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

(Mark One)

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

For the quarterly period ended JuneSeptember 30, 2014
or
o                  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)

Delaware
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.
Yes   No 
 
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).
Yes  No

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
Non-accelerated filer
Smaller reporting company
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes             No 
 
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 JulyOctober 31, 2014
Class A Common Stock, .001 par value  (Including 639,750 restriced stock awards)6,546,9526,540,443
Class B Common Stock, .001 par value 19,325,82019,279,260


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 JuneSeptember 30, 2014 and 2013
-    SixNine months ended JuneSeptember 30, 2014 and 2013
  
Condensed Consolidated Statements of Comprehensive Income:
-    Three months ended JuneSeptember 30, 2014 and 2013
-    SixNine months ended JuneSeptember 30, 2014 and 2013
 Condensed Consolidated Statements of Financial Condition:
 -    JuneSeptember 30, 2014
 -    December 31, 2013
 -    JuneSeptember 30, 2013
  
 Condensed Consolidated Statements of Equity:
 -    SixNine months ended JuneSeptember 30, 2014 and 2013
  
 Condensed Consolidated Statements of Cash Flows:
 -    SixNine months ended JuneSeptember 30, 2014 and 2013
  
 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  Three Months Ended  Nine Months Ended 
 June 30,  June 30,  September 30,  September 30, 
 2014  2013  2014  2013  2014  2013  2014  2013 
Revenues     
  
         
Investment advisory and incentive fees $90,156  $77,443  $177,953  $150,050  $92,591  $80,438  $270,544  $230,488 
Distribution fees and other income  15,767   12,522   30,640   23,875   15,727   13,545   46,367   37,420 
Institutional research services  2,373   2,325   4,180   4,546   2,540   2,394   6,720   6,940 
Total revenues  108,296   92,290   212,773   178,471   110,858   96,377   323,631   274,848 
Expenses                                
Compensation  44,045   37,759   87,942   73,411   43,316   39,803   131,258   113,214 
Management fee  5,144   4,846   9,872   8,826   3,756   5,629   13,628   14,455 
Distribution costs  15,023   11,871   28,986   22,881   15,101   12,769   44,087   35,650 
Other operating expenses  6,547   6,030   11,937   10,842   5,099   5,448   17,036   16,290 
Total expenses  70,759   60,506   138,737   115,960   67,272   63,649   206,009   179,609 
                                
Operating income  37,537   31,784   74,036   62,511   43,586   32,728   117,622   95,239 
Other income (expense)                                
Net gain from investments  9,744   12,141   16,688   24,432 
Net gain/(loss) from investments  (9,086)  19,334   7,602   43,766 
Interest and dividend income  1,332   2,507   2,473   3,852   1,084   1,134   3,557   4,986 
Interest expense  (2,021)  (2,796)  (4,013)  (6,284)  (1,987)  (2,164)  (6,000)  (8,448)
Shareholder-designated contribution  (134)  -   (134)  (5,000)  -   (313)  (134)  (5,313)
Total other income (expense), net  8,921   11,852   15,014   17,000   (9,989)  17,991   5,025   34,991 
Income before income taxes  46,458   43,636   89,050   79,511   33,597   50,719   122,647   130,230 
Income tax provision  17,135   15,724   31,751   28,919   13,045   17,515   44,796   46,434 
Net income  29,323   27,912   57,299   50,592   20,552   33,204   77,851   83,796 
Net income/(loss) attributable to noncontrolling interests  373   19   395   154   (3,113)  106   (2,718)  260 
Net income attributable to GAMCO Investors, Inc.'s shareholders $28,950  $27,893  $56,904  $50,438  $23,665  $33,098  $80,569  $83,536 
                                
Net income attributable to GAMCO Investors, Inc.'s shareholders per share:                                
Basic $1.14  $1.09  $2.24  $1.96  $0.94  $1.29  $3.17  $3.25 
                                
Diluted $1.13  $1.09  $2.22  $1.96  $0.93  $1.29  $3.15  $3.25 
                                
Weighted average shares outstanding:                                
Basic  25,381   25,679   25,431   25,710   25,296   25,625   25,385   25,682 
                                
Diluted  25,586   25,689   25,635   25,723   25,517   25,700   25,595   25,717 
                                
Dividends declared: $0.06  $0.05  $0.12  $0.10  $0.06  $0.06  $0.18  $0.16 

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  Three Months Ended  Nine Months Ended 
 June 30,  June 30,  September 30,  September 30, 
 2014  2013  2014  2013  2014  2013  2014  2013 
 
  
  
  
         
Net income $29,323  $27,912  $57,299  $50,592  $20,552  $33,204  $77,851  $83,796 
Other comprehensive income/(loss), net of tax:                                
Foreign currency translation  22   1   30   (48)  (45)  49   (15)  1 
Net unrealized gains/(losses) on securities available for sale (a)  (1,728)  (6,900)  (4,425)  (860)  (2,407)  (2,170)  (6,832)  (3,030)
Other comprehensive income / (loss)  (1,706)  (6,899)  (4,395)  (908)
Other comprehensive income/(loss)  (2,452)  (2,121)  (6,847)  (3,029)
                                
Comprehensive income  27,617   21,013   52,904   49,684   18,100   31,083   71,004   80,767 
Less: Comprehensive income/(loss) attributable to noncontrolling interests  (373)  (19)  (395)  (154)
Less: Comprehensive loss/(income) attributable to noncontrolling interests  3,113   (106)  2,718   (260)
                                
Comprehensive income attributable to GAMCO Investors, Inc. $27,244  $20,994  $52,509  $49,530  $21,213  $30,977  $73,722  $80,507 

(a) Net of income tax expense or (benefit)benefit of ($1,015)1,414), ($4,052)1,274), ($2,599)4,013) and ($505)1,780),respectively.

See accompanying notes.
4

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
UNAUDITED
(Dollars in thousands, except per share data)

 June 30,  December 31,  June 30,  September 30,  December 31,  September 30, 
 2014  2013  2013  2014  2013  2013 
ASSETS            
Cash and cash equivalents $307,490  $210,451  $222,776  $358,421  $210,451  $245,411 
Investments in securities  225,596   231,228   220,440   254,630   231,228   237,744 
Investments in sponsored registered investment companies  40,791   44,042   52,341   39,520   44,042   43,688 
Investments in partnerships  107,896   95,992   94,535   107,434   95,992   97,752 
Receivable from brokers  58,945   49,461   39,669   79,885   49,461   43,854 
Investment advisory fees receivable  32,228   51,506   28,240   31,155   51,506   31,151 
Income tax receivable  1,077   445   413   2,433   445   433 
Other assets  30,779   26,360   25,087   25,282   26,360   34,589 
Total assets $804,802  $709,485  $683,501  $898,760  $709,485  $734,622 
                        
LIABILITIES AND EQUITY                        
Payable to brokers $19,859  $10,765  $14,986  $46,790  $10,765  $14,675 
Income taxes payable and deferred tax liabilities  31,029   39,846   27,864   27,412   39,846   28,726 
Capital lease obligation  5,290   5,323   4,877   5,272   5,323   5,331 
Compensation payable  68,908   34,663   59,643   93,535   34,663   86,174 
Securities sold, not yet purchased  14,329   6,178   7,598   14,180   6,178   7,725 
Mandatorily redeemable noncontrolling interests  1,339   1,355   1,322   1,304   1,355   1,327 
Accrued expenses and other liabilities  32,194   32,511   31,971   31,007   32,511   28,906 
Sub-total  172,948   130,641   148,261   219,500   130,641   172,864 
                        
5.5% Senior notes (repaid May 15, 2013)  -   0   0   -   0   0 
5.875% Senior notes (due June 1, 2021)  100,000   100,000   100,000   100,000   100,000   100,000 
Zero coupon subordinated debentures, Face value: $13.2 million at June 30, 2014, $13.8            
million at December 31, 2013 and $20.5 million at June 30, 2013 (due December 31, 2015)  11,813   11,911   17,028 
Zero coupon subordinated debentures, Face value: $13.1 million at September 30, 2014, $13.8            
million at December 31, 2013 and $20.5 million at September 30, 2013 (due December 31, 2015)  11,941   11,911   17,347 
Total liabilities  284,761   242,552   265,289   331,441   242,552   290,211 
                        
Redeemable noncontrolling interests  22,806   6,751   7,021   56,086   6,751   5,765 
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;                        
15,108,373, 15,012,719 and 14,295,769 issued, respectively; 6,572,864,            
6,701,930 and 6,095,806 outstanding, respectively  14   14   13 
15,230,433, 15,012,719 and 14,833,469 issued, respectively; 6,599,982,            
��6,701,930 and 6,592,649 outstanding, respectively  14   14   14 
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized;                        
24,000,000 shares issued; 19,325,820, 19,384,174 and 19,534,174 shares            
24,000,000 shares issued; 19,279,260, 19,384,174 and 19,424,174 shares            
outstanding, respectively  19   19   20   19   19   19 
Additional paid-in capital  287,879   282,496   280,210   289,664   282,496   281,194 
Retained earnings  560,238   506,441   456,163   582,357   506,441   487,702 
Accumulated other comprehensive income  25,844   30,239   25,392   23,392   30,239   23,271 
Treasury stock, at cost (8,535,509, 8,310,789 and 8,199,963 shares, respectively)  (379,576)  (361,878)  (353,385)
Treasury stock, at cost (8,630,451, 8,310,789 and 8,240,820 shares, respectively)  (386,952)  (361,878)  (356,343)
Total GAMCO Investors, Inc. stockholders' equity  494,418   457,331   408,413   508,494   457,331   435,857 
Noncontrolling interests  2,817   2,851   2,778   2,739   2,851   2,789 
Total equity  497,235   460,182   411,191   511,233   460,182   438,646 
                        
Total liabilities and equity $804,802  $709,485  $683,501  $898,760  $709,485  $734,622 

See accompanying notes.
5

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
UNAUDITED
(In thousands)

For the sixNine months ended JuneSeptember 30, 2014

 
  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, 2013 $2,851  $33  $282,496  $506,441  $30,239  $(361,878) $460,182  $6,751  $2,851  $33  $282,496  $506,441  $30,239  $(361,878) $460,182  $6,751 
Redemptions of                                                                
noncontrolling interests  -   -   -   -   -   -   -   (470)  -   -   -   -   -   -   -   (1,666)
Contributions from                                                                
noncontrolling                                                                
interests  -   -   -   -   -   -   -   16,096   -   -   -   -   -   -   -   53,607 
Net income (loss)  (34)  -   -   56,904   -   -   56,870   429   (112)  -   -   80,569   -   -   80,457   (2,606)
Net unrealized gains on                                                                
securities available for sale,                                                                
net of income tax benefit ($108)  -   -   -   -   (183)  -   (183)  - 
net of income tax benefit ($1,393)  -   -   -   -   (2,371)  -   (2,371)  - 
Amounts reclassified from                                                                
accumulated other                                                                
comprehensive income,                                                                
net of income tax benefit ($2,491) -   -   -   -   (4,242)  -   (4,242)  - 
net of income tax benefit ($2,620)  -   -   -   -   (4,461)  -   (4,461)  - 
Foreign currency translation  -   -   -   -   30   -   30   -   -   -   -   -   (15)  -   (15)  - 
Dividends declared ($0.12 per                                
Dividends declared ($0.18 per                                
share)  -   -   -   (3,107)  -   -   (3,107)  -   -   -   -   (4,653)  -   -   (4,653)  - 
Stock based compensation                                                                
expense  -   -   3,397   -   -   -   3,397   -   -   -   5,182   -   -   -   5,182   - 
Exercise of stock options                                                                
including tax benefit ($349)  -   -   1,986   -   -   -   1,986   -   -   -   1,986   -   -   -   1,986   - 
Purchase of treasury stock  -   -   -   -   -   (17,698)  (17,698)  -   -   -   -   -   -   (25,074)  (25,074)  - 
Balance at June 30, 2014 $2,817  $33  $287,879  $560,238  $25,844  $(379,576) $497,235  $22,806 
Balance at September 30, 2014 $2,739  $33  $289,664  $582,357  $23,392  $(386,952) $511,233  $56,086 

See accompanying notes.
6
GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
UNAUDITED
(In thousands)

For the sixNine months ended JuneSeptember 30, 2013

   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, 2012 $3,326  $33  $280,089  $408,295  $26,300  $(347,109) $370,934  $17,362  $3,326  $33  $280,089  $408,295  $26,300  $(347,109) $370,934  $17,362 
Redemptions of noncontrolling                                                                
interests  (524)  -   -   -   -   -   (524)  (13,394)  (524)  -   -   -   -   -   (524)  (15,356)
Contributions from                                                                
noncontrolling                                                                
interests  -   -   -   -   -   -   -   2,875   -   -   -   -   -   -   -   3,486 
Net income (loss)  (24)  -   -   50,438   -   -   50,414   178   (13)  -   -   83,536   -   -   83,523   273 
Net unrealized gains on                                                                
securities available for sale,                                                                
net of income tax ($3,477)  -   -   -   -   5,921   -   5,921   - 
net of income tax ($5,479)  -   -   -   -   9,331   -   9,331   - 
Amount reclassed from                                                                
accumulated other                                                                
comprehensive income,                                                                
net of income tax benefit ($3,982) -   -   -   -   (6,781)  -   (6,781)  - 
net of income tax benefit ($7,259)  -   -   -   -   (12,361)  -   (12,361)  - 
Income tax effect of transaction
with shareholders  -   -   243   -   -   -   243   - 
Foreign currency translation  -   -   -   -   (48)  -   (48)  -   -   -   -   -   1   -   1   - 
Dividends declared ($0.10 per                                
Dividends declared ($0.16 per                                
share)  -   -   -   (2,570)  -   -   (2,570)  -   -   -   -   (4,129)  -   -   (4,129)  - 
Stock based compensation                                                                
expense  -   -   29   -   -   -   29   -   -   -   770   -   -   -   770   - 
Exercise of stock options                                                                
including tax benefit  -   -   92   -   -   -   92   -   -   -   92   -   -   -   92   - 
Purchase of treasury stock  -   -   -   -   -   (6,276)  (6,276)  -   -   -   -   -   -   (9,234)  (9,234)  - 
Balance at June 30, 2013 $2,778  $33  $280,210  $456,163  $25,392  $(353,385) $411,191  $7,021 
Balance at September 30, 2013 $2,789  $33  $281,194  $487,702  $23,271  $(356,343) $438,646  $5,765 

