of $35.4 billion at March 31, 2011 and 7.6% above the December 31, 2011 AUM of $34.1$36.7 billion.  Fund flows in the firstsecond quarter of 2012 were $2.6a negative $1.0 billion consisting of market appreciationdepreciation of $2.3$1.0 billion and net cash inflows of $0.3 billion.$2 million.  Average total AUM was $35.8$35.5 billion in the 2012 quarter versus $33.9$35.7 billion in the prior year period, an increasea decrease of 5.6%0.6%.  Average AUM in our open-end equity funds, a key driver to our investment advisory fees, was $12.8$12.5 billion in the firstsecond quarter of 2012, up 9.4%down 0.8% from the 2011 quarter average AUM of $11.7 billion,$12.6 billion.

In addition to management fees, we earn incentive fees for certain institutional client assets, assets attributable to preferred issues for our closed-end funds, our Gabelli Global Deal Fund (NYSE: GDL) and investment partnership assets.  As of March 31,June 30, 2012, assets with incentive based fees were $3.7$3.9 billion, 2.6% lowerhigher than the $3.8 billion on June 30, 2011 and 5.4% above the $3.7 billion on March 31, 2011 but 2.8% above the $3.6 billion on December 31, 2011.2012. 


 
24


The Company reported Assets Under Management as follows (in millions):          
                
Table I: Fund Flows - 1st Quarter 2012             
           Closed-end Fund    
     Market     distributions,    
  December 31,  appreciation/  Net cash  net of  March 31, 
  2011  (depreciation)  flows  reinvestments  2012 
Equities:               
Open-end Funds $12,273  $858  $(135) $-  $12,996 
Closed-end Funds  5,799   336   40   (108)  6,067 
Institutional & PWM - direct  10,853   883   295   -   12,031 
Institutional & PWM - sub-advisory  2,600   252   72   -   2,924 
Investment Partnerships  605   15   (26)  -   594 
SICAV (a)  105   2   11   -   118 
Total Equities  32,235   2,346   257   (108)  34,730 
Fixed Income:                    
Money-Market Fund  1,824   -   98   -   1,922 
Institutional & PWM  26   -   -   -   26 
Total Fixed Income  1,850   -   98   -   1,948 
Total Assets Under Management $34,085  $2,346  $355  $(108) $36,678 
Table II: Assets Under Management         
  March 31,  March 31,  % 
  2011  2012  Inc.(Dec.) 
Equities:         
Open-end Funds $12,348  $12,996   5.2%
Closed-end Funds  6,170   6,067   (1.7)
Institutional & PWM - direct  11,780   12,031   2.1 
Institutional & PWM - sub-advisory  2,937   2,924   (0.4)
Investment Partnerships  547   594   8.6 
SICAV (a)  -   118   n/m 
Total Equities  33,782   34,730   2.8 
Fixed Income:            
Money-Market Fund  1,583   1,922   21.4 
Institutional & PWM  26   26   - 
Total Fixed Income  1,609   1,948   21.1 
Total Assets Under Management $35,391  $36,678   3.6%

Table III: Assets Under Management by Quarter                   
                 % Increase/ 
                 (decrease) from 
   3/11   6/11   9/11   12/11   3/12   3/11   12/11 
Equities:                            
Open-end Funds $12,348  $12,912  $11,469  $12,273  $12,996   5.2%  5.9%
Closed-end Funds  6,170   6,259   5,355   5,799   6,067   (1.7)  4.6 
Institutional & PWM - direct  11,780   11,735   9,644   10,853   12,031   2.1   10.9 
Institutional & PWM - sub-advisory  2,937   2,953   2,326   2,600   2,924   (0.4)  12.5 
Investment Partnerships  547   609   627   605   594   8.6   (1.8)
SICAV (a)  -   -   -   105   118   n/m   12.4 
Total Equities  33,782   34,468   29,421   32,235   34,730   2.8   7.7 
Fixed Income:                            
Money-Market Fund  1,583   1,643   1,895   1,824   1,922   21.4   5.4 
Institutional & PWM  26   26   26   26   26   -   - 
Total Fixed Income  1,609   1,669   1,921   1,850   1,948   21.1   5.3 
Total Assets Under Management $35,391  $36,137  $31,342  $34,085  $36,678   3.6%  7.6%
(a) Includes $100 million and $102 million of proprietary seed capital at December 31, 2011 and March 31, 2012, respectively.     

2526
 
 
The Company reported Assets Under Management as follows (in millions):       
                
Table I: Fund Flows - 2nd Quarter 2012             
         Closed-end Fund    
     Market     distributions,    
  March 31,  appreciation/  Net cash  net of  June 30, 
  2012  (depreciation)  flows  reinvestments  2012 
Equities:               
Open-end Funds $12,996  $(306) $(194) $-  $12,496 
Closed-end Funds  6,067   (203)  105   (109)  5,860 
Institutional & PWM - direct  12,031   (343)  (33)  -   11,655 
Institutional & PWM - sub-advisory  2,924   (160)  24   -   2,788 
Investment Partnerships  594   (5)  192   -   781 
SICAV (a)  118   (1)  9   -   126 
Total Equities  34,730   (1,018)  103   (109)  33,706 
Fixed Income:                    
Money-Market Fund  1,922   -   (29)  -   1,893 
Institutional & PWM  26   -   37   -   63 
Total Fixed Income  1,948   -   8   -   1,956 
Total Assets Under Management��$36,678  $(1,018) $111  $(109) $35,662 
                     
The Company reported Assets Under Management as follows (in millions):       
                
Table II: Fund Flows - Six months ended June 30, 2012          
       Closed-end Fund    
     Market     distributions,    
  December 31,  appreciation/  Net cash  net of  June 30, 
  2011  (depreciation)  flows  reinvestments  2012 
Equities:               
Open-end Funds $12,273  $552  $(329) $-  $12,496 
Closed-end Funds  5,799   133   145   (217)  5,860 
Institutional & PWM - direct  10,853   540   262   -   11,655 
Institutional & PWM - sub-advisory  2,600   92   96   -   2,788 
Investment Partnerships  605   10   166   -   781 
SICAV (a)  105   1   20   -   126 
Total Equities  32,235   1,328   360   (217)  33,706 
Fixed Income:                    
Money-Market Fund  1,824   -   69   -   1,893 
Institutional & PWM  26   -   37   -   63 
Total Fixed Income  1,850   -   106   -   1,956 
Total Assets Under Management $34,085  $1,328  $466  $(217) $35,662 
                     
27

Table III: Assets Under Management         
  June 30,  June 30,  % 
  2011  2012  Inc.(Dec.) 
Equities:         
Open-end Funds $12,912  $12,496   (3.2%)
Closed-end Funds  6,259   5,860   (6.4)
Institutional & PWM - direct  11,735   11,655   (0.7)
Institutional & PWM - sub-advisory  2,953   2,788   (5.6)
Investment Partnerships  609   781   28.2 
SICAV (a)  -   126   n/m 
Total Equities  34,468   33,706   (2.2)
Fixed Income:            
Money-Market Fund  1,643   1,893   15.2 
Institutional & PWM  26   63   142.3 
Total Fixed Income  1,669   1,956   17.2 
Total Assets Under Management $36,137  $35,662   (1.3%)
             
