SECURITIES & EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2012

or

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

For the transition period from ___ to ___

Commission File No. 001-14761

GAMCO INVESTORS, INC.
(Exact name of Registrant as specified in its charter)
New York	13-4007862
(State of other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
One Corporate Center, Rye, NY	10580-1422
(Address of principle executive offices)	(Zip Code)
(914) 921-3700
Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yesx    Noo Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer", "accelerated filer", and "smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨	Accelerated filer x
Non-accelerated filer o	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

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 October 31, 2012
Class A Common Stock, .001 par value	6,684,215
Class B Common Stock, .001 par value	19,919,818

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

2

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(Dollars in thousands, except per share data)
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Revenues
Investment advisory and incentive fees	$	67,790		$	65,244		$	202,783		$	197,407
Distribution fees and other income		11,139			11,486			33,768			33,419
Institutional research services		3,302			3,421			8,453			11,311
Total revenues		82,231			80,151			245,004			242,137
Expenses
Compensation		32,948			32,010			100,423			99,792
Management fee		3,056			1,387			9,855			8,126
Distribution costs		10,386			11,091			30,575			34,108
Other operating expenses		6,829			5,002			17,760			18,193
Total expenses		53,219			49,490			158,613			160,219		(a)
Operating income		29,012			30,661			86,391			81,918
Other income (expense)
Net gain/(loss) from investments		7,525			(16,152	)		17,234			(3,743	)
Extinguishment of debt (b)		(6,305	)		-			(6,307	)		-
Interest and dividend income		920			1,823			3,938			5,620
Interest expense		(3,586	)		(4,418	)		(12,419	)		(10,688	)
Total other income (expense), net		(1,446	)		(18,747	)		2,446			(8,811	)
Income before income taxes		27,566			11,914			88,837			73,107
Income tax provision		8,467			4,745			30,909			26,978
Net income		19,099			7,169			57,928			46,129
Net income/(loss) attributable to noncontrolling interests		95			(530	)		(17	)		140
Net income attributable to GAMCO Investors, Inc.'s shareholders	$	19,004		$	7,699		$	57,945		$	45,989
Net income attributable to GAMCO Investors, Inc.'s shareholders
per share:
Basic	$	0.72		$	0.29		$	2.20		$	1.72
Diluted	$	0.72		$	0.29		$	2.19		$	1.72
Weighted average shares outstanding:
Basic		26,250			26,496			26,309			26,686
Diluted		26,439			26,576			26,480			26,772
Dividends declared:	$	0.30	(c)	$	0.04		$	0.63		$	0.11
(a) Includes $5.6 million in costs directly related to the launch of a new closed-end fund.
(b) Relates to repurchase of $64.6 million (face value) of Subordinated Debentures.
(c) Includes regular quarterly dividend of $0.05 per share and special dividend of $0.25 per share.
See accompanying notes.

3

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
UNAUDITED
(Dollars in thousands)
	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Net income	$	19,099		$	7,169		$	57,928		$	46,129
Other comprehensive income/(loss), net of tax:
Foreign currency translation		(34	)		(18	)		(29	)		5
Net unrealized gains/(losses) on securities available for sale		2,938			(7,906	)		3,816			(6,969	)
Other comprehensive income/(loss)		2,904			(7,924	)		3,787			(6,964	)
Comprehensive income/(loss)		22,003			(755	)		61,715			39,165
Less: Comprehensive income/(loss) attributable to noncontrolling interests		(95	)		530			17			(140	)
Comprehensive income/(loss) attributable to GAMCO Investors, Inc.	$	21,908		$	(225	)	$	61,732		$	39,025
See accompanying notes.

4

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
UNAUDITED
(Dollars in thousands, except per share data)
	September 30,			December 31,			September 30,
	2012			2011			2011
ASSETS
Cash and cash equivalents	$	288,685		$	276,340		$	335,656
Investments in securities		235,445			238,333			214,759
Investments in sponsored registered investment companies		64,223			59,214			55,564
Investments in partnerships		102,604			100,893			98,286
Receivable from brokers		55,159			20,913			67,064
Investment advisory fees receivable		29,187			32,156			23,451
Income tax receivable		1,018			39			227
Other assets		22,250			28,861			25,883
Total assets	$	798,571		$	756,749		$	820,890
LIABILITIES AND EQUITY
Payable to brokers	$	28,039		$	10,770		$	15,590
Income taxes payable and deferred tax liabilities		16,445			15,296			21,235
Capital lease obligation		4,982			5,072			5,100
Compensation payable		33,998			17,695			31,559
Securities sold, not yet purchased		3,856			5,488			6,743
Mandatorily redeemable noncontrolling interests		1,356			1,386			1,490
Accrued expenses and other liabilities		30,175			24,441			31,450
Sub-total		118,851			80,148			113,167
5.5% Senior notes (due May 15, 2013)		99,000			99,000			99,000
5.875% Senior notes (due June 1, 2021)		100,000			100,000			100,000
Zero coupon subordinated debentures, Face value: $21.8 million at September 30, 2012,
$86.3 million at December 31, 2011 and $86.4 million at September 30, 2011
(due December 31, 2015)		17,118			64,119			62,973
Total liabilities		334,969			343,267			375,140
Redeemable noncontrolling interests		20,228			6,071			38,050
Commitments and contingencies (Note J)
Equity
GAMCO Investors, Inc. stockholders' equity
Preferred stock, $.001 par value; 10,000,000 shares authorized;
none issued and outstanding
Class A Common Stock, $0.001 par value; 100,000,000 shares authorized;
13,904,190, 13,627,397 and 13,600,897 issued, respectively; 6,685,414,
6,684,149 and 6,666,654 outstanding, respectively		13			13			13
Class B Common Stock, $0.001 par value; 100,000,000 shares authorized;
24,000,000 shares issued; 19,920,730, 20,070,746 and 20,106,746 shares
outstanding, respectively		20			20			20
Additional paid-in capital		267,914			264,409			264,028
Retained earnings		450,326			409,191			413,295
Accumulated other comprehensive income		26,307			22,520			18,425
Treasury stock, at cost (7,218,776, 6,943,248 and 6,934,243 shares, respectively)		(304,567	)		(292,181	)		(291,781	)
Total GAMCO Investors, Inc. stockholders' equity		440,013			403,972			404,000
Noncontrolling interests		3,361			3,439			3,700
Total equity		443,374			407,411			407,700
Total liabilities and equity	$	798,571		$	756,749		$	820,890
See accompanying notes.

5

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
UNAUDITED
(In thousands)
For the nine months ended September 30, 2012
				GAMCO Investors, Inc. stockholders
											Accumulated
						Additional					Other									Redeemable
	Noncontrolling			Common		Paid-in		Retained			Comprehensive			Treasury						Noncontrolling
	Interests			Stock		Capital		Earnings			Income			Stock			Total			Interests
Balance at December 31, 2011	$	3,439		$	33	$	264,409	$	409,191		$	22,520		$	(292,181	)	$	407,411		$	6,071
Redemptions of redeemable
noncontrolling interests		-			-		-		-			-			-			-			(8,566	)
Contributions from redeemable
noncontrolling interests		-			-		-		-			-			-			-			22,662
Net income (loss)		(78	)		-		-		57,945			-			-			57,867			61
Net unrealized gains on
securities available for sale,
net of income tax ($2,241)		-			-		-		-			3,816			-			3,816			-
Foreign currency translation		-			-		-		-			(29	)		-			(29	)		-
Dividends declared ($0.63 per
share)		-			-		-		(16,810	)		-			-			(16,810	)		-
Stock based compensation
expense		-			-		2,615		-			-			-			2,615			-
Exercise of stock options
including tax benefit		-			-		890		-			-			-			890			-
Purchase of treasury stock		-			-		-		-			-			(12,386	)		(12,386	)		-
Balance at September 30, 2012	$	3,361		$	33	$	267,914	$	450,326		$	26,307		$	(304,567	)	$	443,374		$	20,228
See accompanying notes.

6

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
UNAUDITED
(In thousands)
For the nine months ended September 30, 2011
			GAMCO Investors, Inc. stockholders
										Accumulated
					Additional					Other									Redeemable
	Noncontrolling		Common		Paid-in		Retained			Comprehensive			Treasury						Noncontrolling
	Interests		Stock		Capital		Earnings			Income			Stock			Total			Interests
Balance at December 31, 2010	$	3,579	$	33	$	262,108	$	370,272		$	25,389		$	(271,773	)	$	389,608		$	26,984
Redemptions of redeemable
noncontrolling interests		-		-		-		-			-			-			-			(2,340	)
Contributions from redeemable
noncontrolling interests		-		-		-		-			-			-			-			17,490
Deconsolidation of
Partnership		-		-		-		-			-			-			-			(4,103	)
Net income		121		-		-		45,989			-			-			46,110			19
Net unrealized gains on
securities available for sale,
net of income tax  benefit ($4,093)		-		-		-		-			(6,969	)		-			(6,969	)		-
Foreign currency translation		-		-		-		-			5			-			5			-
Dividends declared
($0.11 per share)		-		-		-		(2,966	)		-			-			(2,966	)		-
Stock based compensation
expense		-		-		1,920		-			-			-			1,920			-
Purchase of treasury stock		-		-		-		-			-			(20,008	)		(20,008	)		-
Balance at September 30, 2011	$	3,700	$	33	$	264,028	$	413,295		$	18,425		$	(291,781	)	$	407,700		$	38,050
See accompanying notes.

7

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)
	Nine Months Ended
	September 30,
	2012			2011
Operating activities
Net income	$	57,928		$	46,129
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in net gains from partnerships		(4,445	)		(268	)
Depreciation and amortization		580			642
Stock based compensation expense		2,615			1,920
Deferred income taxes		1,708			(1,358	)
Tax benefit from exercise of stock options		108			-
Foreign currency translation		(29	)		5
Other-than-temporary loss on available for sale securities		20			-
Fair value of donated securities		393			111
Gains on sales of available for sale securities		(1,503	)		(584	)
Accretion of zero coupon debentures		2,908			3,393
Extinguishment of debt		6,307			-
(Increase) decrease in assets:
Investments in trading securities		(60	)		5,417
Investments in partnerships:
Contributions to partnerships		(26,893	)		(13,283	)
Distributions from partnerships		29,627			3,312
Receivable from brokers		(34,246	)		(26,130	)
Investment advisory fees receivable		2,970			21,339
Income tax receivable and deferred tax assets		(979	)		98
Other assets		6,045			(2,424	)
Increase (decrease) in liabilities:
Payable to brokers		17,268			14,036
Income taxes payable and deferred tax liabilities		(2,802	)		3,726
Compensation payable		16,301			7,787
Mandatorily redeemable noncontrolling interests		(30	)		47
Accrued expenses and other liabilities		5,394			9,579
Total adjustments		21,257			27,365
Net cash provided by operating activities	$	79,185		$	73,494

8

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED (continued)
(In thousands)
	Nine Months Ended
	September 30,
	2012			2011
Investing activities
Purchases of available for sale securities	$	(1,264	)	$	(4,374	)
Proceeds from sales of available for sale securities		3,068			5,685
Return of capital on available for sale securities		1,650			1,262
Net cash provided by investing activities		3,454			2,573
Financing activities
Contributions from redeemable noncontrolling interests		22,662			17,490
Redemptions of redeemable noncontrolling interests		(8,566	)		(2,340	)
Issuance of 5.875% Senior notes due June 1, 2021		-			100,000
Issuance costs on the 5.875% Senior notes due June 1, 2021		-			(934	)
Proceeds from exercise of stock options		781			-
Repurchase of zero coupon subordinated debentures		(56,215	)		-
Dividends paid		(16,558	)		(2,966	)
Purchase of treasury stock		(12,386	)		(20,008	)
Net cash (used in) provided by financing activities		(70,282	)		91,242
Effect of exchange rates on cash and cash equivalents		(12	)		(3	)
Net increase in cash and cash equivalents		12,345			167,306
Cash and cash equivalents at beginning of period		276,340			169,601
Decrease in cash from deconsolidation of partnership		-			(1,251	)
Cash and cash equivalents at end of period	$	288,685		$	335,656
Supplemental disclosures of cash flow information:
Cash paid for interest	$	4,684		$	3,554
Cash paid for taxes	$	31,639		$	23,587
Non-cash activity:
- On January 1, 2011, GAMCO Investors, Inc. was no longer deemed to have control over a certain partnership which
resulted in the deconsolidation of that partnership and decreases of approximately $1,251 of cash and cash
equivalents, $2,852 of net assets and $4,103 of noncontrolling interests.
- For the nine months ended September 30, 2012 and September 30, 2011, the Company accrued restricted stock
award dividends of $203 and $27, respectively.
See accompanying notes.

