annual report 2012 - AnnualReports.com

annual report 2012 - AnnualReports.com

ANNUAL R EP ORT 2012 GAMCO Investors, Inc. 2008 1951 2001 Benjamin Graham David Dodd Roger Murray Bruce Greenwald 1940 1988 1934 2005 1962 ...

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ANNUAL R EP ORT 2012

GAMCO Investors, Inc.

2008 1951

2001 Benjamin Graham David Dodd

Roger Murray Bruce Greenwald

1940

1988

1934

2005

1962

“Imagine that in some private business you own a small share that cost you $1,000. One of your partners, named Mr. Market, is very obliging indeed. Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly. If you are a prudent investor or a sensible businessman, will you let Mr. Market’s daily communication determine your view of the value of a $1,000 interest in the enterprise? Only in case you agree with him, or in case you want to trade with him. You may be happy to sell out to him when he quotes you a ridiculously high price, and equally happy to buy from him when his price is low. But the rest of the time you will be wiser to form your own ideas of the value of your holdings, based on full reports from the company about its operations and financial position.” - Benjamin Graham, The Intelligent Investor Despite the many changes that have taken place in the investing landscape, the parable of Mr. Market has held true since The Intelligent Investor was first published in 1949. Its message – that the whims of Mr. Market do not represent the true intrinsic value of a security – is at the core of the value investing philosophy. The value approach to investing pioneered by Professors Benjamin Graham and David Dodd and further developed by Professors Roger Murray and Bruce Greenwald of the Columbia University Graduate School of Business has been, by a wide margin, the most consistently successful approach to investing. This success has been validated by a number of academic/statistical studies, by the performance of value-oriented money management institutions, and by the records of individual, value-oriented investment managers. Our belief is that the dissemination, extension, and refinement of the value approach are broadly beneficial to investors at large. In 2005, GAMCO Asset Management Inc., in cooperation with the Columbia University Graduate School of Business, established an annual prize for Value Investing. The prize is intended to honor individual contributions in at least one of five areas, which serve the goals of refining, extending, and disseminating the practice of Value Investing. They are:

— Innovative work in valuing securities in the Graham & Dodd tradition for either particular industries or particular asset classes. — — — —

This work may be either theoretical/academic or applied/practical. However, it will extend existing conventional wisdom on valuation in ways that can be usefully applied in practice. Innovative academic research of either a theoretical or statistical nature that illuminates and extends the principles of Value Investing. Work in community building and/or information dissemination that contributes to the widespread practice of Graham & Dodd principles. Outstanding contributions to Value Investing education by students, faculty (adjunct & full time), and practitioners. Contributions to the implementation of sound Value Investing practices within companies either through investor activism or public advocacy.

A committee drawn from the Value Investing community will apply these criteria in awarding the prize. This year’s honoree, Michael F. Price will be awarded the Gabelli Prize at GAMCO’s 28th Annual Client Conference in May 2013. The first recipient was Joel M. Greenblatt who received the honor at GAMCO’s Annual Client Conference in May 2005. In 2006, it was Martin J. Whitman; 2007, Robert W. Bruce, III; 2008, Jean Marie Eveillard; 2009, Richard H. Thaler, Ph.D.; 2010, Charles M. Royce; 2011, Erin Bellissimo. Last year’s recipient was William von Mueffling.

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GAMCO Investors, Inc.

— GROWTH — Building Blocks Financial Highlights (in thousands except assets under management and per share data)

December 31,

Assets under management (a)

2007

2008

2009

2010

2011

2012

$ 26,382 $ 27,691

$ 30,573

$ 20,201

$ 26,346

$ 32,522

$ 34,085

$ 36,405

71,927

79,569

24,866

55,533

68,792

69,682

75,539

2.49

2.79

0.89

2.02

2.52

2.61

2.86

2003

2004

$ 20,795

$ 27,080

$ 28,234

53,313

49,633

62,591

63,941

1.76

1.65

2.06

2.11

Net income Net income per share - diluted Dividends per share

-

$

0.02

$

1.16

2005

0.69

$ 0.12

29,881

30,050

28,837

29,543

28,241

28,446

27,746

27,605

27,053

26,755

25,746

$ 30.04

$ 39.80

$ 48.52

$ 43.53

$ 38.46

$ 69.20

$ 27.32

$ 48.29

$ 48.01

$ 43.49

$ 53.07

Year end shares outstanding Year end share price

2006

2002

$

$

1.12

$

2.02

$

2.13

$

5.02 $

1.15

$

2.88

(a) in millions, at period end

— Since the IPO — GAMCO Asset Management Inc.

Shareholder Compensation

Thirty-six Year Investment Record 1977 - 2012

Since 1999 IPO

Brand

Current Business Mix

2012

$800.4 million

$131.3 million

Stock Buyback $353.3 million 8,482,365 shares @ $41.65 per share

Stock Buyback $54.9 million 1,138,313 shares @ $48.25 per share

Dividends $447.2 million $16.31 per share

Dividends $76.4 million $2.88 per share

Balance Sheet Selected Highlights $ in millions

Alternative Investments

GABELLI Institutional / PWM

Cash and investments

IPO 2/99

1999

December 31, 2001 2011 2012

$162

$194

$428 $675 $569

Mutual Funds Debt

50

50

50

263

216

Equity

111

148

275

404

368

GAB E LLI = VALU E 13

GAMCO Investors, Inc.

Chairman’s Letter Fellow Shareholders: Last year, in our 2011 annual report, we wrote to you that the U.S. equity market was one that seemed like walking through waist high mud. Lots of effort but…it didn’t get very far. 2012 unfolded in a materially different way. The major U.S. equity indices were up 16% as measured by the Standard & Poor’s 500 Index, 10.2% for the Dow Jones Industrials and a 17.7% gain by the NASDAQ Composite. Our clients had a good year. The institutional/private wealth management portion of our business (GAMCO – GAMCO Asset Management Inc.) enjoyed a gross return of 16.9% and a net return of 16.3%. This takes GAMCO’s annualized returns from 1977 up to 16.7% gross and approximately 15.8% net. We ask anyone to find another asset management organization, unlevered and tax sensitive, and demonstrate how they matched or exceeded this return over a comparable period. Clearly, we can attribute our performance record to our Graham, Dodd, Murray (and now Greenwald) roadmap as well as a terrific stock market since we started the firm (ignoring 1977-81, ’87, ’90, ’94, 2001-2002, 2008).

• Other ways to make money – The New New Mantra Right now the new fad of dynamic trading (under the aegis of “risk on, risk off”) is flourishing and reminds us of the “new flavors” of the past. We remember the nifty fifty of the 1970’s and “one decision stocks”; portfolio insurance à la Leland, O’Brien and Rubenstein, which was discredited by the market crash of 1987; the tactical asset allocation portfolio dynamics that were developed and promoted by the Chicago crowd of which Gary Brinson was a part; the TMT bubble dynamics of the late ‘90s; and other various styles of momentum investing (risk on/risk off). Many observers of the financial markets have proclaimed the death of the long term “buy/hold strategy”. Well, not so fast - we continue to adhere to the philosophy of fundamental research by using our Private Market Value (PMV) with a Catalyst™ stock selection process. Our value based mutual funds had very low turnover in 2012 – and, for that matter, for longer periods as well. For example, our Asset fund had a turnover last year of 4%, the Small Cap fund a low 7%, and our Utility fund with 15%, just to highlight a few. Obviously, when you look through our fund offerings, those that are involved with merger and acquisition activity had significantly higher turnover, such as our ABC Fund which had a turnover of 256%, but that underscores its investment team’s success at selecting “deals” that closed.

• So much for the past – but what next? The U.S. economy, which represents about 22% of the $75 trillion of global nominal GDP, suffered many speed bumps in 2012. In addition to ongoing de-leveraging dynamics, we had a lingering but improving housing market, uncertainty over the U. S. election and fiscal cliff (were we going to patch – kick – fix again and again) and some bright spots, including low cost natural gas courtesy of the “shale revolution” and a resilient industrial sector. On a global basis, the markets continue to be challenged by the credit, and economic and political headwinds of the European Union (22% of world GDP); continued constraints in China (12% of world GDP); and the lingering after effects of the deflation in Japan (8.5% of world GDP). To the rescue: Federal Reserve Chairman Bernanke continued to pump significant amounts of liquidity into the financial system. These actions included: – – –



On January 25, 2012 the FOMC extended its forward rate guidance for an exceptionally low federal funds rate to “at least through late 2014”. At the June 20th meeting the FOMC extended the program to lengthen the average maturity of its holdings of securities (“Operation Twist” initiated on September 21, 2011) from the end of June to the end of 2012. Following the September 13th meeting the FOMC initiated QE3 with the announced purchase of an additional $40 billion a month of agency mortgage backed securities (MBS) through the end of 2012, increasing the total monthly rate to $85 billion. The exceptionally low rate guidance was extended to “at least through mid-2015”. At the final FOMC meeting for 2012 on December 12th, the committee launched QE4 with the statement that the Fed would start purchasing longer term U.S. Treasury securities at the rate of $45 billion a month in addition to the $40 billion of MBS. The FOMC also modified its forward rate guidance to a numerical threshold for employment from the previous date based time frame, stating that exceptionally low rates would remain appropriate “at least as long as the unemployment rate remains above 6½% ...”

