GAMCO INVESTORS, INC. ET AL - Annual Report: 2007 (Form 10-K)

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
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 number 1-14761
GAMCO Investors, Inc.
(Exact name of registrant as specified in its charter)
New York			13-4007862
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
One Corporate Center, Rye, NY			10580-1422
(Address of principal executive offices)			(Zip Code)
Registrant’s telephone number, including area code (914) 921-5100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class			Name of each exchange on which registered
Class A Common Stock, par value $0.001 per share			New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act Yes ¨ No x.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act Yes ¨ No x.
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 ¨.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K ¨.
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 Exchange Act Rule 12b-2) Yes ¨ No x.

 

As of March 1, 2008, 7,998,920 shares of Class A common stock common stock and 20,626,644 shares of class B common stock were outstanding.  20,428,500 shares of class B common stock were held by GGCP, Inc.

DOCUMENTS INCORPORATED BY REFERENCE:  The definitive proxy statement for the 2008 Annual Meeting of Shareholders.

 

GAMCO Investors, Inc.
Annual Report on Form 10-K For the Fiscal Year Ended December 31, 2007
Part I
	Item 1		Business	4
			Overview	4
			2007 Highlights	8
			Business Strategy	9
			Business Description	13
			Assets Under Management	17
			Mutual Fund Distribution, Institutional Research, Brokerage, and Underwriting	26
			Competition	27
			Intellectual Property	28
			Regulation	28
			Personnel	30
	Item 1A		Risk Factors	31
	Item 1B		Unresolved Staff Comments	38
	Item 2		Properties	38
	Item 3		Legal Proceedings	38
	Item 4		Submission Of Matters To A Vote Of Security Holders	38
Part II
	Item 5		Market For The Registrant's Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities	39
	Item 6		Selected Financial Data	42
	Item 7		Management's Discussion And Analysis Of Financial Condition And Results Of Operations	44
	Item 7A		Quantitative And Qualitative Disclosures About Market Risk	62
	Item 8		Financial Statements And Supplementary Data	F-1
	Item 9		Changes In And Disagreements With Accountants On Accounting And Financial Disclosure	II-1
	Item 9A		Controls And Procedures	II-1
	Item 9B		Other Information	II-1
Part III
	Item 10		Directors And Executive Officers Of The Registrant	II-2
	Item 11		Executive Compensation	II-2
	Item 12		Security Ownership Of Certain Beneficial Owners And Management And Related Stockholder Matters	II-2
	Item 13		Certain Relationships And Related Transactions	II-2
	Item 14		Principal Accountant Fees And Services	II-3
Part IV
	Item 15		Exhibits, Financial Statement Schedules, And Reports On Form 8-K	II-3
			Signatures	II-4
			Power of Attorney	II-5
			Computation of Ratios of Earnings to Fixed Charges
			Subsidiaries of GAMCO Investors, Inc.
			Consent of Independent Registered Public Accounting Firm
Certifications			Exhibit 31.1
			Exhibit 31.2
			Exhibit 31.3
			Exhibit 32.1
			Exhibit 32.2

 

Our disclosure and analysis in this report and in documents that are incorporated by reference 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 Item 1A below and in our other public filings or in documents incorporated by reference here or in prior filings or reports.

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.

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

GAMCO Investors, Inc. (New York Stock Exchange ("NYSE"): GBL), 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 private wealth management investors, and investment partnerships, principally in the United States.  Through Gabelli & Company, Inc. ("Gabelli & Company"), we provide institutional research services to institutional clients and investment partnerships.  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 ("AUM") and fees associated with our various investment products.

Since 1977, we have been identified with and enhanced the “value” style approach to investing. Over the 30 years since the inception of the firm, consistent with our fundamental objective of providing an absolute rate of return for our clients, GBL generated over $16 billion in investment returns for our institutional and private wealth management clients.  The 30 year CARR (compounded annual rate of return) for the institutional clients (as measured by our composite return) approached 18.6% on a gross basis and 17.7% on a net basis, and in 2007 we produced $1.1 billion and 12.1% net return for our institutional clients. As stated in our mission statement, our investment objective is to earn a superior risk-adjusted return for our value 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, both market and sector specific opportunities, including offerings of non-market correlated investments in merger arbitrage, as well as fixed income strategies.

As of December 31, 2007, we had $31.0 billion of AUM, 96% of which were in equity products.  We conduct our investment advisory business principally through our subsidiaries: 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, our broker-dealer subsidiary.

 

 

Our assets under management are organized into three groups:

·

Investment Partnerships: we provide advisory services to limited partnerships, offshore funds and certain separate accounts, and also serve as a sub-advisor to certain third-party investment funds across merger arbitrage, regional long/short equity, and sector-focused strategies (“Investment Partnerships”).  We managed a total of $460 million in Investment Partnership assets on December 31, 2007.

·

Separate Accounts: we provide advisory services to a broad range of investors, including private wealth management, corporate pension and profit-sharing plans, foundations, endowments, jointly-trusteed plans and municipalities, and also serve as sub-advisor to certain other third-party investment funds including registered investment companies (“Separate Accounts”).  Each Separate Account portfolio is managed to meet the specific needs and objectives of the particular client by utilizing investment strategies and techniques within our areas of expertise.  On December 31, 2007, we had $13.3 billion of Separate Account assets under management.

·

Open and Closed-End Funds: we provide advisory services to (i) twenty one open-end mutual funds and nine closed-end funds under Gabelli, GAMCO and Comstock brands; and (ii) six mutual funds within the Westwood family of funds (collectively, the “Mutual Funds”).  The Mutual Funds had $17.2 billion of assets under management on December 31, 2007.

 

Our principal executive offices are located at One Corporate Center, Rye, New York 10580.  Our telephone number is (914) 921-5100.  We post or provide a link on our website, www.gabelli.com, to the following filings as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission ("Commission" or “SEC”): our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934.  All such filings on our website are available free of charge.

The institutional client composite of our separate account business has achieved a compound annual return of approximately 17.7% on a net basis for over 30 years since inception through December 31, 2007. In 2007, this composite had a net return of 12.1%. The accounts in this composite are managed in our absolute return, research-driven PMV with a CatalystTM style since inception.

The table below compares the long-term performance record for our separate account composite since 1977, using our traditional value-oriented product, the Gabelli PMV with a CatalystTM investment approach, versus various benchmarks.

 

The chart below illustrates how this methodology performed during recent market cycles to capture the upside in positive markets while limiting the downside in the most recent down markets.

 

___________________________________________________________________________________________________________

Footnotes to Table and Chart

(a)

·

The Gabelli Value composite represents fully discretionary, tax-exempt institutional accounts managed for at least one full quarter and meeting minimum account size requirements.  The minimum size requirement for inclusion in 1985 was $500,000; $1 million in 1986; and $5 million in 1987 and thereafter. The performance calculations include accounts under management during the respective periods. As of 12/31/07, the GAMCO Value composite included 41 accounts with an aggregate market value of $4.1 billion.  No two portfolios are identical.  Accounts not within this size and type may have experienced different results. Not all accounts in the Gabelli Value Composite are included in the composite.

·

Gabelli Value performance results are computed on a total-return basis, which includes all dividends, interest, and realized and unrealized gains and losses.  The summary of past performance is not intended as a prediction of future results.  Returns are presented in U.S. dollars.  All returns are before taxes and custodial fees. The inception date of the Gabelli Value composite is 10/1/77.

·	The compound annual growth rate from 1990 to present is net of actual fees and actual transaction costs.  The compound annual growth rate before 1990 reflects the calculation of a model investment fee (1% compounded quarterly) and actual transaction costs.

·	Gabelli Value Total Return represents the total net return of the composite from 10/1/77 through 12/31/07.

·	Beta is the measure of the Gabelli Value composite’s risk (volatility) in relation to the S&P 500 Index.

(b)

·

The S&P 500 is an unmanaged index of 500 U.S. stocks and performance represents total return of the index including reinvestment of dividends.  The Russell 2000 is an unmanaged index of 2,000 small capitalization stocks and performance represents total return of the index including reinvestment of dividends.  The performance figures for the Russell 2000 are based on an inception date of 1/1/79.  The S&P 500 and Russell 2000 do not necessarily reflect how a managed portfolio of equity securities would have performed.  The CPI is a widely-used measure of inflation, and the CPI+10 measure is used to show the results that would have been achieved by obtaining a rate of return that exceeded the CPI by a constant 10% as a basis of comparison versus the results of the Gabelli Value composite.

·	Up and down markets in the chart were determined by the performance of the S&P 500 Index during the respective periods.

 

-

GAM GAMCO Equity Fund was awarded Standard & Poor's AAA Rating for the fourth consecutive year and was one of only four S&P AAA rated funds out of the 1,268 fund Mainstream Sector Group. GAM GAMCO Equity Fund has been sub-advised by GAMCO Asset Management Inc. ("GAMCO") for London UK based Global Asset Management (GAM), since the fund's launch in October 1987.

 

Open and Closed-End Funds

 

-	The Gabelli Equity Income Fund and the Gabelli Small Cap Growth Fund both exceeded the $1.0 billion level in AUM at December 31, 2007. The GAMCO Gold Fund reached $500 million as of December 31, 2007.