9

GAMCO INVESTORS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2012

(Unaudited)

A.  Significant Accounting Policies

Basis of Presentation

Unless we have indicated otherwise, or the context otherwise requires, references in this report to “GAMCO Investors, Inc.,” “GAMCO,” “the Company,” “GBL,” “we,” “us” and “our” or similar terms are to GAMCO Investors, Inc., its predecessors and its subsidiaries.

The unaudited interim condensed consolidated financial statements of GAMCO included herein have been prepared in conformity with generally accepted accounting principles (“GAAP”) in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP in the United States for complete financial statements.  In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of financial position, results of operations and cash flows of GAMCO for the interim periods presented and are not necessarily indicative of a full year’s results.

The condensed consolidated financial statements include the accounts of GAMCO and its subsidiaries, including our new broker-dealer, G.distributors, LLC, a wholly-owned subsidiary of GAMCO, which became the distributor for the Gabelli/GAMCO family of funds on August 1, 2011.  Intercompany accounts and transactions are eliminated.

These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2011 from which the accompanying condensed consolidated financial statements were derived.

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

Use of Estimates

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

Recent Accounting Developments

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

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

10

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

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

B.  Investment in Securities

Investments in securities at September 30, 2012, December 31, 2011 and September 30, 2011 consisted of the following:

	September 30, 2012				December 31, 2011				September 30, 2011
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
	(In thousands)
Trading securities:
Government obligations	$	28,731	$	28,742	$	42,124	$	42,126	$	18,698	$	18,699
Common stocks		160,027		170,846		153,294		159,314		166,989		160,861
Mutual funds		1,064		1,461		1,084		1,307		1,081		1,178
Other investments		382		484		466		399		442		396
Total trading securities		190,204		201,533		196,968		203,146		187,210		181,134
Available for sale securities:
Common stocks		14,931		32,239		16,487		33,282		16,724		31,903
Mutual funds		1,105		1,673		1,362		1,905		1,361		1,722
Total available for sale securities		16,036		33,912		17,849		35,187		18,085		33,625
Total investments in securities	$	206,240	$	235,445	$	214,817	$	238,333	$	205,295	$	214,759

Securities sold, not yet purchased at September 30, 2012, December 31, 2011 and September 30, 2011 consisted of the following:

	September 30, 2012				December 31, 2011				September 30, 2011
	Proceeds		Fair Value		Proceeds		Fair Value		Proceeds		Fair Value
Trading securities:	(In thousands)
Common stocks	$	3,044	$	3,816	$	5,271	$	5,415	$	7,979	$	6,743
Other investments		-		40		49		73		-		-
Total securities sold, not yet purchased	$	3,044	$	3,856	$	5,320	$	5,488	$	7,979	$	6,743

11

Investments in sponsored registered investment companies at September 30, 2012, December 31, 2011 and September 30, 2011 consisted of the following:

	September 30, 2012				December 31, 2011				September 30, 2011
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
	(In thousands)
Trading securities:
Mutual funds	$	19	$	24	$	15	$	18	$	15	$	24
Total trading securities		19		24		15		18		15		24
Available for sale securities:
Closed-end funds		36,721		60,731		37,104		55,855		38,116		52,156
Mutual funds		2,080		3,468		2,213		3,341		2,241		3,384
Total available for sale securities		38,801		64,199		39,317		59,196		40,357		55,540
Total investments in sponsored
registered investment companies	$	38,820	$	64,223	$	39,332	$	59,214	$	40,372	$	55,564

Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of each balance sheet date.  Investments in United States Treasury Bills and Notes with maturities of greater than three months at the time of purchase are classified as investments in securities, and those with maturities of three months or less at the time of purchase are classified as cash equivalents.  A substantial portion of investments in securities is held for resale in anticipation of short-term market movements and therefore is classified as trading securities.  Trading securities are stated at fair value, with any unrealized gains or losses reported in current period earnings.  Available for sale (“AFS”) investments are stated at fair value, with any unrealized gains or losses, net of taxes, reported as a component of equity except for losses deemed to be other than temporary which are recorded as unrealized losses in the condensed consolidated statements of income.

The Company recognizes all derivatives as either assets or liabilities measured at fair value and includes them in either investments in securities or securities sold, not yet purchased on the condensed consolidated statements of financial condition.  From time to time, the Company and/or the partnerships and offshore funds that the Company consolidates will enter into hedging transactions to manage their exposure to foreign currencies and equity prices related to their proprietary investments.  For the three and nine months ended September 30, 2012, the Company had derivative transactions in equity derivatives which resulted in net losses of $411,000 and net losses of $425,000, respectively.  For the three and nine months ended September 30, 2011, the Company had no derivative transactions.  At September 30, 2011, the Company did not hold any derivatives.  At September 30, 2012 and December 31, 2011, we held derivative contracts on 1.1 million equity shares and 142,000 equity shares, respectively, and the fair value was ($6,000) and $24,000, respectively; these are included in investments in securities in the condensed consolidated statements of financial condition.  These transactions are not designated as hedges for accounting purposes, and therefore changes in fair values of these derivatives are included in net gain/(loss) from investments in the condensed consolidated statements of income. 

12

The following is a summary of the cost, gross unrealized gains, gross unrealized losses and fair value of available for sale investments as of September 30, 2012, December 31, 2011 and September 30, 2011:

	September 30, 2012
			Gross		Gross
			Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Common stocks	$	14,931	$	17,308	$	-		$	32,239
Closed-end Funds		36,721		24,010		-			60,731
Mutual funds		3,185		1,956		-			5,141
Total available for sale securities	$	54,837	$	43,274	$	-		$	98,111
	December 31, 2011
			Gross		Gross
			Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Common stocks	$	16,487	$	16,795	$	-		$	33,282
Closed-end Funds		37,104		18,779		(28	)		55,855
Mutual funds		3,575		1,671		-			5,246
Total available for sale securities	$	57,166	$	37,245	$	(28	)	$	94,383
	September 30, 2011
			Gross		Gross
			Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(In thousands)
Common stocks	$	16,724	$	15,179	$	-		$	31,903
Closed-end Funds		38,116		14,040		-			52,156
Mutual funds		3,602		1,504		-			5,106
Total available for sale securities	$	58,442	$	30,723	$	-		$	89,165

Unrealized changes to fair value, net of taxes, for the three months ended September 30, 2012 and September 30, 2011 of $2.9 million in gains and $7.9 million in losses, respectively, have been included in other comprehensive income, a component of equity, at September 30, 2012 and September 30, 2011.  Return of capital on available for sale securities was $0.8 million and $0.5 million for the three months ended September 30, 2012 and September 30, 2011, respectively.  Proceeds from sales of investments available for sale were approximately $2.3 million for the three months ended September 30, 2012.  There were no sales of investments available for sale for the three months ended September 30, 2011.  For the three months ended September 30, 2012, gross gains on the sale of investments available for sale amounted to $1.1 million and were reclassed from other comprehensive income into the condensed consolidated statements of income.  There were no losses on the sale of investments available for sale for the three months ended September 30, 2012.  Unrealized changes to fair value, net of taxes, for the nine months ended September 30, 2012 and September 30, 2011 of $3.8 million in gains and $7.0 million in losses, respectively, have been included in other comprehensive income, a component of equity, at September 30, 2012 and September 30, 2011. Return of capital on available for sale securities was $1.7 million and $1.3 million for the nine months ended September 30, 2012 and September 30, 2011, respectively.  Proceeds from sales of investments available for sale were approximately $3.1 million and $5.7 million for the nine month periods ended September 30, 2012 and September 30, 2011, respectively.  For the nine months ended September 30, 2012 and September 30, 2011, gross gains on the sale of investments available for sale amounted to $1.5 million and $0.6 million, respectively, and were reclassed from other comprehensive income into the condensed consolidated statements of income.  There were no losses on the sale of investments available for sale for the nine months ended September 30, 2012 or September 30, 2011.  The basis on which the cost of a security sold is determined is specific identification.

13

Investments classified as available for sale that are in an unrealized loss position for which other-than-temporary impairment has not been recognized consisted of the following:

	September 30, 2012						December 31, 2011							September 30, 2011
			Unrealized						Unrealized							Unrealized
	Cost		Losses		Fair Value		Cost		Losses			Fair Value		Cost		Losses			Fair Value
(in thousands)
Mutual Funds	$	-	$	-	$	-	$	101	$	(28	)	$	73	$	100	$	(21	)	$	79

At December 31, 2011 and September 30, 2011, there was one holding in a loss position which was not deemed to be other-than-temporarily impaired due to the length of time that it had been in a loss position and because it passed scrutiny in our evaluation of issuer-specific and industry-specific considerations.  In this specific instance, the investment at December 31, 2011 and September 30, 2011 was a closed-end fund with diversified holdings across multiple companies and across multiple industries.  The one holding was impaired for seven and four consecutive months at December 31, 2011 and September 30, 2011, respectively.  The value of this holding at both December 31, 2011 and September 30, 2011 was $0.1 million.

At September 30, 2012, there were no available for sale holdings in loss positions.

For the nine months ended September 30, 2012, there was $20,000 of losses on available for sale securities deemed to be other than temporary.

C. Investments in Partnerships, Offshore Funds and Variable Interest Entities (“VIEs”)

The Company is general partner or co-general partner of various sponsored limited partnerships and the investment manager of various sponsored offshore funds, in which the Company has investments totaling $88.3 million, $86.9 million and $80.2 million at September 30, 2012, December 31, 2011 and September 30, 2011, respectively, and whose underlying assets consist primarily of marketable securities (the “affiliated entities”).  We also have investments in unaffiliated partnerships, offshore funds and other entities of $14.3 million, $14.0 million and $18.1 million at September 30, 2012, December 31, 2011 and September 30, 2011, respectively (the “unaffiliated entities”).  We evaluate each entity for the appropriate accounting treatment and disclosure.  Certain of the affiliated entities are consolidated.  In addition, our statement of financial condition caption “Investments in partnerships” includes those investments, in both affiliated and unaffiliated entities, which the Company accounts for under the equity method of accounting, as well as certain investments that the feeder funds hold that are carried at fair value, as described in Note D.  The Company reflects the equity in earnings of these equity method investees and the change in fair value of the consolidated feeder funds under the caption “Net gain/(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 consolidated feeder funds (“CFFs”), which retain their specialized investment company accounting, partnerships and offshore funds.