By the end of the year elections had taken place in Russia (Putin was “re-elected”) and China (the new guard of Xi Jinping and Li Keqiang, while officially not taking place until March 2013, were anointed by the Communist Party). Shinzo Abe was elected in Japan and has promised accelerated inflation while Mario Draghi became even more aggressive than Ben Bernanke in using the ECB’s monetary tools at his disposal. 2

GAMCO Investors, Inc. The stock market hesitated towards end of the year as investors reacted to uncertainty regarding another cliff (January 1st) and the probability that taxes would rise materially. We expect that money which has earned significant returns in U.S. fixed income markets will start looking to the relative benefits of common stock ownership. All in all, it was a very fruitful year for GAMCO clients and that has provided a great year for the shareholders of GBL.

• What about GBL? We started the year with our stock at $43.49 per share and finished the year at slightly over $53.00 per share. During the year, our shareholders benefited directly by: –

Dividends of $2.88 per share or $76.4 million consisting of a 25% increase of the regular quarterly dividend to $0.05 per share starting in our third quarter and special dividends of $0.25 per share in the second quarter, $0.25 per share in the third quarter and $2.20 per share in the fourth quarter.



We initiated a Dutch tender within a range of $46 - $50 per share and repurchased 717,389 shares at $50 per share, or over 10.5% of our float, for $35.9 million. This was in addition to over 421,000 shares that we bought in the open market prior to that.



We repurchased approximately $64 million face value of zeros that were issued in 2010 to shareholders.

However, our business plan needs “tweaking” as we still need to: –

Find a suitable acquisition(s). However, Teton – a spinoff to our shareholders in March 2009 (14.93 shares of Teton Class B common stock for every 1,000 shares of GBL A or B shares owned) – was able to bring in a world class mid-cap equity asset management team that was seeded with $400 million.



Increase the assets in the strategic value sleeve of our SICAV fund. Many seeds were planted, some have sprouted, but have yet to be harvested.



Continue to evaluate the refinancing of $99 million of our May 2013 5½% debenture that is coming due.



Get an individual turned around who recommended another fund product to his subscribers that has so far turned out to have weaker performance than our mutual fund which he recommended his followers liquidate.

• Industry challenges - in no particular order –

– – – –

– – – – – – – –

– – – –

Will new accounting standards lead to a stampede to “LDI” (Liability Driven Investing) for our defined benefit pension clients? As an equity firm – will we be challenged? What are the implications for management of pension assets? How about 12b-1 fees? What happens with active ETFs vs. Active Management? Why not invest more directly in the emerging markets? The Advisor channels have experienced many changes – Merrill Lynch is now part of Bank of America, Smith Barney is with Morgan Stanley, A.G. Edwards and Wachovia are now with Wells Fargo. What will happen to our friends and how they help their clients in this channel of distribution for our investment products? Will there be more consolidation in the channels of distribution? NTF Channels are demanding higher relationship fees. How about a recovery in the vitality of the hedge world and their attempt to “raid” our intellectual capital? What about acquisitions, lift outs, growth in Europe/Asia? What about the Flash Crash? A Tobin Tax? Flash Trading? Negative real interest rates and the destruction of savings. Increasing allocation of assets to money management firms that are “solution providers”. The investment implications of “risk on/risk off”, including “quant models” versus long term, buy and hold investing. Impact on the fund industry of the loose confederation of entities that manage funds organized to buy closed end funds and disrupt long term investment benefits for their owners through self serving pressure tactics. Taxes – up, down or stay the same at the federal, state and local levels? Scale economics related to increased regulation and costs associated with escalating compliance requirements. Changes to the structure of “money market” funds. Growth of “Private Equity”, Venture Capital, and alternative investments.

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GAMCO Investors, Inc.

• Yet to be done Monetize our global research capabilities in the value area by launching mutual funds to capture our research skill sets in the small and mid cap area – stay tuned.

Giving Back We want to again share with you our philosophy towards giving back – and announce a new partnership between you, our shareholders, and GAMCO Investors, Inc. to further the goal of charitable giving. To help explain our thinking in this regard, we are going to highlight two commentaries, one from our own 2008 annual report and the second from Berkshire Hathaway’s 2003 annual report.



The first commentary is what we shared with you in the Chairman’s Letter in our 2008 annual report in a section entitled “Giving Back”. It explains our thinking: “Each year, regardless of the economic climate, we strive to make the world a better place by contributing to those in need. In 2008, many of us donated countless hours of our time and gave resources to causes that support education, the environment, that help to reduce poverty, and strive for human equality. We are fortunate to live in the wealthiest nation in the world and to have the capacity to support a wide range of institutions and charitable organizations. “The more you give, the more you receive”. Philanthropy is tied directly to the health of the overall economy. Historically, charitable giving declines in years in which the economy experiences a recession, or in years when the stock market suffers a significant decline. For example, in 1974, during a long recession (1973-1975), giving fell almost 10%. In addition, donations are dependent on the more fortunate, and as a result, charitable giving has become more top-heavy. In prior generations, 20% of donors gave 80% of funds to charities. Today, the pool of donors has declined dramatically. Many nonprofits are faced with budgetary challenges because of sharply lower gifts coupled with sharply lower investment portfolios. It is therefore essential for us to maintain and to expand (where possible) our philanthropic efforts.”



The second commentary is one that was prepared by Berkshire Hathaway and given out as a July 3, 2003 news release. In it, they announced the conclusion of their successful twenty three year old shareholder contributions program: “Berkshire Hathaway has terminated its shareholder-designated contributions program, which has distributed approximately $197 million since it was begun in 1981. This program has allowed holders of Berkshire’s A shares to designate a per-share sum for the company to contribute to as many as three charities, the only requirement being that the designee have 501(c)(3) status. The program thus allowed a wide variety of donations, some of them controversial but all outside the control of Berkshire. In recent years, about 3,500 charities have been designated annually, with schools the favorite (about 800 different institutions have benefited), followed by more than 400 churches and synagogues. Some institutions were named by many shareholders. Last year, for example, ten shareholders directed funds to Creighton University and 20 named the University of Nebraska.”

Something new, something old We will continue in our internal “giving back” in 2013. In addition, this year, we are going to follow Warren Buffett’s initiative – which he undertook on behalf of Berkshire Hathaway from 1981-2003. We have asked our Board of Directors and they have agreed to contribute $0.25 per share for each registered shareholder who will then be able to designate this donation to a charity of their choice. We will follow the same rules of participation that Berkshire Hathaway outlined in their annual report To participate in our program, you must own Class A or B shares that are registered in the name of the actual owner, not the nominee name of a broker, bank or depository. Secondly, any donation request must be to an organization that is a 501(c)(3). Importantly, any requests received after August 31st will be ineligible. When you get the contribution form from us, return it promptly so - in the words of Buffett - “don’t push it aside and forget.” We look forward to many years of partnering with you to give back. Thank you for your continued confidence in GAMCO’s future. Sincerely,

Mario J. Gabelli Chairman

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GAMCO Investors, Inc.

— Economic and Market Outlook — The economic recovery that began in July of 2009 continues to advance. We expect the final figures for fourth quarter 2012 real Gross Domestic Product (GDP) to be positive and provide confirmation that we ended 2012 with forty- two consecutive months of economic growth. We surpassed the pre-recession peak in nominal GDP in the fourth quarter of 2010, so we have been in record GDP territory for the past two years. Corporate profits have also more than fully recovered, establishing a new high in 2011. In the aggregate, earnings were pretty flat for 2012, but remain elevated near the record 2011 level. We have also made progress in bringing down the unemployment rate. Unemployment peaked in October of 2009 at 10.0%. It began 2012 at 8.5% and ended the year at 7.8%. The so-called establishment survey showed average monthly payroll gains of 153 thousand last year. The recent better than expected data for weekly unemployment claims points toward even better monthly payroll gains in 2013. While the recovery remains uneven, prospects for 2013 are encouraging. Strength in housing and autos, along with resilient retail sales, should help to offset pockets of weakness, including areas impacted by the twin fiscal cliff headwinds of higher taxes and spending cuts. Globally, the economic outlook is similar in direction and magnitude to 2012. Compared to 2012, the emerging markets (including China) and the Euro area should register improvement, with the U.S. and Japan showing positive growth, albeit with some modest retrenchment.