See accompanying notes.
7

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)

 Six Months Ended  Nine Months Ended 
 June 30,  September 30, 
 2014  2013  2014  2013 
Operating activities        
Net income $57,299  $50,592  $77,851  $83,796 
Adjustments to reconcile net income to net cash provided by operating activities:                
Equity in net gains from partnerships  (2,884)  1,418   (572)  (1,211)
Depreciation and amortization  336   406   507   605 
Stock based compensation expense  3,397   29   5,182   770 
Deferred income taxes  (1,512)  1,421   (3,472)  1,495 
Tax benefit from exercise of stock options  349   16   349   16 
Foreign currency translation gain/(loss)  30   (48)  (15)  1 
Other-than-temporary loss on available for sale securities  69   14   69   14 
Cost basis of donated securities  1,480   277   1,502   1,880 
Gains on sales of available for sale securities  (3,163)  (10,446)  (3,511)  (16,191)
Accretion of zero coupon debentures  440   645   661   964 
Loss on extinguishment of debt  74   137   84   137 
(Increase) decrease in assets:                
Investments in trading securities  9,899   2,538   (22,376)  (11,730)
Investments in partnerships:                
Contributions to partnerships  (12,098)  (8,221)  (15,698)  (10,124)
Distributions from partnerships  3,077   9,818   4,828   11,134 
Receivable from brokers  (9,484)  10,986   (30,424)  6,801 
Investment advisory fees receivable  19,278   14,189   20,351   11,278 
Income tax receivable and deferred tax assets  (632)  605   (1,988)  584 
Other assets  (4,739)  2,246   563   (7,436)
Increase (decrease) in liabilities:                
Payable to brokers  9,094   640   36,026   329 
Income taxes payable and deferred tax liabilities  (4,707)  1,551   (4,950)  3,613 
Compensation payable  34,240   49,108   58,873   75,639 
Mandatorily redeemable noncontrolling interests  (16)  (20)  (51)  (15)
Accrued expenses and other liabilities  (405)  5,530   (1,639)  3,144 
Total adjustments  42,123   82,839   44,299   71,697 
Net cash provided by operating activities $99,422  $133,431  $122,150  $155,493 

8

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED (continued)
(In thousands)

 Six Months Ended  Nine Months Ended 
 June 30,  September 30, 
 2014  2013  2014  2013 
Investing activities        
Purchases of available for sale securities $(5,354) $(3,953) $(6,252) $(8,427)
Proceeds from sales of available for sale securities  6,518   21,978   8,018   32,422 
Return of capital on available for sale securities  561   625   827   1,094 
Net cash provided by investing activities  1,725   18,650   2,593   25,089 
                
Financing activities                
Contributions from redeemable noncontrolling interests  16,096   2,875   53,607   3,486 
Redemptions of redeemable noncontrolling interests  (470)  (13,394)  (1,666)  (15,356)
Redemption of 5.5% Senior Notes  -   (99,000)  -   (99,000)
Redemptions of noncontrolling interests  -   (524)  -   (524)
Proceeds from exercise of stock options  1,637   76   1,637   76 
Dividends paid  (3,050)  (2,570)  (4,567)  (4,108)
Repurchase of zero coupon subordinated debentures  (612)  (1,119)  (715)  (1,119)
Purchase of treasury stock  (17,698)  (6,275)  (25,074)  (9,234)
Net cash used in financing activities  (4,097)  (119,931)
Net cash provided by/(used in) financing activities  23,222   (125,779)
Effect of exchange rates on cash and cash equivalents  (11)  18   5   - 
Net increase in cash and cash equivalents  97,039   32,168   147,970   54,803 
Cash and cash equivalents at beginning of period  210,451   190,608   210,451   190,608 
Cash and cash equivalents at end of period $307,490  $222,776  $358,421  $245,411 
Supplemental disclosures of cash flow information:                
Cash paid for interest $3,539  $6,262  $3,847  $6,607 
Cash paid for taxes $37,020  $25,165  $52,956  $40,500 
                
Non-cash activity:                
- For the six months ended June 30, 2014 and June 30, 2013, the Company accrued dividends on restricted stock awards of $57 and $0, respectively. 
- For the nine months ended September 30, 2014 and September 30, 2013, the Company accrued dividends on restricted stock awards of $86 and $21, respectively.- For the nine months ended September 30, 2014 and September 30, 2013, the Company accrued dividends on restricted stock awards of $86 and $21, respectively. 

See accompanying notes.
9

GAMCO INVESTORS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JuneSeptember 30, 2014
(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 U.S. 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.  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, 2013 from which the accompanying condensed consolidated financial statements were derived.

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 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers," which supersedes the revenue recognition requirements in the Accounting Standards Codification ("Codification") Topic 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the Codification.  The core principle of the new ASU No. 2014-09 is for companies to recognize revenue from the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services.  The new standard provides a five-step approach to be applied to all contracts with customers and also requires expanded disclosures about revenue recognition.  The ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods and is to be retrospectively applied.  Early adoption is not permitted.  The Company is currently evaluating this guidance and the impact it will have on its condensed consolidated financial statements.

In June 2014, the FASB issued an accounting update clarifying that entities should treat performance targets that could be met after the requisite service period of a share-based payment award as performance conditions that affect vesting.  Therefore, an entity would not record compensation expense (measured as of the grant date) for an award where transfer to the employee is contingent upon satisfaction of the performance target until it becomes probable that the performance target will be met.  The guidance is effective for the Company beginning January 1, 2016.  Early adoption is permitted.  This guidance is not expected to have a material impact on the Company's condensed consolidated financial statements.

10

B.  Investment in Securities

Investments in securities at JuneSeptember 30, 2014, December 31, 2013 and JuneSeptember 30, 2013 consisted of the following:

 June 30, 2014  December 31, 2013  June 30, 2013  September 30, 2014  December 31, 2013  September 30, 2013 
 Cost  Fair Value  Cost  Fair Value  Cost  Fair Value  Cost  Fair Value  Cost  Fair Value  Cost  Fair Value 
 (In thousands)  (In thousands) 
Trading securities:                        
Government obligations $23,996  $23,998  $37,986  $37,994  $27,986  $27,996  $20,995  $20,999  $37,986  $37,994  $20,993  $21,000 
Common stocks  124,502   156,522   96,225   124,634   137,600   155,088   167,714   190,939   96,225   124,634   143,731   166,443 
Mutual funds  2,418   3,532   21,074   23,285   1,074   1,675   2,416   3,373   21,074   23,285   11,073   12,010 
Other investments  532   694   287   582   470   719   753   1,550   287   582   406   419 
Total trading securities  151,448   184,746   155,572   186,495   167,130   185,478   191,878   216,861   155,572   186,495   176,203   199,872 
                                                
Available for sale securities:                                                
Common stocks  15,009   39,334   13,389   43,046   14,077   33,478   14,228   36,380   13,389   43,046   16,372   36,297 
Mutual funds  700   1,516   843   1,687   843   1,484   681   1,389   843   1,687   843   1,575 
Total available for sale securities  15,709   40,850   14,232   44,733   14,920   34,962   14,909   37,769   14,232   44,733   17,215   37,872 
                                                
Total investments in securities $167,157  $225,596  $169,804  $231,228  $182,050  $220,440  $206,787  $254,630  $169,804  $231,228  $193,418  $237,744 

Securities sold, not yet purchased at JuneSeptember 30, 2014, December 31, 2013 and JuneSeptember 30, 2013 consisted of the following:

 June 30, 2014  December 31, 2013  June 30, 2013  September 30, 2014  December 31, 2013  September 30, 2013 
 Proceeds  Fair Value  Proceeds  Fair Value  Proceeds  Fair Value  Proceeds  Fair Value  Proceeds  Fair Value  Proceeds  Fair Value 
Trading securities: (In thousands)  (In thousands) 
Common stocks $11,662  $13,861  $5,319  $6,023  $7,668  $7,381  $11,699  $13,514  $5,319  $6,023  $6,411  $7,003 
Other investments  170   468   -   155   71   217   71   666   -   155   526   722 
Total securities sold, not yet purchased $11,832  $14,329  $5,319  $6,178  $7,739  $7,598  $11,770  $14,180  $5,319  $6,178  $6,937  $7,725 
11

Investments in sponsored registered investment companies at JuneSeptember 30, 2014, December 31,2013 and JuneSeptember 30, 2013 consisted of the following:

 June 30, 2014  December 31, 2013  June 30, 2013  September 30, 2014  December 31, 2013  September 30, 2013 
 Cost  Fair Value  Cost  Fair Value  Cost  Fair Value  Cost  Fair Value  Cost  Fair Value  Cost  Fair Value 
 (In thousands)  (In thousands) 
Trading securities:                        
Mutual funds $19  $14  $19  $10  $19  $11  $1  $1  $19  $10  $19  $12 
Total trading securities  19   14   19   10   19   11   1   1   19   10   19   12 
                                                
Available for sale securities:                                                
Closed-end funds  21,531   37,138   23,100   40,624   28,435   49,162   21,819   36,142   23,100   40,624   23,850   40,272 
Mutual funds  1,931   3,639   1,951   3,408   2,040   3,168   1,922   3,377   1,951   3,408   2,031   3,404 
Total available for sale securities  23,462   40,777   25,051   44,032   30,475   52,330   23,741   39,519   25,051   44,032   25,881   43,676 
                                                
Total investments in sponsored                                                
registered investment companies $23,481  $40,791  $25,070  $44,042  $30,494  $52,341  $23,742  $39,520  $25,070  $44,042  $25,900  $43,688 

Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of the date of each statement of financial condition.  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.  The portion of investments in securities held for resale in anticipation of short-term market movements are 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 ("OTT") which are recorded as realized losses in the condensed consolidated statements of income.

The following table identifies all reclassifications out of accumulated other comprehensive income ("AOCI") into income for the three and sixnine months ended JuneSeptember 30, 2014 and 2013 (in thousands):
 
AmountAmount Affected Line ItemReason forAmount Affected Line ItemsReason for
ReclassifiedReclassified in the StatementsReclassificationReclassified in the StatementsReclassification
from AOCIfrom AOCI Of Incomefrom AOCIfrom AOCI Of Incomefrom AOCI
Three months ended June 30,    
Three months ended September 30,Three months ended September 30,    
20142014  2013 
 
  
2014  2013    
$1,551  $9,849  Net gain from investments Realized gain on sale of AFS securities
 498   181  Other operating expenses/net gain from investments Realized gain on donation of AFS securities$348  $5,745  Net gain/(loss) from investments Realized gain on sale of AFS securities
 (69)  (14) Net gain from investments OTT impairment of AFS securities -   3,112  Other operating expenses/net gain from investments Realized gain on donation of AFS securities
 1,980   10,016  Income before income taxes  348   8,857  Income before income taxes 
 (733)  (3,706) Income tax provision  (129)  (3,277) Income tax provision 
$1,247  $6,310  Net income $219  $5,580  Net income 
       
 
      
              
AmountAmount Affected Line ItemReason forAmount Affected Line ItemsReason for
ReclassifiedReclassified in the StatementsReclassificationReclassified in the StatementsReclassification
from AOCIfrom AOCI Of Incomefrom AOCIfrom AOCI Of Incomefrom AOCI
Six months ended June 30, 
 
  
Nine months ended September 30,Nine months ended September 30,    
 2014   2013 
 
  
 2014   2013    
$3,163  $10,446  Net gain from investments Realized gain on sale of AFS securities$3,511  $16,191  Net gain/(loss) from investments Realized gain on sale of AFS securities
 3,639   331  Other operating expenses/net gain from investments Realized gain on donation of AFS securities 3,639   3,443  Other operating expenses/net gain from investments Realized gain on donation of AFS securities
 (69)  (14) Net gain from investments OTT impairment of AFS securities (69)  (14) Net gain/(loss) from investments OTT impairment of AFS securities
 6,733   10,763  Income before income taxes
 
 7,081   19,620  Income before income taxes 
 (2,491)  (3,982) Income tax provision
 
 (2,620)  (7,259) Income tax provision 
$4,242  $6,781  Net income
 
$4,461  $12,361  Net income 
       
 
      
              
12

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 months ended JuneSeptember 30, 2014 and 2013, the Company had transactions in equity derivatives which resulted in net gains of $120,000$661,000 and net losses of $1,000,$191,000, respectively.  For the sixnine months ended JuneSeptember 30, 2014 and 2013, the Company had transactions in equity derivatives which resulted in net losses of $167,000 and net gains of $280,000,$591,000 and $471,000, respectively.  At JuneSeptember 30, 2014, December 31, 2013 and JuneSeptember 30, 2013, we held derivative contracts on 1.92.3 million equity shares, 1.3 million equity shares and 1.51.6 million equity shares, respectively, and the fair value was ($299,000),$134,000, $120,000 and $122,000,($143,000), 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 gain/(loss) from investments in the condensed consolidated statements of income. 
12

The Company is a party to enforceable master netting arrangements for swaps entered into as part of the investment strategy of the Company's proprietary portfolio. They are typically not used as hedging instruments. These swaps, while settled on a net basis with the counterparties, major U.S. financial institutions, are shown gross in assets and liabilities on the condensed consolidated statements of financial condition. The swaps have a firm contract end date and are closed out and settled when each contract expires.