Table IV: Assets Under Management by Quarter                
                 % Increase/ 
                 (decrease) from 
   6/11   9/11   12/11   3/12   6/12   6/11   3/12 
Equities:                            
Open-end Funds $12,912  $11,469  $12,273  $12,996  $12,496   (3.2%)  (3.8%)
Closed-end Funds  6,259   5,355   5,799   6,067   5,860   (6.4)  (3.4)
Institutional & PWM - direct  11,735   9,644   10,853   12,031   11,655   (0.7)  (3.1)
Institutional & PWM - sub-advisory  2,953   2,326   2,600   2,924   2,788   (5.6)  (4.7)
Investment Partnerships  609   627   605   594   781   28.2   31.5 
SICAV (a)  -   -   105   118   126   n/m   6.8 
Total Equities  34,468   29,421   32,235   34,730   33,706   (2.2)  (2.9)
Fixed Income:                            
Money-Market Fund  1,643   1,895   1,824   1,922   1,893   15.2   (1.5)
Institutional & PWM  26   26   26   26   63   142.3   142.3 
Total Fixed Income  1,669   1,921   1,850   1,948   1,956   17.2   0.4 
Total Assets Under Management $36,137  $31,342  $34,085  $36,678  $35,662   (1.3%)  (2.8%)
                             
(a) Includes $100 million, $102 million and $101 million of proprietary seed capital at December 31, 2011, March 31, 2012 
and June 30, 2012, respectively.                         
28

Relative long-term investment performance remained strong with approximately 30%40%,35%, 45%, 63%65% and 67%72% of firm wide mutual funds performedperforming in the top half of their Lipper categories on a one-, three-, five-, and ten-year total return basis, respectively as of March 31,June 30, 2012.  Also, 33%44% of the firm’s mutual funds that are rated have a 4- or 5-star overall Morningstar RatingTM.

Gabelli/GAMCO Funds Morningstar Ratings Based on Risk Adjusted returns as of March 31, 2012 for funds that we manage     
Gabelli/GAMCO Funds Morningstar Ratings Based on Risk Adjusted returns as of June 30, 2012 for funds that we manageGabelli/GAMCO Funds Morningstar Ratings Based on Risk Adjusted returns as of June 30, 2012 for funds that we manage   
 Overall Rating3 Year Rating5 Year Rating10 Year Rating Overall Rating3 Year Rating5 Year Rating10 Year Rating
Morningstar # of # of # of # ofMorningstar # of # of # of # of
FUNDCategoryStarsFundsStarsFundsStarsFundsStarsFundsCategoryStarsFundsStarsFundsStarsFundsStarsFunds
Gabelli ABC AAAMid-Cap Growthêêêê676ê676êêêêê601êêêê404Mid-Cap Growthêêêê678ê678êêêêê598êêêê430
Gabelli Asset AAALarge Blendêêêêê1652êêêêê1652êêêê1408êêêêê832Large Blendêêêêê1539êêêêê1539êêêê1346êêêêê838
Gabelli Dividend Growth AAALarge Blendêêê1652êê1652êêê1408êêê832Large Blendêêêê1539êê1539êêê1346êêêêê838
Gabelli Equity Income AAALarge Valueêêêêê1114êêêê1114êêêêê964êêêêê545Large Blendêêêê1539êêêê1539êêêê1346êêêêê838
Gabelli Small Cap Growth AAASmall Blendêêêêê578êêê578êêêêê493êêêêê289Small Blendêêêêê598êêê598êêêêê518êêêêê310
Gabelli SRI Green AAAWorld Stockêêê692êêê692n/an/an/an/aWorld Stockêêêê706êêê706êêêê515n/an/a
Gabelli Utilities AAASpecialty-Utilitiesêêêê73êêê73êêêêê71êêê45Specialty-Utilitiesêêê75êê75êêêê73êê51
Gabelli Value AMid-Cap Blendêê369êêêê369êê305êê193Large Blendêêê1539êêêêê1539êê1346êêê838
Gabelli Focus Five AAASmall Blendêêê578êê578êêê493n/an/aSmall Blendêêê598êê598êêê518n/an/a
GAMCO Vertumnus AAAConvertiblesêê58ê58ê47êê39Convertiblesêê64êêê64êê47êê39
GAMCO Global Growth AAAWorld Stockêêê692êêê692êêêê491êêê276World Stockêêêê706êêêê706êêêê515êêêê290
GAMCO Global Opportunity AAAWorld Stockêêêê692êêê692êêê491êêêê276World Stockêêêê706êêê706êêê515êêêê290
GAMCO Global Telecommunications AAASpecialty-Communicationsêêê40êê40êêê33êêêê30Specialty-Communicationsêêê46êê46êêê38êêêê29
Gabelli Gold AAASpecialty-Precious Metalsêêê69êêê69êêê55êêê40Specialty-Precious Metalsêêê70êêê70êêê62êêê45
GAMCO Growth AAALarge Growthêê1479êêê1479êê1261ê788Large Growthêê1510êê1510êê1297êê855
GAMCO International Growth AAAForeign Large Growthêêê206êêêê206êêê163êêê104Foreign Large Growthêêê210êêêê210êêê171êêê96
GAMCO MathersConservative Allocationê544ê544ê442ê170Conservative Allocationê569ê569ê482ê182
Gabelli Enterprise Mergers & Acquisitions AMid-cap Blendêêê369êê369êêêê305êêê193Mid-Cap Blendêêê385ê385êêêê311êêê195
Percent of Rated funds rated 4 or 5 stars 33.33% 22.22% 41.18% 37.50%  44.44% 27.78% 44.44% 50.00% 
                  
The Overall Morningstar Rating™ is derived from a weighted average of the performance figures associated with its three, five and ten year (if applicable) Morningstar Rating metrics.
Data presented reflects past performance, which is no guarantee of future results. Ratings are for Class AAA or A shares noted above. Other classes may have different
 
