Edgar Filing: GAMCO INVESTORS, INC. ET AL

form10q093010.htm

SECURITIES & EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission File No. 1-106

GAMCO INVESTORS, INC.
(Exact name of Registrant as specified in its charter)

New York			13-4007862
(State of other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

One Corporate Center, Rye, NY			10580-1422
(Address of principle executive offices)			(Zip Code)

(914) 921-5100
Registrant’s telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yeso Noo Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer", "accelerated filer", and "smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer ¨		Accelerated filer x

Non-accelerated filer o		Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes

Indicate the number of shares outstanding of each of the Registrant’s classes of Common Stock, as of the latest practical date.

Class		Outstanding at October 31, 2010
Class A Common Stock, .001 par value		6,970,210
Class B Common Stock, .001 par value		20,291,904

INDEX

GAMCO INVESTORS, INC. AND SUBSIDIARIES


PART I.	FINANCIAL INFORMATION


Item 1.	Unaudited Condensed Consolidated Financial Statements

	Condensed Consolidated Statements of Income:
	- Three months ended September 30, 2010 and 2009

	- Nine months ended September 30, 2010 and 2009

	Condensed Consolidated Statements of Financial Condition:
	- September 30, 2010
	- December 31, 2009
	- September 30, 2009

	Condensed Consolidated Statements of Equity and Comprehensive Income:
	- Nine months ended September 30, 2010 and 2009

	Condensed Consolidated Statements of Cash Flows:
	- Nine months ended September 30, 2010 and 2009

	Notes to Unaudited Condensed Consolidated Financial Statements

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 3.	Quantitative and Qualitative Disclosures About Market Risk (Included in Item 2)

Item 4.	Controls and Procedures

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds

Item 6.	Exhibits

SIGNATURES

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
(Dollars in thousands, except per share data)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2010			2009			2010			2009
Revenues
Investment advisory and incentive fees	$	50,249		$	40,957		$	149,862		$	112,145
Institutional research services		4,005			4,588			11,953			12,187
Distribution fees and other income		8,189			6,037			23,125			15,780
Total revenues		62,443			51,582			184,940			140,112
Expenses
Compensation		26,661			21,590			78,745			62,056
Management fee		3,540			2,638			7,368			6,291
Distribution costs		7,710			6,089			21,840			17,094
Other operating expenses		5,023			4,405			15,528			13,648
Total expenses		42,934			34,722			123,481			99,089

Operating income		19,509			16,860			61,459			41,023
Other income (expense)
Net gain from investments		13,916			9,659			11,351			22,981
Interest and dividend income		2,012			598			3,916			2,677
Interest and other expense		(3,295	)		(3,296	)		(9,993	)		(9,965	)
Total other income (expense), net		12,633			6,961			5,274			15,693
Income before income taxes		32,142			23,821			66,733			56,716
Income tax provision		11,686			8,913			24,381			20,034
Net income		20,456			14,908			42,352			36,682
Net income attributable to noncontrolling interests		350			257			471			503
Net income attributable to GAMCO Investors, Inc.'s shareholders	$	20,106		$	14,651		$	41,881		$	36,179

Net income attributable to GAMCO Investors, Inc.'s shareholders
per share:
Basic	$	0.75		$	0.54		$	1.55		$	1.32

Diluted	$	0.73		$	0.53		$	1.53		$	1.32

Weighted average shares outstanding:
Basic		26,828			27,366			26,996			27,376

Diluted		28,364			27,505			27,818			27,464

Dividends declared:	$	0.93		$	0.03		$	0.99		$	0.09

See accompanying notes.