 
  
  
  Gross Amounts Not Offset in the        Gross Amounts Not Offset in the 
 
  
  
  Statements of Financial Condition        Statements of Financial Condition 
 Gross  Gross Amounts  Net Amounts of  
  
  
  Gross  Gross Amounts  Net Amounts of       
 Amounts of  Offset in the  Assets Presented  
  
  
  Amounts of  Offset in the  Assets Presented       
 Recognized  Statements of  in the Statements of  Financial  Cash Collateral  
  Recognized  Statements of  in the Statements of  Financial  Cash Collateral   
 Assets  Financial Condition  Financial Condition  Instruments  Received  Net Amount  Assets  Financial Condition  Financial Condition  Instruments  Received  Net Amount 
Swaps: (in thousands)  (in thousands) 
June 30, 2014 $156  $-  $156  $(156) $-  $- 
September 30, 2014 $800  $-  $800  $(657) $-  $143 
December 31, 2013  275   -   275   (155)  -   120   275   -   275   (155)  -   120 
June 30, 2013 $237  $-  $237  $(177) $-  $60 
September 30, 2013 $101  $-  $101  $(101) $-  $- 
                                                
             Gross Amounts Not Offset in the              Gross Amounts Not Offset in the 
             Statements of Financial Condition              Statements of Financial Condition 
 Gross  Gross Amounts  Net Amounts of              Gross  Gross Amounts  Net Amounts of             
 Amounts of  Offset in the  Liabilities Presented              Amounts of  Offset in the  Liabilities Presented             
 Recognized  Statements of  in the Statements of  Financial  Cash Collateral      Recognized  Statements of  in the Statements of  Financial  Cash Collateral     
 Liabilities  Financial Condition  Financial Condition  Instruments  Pledged  Net Amount  Liabilities  Financial Condition  Financial Condition  Instruments  Pledged  Net Amount 
Swaps: (in thousands)  (in thousands) 
June 30, 2014 $205  $-  $205  $(156) $-  $49 
September 30, 2014 $657  $-  $657  $(657) $-  $- 
December 31, 2013  155   -   155   (155)  -   -   155   -   155   (155)  -   - 
June 30, 2013 $177  $-  $177  $(177) $-  $- 
September 30, 2013 $135  $-  $135  $(101) $-  $34 


 
13
The following is a summary of the cost, gross unrealized gains, gross unrealized losses and fair value of available for sale investments as of JuneSeptember 30, 2014, December 31, 2013 and JuneSeptember 30, 2013:

 June 30, 2014  September 30, 2014 
 
  Gross  Gross  
    Gross  Gross   
 
  Unrealized  Unrealized  
    Unrealized  Unrealized   
 Cost  Gains  Losses  Fair Value  Cost  Gains  Losses  Fair Value 
 (In thousands)  (In thousands) 
Common stocks $15,009  $24,325  $-  $39,334  $14,228  $22,152  $-  $36,380 
Closed-end Funds  21,531   15,607   -   37,138   21,819   14,325   (2)  36,142 
Mutual funds  2,631   2,524   -   5,155   2,603   2,163   -   4,766 
Total available for sale securities $39,171  $42,456  $-  $81,627  $38,650  $38,640  $(2) $77,288 

  December 31, 2013 
    Gross  Gross   
    Unrealized  Unrealized   
  Cost  Gains  Losses  Fair Value 
  (In thousands) 
Common stocks $13,389  $29,657  $-  $43,046 
Closed-end Funds  23,100   17,654   (130)  40,624 
Mutual funds  2,794   2,325   (24)  5,095 
Total available for sale securities $39,283  $49,636  $(154) $88,765 

  September 30, 2013 
    Gross  Gross   
    Unrealized  Unrealized   
  Cost  Gains  Losses  Fair Value 
  (In thousands) 
Common stocks $16,372  $19,925  $-  $36,297 
Closed-end Funds  23,850   16,545   (123)  40,272 
Mutual funds  2,874   2,141   (36)  4,979 
Total available for sale securities $43,096  $38,611  $(159) $81,548 
  June 30, 2013 
 
 
  Gross  Gross  
 
 
 
  Unrealized  Unrealized  
 
  Cost  Gains  Losses  Fair Value 
  (In thousands) 
Common stocks $14,077  $19,401  $-  $33,478 
Closed-end Funds  28,435   20,773   (46)  49,162 
Mutual funds  2,883   1,850   (81)  4,652 
Total available for sale securities $45,395  $42,024  $(127) $87,292 

Unrealized changes in fair value, net of taxes, for the three months ended JuneSeptember 30, 2014 and JuneSeptember 30, 2013 of $1.7$2.4 million in losses and $6.9$2.2 million in losses, respectively, have been included in other comprehensive income, a component of equity, at JuneSeptember 30, 2014 and JuneSeptember 30, 2013.  Return of capital on available for sale securities was $238,000$0.3 million and $14,000$0.5 million for the three months ended JuneSeptember 30, 2014 and JuneSeptember 30, 2013, respectively.  Proceeds from sales of investments available for sale were approximately $2.6$1.5 million and $16.6$10.4 million for the three months ended JuneSeptember 30, 2014 and JuneSeptember 30, 2013, respectively.  For the three months ended JuneSeptember 30, 2014 and JuneSeptember 30, 2013, gross gains on the sale of investments available for sale amounted to $1.6$0.3 million and $9.8$5.7 million, respectively, and were reclassified from other comprehensive income into net gain from investments in the condensed consolidated statements of income.  There were no losses on the sale of investments available for sale for the three months ended JuneSeptember 30, 2014 or JuneSeptember 30, 2013.  Unrealized changes in fair value, net of taxes, for the sixnine months ended JuneSeptember 30, 2014 and JuneSeptember 30, 2013 of $4.4$6.8 million in losses and $0.9$3.0 million in losses, respectively, have been included in other comprehensive income, a component of equity, at JuneSeptember 30, 2014 and JuneSeptember 30, 2013.  Return of capital on available for sale securities was $0.6$0.8 million and $0.6$1.1 million for the sixnine months ended JuneSeptember 30, 2014 and JuneSeptember 30, 2013, respectively.  Proceeds from sales of investments available for sale were approximately $6.5$8.0 million and $22.0$32.4 million for the sixnine months ended JuneSeptember 30, 2014 and JuneSeptember 30, 2013, respectively.  For the sixnine months ended JuneSeptember 30, 2014 and JuneSeptember 30, 2013, gross gains on the sale of investments available for sale amounted to $3.2$3.5 million and $10.4$16.2 million, respectively, and were reclassified from other comprehensive income into net gain from investments in the condensed consolidated statements of income.  There were no losses on the sale of investments available for sale for the sixnine months ended JuneSeptember 30, 2014 or JuneSeptember 30, 2013.The basis on which the cost of a security sold is determined isusing specific identification.
 
14
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:

 June 30, 2014  December 31, 2013  June 30, 2013  September 30, 2014  December 31, 2013  September 30, 2013 
 
  Unrealized  
  
  Unrealized  
  
  Unrealized  
    Unrealized      Unrealized      Unrealized   
 Cost  Losses  Fair Value  Cost  Losses  Fair Value  Cost  Losses  Fair Value  Cost  Losses  Fair Value  Cost  Losses  Fair Value  Cost  Losses  Fair Value 
(in thousands) 
  
  
  
  
  
  
  
  
                   
Cosed-end funds $-  $-  $-  $912  $(130) $782  $1,449  $(46) $1,403  $79  $(2) $77  $912  $(130) $782  $941  $(123) $818 
Mutual Funds  -   -   -   303   (24)  279   365   (72)  293   -   -   -   303   (24)  279   365   (36)  329 
Total $-  $-  $-  $1,215  $(154) $1,061  $1,814  $(118) $1,696  $79  $(2) $77  $1,215  $(154) $1,061  $1,306  $(159) $1,147 

At JuneSeptember 30, 2014, there were no holdingswas one holding in a loss positionsposition which werewas not deemed to be other than temporarily impaired.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 September 30, 2014 was a closed-end fund with diversified holdings across multiple companies and across multiple industries.  The one holding was impaired for one month at September 30, 2014.  The value of this holding at September 30, 2014 was $0.1 million.

At December 31, 2013, there were four holdings in loss positions which were not deemed to be other-than-temporarily impaired due to the length of time that they had been in a loss position and because they passed scrutiny in our evaluation of issuer-specific and industry-specific considerations.  In these specific instances, the investments at December 31, 2013 were open-end funds and closed-end funds with diversified holdings across multiple companies and across multiple industries.  One holding was impaired for one month, one for two months, one for four months and one for seven months at December 31, 2013. The value of these holdings at December 31, 2013 was $1.1 million.

At JuneSeptember 30, 2013, there were four holdings in loss positions which were not deemed to be other-than-temporarily impaired due to the length of time that they had been in a loss position and because they passed scrutiny in our evaluation of issuer-specific and industry-specific considerations.  In these specific instances, the investments at JuneSeptember 30, 2013 were open- and closed-end funds with diversified holdings across multiple companies and across multiple industries.  All holdings were impaired for one monthfour months at JuneSeptember 30, 2013.  The value of these holdings at JuneSeptember 30, 2013 was $1.7$1.1 million.

There were no losses on AFS securities for the three months ended September 30, 2014 or September 30, 2013.  For the three and sixnine months ended JuneSeptember 30, 2014 and September 30, 2013, there were $69,000 and $14,000 of losses, respectively, on available for sale securities deemed to be other than temporary and a loss has been recorded in net gain from investments.  For the three and six months ended June 30, 2013, there was $14,000 of losses on available for sale securities deemed to be other than temporary in the condensed consolidated statements of income.
15

C. Fair Value

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 JuneSeptember 30, 2014, December 31, 2013 and JuneSeptember 30, 2013 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of JuneSeptember 30, 2014 (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  June 30,  Markets for Identical  Observable  Unobservable  September 30, 
Assets Assets (Level 1)  Inputs (Level 2)  Inputs (Level 3)  2014  Assets (Level 1)  Inputs (Level 2)  Inputs (Level 3)  2014 
Cash equivalents $307,154  $-  $-  $307,154  $358,210  $-  $-  $358,210 
Investments in partnerships  -   24,855   -   24,855   -   24,094   -   24,094 
Investments in securities:                                
AFS - Common stocks  39,334   -   -   39,334   36,380   -   -   36,380 
AFS - Mutual funds  1,516   -   -   1,516   1,389   -   -   1,389 
Trading - Gov't obligations  23,998   -   -   23,998   20,999   -   -   20,999 
Trading - Common stocks  155,805   1   716   156,522   190,215   -   724   190,939 
Trading - Mutual funds  3,532   -   -   3,532   3,373   -   -   3,373 
Trading - Other  243   157   294   694   453   803   294   1,550 
Total investments in securities  224,428   158   1,010   225,596   252,809   803   1,018   254,630 
Investments in sponsored registered investment companies:Investments in sponsored registered investment companies:             Investments in sponsored registered investment companies:             
AFS - Closed-end Funds  37,138   -   -   37,138   36,142   -   -   36,142 
AFS - Mutual Funds  3,639   -   -   3,639   3,377   -   -   3,377 
Trading - Mutual funds  14   -   -   14   1   -   -   1 
Total investments in sponsored                                
registered investment companies  40,791   -   -   40,791   39,520   -   -   39,520 
Total investments  265,219   25,013   1,010   291,242   292,329   24,897   1,018   318,244 
Total assets at fair value $572,373  $25,013  $1,010  $598,396  $650,539  $24,897  $1,018  $676,454 
Liabilities                                
Trading - Common stocks $13,861  $-  $-  $13,861  $13,514  $-  $-  $13,514 
Trading - Other  -   468   -   468   -   666   -   666 
Securities sold, not yet purchased $13,861  $468  $-  $14,329  $13,514  $666  $-  $14,180 

16
Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2013 (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)  2013 
Cash equivalents $209,913  $-  $-  $209,913 
Investments in partnerships  -   25,253   -   25,253 
Investments in securities:                
AFS - Common stocks  43,046   -   -   43,046 
AFS - Mutual funds  1,687   -   -   1,687 
Trading - Gov't obligations  37,994   -   -   37,994 
Trading - Common stocks  123,927   7   700   124,634 
Trading - Mutual funds  23,285   -   -   23,285 
Trading - Other  23   275   284   582 
Total investments in securities  229,962   282   984   231,228 
Investments in sponsored registered investment companies:             
AFS - Closed-end Funds  40,624   -   -   40,624 
AFS - Mutual Funds  3,408   -   -   3,408 
Trading - Mutual funds  10   -   -   10 
Total investments in sponsored                
registered investment companies  44,042   -   -   44,042 
Total investments  274,004   25,535   984   300,523 
Total assets at fair value $483,917  $25,535  $984  $510,436 
Liabilities                
Trading - Common stocks $6,023  $-  $-  $6,023 
Trading - Other  -   155   -   155 
Securities sold, not yet purchased $6,023  $155  $-  $6,178 

