Financial Results

Total revenues were $57.0 million for the three months ended June 30, 2001 matching the record revenues reported in the second quarter of 2000. Net income rose 11.1% to $15.8 million in the second quarter of 2001 as compared to $14.3 million in the prior year quarter. Diluted earnings per share rose 10.4% to a record $0.53 per share in the 2001 quarter versus $0.48 per share in the second quarter of 2000.

For the first six months of 2001 total revenues were $115.4 million versus $114.9 million in the first half of 2000. Net income rose 9% to $30.7 million in 2001 as compared to $28.3 million in the first half of 2000. On a diluted per share basis we earned $1.03 per share in 2001, an 8% increase from $0.95 per share in the first six months of 2000.

Growth Drivers

Our revenue and earnings growth remains largely driven by the growth in average assets under management. Average assets under management were $24.6 billion in the second quarter 2001, 9% higher than average assets under management of $22.6 billion in the same period of the prior year. Net fund flows were $667 million during the 2001 quarter, a 71% increase from net fund flows of $390 million in the prior year quarter. We completed the quarter with $25.6 billion under management as compared to $23.6 billion at December 31, 2000 and $23.3 billion in assets managed at June 30, 2000.

Revenues in the second quarter and first six months of 2001 were virtually the same as those in the comparable prior year periods as increased revenues from our institutional and high-net-worth separate accounts offset lower mutual fund revenues and incentive fees earned on our alternative investment products. Despite positive net fund flows and strong relative performance, mutual fund revenues were affected by a shift in mix from open-end equity products to short-term fixed income products.

Operating margins improved to 43.7% in the current quarter versus 43.6% in the prior year quarter and were 44.8% for the first six months of 2001 as compared to 43.8% in the same period a year earlier. The Company continues its efforts to lower the overall operating cost structure of the firm.

Selected Highlights

• Eight of our open end equity funds received the top Morningstar overall rating of “Five Stars” and fifteen funds were rated “Four Stars” or better. The following Funds received the coveted “Five Star” rating in the second quarter:
  Gabelli Global Opportunity Fund - searches the world for growth and value opportunities in its stock selection process. The fund is team managed and began operations on May 11, 1998.

  Gabelli Westwood Mighty Mites ^SM Fund - invests in domestic micro-cap companies that have a market capitalization of $300 million or less. The fund is team managed and was started on May 11, 1998.

  Gabelli Equity Income Fund - seeks a high level of total return through investment in a portfolio of dividend paying equity securities. This fund was launched on January 2, 1992.

• Gabelli Asset Management sponsored the Value Investing Symposium in April at New York’s Museum of Television and Radio. This event served as a backdrop for the introduction of Columbia University Graduate School of Business Professor Bruce Greenwald’s book titled Value Investing. Leading value investing luminaries joined Mario J. Gabelli and Bruce Greenwald to address a packed auditorium of institutional investors, consultants and members of the press.

• GAMCO hosted its Sixteenth Annual Meeting in May. Nearly 700 clients attended a dinner at the Waldorf Astoria where three new inductees to the GAMCO Management Hall of Fame - Sal H. Alfiero, Mark IV Industries; James Carroll, Wynn’s International; and Edgar M. Cullman, Sr., General Cigar - were honored. Portfolio managers and Analysts shared their investment insights with clients.

• Our Gabelli Equity Trust preferred stock offering, rated “Aaa” by Moody’s, was heavily oversubscribed, raising $165 million for this closed-end fund through an underwriting led by Salomon Smith Barney, Merrill Lynch, and Gabelli & Company, Inc.

Share Repurchase Program

During the first quarter the Company purchased 30,000 shares, bringing the total repurchased under the program to 510,900 shares, substantially completing the program. In March 2001 the Board of Directors authorized the additional repurchase of up to $3.0 million of shares.

In May 2001, the Board of Directors approved an exchange offer in which four shares of the GBL’s Class A common stock would be exchanged for each share of Gabelli Securities, Inc. (“GSI”) Common Stock it did not already own. Shareholders of GSI have until August 31, 2001 to exchange their shares. At June 30, 2001, 115,248 shares of Gabelli Asset Management, Inc. have been issued under the terms of the offer. There were 29,604,548 shares outstanding at June 30, 2001, comprised of 5,604,548 Class A and 24,000,000 Class B shares.

Financial Strengths

On June 30, 2001 our assets included cash and investments of $299 million compared to $227 million a year ago. Our outstanding debt of $50 million, payable in January 2002, will be tax deductible when paid, reducing the overall cash outlay to $30.9 million. Overall we continue to maintain a strong and liquid balance sheet. Subsequent to June 30, we announced the private placement of a $100 million convertible note with Cascade Investment LLC. The note, which is convertible into 1.9 million shares of GBL Class A common stock at $53, provides additional flexibility and liquidity for the company as it examines its global strategic growth initiatives with a particular focus on the alternative investments business.

Our performance and growth during recent periods of stock market volatility underscore the strength of our diversified investment products as well as the balance of our extensive client base which includes high-net-worth, institutional, mutual fund and alternative investment accounts. We believe our commitment to providing investors with superior long-term, risk-adjusted performance will continue to benefit us through periods of increased volatility and will provide solid long-term performance for our shareholders. We thank our clients and our staff for their continued support, confidence and encouragement as we build on our commitment to deliver growth and enhance shareholder value.

Forward-Looking Information

This Shareholders’ Report contains certain forward looking information, including without limitation, business strategies and growth objectives, intrinsic value and the overall outlook for 2001 (including without limitation certain contemplated transactions). It should be recognized that such information are estimates or forecasts based upon various assumptions including those set forth herein as well as meeting the Company’s internal operating performance assumptions, competitive conditions, and the expected performance of the economy and financial markets as they impact the Company’s business. There may be other unknown risks, uncertainties or factors that may result in actual results, performance or achievements being materially different. There is no assurance that the forward-looking matters can be accomplished on terms acceptable to the Company or what the terms thereof may be. As a result of the foregoing and other factors, no assurance can be given as to future results and neither the Company nor any other person assumes responsibility for the accuracy or completeness of such information.

Mario J. Gabelli
Chairman & Chief Executive Officer

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