Howard F. Ward, CFA

Chief Investment Officer Growth Investments joined GAMCO Investors, Inc. in 1995 as Senior Vice President and Portfolio Manager of the GAMCO Growth Fund. In 2004 he was named Director of Growth Products. He graduated from Northwestern University in 1978 with a BA in economics.

It will be a struggle for the U.S. or Japan to grow faster than 2%, although we can’t rule that out at this point. Along with housing and autos, the U.S. energy industry is providing a tailwind. This directly impacts employment in the energy patch and indirectly helps domestic manufacturing by supplying cheap natural gas as both a fuel and a raw material input. Monetary policy is another tailwind, as Chairman Bernanke’s quantitative easing policy continues to exert downward pressure on interest rates. While the Congress and White House have agreed upon various tax rate increases for 2013, no agreement has yet been reached regarding spending cuts and a lifting of the debt ceiling. Politicians have bought at least several months of time to contemplate where we go from here but the likelihood of spending cuts as determined by the possible sequestration has gone up, as has what may be a rolling series of three month debt ceiling extensions. There appears to be little appetite for compromise in Washington. Like the economy, the stock market has recovered from its low during March of 2009. The Standard and Poor’s 500 Stock Index has advanced about 125% and is within 2% of the 2007 peak of 1575. The even broader Wilshire 5000 Stock Index sits at an all time high. The NASDAQ Index is at a twelve year high. The market’s strong advance since March of ’09 has taken place in the face of widespread negative sentiment. Individuals withdrew over $500 billion, net, from equity mutual funds since 2008, according to the Investment Company Institute. Corporations have been buyers, however, resulting in a shrinking of the equity supply of over $600 billion just since 2010, based upon data supplied by Ned Davis Research. Individuals preferred bonds, directing over a trillion dollars, net, into bond mutual funds since 2008. Again, corporations took the other side of that trade, issuing nearly $5 trillion in bonds since 2008, indicating they expect interest rates to rise in the future. Bond yields may have bottomed this past July, when the 10 year Treasury sold at a yield of 1.38%. It has since rebounded to about 2.0%. According to The Leuthold Group,the median yield on the 10 year Treasury, since 1957, is 6.1% and the peak of 15.0% was hit in 1981. At 2.0%, investors are paying 50 times the coupon while the average since 1957 is 16 times. The dividend yield on the S&P 500, at 2.1%, remains marginally higher than the 10 year Treasury. Typically, the 10 year yield is 2.7 times that of the dividend yield, at least over the past 30 years, according to Ned Davis Research. It is hard to make a positive case for bonds with interest rates this low. Unlike bonds, stocks should provide protection from inflation over time. Over the past 35 years, the Consumer Price Index has compounded at 4%. Stocks returned 8% without dividends and 11.2% with dividends. Stocks generated a growing income stream, with dividends growing at 5.5% compounded. For comparison, a gallon of gas compounded at 4.9% and the price of gold at 6.2%. Over the longer term, we believe the return on stocks will mirror the nominal GDP rate plus the dividend yield, just as it has over the past 64 years. Nominal GDP compounded at 6.7%, earnings grew 6.4% and stocks advanced at 7.4%. With dividends, stocks returned 11.2%. We see nominal GDP growing 4 to 6% and a total return on stocks of 6 to 8%. Year to year returns will fluctuate more broadly due to cyclical factors, just as they always have. Smaller cap stocks have historically done better than larger cap stocks and that should continue due to their higher growth rates, on average. Good stock picking can also enhance returns. We believe 2013 has the potential to be another good year for stocks as long as the earnings outlook remains positive and bonds remain mathematically challenged. 57

GAMCO Investors, Inc.

— Picking Stocks in a ‘Macro’ Driven Market — Booms and busts, wars and pestilence have been facts of life since the dawn of civilization. Since the founding of our firm in 1977 we have witnessed inflations/deflations, burst bubbles, political scandals, several wars and the fall of Communism. Yet at no time since World War II have government actors and global events played such impactful roles in the everyday lives of Americans or the meanderings of the market. The headlines of the last five years have been dominated by two major themes: First, the developed world is in the midst of a major deleveraging as overconsumption financed by debt has constrained growth and pressured federal, state and local government budgets. While the situation is daunting, Christopher J. Marangi Kevin V. Dreyer the US possesses certain advantages. Namely, it does not face the demoPortfolio Manager Portfolio Manager graphic challenges of Japan or the political and monetary constraints of Eu- joined GAMCO in 2003 as joined GAMCO in 2005 as a research analyst and now rope. However, the ability of the US to repay its debt in a currency it controls a research analyst and now is Portfolio Manager of the is Portfolio Manager of the does come with certain dangers and we remain vigilant regarding inflation. Gabelli Asset Fund, GAMCO Global Opportunity Fund and the Gabelli Healthcare & WellnessRX Trust. Mr. Dreyer received a BSE from the University of Pennsylvania and an MBA from the Columbia Business School.

Second, the developing world faces its own issues as nations, primarily in Asia and Latin America, attempt to command economic forces largely beyond their control. China, undergoing its own political transition, has been hard pressed to engineer a “soft landing” for its economy. At the same time, many of those same states face the longer term task of (peacefully) meeting the desire of their populace for greater political and economic freedom.

The developed/developing world dichotomy is, of course, misleading. Add issues of food and energy allocation and climate change and the most pressing challenges today are global in nature, compounding their complexity and intractability. We think it is unrealistic to expect to solve any of these “problems” in the near term; at best they can only be managed over a longer time horizon.

Gabelli Asset Fund, Value Fund, SRI Green Fund, Gabelli Multimedia Trust, Gabelli Dividend & Income Trust, and Gabelli Natural Resources, Gold & Income Trust (Co-Lead Portfolio Manager). Mr. Marangi graduated magna cum laude and Phi Beta Kappa with a BA from Williams College and an MBA with honors from the Columbia Business School.

Against this backdrop, investment choices must be made. Macro issues can neither dictate stock selection nor can they be ignored. In our view, macro inputs represent a range of probabilities that inform our microeconomic forecasts and valuations. Our process and philosophy remain unchanged. It begins with a dedicated research team whose objective is to dominate the knowledge of their industries globally. We leverage that accumulated intellectual capital in a time-tested and repeatable investment process: — We seek high quality industries, companies and managements. Generally we begin with industries that we can readily understand, with manageable rates of change and limited exposure to variables beyond control. We look for companies with enduring competitive advantage which in most cases would imbue them with pricing power. Our ideal investment possesses a Board of Directors and management with transparent shareholder friendly capital allocation policies. And since the macro will surely surprise, we favor management teams that have proven themselves adaptable to change. — Second, we focus on companies whose public price is meaningfully less than our estimate of their Private Market Value (PMV), or what an informed buyer would pay to own the entire enterprise. This “margin of safety” provides us with significant upside potential and downside protection. Note that PMV is not static; it should grow along with a company’s assets and cash flow potential. Whether a security’s public price keeps pace with PMV growth can determine whether its margin of safety waxes or wanes. — Finally, we attempt to articulate one or more catalysts that will narrow a company’s discount to PMV. Catalysts can take many forms including mergers and acquisitions (M&A) activity, financial engineering such as spinoffs and buybacks, change in management, evolution in regulation, completion of a major project or introduction of a new product. As portfolio managers our job is to balance the above considerations: a high quality company with a near and certain catalyst could warrant a smaller margin of safety than the converse situation. Our aim is to maximize returns while minimizing the potential to permanently impair capital. We seed the portfolio with a diverse basket of ideas that can be harvested regularly at irregular intervals. Over time we have demonstrated this is the best way to generate superior returns.

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GAMCO Investors, Inc.

— Investors — Women control nearly a third of the world’s wealth, yet are less financially literate than men. This is a segment of the market we are well prepared to serve. In the US alone, there are more than 8.3 million women owned businesses generating nearly $1.3 trillion in revenue. Our style of investing meshes well with the tailored long term, goal oriented approach many women favor. Women live longer, and thus have higher medical Left to Right: Judith Raneri, Portfolio Manager; Regina M. Pitaro, Managing Director expenses, and more often need to take breaks Laura S. Linehan, CFA, Portfolio Manager; Elizabeth M. Lilly, CFA, Portfolio Manager from work to care for children or elderly parents. Sarah Donnelly, Portfolio Manager; Barbara G. Marcin, CFA, Portfolio Manager Frequently, women’s financial decisions are driven by concerns about retirement or caring for children and grandchildren. Long term financial strategies must recognize and address issues such as these.