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of JuneSeptember 30, 2013 (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  June 30,  Markets for Identical  Observable  Unobservable  September 30, 
Assets Assets (Level 1)  Inputs (Level 2)  Inputs (Level 3)  2013  Assets (Level 1)  Inputs (Level 2)  Inputs (Level 3)  2013 
Cash equivalents $222,647  $-  $-  $222,647  $244,144  $-  $-  $244,144 
Investments in partnerships  -   22,513   -   22,513   -   23,146   -   23,146 
Investments in securities:                                
AFS - Common stocks  33,478   -   -   33,478   36,297   -   -   36,297 
AFS - Mutual funds  1,484   -   -   1,484   1,575   -   -   1,575 
Trading - Gov't obligations  27,996   -   -   27,996   21,000   -   -   21,000 
Trading - Common stocks  154,411   8   669   155,088   165,776   -   667   166,443 
Trading - Mutual funds  1,675   -   -   1,675   12,010   -   -   12,010 
Trading - Other  98   337   284   719   32   104   283   419 
Total investments in securities  219,142   345   953   220,440   236,690   104   950   237,744 
Investments in sponsored registered investment companies:Investments in sponsored registered investment companies:             Investments in sponsored registered investment companies:             
AFS - Closed-end Funds  49,162   -   -   49,162   40,272   -   -   40,272 
AFS - Mutual Funds  3,168   -   -   3,168   3,404   -   -   3,404 
Trading - Mutual funds  11   -   -   11   12   -   -   12 
Total investments in sponsored                                
registered investment companies  52,341   -   -   52,341   43,688   -   -   43,688 
Total investments  271,483   22,858   953   295,294   280,378   23,250   950   304,578 
Total assets at fair value $494,130  $22,858  $953  $517,941  $524,522  $23,250  $950  $548,722 
Liabilities                                
Trading - Common stocks $7,381  $-  $-  $7,381  $7,003  $-  $-  $7,003 
Trading - Other  -   217   -   217   -   722   -   722 
Securities sold, not yet purchased $7,381  $217  $-  $7,598  $7,003  $722  $-  $7,725 
17

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:value.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended JuneSeptember 30, 2014 (in thousands)

 
  
  Total  
  
  
  
  
      Total           
 
  
  Unrealized  
  
  
  
  
      Unrealized           
 
  
  Gains or  Total  
  
  
  
      Gains or  Total         
 
  Total Realized and  (Losses)  Realized  
  
  
  
    Total Realized and  (Losses)  Realized         
 March  Unrealized Gains or  Included in  and  
  
  Transfers  
  June  Unrealized Gains or  Included in  and      Transfers   
  31, 2014  (Losses) in Income  Other  Unrealized      In and/or  
   30, 2014  (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:                                        
                                        
Trading - Common stocks $700  $16  $-  $-  $16  $-  $-  $-  $716  $716  $8  $-  $-  $8  $-  $-  $-  $724 
Trading - Other  284   -   -   -   -   10   -   -   294   294   -   -   -   -   -   -   -   294 
Total $984  $16  $-  $-  $16   10  $-  $-  $1,010  $1,010  $8  $-  $-  $8   -  $-  $-  $1,018 

There were no transfers between any Levels during the three months ended JuneSeptember 30, 2014.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended JuneSeptember 30, 2013 (in thousands)

 
  
  Total  
  
  
  
  
      Total           
 
  
  Unrealized  
  
  
  
  
      Unrealized           
 
  
  Gains or  Total  
  
  
  
      Gains or  Total         
 
  Total Realized and  (Losses)  Realized  
  
  
  
    Total Realized and  (Losses)  Realized         
 March  Unrealized Gains or  Included in  and  
  
  Transfers  
  June  Unrealized Gains or  Included in  and      Transfers   
  31, 2013  (Losses) in Income  Other  Unrealized      In and/or  
   30, 2013  (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:     
  
  
  
  
  
  
  
                     
Trading - Common stocks $667  $2  $-  $-  $2  $-  $-  $-  $669  $669  $(2) $-  $-  $(2) $-  $-  $-  $667 
Trading - Other  299   (3)  -   -   (3)  3   (15)  -   284   284   (1)  -   -   (1)  -   -   -   283 
Total $966  $(1) $-  $-  $(1) $3  $(15) $-  $953  $953  $(3) $-  $-  $(3) $-  $-  $-  $950 

There were no transfers between any Levels during the three months ended JuneSeptember 30, 2013.

 
18

 
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the SixNine Months Ended JuneSeptember 30,2014 (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  
  December  Unrealized Gains or  Included in  and      Transfers   
  31, 2013  (Losses) in Income  Other  Unrealized      In and/or  
   31, 2013  (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:                                        
                                        
Trading - Common stocks $700  $16  $-  $-  $16  $-  $-  $-  $716  $700  $24  $-  $-  $24  $-  $-  $-  $724 
Trading - Other  284   -   -   -   -   10   -   -   294   284   -   -   -   -   10   -   -   294 
Total $984  $16  $-  $-  $16   10  $-  $-  $1,010  $984  $24  $-  $-  $24   10  $-  $-  $1,018 

There were no transfers between any Levels during the sixnine months ended JuneSeptember 30, 2014.2014.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the SixNine Months Ended JuneSeptember 30,2013 (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  
  December  Unrealized Gains or  Included in  and      Transfers   
  31, 2012  (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:     
  
  
  
  
  
  
  
                     
Trading - Common stocks $675  $(6) $-  $-  $(6) $-  $-  $-  $669  $675  $(8) $-  $-  $(8) $-  $-  $-  $667 
Trading - Other  362   (2)  -   -   (2)  3   (79)  -   284   362   (3)  -   -   (3)  3   (79)  -   283 
Total $1,037  $(8) $-  $-  $(8) $3  $(79) $-  $953  $1,037  $(11) $-  $-  $(11) $3  $(79) $-  $950 

There were no transfers between any Levels during the sixnine months ended JuneSeptember 30, 2013.2013.


D. Investments in Partnerships, Offshore Funds and Variable Interest Entities ("VIEs")
 
The Company is general partner or co-general partner of various affiliated entities in which the Company has investments totaling $93.0$93.2 million, $82.0 million and $81.5$84.3 million at JuneSeptember 30, 2014, December 31, 2013 and JuneSeptember 30, 2013, respectively, and whose underlying assets consist primarily of marketable securities (the "affiliated entities"). We also have investments in unaffiliated entities of $14.9$14.2 million, $14.0 million and $13.0$13.5 million at JuneSeptember 30, 2014, December 31, 2013 and JuneSeptember 30, 2013, respectively (the "unaffiliated entities").  On a quarterly basis we evaluate each entity for the appropriate accounting treatment and disclosure.  Certain of the affiliated entities, and none of the unaffiliated entities, are consolidated.

For those entities where consolidation is not deemed to be appropriate, we report them in our condensed consolidated statement of financial condition under the caption "Investments in partnerships".  This caption 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 C.  The Company reflects the equity in earnings of these equity method investees and the change in fair value of the consolidated feeder funds ("CFFs") under the caption "Net gaingain/(loss) from investments" on the condensed consolidated statements of income.

The following table highlights the number of entities, including voting interest entities ("VOEs"), that we consolidate as well as under which accounting guidance they are consolidated, including CFFs, which retain their specialized investment company accounting in consolidation, partnerships and offshore funds.
 
19

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, 2012  1   2   -   1   -   1   1   4   1   2   -   1   -   1   1   4 
Additional consolidated entities  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   - 
Deconsolidated entities  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   - 
Entities consolidated at June 30, 2013  1   2   -   1   -   1   1   4 
Entities consolidated at September 30, 2013  1   2   -   1   -   1   1   4 
Additional consolidated entities  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   - 
Deconsolidated entities  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   - 
Entities consolidated at December 31, 2013  1   2   -   1   -   1   1   4   1   2   -   1   -   1   1   4 
Additional consolidated entities  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   - 
Deconsolidated entities  -   -   -   -   -   -   -   -   -   -   -   -   -   -   -   - 
Entities consolidated at June 30, 2014  1   2   -   1   -   1   1   4 
Entities consolidated at September 30, 2014  1   2   -   1   -   1   1   4 

At and for the sixnine months ended JuneSeptember 30, 2014 and 2013 and at December 31, 2013, the one CFF VIE is consolidated, as the Company has been determined to be the primary beneficiary because it has an equity interest and absorbs the majority of the expected losses and/or expected gains. At and for the sixnine months ended JuneSeptember 30, 2014 and 2013 and at December 31, 2013, the two CFF VOEs, the one Partnership VOE and the one Offshore Fund VOE are consolidated because the unaffiliated partners or shareholders lack substantive rights, and the Company, as either the general partner or investment manager, is deemed to have control.

The following table breaks down the investments in partnerships line by accounting method, either fair value or equity method, and investment type (in thousands):

 June 30, 2014 September 30, 2014 
 Investment Type Investment Type 
 Affiliated  Unaffiliated   Affiliated  Unaffiliated   
 Consolidated  
  
  
  
  
 Consolidated           
Accounting method Feeder Funds  Partnerships  Offshore Funds  Partnerships  Offshore Funds  Total Feeder Funds  Partnerships  Offshore Funds  Partnerships  Offshore Funds  Total 
                       
Fair Value $24,856  $-  $-  $-  $-  $24,856 $24,094  $-  $-  $-  $-  $24,094 
Equity Method  -   32,830   35,268   6,699   8,243   83,040  -   34,967   34,185   6,611   7,577   83,340 
                                               
Total $24,856  $32,830  $35,268  $6,699  $8,243  $107,896 $24,094  $34,967  $34,185  $6,611  $7,577  $107,434 

  December 31, 2013 
  Investment Type 
  Affiliated  Unaffiliated   
  Consolidated           
Accounting method Feeder Funds  Partnerships  Offshore Funds  Partnerships  Offshore Funds  Total 
             
Fair Value $25,253  $-  $-  $-  $-  $25,253 
Equity Method  -   21,669   35,030   6,509   7,531   70,739 
                         
Total $25,253  $21,669  $35,030  $6,509  $7,531  $95,992 

 June 30, 2013 September 30, 2013 
 Investment Type Investment Type 
 Affiliated  Unaffiliated   Affiliated  Unaffiliated   
 Consolidated  
  
  
  
  
 Consolidated           
Accounting method Feeder Funds  Partnerships  Offshore Funds  Partnerships  Offshore Funds  Total Feeder Funds  Partnerships  Offshore Funds  Partnerships  Offshore Funds  Total 
                       
Fair Value $22,514  $-  $-  $-  $-  $22,514 $23,146  $-  $-  $-  $-  $23,146 
Equity Method  -   26,429   32,616   5,942   7,034   72,021  -   26,717   34,460   6,080   7,349   74,606 
                                               
Total $22,514  $26,429  $32,616  $5,942  $7,034  $94,535 $23,146  $26,717  $34,460  $6,080  $7,349  $97,752 
20

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):

 June 30, 2014 September 30, 2014 
 Prior to  
  
  Offshore  
 Prior to      Offshore   
 Consolidation  CFFs  Partnerships  Funds  As Reported Consolidation  CFFs  Partnerships  Funds  As Reported 
Assets                   
Cash and cash equivalents $307,197  $6  $287  $-  $307,490 $358,316  $7  $98  $-  $358,421 
Investments in securities  209,181   -   8,602   7,813   225,596  203,280   -   8,836   42,514   254,630 
Investments in sponsored investment companies  40,777   -   14   -   40,791  39,520   -   -   -   39,520 
Investments in partnerships  112,305   4,962   (9,371)  -   107,896  110,679   4,684   (7,929)  -   107,434 
Receivable from brokers  38,266   -   792   19,887   58,945  31,388   -   306   48,191   79,885 
Investment advisory fees receivable  32,269   28   (2)  (67)  32,228  31,221   17   (1)  (82)  31,155 
Other assets  31,673   40   8   135   31,856  28,528   24   (1,000)  163   27,715 
Total assets $771,668  $5,036  $330  $27,768  $804,802 $802,932  $4,732  $310  $90,786  $898,760 
Liabilities and equity                                       
Securities sold, not yet purchased $13,995  $-  $-  $334  $14,329 $13,549  $-  $-  $631  $14,180 
Accrued expenses and other liabilities  148,625   84   21   9,889   158,619  166,209   71   31   39,009   205,320 
Total debt  111,813   -   -   -   111,813  111,941   -   -   -   111,941 
Redeemable noncontrolling interests  -   4,952   309   17,545   22,806  -   4,661   279   51,146   56,086 
Total equity  497,235   -   -   -   497,235  511,233   -   -   -   511,233 
Total liabilities and equity $771,668  $5,036  $330  $21,768  $804,802 $802,932  $4,732  $310  $90,786  $898,760 

  December 31, 2013 
  Prior to      Offshore   
  Consolidation  CFFs  Partnerships  Funds  As Reported 
Assets          
Cash and cash equivalents $209,667  $450  $334  $-  $210,451 
Investments in securities  232,211   -   7,464   (8,447)  231,228 
Investments in sponsored investment companies  44,033   -   9   -   44,042 
Investments in partnerships  98,494   6,517   (9,019)  -   95,992 
Receivable from brokers  35,151   -   -   14,310   49,461 
Investment advisory fees receivable  52,509   (24)  (14)  (965)  51,506 
Other assets  27,433   (2,339)  1,592   119   26,805 
Total assets $699,498  $4,604  $366  $5,017  $709,485 
Liabilities and equity                    
Securities sold, not yet purchased $6,049  $-  $-  $129  $6,178 
Accrued expenses and other liabilities  121,356   165   29   2,913   124,463 
Total debt  111,911   -   -   -   111,911 
Redeemable noncontrolling interests  -   4,439   337   1,975   6,751 
Total equity  460,182   -   -   -   460,182 
Total liabilities and equity $699,498  $4,604  $366  $5,017  $709,485 

 June 30, 2013 September 30, 2013 
 Prior to  
  
  Offshore  
 Prior to      Offshore   
 Consolidation  CFFs  Partnerships  Funds  As Reported Consolidation  CFFs  Partnerships  Funds  As Reported 
Assets                   
Cash and cash equivalents $222,441  $-  $335  $-  $222,776 $243,995  $1,082  $334  $-  $245,411 
Investments in securities  215,755   -   7,292   (2,607)  220,440  240,113   -   7,400   (9,769)  237,744 
Investments in sponsored investment companies  52,332   -   9   -   52,341  43,677   -   11   -   43,688 
Investments in partnerships  100,342   3,189   (8,996)  -   94,535  104,010   3,253   (9,511)  -   97,752 
Receivable from brokers  27,347   -   1,680   10,642   39,669  26,981   -   2,115   14,758   43,854 
Investment advisory fees receivable  28,326   (10)  -   (76)  28,240  31,241   (8)  (1)  (81)  31,151 
Other assets  25,412   -   -   88   25,500  34,947   -   -   75   35,022 
Total assets $671,955  $3,179  $320  $8,047  $683,501 $724,964  $4,327  $348  $4,983  $734,622 
Liabilities and equity                                       
Securities sold, not yet purchased $7,427  $-  $-  $171  $7,598 $7,577  $-  $-  $148  $7,725 
Accrued expenses and other liabilities  136,309   59   21   4,274   140,663  161,394   1,146   32   2,567   165,139 
Total debt  117,028   -   -   -   117,028  117,347   -   -   -   117,347 
Redeemable noncontrolling interests  -   3,120   299   3,602   7,021  -   3,181   316   2,268   5,765 
Total equity  411,191   -   -   -   411,191  438,646   -   -   -   438,646 
Total liabilities and equity $671,955  $3,179  $320  $8,047  $683,501 $724,964  $4,327  $348  $4,983  $734,622 
21