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
UNAUDITED
(Dollars in thousands, except per share data)

	September 30,			December 31,			September 30,
	2010			2009			2009
ASSETS
Cash and cash equivalents, including restricted cash of $62,308,
$62,258 and $62,246, respectively	$	294,271		$	400,528		$	463,361
Investments in securities		228,210			157,403			172,571
Investments in partnerships		79,244			62,655			63,997
Receivable from brokers		62,209			30,072			21,991
Investment advisory fees receivable		17,145			35,685			13,957
Income tax receivable and deferred tax assets		-			-			4,536
Other assets		21,140			21,466			18,247
Total assets	$	702,219		$	707,809		$	758,660

LIABILITIES AND EQUITY
Payable to brokers	$	4,151		$	395		$	10,006
Income taxes payable and deferred tax liabilities		4,533			8,523			-
Capital lease obligation		5,197			5,265			5,278
Compensation payable		23,575			13,302			20,974
Securities sold, not yet purchased		18,446			9,569			9,738
Mandatorily redeemable noncontrolling interests		1,367			1,622			1,586
Accrued expenses and other liabilities		25,436			25,157			24,879
Sub-total		82,705			63,833			72,461

5.5% Senior notes (due May 15, 2013)		99,000			99,000			99,000
6% Convertible note (due August 14, 2011)		-			39,851			39,829
6.5% Convertible note (due October 2, 2018, repaid October 13, 2010)		60,000			60,000			60,000
Total liabilities		241,705			262,684			271,290

Redeemable noncontrolling interests		15,994			1,464			1,424
Commitments and contingencies (Note J)
Equity
GAMCO Investors, Inc. stockholders' equity
Class A Common Stock, $0.001 par value; 100,000,000
shares authorized; 13,202,489, 13,120,276 and 13,108,526
issued, respectively; 6,970,410, 7,311,997 and 7,337,347
outstanding, respectively		13			13			13
Class B Common Stock, $0.001 par value; 100,000,000
shares authorized; 24,000,000 shares issued;
20,292,104, 20,292,917 and 20,292,917 shares
outstanding, respectively		20			20			20
Additional paid-in capital		255,860			251,591			249,889
Retained earnings		425,383			410,473			447,145
Accumulated comprehensive income		19,306			19,088			24,870
Treasury stock, at cost (6,232,079, 5,808,279 and 5,771,179
shares, respectively)		(259,442	)		(241,567	)		(239,939	)
Total GAMCO Investors, Inc. stockholders' equity		441,140			439,618			481,998
Noncontrolling interests		3,380			4,043			3,948
Total equity		444,520			443,661			485,946

Total liabilities and equity	$	702,219		$	707,809		$	758,660

See accompanying notes.

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
UNAUDITED
(In thousands)

For the nine months ended September 30, 2010
				GAMCO Investors, Inc. shareholders
						Additional					Accumulated									Redeemable
	Noncontrolling			Common		Paid-in		Retained			Comprehensive			Treasury						Noncontrolling			Comprehensive
	Interests			Stock		Capital		Earnings			Income			Stock			Total			Interests			Income
Balance at December 31, 2009	$	4,043		$	33	$	251,591	$	410,473		$	19,088		$	(241,567	)	$	443,661		$	1,464		$	-
Redemptions of redeemable
noncontrolling interests		-			-		-		-			-			-			-			(475	)		-
Contributions from redeemable
noncontrolling interests		-			-		-		-			-			-			-			14,700			-
Dividends paid to noncontrolling
interests		(829	)		-		-		-			-			-			(829	)		-			-
Net income		166			-		-		41,881			-			-			42,047			305			42,352
Net unrealized losses on
securities available for sale,
net of income tax benefit ($129)		-			-		-		-			220			-			220			-			220
Foreign currency translation		-			-		-		-			(2	)		-			(2	)		-			(2	)
Dividends declared ($0.99 per
share)		-			-		-		(26,971	)		-			-			(26,971	)		-			-
Stock based compensation
expense		-			-		4,221		-			-			-			4,221			-			-
Exercise of stock options
including tax benefit		-			-		48		-			-			-			48			-			-
Purchase of treasury stock		-			-		-		-			-			(17,875	)		(17,875	)		-			-
Balance at September 30, 2010	$	3,380		$	33	$	255,860	$	425,383		$	19,306		$	(259,442	)	$	444,520		$	15,994		$	42,570
Comprehensive income attributable
to noncontrolling interest																								(471	)
Total comprehensive income
attributable to GAMCO Investors, Inc.																							$	42,099

See accompanying notes.