— Health and Wellness — Ten years ago we identified health and wellness as a key long term investment theme and built out our research team to find new opportunities in this dynamic market. The rapidly aging global population, an increasingly empowered consumer, and an explosion of obesity and diabetes are driving significant economic and lifestyle changes. The post-WW II baby-boom generation is retiring and entering their peak years for health care demand. They are more educated and involved in their health decisions than ever before. But despite some promising trends towards prevention, health care costs continue to grow at twice the rate of GDP, fueled by demographics and heavy investments in emerging markets to expand healthcare access to more of their populations. To take advantage of this vibrant market, we created the Medical Opportunities hedge fund in 2006 and the Gabelli Healthcare & Wellness trust in 2007.

Left to Right: Kevin Kedra, Analyst; Jennie Tsai, Analyst; Jeff Jonas, CFA, Portfolio Manager

US Healthcare Reform Healthcare reform in the U.S. is bringing an estimated 30 million uninsured into the system and spending an additional $1 trillion over ten years. Hospitals should see additional procedure volumes and sharp reductions in their bad debt and charity care, currently consuming 20% of revenue. Since insurance companies will be increasing coverage, newly insured consumers can afford prescription medication. Pharmaceutical companies have agreed to significant price concessions and taxes as part of reform. Medical device companies who may face limited volume gains and a new 2.3% excise tax are restructuring and expanding internationally to offset it. The changes from healthcare reform are driving substantial consolidation in the industry. Hospitals are forming Integrated Delivery Networks (IDNs) by acquiring physicians and other providers, and focusing on prevention and coordination of care to reduce costly readmissions. They are also consolidating vendors, simplifying supply chains and winning price concessions for higher volume. Payers are increasingly demanding extensive clinical and cost-effectiveness data before adopting a new treatment. The cost of new regulations and taxes fall heaviest on small firms encouraging startups to sell to larger, more efficient partners.

Global Nutrition Educated consumers are trying to prevent problems through proper diet, exercise, and improved lifestyle choices which can reduce health care costs by as much as 75%. There is a growing realization that the modern diet is unhealthy and a significant contributor to obesity. Companies are reducing salt, trans fat, and other unhealthy ingredients in processed food. Junk food consumption has declined over the past decade while sales of organic food have grown 16% a year to over $27 billion in the US alone. Recently, gluten-free food has emerged as a rapidly growing market. Retailers and manufacturers are rapidly reformulating their products to participate in this $2.6 billion market, growing 28% annually. Yogurt makers have rolled out Greek-style formulations, added probiotics, and transformed this $88 billion global market. Companies are focusing on emerging markets for growth, both organically and through targeted partnerships/acquisitions as locally developed products are cheaper to manufacture and carry highly attractive margins. Most are looking to double the proportion of their sales derived from these countries to 20% or more. They are establishing local research, training, and manufacturing centers, benefiting from lower labor costs and gaining the ability to compete for government business. Rising standards of living will continue to drive the demand for health and wellness products and services. Higher quality food and health care are two of the things demanded by new middle class consumers. The need for smarter and better lifestyle is driven by simple economics: the cost of chronic, preventable disease like diabetes is becoming too high for any government to afford; Consumers are bearing an increasing share of the $6.5 trillion in global health spending. Only through a coordinated investment in health and wellness will we be able to meet the needs of an ever-growing and aging worldwide population. 79

GAMCO Investors, Inc.

— Financial Engineering — GAMCO has focused on absolute returns since the firm was founded in 1977.



We launched our first hedge fund in 1985 to invest in merger arbitrage situations. In 2012, Gabelli Associates recorded its twenty-fifth consecutive year of positive gross returns. Worldwide mergers and acquisitions activity totaled $2.6 trillion in 2012, an increase of 2% over last year, propelled by a strong fourth quarter in which it increased more than 50% over the third quarter. The momentum has carried into 2013 as we are off to the fastest start since 2005.



In merger arbitrage, the investment process begins with the announcement of an acquisition, a deal. In most mergers an acquirer makes an offer for all of the target’s stock; however, the target’s shares usually trade at a discount, or spread, to the final deal price because of the time value of money, regulatory approval risk, financial risks and other risks specific to the transaction. The Gabelli merger arbitrage portfolio team leverages the research capabilities of our more than thirty analysts to evaluate potential risks and reward unique to each deal. Two examples of merger arbitrage investments that benefited from GAMCO’s research methodology include:

Eugene R. Bernardin, Paolo Vicinelli (rear) Raffaele Rocco, Willis Brucker (front)



Thomas & Betts, a manufacturer of electrical connectors and components used in industrial, commercial, communications and utility markets, agreed to be acquired by Swiss industrial company ABB for $72 cash per share, or about $4 billion. On behalf of clients, GAMCO was the largest shareholder of Thomas & Betts. ABB had previously acquired another GAMCO holding, Baldor, at a valuation that made Thomas & Betts look inexpensive by comparison. Analyst and portfolio manager Zahid Siddique helped assess valuation and competitive positioning to determine the likelihood of successful completion as well as the potential for the emergence of another bidder. In addition to shares already owned by the firm, we acquired shares for the arbitrage funds after the deal was announced and benefitted when the deal was successfully completed on May 17, 2012.



Schiff Nutrition owns brands including Mega Red, Move Free, Airborne and Digestive Advantage that compete in the growing $30 billion U.S. nutritional supplements industry. Gabelli & Company analyst Damian Witkowski authored a research report on October 1, 2012 placing a $34 private market value on shares. When Bayer Healthcare announced it would acquire Schiff for $34 cash per share on October 30, 2012, GAMCO clients were among the largest outside shareholders of the company. Based on discussions with Damian, we believed the valuation offered to Schiff shareholders was acceptable. Arbitrage accounts accumulated shares because of low regulatory hurdles, a well financed buyer and a short timeline to deal close since the transaction was structured as a cash tender offer. Arbitrage funds benefitted from owning shares of Schiff when on November 15, British consumer healthcare company Reckitt Benckiser made an unsolicited proposal to acquire Schiff for $42 cash per share, or $1.4 billion. Bayer chose not to exercise its contractual right-to-match, and Reckitt successfully completed its acquisition on December 17, 2012.

Stubs, Spinoffs & Liquidations 2012 will likely be remembered as a year of financial engineering as spinoffs and divestitures reached “record levels”, a harbinger for more deal activity down the road. For example, Sara Lee split into two companies: Hillshire Brands, a leader in the packaged meats business, a $12 billion market opportunity, and D.E. Master Blenders, a pure-play coffee and tea company with operations in Europe, Australia, Brazil and Thailand. As separate companies, each can pursue more focused growth strategies that could involve acquisitions, organic growth, or a sale of the company. Other financial engineering highlights in 2012 include: –

– –

Ralcorp agreed to be acquired by ConAgra Foods for $90 cash per share, or about $7 billion. Ralcorp was previously pursued by ConAgra in 2011, but instead spun off its branded food business, Post Holdings, with Ralcorp continuing as a pure-play private label food company. Gaylord Entertainment sold its hotel management business to Marriott for $210 million and spun off its hotels into a REIT, Ryman Hospitality Properties. CBS announced plans to spinoff its outdoor advertising business into a REIT, allowing the company to focus on its core broadcasting business and buy back shares of the broadcaster. –

Kraft Foods split into two businesses: Kraft Foods Group, focused on North American packaged foods, and Mondelez International, which sells in international markets.

Paul D. Sonkin Portfolio Manager joined GAMCO in 2013 as portfolio manager, non-market correlated investments, stubs and spin-offs, focusing on micro and nano-cap stocks. Mr. Sonkin holds a B.A. in Economics from Adelphi University and an MBA from the Columbia Business School.

All the ingredients are in place for a robust wave of M&A: elevated cash levels, amenable capital markets, historically low interest rates and a need to find new avenues of growth. The missing ingredient had been executive confidence and with a recovering U.S. economy, and greater tolerance to volatility (manmade or otherwise) we believe the pump is primed for 2013 and beyond. Our merger arbitrage strategies will benefit from increased levels of M&A and from a rising interest rate environment (when Chairman Bernanke takes away the punchbowl) in the form of wider spreads. 8 10

GAMCO Investors, Inc.