Entities consolidated
	CFFs				Partnerships					Offshore Funds					Total
	VIEs		VOEs		VIEs		VOEs			VIEs			VOEs		VIEs			VOEs
Entities consolidated at December 31, 2010		1		2		-		2			1			-		2			4
Additional consolidated entities		-		-		-		-			-			1		-			1
Deconsolidated entities		-		-		-		(1	)		-			-		-			(1	)
Entities consolidated at September 30, 2011		1		2		-		1			1			1		2			4
Additional consolidated entities		-		-		-		-			-			-		-			-
Deconsolidated entities		-		-		-		-			(1	)		-		(1	)		-
Entities consolidated at December 31, 2011		1		2		-		1			-			1		1			4
Additional consolidated entities		-		-		-		-			-			-		-			-
Deconsolidated entities		-		-		-		-			-			-		-			-
Entities consolidated at September 30, 2012		1		2		-		1			-			1		1			4

14

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

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):

	September 30, 2012
	Prior to
	Consolidation		CFFs			Partnerships			Offshore Funds			As Reported
Assets
Cash and cash equivalents	$	287,806	$	-		$	879		$	-		$	288,685
Investments in securities		222,489		-			6,908			6,048			235,445
Investments in sponsored registered investment companies		64,223		-			-			-			64,223
Investments in partnerships		109,801		1,540			(8,737	)		-			102,604
Receivable from brokers		27,597		-			1,255			26,307			55,159
Investment advisory fees receivable		29,182		6			(1	)		-			29,187
Other assets		23,047		9			-			212			23,268
Total assets	$	764,145	$	1,555		$	304		$	32,567		$	798,571
Liabilities and equity
Securities sold, not yet purchased	$	3,879	$	-		$	-		$	(23	)	$	3,856
Accrued expenses and other liabilities		100,774		68			30			14,123			114,995
Total debt		216,118		-			-			-			216,118
Redeemable noncontrolling interests		-		1,487			274			18,467			20,228
Total equity		443,374		-			-			-			443,374
Total liabilities and equity	$	764,145	$	1,555		$	304		$	32,567		$	798,571
	December 31, 2011
	Prior to
	Consolidation		CFFs			Partnerships			Offshore Funds			As Reported
Assets
Cash and cash equivalents	$	259,531	$	15,000		$	1,809		$	-		$	276,340
Investments in securities		225,599		-			6,211			6,523			238,333
Investments in sponsored registered investment companies		59,197		-			17			-			59,214
Investments in partnerships		107,981		933			(8,021	)		-			100,893
Receivable from brokers		17,593		-			270			3,050			20,913
Investment advisory fees receivable		32,157		1			(2	)		-			32,156
Other assets		43,889		(14,989	)		-			-			28,900
Total assets	$	745,947	$	945		$	284		$	9,573		$	756,749
Liabilities and equity
Securities sold, not yet purchased	$	5,488	$	-		$	-		$	-		$	5,488
Accrued expenses and other liabilities		69,929		51			28			4,652			74,660
Total debt		263,119		-			-			-			263,119
Redeemable noncontrolling interests		-		894			256			4,921			6,071
Total equity		407,411		-			-			-			407,411
Total liabilities and equity	$	745,947	$	945		$	284		$	9,573		$	756,749
	September 30, 2011
	Prior to
	Consolidation		CFFs			Partnerships			Offshore Funds			As Reported
Assets
Cash and cash equivalents	$	333,230	$	-		$	2,175		$	251		$	335,656
Investments in securities		164,916		-			5,616			44,227			214,759
Investments in sponsored registered investment companies		55,540		-			24			-			55,564
Investments in partnerships		158,432		1,007			(7,703	)		(53,450	)		98,286
Receivable from brokers		16,846		-			158			50,060			67,064
Investment advisory fees receivable		23,524		12			(1	)		(84	)		23,451
Other assets		26,029		11			-			70			26,110
Total assets	$	778,517	$	1,030		$	269		$	41,074		$	820,890
Liabilities and equity
Securities sold, not yet purchased	$	2,957	$	-		$	-		$	3,786		$	6,743
Accrued expenses and other liabilities		105,887		109			35			393			106,424
Total debt		261,973		-			-			-			261,973
Redeemable noncontrolling interests		-		921			234			36,895			38,050
Total equity		407,700		-			-			-			407,700
Total liabilities and equity	$	778,517	$	1,030		$	269		$	41,074		$	820,890

15

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

	Three Months Ended September 30, 2012
	Prior to
	Consolidation			CFFs			Partnerships			Offshore Funds			As Reported
Total revenues	$	82,489		$	(2	)	$	(1	)	$	(255	)	$	82,231
Total expenses		52,976			28			11			204			53,219
Operating income		29,513			(30	)		(12	)		(459	)		29,012
Total other income (expense), net		(2,032	)		78			34			474			(1,446	)
Income before income taxes		27,481			48			22			15			27,566
Income tax provision		8,467			-			-			-			8,467
Net income		19,014			48			22			15			19,099
Net loss attributable to noncontrolling interests		10			48			22			15			95
Net income attributable to GAMCO	$	19,004		$	-		$	-		$	-		$	19,004
	Three Months Ended September 30, 2011
	Prior to
	Consolidation			CFFs			Partnerships			Offshore Funds			As Reported
Total revenues	$	80,237		$	(1	)	$	(1	)	$	(84	)	$	80,151
Total expenses		49,463			38			7			(18	)		49,490
Operating income		30,774			(39	)		(8	)		(66	)		30,661
Total other income (expense), net		(18,299	)		(109	)		66			(405	)		(18,747	)
Income before income taxes		12,475			(148	)		58			(471	)		11,914
Income tax provision		4,745			-			-			-			4,745
Net income		7,730			(148	)		58			(471	)		7,169
Net income/(loss) attributable to noncontrolling interests		31			(148	)		58			(471	)		(530	)
Net income attributable to GAMCO	$	7,699		$	-		$	-		$	-		$	7,699
	Nine Months Ended September 30, 2012
	Prior to
	Consolidation			CFFs			Partnerships			Offshore Funds			As Reported
Total revenues	$	245,771		$	(4	)	$	(2	)	$	(761	)	$	245,004
Total expenses		158,146			76			30			361			158,613
Operating income		87,625			(80	)		(32	)		(1,122	)		86,391
Total other income, net		1,151			175			51			1,069			2,446
Income before income taxes		88,776			95			19			(53	)		88,837
Income tax provision		30,909			-			-			-			30,909
Net income		57,867			95			19			(53	)		57,928
Net income/(loss) attributable to noncontrolling interests		(78	)		95			19			(53	)		(17	)
Net income attributable to GAMCO	$	57,945		$	-		$	-		$	-		$	57,945
	Nine Months Ended September 30, 2011
	Prior to
	Consolidation			CFFs			Partnerships			Offshore Funds			As Reported
Total revenues	$	242,357		$	(5	)	$	(2	)	$	(213	)	$	242,137
Total expenses		159,869			97			30			223			160,219
Operating income		82,488			(102	)		(32	)		(436	)		81,918
Total other income (expense), net		(9,400	)		70			2			517			(8,811	)
Income before income taxes		73,088			(32	)		(30	)		81			73,107
Income tax provision		26,978			-			-			-			26,978
Net income		46,110			(32	)		(30	)		81			46,129
Net income/(loss) attributable to noncontrolling interests		121			(32	)		(30	)		81			140
Net income attributable to GAMCO	$	45,989		$	-		$	-		$	-		$	45,989

Variable Interest Entities

We also have sponsored a number of investment vehicles where we are the general partner or investment manager.  These vehicles are VIEs, and we are not the primary beneficiary because we do not absorb a majority of the entities’ expected losses or expected returns.  The Company has not provided any financial or other support to these entities.  The total assets of these entities at September 30, 2012, December 31, 2011 and September 30, 2011 were $78.6 million, $73.7 million and $29.5 million, respectively.  Our maximum exposure to loss as a result of our involvement with the VIEs is limited to the investment in one VIE and the deferred carried interest that we have in another.  On September 30, 2012 and December 31, 2011, we had an investment in one of the VIE offshore funds of approximately $8.2 million and $5.0 million, respectively, which was included in investments in partnerships on the condensed consolidated statements of financial condition.  On September 30, 2012, December 31, 2011 and September 30, 2011, we had a deferred carried interest in one of the VIE offshore funds of approximately $42,000, $47,000 and $47,000, respectively, which was included in investments in partnerships on the condensed consolidated statements of financial condition.  Additionally, as the general partner or investment manager to these VIEs the Company earns fees in relation to these roles, which given a decline in AUMs of the VIEs would result in lower fee revenues earned by the Company which would be reflected on the condensed consolidated statements of income, condensed consolidated statements of financial condition and condensed consolidated statements of cash flows.

16

Prior to January 1, 2011, we were consolidating two VIEs since we had determined that we were the primary beneficiary of each because we had equity interests and absorbed a majority of each entity’s expected losses; therefore they were consolidated in the financial statements.  Effective October 1, 2011, we deconsolidated one of the VIEs upon analysis of several factors, including the redemption of $49.2 million of proprietary capital from this VIE by which, we determined that the Company was no longer deemed to be the primary beneficiary of the VIE.  The deconsolidation did not result in the recognition of any gain or loss.  The Company has not provided any financial support to these VIEs but does continue to serve as the investment manager and earn fees for this role, and it also maintains an investment in the deconsolidated VIE, which is included in investments in partnerships on the condensed consolidated statements of financial condition and is accounted for under the equity method (which approximates fair value).  The assets of these VIEs may only be used to satisfy obligations of the VIEs.  The following table presents the balances related to these VIEs that are consolidated and were included on the condensed consolidated statements of financial condition as well as GAMCO’s net interest in these VIEs.  Only one VIE is consolidated at September 30, 2012 and December 31, 2011 and two are consolidated at September 30, 2011:

	September 30,			December 31,			September 30,
	2012			2011			2011
(In thousands)
Cash and cash equivalents	$	-		$	15,000		$	251
Investments in securities		-			-			44,227
Investments in partnerships		23,086			1,433			1,489
Receivable from brokers		-			-			50,060
Other assets		-			-			70
Securities sold, not yet purchased		-			-			(3,786	)
Accrued expenses and other liabilities		(15	)		(15,006	)		(525	)
Redeemable noncontrolling interests		(962	)		(381	)		(37,289	)
GAMCO's net interests in consolidated VIEs	$	22,109		$	1,046		$	54,497

D. Fair Value

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

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

-   Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date.  Level 1 assets include cash equivalents, government obligations, open-end mutual funds, closed-end funds and equities.

-   Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.  Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities that are not active and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly-quoted intervals.  Assets that generally are included in this category may include certain limited partnership interests in private funds in which the valuations for substantially all of the investments within the fund are based upon Level 1 or Level 2 inputs and over the counter derivatives that have inputs to the valuations that can generally be corroborated by observable market data.

-   Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.  Assets included in this category generally include equities that trade infrequently and direct private equity investments held within consolidated partnerships.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.  Investments are transferred into or out of any level at their beginning period values.