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
UNAUDITED
(In thousands)

For the nine months ended September 30, 2009
				GAMCO Investors, Inc. shareholders
						Additional						Accumulated								Redeemable
	Noncontrolling			Common		Paid-in			Retained			Comprehensive		Treasury						Noncontrolling			Comprehensive
	Interests			Stock		Capital			Earnings			Income		Stock			Total			Interests			Income
Balance at December 31, 2008	$	4,788		$	33	$	245,973		$	413,761		$	14,923	$	(234,537	)	$	444,941		$	4,201		$	-
Purchase of subsidiary shares
from noncontrolling interest		(747	)		-		-			-			-		-			(747	)		-			-
Redemptions of redeemable
noncontrolling interests		-			-		-			-			-		-			-			(2,961	)		-
Spin-off of subsidiary shares
to noncontrolling interests		(412	)		-		-			-			-		-			(412	)		-			-
Net income		319			-		-			36,179			-		-			36,498			184			36,682
Net unrealized gains on
securities available for sale,
net of income tax ($5,814)		-			-		-			-			9,898		-			9,898			-			9,898
Foreign currency translation		-			-		-			-			49		-			49			-			49
Dividends declared ($0.09 per
share)		-			-		-			(2,795	)		-		-			(2,795	)		-			-
Income tax effect of transaction
with shareholders		-			-		(243	)		-			-		-			(243	)		-			-
Stock based compensation
expense		-			-		3,821			-			-		-			3,821			-			-
Exercise of stock options
including tax benefit		-			-		338			-			-		-			338			-			-
Purchase of treasury stock		-			-		-			-			-		(5,402	)		(5,402	)		-			-
Balance at September 30, 2009	$	3,948		$	33	$	249,889		$	447,145		$	24,870	$	(239,939	)	$	485,946		$	1,424		$	46,629
Comprehensive income attributable
to noncontrolling interest																								(503	)
Total comprehensive income
attributable to GAMCO Investors, Inc.																							$	46,126

See accompanying notes.

GAMCO INVESTORS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(In thousands)

	Nine Months Ended
	September 30,
	2010			2009
Operating activities
Net income	$	42,352		$	36,682
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in net gains from partnerships and affiliates		(4,869	)		(9,569	)
Depreciation and amortization		520			487
Stock based compensation expense		4,221			3,821
Deferred income taxes		724			2,644
Tax benefit from exercise of stock options		8			112
Foreign currency translation gain/(loss)		(2	)		49
Fair value of donated securities		(608	)		370
Gains on sales of available for sale securities		(13	)		(2,150	)
Amortization of discount on debt		52			63
Loss on extinguishment of debt		497			-
(Increase) decrease in assets:
Investments in trading securities		(64,863	)		77,327
Investments in partnerships:
Contributions to partnerships		(18,143	)		(1,432	)
Distributions from partnerships		6,423			7,711
Receivable from brokers		(32,137	)		(5,531	)
Investment advisory fees receivable		18,539			(2,022	)
Income tax receivable and deferred tax assets		-			10,943
Other assets		(194	)		916
Increase (decrease) in liabilities:
Payable to brokers		3,756			8,149
Income taxes payable and deferred tax liabilities		(4,843	)		-
Compensation payable		10,273			6,377
Mandatorily redeemable noncontrolling interests		(255	)		190
Accrued expenses and other liabilities		(192	)		1,176
Total adjustments		(81,106	)		99,631
Net cash (used in)/provided by operating activities	$	(38,754	)	$	136,313

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED (continued)
(In thousands)

	Nine Months Ended
	September 30,
	2010			2009
Investing activities
Purchases of available for sale securities	$	(12	)	$	(6,183	)
Proceeds from sales of available for sale securities		2,014			4,329
Return of capital on available for sale securities		1,901			2,748
Increase in restricted cash		(50	)		(55,090	)
Net cash provided by (used in) investing activities		3,853			(54,196	)