performance characteristics. Unrated funds and closed-end funds are not listed above. The percentage of 4 and 5 star funds are calculated based on the total number of
GAMCO/Gabelli Funds that are rated for a given period. For each fund with at least a three year history, Morningstar calculates a Morningstar Rating based on a Morningstar Risk-
Adjusted Return measure (including the effects of sales charges, loads, and redemption fees) that accounts for variation in a fund's monthly performance, placing more emphasis on
downward variations and rewarding consistent performance. The top 10% of the funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the
next 22.5% receive 2 stars, and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight
variations in the distribution percentages.) Strong relative performance is not indicative of positive fund returns. Performance for some funds was negative for certain periods.
© 2012 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietaryto Morningstar and/or its content providers; (2) may not be copied or distributed; and
(3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its contentproviders are responsible for any damages or losses arising from any use of this information.
Investors should carefully consider the investment objectives, risks, charges, andexpenses of each fund before investing. Each fund's prospectus contains information about these
and other matters and should be read carefully before investing. Each fund's share price will fluctuate with changes in the market value of the fund's portfolio securities. Stocks
are subject to market, economic and business risks that cause their prices to fluctuate. When you sell fund shares, they may be worth less than what you paid for them.
Consequently, you can lose money by investing in any of the funds. You can obtain a prospectus by calling 800-GABELLI (422-3554), online at www.gabelli.com, or from
your financial advisor. Distributed by G.distributors, LLC, One Corporate Center, Rye New York, 10580.     
The Overall Morningstar Rating™ is derived from a weighted average of the performance figures associated with its three, five and ten year (if applicable) Morningstar RatingThe Overall Morningstar Rating™ is derived from a weighted average of the performance figures associated with its three, five and ten year (if applicable) Morningstar Rating
metrics. Data presented reflects past performance, which is no guarantee of future results. Ratings are for Class AAA or A shares noted above. Other classes may have different
metrics. Data presented reflects past performance, which is no guarantee of future results. Ratings are for Class AAA or A shares noted above. Other classes may have different
performance characteristics. Unrated funds and closed-end funds are not listed above. The percentage of 4 and 5 star funds are calculated based on the total number of GAMCOperformance characteristics. Unrated funds and closed-end funds are not listed above. The percentage of 4 and 5 star funds are calculated based on the total number of GAMCO
/Gabelli Funds that are rated for a given period. For each fund with at least a three year history, Morningstar calculates a Morningstar Rating based on a Morningstar Risk-Adjusted/Gabelli Funds that are rated for a given period. For each fund with at least a three year history, Morningstar calculates a Morningstar Rating based on a Morningstar Risk-Adjusted
Retrun measure (including the effects of sales charges, loads, and redemption fees) that accounts for variation in a fund's monthly performance, placing more emphasis onRetrun measure (including the effects of sales charges, loads, and redemption fees) that accounts for variation in a fund's monthly performance, placing more emphasis on
downward variations and rewarding consistent performance. The top 10% of the funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars,downward variations and rewarding consistent performance. The top 10% of the funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars,
the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may causethe next 22.5% receive 2 stars, and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause
slight variations in the distribution percentages.) Strong relative performance is not indicative of positive fund returns. Performance for some funds was negative for certainslight variations in the distribution percentages.) Strong relative performance is not indicative of positive fund returns. Performance for some funds was negative for certain
periods. © 2012 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietaryto Morningstar and/or its content providers; (2) may not be copied orperiods. © 2012 Morningstar, Inc. All rights reserved. The information contained herein: (1) is proprietaryto Morningstar and/or its content providers; (2) may not be copied or
distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its contentproviders are responsible for any damages or losses arising from any usedistributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its contentproviders are responsible for any damages or losses arising from any use
of this information. Investors should carefully consider the investment objectives, risks, charges, andexpenses of each fund before investing. Each fund's prospectus contains
of this information. Investors should carefully consider the investment objectives, risks, charges, andexpenses of each fund before investing. Each fund's prospectus contains
information about these and other matters and should be read carefully before investing. Each fund's share price will fluctuate with changes in the market value of the fund'sinformation about these and other matters and should be read carefully before investing. Each fund's share price will fluctuate with changes in the market value of the fund's
portfolio securities. Stocks are subject to market, economic and business risks that cause their prices to fluctuate. When you sell fund shares, they may be worth less than whatportfolio securities. Stocks are subject to market, economic and business risks that cause their prices to fluctuate. When you sell fund shares, they may be worth less than what
you paid for them. Consequently, you can lose money by investing in any of the funds. You can obtain a prospectus by calling 800-GABELLI (422-3554), online atyou paid for them. Consequently, you can lose money by investing in any of the funds. You can obtain a prospectus by calling 800-GABELLI (422-3554), online at
www.gabelli.com, or from your financial advisor. Distributed by G.distributors, LLC, One Corporate Center, Rye New York, 10580.www.gabelli.com, or from your financial advisor. Distributed by G.distributors, LLC, One Corporate Center, Rye New York, 10580.
The inception date for the Gabelli SRI Green Fund was June 1, 2007. The inception date for the Gabelli Focus Five Fund was December 31, 2002.The inception date for the Gabelli SRI Green Fund was June 1, 2007. The inception date for the Gabelli Focus Five Fund was December 31, 2002.  The inception date for the Gabelli SRI Green Fund was June 1, 2007. The inception date for the Gabelli Focus Five Fund was December 31, 2002.
         
 
 
26

GABELLI/GAMCO FUNDS Gabelli/GAMCO Funds Lipper Rankings as of March 31, 2012
  1 Yr - 3/31/11-3/31/123 Yrs - 3/31/09-3/31/125 Yrs - 3/31/07-3/31/1210 Yrs - 3/31/02-3/31/12
  PercentileRank /PercentileRank /PercentileRank /PercentileRank /
Fund NameLipper CategoryRankTotal FundsRankTotal FundsRankTotal FundsRankTotal Funds
Gabelli Asset; AAAMulti-Cap Core Funds57406/71517103/6201368/5401130/291
Gabelli Value Fund; AMulti-Cap Core Funds60426/715421/62029152/5402778/291
Gabelli SRI; AAAGlobal Small/Mid-Cap Funds9678/816849/72----
Gabelli Eq:Eq Inc; AAAEquity Income Funds67195/2942255/2512553/21499/109
GAMCO Growth; AAALarge-Cap Core Funds48483/1,04543395/93727215/81986444/519
Gabelli Eq:SC Gro; AAASmall-Cap Core Funds54361/68070428/6181468/5011131/296
Gabelli Focus Five Fund;AAASmall-Cap Core Funds93633/68070430/61849244/501--
GAMCO Gl:Oppty; AAAGlobal Large-Cap Growth8284/1024539/875339/73209/45
GAMCO Gl:Growth; AAAGlobal Large-Cap Growth2828/102119/872619/734621/45
GAMCO Gold; AAAPrecious Metal Funds118/745432/594623/505319/35
GAMCO Intl Gro; AAAInternational Large-Cap Growth1636/226714/2143053/1803742/113
Gabelli Dividend Growth Fund; AAALarge-Cap Core Funds69721/,04568630/93759482/81922112/519
Gabelli Inv:ABC; AAASpecialty Diversified Equity Funds2311/485718/313910/25101/9
GAMCO Mathers; AAASpecialty Diversified Equity Funds7034/487223/317018/25505/9
Comstock Cap Val; ASpecialty Diversified Equity Funds8642/488828/318923/25707/9
GAMCO Gl:Telecom; AAATelecommunications Funds7027/386924/345615/26224/18
GAMCO Gl:Vertumnus; AAAConvertible Securities Funds9762/639350/539537/389129/31
Gabelli Utilities; AAAUtility Funds7555/733624/672012/615222/42
787:Gabelli Merg&Acq; AMid-Cap Core Funds3195/30998263/26878180/23188138/157
Gabelli Capital Asset FundDistributed through Insurance Channel58171/295514/2821946/2471218/146
% of funds in top half 30.0% 45.0% 63.2% 66.7% 
          
Data presented reflects past performance, which is no guarantee of future results. Strong rankings are not indicative of positive fund performance.  Absolute performance for some
funds was negative for certain periods.  Other share classes are available which may have different performance characteristics.
          
Lipper, a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments including mutual funds, retirement funds, hedge funds, fund fees and
expenses to the asset management and media communities. Lipper ranks the performance of mutual funds within a classification of funds that have similar investment objectives.
Rankings are historical with capital gains and dividends reinvested and do not include the effect of loads. If an expense waiver was in effect, it may have had a material effect on the
total return or yield for the period.         
          
Relative long-term investment performance remained strong with approximately 30%, 45%, 63% and 67% of firmwide mutual funds in the top half of their Lipper categories on a one-,
three-, five-, and ten-year total-return basis, respectively, as of March 31, 2012.      
          
Investors should carefully consider the investment objective, risks, charges, and expenses of each fund before investing.  Each fund's prospectus contains information about these
and other matters and should be read carefully before investing.  Each fund’s share price will fluctuate with changes in the market value of the fund’s portfolio securities. Stocks are
subject to market, economic and business risks that cause their prices to fluctuate.  When you sell fund shares, they may be worth less than what you paid for them. Consequently,
you can lose money by investing in a fund.  You can obtain a prospectus by calling 800-GABELLI (422-3554), online at www.gabelli.com, or from your financial advisor.  
Distributed by G.distributors, LLC., One Corporate Center, Rye New York, 10580.  Other share classesare available that have different performance characteristics.
          