— Alternative Investments — Overview In the alternative investment marketplace, Gabelli & Partners has a family of absolute return products with dedicated teams looking for investment opportunities based on the Gabelli philosophy of investing. In today’s volatile markets, we believe such investment vehicles provide our clients with proven absolute returns that can meet their investment goals. Our first alternative investment product, a merger arbitrage fund, was introduced to our clients in 1985 with great success. Building on the Firm’s strengths, new hedge funds have been added over the years, with a selective list of our offerings. Customized Solutions Our portfolios offer the broad spectrum of catalyst-driven value investing. Our alternative investment group is a specialized investment division within Gabelli, utilizing the full resources of the organization, while maintaining its independence and flexibility. We are dedicated to achieving your investment goals through our value- enhanced portfolios, products and services. We can individually tailor alternative investment solutions to your specific requirements and provide sector based portfolios in the following strategies: • Investment Partnerships & Offshore Funds – Merger Arbitrage: Our first fund started in 1985. – Event Driven Value with a Catalyst: Mario Gabelli, CFA has been managing event-driven value with a catalyst alternative portfolios since 1987 with the launch of Gabelli Performance Partners (GPP). An offshore version of the Fund, Gabelli International Limited, was added in January 1989. – High Yield Intermediate Credit: Wayne Plewniak is the Portfolio Manager of the Gabelli Intermediate Credit Fund, bringing over twenty-five years of experience in managing credit portfolios. The onshore Fund was established in January 2007 and the offshore launch was in January of 2013. – Capital Structure Arbitrage: Vincent Hugonnard Roche is the Portfolio Manager of Gabelli Capital Structure Arbitrage and is the Director of Quantitative Strategies. The Fund began both onshore and offshore operations in January 2009. – Medical Opportunities: Jeff Jonas is the Portfolio Manager of GAMCO Medical Opportunities with Kevin Kedra as the dedicated Analyst. The Fund was launched in January 2006. – Clean Resources and Sustainability: David Smith, CFA, CA is the Portfolio Manager of the Gabelli Green Long/Short Fund, with Moritz Pöhl as the dedicated Analyst. Gabelli has been managing a long/short sustainability and clean resources fund onshore since June of 2009 and offshore since January of 2011. – Gold Equities: Caesar Bryan is the Portfolio Manager of the Gabelli International Gold Fund, with Chris Mancini as the dedicated Analyst. The Fund commenced operations in October 1994. – Japanese Value: Mark Yim is the Portfolio Manager of Gabelli Japanese Value Partners. Inception of the Fund was in April 2002. – Energy: The Fund was started in June 2003. • GAMCO International SICAV – Merger Arbitrage: Ralph Rocco and Mario Gabelli, CFA are co-Portfolio Managers of the GAMCO Merger Arbitrage UCITS portfolio, with Paolo Vicinelli and Willis Brucker as dedicated Analysts. GAMCO Merger Arbitrage was launched in October 2011. – Event Driven Value with a Catalyst: Mario Gabelli, CFA, is Chairman and Chief Executive Officer of GAMCO Investors, Inc. and has been managing GAMCO Strategic Value UCITS since its inception in October 2010 along with co-Portfolio Managers, Chris Marangi, Kevin Dreyer and Laura Linehan.

— Global Value — Our European and Asian Research In order to expand our core research capabilities and competencies, the Firm has opened offices globally, beginning with London in 1999. Since then we have extended our research presence in Europe by adding an affiliated office in Zurich. We followed that success with further expansion into Asia, opening offices in Hong Kong in 2007, Shanghai in 2008, and most recently, Tokyo in 2011. The below analysts contribute to our storied research presence and expertise globally. Evan D. Miller, CFA is Managing Director and head of the Gabelli London Office where he serves as both an Analyst and Associate Portfolio Manager of the Value Team. He has been with Gabelli since 2002 and has been investing in corporate restructurings, with an emphasis on the telecommunications industry, for over 25 years. Ashish Sinha is a Research Analyst specializing in European event-driven value opportunities. He has over seven years experience covering European markets and has focused on the Technology, Mid-Cap (generalist) and Business Services sectors. Mr. Sinha is a Chartered Financial Analyst. Virgil Y. Chan is the head of the Hong Kong office for GAMCO International Partners, LLC. He joined GAMCO Investors in 2008 and focuses on research and business development. Chong-Min Kang is the head of the Shanghai office and re-joined the firm in 2007 focusing on identifying alternative investment opportunities throughout Japan, Korea, and China. Mr. Kang originally joined the firm in 2004 as an institutional research analyst covering the global beverages industry. Mitsuyoshi Kikuchi is the head of the Tokyo office and joined GAMCO Investors in 2011, focusing on research and marketing. He has 24 years of industry experience most recently with Mizuho Securities Co., Ltd. 911

GAMCO Investors, Inc.

— Private Wealth Management — In 32 out of the first 36 years, GAMCO’s institutional accounts (Gabelli Value Composite) experienced positive results. More importantly, the returns earned by the composite exceeded the S&P 500 by 5% on an annualized basis (or in dollar terms, by $11,560 on a $100 investment).

GAMCO Asset Management Inc. Thirty-six Year Investment Record 1977 - 2012

Expressed Another Way

Number of Up Years Number of Down Years Years Gabelli Beat Index Total Return (CAGR) (a) Number of Stocks Median Market Capitalization Mean Market Capitalization

Gabelli Value

S&P 500

Russell 2000

29 24* 7 10* 25 24* 16.7% 11.2% 11.4%* 96 500 1,978 $3.4 bn $12.6 bn $513 mm $15.6 bn $27.2 bn $734 mm

CPI +10

32 4

24 14%

* Calculation of Russell 2000 commenced 1/1/79. (a) Annual periods ending December 31, 2012, gross of fees

Our client portfolios rebounded strongly in 2012, following the uninspiring returns in equity markets in 2011. The double digit advances in the portfolios were rewarding especially in light of the challenges faced in the global economy, ranging from the softness in China and other developing markets, the double-dip recession in Europe, to the high unemployment levels and the anemic recovery of the U.S. economy. There was a dearth of corporate transactions, muted in part by the uncertainties of the elections and the ensuing run-up to the “Fiscal Cliff”. In spite of all of this, patient, long-term investors have been rewarded in the first weeks of 2013, as merger activity is picking up on all fronts – strategic mergers, going private transactions and sizeable purchases by those with cash hoards – like Berkshire Hathaway’s proposed purchase of Heinz Inc. This transaction follows the announced acquisition of Intermec by Honeywell in December and Eaton’s purchase of Cooper Industries. These deals provide us with confidence in owning sizeable stakes in businesses we like for our clients. As we look to the balance of 2013 and beyond, we will continue to do what we have done best since 1977 – invest in companies based on our Private Market Value with a Catalyst™ approach. From inception in 1977 through year-end 2012, GAMCO has earned a 16.7% gross (15.8% net) annual return compared to the S&P 500’s 11.2% annual gain. Over the long term, we generated these returns with less risk and lower volatility than the overall market. We are committed to generating superior risk-adjusted returns in a tax-efficient manner. Over the past 35 years we added other investment styles to complement our value strategy. Throughout, the common thread of the various investment approaches is that they all remain embedded in fundamental research. At the core is our proprietary, research-driven, stock selection methodology without using leverage or derivatives. Our long-term buy-hold, tax-sensitive strategy works. The foundation of our intense research is the notion of investing in a cash-generating business with a solid franchise that is selling at an attractive discount to its Private Market Value. This discount provides us with a margin of safety. We then identify a catalyst that can bring the underlying value to the surface. Over the next two to three years, as global economic conditions rebound and large companies look for growth, merger activity will continue to accelerate. We expect a significant level of merger activity that will contribute materially to our portfolio returns in the coming years.

Our Investor Symposium Each year we hold an investment seminar for our private wealth management and institutional clients. In 2012, we had the privilege of having presentations from Gretchen McClain, Chairman & CEO of Xylem, Inc. and an election preview from Gabelli Funds Board Member, Frank Fahrenkopf, former Co- Chairman of the Commission on Presidential Debates. We also had the privilege of honoring the three GAMCO Management Hall of Fame recipients, Steve Loranger of ITT, Bruce Carbonari of Fortune Brands, and Dom Pileggi of Thomas & Betts. We look forward to seeing our clients on Friday, May 10th at the Pierre Hotel in New York City to discuss our investment ideas and provide an outlook for the coming year.

Gretchen McClain, Chairman & CEO, Xylem, Inc. 10

Frank Fahrenkopf

GAMCO Investors, Inc.

— (Y)our Team — This year we would like to highlight the career of an individual who has contributed to the growth and success of our firm: Congressman Peter A. Peyser Congressman Peter Peyser is a member of the “Greatest Generation”. A New York native, born in 1921, Congressman Peyser accelerated his graduation from Colgate University in 1942 to enlist in the U.S. Army where he saw action in the Battle of the Bulge and Huertgen Forest with the 99th Infantry. Following V-E day, Mr. Peyser started a career in the insurance industry. In 1962, Mr. Peyser was elected Mayor of Irvington, New York and served through four terms. He then was elected to the U.S. Congress where he ultimately served five terms: 1971-76 as a Republican and 1979-82 as a Democrat. Mr. Peyser was instrumental in a number of legislative initiatives, including improving student loan programs and participating on the ERISA Task Force.