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 June 30, 2014 Three Months Ended September 30, 2014 
 Prior to  
  
  Offshore  
 Prior to      Offshore   
 Consolidation  CFFs  Partnerships  Funds  As Reported Consolidation  CFFs  Partnerships  Funds  As Reported 
Total revenues $108,513  $(7) $(1) $(209) $108,296 $111,073  $(7) $-  $(208) $110,858 
Total expenses  70,515   (20)  14   250   70,759  66,980   20   12   260   67,272 
Operating income  37,998   13   (15)  (459)  37,537  44,093   (27)  (12)  (468)  43,586 
Total other income, net  8,093   130   33   665   8,921
Total other income/(expense), net  (7,462)  (186)  (18)  (2,323)  (9,989)
Income before income taxes  46,091   143   18   206   46,458  36,631   (213)  (30)  (2,791)  33,597 
Income tax provision  17,135   -   -   -   17,135  13,045   -   -   -   13,045 
Net income  28,956   143   18   206   29,323  23,586   (213)  (30)  (2,791)  20,552 
Net income attributable to noncontrolling interests  6   143   18   206   373
Net loss attributable to noncontrolling interests  (79)  (213)  (30)  (2,791)  (3,113)
Net income attributable to GAMCO $28,950  $-  $-  $-  $28,950 $23,665  $-  $-  $-  $23,665 

 Three Months Ended June 30, 2013 Three Months Ended September 30, 2013 
 Prior to  
  
  Offshore  
 Prior to      Offshore   
 Consolidation  CFFs  Partnerships  Funds  As Reported Consolidation  CFFs  Partnerships  Funds  As Reported 
Total revenues $92,613  $(6) $-  $(317) $92,290 $96,620  $(8) $(1) $(234) $96,377 
Total expenses  60,243   35   15   213   60,506  63,400   46   11   192   63,649 
Operating income  32,370   (41)  (15)  (530)  31,784  33,220   (54)  (12)  (426)  32,728 
Total other income, net  11,219   24   33   576   11,852  17,404   94   31   462   17,991 
Income before income taxes  43,589   (17)  18   46   43,636  50,624   40   19   36   50,719 
Income tax provision  15,724   -   -   -   15,724  17,515   -   -   -   17,515 
Net income  27,865   (17)  18   46   27,912  33,109   40   19   36   33,204 
Net income attributable to noncontrolling interests  (28)  (17)  18   46   19  11   40   19   36   106 
Net income attributable to GAMCO $27,893  $-  $-  $-  $27,893 $33,098  $-  $-  $-  $33,098 


 Six Months Ended June 30, 2014 Nine Months Ended September 30, 2014 
 Prior to  
  
  Offshore  
 Prior to      Offshore   
 Consolidation  CFFs  Partnerships  Funds  As Reported Consolidation  CFFs  Partnerships  Funds  As Reported 
Total revenues $213,214  $(14) $(2) $(425) $212,773 $324,287  $(21) $(2) $(633) $323,631 
Total expenses  138,227   14   26   470   138,737  205,207   34   38   730   206,009 
Operating income  74,987   (28)  (28)  (895)  74,036  119,080   (55)  (40)  (1,363)  117,622 
Total other income, net  13,634   206   37   1,137   15,014
Total other income/(expense), net  6,172   20   19   (1,186)  5,025 
Income before income taxes  88,621   178   9   242   89,050  125,252   (35)  (21)  (2,549)  122,647 
Income tax provision  31,751   -   -   -   31,751  44,796   -   -   -   44,796 
Net income  56,870   178   9   242   57,299  80,456   (35)  (21)  (2,549)  77,851 
Net income attributable to noncontrolling interests  (34)  178   9   242   395
Net loss attributable to noncontrolling interests  (113)  (35)  (21)  (2,549)  (2,718)
Net income attributable to GAMCO $56,904  $-  $-  $-  $56,904 $80,569  $-  $-  $-  $80,569 

 Six Months Ended June 30, 2013 Nine Months Ended September 30, 2013 
 Prior to  
  
  Offshore  
 Prior to      Offshore   
 Consolidation  CFFs  Partnerships  Funds  As Reported Consolidation  CFFs  Partnerships  Funds  As Reported 
Total revenues $179,069  $(12) $(1) $(585) $178,471 $275,689  $(20) $(2) $(819) $274,848 
Total expenses  115,458   88   25   389   115,960  178,858   134   36   581   179,609 
Operating income  63,611   (100)  (26)  (974)  62,511  96,831   (154)  (38)  (1,400)  95,239 
Total other income, net  15,721   134   48   1,097   17,000  33,125   228   79   1,559   34,991 
Income before income taxes  79,332   34   22   123   79,511  129,956   74   41   159   130,230 
Income tax provision  28,919   -   -   -   28,919  46,434   -   -   -   46,434 
Net income  50,413   34   22   123   50,592  83,522   74   41   159   83,796 
Net income attributable to noncontrolling interests  (25)  34   22   123   154
Net income/(loss) attributable to noncontrolling interests  (14)  74   41   159   260 
Net income attributable to GAMCO $50,438  $-  $-  $-  $50,438 $83,536  $-  $-  $0  $83,536 


Variable Interest Entities

We sponsor a number of investment vehicles where we are the general partner or investment manager.  Certain of these vehicles are VIEs, but we are not the primary beneficiary, in all but one case, because we do not absorb a majority of the entities' expected losses and/or expected returns, and they are, therefore, not consolidated.  We consolidate the one VIE where we are the primary beneficiary.  The Company has not provided any financial or other support to those VIEs where we are not the primary beneficiary.  The total net assets of these non-consolidated VIEs at JuneSeptember 30, 2014, December 31, 2013 and JuneSeptember 30, 2013 were $74.4$59.8 million, $72.7 million and $73.4$77.7 million, respectively.  Our maximum exposure to loss as a result of our involvement with the non-consolidated VIEs is limited to the investment in two VIEs and the deferred carried interest that we have in another.  On JuneSeptember 30, 2014, we had an investment in two of the non-consolidated VIE offshore funds of approximately $8.9$8.0 million.  On December 31, 2013 and JuneSeptember 30, 2013, we had an investment in one of the non-consolidated VIE offshore funds of approximately $10.0 million and $9.0$9.9 million, respectively, which was included in investments in partnerships on the condensed consolidated statements of financial condition.  On JuneSeptember 30, 2014, December 31, 2013 and JuneSeptember 30, 2013, we had a deferred carried interest in one of the non-consolidated VIE offshore funds of $47,000,$44,000, $45,000 and $46,000,$45,000, 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 statement of income, condensed consolidated statement of financial condition and condensed consolidated statement of cash flows.
22

The assets of these VIEs may only be used to satisfy obligations of the VIEs.  The following table presents the balances related to the VIE that is consolidated and is included on the condensed consolidated statements of financial condition as well as GAMCO's net interest in this VIE.  Only one VIE was consolidated at JuneSeptember 30, 2014, December 31, 2013 and JuneSeptember 30, 2013:

September 30,December 31,September 30,
 June 30, 2014  December 31, 2013  June 30, 2013  2014  2013  2013 
(In thousands)            
Cash and cash equivalents $   $   $   $1  $-  $1,082 
Investments in partnerships  14,125   15,540   13,457   13,618   15,540   13,782 
Accrued expenses and other liabilities  (18)  (2,022)  (6)  (15)  (2,022)  (1,088)
Redeemable noncontrolling interests  (1,155)  (1,120)  -   (962)  (1,120)  - 
GAMCO's net interests in consolidated VIE $12,952  $12,398  $13,451  $12,642  $12,398  $13,776 

E. Income Taxes
 
The effective tax rate ("ETR) for the three months ended JuneSeptember 30,2014 was 36.9%38.8% compared to 36.0%34.5% for the prior year three month period.  The effective tax rateExcluding net income (loss) attributable to noncontrolling interests the ETR was 35.5% and 34.6% for the sixthird quarters of 2014 and 2013, respectively.  The ETR for the nine months ended JuneSeptember 30, 2014 was 35.7%36.5% compared to 36.4%35.7% for the prior year sixnine month period.  DuringExcluding net income (loss) attributable to noncontrolling interests the six month periodETR was 35.7% for both the nine months ended JuneSeptember 30, 2014 we benefitted from the donation of appreciated securities used to fund our shareholder designated charitable contribution program.  We expect the effective tax rate for the remainder of 2014 to approximate the prior year rate of 36.1%.and 2013.

F. Earnings Per Share

The computations of basic and diluted net income per share are as follows:

 Three Months Ended June 30,  Six Months Ended June 30,  Three Months Ended September 30,  Nine Months Ended September 30, 
(in thousands, except per share amounts) 2014  2013  2014  2013  2014  2013  2014  2013 
Basic:     
  
         
Net income attributable to GAMCO Investors, Inc.'s shareholders $28,950  $27,893  $56,904  $50,438  $23,665  $33,098  $80,569  $83,536 
Weighted average shares outstanding  25,381   25,679   25,431   25,710   25,296   25,625   25,385   25,682 
Basic net income attributable to GAMCO Investors, Inc.'s                                
shareholders per share $1.14  $1.09  $2.24  $1.96  $0.94  $1.29  $3.17  $3.25 
                                
Diluted:                                
Net income attributable to GAMCO Investors, Inc.'s shareholders $28,950  $27,893  $56,904  $50,438  $23,665  $33,098  $80,569  $83,536 
                                
Weighted average share outstanding  25,381   25,679   25,431   25,710   25,296   25,625   25,385   25,682 
Dilutive stock options and restricted stock awards  205   10   204   13   221   75   210   35 
Total  25,586   25,689   25,635   25,723   25,517   25,700   25,595   25,717 
Diluted net income attributable to GAMCO Investors, Inc.'s                                
shareholders per share $1.13  $1.09  $2.22  $1.96  $0.93  $1.29  $3.15  $3.25 
23

G. Debt

Debt consists of the following:

 June 30, 2014  December 31, 2013  June 30, 2013  September 30, 2014  December 31, 2013  September 30, 2013 
 Carrying  Fair Value  Carrying  Fair Value  Carrying  Fair Value  Carrying  Fair Value  Carrying  Fair Value  Carrying  Fair Value 
 Value  Level 2  Value  Level 2  Value  Level 2  Value  Level 2  Value  Level 2  Value  Level 2 
(In thousands) 
  
  
  
  
  
             
5.875% Senior notes $100,000  $108,521  $100,000  $108,500  $100,000  $104,125  $100,000  $108,200  $100,000  $108,500  $100,000  $108,000 
0% Subordinated debentures  11,813   13,206   11,911   13,819   17,028   18,924   11,941   12,775   11,911   13,819   17,347   19,349 
Total $111,813  $121,727  $111,911  $122,319  $117,028  $123,049  $111,941  $120,975  $111,911  $122,319  $117,347  $127,349 

5.5% Senior notes

On May 15, 2003, the Company issued 10-year, $100 million senior notes.  The senior notes, which matured and were fully repaid on May 15, 2013, paid interest semi-annually at 5.5%.

5.875% Senior notes

On May 31, 2011, the Company issued 10-year, $100 million senior notes.  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.

Zero coupon Subordinated debentures due December 31, 2015

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 three month period ended September 30, 2014 the Company repurchased 1,032 Debentures having a face value of $0.1 million.  The redemptions were accounted for as extinguishments of debt and resulted in a loss of $10,000, which was included in net gain from investments on the condensed consolidated statements of income.  There were no repurchases during the three month period ended September 30, 2013.  During the nine month periods ended JuneSeptember 30, 2014 and JuneSeptember 30, 2013, the Company repurchased 5,7177,165 Debentures and 11,94211,974 Debentures, respectively, having a face value of $572,000$0.7 million and $1.2 million, respectively.  The redemptions were accounted for as extinguishments of debt and resulted in losses of $69,000$84,000 and $137,000, respectively, which were included in net gain from investments on the condensed consolidated statements of income.  During the six month periods ended June 30, 2014 and June 30, 2013 the Company repurchased 6,133 Debentures and 11,974 Debentures, respectively, having a face value of $613,000 and $1.2$0.1 million, respectively.  The redemptions were accounted for as extinguishments of debt and resulted in losses of $74,000 and $137,000, respectively. The debt is being accreted to its face value using the effective rate on the date of issuance of 7.45%.  At JuneSeptember 30, 2014, December 31, 2013 and JuneSeptember 30, 2013, the debt was recorded at its accreted value of $11.8$11.9 million, $11.9 million and $17.0$17.3 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.

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 expired in July 2012.  As of JuneSeptember 30, 2014, $400 million is available on the shelf.
H. Stockholders' Equity
 
Shares outstanding were 25.9 million, 26.1 million and 25.626.0 million on JuneSeptember 30, 2014, December 31, 2013 and JuneSeptember 30, 2013, respectively.
 