The inception date for the Gabelli SRI Green Fund was June 1, 2007.  The inception date for the Gabelli Focus Five Fund was December 31, 2002.   
2729
 
 
GABELLI/GAMCO FUNDS Gabelli/GAMCO Funds Lipper Rankings as of June 30, 2012
  1 Yr - 6/30/11-6/30/123 Yrs - 6/30/09-6/30/125 Yrs - 6/30/07-6/30/1210 Yrs - 6/30/02-6/30/12
  PercentileRank /PercentileRank /PercentileRank /PercentileRank /
Fund NameLipper CategoryRankTotal FundsRankTotal FundsRankTotal FundsRankTotal Funds
Gabelli Asset; AAAMulti-Cap Core Funds48348/7241484/6321262/545926/292
Gabelli Value Fund; AMulti-Cap Core Funds58416/724212/63226138/5451747/292
Gabelli SRI; AAAGlobal Small/Mid-Cap Funds7263/877458/7885/66--
Gabelli Eq:Eq Inc; AAAEquity Income Funds74218/2963790/2483471/2141212/105
GAMCO Growth; AAALarge-Cap Core Funds41423/1,04277720/94142335/80758315/550
Gabelli Eq:SC Gro; AAASmall-Cap Core Funds60409/68166403/6131576/5191132/300
Gabelli Focus Five Fund;AAASmall-Cap Core Funds58389/68174451/61336183/519--
GAMCO Gl:Oppty; AAAGlobal Large-Cap Growth7684/1105750/875540/723216/49
GAMCO Gl:Growth; AAAGlobal Large-Cap Growth1920/1102017/872518/722211/49
Gabelli Gold; AAAPrecious Metal Funds107/744527/593417/503713/35
GAMCO Intl Gro; AAAInternational Large-Cap Growth2145/21948/2072340/1793946/118
Gabelli Dividend Growth Fund; AAALarge-Cap Core Funds64660/1,04282771/94158464/807315/550
Gabelli Inv:ABC; AAASpecialty Diversified Equity Funds3516/465417/313810/26101/9
GAMCO Mathers; AAASpecialty Diversified Equity Funds7133/467223/317119/26303/9
Comstock Cap Val; ASpecialty Diversified Equity Funds8138/469129/318623/26707/9
GAMCO Gl:Telecom; AAATelecommunications Funds7530/397526/345214/26275/18
GAMCO Gl:Vertumnus; AAAConvertible Securities Funds5237/716636/549537/389129/31
Gabelli Utilities; AAAUtility Funds6649/747349/67138/627532/42
787:Gabelli Merg&Acq; AMid-Cap Core Funds1545/30998275/28060137/23094150/160
Gabelli Capital Asset FundDistributed through Insurance Channel46137/295411/2822767/2471116/147
% of funds in top half 40.0% 35.0% 65.0% 72.2% 
          
Data presented reflects past performance, which is no guarantee of future results. Strong rankings are not indicative of positive fund performance.  Absolute performance for some
funds was negative for certain periods.  Other share classes are available which may have different performance characteristics.
          
Lipper, a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments including mutual funds, retirement funds, hedge funds, fund fees and
expenses to the asset management and media communities. Lipper ranks the performance of mutual funds within a classification of funds that have similar investment objectives.
Rankings are historical with capital gains and dividends reinvested and do not include the effect of loads. If an expense waiver was in effect, it may have had a material effect on the
total return or yield for the period. 
Relative long-term investment performance remained strong with approximately 40%, 35%, 65% and 72% of firmwide mutual funds in the top half of their Lipper categories on a one-,
three-, five-, and ten-year total-return basis, respectively, as of June 30, 2012.
          
Investors should carefully consider the investment objective, risks, charges, and expenses of each fund before investing.  Each fund's prospectus contains information about these
and other matters and should be read carefully before investing.  Each fund’s share price will fluctuate with changes in the market value of the fund’s portfolio securities. Stocks
are subject to market, economic and business risks that cause their prices to fluctuate.  When you sell fund shares, they may be worth less than what you paid for them.
Consequently, you can lose money by investing in a fund.  You can obtain a prospectus by calling 800-GABELLI (422-3554), online at www.gabelli.com, or from your financial
advisor.  Distributed by G.distributors, LLC., One Corporate Center, Rye New York, 10580.  Other share classes are available that have different performance characteristics.
          
The inception date for the Gabelli SRI Green Fund was June 1, 2007.  The inception date for the Gabelli Focus Five Fund was December 31, 2002.
          
30
 
The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and the notes thereto included in Item 1 to this report.

RESULTS OF OPERATIONS
 
Three Months Ended March 31,June 30, 2012 Compared To Three Months Ended March 31,June 30, 2011
 
(Unaudited; in thousands, except per share data)            
 2012  2011  2012  2011 
Revenues            
Investment advisory and incentive fees $67,783  $62,911  $67,210  $69,252 
Distribution fees and other income  11,623   10,345   11,006   11,588 
Institutional research services  2,343   3,649   2,808   4,241 
Total revenues  81,749   76,905   81,024   85,081 
Expenses                
Compensation  34,554   33,417   32,921   34,365 
Management fee  4,184   3,113   2,615   3,626 
Distribution costs  10,177   13,429   10,012   9,588 
Other operating expenses  5,822   6,186   5,109   7,005 
Total expenses (a)  54,737   56,145   50,657   54,584 
Operating income  27,012   20,760   30,367   30,497 
Other income (expense)                
Net gain from investments  13,878   8,740 
Net gain/(loss) from investments  (4,171)  3,669 
Interest and dividend income  1,236   1,936   1,782   1,861 
Interest expense  (4,404)  (2,867)  (4,429)  (3,403)
Total other income, net  10,710   7,809 
Total other income (expense), net  (6,818)  2,127 
Income before income taxes  37,722   28,569   23,549   32,624 
Income tax provision  13,756   10,288   8,686   11,945 
Net income  23,966   18,281   14,863   20,679 
Net income attributable to noncontrolling interests  130   638 
Net income/(loss) attributable to noncontrolling interests  (242)  32 
Net income attributable to GAMCO Investors, Inc.'s shareholders $23,836  $17,643  $15,105  $20,647 
                
Net income attributable to GAMCO Investors, Inc.'s shareholders per share:        Net income attributable to GAMCO Investors, Inc.'s shareholders per share: 
Basic $0.90  $0.66  $0.58  $0.77 
Diluted $0.90  $0.65  $0.57  $0.77 
                
Reconciliation of net income attributable to GAMCO Investors, Inc.'s shareholders        Reconciliation of net income attributable to GAMCO Investors, Inc.'s shareholders 
to Adjusted EBITDA:                
                
Net income attributable to GAMCO Investors, Inc.'s shareholders $23,836  $17,643  $15,105  $20,647 
Interest expense  4,404   2,867   4,429   3,403 
Income tax provision and net income attributable to noncontrolling interests  13,886   10,926   8,444   11,977 
Depreciation and amortization  180   274   179   184 
Adjusted EBITDA (b)(a) $42,306  $31,710  $28,157  $36,211 
        
(a) Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and noncontrolling interests.  Adjusted EBITDA is a non-GAAP measure and should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States nor should it be considered as an indicator of our overall financial performance.  We use Adjusted EBITDA as a supplemental measure of performance as we believe it gives investors a more complete understanding of our operating results before the impact of financing activities as a tool for determining the private market value of an enterprise.
 
31

Overview

Net income attributable to shareholders of GAMCO Investors, Inc. for the quarter was $15.1 million or $0.57 per fully diluted share versus $20.6 million or $0.77 per fully diluted share in the prior year’s quarter.  The quarter to quarter comparison was lower due to a decrease in total revenues, largely driven by lower AUM, an investment loss in our proprietary portfolios, higher interest expense on higher average debt balances outstanding and a higher effective tax rate which were partially offset by decreased operating expenses.