Financing activities
Contributions from redeemable noncontrolling interests		14,700			-
Redemptions of redeemable noncontrolling interests		(475	)		(2,961	)
Repayment of 6% Convertible notes due August 14, 2011		(40,400	)		-
Proceeds from exercise of stock options		40			226
Dividends paid		(26,565	)		(3,375	)
Dividends paid to noncontrolling interests		(829	)		-
Purchase of subsidiary shares from noncontrolling interests		-			(747	)
Purchase of treasury stock		(17,875	)		(5,402	)
Net cash used in financing activities		(71,404	)		(12,259	)
Effect of exchange rates on cash and cash equivalents		(2	)		83
Net (decrease) increase in cash and cash equivalents		(106,307	)		69,941
Cash and cash equivalents at beginning of period		338,270			331,174
Cash and cash equivalents at end of period	$	231,963		$	401,115
Supplemental disclosures of cash flow information:
Cash paid for interest	$	9,775		$	9,859
Cash paid for taxes	$	28,004		$	17,356
Non-cash activity:
- On March 20, 2009, GAMCO Investors, Inc. distributed its shares of Teton Advisors, Inc. ($300) to its shareholders
which resulted in the deconsolidation of Teton, and decreases of approximately $911 of cash and cash equivalents,
$199 of net liabilities and $412 of noncontrolling interests.
- For 2010 and 2009 the Company accrued RSA dividends of $405 and $31, respectively.

See accompanying notes.

GAMCO INVESTORS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2010

(Unaudited)

A. Significant Accounting Policies

Basis of Presentation

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

The unaudited interim condensed consolidated financial statements of GAMCO included herein have been prepared in conformity with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary for a fair presentation of financial position, results of operations and cash flows of GAMCO for the interim periods presented and are not necessarily indicative of a full year’s results.

The condensed consolidated financial statements include the accounts of GAMCO and its subsidiaries. Intercompany accounts and transactions are eliminated.

These condensed consolidated financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2009 from which the accompanying condensed consolidated financial statements were derived.

On March 20, 2009, the Company completed its spin-off of its ownership of Teton Advisors, Inc. (“Teton”) to its shareholders. The condensed consolidated financial statements include the results of Teton up to March 20, 2009.

During the third quarter of 2010, the Company presented a separate column for redeemable noncontrolling interests and the amount of comprehensive income attributable to noncontrolling interests and comprehensive income attributable to GAMCO in its condensed consolidated statement of equity and comprehensive income. The condensed consolidated statement of equity and comprehensive income for the interim period ended September 30, 2009 has also included such information.

Certain items previously reported have been reclassified to conform to the current period’s condensed consolidated financial statements presentation.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Recent Accounting Developments

In June 2009, the Financial Accounting Standards Board (“FASB”) issued guidance to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. This guidance is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2009 and shall be applied prospectively. Early adoption is prohibited. The Company adopted this guidance on January 1, 2010 with no impact to the condensed consolidated financial statements.

In June 2009, the FASB issued amended guidance on the accounting for variable interest entities (“VIEs”). The amendments will significantly affect the overall consolidation analysis, changing the approach taken by companies in identifying which entities are VIEs and in determining which party is the primary beneficiary. The guidance requires continuous assessment of the reporting entity’s involvement with such VIEs. The revised guidance also enhances the disclosure requirements for a reporting entity’s involvement with VIEs, irrespective of whether they qualify for deferral, as discussed below. The guidance is effective as of the beginning of the first fiscal year that begins after November 15, 2009 and early adoption is prohibited. In February 2010, the FASB issued further guidance which provided a limited scope deferral for a reporting entity’s interest in an entity that meets all of the following conditions: (a) the entity has all the attributes of an investment company as defined under AICPA Audit and Accounting Guide, Investment Companies, or does not have all the attributes of an investment company but is an entity for which it is acceptable based on industry practice to apply measurement principles that are consistent with the AICPA Audit and Accounting Guide, Investment Companies, (b) the reporting entity does not have explicit or implicit obligations to fund any losses of the entity that could potentially be significant to the entity, and (c) the entity is not a securitization entity, asset-backed financing entity or an entity that was formerly considered a qualifying special-purpose entity. The reporting entity is required to perform a consolidation analysis for entities that qualify for the deferral in accordance with previously issued guidance on VIEs. The Company adopted this guidance on January 1, 2010 and has evaluated the deferral guidelines and determined that all significant entities that the Company is involved with that this guidance would potentially have impacted, qualify for the deferral, and therefore the guidance issued did not have a material impact on the condensed consolidated financial statements.