 

-	Our 100% US Treasury Money Market Fund¹, exceeded $1 billion as investors fled enhanced-money market funds in favor of funds that focus on the highest quality U.S. Treasury instruments and superior yield.  The fund ranked third in total return for the 12 months ended December 31, 2007 among 83 US Treasury money market funds tracked by Lipper Inc.², For the 5 year and 10 year periods ended December 31, 2007, the fund ranked 2nd out of 66 funds and 3rd out of 49 funds, respectively, within that category.
-	70% of our rated Equity Assets had four or five-star ratings from Morningstar, compared to 53% within the asset management industry, according to Merrill Lynch’s December fund flows report.

 

 

Since our initial public offering in February 1999, GBL has generated a 313% total return (including dividends) for its shareholders through December 31, 2007 versus a total return of 39% (including dividends) for the S&P 500 Index during the same period.  Our class A common stock, which is traded on the New York Stock Exchange under the symbol “GBL”, ended the year at a closing market price of $69.20.

During 2007, we returned $40.2 million of our earnings to shareholders through dividends and our stock buyback program. We paid $31.5 million, or $1.12 per share, in dividends to our common shareholders and purchased 186,400 million shares at $8.7 million, for an investment of $46.45 per share.

In 2007, we reported earnings of $2.79 per fully diluted share vs. $2.49 per fully diluted share in 2006.  Our net income for the full year ended December 31, 2007 was $79.6 million versus $71.9 million in the 2006 period, and revenues were $292.4 million in 2007 compared to $261.5 million in the prior year.  Our 2006 earnings are after a charge of $0.34 per fully diluted share related to previously disclosed discussions with the SEC.  See the "Regulatory Developments" section.

We ended 2007 with equity AUM of $29.9 billion versus $27.3 billion on December 31, 2006.  Overall, AUM were $31.0 billion on December 31, 2007 versus $28.1 billion at the end of 2006.  Our equity open-end mutual funds and closed-end funds reached AUM of $16.1 billion on December 31, 2007, an increase of approximately 13.5% from year-end 2006 of $14.2 billion, as our open-end equity mutual funds and closed-end funds had AUM of $9.8 billion and $6.3 billion, respectively.

 

 

 

Our research and institutional sales team at Gabelli & Company hosted six industry institutional investor symposiums and conferences during 2007.  These institutional investor symposiums and conferences provided an opportunity for the firm’s institutional clients to meet with the senior management teams of leading companies and gain insight on the dynamics within these industries.  Our events in 2007 included our 31st annual Automotive Aftermarket Symposium, our 18th annual Pump Valve & Motor Symposium, our 13th annual Aircraft Supplier Conference, fifth annual Dental Conference, our third annual RFID (Radio Frequency Identification) Conference, and our second annual Water Infrastructure conference.

Our business strategy targets global growth of the franchise through continued leveraging of our proven asset management strengths including our brand name, long-term performance record, diverse product offerings and experienced investment, research and client service professionals.  In order to achieve growth in AUM and profitability, we are pursuing a strategy which includes the following key elements:

·

Incentive Fees and Fulcrum Fees. Our investment strategy is focused on adding stock specific alpha through our proprietary Private Market Value (PMV) with a CatalystTM equity research efforts.  We expect to receive an increasing portion of our revenues and earnings through various products with incentive and fulcrum fees.  Since we envision that a growing percentage of the firm's revenues will be directly linked to performance-based fees, this will also increase the variability of our revenues and profits.  As of December 31, 2007, over $1.6 billion of separate account assets are managed on a performance fee basis along with $1.1 billion of preferred issues of closed-end funds, the $400 million Gabelli Global Deal Fund and $460 million of investment partnership assets.  Unlike most money management firms, we elected not to receive a management fee on a majority of the preferred offerings in our closed-end funds until the fund’s overall performance exceeds each preferred’s nominal cost of capital. In addition, the incubation of new product strategies using proprietary capital will compensate the investment team with a performance fee model to reinforce our pay-for-performance approach.

·

Establishing Research and Relationship Centers. To extend our research into new areas and add to our core research competency, we opened two research offices in Shanghai and Singapore supplementing our existing offices in London, New York, Chicago, Greenwich CT, Reno, Palm Beach, and Minneapolis. We will continue to evaluate adding additional research offices throughout the world.

·	Introducing New Products and Services. We believe we have the capacity for development of new products and services around the Gabelli and GAMCO brands to complement our existing product offerings. New products since our initial public offering include:

-	Six closed-end funds: The Gabelli Dividend & Income Trust, Gabelli Global Deal Fund, The Gabelli Global Utility and Income Trust, The Gabelli Global Gold, Natural Resources & Income Trust, The Gabelli Utility Trust, and The Gabelli Healthcare and Wellness RX Trust.

 

-	Four open-end mutual funds:  Gabelli Blue Chip Value Fund (1999), Gabelli Utilities Fund (1999) Gabelli Woodland Small Cap Value Fund (2003), and the Gabelli SRI Fund (2007).

 

-	Six offshore funds:  Gabelli Global Partners, Ltd., Gabelli European Partners, Ltd., Gabelli Japanese Value Partners, Ltd., GAMCO Performance Partners, Ltd., Gabelli Capital Structure Arbitrage Fund Ltd., and GAMCO SRI Partners, Ltd.

 

-

Eleven private limited partnerships:  Gemini Global Partners, L.P., Gabelli Capital Structure Arbitrage Fund LP., Gabelli European Partners, L.P., Gabelli Intermediate Credit, L.P., Gabelli Japanese Value Partners, L.P., Gabelli Associates Fund II, L.P., GAMCO Performance Partners, L.P., GAMA Select Energy Plus, L.P., GAMCO Telecom Plus, L.P. GAMCO Medical Opportunities, L.P., and Gabelli Umbrella Fund, L.P.

 

·

Promulgating the Gabelli “Private Market Value (PMV) with a CatalystTM” Investment Approach.  While we have expanded our investment product offerings, our “value investing” approach remains the core of our business.  This method is based on the value investing principles articulated by Graham & Dodd in 1934 and further augmented by Mario J. Gabelli, CFA with his development of Private Market Value (PMV) with a CatalystTM and his introduction of a catalyst into the value investment methodology.  The development of PMV analysis combined with the concept of a catalyst has evolved into our value investing approach, commonly referred to as Private Market Value (PMV) with a CatalystTM investing.

Private Market Value (PMV) with a CatalystTM investing is a disciplined, research-driven approach based on intensive security analysis.  In this process, we generally select stocks whose intrinsic value, based on our estimate of current asset value and future growth and earnings power, is significantly different from the value as reflected in the public market.  We then calculate the firm’s PMV, which is defined as the price an informed industrial buyer would be likely to pay to acquire the business.

To limit the time horizon in which the PMV is likely to be realized, we look for situations in which catalyst(s) is (are) are working to help eliminate the premium or realize the discount between the public market price and the estimated PMV.  Catalysts which are company specific include:  realization of hidden assets, recognition of underperforming subsidiaries, share buybacks, spin-offs, mergers and acquisitions, balance sheet changes, new products, accounting changes, new management and cross-shareholder unwinding.  Other catalysts are related to industry dynamics or macroeconomics and include but are not limited to: industry consolidation, deregulation, accounting, tax, pension and political reforms, technological change and the macroeconomic backdrop.  The time horizons for catalysts to trigger change can either be short-term, medium-term or long-term.

To further extend “value investing” and our fundamental research approach to stock selection:

 

·

Expanding Mutual Fund Distribution.  We continue to expand our distribution network primarily through national and regional brokerage firms and have developed additional classes of shares for most of our mutual funds for sale through these firms and other third-party distribution channels on a commission basis.  We intend to increase our wholesaling efforts to market the multi-class shares, which have been designed to meet the needs of investors who seek advice through financial consultants.

·

Increasing Presence in Private Wealth Management Market.  Our private wealth management business focuses, in general, on serving clients who have established an account relationship of $1 million or more with us.  According to industry estimates, the number of households with over $1 million in investable assets will continue to grow in the future, subject to ups and downs in the equity and fixed income markets.  With our 31-year history of serving this segment, long-term performance record, customized portfolio approach, dominant, tax-sensitive, buy-hold investment strategy, brand name recognition and broad array of product offerings, we believe that we are well-positioned to capitalize on the growth opportunities in this market.

·

Increasing Marketing for Institutional Separate Accounts.  The institutional Separate Accounts business was principally developed through direct marketing channels. Historically, pension and financial consultants have not been a major source of new institutional Separate Accounts business for us.  We plan to augment our institutional sales force through the addition of staff to market directly to the consultant community as well as our traditional marketing channels.

·

Attracting and Retaining Experienced Professionals.  We have increased the scope of our investment management capabilities by adding portfolio managers and other investment personnel in order to expand our broad array of products.  The ability to attract and retain highly-experienced investment and other professionals with a long-term commitment to us and our clients has been, and will continue to be, a significant factor in our long-term growth. In December 2007, we issued 385,400 restricted stock awards to our professional staff recommended by and excluding Mr. Gabelli, which have three- and five-year vesting, and will reward long-term commitment to our goals.