Revenues
Investment advisory and incentive fees for the second quarter 2012 were $67.2 million, 3.0% below the 2011 comparative figure of $69.3 million.  Open-end mutual fund revenues decreased by 0.6% to $30.6 million from $30.8 million in second quarter 2011 driven by a 0.6% decrease in average open-end equity AUM resulting from both net outflows and negative market performance.  Our closed-end fund revenues fell 7.9% to $11.7 million in the second quarter 2012 from $12.7 million in 2011 due to a 7.9% decrease in non-performance fee based average AUM.  Institutional and private wealth management account revenues, excluding incentive fees, which are generally based on beginning of quarter AUM, increased $0.8 million, or 3.7%, to $22.3 million from $21.5 million in second quarter 2011.  During the second quarter 2012, we earned $1.1 million in incentive fees, a decrease of $2.2 million from the $3.3 million recognized in the 2011 quarter.  Investment partnership revenues were $1.5 million, an increase of 50.0% from $1.0 million in second quarter 2011 due to an increase in average AUM resulting from net inflows.
Open-end fund distribution fees and other income were $11.0 million for the second quarter 2012, a decrease of $0.6 million or 5.2% from $11.6 million in the prior year period, primarily due to lower quarterly average AUM in open-end equity mutual funds that generate such fees and a decreased level of sales of load shares of mutual funds.

Our institutional research subsidiary had revenues of $2.8 million in the second quarter 2012, down 33.3% from $4.2 million in the prior year quarter due to both lower trading volume and a drop in average commission rates.

Expenses
Compensation costs, which are largely variable, were $32.9 million or 4.4% lower than the $34.4 million incurred in the prior year period.  The quarter over quarter decrease was largely comprised of $0.5 million less in variable compensation related to the lower AUM and a $1.2 million decrease in commissions and payouts related to lower trading volume and sales of open-end funds partially offset by $0.2 million in amortization expense for RSAs issued in January 2012.
Management fee expense, which is wholly variable and based on pretax income, decreased to $2.6 million in the second quarter of 2012 from $3.6 million in the 2011 period.
Distribution costs were $10.0 million, an increase of $0.4 million or 4.2% from $9.6 million in the prior year’s period.  This increase in distribution costs was mostly due to a higher percentage of AUM coming through third-party distributors and an increase in expense reimbursements.
Other operating expenses were $5.1 million in the second quarter of 2012, a decline of $1.9 million, or 27.1%, from $7.0 million in the second quarter of 2011.  The quarter comparison benefited from a combination of reimbursements received in the 2012 period for previously incurred legal expenses and one-time accruals for client service matters in 2011 totaling $1.7 million.  Excluding these items other operating expenses fell $0.2 million or 3.2%.

Total expenses, excluding the management fee, were $48.0 million in the second quarter of 2012, a 5.9% decrease from $51.0 million in the second quarter of 2011.
Operating income for the second quarter of 2012 was $30.4 million, a decrease of $0.1 million from the second quarter 2011’s $30.5 million.  Operating income, as a percentage of revenues, was 37.5% in the 2012 quarter as compared to 35.8% in the 2011 quarter.

Other
Total other income (expense), net of interest expense, was an expense of $6.8 million for the second quarter 2012 versus income of $2.1 million in the prior year’s quarter.  Realized and unrealized losses in our trading portfolio were $4.2 million in the 2012 quarter, a decrease of $7.9 million versus $3.7 million of gains in the 2011 quarter largely from the relative weakness in the U.S. equity markets.  Interest and dividend income was lower by $0.1 million.  Interest expense increased by $1.0 million to $4.4 million in the second quarter of 2012 from the $3.4 million in second quarter of 2011 due to an increase in total debt outstanding.
The effective tax rate for the three months ended June 30, 2012 was 36.9% as compared to the prior year period’s effective rate of 36.6%.
32
Six Months Ended June 30, 2012 Compared To Six Months Ended June 30, 2011
(Unaudited; in thousands, except per share data)      
  2012  2011 
Revenues      
  Investment advisory and incentive fees $134,993  $132,163 
  Distribution fees and other income  22,629   21,933 
  Institutional research services  5,151   7,890 
Total revenues  162,773   161,986 
Expenses        
  Compensation  67,475   67,782 
  Management fee  6,799   6,739 
  Distribution costs  20,189   23,017 
  Other operating expenses  10,931   13,191 
Total expenses (a)  105,394   110,729 
Operating income  57,379   51,257 
Other income        
  Net gain from investments  9,707   12,409 
  Interest and dividend income  3,018   3,797 
  Interest expense  (8,833)  (6,270)
Total other income, net  3,892   9,936 
Income before income taxes  61,271   61,193 
Income tax provision  22,442   22,233 
Net income  38,829   38,960 
Net income/(loss) attributable to noncontrolling interests  (112)  670 
Net income attributable to GAMCO Investors, Inc.'s shareholders $38,941  $38,290 
         
Net income attributable to GAMCO Investors, Inc.'s shareholders per share: 
Basic $1.48  $1.43 
Diluted $1.47  $1.42 
         
Reconciliation of net income attributable to GAMCO Investors, Inc.'s shareholders 
  to Adjusted EBITDA:        
         
Net income attributable to GAMCO Investors, Inc.'s shareholders $38,941  $38,290 
Interest expense  8,833   6,270 
Income tax provision and net income attributable to noncontrolling interests  22,330   22,903 
Depreciation and amortization  359   456 
Adjusted EBITDA (b) $70,463  $67,919 
         
(a)   First quarterSix months ended June 30, 2011 includes $5.6 million in costs directly related to the launch of a new closed-end fund.
(b) Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and noncontrolling interests.  Adjusted EBITDA is a non-GAAP measure and should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States nor should it be considered as an indicator of our overall financial performance.  We use Adjusted EBITDA as a supplemental measure of performance as we believe it gives investors a more complete understanding of our operating results before the impact of financing activities as a tool for determining the private market value of an enterprise.
 
 
2833
 

Overview

Net income attributable to shareholders of GAMCO Investors, Inc. for the quarterfirst half of 2012 was $23.8$38.9 million or $0.90$1.47 per fully diluted share versus $17.6$38.3 million or $0.65$1.42 per fully diluted share in the prior year’s quarter.  Included in the 2011 quarter was $5.6 million, or $0.12 per diluted share,first half of pre-tax charges related2011.  The period to the launch of a new closed-end fund.  The quarter to quarterperiod comparison further benefittedbenefited from an increase in total revenues, largely driven by higher AUM, and an increasea decrease in operating expenses which were offset by a decrease in investment gains in our proprietary portfolios, which were offset by increased operating expenses,an increase in interest expense on higher average debt balances outstanding and a higher effective tax rate.

Revenues
 
Investment advisory and incentive fees for the first quartersix months ended June 30, 2012 were $67.8$135.0 million, 7.8%2.1% above the 2011 comparative figure of $62.9$132.2 million.  Open-end mutual fund revenues increased by 10.9%4.9% to $31.5$62.1 million from $28.4$59.2 million in first quarterhalf of 2011 driven by a 10.9%4.3% increase in average open-end equity AUM resulting from both net inflows and positive market performance.  Our closed-end fund revenues rose 5.1%fell 1.6% to $12.3$24.0 million in the first quarterhalf of 2012 from $11.7$24.4 million in 2011 due to a 3.7% increase2.0% decrease in non-performance fee based average AUM.  Institutional and private wealth management account revenues, excluding incentive fees, which are generally based on beginning of quarter AUM, increased $0.8$1.3 million, or 3.7%3.2%, to $22.7$42.5 million from $21.9$41.2 million in first quarterhalf of 2011, largely due to an increase in billable AUM.  During the first half of $0.32012, we earned $3.6 million in incentive fees, and a 1.6% increasedecrease of $1.9 million from $5.5 million earned in billable AUM.the first half of 2011.  Investment partnership revenues were $1.3$2.7 million, an increase of 44.4%42.1% from $0.9$1.9 million in first quarterfor the six months ended June 30, 2011.
 