In January 2010, the FASB issued guidance to improve disclosures about fair value measurements. The guidance affects all entities that are required to make disclosures about recurring and nonrecurring fair value measurements. The guidance requires new disclosures regarding transfers in and out of Level 1 and 2 fair value measurements and activity related to Level 3 fair value measurements. In addition, the guidance clarifies existing fair value disclosure requirements related to the level of disaggregation of assets and liabilities and the valuation techniques and inputs used. This update is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company has adopted the guidance that was effective for interim and annual periods beginning after December 15, 2009 on January 1, 2010 which resulted in enhanced footnote disclosure. The Company's adoption of the guidance which will be effective for interim and annual periods beginning after December 15, 2010 will result in enhanced footnote disclosure upon adoption on January 1, 2011.

In July 2010, the FASB issued guidance to improve disclosures about an entity’s allowance for credit losses and the credit quality of its financing receivables. The guidance affects all entities. The guidance requires the entity to disclose the nature of credit risk inherent in the entity’s portfolio of financing receivables, how that risk is analyzed and assessed in arriving at the allowance for credit losses and the changes and reasons for those changes in the allowance for credit losses. This update is effective for interim and annual reporting periods ending on or after December 15, 2010, except for the disclosures about activity that occurs during a reporting period which is effective for interim and annual reporting periods beginning on or after December 15, 2010. The application of this guidance is not expected to be material to the condensed consolidated financial statements.

B. Investment in Securities

Investments in securities at September 30, 2010, December 31, 2009 and September 30, 2009 consisted of the following:

	September 30, 2010				December 31, 2009				September 30, 2009
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
	(In thousands)
Trading securities:
Government obligations	$	1,388	$	1,363	$	-	$	-	$	-	$	-
Common stocks		122,720		128,386		53,985		58,834		74,618		79,680
Mutual funds		1,194		1,365		1,194		1,295		1,215		1,254
Convertible bonds		762		938		-		-		-		-
Preferred stocks		1,783		1,834		-		15		10		18
Other investments		785		582		819		585		355		151
Total trading securities		128,632		134,468		55,998		60,729		76,198		81,103

Available for sale securities:
Common stocks		16,918		31,594		17,100		34,294		17,100		32,746
Mutual funds		44,717		62,148		48,607		62,380		47,565		58,722
Total available for sale securities		61,635		93,742		65,707		96,674		64,665		91,468

Total investments in securities	$	190,267	$	228,210	$	121,705	$	157,403	$	140,863	$	172,571

Securities sold, not yet purchased at September 30, 2010, December 31, 2009 and September 30, 2009 consisted of the following:

	September 30, 2010				December 31, 2009				September 30, 2009
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value
Trading securities:	(In thousands)
Common stocks	$	18,026	$	18,387	$	9,505	$	9,569	$	9,037	$	9,738
Other		56		59		-		-		-		-
Total securities sold, not yet purchased	$	18,082	$	18,446	$	9,505	$	9,569	$	9,037	$	9,738

Management determines the appropriate classification of debt and equity securities at the time of purchase and reevaluates such designation as of each balance sheet date. Investments in United States Treasury Bills and Notes with maturities of greater than three months at the time of purchase are classified as investments in securities and those with maturities of three months or less at time of purchase are classified as cash equivalents. A substantial portion of investments in securities are held for resale in anticipation of short-term market movements and therefore are classified as trading securities. Trading securities are stated at fair value, with any unrealized gains or losses, reported in current period earnings. Available for sale (“AFS”) investments are stated at fair value, with any unrealized gains or losses, net of taxes, reported as a component of equity except for losses deemed to be other than temporary which are recorded as unrealized losses in the condensed consolidated statements of income. There were no impairment of AFS securities for the three or nine month periods ended September 30, 2010 and 2009.

The Company recognizes all derivatives as either assets or liabilities measured at fair value and are included in either investments in securities or securities sold, not yet purchased on the condensed consolidated statements of financial condition. From time to time, the Company will enter into hedging transactions to manage its exposure to foreign currencies and equity prices related to its proprietary investments. For the three months ended September 30, 2010, the Company had derivative transactions in equity derivatives which resulted in net losses of $36,000. There was no derivative activity for the three months ended September 30, 2009. For the nine months ended September 30, 2010 and 2009, the Company had derivative transactions in equity derivatives which resulted in net losses of $154,000 and $27,000, respectively. At September 30, 2010 and December 31, 2009 we held derivative contracts on 265,000 equity shares and 122,000 equity shares, respectively, and the fair value was $285,000 and $246,000, respectively, and are included as investments in securities in the condensed consolidated statements of financial condition. There were no derivatives held at September 30, 2009. These transactions are not designated as hedges for accounting purposes, and changes in fair values of these derivatives are included in net gain from investments in the condensed consolidated statements of income.