24

 
Dividends

            Payment DateRecord Date Amount 
Payment DatePayment DateRecord Date Amount 
       
Three months ended March 31, 2014March 25, 2014March 11, 2014 $0.06 March 25, 2014March 11, 2014 $0.06 
Three months ended June 30, 2014June 24, 2014June 10, 2014 $0.06 June 24, 2014June 10, 2014 $0.06 
Six months ended June 30, 2014
 
  
 $0.12 
Three months ended September 30, 2014September 30, 2014September 16, 2014  0.06 
Nine months ended September 30, 2014    $0.18 
 
 
         
Three months ended March 31, 2013March 26, 2013March 12, 2013 $0.05 March 26, 2013March 12, 2013 $0.05 
Three months ended June 30, 2013June 25, 2013June 11, 2013 $0.05 June 25, 2013June 11, 2013 $0.05 
Six months ended June 30, 2013
 
  
 $0.10 
Three months ended September 30, 2013September 24, 2013September 10, 2013 $0.06 
Nine months ended September 30, 2013    $0.16 

Voting Rights

The holders of Class A Common stock ("Class A 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 plans approved by the shareholders, the 1999 Plan and the 2002 Plan, 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 both the 1999 and 2002 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 were originally reserved for issuance under each of the 1999 and 2002 Plans by a committee of the Board of Directors responsible for administering the Plans ("Compensation Committee").  In November 2013, the shareholders approved an amendment to the Company's 2002 Stock Award and Incentive Plan to increase the number of shares of Class A Stock authorized and reserved for issuance by 2 million.  Under the Plans, the committee may grant restricted stock awards ("RSA") 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 Compensation committee may determine.  Options granted under the plans typically vest 75% after three years and 100% after four years from the date of grant and expire after ten years.  RSA shares granted under the Plans typically vest 30% after three years and 100% after five years.

On September 15, 2014 and January 9, 2014, the Company approved the granting of 83,500 RSA shares and 2,100 RSA shares, respectively, at a grant date fair value of $81.9973.41 per share.share and 81.99 per share, respectively.  As of JuneSeptember 30, 2014, and December 31, 2013 and September 30, 2013, there were 564,250639,750 RSA shares, 566,950 RSA shares and 566,950427,700 RSA shares outstanding, respectively, that were previously issued at an average weighted grant price of $65.12, $63.93 and $63.93,$57.86, 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 estimated 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, except for the August 2013 grantand September 2014 grants which isare 30% over three years from the date of grant and 10% each year over years four through ten 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.  There were no RSAs outstanding at June 30, 2013.
25

For the three months ended JuneSeptember 30, 2014 and JuneSeptember 30, 2013, we recognized stock-based compensation expense of $1.7$1.8 million and $15,000,$0.7 million, respectively.  For the sixnine months ended JuneSeptember 30, 2014 and JuneSeptember 30, 2013, we recognized stock-based compensation expense of $3.4$5.2 million and $29,000,$0.8 million, respectively. Actual and projected stock-based compensation expense for RSA shares and options for the years ended December 31, 2014 through December 31, 2023 (based on awards currently issued or granted) is as follows ($ in thousands):

  2013  2014  2015  2016  2017  2018
  2013  2014  2015  2016  2017  2018 
Q1  $15  $1,700  $1,695  $1,694  $903  $771Q1  $15  $1,700  $1,962  $1,961  $1,171  $908 
Q2   15   1,697   1,694   1,694   903   771Q2   15   1,697   1,961   1,961   1,171   908 
Q3   741   1,697   1,694   1,339   816   702Q3   741   1,785   1,961   1,607   1,040   828 
Q4   1,301   1,697   1,694   1,078   773   554Q4   1,301   1,965   1,961   1,346   910   659 
Full YearFull Year  $2,072  $6,791  $6,777  $5,805  $3,395  $2,798Full Year  $2,072  $7,147  $7,845  $6,875  $4,292  $3,303 
                                                   
    2019   2020   2021   2022   2023        2019   2020   2021   2022   2023   2024 
Q1  $325  $240  $168  $105  $50    Q1  $429  $319  $227  $146  $76  $12 
Q2   325   240   168   105   50    Q2   429   319   227   146   76   12 
Q3   268   192   126   68   17    Q3   364   264   179   104   38   8 
Q4   240   168   105   50   -    Q4   319   227   146   76   12   - 
Full YearFull Year  $1,158  $840  $567  $328  $117    Full Year  $1,541  $1,129  $779  $472  $202  $32 
                                                   

The total compensation cost related to non-vested options not yet recognized is approximately $25.2$28.4 million as of JuneSeptember 30, 2014.  For the three months ended June 30, 2014, proceeds from the exercise of 20,000 stock options were $792,000 resulting in a tax benefit to GAMCO of $175,000.  There were no options exercised for the three months ended JuneSeptember 30, 2014 or September 30, 2013.  For the sixnine months ended JuneSeptember 30, 2014 and 2013, proceeds from the exercise of 40,000 stock options and 2,623 stock options, respectively, were $1.6 million and $76,000, respectively, resulting in a tax benefit to GAMCO of $349,000$0.3 million and $16,000, respectively.

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 February 5, 2013, our Board of Directors authorized an incremental 500,000 shares to be added to the current buyback authorization.  For the three months ended JuneSeptember 30, 2014 and JuneSeptember 30, 2013, the Company repurchased 103,52894,942 shares and 81,72640,857 shares, respectively, at an average price per share of $77.76$77.67 and $52.73,$72.40, respectively.  For the sixnine months ended JuneSeptember 30, 2014 and JuneSeptember 30, 2013,, the Company repurchased 224,720319,662 shares and 118,402159,259 shares, respectively, at an average price per share of $78.75$78.43 and $52.99,$57.97, respectively.  From the inception of the program through JuneSeptember 30, 2014, 8,936,3139,031,255 shares have been repurchased at an average price of $43.17$43.53 per share.  At JuneSeptember 30, 2014, the total shares available under the program to be repurchased in the future were 698,495.603,553.

I. Goodwill and Identifiable Intangible Assets

At JuneSeptember 30, 2014, $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 94%-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 months ended JuneSeptember 30, 2014 or JuneSeptember 30, 2013, 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 JuneSeptember 30, 2014, December 31, 2013 and JuneSeptember 30, 2013.  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 2015.  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 months ended JuneSeptember 30, 2014 or JuneSeptember 30, 2013, and as such there was no impairment analysis performed or charge recorded.
26

J. Commitments and Contingencies

From time to time, the Company may be 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.  For any such matters, the condensed 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 G.research, Inc., our broker-dealer subsidiary, for losses they may sustain from the customer accounts that trade on margin introduced by it.  At JuneSeptember 30, 2014, 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. Shareholder-Designated Contribution Plan

During 2013, the Company established a Shareholder Designated Charitable Contribution program.  Under the program, each shareholder is eligible to designate a charity to which the Company would make a donation based upon the actual number of shares registered in the shareholder's name.  Shares held in nominee or street name were not eligible to participate.  The Board of Directors approved two contributions during 2013 of $0.25 per registered share each.  During the first halfnine months of 2013, the Company recorded a charge of $5.0$5.3 million, or $0.11$0.12 per diluted share, net of management fee and tax benefit, related to the contributions which was included in shareholder-designated contribution in the condensed consolidated statements of income.

During the fourth quarter of 2013, the Company recorded a charge of $5.3 million, or $0.12 per diluted share, net of management fee and tax benefit, as an estimate of the expected contribution to be made relating to the $0.25 per share contribution approved by the Board in November 2013. Based upon the number of registered shares that participated in the program, the Company recorded an additional charge of $134,000 during the second quarterfirst nine months of 2014.


L. Subsequent Events
 
From JulyOctober 1, 2014 to August 5,November 7, 2014, the Company repurchased 28,76259,539 shares at $82.90$77.42 per share.

On August 5,November 6, 2014, the Board of Directors declared a special dividend of $0.25 per share and a regular quarterly dividend of $0.06$0.07 per share to all of its shareholders, both payable on SeptemberDecember 30, 2014 to shareholders of record on SeptemberDecember 16, 2014.

The Board of Directors has authorized management to explore a potential restructure that will enable the Company to further increase its market focus.  While this may involve a split-up of certain facets of our business, there are numerous regulatory related and other issues that may preclude pursuit of any alternative.  Management does not plan to give periodic updates on the Company’s progress.


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ITEM 2:  MANAGEMENT'SMANAGEMENT’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 open- and closed-end funds, institutional and high net worth investors, and investment partnerships, principally in the United States.  Through G.research, Inc. ("G.research"(“G.research”), we provide institutional research and brokerage services to institutional clients and investment partnerships.  Through G.distributors, LLC ("G.distributors"(“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'sCompany’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 the following subsidiaries: GAMCO Asset Management Inc. (Institutional and High Net Worth), Gabelli Funds, LLC (Funds) and Gabelli Securities, Inc. (Investment Partnerships).  We also act as an underwriter and provide institutional research through G.research, one of our broker-dealer subsidiaries.  The distribution of our open-end funds is conducted through G.distributors, our other broker-dealer subsidiary.
 
Assets under management ("AUM"(“AUM”) were a record $49.4$46.9 billion as of September 30, 2014, a decrease of 4.9% from AUM of $49.4 billion at June 30, 2014 an increase of 3.8% from AUM of $47.6 billion at March 31, 2014 andbut up 22.0%7.9% from the JuneSeptember 30, 2013 AUM of $40.5$43.5 billion.  The secondthird quarter 2014 AUM rose $1.8fell $2.5 billion andwhich consisted of $2.2 billion of market appreciation of $2.0 billion,depreciation, net cash outflows of $47$36 million and recurring distributions, net of reinvestments, from open-end and closed-end funds of $150$145 million.  Average total AUM was $48.1$48.4 billion in the 2014 quarter versus $40.3$42.6 billion in the prior year period, an increase of 19.4%13.6%.  Average AUM in our open-end equity funds, a key driver to our investment advisory fees, was $17.8$18.1 billion in the secondthird quarter of 2014, rising 26.2%19.9% from the 2013 quarter average AUM of $14.1$15.1 billion.

In addition to management fees, we earn incentive fees for certain institutional client assets, certain assets attributable to preferred issues of our closed-end funds, to our GDL Fund (NYSE: GDL) and investment partnership assets.  As of JuneSeptember 30, 2014, assets with incentive based fees were $4.6$4.5 billion, an increasea decrease of $0.1 billion, or 2.2%, from the $4.5$4.6 billion at March 31,June 30, 2014 and 17.9%but 9.8% higher than the $3.9$4.1 billion on JuneSeptember 30, 2013. 
 
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The Company reported Assets Under Management as follows (in millions):
The Company reported Assets Under Management as follows (in millions):
  
  
  
 
The Company reported Assets Under Management as follows (in millions):
       
 
  
  
  
  
           
Table I: Fund Flows - 2nd Quarter 2014         
Table I: Fund Flows - 3rd Quarter 2014Table I: Fund Flows - 3rd Quarter 2014         
       Fund          Fund   
   Market    distributions,      Market    distributions,   
 March 31,  appreciation/  Net cash  net of  June 30,  June 30,  appreciation/  Net cash  net of  September 30, 
 2014  (depreciation)  flows  reinvestments  2014  2014  (depreciation)  flows  reinvestments  2014 
Equities:                    
Open-end Funds $17,531  $768  $241  $(32) $18,508  $18,508  $(839) $(175) $(36) $17,458 
Closed-end Funds  6,967   366   9   (118)  7,224   7,224   (326)  174   (109)  6,963 
Institutional & PWM - direct  16,403   733   (195)  -   16,941   16,941   (772)  54   -   16,223 
Institutional & PWM - sub-advisory  3,822   132   (71)  -   3,883   3,883   (296)  (62)  -   3,525 
Investment Partnerships  865   17   15   -   897   897   (12)  14   -   899 
SICAV (a)  91   1   2   -   94   94   (4)  31   -   121 
Total Equities  45,679   2,017   1   (150)  47,547   47,547   (2,249)  36   (145)  45,189 
Fixed Income:                                        
Money-Market Fund  1,812   -   (46)  -   1,766   1,766   -   (68)  -   1,698 
Institutional & PWM  64   -   -   -   64   64   -   (4)  -   60 
Total Fixed Income  1,876   -   (46)  -   1,830   1,830   -   (72)  -   1,758 
Total Assets Under Management $47,555  $2,017  $(45) $(150) $49,377  $49,377  $(2,249) $(36) $(145) $46,947 
                                        

 
  
  
  
  
           
Table II: Fund Flows - Six Months ended June 30, 2014         
Table II: Fund Flows - Nine Months ended September 30, 2014Table II: Fund Flows - Nine Months ended September 30, 2014         
       Fund          Fund   
   Market    distributions,      Market    distributions,   
 December 31,  appreciation/  Net cash  net of  June 30,  December 31,  appreciation/  Net cash  net of  September 30, 
 2013  (depreciation)  flows  reinvestments  2014  2013  (depreciation)  flows  reinvestments  2014 
Equities:                    
Open-end Funds $17,078  $997  $495  $(62) $18,508  $17,078  $158  $320  $(98) $17,458 
Closed-end Funds  6,945   506   4   (231)  7,224   6,945   180   178   (340)  6,963 
Institutional & PWM - direct  16,486   929   (474)  -   16,941   16,486   157   (420)  -   16,223 
Institutional & PWM - sub-advisory  3,797   184   (98)  -   3,883   3,797   (112)  (160)  -   3,525 
Investment Partnerships  811   24   62   -   897   811   12   76   -   899 
SICAV (a)  96   2   (4)  -   94   96   (2)  27   -   121 
Total Equities  45,213   2,642   (15)  (293)  47,547   45,213   393   21   (438)  45,189 
Fixed Income:                                        
Money-Market Fund  1,735   -   31   -   1,766   1,735   -   (37)  -   1,698 
Institutional & PWM  62   -   2   -   64   62   -   (2)  -   60 
Total Fixed Income  1,797   -   33   -   1,830   1,797   -   (39)  -   1,758 
Total Assets Under Management $47,010  $2,642  $18  $(293) $49,377  $47,010  $393  $(18) $(438) $46,947 
                                        