Open-end fund distribution fees and other income were $11.6$22.6 million for the first quartersix months of 2012, an increase of $1.3$0.7 million or 12.6%3.2% from $10.3$21.9 million in the prior year period, primarily due to higher quarterly average AUM in open-end equity mutual funds that generate such fees and an increased level of sales of load shares of mutual funds.fees.

Our institutional research subsidiary had revenues of $2.3$5.2 million in the first quarterhalf of 2012, down 36.1%34.2% from $3.6$7.9 million in the prior year quarterperiod principally due to lower trading volume.

Expenses
 
Compensation costs, which are largely variable, were $34.6$67.5 million or 3.6% higher0.4% lower than the $33.4$67.8 million incurred in the prior year period.  Included in the 2011 quarterperiod was $0.4 million in one-time costs related to the launch of a new closed-end fund.  Excluding these costs, the quarterperiod over quarterperiod increase was $1.6$0.1 million or 4.8%,0.1% and was largely comprised of $1.9 million of increased variable compensation related to the increased AUM and $0.3 million in amortization expense for RSAs issued in January 2012 offset by a $0.9$2.4 million decrease in commissions and payouts related to lower trading volume and sales of open-end funds.funds partially offset by $1.4 million of increased variable compensation related to the increased levels of AUM, $0.5 million in increased amortization expense for RSAs issued in January 2012 and $0.2 million in increased fixed compensation.
 
Management fee expense, which is wholly variable and based on pretax income, increased to $4.2$6.8 million infor the first quarter ofsix months ended June 30, 2012 from $3.1$6.7 million in the 2011 period.
 
Distribution costs were $10.2$20.2 million, a decrease of $3.2$2.8 million or 23.9%12.2% from $13.4$23.0 million in the prior year’s period.  Costs were lower on a comparable basis due to $4.7 million in one-time charges related to the launch of GNTa closed-end fund, the GAMCO Natural Resources, Gold & Income Trust by Gabelli (“GNT”), during the first quarterhalf of 2011.  Excluding these one-time charges, distribution costs increased $1.5$1.9 million, or 17.2%10.4%, to $10.2$20.2 million from $8.7$18.3 million for the first quarterhalf of 2011.  This increase in distribution costs was mostly due to the 9.6%4.3% increase in average AUM in our open-end equity funds, increased amortization of costs associated with sales of Class C shares and higher expense reimbursements.
 
Other operating expenses were $5.8$10.9 million in the first quartersix months of 2012, a decline of $0.4$2.3 million or 6.5%,17.4% from the $6.2$13.2 million in the first quarterhalf of 2011 largely due to the one-time charges of $0.5 million incurred in the 2011 quarter related to the launch of GNT.GNT and for client service matters totaling $1.7 million in the 2011 period and reimbursements received in 2012 for previously incurred legal expenses.  Excluding these items, other operating expenses fell $0.1 million or 0.8%.

Total expenses, excluding the management fee, were $50.6$98.6 million for the six months ended June 30, 2012, a 5.2% decrease from $104.0 million in the first quarter of 2012, a 4.5% decrease from $53.0 million in the first quarterhalf of 2011, primarily due to the $5.6 million in one-time charges related to the launch of GNT in the first quarterhalf of 2011.
 
Operating income for the first quartersix months of 2012 was $27.0$57.4 million, an increase of $6.2$6.1 million from the first quarterhalf 2011’s $20.8$51.3 million.  Operating income, as a percentage of revenues, was 33.0%35.3% in the 2012 quarterperiod as compared to 27.0%31.6% in the 2011 quarter.period.  The 2011 operating income and operating margin waswere negatively impacted by $5.6 million in one-time charges related to the launch of GNT.

 
 
2934
 

 
Other
 
Total other income, (netnet of interest expense)expense, was $10.7$3.9 million for the first quartersix months of 2012 versus $7.8$9.9 million in the prior year’s quarter.first half.  Realized and unrealized gains in our trading portfolio were $13.9$9.7 million in the 2012 quarter, an increaseperiod, a decrease of $5.2$2.7 million versus $8.7$12.4 million in the 2011 quarter largely on the relative strength in the equity markets.first half of 2011.  Interest and dividend income was lower by $0.7$0.8 million.  Interest expense increased by $1.5$2.5 million to $4.4$8.8 million in the first quarterhalf of 2012 from the $2.9$6.3 million in the first quarterhalf of 2011 due to an increase in total debt outstanding.
 
The effective tax rate for the threesix months ended March 31,June 30, 2012 was 36.5%36.6% as compared to the prior year period’s effective rate of 36.0%36.3%.

LIQUIDITY AND CAPITAL RESOURCES

Our principal assets consist of cash and cash equivalents, short-term investments, securities held for investment purposes, investments in mutual funds, and investment partnerships and offshore funds, both proprietary and external.  Cash and cash equivalents are comprised primarily of money market funds managed by GAMCO.  Although the investment partnerships and offshore funds are, for the most part, illiquid, the underlying investments of such partnerships or funds are, for the most part liquid, and the valuations of these products reflect that underlying liquidity.
 
Summary cash flow data is as follows:
 Three months ended  Six months ended 
 March 31,  June 30, 
 2012  2011  2012  2011 
Cash flows provided by (used in): (in thousands) 
Cash flows provided by: (in thousands) 
Operating activities $47,611  $(1,910) $45,138  $692 
Investing activities  1,092   728   1,614   2,092 
Financing activities  (404)  (2,487)  1,351   89,714 
Effect of exchange rates on cash and cash equivalents  (9)  (10)  (3)  (9)
Net (decrease) increase  48,290   (3,679)
Net increase  48,100   92,489 
Cash and cash equivalents at beginning of period  276,340   169,601   276,340   169,601 
Decrease in cash from deconsolidation  -   (1,251)  -   (1,251)
Cash and cash equivalents at end of period $324,630  $164,671  $324,440  $260,839 
        
 
Cash requirements and liquidity needs have historically been met through cash generated by operating activities and our borrowing capacity.  We filed a shelf registration with the SEC in 2009 which, among other things, provides us the flexibility to sell any combination of senior and subordinate debt securities, convertible debt securities, equity securities (including common and preferred stock), and other securities up to a total amount of $400 million.  We replaced this shelf registration with a new filing for up to $500 million on May 14, 2012.  On May 31, 2011, the Company issued $100 million of senior unsecured notes at par.  The net proceeds of $99.1 million were used for working capital and general corporate purposes.  The notes mature June 1, 2021 and bear interest, payable semi-annually, at 5.875% per annum.  The notes were issued pursuant to the Company’s shelf registration reducingand there remains $400 million available under the shelf for future use.  On May 21, 2012, the Company commenced a tender offer (the “Offer”) to purchase up to $50 million aggregate principal amount (“face value”) of its 0% Subordinated Debentures (“Debentures”) due 2015 at a price to be determined under a “Modified Dutch Auction” procedure.  On June 19, 2012, we amended the Offer to increase the maximum principal amount of Debentures the Company would purchase to the entire amount outstanding and extended the expiration date of the Offer to July 2, 2012.  At the expiration of the Offer, the Company purchased $64.1 million in face value of Debentures (accreted value of $49.5 million) at a price of $870 per $1,000 principal amount for future issuancesa total cost of $55.8 million.  This transaction reduces the Company’s cash and cash equivalents by $55.8 million, debt outstanding by $49.5 million and results in a one-time loss on extinguishment of debt, net of management fees and tax benefit, of approximately $2.1 million.  Interest expense is expected to $300 million.  We currently plan on renewing our shelf registration on or before its expiration on July 27, 2012.be reduced by $1.8 million in the second half of 2012 and, annually, by $4.0 million in 2013, $4.3 million in 2014 and $4.6 million in 2015.