Congressman Peter Peyser

Life after Congress led Mr. Peyser into a career in investment management. In 1995, he joined GAMCO Asset Management where he maintains client relationships on behalf of the firm. Congressman Peyser continues as a key supporter of the teammates for GAMCO, 8 years shy of his Centennial.

— Can Gold Stocks Glimmer Again? — Gold Equities: Why have they lost their shine? Gold mining companies own a portfolio of cash flow producing assets with finite lives. One way to value the equity of such a gold miner is to project future cash flows for the life of the assets and then discount this cash flow back to today to calculate a Net Asset Value (NAV) for all of the company’s combined operations. From 1997 to 2007, the equities of gold mining companies have been valued at upwards of a 100% premium to their net asset values, compared to no premium today (source: Scotia Bank).

The Current Environment: Show Me the Money: Caesar M. P. Bryan, Portfolio Manager Christopher Mancini, CFA, Analyst

Operating margins for gold miners are now high, and NAVs have increased substantially. Investors in gold mining companies are saying “show me the money.” The “option bet” worked, now where is my well-deserved cash? A market with a very short term investment horizon is pricing in no option value to the share price, and at some points during the past year has been pricing in negative option value (a discount to NAV).

Our View: Given current operating margins for gold mining companies, it is unlikely that the equities of the miners should trade at the multiples of NAV experienced during the “Decade of Optionality.” The market has overcorrected on the downside, however, and the miners have some option value which should be reflected in their share prices. These options with value should include: • The potential for currently uneconomic resources to become economic at a higher gold price (additive to NAV)



The possibility that cash flow is successfully deployed into an exploration program in which more gold is discovered and ultimately produced



The possibility that a company with mining expertise could acquire a development property at a discount to NAV and realize its full value

The Impetus for a Change in Perception: As shareholders pressure managements of gold mining companies to “show them the money,” we are hopeful that dividend payouts will increase. Increased dividend payments should lead to financial discipline and less “value destructive” behavior. Disciplined managements will focus on harvesting cash flow and exploiting the inherent option values embedded within their companies. Good things can happen to gold miners, especially in a rising gold price environment. It is incumbent upon management to prove this to be the case. We are hopeful that stricter management discipline will lead to enhanced returns for investors, higher ratings for the stocks of the miners, and gold miners will glimmer once again.

11

GAMCO Investors, Inc.

— 2012 — Ideas . . . Focus . . . Innovation October 24, 2012

One Corporate Center Rye, NY 10580-1422 Tel (914) 921-5197 Fax (914) 921-5098

Gabelli & Company, Inc.

www.gabelli.com

(a)

(MDLZ – $26.68 – NASDAQ)

Biscuits ($75 billion market)

Chocolate ($102 billion market)

Gum/Candy ($83 billion market)

(a) October 1, 2012 Kraft Foods Inc. spun-off Kraft Foods Group, Inc. (KRFT - $46.21 - NASDAQ) and subsequently was renamed MondelƝz International, Inc.

©2012 Gabelli & Company, Inc.

Sarah Donnelly

(914) 921-5197

One Corporate Center Rye, NY 10580-1422 Tel (914) 921-7721 www.gabelli.com

ye, NY 10580-1422 el (914) 921-7729 ax (914) 921-5098

November 1, 2012

Gabelli & Company, Inc.

Gabelli & Company

The Benefits of an Aging Population

- WATER -

(MWA - $3.73 – NYSE) Source: Company website

(PDCO - $33.40 - NASDAQ)

E P S

Kevin Kedra (914) 921-7721

One Corporate Center Rye, NY 10580-1422 Tel (914) 921-5015 Fax (914) 921-5098

March 20, 2012

Gabelli & Company, Inc.

www.gabelli.com

TV Signals Reflections from our 2nd Gabelli & Company, Inc. Broadcast Television Conference Grand Hyatt, New York March 15, 2012

Tel (914) 9221-5192

Gabelli & Compa any, Inc.

www.gabelli.ccom

Schiiff Nu utrition Inteernatiional,, Inc. (SH HF – $224.19 – NY YSE)

Inno I ovattive Braandss

P M V

MANAGEMENT Barry L. Lucas (914) 921-5015

One Corporate Center Rye, NY 10580-1422 Tel (914) 921-7735 www.gabelli.com

© Gabelli & Company, Inc.

May 25, 2012

Gabelli & Company, Inc

p Rye, NY 10580-1422 Tel (914) 921-5083 Fax (914) 921-5098 [email protected]

(RVBD - $15.52 - NASDAQ)

NETWORK OPTIMIZATION LEADER

June 18, 2012

Gabelli & Company, Inc.

Source: Public data

RUSSIAN REVELATION

Source: Public data

Mobile Telesystems Telecominvest Tele2 Rostelecom Vimpelcom

(MBT (Private) (TEL2B (ROSYY (VIP

Processing

AUTO SYMPOSIUM 2012

- We are initiating coverage of Hawaiian Electric Industries, Inc. with a HOLD rating. We regard HE as an improving utility story complimented by a high quality bank.

Key to Economics Landfill Transfer Station

Commercial

Network Time is Money!

Long-haul Waste-toEnergy Recycled Commodities Purchasers

CASHFLOW Composting/ Anaerobic Digesting

Company Casella Waste Systems, Inc. Progressive Waste Solutions Ltd. Republic Services, Inc. Waste Connections, Inc. Waste Management, Inc.

Symbol CWST BIN RSG WCN WM

Price Exchange Recommendation $ 6.40 NASDAQ Buy 22.13 NYSE NR 30.75 " Buy 32.70 " " $ 35.11 " Hold

Gabelli & Company, Inc. Investment Summary Headquartered in Honolulu, Hawaii, Hawaiian Electric Industries (HE) supplies power to 95% of Hawaii's population through its electric utilities, Hawaiian Electric Company (HECO), Hawaii Electric Light Company (HELCO) and Maui Electric Company (MECO), and provides a wide range of financial services to individuals and businesses through American Savings Bank, F.S.B. (ASB), one of Hawaii’s largest financial institutions.

Disposal

Residential

Industrial

?

A PREVIEW OF GABELLI & COMPANY, INC.’S 36TH ANNUAL AUTOMOTIVE AFTERMARKET SYMPOSIUM

(914) 921-5083

Source: Riverbed

R E S E A R C H 12

- NYSE)

December 6, 2012

www.gabelli.com

Collection

Tony Bancroft

$17.74

SEK104.00 - Stockholm) $20.65 - NYSE) 7 78 " )

One Corporate Center Rye, NY 10580-1435 Tel. (314) 238-1314 Fax (914) 921-5098

Gabelli & Company, Inc.

Waste-101 RIVERBED TECHNOLOGY

One Corporate Center Rye, NY 10580-1422 Tel 011-20-44-3206-2104 www.gabelli.com

- Our 2012, 2013, and 2014 consolidated earnings estimates are $1.60, $1.70, and $1.85 per share, respectively. Roughly 66% of trailing-twelve month consolidated earnings were derived from the utility and 34% from the bank. We expect above-average utility earnings growth driven by more constructive rate treatment of growing infrastructure investment. - HE plans to invest $3 billion over the next five years to add renewable generation (Hawaii’s 40% Renewable Portfolio Standard by 2030), as well as invest in mandated environmental control projects and ongoing system maintenance. Due to Hawaiian energy resource constraints, dependence on imported oil for power generation and high Asian-Pacific oil prices, renewable generation is not only economically viable but serves to mitigate rising electric bills. - The combination of recently implemented regulatory mechanisms, such as “decoupling”, inflation and capital addition riders, as well as more proactive regulatory relations, will minimize the significant gap between the utilities’ allowed earnings power and the level it actually earns. HE’s 2011 utility earnings contribution of ~$1.02 per share represented a subpar 7.3% earned ROE, which is well below 2011 earnings potential of ~$1.30 per share based on a 10.0% allowed ROE. - HE shares offer a 4.9% current return on the $1.28 per share annual dividend and trades at 15.9x, 14.9x, and 13.7x our 2012, 2013 and 2014 earnings which compares to traditional utility peer group multiples of 15.8x, 14.5x and 13.8. Our 2012, 2013 and 2014 PMVs are $29, $31, $31 per share using a 9.75x EV/EBITDA multiple for the electric utility businesses and a 1.3x multiple of book value for the bank.

Closing the ROE Gap + Above Average Rate Base Growth = 6% EPS CAGR + 4.9% Current Return Hold

Hawaiian Electric (HE – NYSE) Current Price:

52 Week Range:

$25.32

$29.24 - $23.65

Earnings Per Share: 2013P 2012E 2011A

$1.70 1.60 1.43

Price/Earnings Ratio: 2013P 2012E 2011A

14.9x 15.9x 17.8x

Indicated Dividend:

$1.24

Current Return:

4.9%

Capitalization (9/30/12): ($ millions) Net Debt $924 Equity @ Book Value (97.4 mil shares o/s) 1,607 Total Capitalization $2,531

Timothy M. Winter, CFA Nicholas D. Yuelys

” Gabelli & Company, Inc. 2012

GAMCO Investors, Inc.