17

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

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

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

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

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

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

18

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 September 30, 2012, December 31, 2011 and September 30, 2011 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 September 30, 2012 (in thousands)

	Quoted Prices in Active		Significant Other		Significant		Balance as of
	Markets for Identical		Observable		Unobservable		September 30,
Assets	Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		2012
Cash equivalents	$	288,450	$	-	$	-	$	288,450
Investments in partnerships		-		24,976		-		24,976
Investments in securities:
AFS - Common stocks		32,239		-		-		32,239
AFS - Mutual funds		1,673		-		-		1,673
Trading - Gov't obligations		28,742		-		-		28,742
Trading - Common stocks		170,159		10		677		170,846
Trading - Mutual funds		1,461		-		-		1,461
Trading - Other		59		77		348		484
Total investments in securities		234,333		87		1,025		235,445
Investments in sponsored registered investment companies:
AFS - Closed-end Funds		60,731		-		-		60,731
AFS - Mutual Funds		3,468		-		-		3,468
Trading - Mutual funds		24		-		-		24
Total investments in sponsored
registered investment companies		64,223		-		-		64,223
Total investments		298,556		25,063		1,025		324,644
Total assets at fair value	$	587,006	$	25,063	$	1,025	$	613,094
Liabilities
Trading - Common stocks	$	3,816	$	-	$	-	$	3,816
Trading - Other		-		40		-		40
Securities sold, not yet purchased	$	3,816	$	40	$	-	$	3,856

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2011 (in thousands)

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

19

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of September 30, 2011 (in thousands)

	Quoted Prices in Active		Significant Other		Significant		Balance as of
	Markets for Identical		Observable		Unobservable		September 30,
Assets	Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		2011
Cash equivalents	$	335,098	$	-	$	-	$	335,098
Investments in partnerships		-		27,071		-		27,071
Investments in securities:
AFS - Common stocks		31,903		-		-		31,903
AFS - Mutual funds		1,722		-		-		1,722
Trading - Gov't obligations		18,699		-		-		18,699
Trading - Common stocks		160,259		8		594		160,861
Trading - Mutual funds		1,178		-		-		1,178
Trading - Other		38		-		358		396
Total investments in securities		213,799		8		952		214,759
Investments in sponsored registered investment companies:
AFS - Closed-end Funds		52,156		-		-		52,156
AFS - Mutual Funds		3,384		-		-		3,384
Trading - Mutual funds		24		-		-		24
Total investments in sponsored
registered investment companies		55,564		-		-		55,564
Total investments		269,363		27,079		952		297,394
Total assets at fair value	$	604,461	$	27,079	$	952	$	632,492
Liabilities
Trading - Common stocks	$	6,743	$	-	$	-	$	6,743
Securities sold, not yet purchased	$	6,743	$	-	$	-	$	6,743

The following tables present additional information about assets by major categories measured at fair value on a recurring basis and for which the Company has utilized Level 3 inputs to determine fair value.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2012 (in thousands)

							Total
							Unrealized
							Gains or		Total
			Total Realized and				(Losses)		Realized
	June		Unrealized Gains or				Included in		and							Transfers
	30, 2012		(Losses) in Income				Other		Unrealized							In and/or
	Beginning				AFS		Comprehensive		Gains or							(Out) of		Ending
Asset	Balance		Trading		Investments		Income		(Losses)		Purchases		Sales			Level 3		Balance
Financial
instruments owned:
Trading - Common
stocks	$	671	$	6	$	-	$	-	$	6	$	-	$	-		$	-	$	677
Trading - Other		351		15		-		-		15		-		(18	)		-		348
Total	$	1,022	$	21	$	-	$	-	$	21	$	-	$	(18	)	$	-	$	1,025

There were no transfers between any Levels during the three months ended September 30, 2012.

20

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Three Months Ended September 30, 2011 (in thousands)

							Total
							Unrealized
							Gains or		Total
			Total Realized and				(Losses)		Realized
	June		Unrealized Gains or				Included in		and							Transfers
	30, 2011		(Losses) in Income				Other		Unrealized							In and/or
	Beginning				AFS		Comprehensive		Gains or							(Out) of		Ending
Asset	Balance		Trading		Investments		Income		(Losses)		Purchases		Sales			Level 3		Balance
Financial
instruments owned:
Trading - Common
stocks	$	584	$	10	$	-	$	-	$	10	$	-	$	-		$	-	$	594
Trading - Other		369		12		-		-		12		3		(26	)		-		358
Total	$	953	$	22	$	-	$	-	$	22	$	3	$	(26	)	$	-	$	952

There were no transfers between any Levels during the three months ended September 30, 2011.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine months ended September 30, 2012 (in thousands)

							Total
							Unrealized
							Gains or		Total
			Total Realized and				(Losses)		Realized
	December		Unrealized Gains or				Included in		and							Transfers
	31, 2011		(Losses) in Income				Other		Unrealized							In and/or
	Beginning				AFS		Comprehensive		Gains or							(Out) of		Ending
Asset	Balance		Trading		Investments		Income		(Losses)		Purchases		Sales			Level 3		Balance
Financial
instruments owned:
Trading - Common
stocks	$	670	$	30	$	-	$	-	$	30	$	57	$	(80	)	$	-	$	677
Trading - Other		284		72		-		-		72		18		(26	)		-		348
Total	$	954	$	102	$	-	$	-	$	102	$	75	$	(106	)	$	-	$	1,025

There were no transfers between any Levels during the nine months ended September 30, 2012.

21

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for the Nine months ended September 30, 2011 (in thousands)

							Total
							Unrealized
							Gains or		Total
			Total Realized and				(Losses)		Realized
	December		Unrealized Gains or				Included in		and							Transfers
	31, 2010		(Losses) in Income				Other		Unrealized							In and/or
	Beginning				AFS		Comprehensive		Gains or							(Out) of		Ending
Asset	Balance		Trading		Investments		Income		(Losses)		Purchases		Sales			Level 3		Balance
Financial
instruments owned:
Trading - Common
stocks	$	147	$	47	$	-	$	-	$	47	$	414	$	(14	)	$	-	$	594
Trading - Other		278		135		-		-		135		13		(74	)		6		358
Total	$	425	$	182	$	-	$	-	$	182	$	427	$	(88	)	$	6	$	952

There were no transfers between Level 1 and Level 2 during the nine months ended September 30, 2011.  During the nine months ended September 30, 2011, the Company reclassed approximately $6,000 of investments from Level 1 to Level 3.  The reclassifications were due to decreased availability of market price quotations and were based on the values at the beginning of the period in which the reclass occurred.

E. Debt

Debt consists of the following:

	September 30, 2012				December 31, 2011				September 30, 2011
	Carrying		Fair Value		Carrying		Fair Value		Carrying		Fair Value
	Value		Level 2		Value		Level 2		Value		Level 2
(In thousands)
5.5% Senior notes	$	99,000	$	100,832	$	99,000	$	100,733	$	99,000	$	100,643
5.875% Senior notes		100,000		104,458		100,000		93,070		100,000		96,120
0% Subordinated debentures		17,118		19,612		64,119		58,899		62,973		58,302
Total	$	216,118	$	224,902	$	263,119	$	252,702	$	261,973	$	255,065

On May 31, 2011, the Company issued $100 million of senior unsecured notes at par.  The net proceeds of $99.1 million were used for working capital and general corporate purposes.  The issuance costs of $0.9 million have been capitalized and are being amortized over the term of the debt.  The notes mature on June 1, 2021 and bear interest at 5.875% per annum, payable semi-annually on June 1 and December 1 of each year and commenced on December 1, 2011.  Upon the occurrence of a change of control triggering event, as defined in the indenture, the Company would be required to offer to repurchase the notes at 101% of their principal amount.

On December 31, 2010, the Company issued $86.4 million in par value of five year zero coupon subordinated debentures due December 31, 2015 (“Debentures”) to its shareholders of record on December 15, 2010 through the declaration of a special dividend of $3.20 per share.  The Debentures have a par value of $100 and are callable at the option of the Company, in whole or in part, at any time or from time to time, at a redemption price equal to 100% of the principal amount of the Debentures to be redeemed.  During the three months ended September 30, 2012, the Company repurchased 645,779 Debentures having a face value of $64.6 million.  The redemption was accounted for as an extinguishment of debt and resulted in a loss of $6.3 million, which was included in extinguishment of debt on the condensed consolidated statements of income.  During the nine months ended September 30, 2012, the Company repurchased 646,008 Debentures having a face value of $64.6 million.  The redemption was accounted for as an extinguishment of debt and resulted in a loss of $6.3 million, which was included in extinguishment of debt on the condensed consolidated statements of income.  There were no repurchases for the three and nine month periods ended September 30, 2011.  The debt is being accreted to its face value using the effective rate on the date of issuance of 7.45%.  At September 30, 2012, December 31, 2011 and September 30, 2011, the debt was recorded at its accreted value of $17.1 million, $64.1 million and $63.0 million, respectively.

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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 was due to expire in July 2012.  As of September 30, 2012, $400 million is available on the shelf.

F. Income Taxes

The effective tax rate for the three months ended September 30, 2012 was 30.7% compared to 39.8% for the prior year three month period.  The effective tax rate for the nine months ended September 30, 2012 was 34.8% compared to 36.9% for the prior year nine month period.  The third quarter 2012 rate included a benefit of 5.1% resulting from the difference between the tax and book basis of Subordinated Debentures repurchased, including the tender offer completed in July 2012.  In addition, the third quarter 2011 rate was affected by the change in the mix of operating income and investment losses which increased the effective state tax rate for the period.  The 2012 nine month rate included a benefit of 1.6% resulting from the difference between the tax and book basis of Subordinated Debentures repurchased, including the tender offer completed in July 2012.

G. Earnings Per Share

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

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share amounts)	2012		2011		2012		2011
Basic:
Net income attributable to GAMCO Investors, Inc.'s shareholders	$	19,004	$	7,699	$	57,945	$	45,989
Weighted average shares outstanding		26,250		26,496		26,309		26,686
Basic net income attributable to GAMCO Investors, Inc.'s
shareholders per share	$	0.72	$	0.29	$	2.20	$	1.72
Diluted:
Net income attributable to GAMCO Investors, Inc.'s shareholders	$	19,004	$	7,699	$	57,945	$	45,989
Weighted average share outstanding		26,250		26,496		26,309		26,686
Dilutive stock options and restricted stock awards		189		80		171		86
Total		26,439		26,576		26,480		26,772
Diluted net income attributable to GAMCO Investors, Inc.'s
shareholders per share	$	0.72	$	0.29	$	2.19	$	1.72

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H. Stockholders’ Equity

Shares outstanding were 26.6 million on September 30, 2012, 26.8 million on December 31, 2011, and 26.8 million on September 30, 2011.

Dividends

	Payment	Record
	Date	Date	Amount
Three months ended March 31, 2012	March 27, 2012	March 13, 2012	$    0.04
Three months ended June 30, 2012	June 26, 2012	June 12, 2012	0.29
Three months ended September 30, 2012	September 11, 2012	September 25, 2012	0.30
Nine months ended September 30, 2012			$    0.63
Three months ended March 31, 2011	March 29, 2011	March 15, 2011	$    0.03
Three months ended June 30, 2011	June 28, 2011	June 14, 2011	0.04
Three months ended September 30, 2011	September 13, 2011	September 27, 2011	0.04
Nine months ended September 30, 2011			$    0.11

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, which are designed to provide incentives which will attract and retain individuals key to the success of GAMCO through direct or indirect ownership of our common stock.  Benefits under the Plans may be granted in any one or a combination of stock options, stock appreciation rights, restricted stock, restricted stock units, stock awards, dividend equivalents and other stock or cash based awards.  A maximum of 1.5 million shares of Class A Stock have been reserved for issuance under each of the Plans by a committee of the Board of Directors responsible for administering the Plans (“Compensation Committee”).  Under the Plans, the committee may grant 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 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 January 3, 2012, the Company approved the granting of 105,300 RSA shares at a grant date fair value of $43.49 per share.  On January 15, 2011, and February 9, 2011, the Company approved the granting of 193,900 RSA shares and 3,300 RSA shares, respectively, at a grant date fair value of $48.85 per share and $45.77 per share, respectively.  As of September 30, 2012, December 31, 2011 and September 30, 2011, there were 371,500 RSA shares, 275,600 RSA shares and 285,100 RSA shares, respectively, outstanding that were previously issued at an average weighted grant price of $45.15, $45.56 and $45.52, respectively.  All grants of the RSA shares were recommended by the Company's Chairman, who did not receive a RSA, and approved by the Compensation Committee.  This expense, net of forfeitures, is recognized over the vesting period for these awards which is 30% over three years from the date of grant and 70% over five years from the date of grant.  During the vesting period, dividends to RSA holders are held for them until the RSA vesting dates and are forfeited if the grantee is no longer employed by the Company on the vesting dates.  Dividends declared on these RSAs, less estimated forfeitures, are charged to retained earnings on the declaration date.