At March 31,June 30, 2012, we had total cash and cash equivalents of $324.6$324.4 million, an increase of $48.3$63.6 million from December 31, 2011.  Cash and cash equivalents of $2.1$0.9 million and investments in securities of $6.5$7.0 million held by consolidated investment partnerships and offshore funds may not be readily available for the Company to access.  Total debt outstanding at March 31,June 30, 2012 was $264.3$265.6 million, consisting of $65.3$66.6 million in five year zero coupon subordinated debentures due 2015 (“Debentures”), with a face value of $86.3 million, $100 million of 5.875% senior notes due 2021 and $99 million of 5.5% senior notes due 2013.
 
35
For the threesix months ended March 31,June 30, 2012, cash provided by operating activities was $47.6$45.1 million, an increase of $49.5$44.4 million from cash usedprovided in the prior year period of $1.9$0.7 million.  Cash was provided bythrough an increase in net income of $5.7 million, net distributions received from partnerships of $6.1$8.9 million, a $31.0$60.8 million decrease in trading investments, $22.9$4.4 million in increased payables and $4.2$8.9 million from other sources.  Reducing cash was $20.4a decrease in net income of $0.1 million, largely$25.6 million increase in receivable from increasesbrokers and $12.9 million increase in investment advisory fees receivables.  Cash provided by investing activities, related to purchases and proceeds from sales of available for sale securities, was $1.1$1.6 million in the first threesix months of 2012.  Cash used inprovided by financing activities in the first threesix months of 2012 was $0.4$1.4 million, including $1.1$20.1 million in net contributions from redeemable noncontrolling interests partially offset by $8.7 million paid in dividends and $10.0$10.1 million paid for the purchase of treasury stock offset by $10.6 million in contributions from redeemable noncontrolling interests.
30
stock.

For the threesix months ended March 31,June 30, 2011, cash used inprovided by operating activities was $1.9$0.7 million.  Cash provided by investing activities, related to purchases and proceeds from sales of available for sale securities, was $0.7$2.1 million in the first threesix months of 2011.  Cash used inprovided by financing activities in the first threesix months of 2011 was $2.5$89.7 million.

Based upon our current level of operations and anticipated growth, we expect that our current cash balances plus cash flows from operating activities and our borrowing capacity will be sufficient to finance our working capital needs for the foreseeable future.  We have no material commitments for capital expenditures.
 
As a registered broker-dealer,We have two broker-dealers, Gabelli & Company isand G.distributors, which are subject to certain net capital requirements.  Gabelli & Company's net capital has historically exceeded these minimum net capital requirements.  Gabelli & Company computes itsBoth broker-dealers compute their net capital under the alternative method permitted, which requires minimum net capital of the greater of $250,000 or 2% of the aggregate debit items in the reserve formula for those broker-dealers subject to Rule 15c3-3 promulgated under the Securities Exchange Act of 1934.  The requirement was $250,000 at March 31,June 30, 2012.  At March 31,June 30, 2012, Gabelli & Company had net capital, as defined, of approximately $6.9$6.0 million, exceeding the regulatory requirement by approximately $6.7 million.  During the second quarter of 2011, we received regulatory approval of our newly registered broker-dealer,$5.7 million and G.distributors, which became the distributor of the open-end mutual funds on August 1, 2011.  G.distributors computes its net capital under the alternative method permitted, which requires minimum net capital of the greater of $250,000 or 2% of the aggregate debit items in the reserve formula for those broker-dealers subject to Rule 15c3-3 promulgated under the Securities Exchange Act of 1934 (“Exchange Act”).  The requirement was $250,000 at March 31, 2012.  At March 31, 2012, G.distributors2011, had net capital, as defined, of approximately $2.8$3.4 million, exceeding the regulatory requirement by approximately $2.5$3.2 million.  Net capital requirements for our affiliated broker-dealers may increase in accordance with rules and regulations to the extent they engage in other business activities.

Market Risk
 
Our primary market risk exposure is to changes in equity prices and interest rates.  Since over 90% of our AUM are equities, our financial results are subject to equity-market risk as revenues from our investment management services are sensitive to stock market dynamics.  In addition, returns from our proprietary investment portfolio are exposed to interest rate and equity market risk.

The Company’s Chief Investment Officer oversees the proprietary investment portfolios and allocations of proprietary capital among the various strategies.  The Chief Investment Officer and the Board of Directors review the proprietary investment portfolios throughout the year.  Additionally, the Company has a risk committee which monitors the proprietary investment portfolios to ensure that they are in compliance with the Company’s guidelines.

Equity Price Risk
 
The Company earns substantially all of its revenue as advisory and distribution fees from our affiliated open-end and closed-end funds, Institutional and Private Wealth Management, and Investment Partnership assets.  Such fees represent a percentage of AUM, and the majority of these assets are in equity investments.  Accordingly, since revenues are proportionate to the value of those investments, a substantial increase or decrease in equity markets overall will have a corresponding effect on the Company's revenues.
 
With respect to our proprietary investment activities, included in investments in securities of $257.6$249.6 million and investments in sponsored registered investment companies of $59.6 million at March 31,June 30, 2012 were investments in United States Treasury Bills and Notes of $48.6$50.1 million, in mutual funds and closed-end funds, largely invested in equity products, of $3.6$63.0 million, a selection of common and preferred stocks totaling $204.9$195.7 million, and other investments of approximately $0.5$0.4 million.  In addition, we may alter our investment holdings from time to time in response to changes in market risks and other factors considered appropriate by management.  Of the approximately $204.9$195.7 million invested in common and preferred stocks at March 31,June 30, 2012, $34.6$32.8 million represented our investment in Westwood Holdings Group Inc., and $70.3$71.8 million was invested by the Company in risk arbitrage opportunities in connection with mergers, consolidations, acquisitions, tender offers or other similar transactions.  Risk arbitrage generally involves announced deals with agreed upon terms and conditions, including pricing, which typically involve less market risk than common stocks held in a trading portfolio.  The principal risk associated with risk arbitrage transactions is the inability of the companies involved to complete the transaction.  Securities sold, not yet purchased are stated at fair value and are subject to market risks resulting from changes in price and volatility.  At March 31,June 30, 2012, the fair value of securities sold, not yet purchased was $9.7$7.0 million.  Investments in partnerships totaled $101.7$102.1 million at March 31,June 30, 2012, the majority$51.5 million of which consisted of investment partnerships and offshore funds which invest in risk arbitrage opportunities.