— All (Y)our Teammates —

— (Y)our Supporting Teammates — Our teammates in our Finance, Operations, Information Technology, and Compliance areas show our commitment to provide the highest quality in delivery of service and with the same tireless work ethic.

Finance

Operations

Technology

Compliance

Assets Under Management ($ in millions)

December 31,

% CAGR

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

$ 7,651

$ 11,150

$ 11,957

$ 12,558

$ 13,794

$ 15,686

$ 9,931

$ 13,085

16,723

$ 18,072

$ 18,790

2012

12/02-12/12

Equity: Mutual Funds . . . . . . . . . . . . . . .

9.4 %

Institutional and High Net Worth Direct . . . . . . . . . . . . . . . . . . .

7,410

9,107

9,881

9,550

10,282

10,708

6,861

9,312

11,005

10,853

12,030

Sub-advisory . . . . . . . . . . . . . .

2,580

3,924

3,706

2,832

2,340

2,584

1,585

1,897

2,637

2,600

2,924

1.3

17,641

24,181

25,544

24,940

26,416

28,978

18,377

24,294

30,365

31,525

33,744

6.7

1,963

1,703

1,488

724

734

1,111

1,507

1,721

1,616

1,824

1,681

-1.5

613

504

388

84

50

24

22

26

26

26

60

-20.7

2,576

2,207

1,876

808

784

1,135

1,529

1,747

1,642

1,850

1,741

Total Equity . . . . . . . . . . . . . . .

5.0

Fixed Income: Mutual Funds . . . . . . . . . . . . . . . Institutional and High Net Worth Total Fixed Income . . . . . . . . . . . SICAV

-

-

-

-

-

-

-

-

-

105

119

-3.8 (a)

n/m

Investment Partnerships: Alternative Investments . . . . . . .

578

692

814

634

491

460

295

305

515

605

801

3.3

Total Assets Under Management

$20,795

$27,080

$28,234

$26,382

$27,691

$30,573

$20,201

$26,346

$32,522

$34,085

$36,405

5.8

$9,614

$12,853

$13,445

$13,282

$14,528

$16,797

$11,438

$14,806

$18,339

$19,896

$20,471

7.9

Direct . . . . . . . . . . . . . . . . . . .

8,023

9,611

10,269

9,634

10,332

10,732

6,883

9,338

11,031

10,879

12,090

4.2

Sub-advisory . . . . . . . . . . . . . .

2,580

3,924

3,706

2,832

2,340

2,584

1,585

1,897

2,637

2,600

2,924

-

-

-

-

-

-

-

-

-

105

119

Assets Under Management: Mutual Funds . . . . . . . . . . . . . . . Institutional and High Net Worth

SICAV Alternative Investments . . . . . . .

578

692

814

634

491

460

295

305

515

605

801

Total Assets Under Management

$20,795

$27,080

$28,234

$26,382

$27,691

$30,573

$20,201

$26,346

$32,522

$34,085

$36,405

1.3 (a)

n/m 3.3 5.8 %

(a) Includes $100 million and $104 million of proprietary funds at December 31, 2011 and December 31, 2012, respectively n/m - not meaningful

13

GAMCO Investors, Inc.

Quarterly Financial Data 2012 - 2011 (In thousands, except per share data) 2012 Income Statement Data: Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income before management fee Investment income/(loss) . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income (expense), net . . . . . . . . . . . . . . . . . . Income before management fee, income taxes and noncontrolling interest . . . . . . Management fee . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes and noncontrolling interest Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1ST Quarter

2ND Quarter

3RD Quarter

4TH Quarter

Full Year

$81,749 50,553 31,196

$81,024 48,042 32,982

$82,231 50,163 32,068

$99,277 71,375 27,902

$344,281 220,133 124,148

15,114 (4,404)

(2,389) (4,429)

2,140 (3,586)

7,220 (3,480)

22,085 (15,899)

10,710

(6,818)

(1,446)

3,740

6,186

41,906 4,184 37,722 13,756

26,164 2,615 23,549 8,686

30,622 3,056 27,566 8,467

31,642 3,163 28,479 10,812

130,334 13,018 117,316 41,721

23,966

14,863

19,099

17,667

75,595

Noncontrolling interest . . . . . . . . . . . . . . . . . . . . .

130

95

73

56

Net income attributable to GAMCO . . . . . . . . . . . .

$23,836

$15,105

(242)

$19,004

$17,594

$75,539

Net income per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$0.90

$0.58

$0.72

$0.67

$2.87

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$0.90

$0.57

$0.72

$0.67

$2.86

Total shares outstanding: 25,746

As on December 31 . . . . . . . . . . . . . . . . . . . . . . . .

2011 Income Statement Data: Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income before management fee Investment income/(loss) . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other income (expense), net . . . . . . . . . . . . . . . . . . Income before management fee, income taxes and noncontrolling interest . . . . . . Management fee . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes and noncontrolling interest Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1ST Quarter

2ND Quarter

3RD Quarter

4TH Quarter

Full Year

$76,905 53,032 23,873

$85,081 50,958 34,123

$80,151 48,103 32,048

$84,991 49,471 35,520

$327,128 201,564 125,564

10,676 (2,867)

5,530 (3,403)

(14,329) (4,418)

10,268 (4,309)

12,145 (14,997)

7,809

2,127

(18,747)

5,959

(2,852)

31,682 3,113 28,569 10,288

36,250 3,626 32,624 11,945

13,301 1,387 11,914 4,745

41,479 4,144 37,335 13,789

122,712 12,270 110,442 40,767

7,169

23,546

69,675

18,281

20,679

Noncontrolling interest . . . . . . . . . . . . . . . . . . . . .

638

32

Net income attributable to GAMCO . . . . . . . . . . . .

$17,643

$20,647

$7,699

$23,693

$69,682

Net income per share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$0.66

$0.77

$0.29

$0.89

$2.62

Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$0.65

$0.77

$0.29

$0.89

$2.61

(530)

(147)

(7)

Total shares outstanding: As on December 31 . . . . . . . . . . . . . . . . . . . . . . . . See Notes on Non-GAAP Financial Measures on page 15.

14

26,755

GAMCO Investors, Inc.

Condensed Consolidated Balance Sheet (in thousands) December 31, 2012

2011

Investments (including cash and cash equivalents) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$568,872

$674,780

Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

97,541

58,117

Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

24,320

23,852

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$690,733

$756,749

Compensation payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,535

17,695

Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25,398

15,296

Accrued expenses and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

50,138

47,157

86,071

80,148

ASSETS

LIABILITIES AND EQUITY

Sub-total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.5% Senior notes (due May 15, 2013) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

99,000

99,000

5.875% Senior notes (due June 1, 2021) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Zero coupon subordinated debenture (Face value: $21.7 mm at December 31, 2012; $86.3 mm at December 31, 2011;

100,000

100,000

17,366

64,119

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

302,437

343,267

Redeemable noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17,362

6,071

Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

367,608

403,972

Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,326

3,439

Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

370,934

407,411

Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$690,733

$756,749

due December 31, 2015)

Information derived from audited financial statements on Form 10-K.

Notes on Non-GAAP Financial Measures A. Operating income before management fee expense is used by management for purposes of evaluating its business operations. We believe this measure is useful in illustrating the operating results of the Company as management fee expense is based on pre-tax income before management fee expense, which includes non-operating items including investment gains and losses from the Company’s proprietary investment portfolio and interest expense. We believe that an investor would find this useful in analyzing the business operations of the Company without the impact of the non-operating items such as trading and investment portfolios or interest expense. Reconciliation of Non-GAAP Financial Measures to GAAP: 2011 Operating income Add: Management fee Operating income before management fee

2012

1st QTR

2nd QTR

3rd QTR

4th QTR

Full Year

1st QTR

2nd QTR

3rd QTR

4th QTR

Full Year

$20,760

$30,497

$30,661

$31,376

$113,294

$27,012

$30,367

$29,012

$24,739

$111,130

3,113

3,626

1,387

4,144

12,270

4,184

2,615

3,056

3,163

13,018

$23,873

$34,123

$32,048

$35,520

$125,564

$31,196

$32,982

$32,068

$27,902

$124,148

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION Our disclosure and analysis in this Annual 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.

15

GAMCO Investors, Inc. Board of Directors Edwin L. Artzt

Mario J. Gabelli

Former Chairman and Chief Executive Officer Procter & Gamble Company

Chairman and Chief Executive Officer GAMCO Investors, Inc.

Raymond C. Avansino, Jr.

