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., we provide institutional research and brokerage services to institutional clients and investment partnerships and mutual fund distribution. We generally manage assets on a discretionary basis and invest in a variety of U.S. and international securities through various investment styles. Our revenues are based primarily on the firm's levels of assets under management and fees associated with our various investment products.

Since 1977, we have been identified with and have enhanced the "value" style approach to investing. Our investment objective is to earn a superior risk-adjusted return for our clients over the long-term through our proprietary fundamental research. In addition to our value portfolios, we offer our clients a broad array of investment strategies that include global, growth, international and convertible products. We also offer a series of investment partnership (performance fee-based) vehicles that provide a series of long-short investment opportunities in market and sector specific opportunities, including offerings of non-market correlated investments in merger arbitrage, as well as fixed income strategies.

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, revenues.

We conduct our investment advisory business principally through: GAMCO Asset Management Inc. (Separate Accounts), Gabelli Funds, LLC (Mutual Funds) and Gabelli Securities, Inc. (Investment Partnerships). We also act as an underwriter, are a distributor of our open-end mutual funds and provide institutional research through Gabelli & Company, Inc., our broker-dealer subsidiary.

On March 20, 2009, GAMCO distributed its shares of Teton Advisors, Inc. ("Teton") to shareholders. At the time of the spin-off Teton had $374 million in Assets Under Management ("AUM"). AUM comparisons that follow for GAMCO are presented excluding Teton's AUM for the periods presented. AUM were $18.5 billion as of March 31, 2009, 8.4% lower than December 31, 2008 AUM of $20.2 billion and 34.6% below March 31, 2008 AUM of $28.3 billion. Equity AUM were $16.7 billion on March 31, 2009, 10.7% less than December 31, 2008 equity AUM of $18.7 billion and 37.7% below the $26.8 billion on March 31, 2008. Significant highlights are as follows:

- Our open-end equity fund AUM were $5.6 billion on March 31, 2009, 8.2% less than $6.1 billion on December 31, 2008 and 37.8% below $9.0 billion on March 31, 2008.

- Our closed-end equity funds had AUM of $3.4 billion on March 31, 2009, down 10.5% from $3.8 billion on December 31, 2008 and 41.4% below the $5.8 billion on March 31, 2008.

- Our institutional and private wealth management business ended the quarter with $7.5 billion in separately managed accounts, down 11.8% from December 31, 2008 level of $8.5 billion and 35.3% lower than the $11.6 billion on March 31, 2008.

- Our Investment Partnerships AUM were $265 million on March 31, 2009 versus $295 million on December 31, 2008 and $396 million on March 31, 2008.

- AUM in The Gabelli U.S. Treasury Fund, our 100% U.S. Treasury money market fund, increased 20.0% to $1.8 billion on March 31, 2009, versus the $1.5 billion on December 31, 2008 and 28.6% from the March 31, 2008 AUM of $1.4 billion.

- We have the opportunity to earn incentive fees for certain institutional client assets, assets attributable to preferred issues for our closed-end funds, assets of the Gabelli Global Deal Fund (NYSE: GDL) and investment partnership assets. As of March 31, 2009, assets with incentive based fees were $2.5 billion, down 3.8% from the $2.6 billion on December 31, 2008 and 24.2% below the $3.3 billion on March 31, 2008.

The Company reported Assets Under Management as follows:

 Table I:
Mutual Funds:                   March 31, 2009     March 31, 2008    % Inc.(Dec.)
Open-end                      $          5,627   $          9,042           (37.8 )
Closed-end                               3,359              5,762           (41.7 )
Fixed Income                             1,794              1,431            25.4
Total Mutual Funds                      10,780             16,235           (33.6 )
Institutional & PWM:
Equities: direct                         6,227              9,746           (36.1 )
Equities: sub-advisory                   1,202              1,887           (36.3 )
Fixed Income                                21                  2             n/m
Total Institutional & PWM                7,450             11,635           (36.0 )
Investment Partnerships                    265                396           (33.1 )
Total Assets Under Management $         18,495   $         28,266           (34.6 )

Equities                      $         16,680   $         26,833           (37.8 )
Fixed Income                             1,815              1,433            26.7
Total Assets Under Management $         18,495   $         28,266           (34.6 )

Note: Teton's AUM at March 31, 2008 were $431 million and have been excluded from Table I.