·

Sponsorship of Industry Conferences. Gabelli & Company, our institutional research boutique, sponsors industry conferences and management events throughout the year. At these conferences and events, senior management from leading industry companies share their thoughts on the industry, competition, regulatory issues and the challenges and opportunities in their businesses with portfolio managers and securities analysts.

·

Hosting of Institutional Investor Symposiums.  We have a tradition of sponsoring institutional investor symposiums that bring together prominent portfolio managers, members of academia and other leading business professionals to present, discuss and debate current issues and topics in the investment industry.

-1997	“Active vs. Passive Stock Selection”
-1998	“The Role of Hedge Funds as a Way of Generating Absolute Returns”
-2001	“Virtues of Value Investing”
-2003	“Dividends, Taxable versus Non-Taxable Issues”
-2006	“Closed-End Funds: Premiums vs. Discounts, Dividends and Distributions”

We also hold annual conferences for our investment partnership clients and prospects in New York and London at which our portfolio management team discusses the investment environment, our strategies and portfolios, and event-driven investment opportunities.

·

Capitalizing on Acquisitions and Strategic Alliances.  We intend to selectively and opportunistically pursue acquisitions and alliances that will broaden our product offerings and add new sources of distribution.  In November 2002, we completed our alliance with Woodland Partners LLC, a Minneapolis based investment advisor of institutional, high net-worth and sub-advisory accounts.  On October 1, 1999, we completed our alliance with Mathers and Company, Inc. and now act as investment advisor to the Mathers Fund (renamed GAMCO Mathers Fund), and in May 2000, we added Comstock Partners Funds, Inc., (renamed Comstock Funds, Inc.).  The Mathers and Comstock funds are part of our Non-Market Correlated mutual fund product line.

 

We believe that we have the entrepreneurial flexibility and corporate resumé to pursue acquisitions and alliances.

 

We believe that our growth to date is traceable to the following factors:

·

Strong Industry Fundamentals:  According to data compiled by the U.S. Federal Reserve, the investment management industry has grown faster than more traditional segments of the financial services industry, including the banking and insurance industries. Since GBL began managing institutional separate accounts in 1977, world equity markets have grown at a 12.9% compounded annual growth rate through December 31, 2007 to nearly $61 trillion(a).  The U.S. equity market comprises about $17.7 trillion(a) or roughly 29% of world equity markets.  We believe that demographic trends and the growing role of money managers in the placement of capital compared to the traditional role played by banks and life insurance companies will result in continued growth of the investment management industry.

·	Long-Term Performance: We have a superior long-term record of achieving relatively high returns for our Separate Account clients. We believe that our performance record represents a competitive advantage and a recognized component of our franchise.

·

Stock Market Gains: Since we began managing institutional separate accounts in 1977, our traditional value-oriented separate account composite has earned a compound annual return of 17.7% net of fees versus a compound annual return of 12.8% for the S&P 500 through December 31, 2007.  Since our initial public offering in February 1999 through December 2007, the compound annual return for our traditional value-oriented separate account composite was 10.5% versus the S&P 500’s compound annual total return of 3.7%.

·

Widely-Recognized “Gabelli” and “GAMCO” Brand Names:  For much of our history, our portfolio managers and investment products have been featured in a variety of financial print media, including both U.S. and international publications such as The Wall Street Journal, Financial Times, Money Magazine, Barron's, Fortune, Business Week, Nikkei Financial News, Forbes Magazine, Consumer Reports and Investor's Business Daily. We also underwrite publications written by our investment professionals, including  Deals…Deals…and More Deals which examines the practice of merger arbitrage and Global Convertible Investing: The Gabelli Way, a comprehensive guide to effective investing in convertible securities.

·

Diversified Product Offerings:  Since the inception of our investment management activities, we have sought to expand the breadth of our product offerings. We currently offer a wide spectrum of investment products and strategies, including product offerings in U.S. equities, U.S. fixed income, global and international equities, convertible securities, U.S. balanced and investment partnerships.

Our financial strength is underscored by having received an investment grade rating from two well-respected ratings agencies, Moody’s Investors Services and Standard and Poor’s Ratings Services.  We believe that maintaining these investment grade ratings will provide greater access to the capital markets, enhance liquidity and lower overall borrowing costs. However, we will also consider the use of leverage as part of our corporate financial strategy even if it results in a lowering of our investment rating.

(a) Source: Birinyi Associates, LLC

GBL was originally founded in 1976 as an institutional broker-dealer.  We entered the separate accounts business in 1977, management of investment partnerships in 1985 and the mutual fund business in 1986.  Our initial product offerings centered on our tax sensitive, buy-hold, value-oriented investment philosophy.   Starting in the mid-1980s, we began building on our core value-oriented equity investment products by adding new investment strategies designed for a broad array of clients seeking to invest in growth-oriented equities, convertible securities and fixed income products.  Since then, we have continued to build our franchise by expanding our investment management capabilities through the addition of industry specific, international, global, non-market correlated, venture capital, leveraged buy-out and merchant banking product offerings.  Throughout our 30-year history, we have marketed most of our products under the “Gabelli” and “GAMCO” brand names.  Other brands include Mathers, Comstock, Westwood and Woodland.

Our AUM are organized principally in three groups:  Separate Accounts, Mutual Funds and Investment Partnerships.

Separate Accounts – Institutional and Private Wealth Management:  Since 1977, we have provided investment management services through our subsidiary GAMCO to a broad spectrum of institutional and private wealth investors.  At December 31, 2007, we had $13.3 billion of AUM in approximately 1,700 separate accounts, representing approximately 43% of our total AUM. We currently provide advisory services to a broad range of investors, the majority of which (in total number of accounts) are private wealth management client accounts – defined as individuals and their retirement assets generally having minimum account balances of $1 million.  As of December 31, 2007, Institutional client accounts, which include corporate pension and profit sharing plans, jointly-trusteed plans and public funds, represented 41% of the Separate Accounts assets and 7% of the accounts. Private wealth management accounts comprised approximately 83% of the total number of Separate Accounts and approximately 29% of the assets as of December 31, 2007.

Private wealth management clients are attracted to us by our gross returns and the tax efficient nature of the underlying investment process in these traditional products.  Foundation and endowment fund assets represented an additional 9% of the number of Separate Accounts and approximately 10% of the assets.  The sub-advisory portion of the Separate Accounts (where we act as sub-advisor to certain other third-party investment funds) held approximately $2.6 billion or 19% of total Separate Account assets with less than 1% of the number of accounts.

The ten largest relationships comprised approximately 44% of our total Separate Account AUM and approximately 24% of our total Separate Account revenues as of and for the year ended December 31, 2007, respectively.

In general, our Separate Accounts are managed to meet the specific needs and objectives of each client by utilizing investment strategies – traditional “value”, “large cap value”, “large cap growth”, “global”, “international growth” and “convertible bonds” – and techniques that are within our areas of expertise.  We distinguish between taxable and tax-free assets and manage client portfolios with tax sensitivity within given investment strategies.

 

At December 31, 2007, over 85% of our assets in Separate Accounts (excluding sub-advisory assets) were obtained through direct sales relationships.  Sales efforts are conducted on a regional and product specialist basis.  Members of the sales and marketing staff for the Separate Accounts business have an average of more than ten years of experience with us and focus on developing and maintaining direct, long-term relationships with their Separate Account clients.  The firm will host its 23rd Annual Client Conference in May 2008. This two-day event will kick off with a gathering at the American Museum of Natural History in New York followed by presentations by our portfolio managers and analysts the following day.  Along with these client seminars, we continue to establish and staff relationship offices around the country.

We act as a sub-advisor on certain funds for several large and well-known fund managers.  Similar to corporate clients, sub-advisory clients are also subject to business combinations which may result in the curtailment of product distribution or the termination of the relationship.

Investment advisory agreements for our Separate Accounts are typically subject to termination by the client without penalty on 30 days' notice or less.

Open and Closed-End Funds:  We provide advisory services to (a) twenty-one open-end mutual funds and nine closed-end funds of which one open-end fund is managed by an unaffiliated advisor; and (b) the Westwood family of funds, consisting of six open-end mutual funds, three of which are managed on a day-to-day basis by Westwood Management Corporation, a wholly-owned subsidiary of Westwood Holdings Group (collectively, the "Mutual Funds").  At December 31, 2007, we had $17.2 billion of AUM in open-end mutual funds and closed-end funds, representing approximately 56% of our total AUM.  Our equity mutual funds and closed-end funds were $16.1 billion in AUM on December 31, 2007, 13.5% ahead of the $14.2 billion on December 31, 2006.

During January 2006, eight open-end Mutual Funds changed their names to GAMCO from Gabelli.  The GAMCO name more appropriately represents the various investment strategies offered to investors by Gabelli Funds, LLC ("Funds Advisor"), including growth, gold, convertible securities and contrarian.  Funds continuing to use the Gabelli name primarily represent value portfolios managed in the absolute return, research-driven Private Market Value (PMV) with a CatalystTM style.  This name change has no effect on the management, the investment objective, or the investment strategy of each fund.