 
 
3136
 
 
The following table provides a sensitivity analysis for our investments in equity securities and partnerships and affiliates which invest primarily in equity securities, excluding arbitrage products for which the principal exposure is to deal closure and not overall market conditions, as of March 31,June 30, 2012.  The sensitivity analysis assumes a 10% increase or decrease in the value of these investments (in thousands):
 
     Fair Value  Fair Value 
     assuming  assuming 
     10% decrease in  10% increase in 
  (unaudited) Fair Value  equity prices  equity prices 
At March 31, 2012:         
Equity price sensitive investments, at fair value $291,867  $262,680  $321,054 
At December 31, 2011:            
Equity price sensitive investments, at fair value $261,024  $234,922  $287,126 

     Fair Value  Fair Value 
     assuming  assuming 
     10% decrease in  10% increase in 
  (unaudited) Fair Value  equity prices  equity prices 
At June 30, 2012:         
Equity price sensitive investments, at fair value $281,049  $252,944  $309,154 
At December 31, 2011:            
Equity price sensitive investments, at fair value $261,024  $234,922  $287,126 
             
Interest Rate Risk
 
Our exposure to interest rate risk results, principally, from our investment of excess cash in a money market fund that holds U.S. Government securities.  These investments are primarily short term in nature, and the carrying value of these investments generally approximates fair value.  Based on March 31,June 30, 2012 cash and cash equivalent balance of $324.6$324.4 million, a 1% increase in interest rates would increase our interest income by $3.3$3.2 million annually.  Given that our current return on these cash equivalent investmentinvestments is approximately 0.00%0.01% annually, an analysis of a 1% decrease is not meaningful.

As the advisor to a money market fund that invests 100% in U.S. Government securities, our exposure to interest rate risk results from the fund’s potential inability to earn a return in excess of the fund’s expenses.  If the fund were to earn no return on its $1.9 billion in assets, the advisor could be responsible to cover the fund’s expenses of approximately $570,000, or 0.03%, annually.

Critical Accounting Policies and Estimates
 
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ significantly from those estimates.  See Note A and the Company’s Critical Accounting Policies in Management’s Discussion and Analysis of Financial Condition and Results of Operations in GAMCO’s 2011 Annual Report on Form 10-K filed with the SEC on March 7, 2012 for details on Significant Accounting Policies.
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
 
In the normal course of its business, GAMCO is exposed to risk of loss due to fluctuations in the securities market and general economy. Management is responsible for identifying, assessing and managing market and other risks. 

Our exposure to pricing risk in equity securities is directly related to our role as financial intermediary and advisor for AUM in our affiliated open-end and closed-end funds, institutional and private wealth management accounts, and Investment Partnershipsinvestment partnerships as well as our proprietary investment and trading activities.  At March 31,June 30, 2012, we had equity investments, including mutual funds largely invested in equity products, of $319.9$309.2 million.  Investments in mutual funds $65.9and closed-end funds, $63.0 million, usually generate lower market risk through the diversification of financial instruments within their portfolios.  In addition, we may alter our investment holdings from time to time in response to changes in market risks and other factors considered appropriate by management.  We also hold investments in partnerships which invest primarily in equity securities and which are subject to changes in equity prices.  Investments in partnerships totaled $101.7$102.1 million, of which $49.8$51.5 million were invested in partnerships which invest in risk arbitrage.  Risk arbitrage is primarily dependent upon deal closure rather than the overall market environment.  The equity investment portfolio is at fair value and will move in line with the equity markets.  The trading portfolio changes will be recorded as net gain from investments in the condensed consolidated statements of income while the available for sale portfolio changes will be recorded in other comprehensive income in the condensed consolidated statements of financial condition.
37

Item 4.  Controls and Procedures
 
We evaluated the effectiveness of our disclosure controls and procedures as of March 31,June 30, 2012.  Disclosure controls and procedures as defined under the Exchange Act Rule 13a-15(e), are designed to ensure that the information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified in SEC rules and regulations.  Disclosure controls and procedures include, without limitation, controls and procedures accumulated and communicated to our management, including our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), and Co-Chief Accounting Officers (“CAOs”), to allow timely decisions regarding required disclosure.  Our CEO, CFO, and CAOs participated in this evaluation and concluded that, as of the date of March 31,June 30, 2012, our disclosure controls and procedures were effective.
32
 
There have been no changes in our internal control over financial reporting as defined by Rule 13a-15(f) that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Forward-Looking Information
 
Our disclosure and analysis in this report contain some forward-looking statements.  Forward-looking statements give our current expectations or forecasts of future events. You can identify these statements because they do not relate strictly to historical or current facts. They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other words and terms of similar meaning. They also appear in any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance of our products, expenses, the outcome of any legal proceedings, and financial results.  Although we believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know about our business and operations, there can be no assurance that our actual results will not differ materially from what we expect or believe. Some of the factors that could cause our actual results to differ from our expectations or beliefs include, without limitation: the adverse effect from a decline in the securities markets; a decline in the performance of our products; a general downturn in the economy; changes in government policy or regulation; changes in our ability to attract or retain key employees; and unforeseen costs and other effects related to legal proceedings or investigations of governmental and self-regulatory organizations. We also direct your attention to any more specific discussions of risk contained in our Form 10-Q and other public filings.  We are providing these statements as permitted by the Private Litigation Reform Act of 1995. We do not undertake to update publicly any forward-looking statements if we subsequently learn that we are unlikely to achieve our expectations or if we receive any additional information relating to the subject matters of our forward-looking statements.
 
Part II:  Other Information

 Item 1.Legal Proceedings
  
From time to time, the Company is named in legal actions and proceedings.  These actions may seek substantial or indeterminate compensatory as well as punitive damages or injunctive relief.  The Company is also subject to governmental or regulatory examinations or investigations.  The examinations or investigations could result in adverse judgments, settlements, fines, injunctions, restitutions or other relief.  The Company cannot predict the ultimate outcome of such matters.  The consolidated financial statements include the necessary provisions for losses that the Company believes are probable and estimable.  Furthermore, the Company evaluates whether there exist losses which may beare reasonably possible and, if material, makes the necessary disclosures.  Such amounts, both those that are probable and those that are reasonably possible, are not considered material to the Company’s financial condition, operations or cash flows.

38
 Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
  
 The following table provides information with respect to the repurchase of Class A Common Stock of GAMCO during the three months ended March 31,June 30, 2012:

        (c) Total Number of  (d) Maximum 
  (a) Total  (b) Average  Shares Repurchased as  Number of Shares 
  Number of  Price Paid Per  Part of Publicly  That May Yet Be 
  Shares  Share, net of  Announced Plans  Purchased Under 
Period Repurchased  Commissions  or Programs  the Plans or Programs 
1/01/12 - 1/31/12  1,462  $43.49   1,462   571,905 
2/01/12 - 2/28/12  12,995   47.79   12,995   558,910 
3/01/12 - 3/31/12  210,276   44.14   210,276   348,634 
Totals  224,733  $44.35   224,733     
        (c) Total Number of  (d) Maximum 
  (a) Total  (b) Average  Shares Repurchased as  Number of Shares 
  Number of  Price Paid Per  Part of Publicly  That May Yet Be 
  Shares  Share, net of  Announced Plans  Purchased Under 
Period Repurchased  Commissions  or Programs  the Plans or Programs 
4/01/12 - 4/30/12  -  $-   -   348,634 
5/01/12 - 5/31/12  2,969   44.16   2,969   345,665 
6/01/12 - 6/30/12  400   43.55   400   345,265 
Totals  3,369  $44.08   3,369     
                 
 
Our stock repurchase programs are not subject to expiration dates.

33
 
Item 6.  (a) Exhibits
  
 
 31.1Certification of CEO pursuant to Rule 13a-14(a).

 31.2Certification of CFO pursuant to Rule 13a-14(a).

 32.1Certification of CEO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 32.2Certification of CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.
  
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
GAMCO INVESTORS, INC.
(Registrant)
 
By:/s/ /s/ Kieran Caterina By:/s/ /s/ Diane M. LaPointe 
Name: Kieran CaterinaName: Diane M. LaPointe
Title:   Co-Chief Accounting OfficerTitle:   Co-Chief Accounting Officer
  
Date: May 1,August 7, 2012Date: May 1,August 7, 2012
 
 
3439