24

For the three months ended September 30, 2012 and September 30, 2011, we recognized stock-based compensation expense of $0.9 million and $0.7 million, respectively.  For the nine months ended September 30, 2012 and September 30, 2011, we recognized stock-based compensation expense of $2.6 million and $1.9 million, respectively.  Actual and projected stock-based compensation expense for RSA shares and options for the years ended December 31, 2011 through December 31, 2016 (based on awards currently issued or granted) is as follows ($ in thousands):

	2011		2012		2013		2014		2015		2016
Q1	$	577	$	871	$	870	$	625	$	494	$	175
Q2		686		869		848		588		462		128
Q3		655		875		805		588		399		128
Q4		670		870		805		588		399		128
Full Year	$	2,588	$	3,485	$	3,328	$	2,389	$	1,754	$	559

The total compensation cost related to non-vested RSAs and options not yet recognized is approximately $8.9 million as of September 30, 2012.  For the three months ended September 30, 2012, proceeds from the exercise of 24,977 stock options were $723,000 resulting in a tax benefit to GAMCO of $84,000.  For the nine months ended September 30, 2012, proceeds from the exercise of 26,977 stock options were $781,000 resulting in a tax benefit to GAMCO of $87,000.  There were no options exercised in either the three or nine month periods ended September 30, 2011.  The Company recognized $21,000 in tax benefits from 3,900 RSAs that vested during the nine months ended September 30, 2012.

Stock Repurchase Program

In March 1999, GAMCO's Board of Directors established the Stock Repurchase Program to grant management the authority to repurchase shares of our Class A Common Stock.  On May 6, 2011, our Board of Directors authorized an incremental 500,000 shares to be added to the current buyback authorization.  For the three months ended September 30, 2012 and September 30, 2011, the Company repurchased 47,426 shares and 11,752 shares, respectively, at an average price per share of $47.79 and $42.07, respectively.  For the nine months ended September 30, 2012 and September 30, 2011, the Company repurchased 275,528 shares and 441,961 shares, respectively, at an average price per share of $44.94 and $45.26, respectively.  From the inception of the program through September 30, 2012, 7,619,580 shares have been repurchased at an average price of $40.78 per share.  At September 30, 2012, the total shares available under the program to be repurchased in the future were 297,839.

I. Goodwill and Identifiable Intangible Assets

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

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

25

J.  Commitments and Contingencies

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

The Company indemnifies the clearing brokers of Gabelli & Company, our broker-dealer subsidiary, for losses they may sustain from the customer accounts that trade on margin introduced by it.  At September 30, 2012, the total amount of customer balances subject to indemnification (i.e. unsecured margin debits) was immaterial.  The Company also has entered into arrangements with various other third parties many of which provide for indemnification of the third parties against losses, costs, claims and liabilities arising from the performance of obligations under the agreements.  The Company has had no claims or payments pursuant to these or prior agreements and believes the likelihood of a claim being made is remote.  The Company’s estimate of the value of such agreements is de minimis, and therefore an accrual has not been made on the condensed consolidated financial statements.

K. Subsequent Events

From October 1, 2012 to November 2, 2012, the Company repurchased 1,111 shares at $48.00 per share.

26

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

Overview

GAMCO through the Gabelli brand, well known for its Private Market Value (PMV) with a CatalystTM investment approach,is a widely-recognized provider of investment advisory services to mutual funds, institutional and high net worth investors, and investment partnerships, principally in the United States.  Through Gabelli & Company, Inc. (“Gabelli & Company”), we provide institutional research and brokerage services to institutional clients and investment partnerships.  Through G.distributors, LLC (“G.distributors”), we provide mutual fund distribution.  We generally manage assets on a fully discretionary basis and invest in a variety of U.S. and international securities through various investment styles.  Our revenues are based primarily on the Company’s levels of assets under management and fees associated with our various investment products.

Our revenues are highly correlated to the level of assets under management and fees associated with our various investment products, rather than our own corporate assets.  Assets under management, which are directly influenced by the level and changes of the overall equity markets, can also fluctuate through acquisitions, the creation of new products, the addition of new accounts or the loss of existing accounts.  Since various equity products have different fees, changes in our business mix may also affect revenues.  At times, the performance of our equity products may differ markedly from popular market indices, and this can also impact our revenues.  General stock market trends will have the greatest impact on our level of assets under management and hence, on revenues.

We conduct our investment advisory business principally through: GAMCO Asset Management Inc. (Institutional and High Net Worth), Gabelli Funds, LLC (Mutual Funds) and Gabelli Securities, Inc. (Investment Partnerships).  We also act as an underwriter and provide institutional research through Gabelli & Company, one of our broker-dealer subsidiaries.  The distribution of our open-end funds is conducted through G.distributors.

Assets under management (“AUM”) were a record $36.9 billion as of September 30, 2012, an increase of 17.9% from AUM of $31.3 billion at September 30, 2011 and up 3.6% from the June 30, 2012 AUM of $35.7 billion.  Fund flows in the third quarter of 2012 were a positive $1.3 billion consisting of market appreciation of $1.8 billion and net cash outflows of $470 million.  Average total AUM was $36.2 billion in the 2012 quarter versus $33.9 billion in the prior year period, an increase of 6.8%.  Average AUM in our open-end equity funds, a key driver to our investment advisory fees, was $12.6 billion in the third quarter of 2012, rising 2.4% from the 2011 quarter average AUM of $12.3 billion.

In addition to management fees, we earn incentive fees for certain institutional client assets, certain assets attributable to preferred issues for our closed-end funds, our GDL Fund (NYSE: GDL) and investment partnership assets.  As of September 30, 2012, assets with incentive based fees were $3.9 billion, 14.7% higher than the $3.4 billion on September 30, 2011 and unchanged from June 30, 2012. 

27

The Company reported Assets Under Management as follows (in millions):
Table I: Fund Flows - 3rd Quarter 2012
								Closed-end Fund
			Market					distributions,
	June 30,		appreciation/		Net cash			net of			September 30,
	2012		(depreciation)		flows			reinvestments			2012
Equities:
Open-end Funds	$	12,496	$	628	$	(366	)	$	-		$	12,758
Closed-end Funds		5,860		359		260			(114	)		6,365
Institutional & PWM - direct		11,655		602		(68	)		-			12,189
Institutional & PWM - sub-advisory		2,788		157		(33	)		-			2,912
Investment Partnerships		781		6		(2	)		-			785
SICAV (a)		126		1		(6	)		-			121
Total Equities		33,706		1,753		(215	)		(114	)		35,130
Fixed Income:
Money-Market Fund		1,893		-		(141	)		-			1,752
Institutional & PWM		63		-		-			-			63
Total Fixed Income		1,956		-		(141	)		-			1,815
Total Assets Under Management	$	35,662	$	1,753	$	(356	)	$	(114	)	$	36,945

The Company reported Assets Under Management as follows (in millions):
Table II: Fund Flows - Nine months ended September 30, 2012
								Closed-end Fund
			Market					distributions,
	December 31,		appreciation/		Net cash			net of			September 30,
	2011		(depreciation)		flows			reinvestments			2012
Equities:
Open-end Funds	$	12,273	$	1,180	$	(695	)	$	-		$	12,758
Closed-end Funds		5,799		492		405			(331	)		6,365
Institutional & PWM - direct		10,853		1,142		194			-			12,189
Institutional & PWM - sub-advisory		2,600		249		63			-			2,912
Investment Partnerships		605		16		164			-			785
SICAV (a)		105		2		14			-			121
Total Equities		32,235		3,081		145			(331	)		35,130
Fixed Income:
Money-Market Fund		1,824		-		(72	)		-			1,752
Institutional & PWM		26		-		37			-			63
Total Fixed Income		1,850		-		(35	)		-			1,815
Total Assets Under Management	$	34,085	$	3,081	$	110		$	(331	)	$	36,945

28

Table III: Assets Under Management
	September 30,		September 30,		%
	2011		2012		Inc.(Dec.)
Equities:
Open-end Funds	$	11,469	$	12,758		11.2	%
Closed-end Funds		5,355		6,365		18.9
Institutional & PWM - direct		9,644		12,189		26.4
Institutional & PWM - sub-advisory		2,326		2,912		25.2
Investment Partnerships		627		785		25.2
SICAV (a)		-		121		n/m
Total Equities		29,421		35,130		19.4
Fixed Income:
Money-Market Fund		1,895		1,752		(7.5	)
Institutional & PWM		26		63		142.3
Total Fixed Income		1,921		1,815		(5.5	)
Total Assets Under Management	$	31,342	$	36,945		17.9	%

Table IV: Assets Under Management by Quarter
											% Increase/
											(decrease) from
		9/11		12/11		3/12		6/12		9/12		9/11		6/12
Equities:
Open-end Funds	$	11,469	$	12,273	$	12,996	$	12,496	$	12,758		11.2	%	2.1	%
Closed-end Funds		5,355		5,799		6,067		5,860		6,365		18.9		8.6
Institutional & PWM - direct		9,644		10,853		12,031		11,655		12,189		26.4		4.6
Institutional & PWM - sub-advisory		2,326		2,600		2,924		2,788		2,912		25.2		4.4
Investment Partnerships		627		605		594		781		785		25.2		0.5
SICAV (a)		-		105		118		126		121		n/m		(4.0	)
Total Equities		29,421		32,235		34,730		33,706		35,130		19.4		4.2
Fixed Income:
Money-Market Fund		1,895		1,824		1,922		1,893		1,752		(7.5	)	(7.4	)
Institutional & PWM		26		26		26		63		63		142.3		-
Total Fixed Income		1,921		1,850		1,948		1,956		1,815		(5.5	)	(7.2	)
Total Assets Under Management	$	31,342	$	34,085	$	36,678	$	35,662	$	36,945		17.9	%	3.6	%
(a) Includes $100 million, $102 million, $101 million and $102 million of proprietary seed capital at December 31, 2011, March 31, 2012,
June 30, 2012 and September 30, 2012, respectively.

29

Relative long-term investment performance remained strong with approximately 35%, 45%, 75% and 72% of firm wide mutual funds performing in the top half of their Lipper categories on a one-, three-, five-, and ten-year total return basis, respectively as of September 30, 2012.  Also, 44% of the firm’s mutual funds that are rated have a 4- or 5-star overall Morningstar RatingTM.