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Table III: Assets Under Management
     
  September 30,  September 30,  % 
  2013  2014  Inc.(Dec.) 
Equities:      
Open-end Funds $15,581  $17,458   12.0%
Closed-end Funds  6,721   6,963   3.6 
Institutional & PWM - direct  15,026   16,223   8.0 
Institutional & PWM - sub-advisory  3,503   3,525   0.6 
Investment Partnerships  805   899   11.7 
SICAV (a)  94   121   28.7 
Total Equities  41,730   45,189   8.3 
Fixed Income:            
Money-Market Fund  1,714   1,698   (0.9)
Institutional & PWM  63   60   (4.8)
Total Fixed Income  1,777   1,758   (1.1)
Total Assets Under Management $43,507  $46,947   7.9%
             

Table III: Assets Under Management
     
  June 30,  June 30,  % 
  2013  2014  Inc.(Dec.) 
Equities:      
Open-end Funds $14,188  $18,508   30.4%
Closed-end Funds  6,409   7,224   12.7 
Institutional & PWM - direct  14,069   16,941   20.4 
Institutional & PWM - sub-advisory  3,185   3,883   21.9 
Investment Partnerships  778   897   15.3 
SICAV (a)  93   94   1.1 
Total Equities  38,722   47,547   22.8 
Fixed Income:            
Money-Market Fund  1,689   1,766   4.6 
Institutional & PWM  67   64   (4.5)
Total Fixed Income  1,756   1,830   4.2 
Total Assets Under Management $40,478  $49,377   22.0%
             

Table IV: Assets Under Management by Quarter
Table IV: Assets Under Management by Quarter
           
Table IV: Assets Under Management by Quarter
           
           % Increase/            % Increase/ 
           (decrease) from            (decrease) from 
  6/13   9/13   12/13   3/14   6/14   6/13   3/14   9/13   12/13   3/14   6/14   9/14   9/13   6/14 
Equities:                                                        
Open-end Funds $14,188  $15,581  $17,078  $17,531  $18,508   30.4%  5.6% $15,581  $17,078  $17,531  $18,508  $17,548   12.0%  (5.7%)
Closed-end Funds  6,409   6,721   6,945   6,967   7,224   12.7   3.7   6,721   6,945   6,967   7,224   6,963   3.6   (3.6)
Institutional & PWM - direct  14,069   15,026   16,486   16,403   16,941   20.4   3.3   15,026   16,486   16,403   16,941   16,223   8.0   (4.2)
Institutional & PWM - sub-advisory  3,185   3,503   3,797   3,822   3,883   21.9   1.6   3,503   3,797   3,822   3,883   3,525   0.6   (9.2)
Investment Partnerships  778   805   811   865   897   15.3   3.7   805   811   865   897   899   11.7   0.2 
SICAV (a)  93   94   96   91   94   1.1   3.3   94   96   91   94   121   28.7   28.7 
Total Equities  38,722   41,730   45,213   45,679   47,547   22.8   4.1   41,730   45,213   45,679   47,547   45,189   8.3   (5.0)
Fixed Income:                                                        
Money-Market Fund  1,689   1,714   1,735   1,812   1,766   4.6   (2.5)  1,714   1,735   1,812   1,766   1,698   (0.9)  (3.9)
Institutional & PWM  67   63   62   64   64   (4.5)  -   63   62   64   64   60   (4.8)  (6.3)
Total Fixed Income  1,756   1,777   1,797   1,876   1,830   4.2   (2.5)  1,777   1,797   1,876   1,830   1,758   (1.1)  (3.9)
Total Assets Under Management $40,478  $43,507  $47,010  $47,555  $49,377   22.0%  3.8% $43,507  $47,010  $47,555  $49,377  $46,947   7.9%  (4.9%)
                                                        
(a) Includes $90 million, $92 million, $94 million, $88 million and $77 million of proprietary seed capital at June 30, 2013,     
September 30, 2013, December 31, 2013, March 31, 2014 and June 30, 2014, respectively.     
(a) Includes $92 million, $94 million, $88 million, $77 million and $70 million of proprietary seed capital at September 30, 2013,(a) Includes $92 million, $94 million, $88 million, $77 million and $70 million of proprietary seed capital at September 30, 2013,     
December 31, 2013, March 31, 2014, June 30, 2014 and September 30, 2014, respectively.December 31, 2013, March 31, 2014, June 30, 2014 and September 30, 2014, respectively.     

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The following discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and the notes thereto included in Item 1 to this report.

RESULTS OF OPERATIONS
 
Three Months Ended JuneSeptember 30, 2014 Compared To Three Months Ended JuneSeptember 30, 2013
 
(Unaudited; in thousands, except per share data)
    
 2014  2013  2014  2013 
Revenues        
Investment advisory and incentive fees $90,156  $77,443  $92,591  $80,438 
Distribution fees and other income  15,767   12,522   15,727   13,545 
Institutional research services  2,373   2,325   2,540   2,394 
Total revenues  108,296   92,290   110,858   96,377 
Expenses                
Compensation  44,045   37,759   43,316   39,803 
Management fee  5,144   4,846   3,756   5,629 
Distribution costs  15,023   11,871   15,101   12,769 
Other operating expenses  6,547   6,030   5,099   5,448 
Total expenses  70,759   60,506   67,272   63,649 
Operating income  37,537   31,784   43,586   32,728 
Other income (expense)                
Net gain from investments  9,744   12,141 
Net gain/(loss) from trading securities  (9,434)  13,589 
Net gain from AFS securities  348   5,745 
Interest and dividend income  1,332   2,507   1,084   1,134 
Interest expense  (2,021)  (2,796)  (1,987)  (2,164)
Shareholder-designated contribution  (134)  -   -   (313)
Total other income, net  8,921   11,852 
Total other income/(expense), net  (9,989)  17,991 
Income before income taxes  46,458   43,636   33,597   50,719 
Income tax provision  17,135   15,724   13,045   17,515 
Net income  29,323   27,912   20,552   33,204 
Net income attributable to noncontrolling interests  373   19 
Net income/(loss) attributable to noncontrolling interests  (3,113)  106 
Net income attributable to GAMCO Investors, Inc.'s shareholders $28,950  $27,893  $23,665  $33,098 
                
Net income attributable to GAMCO Investors, Inc.'s shareholders per share:                
Basic $1.14  $1.09  $0.94  $1.29 
Diluted $1.13  $1.09  $0.93  $1.29 
                

Overview

Net income attributable to shareholders of GAMCO for the quarter was $29.0$23.7 million, or $1.13$0.93 per fully diluted share, versus $27.9$33.1 million, or $1.09$1.29 per fully diluted share, in the prior year'syear’s quarter.  The quarter to quarter comparison was positively impacted by lower income from firm investments and increased stock compensation costs partially offset by higher revenues and lower interest expense partially offset by increased stock compensation costs and lower income from our proprietary investments.expense.

Revenues
 
Investment advisory and incentive fees for the secondthird quarter 2014 were $90.2$92.6 million, 16.5%15.2% above the 2013 comparative figure of $77.4$80.4 million.  Open-end fund revenues increased by 24.9%18.5% to $43.1$44.2 million from $34.5$37.3 million in the secondthird quarter of 2013 driven by a 26.6%19.9% increase in average open-end equity AUM.  Our closed-end fund revenues rose 8.7%9.8% to $15.0$15.7 million in the secondthird quarter 2014 from $13.8$14.3 million in 2013 due to aan 8.8% increase 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 $4.5$4.0 million, or 17.7%14.9%, to $29.9$30.8 million from $25.4$26.8 million in secondthird quarter 2013.  Incentive fees declined $1.8$0.4 million, on a quarter to quarter basis, to $0.5$0.1 million in the 2014 quarter versus $2.3from $0.5 million in the prior year period.  Investment partnership revenues were $1.6$1.8 million, an increase of 14.3%20.0% from $1.4$1.5 million in secondthird quarter 2013 due to an increase in average AUM resulting from a combination of market performance and net inflows.
31
Open-end fund distribution fees and other income were $15.8$15.7 million for the secondthird quarter 2014, an increase of $3.3$2.2 million or 26.4%16.3% from $12.5$13.5 million in the prior year period, primarily due to higher quarterly average AUM in open-end equity funds that generate distribution fees and increased level of sales of load shares of mutual funds.

Our institutional research revenues were $2.4$2.5 million in the secondthird quarter 2014 versus $2.3comparable to $2.4 million reported in the prior year period.

Expenses
 
Compensation costs, which are largely variable, were $44.0$43.3 million or 16.4%8.8% higher than prior year compensation costs of $37.8$39.8 million.  The quarter over quarter increase was comprised of variable compensation of $3.6$2.3 million related to the increased levels of AUM, $0.9$0.2 million in fixed compensation and a $1.7$1.0 million increase in stock compensation expense for RSAs issued in the second halfthird and fourth quarters of 2013.

Management fee expense, which is wholly variable and based on pretax income, increaseddecreased to $5.1$3.8 million in the secondthird quarter of 2014 from $4.8$5.6 million in the 2013 period.
 
Distribution costs were $15.0$15.1 million, an increase of $3.1$2.3 million or 26.1%18.0% from $11.9$12.8 million in the prior year'syear’s period.  The increase in distribution costs was driven by increased AUM, largely from the direct to intermediary channel, which resulted in an increase in payments to third-party distributors of $2.4$2.0 million.
 
Other operating expenses were $6.5$5.1 million in the secondthird quarter of 2014, an increasea decline of $0.5$0.3 million, or 8.3%5.6%, from $6.0$5.4 million in the secondthird quarter of 2013.  The priorcurrent year quarter benefitted from additional insurance reimbursements of $0.4$0.3 million infor legal and regulatory costs previously incurred and expensed.expensed as compared to the prior year quarter.  Excluding this reimbursementthese reimbursements other operating expenses were up less than 2%down 1%.

Operating income for the secondthird quarter of 2014 was $37.5$43.6 million, an increase of $5.7$10.9 million, or 17.9%33.3%, from the $31.8$32.7 million in the secondthird quarter of 2013.  Operating income, as a percentage of revenues, was 34.7%39.3% in the 2014 quarter as compared to 34.4%34.0% in the 2013 quarter.

Other
 
Total other income,income/(expense), was a net expense of interest expense, was $8.9$10.0 million for the secondthird quarter 2014 versus $11.9income of $18.0 million in the prior year'syear’s quarter.  Realized and unrealized gainslosses in our trading portfolio were $9.7$9.1 million in the 2014 quarter; $2.4a swing of $28.4 million lower thanfrom the $12.1$19.3 million of gains reported in the 2013 quarter.  Interest and dividend income was lower by $1.2$0.1 million.  Interest expense decreased by $0.8$0.2 million to $2.0 million in the secondthird quarter of 2014 from $2.8$2.2 million in secondthird quarter of 2013 due to a decrease in total average debt outstanding.
 
The effective tax rates ("ETR"(“ETR”) for the three months ended JuneSeptember 30, 2014 and JuneSeptember 30, 2013 were 36.9%38.8% and 36.0%34.5%, respectively.  DuringExcluding net income (loss) attributable to noncontrolling interests the 2013 quarter the Company's ETR was lowered by one percentage point from35.5% and 34.6% for the reversalthird quarters of certain prior year state tax accruals.2014 and 2013, respectively.
32

SixNine Months Ended JuneSeptember 30, 2014 Compared To SixNine Months Ended JuneSeptember 30, 2013
 
(Unaudited; in thousands, except per share data)    
 2014  2013  2014  2013 
Revenues        
Investment advisory and incentive fees $177,953  $150,050  $270,544  $230,488 
Distribution fees and other income  30,640   23,875   46,367   37,420 
Institutional research services  4,180   4,546   6,720   6,940 
Total revenues  212,773   178,471   323,631   274,848 
Expenses                
Compensation  87,942   73,411   131,258   113,214 
Management fee  9,872   8,826   13,628   14,455 
Distribution costs  28,986   22,881   44,087   35,650 
Other operating expenses  11,937   10,842   17,036   16,290 
Total expenses  138,737   115,960   206,009   179,609 
Operating income  74,306   62,511   117,622   95,239 
Other income (expense)                
Net gain from investments  16,688   24,432 
Net gain from trading securities  4,091   27,575 
Net gain from AFS securities  3,511   16,191 
Interest and dividend income  2,473   3,852   3,557   4,986 
Interest expense  (4,013)  (6,284)  (6,000)  (8,448)
Shareholder-designated contribution  (134)  (5,000)  (134)  (5,313)
Total other income, net  15,014   17,000   5,025   34,991 
Income before income taxes  89,050   79,511   122,647   130,230 
Income tax provision  31,751   28,919   44,796   46,434 
Net income  57,299   50,592   77,851   83,796 
Net income attributable to noncontrolling interests  395   154 
Net income/(loss) attributable to noncontrolling interests  (2,718)  260 
Net income attributable to GAMCO Investors, Inc.'s shareholders $56,904  $50,438  $80,569  $83,536 
                
Net income attributable to GAMCO Investors, Inc.'s shareholders per share:                
Basic $2.24  $1.96  $3.17  $3.25 
Diluted $2.22  $1.96  $3.15  $3.25 
                

Overview

Net income attributable to shareholders of GAMCO for the first sixnine months of 2014 was $56.9$80.6 million or $2.22$3.15 per fully diluted share versus $50.4$83.5 million or $1.96$3.25 per fully diluted share in the prior year'syear’s first sixnine months.  Included in the 2013 results is a $5.0$5.3 million charge, or $0.11$0.12 per diluted share, net of management fee and tax benefit, for the shareholder designated charitable contribution program.  The period to period comparison, excluding this charge, was positively impacted by higher revenues, lower interest expense offset partially byincome from firm investments and increased stock compensation costs offset partially by higher revenues and lower income from our proprietary investments.interest expense.