 Table II:                                             Assets Under Management By Quarter (millions)
                                                                                                    % Increase/(decrease)
Mutual Funds:                       3/09        12/08         9/08         6/08          3/08           3/08       12/08
Open-end                        $  5,627     $  6,139     $  8,015     $  9,063     $   9,042          (37.8 )       (8.3 )
Closed-end                         3,359        3,792        4,869        5,704         5,762          (41.7 )      (11.4 )
Fixed income                       1,794        1,507        1,003        1,153         1,431           25.4         19.0
Total Mutual Funds                10,780       11,438       13,887       15,920        16,235          (33.6 )       (5.8 )
Institutional & PWM:
Equities: direct                   6,227        6,861        8,964        9,564         9,746          (36.1 )       (9.2 )
Equities: sub-advisory             1,202        1,585        1,964        2,043         1,887          (36.3 )      (24.2 )
Fixed Income                          21           22           19           17             2            n/m         (4.5 )
Total Institutional & PWM          7,450        8,468       10,947       11,624        11,635          (36.0 )      (12.0 )
Investment Partnerships              265          295          340          354           396          (33.1 )      (10.2 )
Total Assets Under Management   $ 18,495     $ 20,201     $ 25,174     $ 27,898     $  28,266          (34.6 )       (8.4 )

Note: Teton's AUM at December 31, 2008, September 30, 2008, June 30, 2008 and March 31, 2008 were $450 million, $418 million, $434 million and $431 million, respectively, and have been excluded from Table II.

Table III:
                                                                        Market
                                                                   Appreciation /
                                December 31,                                             March 31,
Mutual Funds:                      2008        Net Cash Flows      (Depreciation)          2009
Equities                        $      9,931   $           (57 )  $             (888 )  $     8,986
Fixed Income                           1,507               285                     2          1,794
Total Mutual Funds                    11,438               228                  (886 )       10,780
Institutional & PWM:
Equities: direct                       6,861                61                  (695 )        6,227
Equities: sub-advisory                 1,585              (217 )                (166 )        1,202
Fixed Income                              22                 -                    (1 )           21
Total Institutional & PWM              8,468              (156 )                (862 )        7,450
Investment Partnerships                  295               (34 )                   4            265
Total Assets Under Management   $     20,201   $            38    $           (1,744 )  $    18,495

Note: Teton's AUM at December 31, 2008 were $450 million and have been excluded from Table III.

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

RESULTS OF OPERATIONS

Three Months Ended March 31, 2009 Compared To Three Months Ended March 31, 2008

(Unaudited; in thousands, except per share data)
                                             2009          2008
Revenues
 Investment advisory and incentive fees    $ 35,199     $ 56,841
 Commission revenue                           3,650        3,256
 Distribution fees and other income           4,510        6,451
   Total revenues                            43,359       66,548
Expenses
 Compensation and related costs              20,785       28,922
 Management fee                               1,349        1,981
 Distribution costs                           5,422        6,334
 Other operating expenses                     4,301        6,054
   Total expenses                            31,857       43,291
Operating income                             11,502       23,257
Other income (expense)
 Net gain (loss) from investments             2,592       (8,389 )
 Interest and dividend income                 1,278        4,774
 Interest expense                            (3,168 )     (2,007 )
Total other income (expense), net               702       (5,622 )
Income before taxes                          12,204       17,635
Income tax provision                          3,988        7,326
Net income                                    8,216       10,309
Net income (loss) attributable to
noncontrolling interests                          4         (177 )
Net income attributable to GAMCO
Investors, Inc.'s shareholders             $  8,212     $ 10,486

Net income attributable to GAMCO
Investors, Inc.'s shareholders per
share:
  Basic                                    $   0.30     $   0.37
  Diluted                                  $   0.30     $   0.37

Reconciliation of net income
attributable to GAMCO Investors, Inc.'s
shareholders to
Adjusted EBITDA:

Net income attributable to GAMCO
Investors, Inc.'s shareholders             $  8,212     $ 10,486
Interest expense                              3,168        2,007
Income tax provision and net income
attributable to noncontrolling interests      3,992        7,149
Depreciation and amortization                   165          229
Adjusted EBITDA (a)                        $ 15,537     $ 19,871

(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.