Gabelli/GAMCO Funds Morningstar Ratings Based on Risk Adjusted returns as of September 30, 2012 for funds that we manage
		Overall Rating		3 Year Rating		5 Year Rating		10 Year Rating
	Morningstar		# of		# of		# of		# of
FUND	Category	Stars	Funds	Stars	Funds	Stars	Funds	Stars	Funds
Gabelli ABC AAA	Mid-Cap Growth	êêê	673	ê	673	êêêêê	597	êê	429
Gabelli Asset AAA	Large Blend	êêêê	1524	êêêê	1524	êêêê	1328	êêêêê	832
Gabelli Dividend Growth AAA	Large Blend	êêêê	1524	êêê	1524	êêê	1328	êêêêê	832
Gabelli Equity Income AAA	Large Blend	êêêê	1524	êêê	1524	êêêê	1328	êêêêê	832
Gabelli Small Cap Growth AAA	Small Blend	êêêêê	597	êêêê	597	êêêêê	513	êêêêê	309
Gabelli SRI Green AAA	World Stock	êêêê	740	êêê	740	êêêêê	529	n/a	n/a
Gabelli Utilities AAA	Utilities	êêê	75	êê	75	êêêê	73	êêê	51
Gabelli Value A	Large Blend	êêê	1524	êêêêê	1524	êê	1328	êêê	832
Gabelli Focus Five AAA	Small Blend	êêê	597	êêê	597	êêê	513	n/a	n/a
GAMCO Vertumnus AAA	Convertibles	ê	64	êê	64	ê	51	ê	39
GAMCO Global Growth AAA	World Stock	êêêê	740	êêêê	740	êêêê	529	êêêê	299
GAMCO Global Opportunity AAA	World Stock	êêêê	740	êêê	740	êêê	529	êêêê	299
GAMCO Global Telecommunications AAA	Communications	êêê	45	êê	45	êêê	37	êêêê	28
Gabelli Gold AAA	Equity Precious Metals	êêê	70	êêêê	70	êêê	65	êêê	45
GAMCO Growth AAA	Large Growth	êê	1514	êê	1514	êê	1311	êê	867
GAMCO International Growth AAA	Foreign Large Growth	êêêê	218	êêêê	218	êêêê	173	êêê	98
GAMCO Mathers	Conservative Allocation	ê	561	ê	561	ê	474	ê	187
Gabelli Enterprise Mergers & Acquisitions A	Mid-Cap Blend	êê	373	êê	373	êêê	316	êê	199
Percent of Rated funds rated 4 or 5 stars		44.44%		33.33%		44.44%		43.75%
The Overall Morningstar Rating™ is derived from a weighted average of the performance figures associated with its three, five and ten year (if applicable) Morningstar Rating metrics.
Data presented reflects past performance, which is no guarantee of future results.  Ratings are for Class AAA or A shares noted above.  Other classes may have different performance
characteristics.  Unrated funds and closed-end funds are not listed above.  The percentage of 4 and 5 star funds are calculated based on the total number of GAMCO/Gabelli
Funds that are rated for a given period.  For each fund with at least a three year history, Morningstar calculates a Morningstar Rating based on a Morningstar Risk-Adjusted Return
measure (including the effects of sales charges, loads, and redemption fees) that accounts for variation in a fund's monthly performance, placing more emphasis on downward variations
and rewarding consistent performance.  The top 10% of the funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2
stars, and the bottom 10% receive 1 star.  (Each share class is counted as a fraction of one fund within this scale and rated separately, which may cause slight variations in the
distribution percentages.)  Strong relative performance is not indicative of positive fund returns.  Performance for some funds was negative for certain periods.  © 2012 Morningstar, Inc.
All rights reserved.  The information contained herein:  (1) is proprietaryto Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be
accurate, complete or timely.  Neither Morningstar nor its contentproviders are responsible for any damages or losses arising from any use of this information. Investors should
carefully consider the investment objectives, risks, charges, andexpenses of each fund before investing.  Each fund's prospectus contains information about these and other
matters and should be read carefully before investing.  Each fund's share price will fluctuate with changes in the market value of the fund's portfolio securities.  Stocks
are subject to market, economic and business risks that cause their prices to fluctuate.  When you sell fund shares, they may be worth less than what you paid for them.
Consequently, you can lose money by investing in any of the funds.  You can obtain a prospectus by calling 800-GABELLI (422-3554), online at www.gabelli.com, or from
your financial advisor. Distributed by G.distributors, LLC, One Corporate Center, Rye New York, 10580.
The inception date for the Gabelli SRI Green Fund was June 1, 2007.  The inception date for the Gabelli Focus Five Fund was December 31, 2002.

30

GABELLI/GAMCO FUNDS		Gabelli/GAMCO Funds Lipper Rankings as of September 30, 2012
		1 Yr - 9/30/11-9/30/12		3 Yrs - 9/30/09-9/30/12		5 Yrs - 9/30/07-9/30/12		10 Yrs - 9/30/02-9/30/12
		Percentile	Rank /	Percentile	Rank /	Percentile	Rank /	Percentile	Rank /
Fund Name	Lipper Category	Rank	Total Funds	Rank	Total Funds	Rank	Total Funds	Rank	Total Funds
Gabelli Asset; AAA	Multi-Cap Core Funds	51	406/806	16	106/686	13	74/594	11	36/344
Gabelli Value Fund; A	Multi-Cap Core Funds	32	256/806	3	14/686	17	101/594	19	65/344
Gabelli SRI; AAA	Global Small/Mid-Cap Funds	84	87/103	60	53/88	8	5/70	-	-
Gabelli Eq:Eq Inc; AAA	Equity Income Funds	75	222/297	63	155/246	34	71/213	15	16/106
GAMCO Growth; AAA	Large-Cap Growth Funds	13	89/717	81	526/650	77	427/560	56	209/373
Gabelli Eq:SC Gro; AAA	Small-Cap Core Funds	75	528/712	44	272/621	12	63/535	11	35/324
Gabelli Focus Five Fund; AAA	Small-Cap Core Funds	7	45/712	47	292/621	39	204/535	-	-
GAMCO Gl:Oppty; AAA	Global Multi-Cap Growth	51	109/213	47	68/146	24	17/71	20	7/35
GAMCO Gl:Growth; AAA	Global Large-Cap Growth	6	4/78	16	11/70	33	20/61	27	12/44
Gabelli Gold; AAA	Precious Metal Funds	15	11/73	35	21/59	32	17/53	45	16/35
GAMCO Intl Gro; AAA	International Large-Cap Growth	56	121/216	6	11/204	17	26/160	43	49/115
Gabelli Dividend Growth Fund; AAA	Large-Cap Value Funds	65	293/456	57	231/410	19	66/347	2	3/225
Gabelli Inv:ABC; AAA	Specialty Diversified Equity Funds	57	27/47	52	16/30	41	11/26	23	2/8
GAMCO Mathers; AAA	Specialty Diversified Equity Funds	84	40/47	75	23/30	75	20/26	34	3/8
Comstock Cap Val; A	Specialty Diversified Equity Funds	96	46/47	91	28/30	89	24/26	78	7/8
GAMCO Gl:Telecom; AAA	Telecommunications Funds	66	25/37	74	25/33	50	13/25	34	6/17
GAMCO Gl:Vertumnus; AAA	Convertible Securities Funds	98	71/72	88	48/54	96	41/42	91	29/31
Gabelli Utilities; AAA	Utility Funds	50	37/73	75	51/67	15	9/62	63	27/42
787:Gabelli Merg&Acq; A	Mid-Cap Core Funds	100	373/375	97	318/330	65	179/278	98	181/184
Gabelli Capital Asset Fund	Distributed through Insurance Channel	17	48/290	5	14/279	19	51/262	10	15/143
% of funds in top half		35.0%		45.0%		75.0%		72.2%
Data presented reflects past performance, which is no guarantee of future results. Strong rankings are not indicative of positive fund performance.  Absolute performance for some
funds was negative for certain periods.  Other share classes are available which may have different performance characteristics.
Lipper, a wholly-owned subsidiary of Reuters, provides independent insight on global collective investments including mutual funds, retirement funds, hedge funds, fund fees and
expenses to the asset management and media communities. Lipper ranks the performance of mutual funds within a classification of funds that have similar investment objectives.
Rankings are historical with capital gains and dividends reinvested and do not include the effect of loads. If an expense waiver was in effect, it may have had a material effect on the
total return or yield for the period.
Relative long-term investment performance remained strong with approximately 35%, 45%, 75% and 72% of firmwide mutual funds in the top half of their Lipper categories on a one-,
three-, five-, and ten-year total-return basis, respectively, as of September 30, 2012.
Investors should carefully consider the investment objective, risks, charges, and expenses of each fund before investing.  Each fund's prospectus contains information about these
and other matters and should be read carefully before investing.  Each fund’s share price will fluctuate with changes in the market value of the fund’s portfolio securities. Stocks
are subject to market, economic and business risks that cause their prices to fluctuate.  When you sell fund shares, they may be worth less than what you paid for them.
Consequently, you can lose money by investing in a fund.  You can obtain a prospectus by calling 800-GABELLI (422-3554), online at www.gabelli.com, or from your financial
advisor.  Distributed by G.distributors, LLC., One Corporate Center, Rye New York, 10580.  Other share classes are available that have different performance characteristics.
The inception date for the Gabelli SRI Green Fund was June 1, 2007.  The inception date for the Gabelli Focus Five Fund was December 31, 2002.

31

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

RESULTS OF OPERATIONS

Three Months Ended September 30, 2012 Compared To Three Months Ended September 30, 2011

(Unaudited; in thousands, except per share data)
	2012			2011
Revenues
Investment advisory and incentive fees	$	67,790		$	65,244
Distribution fees and other income		11,139			11,486
Institutional research services		3,302			3,421
Total revenues		82,231			80,151
Expenses
Compensation		32,948			32,010
Management fee		3,056			1,387
Distribution costs		10,386			11,091
Other operating expenses		6,829			5,002
Total expenses		53,219			49,490
Operating income		29,012			30,661
Other income (expense)
Net gain/(loss) from investments		7,525			(16,152	)
Extinguishment of debt		(6,305	)		-
Interest and dividend income		920			1,823
Interest expense		(3,586	)		(4,418	)
Total other income (expense), net		(1,446	)		(18,747	)
Income before income taxes		27,566			11,914
Income tax provision		8,467			4,745
Net income		19,099			7,169
Net income/(loss) attributable to noncontrolling interests		95			(530	)
Net income attributable to GAMCO Investors, Inc.'s shareholders	$	19,004		$	7,699
Net income attributable to GAMCO Investors, Inc.'s shareholders per share:
Basic	$	0.72		$	0.29
Diluted	$	0.72		$	0.29
Reconciliation of net income attributable to GAMCO Investors, Inc.'s shareholders
to Adjusted EBITDA:
Net income attributable to GAMCO Investors, Inc.'s shareholders	$	19,004		$	7,699
Interest expense		3,586			4,418
Income tax provision and net income attributable to noncontrolling interests		8,562			4,215
Depreciation and amortization		221			186
Adjusted EBITDA (a)	$	31,373		$	16,518

(a) Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and noncontrolling interests.  Adjusted EBITDA is a non-GAAP measure and should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States nor should it be considered as an indicator of our overall financial performance.  We use Adjusted EBITDA as a supplemental measure of performance as we believe it gives investors a more complete understanding of our operating results before the impact of financing activities as a tool for determining the private market value of an enterprise.

32

Overview

Net income attributable to shareholders of GAMCO Investors, Inc. for the quarter was $19.0 million or $0.72 per fully diluted share versus $7.7 million or $0.29 per fully diluted share in the prior year’s quarter.  The quarter to quarter comparison was higher due to an increase in total revenues, largely driven by higher AUM, an investment gain in our proprietary portfolios, lower interest expense on lower average debt balances outstanding and a lower effective tax rate which were partially offset by the negative impact from the extinguishment of debt and increased operating expenses.

Revenues

Investment advisory and incentive fees for the third quarter 2012 were $67.8 million, 4.0% above the 2011 comparative figure of $65.2 million.  Open-end mutual fund revenues increased by 2.6% to $31.2 million from $30.4 million in third quarter 2011 driven by a 2.4% increase in average open-end equity AUM largely due to positive market performance.  Our closed-end fund revenues rose 9.2% to $13.1 million in the third quarter 2012 from $12.0 million in 2011 due to a 3.9% increase in non-performance fee based average AUM.  During the third quarter of 2012, we earned $0.5 million in performance based fees.  There were no such fees earned during the 2011 quarter.  Institutional and private wealth management account revenues, excluding incentive fees, which are generally based on beginning of quarter AUM, increased $0.8 million, or 3.8%, to $21.6 million from $20.8 million in third quarter 2011.  During the third quarter 2012, we earned $0.3 million in incentive fees, a decrease of $0.7 million from the $1.0 million recognized in the 2011 quarter.  Investment partnership revenues were $1.6 million, an increase of 45.5% from $1.1 million in third quarter 2011 due to an increase in average AUM resulting from net inflows.