Revenues
 
Investment advisory and incentive fees for the sixnine months ended JuneSeptember 30, 2014 were $178.0$270.5 million, 18.6%17.4% above the comparable 2013 figure of $150.1$230.5 million.  Open-end mutual fund revenues increased by 26.2%23.4% to $83.9$128.1 million from $66.5$103.8 million in first halfnine months of 2013 driven by a 27.9%25.0% increase in average open-end equity AUM.  Our closed-end fund revenues rose 8.0%8.4% to $29.6$45.3 million in the first halfnine months of 2014 from $27.4$41.8 million in 2013 due to a 8.3%an 8.5% increase 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 $11.9$15.9 million, or 24.5%21.1%, to $60.4$91.2 million from $48.5$75.3 million in the first halfnine months of 2013.  During the first halfnine months of 2014, we earned $0.8$0.9 million in incentive fees, a decrease of $3.9$4.3 million from $4.7$5.2 million earned in the first halfnine months of 2013.  Investment partnership revenues were $3.2$5.0 million, an increase of 10.3%13.6% from $2.9$4.4 million for the sixnine months ended JuneSeptember 30, 2013 due to an increase in average AUM resulting from net inflows.
 
Open-end fund distribution fees and other income were $30.6$46.4 million for the first sixnine months of 2014, an increase of $6.7$9.0 million or 28.0%24.1% from $23.9$37.4 million in the prior year period, primarily due to higher quarterly average AUM in open-end equity mutual funds that generate distribution fees and an increased level of sales of load shares of mutual funds.
 
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Our institutional research revenues were $4.2$6.7 million in the first halfnine months of 2014 versus $4.5$6.9 million in the prior year period.  Although commission revenues were largely unchanged in most areas of that business, dealer manager fee revenues from underwriting closed-end fund offerings declined $0.3$0.1 million from the prior year period.

Expenses
 
Compensation costs, which are largely variable, were $87.9$131.3 million or 19.8%16.0% higher than prior year compensation costs of $73.4$113.2 million.  The period over period increase was comprised of variable compensation of $8.4$10.6 million related to the increased levels of AUM, $2.7$3.1 million in fixed compensation and a $3.4$4.4 million increase in stock compensation expense for RSAs issued in the second half of 2013.

Management fee expense, which is wholly variable and based on pretax income, increaseddecreased to $9.9$13.6 million for the sixnine months ended JuneSeptember 30, 2014 from $8.8$14.5 million in the 2013 period.
 
Distribution costs were $29.0$44.1 million, an increase of $6.1$8.4 million or 26.6%23.5% from $22.9$35.7 million in the prior year'syear’s period.  The increase in distribution costs was driven by increased AUM, largely from the direct to intermediary channel, which resulted in an increase in payments to third-party distributors of $4.6$6.4 million.
 
Other operating expenses were $11.9$17.0 million in the first sixnine months of 2014, an increase of $1.1$0.7 million, or 10.2%4.3%, from $10.8$16.3 million in the first halfnine months of 2013. The period to period comparison was impacted by decreases in insurance reimbursements for legal and regulatory costs previously incurred and expensed for a legal matter which was successfully concluded in the first halfnine months of 2014.  Excluding the effects of insurance reimbursements, other operating expenses were down 1%.

Operating income for the first sixnine months of 2014 was $74.0$117.6 million, an increase of $11.5$22.4 million, or 18.4%23.5%, from the $62.5$95.2 million in the first halfnine months of 2013.  Operating income, as a percentage of revenues, was 34.8%36.3% in the 2014 period as compared to 35.0%34.7% in the 2013 period.

Other
 
Total other income, net of interest expense,Other income/(expense), was $15.0$5.0 million for the first sixnine months of 2014 versus $17.0$35.0 million in the prior year'syear’s quarter.  Realized and unrealized gains in our trading portfolio were $16.7$7.6 million in the 2014 period, $7.7$36.2 million lower than the $24.4$43.8 million reported in the 2013 period.  Interest and dividend income was lower by $1.4 million.  Interest expense decreased by $2.3$2.4 million to $4.0$6.0 million in the first halfnine months of 2014 from $6.3$8.4 million in first halfnine months of 2013 due to a decrease in total average debt outstanding.  On May 15, 2013, the $99 million of 5.5% Senior notes matured, and were repaid.  Expenses for the shareholder-designated charitable contribution program were $0.1 million during the first halfnine months of 2014 and $5.0$5.3 million for the first halfnine months of 2013.
 
The effective tax rateETR for the sixnine months ended JuneSeptember 30, 2014 was 35.7%36.5% as compared to the prior year period's effective rateperiod’s ETR of 36.4%35.7%.  During the 2014 periodExcluding net income (loss) attributable to noncontrolling interests the ETR benefitted fromwas 35.7% for both the donation of appreciated securities used to fund our shareholder designated charitable contribution program.  We expect the effective tax rate fornine months ended September 30, 2014 to approximate the prior year ETR of 36.1%.and 2013.

LIQUIDITY AND CAPITAL RESOURCES

Our principal assets are highly liquid in nature and consist of cash and cash equivalents, short-term investments, securities held for investment purposes, investments in funds, and investment partnerships.  Cash and cash equivalents are comprised primarily of 100% U.S. Treasury money market funds managed by GAMCO.  Although investments in partnerships and offshore funds are subject to restrictions as to the timing of distributions, the underlying investments of such partnerships or funds are, for the most part, liquid, and the valuations of these products reflect that underlying liquidity.

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Summary cash flow data is as follows:
 Six months ended  Nine months ended 
 June 30,  September 30, 
 2014  2013  2014  2013 
Cash flows provided by (used in): (in thousands)  (in thousands) 
Operating activities $99,422  $133,431  $122,150  $155,493 
Investing activities  1,725   18,650   2,593   25,089 
Financing activities  (4,097)  (119,931)  23,222   (125,779)
Effect of exchange rates on cash and cash equivalents  (11)  18   5   - 
Net increase  97,039   32,168   147,970   54,803 
Cash and cash equivalents at beginning of period  210,451   190,608   210,451   190,608 
Cash and cash equivalents at end of period $307,490  $222,776  $358,421  $245,411 
                

Cash and liquidity requirements have historically been met through cash generated by operating income and our borrowing capacity.  We filed a registration statement with the SEC in 2012 which, among other things, provides us opportunistic 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.  The shelf is available through May 30, 2015, at which time it may be renewed.

At JuneSeptember 30, 2014, we had total cash and cash equivalents of $307.5$358.4 million, an increase of $97.0$148.0 million from December 31, 2013.  Cash and cash equivalents of $0.3$0.1 million and investments in securities of $4.2$8.8 million held by consolidated investment partnerships and offshore funds may not be readily available for the Company to access.  Total debt outstanding at JuneSeptember 30, 2014 was $111.8$111.9 million, consisting of $11.8$11.9 million in Debentures (face value of $13.2$13.1 million) and $100 million of 5.875% senior notes due 2021.

For the sixnine months ended JuneSeptember 30, 2014, cash provided by operating activities was $99.4$122.2 million, a decrease of $34.0$33.3 million from cash provided in the prior year period of $133.4$155.5 million.  Cash was provided through ana $35.7 million increase in net income of $6.7 million,payables to brokers, a $7.4 million decrease in trading securities, an increase in investment advisory fees receivables collected of $5.1$9.1 million, a $3.4$4.4 million increase in stock compensation, an increasea decrease of $1.2$12.7 million in donatedgains on available for sale securities and $1.1a decrease of $8.0 million fromin other sources.assets.  Reducing cash was a decrease in net income of $5.9 million, a decrease in compensation payable of $14.9$16.8 million, a $10.6$12.0 million decrease in net contributions and distributions to/from partnerships, an increase of $10.6 million in trading securities, a $11.9 million decrease in income taxes payable and deferred tax liabilities, an increase in receivable from brokers of $20.5$37.2 million, a $5.9$4.8 million reduction to accrued expenses and other liabilities and a decrease of $7.0$4.0 million infrom other assets.sources.  Cash provided by investing activities, related to purchases and proceeds from sales of available for sale securities, was $1.7$2.6 million in the first sixnine months of 2014.  Cash used inprovided by financing activities in the first sixnine months of 2014 was $4.1$23.2 million including $3.1 million paid in dividends, and $17.7 million paid for the purchase of treasury stock less $15.6$52.0 million in net contributions from redeemable noncontrolling interests and $1.6 million in proceeds from exercise of stock options.options less $4.6 million paid in dividends, $25.1 million paid for the purchase of treasury stock and $0.7 million for the repurchase of zero coupon subordinated debentures.

For the sixnine months ended JuneSeptember 30, 2013, cash provided by operating activities was $133.4$155.5 million.  Cash provided by investing activities, related to purchases and proceeds from sales of available for sale securities, was $18.7$25.1 million in the first sixnine months of 2013.  Cash used in financing activities in the first sixnine months of 2013 was $119.9$125.8 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.
 
We have two broker-dealers, G.research and G.distributors, which are subject to certain net capital requirements.  Both 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 for each broker-dealer at JuneSeptember 30, 2014.  At JuneSeptember 30, 2014, G.research had net capital, as defined, of approximately $2.6$4.0 million, exceeding the regulatory requirement by approximately $2.3$3.7 million, and G.distributors had net capital, as defined, of approximately $3.0$4.3 million, exceeding the regulatory requirement by approximately $2.7$4.0 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.



35
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'sCompany’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 monitors its proprietary investment portfolios to ensure that they are in compliance with the Company'sCompany’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 assets, and Investment Partnership assets.  Such fees represent a percentage of AUM, and substantially all 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 $225.6$254.6 million and investments in sponsored registered investment companies of $40.8$39.5 million at JuneSeptember 30, 2014 were investments in United States Treasury Bills and Notes of $24.0$21.0 million, open-end funds and closed-end funds, largely invested in equity products, of $45.8$44.3 million, a selection of common and preferred stocks totaling $195.9$227.3 million, and other investments of approximately $0.7$1.5 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 $195.9$227.3 million invested in common and preferred stocks at JuneSeptember 30, 2014, $39.3$36.4 million represented our investment in Westwood Holdings Group Inc., and $56.3$91.1 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 JuneSeptember 30, 2014, the fair value of securities sold, not yet purchased was $14.3$14.2 million.  Investments in partnerships totaled $107.9$107.4 million at JuneSeptember 30, 2014, $55.6$57.4 million of which consisted of investment partnerships and offshore funds which invest in risk arbitrage opportunities.

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 JuneSeptember 30, 2014 and December 31, 2013.  The sensitivity analysis assumes a 10% increase or decrease in the value of these investments (in thousands):


   Fair Value  Fair Value    Fair Value  Fair Value 
   assuming  assuming    assuming  assuming 
   10% decrease in  10% increase in    10% decrease in  10% increase in 
(unaudited) Fair Value  equity prices  equity prices  Fair Value  equity prices  equity prices 
At June 30, 2014:      
At September 30, 2014:      
Equity price sensitive investments, at fair value $262,384  $236,146  $288,622  $253,097  $227,787  $278,407 
At December 31, 2013:                        
Equity price sensitive investments, at fair value $291,346  $262,211  $320,481  $291,346  $262,211  $320,481 
                        

Interest Rate Risk
 
Our exposure to interest rate risk results, principally, from our investment of excess cash in a sponsored 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 JuneSeptember 30, 2014 cash and cash equivalent balance of $307.5$358.4 million, a 1% increase in interest rates would increase our interest income by $3.1$3.6 million annually.  Given that our current return on these cash equivalent investments in this low interest rate environment is approximately 0.0% annually, an analysis of a 1% decrease is not meaningful.

36
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'sCompany’s Critical Accounting Policies in Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations in GAMCO'sGAMCO’s 2013 Annual Report on Form 10-K filed with the SEC on March 6, 2014 for details on Critical 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 partnerships as well as our proprietary investment and trading activities.  At JuneSeptember 30, 2014, we had equity investments, including open-end funds largely invested in equity products, of $266.4$294.1 million.  Investments in open-end funds and closed-end funds, $45.8$44.3 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 $107.9$107.4 million, of which $55.6$57.4 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 are recorded as net gain from investments in the condensed consolidated statements of income while the available for sale portfolio changes are recorded in other comprehensive income in the condensed consolidated statements of financial condition.

Item 4.  Controls and Procedures
 
We evaluated the effectiveness of our disclosure controls and procedures as of JuneSeptember 30, 2014.  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"(“CEO”), Chief Financial Officer ("CFO"(“CFO”), and Co-Chief Accounting Officers ("CAOs"(“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 JuneSeptember 30, 2014, our disclosure controls and procedures were effective.
 
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,"“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.
37

Part II:  Other Information

Item 1.Legal Proceedings

From time to time, the Company may be 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.  For any such matters, the condensed 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.

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 JuneSeptember 30, 2014:

 
     (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 
4/01/14 - 4/30/14  28,477  $76.11   28,477   773,546 
5/01/14 - 5/31/14  29,395   76.10   29,395   744,151 
6/01/14 - 6/30/14  45,656   79.86   45,656   698,495 
Totals  103,528  $77.76   103,528     
                 
 
     (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 
7/01/14 - 7/31/14  25,912  $83.65   25,912   672,583 
8/01/14 - 8/31/14  20,259   78.42   20,259   652,324 
9/01/14 - 9/30/14  48,771   74.19   48,771   603,553 
Totals  94,942  $77.67   94,942     
                 

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.

 101.INS XBRL Instance Document
   
101.SCH XBRL Taxonomy Extension Schema Document
   
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

38

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/ Kieran Caterina
By: /s/ Diane M. LaPointe
Name: Kieran CaterinaName: Diane M. LaPointe
Title:   Co-Chief Accounting OfficerTitle:   Co-Chief Accounting Officer
  
Date: August 5,November 7, 2014Date: August 5,November 7, 2014
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