The eight GAMCO branded open-end mutual funds are:

GAMCO	Growth
GAMCO	International Growth
GAMCO	Gold
GAMCO	Global Telecommunications
GAMCO	Global Growth
GAMCO	Global Opportunity
GAMCO	Global Convertible Securities
GAMCO	Mathers

The Gabelli brand continues to represent our “Value” business, primarily representing our absolute return, research-driven Private Market Value (PMV) with a CatalystTM funds including the GAMCO Westwood Mighty MitesSM micro-cap value fund, GAMCO Westwood SmallCap Equity Fund, GAMCO Westwood Income Fund and the Global Telecommunications Fund, which are value portfolio but retains the GAMCO Global series name. The Gabelli brand also includes The Gabelli Blue Chip Value Fund and The Gabelli Woodland Small Cap Growth Fund as well as all of the closed-end funds.

The GAMCO brand encompasses a panoply of portfolios. It is the brand for our “Growth” business, which is primarily represented by The GAMCO Growth Fund, The GAMCO Global Growth Fund, and The GAMCO International Growth Fund.  GAMCO also includes other distinct investment strategies and styles including our gold, convertible securities and contrarian funds.

 

On December 31, 2007, we had $10.9 billion of AUM in twenty seven open-end mutual funds. At year-end, of the AUM in open-end mutual funds having an overall rating from Morningstar, Inc. ("Morningstar") 81% were ranked "three stars" or better, with approximately 70% ranked "five stars" or "four stars" on an overall basis (i.e., derived from a weighted average of the performance figures associated with its three-, five-, and ten-year Morningstar Rating metrics).  There can be no assurance, however, that these funds will be able to maintain such ratings or that past performance will be indicative of future results.

At December 31, 2007, approximately 33% of our AUM in open-end, equity mutual funds had been obtained through direct sales relationships. We also sell our open-end mutual funds through Third-Party Distribution Programs, particularly No-Transaction Fee (“NTF”) Programs, and have developed additional classes of shares for many of our mutual funds for sale through additional third-party distribution channels on a commission basis.  At December 31, 2007, Third Party Distribution Programs accounted for approximately 67% of all assets in open-end funds.

 

The Gabelli Equity Trust, which raised $400 million through its initial public offering in August 1986, finished its 21st year with net assets of $2.0 billion.  In September 2005, the Equity Trust completed its first acquisition of the assets of another closed-end investment company, Sterling Capital Corporation, with total assets of $18.3 million.  In October 2005, the Equity Trust completed a heavily over-subscribed rights offering, retaining gross proceeds of $143.7 million.  Since inception, the Equity Trust has distributed $1.953 billion in cash to common shareholders through its 10% Distribution Policy and has spun off three other closed-end funds, the Gabelli Global Multimedia Trust, the Gabelli Utility Trust and the Gabelli Health Care and Wellness Rx Trust . In 2006, the Equity Trust also received net proceeds of $144.8 million of assets attributable to the 6.20% Series F Preferred Stock.

The Gabelli Dividend & Income Trust, launched in November 2003, raised $196.6 million in net proceeds through its placement of Series D and Series E Preferred Shares in November 2005.  The Gabelli Dividend & Income Trust, which invests primarily in dividend-paying equity securities, had a total annualized return of 12.2% since inception and net assets of $2.5 billion as of December 31, 2007.

The Gabelli Global Gold, Natural Resources & Income Trust raised gross proceeds of $332 million through its initial public offering in March 2005 and $20 million through the exercise of the underwriters’ overallotment option in May 2005.  The Gabelli Global Gold, Natural Resources & Income Trust, which invests primarily in equity securities of gold and natural resources companies and utilizes a covered call option writing program to generate current income, had a total annualized return of 26.2% since inception and net assets of $634 million as of December 31, 2007.

 

In January 2007, we launched the Gabelli Global Deal Fund (NYSE: GDL), a closed-end fund which will seek to achieve its investment objective by investing primarily in announced merger and acquisition transactions and, to a lesser extent, in corporate reorganizations involving stubs, spin-offs and liquidations. In May 2007, the shareholders of the Gabelli Equity Trust approved the spin-off of the Gabelli Healthcare & WellnessRx Trust (NYSE: GRX), our ninth closed-end fund.

 

Investment Partnerships:  We manage Investment Partnerships through our 92% majority-owned subsidiary, Gabelli Securities, Inc. ("GSI"). The Investment Partnerships consist primarily of limited partnerships, offshore funds, separate accounts and sub-advisory relationships within the following investment strategies: merger arbitrage, event-driven long/short equity funds, sector-focused funds and merchant banking. We had $460 million of Investment Partnership AUM.

We introduced our first investment partnership, a merger arbitrage partnership, in 1985.  An offshore version of this strategy was added in 1989.  Building on our strengths in global event-driven value investing, several new Investment Partnerships have been added to balance investors’ geographic, strategy and sector needs.  Today we offer a broad range of absolute return products. Within our merger arbitrage strategy, we manage approximately $362 million of assets for investors who seek positive returns not correlated to fluctuations of the general market. These funds seek to drive returns by investing in announced merger and acquisition transactions that are primarily dependent on deal closure and less on the overall market environment.  In event-driven strategies, we manage $40 million of assets focused on the U.S., Japanese, and European markets.  We also manage a series of sector-focused absolute return funds designed to offer investors a mechanism to diversify their portfolios by global economic sector rather than by geographic region.  We currently offer four sector-focused portfolios: the Gabelli International Gold Fund Ltd., GAMA Select Energy Plus, L.P., GAMCO Telecom +, L.P., and GAMCO Medical Opportunities, L.P.   Merchant banking activities are carried out through ALCE Partners, L.P. and Gabelli Multimedia Partners, L.P., both of which are closed to new investors. In 2006, in response to SEC registration proposals, GSI registered as an investment advisor for all of the investment partnerships.

Our Investment Partnerships have been marketed primarily by our direct sales force to private wealth clients and institutions.  We intend to expand product offerings, both domestic and international, and the geographic composition of our customer base in Investment Partnerships.  It is our expectation that the assets invested in these products will provide a growing source of revenues in the future.

The following table sets forth total AUM by product type as of the dates shown and their compound annual growth rates ("CAGR"):

Assets Under Management

By Product Type

(Dollars in millions)

 

(a)   Compound annual growth rate.

We manage assets in the following wide spectrum of investment products and strategies, many of which are focused on fast-growing areas:

U.S. Equities:	Global and International Equities:	Investment Partnerships:
All Cap Value	International Growth	Merger Arbitrage
Large Cap Value	Global Growth	U.S. Long/Short
Large Cap Growth	Global Value	Global Long/Short
Mid Cap Value	Global Telecommunications	European Arbitrage
Small Cap Value	Global Multimedia	Japanese Long/Short
Small Cap Growth	Gold	Sector-Focused
Micro Cap		- Energy
Natural Resources	U.S. Fixed Income:	- Global Telecom
Real Estate	Corporate	- Gold
Utilities	Government	- Medical Opportunities
Non-Market Correlated	Municipals	Merchant Banking
Options Income	Asset-backed
	Intermediate
Convertible Securities:	Short-term	U.S. Balanced:
U.S. Convertible Securities		Balanced Growth
Global Convertible Securities		Balanced Value

In 2007, we continued to develop the skills of our investment team by allocating firm capital to incubate investment strategies. This began with a capital structure arbitrage strategy (2004) and now includes a merger-arbitrage, a global trading strategy as well as investment accounts for a designated group of analysts.

The Mutual Funds include twenty-seven open-end mutual funds and nine closed-end funds which had total assets as of December 31, 2007 of $17.2 billion. The open-end Mutual Funds are available to individuals and institutions on both a no-load and commission basis, while the closed-end funds are listed and traded on either the NYSE or the AMEX.  At December 31, 2007, the open-end funds had total net assets of $10.9 billion and the closed-end funds had total net assets of $6.3 billion. The assets managed in the closed-end funds represent approximately 37% of the assets in the Mutual Funds group and 20% of the total AUM at December 31, 2007. Our AUM consist of a broad range of U.S. and international stock, bond and money market mutual funds that meet the varied needs and objectives of our Mutual Fund shareholders. At December 31, 2007, approximately 33% of our AUM in open-end Mutual Funds had been obtained through direct sales relationships.

Through our affiliates, we act as advisor to all of the Mutual Funds, except with respect to the Gabelli Capital Asset Fund for which we act as a sub-advisor and Guardian Investment Services Corporation, an unaffiliated company, acts as manager. As sub-advisor, we make day-to-day investment decisions for the $229 million Gabelli Capital Asset Fund.

Funds Advisor, a wholly-owned subsidiary of GBL, acts as the investment advisor for all of the Mutual Funds other than the Westwood family of funds.

Teton Advisors, Inc. ("Teton", formerly Gabelli Advisers, Inc. until January 24, 2008), a subsidiary controlled by GBL, acts as investment advisor to the Westwood family of funds and has retained Westwood Management Corporation, a NYSE listed company (NYSE: WHG), to act as sub-advisor for three of the six portfolios. The GAMCO Westwood Mighty MitesSM Fund, launched in May 1998, along with the GAMCO Westwood Smallcap Equity Fund and GAMCO Westwood Income Fund, are advised solely by Teton, using a team investment approach. Westwood Management Corporation owns an approximately 19.0% equity interest in Teton.