Open-end fund distribution fees and other income were $11.1 million for the third quarter 2012, a decrease of $0.4 million or 3.5% from $11.5 million in the prior year period, primarily due to a decreased level of sales of load shares of mutual funds, slightly offset by higher quarterly average AUM in open-end equity mutual funds that generate distribution fees.

Our institutional research subsidiary had revenues of $3.3 million in the third quarter 2012, down 2.9% from $3.4 million in the prior year period.

Expenses

Compensation costs, which are largely variable, were $32.9 million or 2.8% higher than the $32.0 million incurred in the prior year period.  The quarter over quarter increase was largely comprised of $0.5 million of increased variable compensation related to the increased levels of AUM, $1.1 million in increased fixed compensation and $0.2 million in amortization expense for RSAs issued in January 2012 partially offset by a $0.9 million decrease in commissions and payouts related to lower trading volume and sales of open-end funds.

Management fee expense, which is wholly variable and based on pretax income, increased to $3.1 million in the third quarter of 2012 from $1.4 million in the 2011 period.

Distribution costs were $10.4 million, a decrease of $0.7 million or 6.3% from $11.1 million in the prior year’s period.  This decrease in distribution costs was mostly due to a decrease in amortization of upfront commissions paid to third-party distributors of $0.6 million.

Other operating expenses were $6.8 million in the third quarter of 2012, an increase of $1.8 million, or 36.0%, from $5.0 million in the third quarter of 2011.  The 2012 period was impacted by the size and timing of contributions which totaled $1.5 million, an increase of $1.4 million from the prior year period.  The quarter comparison was also negatively impacted by a combination of reimbursements received in the 2011 period for previously incurred legal expenses and reversals of one-time accruals for client service matters in 2011 totaling $0.6 million.

Total expenses, excluding the management fee, were $50.2 million in the third quarter of 2012, a 4.4% increase from $48.1 million in the third quarter of 2011.

Operating income for the third quarter of 2012 was $29.0 million, a decrease of $1.7 million from the third quarter 2011’s $30.7 million.  Operating income, as a percentage of revenues, was 35.3% in the 2012 quarter as compared to 38.3% in the 2011 quarter.

33

Other

Total other income (expense), net of interest expense, was ($1.4) million for the third quarter 2012 versus ($18.7) million in the prior year’s quarter.  Realized and unrealized gains in our trading portfolio were $7.5 million in the 2012 quarter, a positive swing of $23.7 million versus $16.2 million of losses in the 2011 quarter largely from the relative strength in the U.S. equity markets.  Included in the 2012 results are $6.3 million in charges related to total purchases of $64.6 million (face value) of the Company’s 0% Subordinated Debentures due 2015.  We had repurchased $64.1 million (face value) of these 0% Subordinated Debentures through a tender offer which was completed in July 2012.  Interest and dividend income was lower by $0.9 million.  Interest expense decreased by $0.8 million to $3.6 million in the third quarter of 2012 from the $4.4 million in third quarter of 2011 due to a decrease in total average debt outstanding largely in connection with the repurchase of Subordinated Debentures.

The effective tax rate for the three months ended September 30, 2012 was 30.7% as compared to the prior year period’s effective rate of 39.8%.  The third quarter 2012 rate included a benefit of 5.1% resulting from the difference between the tax and book basis of Subordinated Debentures repurchased, including the tender offer completed in July 2012.  In addition, the third quarter 2011 rate was affected by the change in the mix of operating income and investment losses which increased the effective state tax rate for the period.

Nine months ended September 30, 2012 Compared To Nine months ended September 30, 2011

(Unaudited; in thousands, except per share data)
	2012			2011
Revenues
Investment advisory and incentive fees	$	202,783		$	197,407
Distribution fees and other income		33,768			33,419
Institutional research services		8,453			11,311
Total revenues		245,004			242,137
Expenses
Compensation		100,423			99,792
Management fee		9,855			8,126
Distribution costs		30,575			34,108
Other operating expenses		17,760			18,193
Total expenses (a)		158,613			160,219
Operating income		86,391			81,918
Other income (expense)
Net gain/(loss) from investments		17,234			(3,743	)
Extinguishment of debt		(6,307	)		-
Interest and dividend income		3,938			5,620
Interest expense		(12,419	)		(10,688	)
Total other income (expense), net		2,446			(8,811	)
Income before income taxes		88,837			73,107
Income tax provision		30,909			26,978
Net income		57,928			46,129
Net income/(loss) attributable to noncontrolling interests		(17	)		140
Net income attributable to GAMCO Investors, Inc.'s shareholders	$	57,945		$	45,989
Net income attributable to GAMCO Investors, Inc.'s shareholders per share:
Basic	$	2.20		$	1.72
Diluted	$	2.19		$	1.72
Reconciliation of net income attributable to GAMCO Investors, Inc.'s shareholders
to Adjusted EBITDA:
Net income attributable to GAMCO Investors, Inc.'s shareholders	$	57,945		$	45,989
Interest expense		12,419			10,688
Income tax provision and net income attributable to noncontrolling interests		30,892			27,118
Depreciation and amortization		580			642
Adjusted EBITDA (b)	$	101,836		$	84,437

(a)   Nine months ended September 30, 2011 includes $5.6 million in costs directly related to the launch of a new closed-end fund.

(b) Adjusted EBITDA is defined as earnings before interest, taxes, depreciation and amortization, and noncontrolling interests.  Adjusted EBITDA is a non-GAAP measure and should not be considered as an alternative to any measure of performance as promulgated under accounting principles generally accepted in the United States nor should it be considered as an indicator of our overall financial performance.  We use Adjusted EBITDA as a supplemental measure of performance as we believe it gives investors a more complete understanding of our operating results before the impact of financing activities as a tool for determining the private market value of an enterprise.

34

Overview

Net income attributable to shareholders of GAMCO Investors, Inc. for the first nine months of 2012 was $57.9 million or $2.19 per fully diluted share versus $46.0 million or $1.72 per fully diluted share in the first nine months of 2011.  The period to period comparison benefited from an increase in total revenues, largely driven by higher AUM, an increase in investment gains in our proprietary portfolios and a lower effective tax rate which were partially offset by the negative impact from the extinguishment of debt, an increase in operating expenses and an increase in interest expense on higher average debt balances outstanding.

Revenues

Investment advisory and incentive fees for the nine months ended September 30, 2012 were $202.8 million, 2.7% above the 2011 comparative figure of $197.4 million.  Open-end mutual fund revenues increased by 4.1% to $93.3 million from $89.6 million in first nine months of 2011 driven by a 3.7% increase in average open-end equity AUM resulting from both net inflows and positive market performance.  Our closed-end fund revenues rose 2.2% to $37.2 million in the first nine months of 2012 from $36.4 million in 2011, primarily due to $0.5 million of incentive fee revenue in the 2012 period.  Institutional and private wealth management account revenues, excluding incentive fees, which are generally based on beginning of quarter AUM, increased $2.1 million, or 3.4%, to $64.1 million from $62.0 million in first nine months of 2011, largely due to an increase in billable AUM.  During the first nine months of 2012, we earned $3.9 million in incentive fees, a decrease of $2.7 million from $6.6 million earned in the first nine months of 2011.  Investment partnership revenues were $4.3 million, an increase of 48.3% from $2.9 million for the nine months ended September 30, 2011 as AUM increased to $906 million in the 2012 quarter from $627 million in the 2011 quarter.

Open-end fund distribution fees and other income were $33.8 million for the first nine months of 2012, an increase of $0.4 million or 1.2% from $33.4 million in the prior year period, primarily due to higher quarterly average AUM in open-end equity mutual funds that generate such fees.

Our institutional research subsidiary had revenues of $8.5 million in the first nine months of 2012, down 24.8% from $11.3 million in the prior year period principally due to lower trading volume and a decline in average commission rates.

Expenses

Compensation costs, which are largely variable, were $100.4 million, or 0.6% higher than the $99.8 million incurred in the prior year period.  Included in the 2011 period was $0.4 million in one-time costs related to the launch of a new closed-end fund.  Excluding these costs, the period over period increase was $1.0 million or 1.0% and was largely comprised of $2.3 million of increased variable compensation related to the increased levels of AUM, $0.7 million in increased amortization expense for RSAs issued in January 2012 and $1.3 million in increased fixed compensation partially offset by a $3.3 million decrease in commissions and payouts related to lower trading volume and sales of open-end funds.

Management fee expense, which is wholly variable and based on pretax income, increased to $9.9 million for the nine months ended September 30, 2012 from $8.1 million in the 2011 period.

Distribution costs were $30.6 million, a decrease of $3.5 million or 10.3% from $34.1 million in the prior year’s period.  Costs were higher on a comparable basis after adjusting for the $4.7 million in one-time charges related to the launch of a closed-end fund, the GAMCO Natural Resources, Gold & Income Trust by Gabelli (“GNT”), during the first nine months of 2011.  Excluding these one-time charges, distribution costs increased $1.2 million, or 4.1%, to $30.6 million from $29.4 million for the first nine months of 2011.  This increase in distribution costs was mostly due to the 3.7% increase in average AUM in our open-end equity funds, increased amortization of costs associated with sales of Class C shares and higher expense reimbursements.

Other operating expenses were $17.8 million in the first nine months of 2012, a decline of $0.4 million or 2.2% from the $18.2 million in the first nine months of 2011 largely due to the one-time charges of $0.5 million related to the launch of GNT in 2011.

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Total expenses, excluding the management fee, were $148.8 million for the nine months ended September 30, 2012, a 2.2% decrease from $152.1 million in the first nine months of 2011, primarily due to the $5.6 million in one-time charges related to the launch of GNT in the first nine months of 2011.

Operating income for the first nine months of 2012 was $86.4 million, an increase of $4.5 million from the 2011 period’s $81.9 million.  Operating income, as a percentage of revenues, was 35.3% in the 2012 period as compared to 33.8% in the 2011 period.  The 2011 operating income and operating margin were negatively impacted by $5.6 million in one-time charges related to the launch of GNT.

Other

Total other income, net of interest expense, was $2.4 million for the first nine months of 2012 versus an expense of $8.8 million in the prior year’s period.  Realized and unrealized gains in our trading portfolio were $17.2 million in the 2012 period, an increase of $20.9 million versus an expense of $3.7 million in the first nine months of 2011.  Included in the 2012 results are $6.3 million in charges related to total purchases of $64.6 million (face value) of the Company’s 0% Subordinated Debentures due 2015.  We had repurchased $64.1 million (face value) of these 0% Subordinated Debentures through a tender offer which was completed in July 2012.  Interest and dividend income was lower by $1.7 million.  Interest expense increased by $1.7 million to $12.4 million in the first nine months of 2012 from the $10.7 million in the first nine months of 2011 due to higher average debt balances outstanding.

The effective tax rate for the nine months ended September 30, 2012 was 34.8% as compared to the prior year period’s effective rate of 36.9%.  The 2012 nine month rate included a benefit of 1.6% resulting from the difference between the tax and book basis of Subordinated Debentures repurchased, including the tender offer completed in July 2012.

LIQUIDITY AND CAPITAL RESOURCES

Our principal assets consist of cash and cash equivalents, short-term investments, securities held for investment purposes, investments in mutual funds, and investment partnerships and offshore funds, both proprietary and external.  Cash and cash equivalents are comprised primarily of money market funds managed by GAMCO.  Although the investment partnerships and offshore funds are, for the most part, illiquid, the underlying investments of such partnerships or funds are, for the most part liquid, and the valuations of these products reflect that underlying liquidity.

Summary cash flow data is as follows:

	Nine months ended
	September 30,
	2012			2011
Cash flows provided by:	(in thousands)
Operating activities	$	79,185		$	73,494
Investing activities		3,454			2,573
Financing activities		(70,282	)		91,242
Effect of exchange rates on cash and cash equivalents		(12	)		(3	)
Net increase		12,345			167,306
Cash and cash equivalents at beginning of period		276,340			169,601
Decrease in cash from deconsolidation		-			(1,251	)
Cash and cash equivalents at end of period	$	288,685		$	335,656

Cash requirements and liquidity needs have historically been met through cash generated by operating activities and our borrowing capacity.  We filed a shelf registration with the SEC in 2009 which, among other things, provides us the flexibility to sell any combination of senior and subordinate debt securities, convertible debt securities, equity securities (including common and preferred stock), and other securities up to a total amount of $400 million.  We replaced this shelf registration with a new filing for up to $500 million on May 14, 2012.  On May 31, 2011, the Company issued $100 million of senior unsecured notes at par.  The net proceeds of $99.1 million were used for working capital and general corporate purposes.  The notes mature June 1, 2021 and bear interest, payable semi-annually, at 5.875% per annum.  The notes were issued pursuant to the Company’s shelf registration and there remains $400 million available under the shelf for future use.  On May 21, 2012, the Company commenced a tender offer (the “Offer”) to purchase up to $50 million aggregate principal amount (“face value”) of its 0% Subordinated Debentures (“Debentures”) due 2015 at a price to be determined under a “Modified Dutch Auction” procedure.  On June 19, 2012, we amended the Offer to increase the maximum principal amount of Debentures the Company would purchase to the entire amount outstanding and extended the expiration date of the Offer to July 2, 2012.  At the expiration of the Offer, the Company purchased $64.1 million in face value of Debentures (accreted value of $49.5 million) at a price of $870 per $1,000 principal amount for a total cost of $55.8 million.  This transaction reduced the Company’s cash and cash equivalents by $55.8 million, debt outstanding by $49.5 million and resulted in a one-time loss on extinguishment of debt, net of management fees and tax benefit, of approximately $2.1 million or $0.08 per fully diluted share.  Interest expense is expected to be reduced annually by $4.0 million in 2013, $4.3 million in 2014 and $4.6 million in 2015.

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At September 30, 2012, we had total cash and cash equivalents of $288.7 million, an increase of $12.4 million from December 31, 2011.  Cash and cash equivalents of $0.9 million and investments in securities of $6.9 million held by consolidated investment partnerships and offshore funds may not be readily available for the Company to access.  Total debt outstanding at September 30, 2012 was $216.1 million, consisting of $17.1 million in five year zero coupon subordinated debentures due 2015 (“Debentures”), with a face value of $21.8 million, $100 million of 5.875% senior notes due 2021 and $99 million of 5.5% senior notes due 2013.

For the nine months ended September 30, 2012, cash provided by operating activities was $79.2 million, an increase of $5.7 million from cash provided in the prior year period of $73.5 million.  Cash was provided through an increase in net income of $11.8 million, net distributions received from partnerships of $12.7 million, $6.3 million loss on repurchase of debt and $6.9 million from other sources.  Reducing cash was an $8.1 million increase in receivable from brokers, a $5.5 million increase in trading investments and an $18.4 million increase in investment advisory fees receivable.  Cash provided by investing activities, related to purchases and proceeds from sales of available for sale securities, was $3.5 million in the first nine months of 2012.  Cash used in financing activities in the first nine months of 2012 was $70.3 million, including $56.2 million for the repurchase of debt, $16.6 million paid in dividends and $12.4 million paid for the purchase of treasury stock partially offset by $14.1 million in net contributions from redeemable noncontrolling interests and $0.8 million in proceeds from the exercise of stock options.

For the nine months ended September 30, 2011, cash provided by operating activities was $73.5 million.  Cash provided by investing activities, related to purchases and proceeds from sales of available for sale securities, was $2.6 million in the first nine months of 2011.  Cash provided by financing activities in the first nine months of 2011 was $91.2 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, Gabelli & Company 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 at September 30, 2012.  At September 30, 2012, Gabelli & Company had net capital, as defined, of approximately $7.9 million, exceeding the regulatory requirement by approximately $7.7 million and G.distributors, which became the distributor of the open-end mutual funds on August 1, 2011, had net capital, as defined, of approximately $3.9 million, exceeding the regulatory requirement by approximately $3.6 million.  Net capital requirements for our affiliated broker-dealers may increase in accordance with rules and regulations to the extent they engage in other business activities.

Market Risk

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

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

Equity Price Risk

The Company earns substantially all of its revenue as advisory and distribution fees from our affiliated open-end and closed-end funds, Institutional and Private Wealth Management, and Investment Partnership assets.  Such fees represent a percentage of AUM, and the majority of these assets are in equity investments.  Accordingly, since revenues are proportionate to the value of those investments, a substantial increase or decrease in equity markets overall will have a corresponding effect on the Company's revenues.

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With respect to our proprietary investment activities, included in investments in securities of $235.4 million and investments in sponsored registered investment companies of $64.2 million at September 30, 2012 were investments in United States Treasury Bills and Notes of $28.7 million, mutual funds and closed-end funds, largely invested in equity products, of $67.4 million, a selection of common and preferred stocks totaling $203.1 million, and other investments of approximately $0.4 million.  In addition, we may alter our investment holdings from time to time in response to changes in market risks and other factors considered appropriate by management.  Of the approximately $203.1 million invested in common and preferred stocks at September 30, 2012, $32.2 million represented our investment in Westwood Holdings Group Inc., and $77.1 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 September 30, 2012, the fair value of securities sold, not yet purchased was $3.8 million.  Investments in partnerships totaled $102.6 million at September 30, 2012, $77.1 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 September 30, 2012.  The sensitivity analysis assumes a 10% increase or decrease in the value of these investments (in thousands):

			Fair Value		Fair Value
			assuming		assuming
			10% decrease in		10% increase in
(unaudited)	Fair Value		equity prices		equity prices
At September 30, 2012:
Equity price sensitive investments, at fair value	$	268,637	$	241,773	$	295,501
At December 31, 2011:
Equity price sensitive investments, at fair value	$	261,024	$	234,922	$	287,126

Interest Rate Risk

Our exposure to interest rate risk results, principally, from our investment of excess cash in a money market fund that holds U.S. Government securities.  These investments are primarily short term in nature, and the carrying value of these investments generally approximates fair value.  Based on September 30, 2012 cash and cash equivalent balance of $288.7 million, a 1% increase in interest rates would increase our interest income by $2.9 million annually.  Given that our current return on these cash equivalent investments is approximately 0.03% annually, an analysis of a 1% decrease is not meaningful.

As the advisor to a money market fund that invests 100% in U.S. Government securities, our exposure to interest rate risk results from the fund’s potential inability to earn a return in excess of the fund’s expenses.  If the fund were not to earn a return on its $1.8 billion in assets, the advisor could be responsible to cover the fund’s expenses of approximately $540,000, or 0.03%, annually.

Critical Accounting Policies and Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ significantly from those estimates.  See Note A and the Company’s Critical Accounting Policies in Management’s Discussion and Analysis of Financial Condition and Results of Operations in GAMCO’s 2011 Annual Report on Form 10-K filed with the SEC on March 7, 2012 for details on Significant Accounting Policies.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

In the normal course of its business, GAMCO is exposed to risk of loss due to fluctuations in the securities market and general economy. Management is responsible for identifying, assessing and managing market and other risks. 

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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 September 30, 2012, we had equity investments, including mutual funds largely invested in equity products, of $270.9 million.  Investments in mutual funds and closed-end funds, $67.4 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 $102.6 million, of which $77.1 million were invested in partnerships which invest in risk arbitrage.  Risk arbitrage is primarily dependent upon deal closure rather than the overall market environment.  The equity investment portfolio is at fair value and will move in line with the equity markets.  The trading portfolio changes will be recorded as net gain from investments in the condensed consolidated statements of income while the available for sale portfolio changes will be recorded in other comprehensive income in the condensed consolidated statements of financial condition.

Item 4.  Controls and Procedures

We evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2012.  Disclosure controls and procedures as defined under the Exchange Act Rule 13a-15(e), are designed to ensure that the information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified in SEC rules and regulations.  Disclosure controls and procedures include, without limitation, controls and procedures accumulated and communicated to our management, including our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), and Co-Chief Accounting Officers (“CAOs”), to allow timely decisions regarding required disclosure.  Our CEO, CFO, and CAOs participated in this evaluation and concluded that, as of the date of September 30, 2012, 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,” and other words and terms of similar meaning. They also appear in any discussion of future operating or financial performance. In particular, these include statements relating to future actions, future performance of our products, expenses, the outcome of any legal proceedings, and financial results.  Although we believe that we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know about our business and operations, there can be no assurance that our actual results will not differ materially from what we expect or believe. Some of the factors that could cause our actual results to differ from our expectations or beliefs include, without limitation: the adverse effect from a decline in the securities markets; a decline in the performance of our products; a general downturn in the economy; changes in government policy or regulation; changes in our ability to attract or retain key employees; and unforeseen costs and other effects related to legal proceedings or investigations of governmental and self-regulatory organizations. We also direct your attention to any more specific discussions of risk contained in our Form 10-Q and other public filings.  We are providing these statements as permitted by the Private Litigation Reform Act of 1995. We do not undertake to update publicly any forward-looking statements if we subsequently learn that we are unlikely to achieve our expectations or if we receive any additional information relating to the subject matters of our forward-looking statements.

Part II:  Other Information

 Item 1. Legal Proceedings

From time to time, the Company is named in legal actions and proceedings.  These actions may seek substantial or indeterminate compensatory as well as punitive damages or injunctive relief.  The Company is also subject to governmental or regulatory examinations or investigations.  The examinations or investigations could result in adverse judgments, settlements, fines, injunctions, restitutions or other relief.  The Company cannot predict the ultimate outcome of such matters.  The consolidated financial statements include the necessary provisions for losses that the Company believes are probable and estimable.  Furthermore, the Company evaluates whether there exist losses which are 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.

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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 September 30, 2012:

					(c) Total Number of		(d) Maximum
	(a) Total		(b) Average		Shares Repurchased as		Number of Shares
	Number of		Price Paid Per		Part of Publicly		That May Yet Be
	Shares		Share, net of		Announced Plans		Purchased Under
Period	Repurchased		Commissions		or Programs		the Plans or Programs
7/01/12 - 7/31/12		-	$	-		-		345,265
8/01/12 - 8/31/12		19,489		46.20		19,489		325,776
9/01/12 - 9/30/12		27,937		48.90		27,937		297,839
Totals		47,426	$	47.79		47,426

Our stock repurchase programs are not subject to expiration dates.

Item 6.   (a) Exhibits

31.1 Certification of CEO pursuant to Rule 13a-14(a).

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

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

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

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

GAMCO INVESTORS, INC.

(Registrant)

By: /s/ Kieran Caterina	By: /s/ Diane M. LaPointe
Name: Kieran Caterina	Name: Diane M. LaPointe
Title:   Co-Chief Accounting Officer	Title:   Co-Chief Accounting Officer
Date: November 2, 2012	Date: November 2, 2012

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