Eugene R. McGrath

Chairman E.L. Wiegand Foundation

Former Chairman and Chief Executive Officer Consolidated Edison Company of NY

Richard L. Bready

Robert S. Prather, Jr.

Former Chairman & Chief Executive Officer Nortek Inc.

President and Chief Operating Officer Gray Television

Elisa M. Wilson President Gabelli Foundation, Inc.

Karl Otto Pöhl, Director Emeritus Former President of Deutsche Bundesbank

Officers Mario J. Gabelli

Robert S. Zuccaro

Chairman and Chief Executive Officer

Executive Vice President and Chief Financial Officer

Douglas R. Jamieson

Bruce N. Alpert

President and Chief Operating Officer

Executive Vice President Gabelli Funds, LLC

Henry G. Van der Eb

Agnes Mullady

Senior Vice President

Senior Vice President, President and Chief Operating Officer, Open-End Fund Division, Gabelli Funds, LLC

Corporate and Shareholder Information Investor Relations For our 10-K and other shareholder information, as well as information on our products and services, visit our website at www.gabelli.com or write to: One Corporate Center Rye, New York 10580-1422 914-921-5088 email: [email protected]

Transfer Agent Computershare 250 Royall Street Canton, MA 02021 (781) 575-2000

Trading Information New York Stock Exchange Class A Common Stock Symbol - GBL

Website www.gabelli.com

Investment Services Information Mutual Funds Contact: Jason G. Swirbul 800-GABELLI email: [email protected]

Institutional Accounts Contact: Christopher C. Desmarais 914-921-5237 email: [email protected] Private Wealth Management Contact: Timothy M. Malay 914-921-5037 email: [email protected] Investment Partnerships Contact: Michael Gabelli 914-921-5135 email: [email protected]

Annual Meeting Our 2013 Annual Meeting of Shareholders will be held at 8:30 a.m. on May 7, 2013 at the Indian Harbor Yacht Club, 710 Steamboat Road Greenwich, CT 06830

18

GAMCO Investors, Inc.

“The more you give, the more you receive” Our Staff designated contributions to the following Organizations in 2012 Abyssinian Baptist Church Ƈ Alzheimer’s Drug Discovery Foundation Ƈ American Kids Cancer Fund Ƈ American Red Cross Disaster Relief Ƈ American Red Cross of Central New Jersey Ƈ Annunciation Church Ƈ Arbor Day Foundation Ƈ ARI of Connecticut Ƈ ASPCA Ƈ Association for Children with Down Syndrome Ƈ Bank Street Family Center Ƈ Bentley University Ƈ Best Friends Animal Society Ƈ Beyond the Boroughs Ƈ Bill Foxen Memorial Foundation Ƈ Blythedale Children’s Hospital Ƈ Boston College Ƈ Brady Center to Prevent Gun Violence Ƈ Breast Cancer Help, Inc. Ƈ Caddie Scholarship Fund WGA Ƈ Calhoun Community Church Ƈ Calvary SDA (Food Bank) • Care Plus Foundation Ƈ A Caring Hand - The Bill Esposito Foundation Ƈ Cathedral of Saint John Ƈ Catholic Relief Services Ƈ Central Synagogue Congregation Ahavath Chesed Shaar Hashomayin Breakfast Program Ƈ Centsability, Inc. Ƈ Children’s Hospital of Philadelphia Foundation Ƈ Children’s Scholarship Fund Ƈ Children’s Village Ƈ Christ Church Episcopal Ƈ Church of Holy Innocents Ƈ City Meals on Wheels Ƈ Coalition for a Secure Driver’s License Ƈ Community Food Bank of New Jersey Ƈ Concern Worldwide Ƈ Cooke Center Academy Ƈ Cry America Inc. Ƈ Cultural Care Kids First Foundation Ƈ Daisy Eye Cancer Fund Ƈ Darien Foundation Ƈ Daughters of Charity of the Most Precious Blood Preschool Ƈ Detroit Institute for Children Ƈ Deerfield Academy Ƈ Doctors Without Borders USA Ƈ Elder Service of Cape Cod Ƈ Elevation Chapel Ƈ Emergency Fund Ƈ Environmental Working Group Ƈ Episcopal School Ƈ Equinox Advocates Ƈ Initiative Ƈ Food Bank of Lower Eva’s Village Ƈ Food Allergy stitute Ƈ Fr. Joe Constantino St. Fairfield County Ƈ Fraser InWe are fortunate to live in Shepard Services Ƈ Gow School Francis Xavier Parish Ƈ Good the wealthiest nation in the Ƈ Grace Community Church Ƈ Habitat for Humanity Ƈ Hapworld and to have the ability Children’s Zone Ƈ Heartbeat Inpiness is Camping Ƈ Harlem of Blue Hope Foundation Ƈ ternational Ministries Ƈ House to share our good fortune. Humanity First USA Ƈ Indiana Humane Society of New York Ƈ IN 2012, WE WERE ABLE TO tuto Duartiano Estados Unidos University Foundation Ƈ InstiSUPPORT MANY WORTHY Ƈ Jericho Project Ƈ Jewish Communal Fund Ƈ The ENDEAVORS, INCLUDING seum of Art Ƈ Kids in Crisis Ƈ Jimmy Fund Ƈ Katonah MuOVER 149 RECIPIENTS. Our Larchmont Mamaroneck Hunger Task Force Ƈ The Littlest Lamb Ƈ Little Sisters of the Poor Ƈ Lukemia and Lymphoma Society firm has grown for 36 years Ƈ Make-a-Wish Foundation of America Ƈ Mamaroneck EMS and the stock market has Ƈ Maria Fareri Childen’s Hospital Foundation Ƈ Mayo Clinic - NMO rewarded long term investors. Advance New York City Ƈ Meals Research Ƈ Mayor’s Fund to This has enabled us to donate Memorial Sloan-Kettering Canon Wheels of New Rochelle Ƈ countless hours to scores of Ƈ Mental Health Clinic of Passaic Ƈ The Michael cer Center J Fox Foundation for Parkinson’s Research Ƈ Millbrook School Ƈ charitable organizations. Corps Relief Society Ƈ Nevada Minds Matter Ƈ Navy-Marine Humane Society Ƈ New Canaan Country School Ƈ New York Blood Center Ƈ Nightingale Bamford School Ƈ Noble Argus Foundation Ƈ North Shore Animal League America Ƈ NYU Langone Medical Center (Pediatric Cancer Research) Ƈ Operation Smile Ƈ Our Lady of Fatima Religious Education Program Ƈ Overtown Music Project Ƈ Part of the Solution Ƈ Passion 4 Kids Ƈ Pathways Inc. Ƈ PLUTO Ƈ ProCure Cancer Foundation • Rescue of Richmond County Ƈ Rainforest Action Network Ƈ Redeemer City to City Ƈ Regenerative Research Foundation Ƈ Resurrection School Foundation Ƈ Ridgefield Little League Baseball & Softball Ƈ Robin Hood Foundation Ƈ Robin Hood Relief Fund Ƈ Ronald McDonald House Charities of Conn. and West. Mass. Ƈ Rwanda Girls Initiative Ƈ Roger Williams University (Paul S. Langello Scholarship) Ƈ Rye Angels Ƈ Saint Andrew Avellino Homeless Shelter Ƈ Salvation Army Disaster Relief - Hurricane Sandy Relief Ƈ Sankara Eye Foundation, USA Ƈ Sisters of Life Annunciation Ƈ Smile Train Ƈ St. Abraam’s Coptic Church Ƈ St. Francis Monestary and the Bread Line for the Poor Ƈ St. John Orthodox Church Ƈ St. Jude Children’s Research Hospital Ƈ St. Thomas’ Church Ƈ St. Agnes Cathedral Ƈ St. Francis Center/ LBICC, Inc. Ƈ St. Mary Medical Center Ƈ St. Patrick’s Church Ƈ Stamford Fire Fighters Burn Foundation Ƈ Student U Ƈ Susan G. Komen for the Cure Ƈ Teddy’s Fund Ƈ The Trevor Project Ƈ Tom Coughlin Jay Fund Ƈ UCPN - Children’s Learning Center Ƈ UNICEF Ƈ US Friends of the David Sheldrick Wildlife Trust Ƈ Utah Skeleton Bobsled Assoc. Ƈ Walkabout Foundation Ƈ Weill Cornell Medical College - Bone Marrow Transplant Fund Ƈ Workshop Theater Company Ƈ World Vision Ƈ Wounded Warrior Project Ƈ Xavier High School Ƈ Yorktown Teen Center, Inc. Ƈ Youthville Detroit 19

GAMCO Investors, Inc.

GAMCO Investors, Inc. One Corporate Center, Rye, New York 10580-1422

www.gabelli.com 800-GABELLI 20

z

[email protected]