 

The following table lists the Mutual Funds, together with the December 31, 2007 Morningstar overall rating, where rated (ratings are not available for the money-market mutual funds and other mutual funds, which collectively represent 27.4% of the AUM in the Mutual Funds), provides a description of the primary investment objective, fund characteristics, fees, the date that the mutual fund was initially offered to investors and the AUM in the mutual funds as of December 31, 2007.

							Net Assets as of
							December 31,
Fund				Advisory	12b-1	Initial	2007
(Morningstar Overall	Primary Investment	Fund		Fees	Fees	Offer	(all classes)
Rating) (1)	Objective	Characteristics		(%)	(%)	Date	($ in millions)
OPEN-END FUNDS:
EQUITY INCOME:
The Gabelli Equity	High level of total return	Class AAA:		1.00	.25	01/02/92	$1,263
Income Fund	with an emphasis on	No-load,
«««««	income-producing equities	Open-end,
	with yields greater than	Diversified
	the S&P 500 average.	Multi-class Shares (2)
GAMCO Westwood	Both capital appreciation	Class AAA:		.75	.25	10/01/91	$157
Balanced Fund	and current income using	No-load,
««««	portfolios containing stocks,	Open-end,
	bonds, and cash as appropriate	Diversified
	in light of current economic	Multi-class shares (2)
	and business conditions.
GAMCO Westwood	High level of current income	Class AAA:		1.00 (9)	.25	09/30/97	$12
Income Fund	as well as long-term capital	No-load,
««««	appreciation by investing	Open-end,
	primarily in income producing	Diversified
	equity and fixed income	Multi-class shares (2)
	securities.
VALUE:
GAMCO Westwood	Capital appreciation through a	Class AAA:		1.00	.25	01/02/87	$194
Equity Fund	diversified portfolio of equity	No-load,
«««««	securities using bottom-up	Open-end,
	fundamental research with a	Diversified
	focus on identifying	Multi-class shares (2)
	well-seasoned companies.
The Gabelli Asset	Growth of capital as a primary	Class AAA:		1.00	.25	03/03/86	$2,973
Fund	investment objective, with	No-load,
««««	current income as a secondary	Open-end,
	investment objective. Invests in	Diversified
	equity securities of companies	Multi-class shares (2)
	selling at a significant discount
	to their private market value.
The Gabelli Blue Chip	Capital appreciation through	Class AAA:		1.00	.25	08/26/99	$32
Value Fund	investments in equity securities	No-load,
««««	of established companies, which	Open-end,
	are temporarily out of favor and	Diversified
	which have market capitalizations	Multi-class shares (2)
	in excess of $5 billion.
SMALL CAP VALUE:
The Gabelli Small Cap	High level of capital appreciation	Class AAA:		1.00	.25	10/22/91	$1,048
Growth Fund	from equity securities of smaller	No-load,
««««	companies with market	Open-end,
	capitalization of $2 billion or less	Diversified
	at the time of purchase.	Multi-class Shares (2)

								Net Assets as of
								December 31,
Fund					Advisory	12b-1	Initial	2007
(Morningstar Overall	Primary Investment			Fund	Fees	Fees	Offer	(all classes)
Rating) (1)	Objective			Characteristics	(%)	(%)	Date	($ in millions)
The Gabelli Woodland	Long Term capital appreciation			Class AAA:	1.00 (9)	.25	12/31/02	$9
Small Cap Value Fund	investing at least 80% of its			No-load,
««	in equity securities of			Open-end,
	companies with market			Non-diversified
	capitalizations less than			Multi-class shares (2)
	the greater of $3.0 billion
	or the largest company
	in the Russell 2000 Index.
GAMCO Westwood	Long-term capital			Class AAA:	1.00 (9)	.25	04/15/97	$10
SmallCap Equity Fund	appreciation, investing			No-load,
««	at least 80% of its assets			Open-end,
	in equity securities of			Diversified
	companies with market			Multi-class shares (2)
	capitalizations of $2.5 billion
	or less at the time of purchase.
FOCUSED VALUE:
The Gabelli Value	High level of capital			Class A:	1.00	.25	09/29/89	$827
Fund	appreciation from			Front end-load,
««	undervalued equity			Open-end
	securities that are			Non-diversified
	held in a concentrated			Multi-class shares (2)
	portfolio.
GROWTH:
The GAMCO Growth	Capital appreciation from			Class AAA:	1.00	.25	04/10/87	$949
Fund	companies that have			No-load,
««««	favorable, yet undervalued,			Open-end,
	prospects for earnings			Diversified
	growth. Invests in equity			Multi-class Shares (2)
	securities of companies
	that have above-average
	or expanding market
	shares and profit margins.
GAMCO International	Capital appreciation			Class AAA:	1.00	.25	06/30/95	$58
Growth Fund	by investing primarily			No-load,
««	in equity securities of			Open-end,
	foreign companies with			Diversified
	rapid growth in revenues			Multi-class shares (2)
	and earnings.
AGGRESSIVE GROWTH:
The GAMCO Global	High level of capital			Class AAA:	1.00	.25	02/07/94	$107
Growth Fund	appreciation through			No load,
«««	investment in a			Open-end,
	portfolio of equity			Non-diversified
	securities focused on			Multi-class shares (2)
	companies involved
	in the global marketplace.
MICRO-CAP:
GAMCO Westwood	Long-term capital appreciation			Class AAA:	1.00	.25	05/11/98	$57
Mighty MitesSM  Fund	by investing primarily			No load,
««««	In equity securities with			Open-end,
	Market capitalization			Diversified
	of $300 million or less			Multi-class shares (2)
	at the time of purchase.

									Net Assets as of
									December 31,
Fund						Advisory	12b-1	Initial	2007
(Morningstar Overall	Primary Investment				Fund	Fees	Fees	Offer	(all classes)
Rating) (1)	Objective				Characteristics	(%)	(%)	Date	($ in millions)
SPECIALTY EQUITY:
The GAMCO Global	High level of capital				Class AAA:	1.00 (9)	.25	05/11/98	$23
Opportunity Fund	appreciation through				No-load,
«««	worldwide investments				Open-end,
	in equity securities.				Non-diversified
					Multi-class shares (2)
The GAMCO Global	High level of total return				Class AAA:	1.00 (9)	.25	02/03/94	$10
Convertible	through a combination of				No-load,
Securities Fund	current income and capital				Open-end,
«««	Appreciation through				Non-diversified
	investment in convertible				Multi-class shares (2)
	securities of U.S. and
	non-U.S. issuers.
The Gabelli Capital Asset	Capital appreciation from				No-load,	.75	n/a	05/01/95	$229
Fund	equity securities of companies				Open-end,
(not rated) (8)	selling at a significant				Diversified,
	discount to their private				Variable Annuity
	market value.
The Gabelli SRI Fund	Capital appreciation from				Class A	1.00 (9)	.25	6/1/07	$2
(not rated) (8)	equity securities of companies				No-load,
	the fund deems to be				Open-end,
	socially responsible.				Diversified,
					Multi-class shares (2)
SECTOR:
GAMCO Gold	Seeks capital				Class AAA:	1.00	.25	07/11/94	$510
Fund	appreciation and				No-load,
«««	employs a value				Open-end,
	approach to investing				Diversified
	primarily in equity				Multi-class shares (2)
	securities of gold-
	related companies
	worldwide.
The GAMCO Global	High level of capital				Class AAA:	1.00	.25	11/01/93	$313
Telecommunications	appreciation through				No-load,
Fund	worldwide investments				Open-end,
«««	in equity securities,				Non-diversified
	including the U.S.,				Multi-class shares (2)
	primarily in the
	telecommunications
	industry.
The Gabelli Utilities	High level of total return through				Class AAA:	1.00	.25	08/31/99	$739
Fund	a combination of capital				No-load,
«	appreciation and current income				Open-end,
	from investments in utility				Diversified
	companies.				Multi-class shares (2)
ABSOLUTE RETURN:
The Gabelli ABC Fund	Total returns that are				No-load,	.50 (7)	n/a (7)	5/14/93	$183
	attractive to investors				Open-end,
««	in various market conditions				Non-diversified
	without excessive risk of
	capital loss, utilizing certain
	arbitrage strategies and
	investing in value orientated
	common stocks at a significant
	discount to their PMV.

 

						Net Assets as of
						December 31,
Fund			Advisory	12b-1	Initial	2007
(Morningstar Overall	Primary Investment	Fund	Fees	Fees	Offer	(all classes)
Rating) (1)	Objective	Characteristics	(%)	(%)	Date	($ in millions)

CONTRARIAN:
Comstock	Capital appreciation and current	Class A	1.00	.25	10/10/85	$38
Capital Value Fund	income through investment in a	Load,
(not rated) (8)	highly diversified portfolio of	Open-end,
	securities.	Diversified
		Multi-class shares (2)
Comstock	Capital appreciation and current	Class A	.85	.25	05/26/88	$5
Strategy Fund	income through investment in a	Load,
(not rated) (8)	portfolio of debt securities.	Open-end,
		Non-Diversified
		Multi-class shares (2)
GAMCO Mathers	Long-term capital appreciation	Class AAA:	1.00	.25	8/19/65	$26
Fund	in various market conditions	No-load,
«	without excess risk of capital loss.	Open-end,
		Diversified

FIXED INCOME:
GAMCO Westwood		Total return and current		Class AAA:	.60 (9)	.25	10/01/91	$10
Intermediate Bond		income, while limiting		No-load,
Fund		risk to principal. Pursues		Open-end,
««		higher yields than shorter		Diversified
		maturity funds and has		Multi-class shares (2)
		more price stability than
		generally higher yielding
		long-term funds.
CASH MANAGEMENT-MONEY MARKET:
The Gabelli U.S. Treasury		High current income		Money Market,	.30 (9)	n/a	10/01/92	$1,111
Money Market Fund		with preservation of		Open-end,
(11)	principal and			Diversified
		liquidity, while
		striving to keep
		expenses among the
		lowest of all U.S.
		Treasury money market
		funds.

 

 

								Net Assets as of
								December 31,
Fund					Advisory	12b-1	Initial	2007
(Morningstar Overall		Primary Investment		Fund	Fees	Fees	Offer	(all classes)
Rating) (1)		Objective		Characteristics	(%)	(%)	Date	($ in millions)
CLOSED-END FUNDS:
The Gabelli Equity		Long-term growth of		Closed-end,	1.00 (10)	n/a	08/14/86	$1,990
Trust Inc.		capital by investing		Non-diversified
(not rated) (8)		in equity securities.		NYSE Symbol: GAB
The Gabelli		High total return		Closed-end,	1.00 (10)	n/a	07/03/89	$149
Convertible and Income		from investing		diversified
Securities Fund Inc. (4)		primarily in		NYSE Symbol: GCV
«««		convertible
		instruments.
The Gabelli Global		Long-term capital		Closed-end,	1.00 (10)	n/a	11/15/94	$251
Multimedia Trust Inc. (3)		appreciation from		Non-diversified
(not rated) (8)		equity investments in		NYSE Symbol: GGT
		global telecommunications,
		media, publishing and
		entertainment holdings.
The Gabelli		High total return from		Closed-end,	1.00 (10)	n/a	07/09/99	$300
Utility Trust (5)		investments primarily in		Non-diversified
«««		securities of companies		NYSE Symbol: GUT
		involved in gas, electricity
		and water industries.
The Gabelli		Qualified dividend income		Closed-end,	1.00 (10)	n/a	11/24/03	$2,476
Dividend & Income		and capital appreciation		Non-diversified
Trust		potential.		NYSE Symbol: GDV
««««
The Gabelli		A consistent level of after-tax		Closed-end,	1.00	n/a	5/28/04	$78
Global Utility & Income		total return with an emphasis		Non-diversified
Trust		on tax-advantaged dividend		AMEX Symbol: GLU
«««		income.
The Gabelli		High level of current income		Closed-end,	1.00	n/a	3/29/05	$634
Global Gold, Natural		through an option writing strategy		Non-diversified
Resources & Income Trust		on equity securities owned in the		AMEX Symbol: GGN
(not rated) (8)		gold and natural resources
		industries.
The Gabelli Global Deal Fund		Achieve absolute return through		Closed-end,	0.50	n/a	1/26/07	$394
		in various market conditions		Non-diversified
		without excessive risk of		NYSE Symbol: GDL
		capital.
The Gabelli Healthcare		Seeks long-term growth of		Closed-end,	1.00	n/a	6/28/07	$68
and Wellness Rx Fund (6)		capital within the health and		Non-diversified
		wellness industries.		NYSE Symbol: GRX

 

(1)

Morningstar RatingTM as of December 31, 2007. For each fund with at least a three-year history, Morningstar calculates a Morningstar RatingTM based on a Morningstar risk-adjusted return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads and redemption fees) placing more emphasis on downward variations and rewarding consistent performance.  The top 10% of the funds in an investment category receive five stars, the next 22.5% receive four stars, the next 35% receive three stars, the next 22.5% receive two stars and the bottom 10% receive one star.  The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures associated with its three, five, and ten-year (if applicable) Morningstar Rating metrics.  Morningstar Ratings are shown for the respective class shown; other classes may have different performance characteristics.  There were 378 Conservative Allocation funds rated for three years, 232 funds for five years and 110 funds for ten years (GAMCO Mathers Fund).  There were 413 Mid-Cap Blend funds rated for three years, 329 funds for five years and 140 funds for ten years (The Gabelli Asset Fund, The Gabelli ABC Fund, The Gabelli Value Fund).  There were 1,132 Large Value funds rated for three years, 902 funds for five years and 413 funds for ten years (The Gabelli Blue Chip Value Fund, GAMCO GAMCO Westwood Equity Fund, The Gabelli Equity Income Fund).  There were 69 Convertibles funds rated for three years, 60 funds for five years and 47 funds for ten years (The GAMCO Global Convertible Securities Fund).  There were 432 World Stock funds rated for three years, 380 funds for five years and 184 funds for ten years (The GAMCO Global Growth Fund, The GAMCO Global Opportunity Fund).  There were 42 Specialty-Communications funds rated for three years, 40 funds for five years and 12 funds for ten years (The GAMCO Global Telecommunications Fund).  There were 59 Specialty-Precious Metals funds rated for three years, 53 funds for five years and 28 funds for ten years (GAMCO Gold Fund).

 

There were 1,420 Large Growth funds rated for three years, 1,196 funds for five years and 552 funds for ten years (The GAMCO Growth Fund).  There were 169 Foreign Large Growth funds rated for three years, 153 funds for five years and 67 funds for ten years (GAMCO International Growth Fund).  There were 332 Small Value funds rated for three years, 254 funds for five years and 91 funds for ten years (The Gabelli Small Cap Growth Fund, GAMCO Westwood Mighty MitesSM Fund, Gabelli Woodland Small Cap Value Fund).  There were 93 Specialty-Utilities funds rated for three years, 77 funds rated for five years and 54 funds for ten years (The Gabelli Utilities Fund).  There were 871 Moderate Allocation funds rated for three years, 685 funds for five years and 393 funds for ten years (GAMCO Westwood Balanced Fund).  There were 953 Intermediate-Term Bond funds rated for three years, 812 funds for five years and 408 funds for ten years (GAMCO Westwood Intermediate Bond Fund).  There were 262 Specialty-Real Estate funds rated for three years and 187 funds for five years and 78 funds for ten years (GAMCO Westwood Income Fund).  There were 502 Small Blend funds rated for three years and 395 funds for five years and 160 funds for ten years (GAMCO Westwood SmallCap Equity Fund, The Gabelli Woodland Small Cap Value Fund).  (a) 2007 Morningstar, Inc. All Rights reserved.  This information is (1) proprietary to 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 content providers are responsible for any damages or losses arising from any use of this information.  Past performance is no guarantee of future results.

(2)

These funds have multi-classes of shares available.  Multi-class shares include Class A shares which have a front-end sales charge, Class B shares which are subject to a back-end contingent deferred sales charge for up to 6 years and Class C  which shares are subject to a 1% back-end contingent deferred sales charge for up to two years.  However, Class B shares are no longer offered for new purchases as of July 2004. Comstock Strategy Fund Class R shares, which are no-load, are available only for retirement and certain institutional accounts.  Comstock Strategy Fund class O shares are no longer offered to the public.  Class I shares are available to institutional accounts.  Net assets include all share classes.

(3)	The Gabelli Global Multimedia Trust Inc. was formed in 1994 through a spin-off of assets from The Gabelli Equity Trust.

(4)	The Gabelli Convertible and Income Securities Fund Inc. was originally formed in 1989 as an open-end investment company and was converted to a closed-end investment company in March 1995.

 

(5)	The Gabelli Utility Trust was formed in 1999 through a spin-off of assets from The Gabelli Equity Trust.
(6)	The Gabelli Healthcare and WellnessRX Trust was formed in 2007 through a spin-off of assets from The Gabelli Equity Trust.

(7)

Funds Advisor has reduced the Advisory fee from 1.00% to 0.50% since April 1, 2002.  Gabelli & Company waived receipt of the 12b-1 Plan distribution fees as of January 1, 2003, and on February 25, 2004, the Fund’s Board of Directors agreed with the Funds Advisor’s request to terminate the 12b-1 Plan. The advisory fee was contractually set at 0.50% as of May 1, 2007.

(8)	Certain funds are not rated because they do not have a three-year history, or there are not enough similar funds in the category determined by Morningstar.

(9)

Funds Advisor has an agreement in place to waive its advisory fee or reimburse expenses of the Fund to maintain fund expenses at a specified level for Class AAA shares; multi-class shares have separate limits as described in the Fund’s prospectus.  (The Gabelli Woodland Small Cap Value Fund – 2.00%; GAMCO Westwood Income Fund – 1.50%; The GAMCO Global Opportunity Fund – 2.00%; The GAMCO Global Convertible Securities Fund – 2.00%; The Gabelli SRI Fund - 2.00%; GAMCO Westwood SmallCap Equity Fund – 1.50%; GAMCO Westwood Intermediate Bond Fund – 1.00%; The Gabelli U.S. Treasury Money Market Fund –0.08% through September 30, 2007.  Such agreements are renewable annually).