Total revenues were $43.4 million in the first quarter of 2009, 34.7% below the $66.5 million reported in the first quarter of 2008. Operating income was $11.5 million, a decrease of $11.8 million or 50.6% from the $23.3 million in the first quarter of 2008. Total other income/expense, net of interest expense, was income of $0.7 million for the first quarter 2009 versus an expense of $5.6 million in the prior year's quarter. In the short-run, our results remain sensitive to changes in the equity market. Net income attributable to GAMCO Investors, Inc.'s shareholders for the quarter was $8.2 million or $0.30 per fully diluted share versus $10.5 million or $0.37 per fully diluted share in the prior year's quarter.

Investment advisory fees for the first quarter 2009 were $35.2 million, 38.0% below the 2008 comparative figure of $56.8 million. Open-end mutual fund revenues declined by 33.5% to $15.7 million from $23.6 million in first quarter 2008 primarily due to lower average AUM. Our closed-end fund revenues fell 49.6% to $5.8 million in the first quarter 2009 from $11.5 million in 2008 primarily due to decreased average AUM. Institutional and high net worth separate accounts revenues, whose revenues are based upon prior quarter-end AUM, decreased 36.8% to $13.2 million from $20.9 million in first quarter 2008, primarily due to lower AUM. Investment partnership revenues were $0.5 million, a decrease of $0.3 million or 37.5% from $0.8 million in 2008. This decrease was primarily due to lower AUM in the current quarter as compared to the prior year's quarter.

Commission revenues from our institutional research affiliate, Gabelli & Company, Inc., were $3.7 million in the first quarter 2009, up 12.1% from the prior year.

Mutual fund distribution fees and other income were $4.5 million for the first quarter 2009, a decline of 30.8% or $2.0 million from the prior period's $6.5 million, primarily due to the decline in open-end equity mutual fund AUM.

Compensation costs, which are largely variable, were $20.8 million or 28.0% lower than the $28.9 million recorded in the prior year period. This decrease was driven by lower revenues across most business lines as AUM declined quarter over quarter.

Management fee expense, which is completely variable and based on pretax income, declined to $1.3 million in the first quarter of 2009 from $2.0 million in the 2008 period.

Distribution costs were $5.4 million, a decrease of 14.3% from $6.3 million in the prior year's period.

Other operating expenses decreased by $1.8 million to $4.3 million in the first quarter of 2009 from the prior year first quarter of $6.1 million. Quarter over quarter, the receipt of insurance claims for legal fees and expenses submitted in prior quarters led to a decline of $0.7 million in other operating expenses. Clearing charges declined 29.4% or $0.3 million even as commission revenue increased 12.1% as we benefited from our cost reduction efforts.

Total expenses, excluding the management fee, were $30.5 million in the first quarter of 2009, a 26.2% decrease from total expenses of $41.3 million in the first quarter of 2008.

Operating income for the first quarter of 2009 was $11.5 million, lower by $11.8 million than the first quarter 2008's $23.3 million. This decline was largely due to the decline in revenues and impacted negatively by a decline in operating expenses that was less than the revenue decline.

Total other income/expense (net of interest expense) was $0.7 million of income for the first quarter 2009 versus other expense (net of interest expense) of $5.6 million in the prior year's quarter. $11.0 million of this increase is from the effect of mark to market increases in equity instruments. Interest income was lower by $2.4 million and dividend income was lower by $1.1 million. Interest expense increased to $3.2 million for first quarter 2009 from $2.0 million for the prior year quarter primarily the result of the issuance in October 2008 of the $60 million 6.5% convertible note.

The effective tax rate for the three months ended March 31, 2009 was 32.7% as compared to the prior year period's effective rate of 41.6%. The current year's rate includes a reduction to prior period income tax reserves while the prior year's effective rate included an adjustment relating to the deductibility of a legal settlement.

LIQUIDITY AND CAPITAL RESOURCES
Our principal assets consist of cash and cash equivalents, short-term investments, securities held for investment purposes and investments in mutual funds, and investment partnerships and offshore funds, both proprietary and external. Cash and cash equivalents are comprised primarily of United States treasury securities with maturities of less than three months and money market funds managed by GAMCO. Short-term investments are comprised primarily of United States treasury securities with maturities between three months and one year. 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: