Reflecting a 23% decline in assets under management, mostly related to the overall stock market, revenues fell to $46.1 million in the first quarter of 2003 down 21% from the $58.0 million reported in the prior year quarter. Operating income fell 35.6% to $16.3 million in the 2003 quarter versus $25.4 million in 2002. Net income was $9.3 million or $0.31 per diluted share in 2003 compared to $15.4 million or $0.51 per diluted share in 2002. Actual shares outstanding at March 31, 2003 were 30,019,072 compared to 30,219,941 at March 31, 2002. From an analytical point of view, adjusted cash and investments were $531 million at March 31, 2003, an increase of $13 million from the $518 million at December 31, 2002 and up from $490 million at March 31, 2002. This amounted to approximately $13.46 per share net of debt. On a GAAP basis we have cash and investments of $538 million at March 31, 2003 versus $535 million at December 31, 2002 and $482 million at March 31, 2002.

Financial Results
After gaining ground early in January 2003, U.S. equity markets declined during the remainder of the quarter with the Standard and Poor’s 500, Russell 2000 and Morgan Stanley Capital International World Index falling 3.2%, 4.5% and 5.0%, respectively. Over the last twelve months these indices declined 24.8%, 27.0% and 23.8%, respectively. Against this backdrop assets under management at March 31, 2003 were $20.1 billion down 22.6% from record levels of $25.9 billion at March 31, 2002 and down 5.6% from $21.3 billion at December 31, 2002. Average total assets under management were $20.7 billion during the first quarter of 2003 versus $24.6 billion during the first quarter of 2002. Our equity mutual funds and alternative investment products experienced modest cash inflows during the first quarter of 2003 which were offset by net cash outflows in our institutional and separate accounts.

The decline in assets under management was larg e l y responsible for the roughly 21% overall decline in total revenues to $46.1 million for the first quarter of 2003 versus $58.0 million in 2002. Investment advisory and incentive fees, which comprise the largest portion of total revenues, totaled $39.6 million in 2003 versus $48.9 million in the first quarter of 2002 due to lower levels of assets under management.

Operating income declined 35.6% to $16.3 million in the first quarter of 2003 compared to $25.4 million in 2002. Operating margins were 35.5% down from 43.7% in the prior year quarter. (If we were to exclude our two acquisitions, Woodland and Grove from the 2003 first quarter, our operating margin was 36.1%.) We made the decision to add to our long-term strengths in research and in client service. Total compensation costs, which are largely variable in nature, declined 8.5% to $20.5 million in 2003 versus $22.4 million in the first quarter of 2002. Compensation increased by $1.0 million as we added eleven individuals to our sales, marketing and research staff since the first quarter of 2002. Other operating expenses were unchanged at $7.5 million in the first quarter of both 2003 and 2002. The expensing of stock options, ($215,000 for the first quarter and $1.5 million for the year), new product initiatives, insurance premiums, benefit programs as well as costs from acquisitions have all contributed to lower margins.

Management fee expense, which is totally variable and based on pre-tax profits, declined 39.3% to $1.7 million from $2.7 million in the 2002 quarter.

Interest expense increased $0.3 million or 10.4% to $3.0 million in the first quarter of 2003 compared to $2.7 million in the first quarter of 2002. The increase is attributable to having approximately $85 million of mandatory convertible securities outstanding ($90 million were issued in February 2002) for the entire quarter in 2003 versus only two months in 2002. Notwithstanding higher liquid investable assets, the combination of lower interest rates and declining world equity markets resulted in our proprietary investment earnings being down $0.4 million on a quarter to quarter basis.

The estimated effective tax rate for 2003 and calendar 2002 was 37.6%. Minority interest expense was unchanged quarter to quarter.

Investment, Business and Other Highlights - Positioning for Renewed Growth
We continue to position ourselves to improve investment results, expand product offerings, improve client service, marketing, research and portfolio management infrastructure and invest in growth opportunities.

• Assets in our Non-Market Correlated Mutual Funds Group, under the aegis of Henry Van der Eb, amounted to $712 million at March 31, 2003, up 6% from $673 million at December 31, 2002, and 38% from $512 million a year earlier.

  –The Ned Davis Research Asset Allocation Fund, launched on March 31, 2003, is a new product offering in the Non-Market Correlated Mutual Fund Group.

  –The Comstock Capital Value Fund and Comstock Strategy Fund both received first place awards for “consistent performance relative to their peers” within their respective categories, at the recent Lipper Fund Awards ceremony. The Comstock funds, managed by Charles Minter and Martin Weiner, were the only two funds with the same portfolio managers to receive awards.

  –Gabelli ABC Fund (inception May 14, 1993) is one of only three equity-oriented funds, among 1,288 funds according to Lipper Inc., which have had absolute total returns in each of the last ten calendar years through 2002.

• Twelve Gabelli Mutual Funds, representing over 62% of our total rated fund assets, have earned Morningstar Inc.’s overall ratings of Five and Four Stars

• The Gabelli Convertible and Income Securities Fund Inc., a closed-end diversified management investment company, raised $50 million through an offering of two series of Preferred Stock in March 2003

• During the second half of 2002 we continued building our research team of security analysts and our institutional sales and marketing staff. These additions, while negatively impacting earnings in the short run, are essential to expanding our product offerings including proprietary, fundamental sell-side research for the institutional market

  Outlook-Bleak to Bright
  –Investors are “back to basics”. President Bush, as a precondition for his reelection, will pull out all the stops. Lower oil prices, rising confidence, record fiscal stimulus, and lower interest rates should spark a pick up in the economy, especially in the fourth quarter and first half of 2004. The stock market generally anticipates economic recovery by six months.

  –Our stock selection process, on the value side of Gabelli, driven by our proprietary company and industry research, continues to find fundamentally attractive investment opportunities selling at discounts to private market value with catalysts to trigger appreciation.

  –We expect global merger, acquisition and restructuring activity to continue to increase. In the U.S., regulatory reforms for the utility, telecom, energ y, newspaper and broadcast industries should provide catalysts. Deals for television, radio, and newspaper firms are set to heat up after FCC regulators meeting in June to decide easing the ban on same market ownership of newspapers, TV and radio stations, as well as the 35% cap that limits how much of the national audience one entity can reach. Banks and utilities are also ripe for another round of consolidation.

Financial Strength and Flexibility
Our balance sheet remains strong with cash and liquid investments totaling over $531 million at March 31, 2003 versus $518 million at December 31, 2002. Our debt consists of a $100 million ten-year 6% convertible note and $84.2 million of mandatory convertible securities which will be exchanged in February 2005 for approximately two million Class A common shares. Stockholders’ e q u i t y, including the mandatory convertible securities, was $418.4 million at March 31, 2003 compared with $406.3 million at December 31, 2002 and $385.1 million at March 31, 2002. We include mandatory convertible securities as equity since this instrument will be exchanged for common shares in February 2005.

We continue our two Stock Repurchase Programs under which the company may, from time to time, repurchase its Class A common shares and its mandatory convertible securities in the open market. During the first quarter of 2003 the Company repurchased 7,417 Class A common shares at an aggregate investment of $0.2 million and 15,300 shares of its mandatory convertible securities at an aggregate investment of $0.3 million. At March 31, 2003 we have $14.2 million available to purchase Class A common shares and approvals to purchase an additional 466,500 shares of the mandatory convertible securities.

Outlook
Since we derive over 90% of our revenues from our equity products, our firm’s profits are tied to the world equity market. Our rising cost structure reflects increased distribution and our intense focus on equity research where we have expanded our team of sellside analysts and plan further additions opportunistically.

This will impact our short term earnings, as will higher costs from expensing stock options, new product initiatives and increased distribution expenses from our mutual funds. However, we believe these initiatives provide the best cost effective way to increase value for our clients as well as intrinsic value for our shareholders on a longer-term basis. We note that our liquidity is sufficient to take advantage of opportunities including repurchasing our stock.

Mario J. Gabelli
Chairman & Chief Executive Officer

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

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