(10)	Funds Advisor has agreed to reduce its advisory fee on the liquidation value of preferred stock outstanding if certain performance levels are not met.

(11)

The Gabelli U.S. Treasury Money Market Fund ranked in the top tier in total return for the 12 months ended December 31, 2007 among 83 US Treasury money market funds tracked by Lipper Inc. For the 5 year and 10 year periods ended December 31, 2007, the fund ranked 2nd out of 66 funds and 3rd out of 49 funds, respectively, within that category. Investment returns and yield will fluctuate. An investment in a money market fund is not guaranteed by the United States government nor insured by the Federal Deposit Insurance Corporation or any government agency. Although the Fund seeks to preserve the value of an investment at $1.00 per share, it is possible to lose money by investing on the Fund.

 

Shareholders of the open-end Funds are allowed to exchange shares among the same class of shares of the other open-end funds as economic and market conditions and investor needs change at no additional cost.  However, as noted below, certain Mutual Funds impose a 2% redemption fee on shares redeemed in seven days or less after a purchase. We periodically introduce new mutual funds designed to complement and expand our investment product offerings, respond to competitive developments in the financial marketplace and meet the changing needs of investors.

On December 30, 2004, the shareholders of The Gabelli ABC Fund voted to approve a charter amendment that would require investment accounts held at the fund's transfer agent, State Street Bank & Trust Company, be directly registered to the beneficial owners of the fund.  The action, which was recommended by Funds Advisor and approved by the fund’s Board of Directors, permits the redemption of shares held through certain brokers and financial consultants in omnibus and individual accounts where the beneficial owner is not disclosed.

 

Our marketing efforts for the Mutual Funds are currently focused on increasing the distribution and sales of our existing funds as well as creating new products for sale through our distribution channels. We believe that our marketing efforts for the Mutual Funds will continue to generate additional revenues from investment advisory fees. We have traditionally distributed most of our open-end Mutual Funds by using a variety of direct response marketing techniques, including telemarketing and advertising, and as a result we maintain direct relationships with many of our no-load open-end Mutual Fund customers. Beginning in late 1995, we expanded our product distribution by offering several of our open-end Mutual Funds through Third-Party Distribution Programs, including NTF Programs. In 1998 and 1999, we further expanded these efforts to include substantially all of our open-end Mutual Funds in Third-Party Distribution Programs. More than 33% of the AUM in the open-end Mutual Funds are still attributable to our direct response marketing efforts. Third-Party Distribution Programs have become an increasingly important source of asset growth for us.  Of the $9.8 billion of AUM in the open-end equity Mutual Funds as of December 31, 2007, approximately 67% were generated through Third-Party Distribution Programs.  We are responsible for paying the service and distribution fees charged by many of the Third-Party Distribution Programs, although a portion of such service fees under certain circumstances are payable by the funds.  Several bills have been introduced in Congress that would amend the Investment Company Act.  These proposals, which include but are not limited to the elimination or restriction of Rule 12b-1 distribution fees, if enacted or adopted, could have a substantial impact on the regulation and operation of our registered funds.  In light of such legislation and efforts by some of the program sponsors to increase fees beyond what we deem to be acceptable, several of our Mutual Funds may be withdrawn from such programs.  During 2000, we completed development of additional classes of shares for many of our mutual funds for sale through national brokerage and investment firms and other third-party distribution channels on a commission basis.  The multi-class shares are available in all of the Gabelli mutual funds, except for the Gabelli Capital Asset Fund and the GAMCO Mathers Fund.  The use of multi-class share products will expand the distribution of Gabelli Fund products into the advised sector of the mutual fund investment community.  During 2003, we introduced Class I shares, which are no load shares with higher minimum initial investment and without distribution fees available to Institutional and Retirement Plan Accounts held directly through Gabelli & Company. The no-load shares are designated as Class AAA shares and are available for new and current investors.  Effective February 15, 2007, Class AAA shares of the GAMCO Growth Fund, GAMCO International Growth Fund, and GAMCO Global Growth Fund are only available to existing Gabelli Fund Shareholders who established accounts prior to February 15, 2007. In general, distribution through Third-Party Distribution Programs has greater variable cost components and lower fixed cost components than distribution through our traditional direct sales methods.

We provide investment advisory and management services pursuant to an investment management agreement with each Mutual Fund. The investment management agreements with the Mutual Funds generally provide that we are responsible for the overall investment and administrative services, subject to the oversight of each Mutual Fund's Board of Directors or Trustees and in accordance with each Mutual Fund's fundamental investment objectives and policies. The investment management agreements permit us to enter into separate agreements for administrative and accounting services on behalf of the respective Mutual Funds.

 

We provide the Mutual Funds with administrative services pursuant to the management contracts.  Such services include, without limitation, supervision of the calculation of net asset value, preparation of financial reports for shareholders of the Mutual Funds, internal accounting, tax accounting and reporting, regulatory filings and other services. Most of these administrative services are provided through sub-contracts with unaffiliated third parties. Transfer agency and custodial services are provided directly to the Mutual Funds by unaffiliated third parties.

Our Mutual Fund investment management agreements may continue in effect from year to year only if specifically approved at least annually by (i) the Mutual Fund's Board of Directors or Trustees or (ii) the Mutual Fund's shareholders and, in either case, the vote of a majority of the Mutual Fund's directors or trustees who are not parties to the agreement or "interested persons" of any such party, within the meaning of the Investment Company Act of 1940 as amended (the “Investment Company Act”). Each Mutual Fund may terminate its investment management agreement at any time upon 60 days' written notice by (i) a vote of the majority of the Board of Directors or Trustees cast in person at a meeting called for the purpose of voting on such termination or (ii) a vote at a meeting of shareholders of the lesser of either 67% of the voting shares represented in person or by proxy or 50% of the outstanding voting shares of such Mutual Fund. Each investment management agreement automatically terminates in the event of its assignment, as defined in the Investment Company Act.  We may terminate an investment management agreement without penalty on 60 days' written notice.

Gabelli & Company, the wholly-owned subsidiary of our 92% majority-owned subsidiary GSI, is a broker-dealer registered under the Securities Exchange Act of 1934 and is regulated by the Financial Industry Regulatory Authority (“FINRA”).  Gabelli & Company's revenues are derived primarily from the distribution of our Mutual Funds, brokerage commissions, underwriting fees and selling concessions.

Gabelli & Company distributes our open-end Mutual Funds pursuant to distribution agreements with each Mutual Fund. Under each distribution agreement with an open-end Mutual Fund, Gabelli & Company offers and sells such open-end Mutual Fund's shares on a continuous basis and pays all of the costs of marketing and selling the shares, including printing and mailing prospectuses and sales literature, advertising and maintaining sales and customer service personnel and sales and services fulfillment systems, and payments to the sponsors of Third-Party Distribution Programs, financial intermediaries and Gabelli & Company sales personnel.  Gabelli & Company receives fees for such services pursuant to distribution plans adopted under provisions of Rule 12b-1 (“12b-1”) of the Investment Company Act. Distribution fees from the open-end mutual funds are computed daily based on average net assets and are accrued monthly. Distribution fees from the open-end Mutual Funds amounted to $19.4 million, $20.6 million and $25.0 million for the years ended December 31, 2005, 2006 and 2007, respectively. Gabelli & Company is the principal underwriter for funds distributed in multiple classes of shares which carry either a front-end or back-end sales charge.  Underwriting fees and sales charges retained amounted to $646,000, $859,000 and $938,000 for the years ended December 31, 2005, 2006 and 2007, respectively.

Under the distribution plans, the open-end Class AAA shares of the Mutual Funds (except The Gabelli US Treasury Money Market Fund, Gabelli Capital Asset Fund and The Gabelli ABC Fund) and the Class A shares of various funds pay Gabelli & Company a distribution or service fee of .25% per year (except the Class A shares of the GAMCO Westwood Funds which pay .50% per year and GAMCO Westwood Intermediate Bond Fund which pay 0.35% per year) on the average daily net assets of the fund. Class B and Class C shares have a 12b-1 distribution plan with a service and distribution fee totaling 1%.  Gabelli & Company’s distribution agreements with the Mutual Funds may continue in effect from year to year only if specifically approved at least annually by (i) the Mutual Fund's Board of Directors or Trustees or (ii) the Mutual Fund's shareholders and, in either case, the vote of a majority of the Mutual Fund's directors or trustees who are not parties to the agreement or "interested persons" of any such party, within the meaning of the Investment Company Act. Each Mutual Fund may terminate its distribution agreement, or any agreement thereunder, at any time upon 60 days' written notice by (i) a vote of the majority of its directors or trustees cast in person at a meeting called for the purpose of voting on such termination or (ii) a vote at a meeting of shareholders of the lesser of either 67% of the voting shares represented in person or by proxy or 50% of the outstanding voting shares of such Mutual Fund. Each distribution agreement automatically terminates in the event of its assignment, as defined in the Investment Company Act.  Gabelli & Company may terminate a distribution agreement without penalty upon 60 days' written notice.

 

Gabelli & Company also offers our open-end mutual fund products through our website, www.gabelli.com, where directly registered mutual fund investors can access their personal account information and buy, sell and exchange Fund shares.  Fund prospectuses, quarterly reports, fund applications, daily net asset values and performance charts are all available online.  As part of our efforts to educate investors, we introduced Gabelli University with our initial publications Deals, Deals… and More Deals and Global Convertible Investing: The Gabelli Way.  Our website is an active, informative and valuable resource which we believe has become an increasingly important feature of our client service efforts.

Gabelli & Company provides institutional investors with investment ideas on numerous industries and special situations, with a particular focus on small-cap and mid-cap companies.  Our team of sell-side analysts follow economic sectors on a global basis.  Our research focuses on company fundamentals, cash flow statistics, and catalysts that will help realize returns.

Gabelli & Company generates brokerage commission revenues from securities transactions executed on an agency basis on behalf of institutional and private wealth management clients as well as from retail customers and mutual funds.  Commission revenues totaled $12.2 million, $12.6 million, and $15.7 million for the years ended December 31, 2005, 2006 and 2007, respectively. Gabelli & Company has considered and continues to explore expansion of its proprietary trading activities.

Gabelli & Company is involved in external syndicated underwriting activities.  In 2005, 2006 and 2007, Gabelli & Company participated syndicated underwritings of public equity and debt offerings managed by major investment banks. In 2005, Gabelli & Company participated in 4 of these underwritings with commitments of $21.4 million, of which 2 included a commitment of $5.9 million for participation in offerings of Gabelli closed-end funds shares. In 2006, Gabelli & Company participated in 4 of these underwritings with commitments of $15.5 million, of which 1 included a commitment of $14.0 million for participation in offerings of Gabelli closed-end funds shares. In 2007, Gabelli & Company participated in 5 of these underwritings with commitments of $7.0 million, of which 2 included a commitment of $42.5 million for participation in offerings of Gabelli closed-end funds shares.

 

We compete with other investment management firms and mutual fund companies, insurance companies, banks, brokerage firms and other financial institutions that offer products that have similar features and investment objectives to those offered by us.  Many of the investment management firms with which we compete are subsidiaries of large diversified financial companies and many others are much larger in terms of AUM and revenues and, accordingly, have much larger sales organizations and marketing budgets.  Historically, we have competed primarily on the basis of the long-term investment performance of many of our investment products.  However, we have taken steps to increase our distribution channels, brand name awareness and marketing efforts.

The market for providing investment management services to institutional and private wealth management separate accounts is also highly competitive. Approximately 35% of our investment advisory fee revenue for the year ended December 31, 2007 was derived from our Separate Accounts.  Selection of investment advisors by U.S. institutional investors is often subject to a screening process and to favorable recommendations by investment industry consultants.  Many of these investors require their investment advisors to have a successful and sustained performance record, often five years or longer, and also focus on one-year and three-year performance records.  We have significantly increased our AUM on behalf of U.S. institutional investors since our entry into the institutional asset management business in 1977. At the current time, we believe that our investment performance record would be attractive to potential new institutional and private wealth management clients.  However, no assurance can be given that our efforts to obtain new business will be successful.

 

Service marks and brand name recognition are important to our business. We have rights to the service marks under which our products are offered.  We have registered certain service marks in the United States and will continue to do so as new trademarks and service marks are developed or acquired.  We have rights to use the “Gabelli” name, the “GAMCO” name, and other names.  Pursuant to an assignment agreement, Mr. Gabelli has assigned to us all of his rights, title and interests in and to the “Gabelli” name for use in connection with investment management services, mutual funds and securities brokerage services. However, under the agreement, Mr. Gabelli will retain any and all rights, title and interests he has or may have in the “Gabelli” name for use in connection with (i) charitable foundations controlled by Mr. Gabelli or members of his family or (ii) entities engaged in private investment activities for Mr. Gabelli or members of his family. In addition, the funds managed by Mr. Gabelli outside GBL have entered into a license agreement with us permitting them to continue limited use of the “Gabelli” name under specified circumstances. We have taken, and will continue to take, action to protect our interests in these service marks.

Virtually all aspects of our businesses are subject to various federal and state laws and regulations. These laws and regulations are primarily intended to protect investment advisory clients and shareholders of registered investment companies. Under such laws and regulations, agencies that regulate investment advisors and broker-dealers such as us have broad administrative powers, including the power to limit, restrict or prohibit such an advisor or broker-dealer from carrying on its business in the event that it fails to comply with such laws and regulations. In such event, the possible sanctions that may be imposed include the suspension of individual employees, limitations on engaging in certain lines of business for specified periods of time, revocation of investment advisor and other registrations, censures, and fines. We believe that we are in substantial compliance with all material laws and regulations.

Our business is subject to regulation at both the federal and state level by the SEC and other regulatory bodies. Certain of our subsidiaries are registered with the Commission under the Investment Advisers Act, and the Mutual Funds are registered with the Commission under the Investment Company Act. We also have a subsidiary that is registered as a broker-dealer with the Commission and is subject to regulation by the Financial Industry Regulatory Authority ("FINRA") and various states.

The subsidiaries of GBL that are registered with the Commission under the Investment Advisers Act (Funds Advisor, Teton, Gabelli Fixed Income LLC, GAMCO and GSI) are regulated by and subject to examination by the Commission. The Investment Advisers Act imposes numerous obligations on registered investment advisors including fiduciary duties, record keeping requirements, operational requirements, marketing requirements and disclosure obligations. The Commission is authorized to institute proceedings and impose sanctions for violations of the Investment Advisers Act, ranging from censure to termination of an investment advisor's registration. The failure of a subsidiary to comply with the requirements of the Commission could have a material adverse effect on us.  We believe that we are in substantial compliance with the requirements of the regulations under the Investment Advisers Act.

We derive a substantial majority of our revenues from investment advisory services through our investment management agreements. Under the Investment Advisers Act, our investment management agreements terminate automatically if assigned without the client's consent. Under the Investment Company Act, advisory agreements with registered investment companies such as the Mutual Funds terminate automatically upon assignment. The term "assignment" is broadly defined and includes direct assignments as well as assignments that may be deemed to occur, under certain circumstances, upon the transfer, directly or indirectly, of a controlling interest in GBL.

In its capacity as a broker-dealer, Gabelli & Company is required to maintain certain minimum net capital and cash reserves for the benefit of our customers. Gabelli & Company’s net capital, as defined, has consistently met or exceeded all minimum requirements.  Gabelli & Company is also subject to periodic examination by FINRA.

Subsidiaries of GBL are subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and to regulations promulgated there under, insofar as they are “fiduciaries” under ERISA with respect to certain of their clients. ERISA and applicable provisions of the Internal Revenue Code of 1986, as amended (the “Code”), impose certain duties on persons who are fiduciaries under ERISA and prohibit certain transactions involving ERISA plan clients. Our failure to comply with these requirements could have a material adverse effect on us.

 

Investments by GBL on behalf of our clients often represent a significant equity ownership position in an issuer's class of stock. As of December 31, 2007, we had five percent or more beneficial ownership with respect to approximately 100 equity securities. This activity raises frequent regulatory and legal issues regarding our aggregate beneficial ownership level with respect to portfolio securities, including issues relating to issuers' shareholder rights plans or “poison pills,” state gaming laws and regulations, federal communications laws and regulations, public utility holding company laws and regulations, federal proxy rules governing shareholder communications and federal laws and regulations regarding the reporting of beneficial ownership positions.  Our failure to comply with these requirements could have a material adverse effect on us.

The USA Patriot Act of 2001, enacted in response to the terrorist attacks on September 11, 2001, contains anti-money laundering and financial transparency laws and mandates the implementation of various new regulations applicable to broker-dealers, mutual funds and other financial services companies, including standards for verifying client identification at account opening, and obligations to monitor client transactions and report suspicious activities.  Anti-money laundering laws outside of the U.S. contain some similar provisions.  Our failure to comply with these requirements could have a material adverse effect on us.

We and certain of our affiliates are subject to the laws of non-U.S. jurisdictions and non-U.S. regulatory agencies or bodies. In particular, we are subject to requirements in numerous jurisdictions regarding reporting of beneficial ownership positions in securities issued by companies whose securities are publicly-traded in those countries. In addition, GAMCO is registered as an international advisor, investment counsel and portfolio manager with the Ontario Securities Commission in Canada in order to market our services to prospective clients who reside in Ontario.  Several of our Investment Partnerships are organized under the laws of foreign jurisdictions. In connection with our opening of an office in London and our plans to market certain products in Europe, we are required to comply with the laws of the United Kingdom and other European countries regarding these activities.  Our subsidiary, GAMCO Asset Management (UK) Limited, is regulated by the Financial Services Authority.  In connection with our registration in the United Kingdom, we have minimum capital requirements that have been consistently met or exceeded. In 2007, we opened research offices in Shanghai and Singapore and therefore are subject to national and local laws in those jurisdictions.