At September 30, 2010, December 31, 2009 and September 30, 2009, the fair value of common stock investments available for sale was $31.6 million, $34.3 million and $32.7 million, respectively. The total unrealized gains for common stock investments available for sale securities with unrealized gains was $14.7 million, $17.2 million and $15.6 million at September 30, 2010, December 31, 2009 and September 30, 2009, respectively. There were no unrealized losses for common stock investments available for sale at September 30, 2010, December 31, 2009 or September 30, 2009. At September 30, 2010, December 31, 2009 and September 30, 2009, the fair value of mutual fund investments available for sale with unrealized gains was $62.1 million, $60.4 million and $58.5 million, respectively. At September 30, 2010, there were no unrealized losses for mutual fund investments available for sale. At December 31, 2009 and September 30, 2009, the fair value of mutual fund investments available for sale with unrealized losses was $2.0 million and $172,000, respectively. The total unrealized gains for mutual fund investments available for sale securities with unrealized gains at September 30, 2010, December 31, 2009 and September 30, 2009 was $17.4 million, $13.8 million and $11.2 million, respectively, while the total unrealized losses for available for sale securities with unrealized losses was $0, $2,000 and $2,000, respectively.

Unrealized changes to fair value, net of taxes, for the three months ended September 30, 2010 and 2009 of $3.3 million and $1.0 million in gains, respectively, and for the nine months ended September 30, 2010 and 2009 of $0.2 million and $9.9 million in gains, respectively, have been included in other comprehensive income, a component of equity, at September 30, 2010 and September 30, 2009, respectively. Return of capital on available for sale securities for the nine months ended September 30, 2010 and 2009 were $1.9 million and $2.7 million, respectively. There were no sales of investments available for sale for the three months ended September 30, 2010. Proceeds from sales of investments available for sale were approximately $0.8 million for the three month period ended September 30, 2009. For the three months ended September 30, 2009, gross gains on the sale of investments available for sale amounted to $175,000; there were no gross losses on the sale of investments available for sale. Proceeds from sales of investments available for sale were approximately $2.0 million and $4.3 million for the nine month periods ended September 30, 2010 and 2009, respectively. For the nine months ended September 30, 2010 and 2009, gross gains on the sale of investments available for sale amounted to $13,000 and $2.1 million, respectively; there were no gross losses on the sale of investments available for sale. The basis on which the cost of a security sold is determined is specific identification.

Investments classified as available for sale that are in an unrealized loss position for which other-than-temporary impairment has not been recognized consisted of the following:

	September 30, 2010						December 31, 2009							September 30, 2009
			Unrealized						Unrealized							Unrealized
	Cost		Losses		Fair Value		Cost		Losses			Fair Value		Cost		Losses			Fair Value
(in thousands)
Mutual Funds	$	-	$	-	$	-	$	2,002	$	(2	)	$	2,000	$	174	$	(2	)	$	172

At September 30, 2010, there were no available for sale holdings in loss positions.

At December 31, 2009, there were five holdings in loss positions which were not deemed to be other-than-temporarily impaired due to the length of time that they had been in a loss position and because they passed scrutiny in our evaluation of issuer-specific and industry-specific considerations. In these specific instances, the investments at December 31, 2009 were mutual funds with diversified holdings across multiple companies and in most cases across multiple industries. One holding was impaired for one month, one holding was impaired for nine consecutive months and three holdings were impaired for fourteen consecutive months. The fair value of these holdings at December 31, 2009 was $2.0 million.

At September 30, 2009, there were five holdings in loss positions which were not deemed to be other-than-temporarily impaired due to the length of time that they had been in a loss position and because they passed scrutiny in our evaluation of issuer-specific and industry-specific considerations. In these specific instances, the investments at September 30, 2009 were mutual funds with diversified holdings across multiple companies and in most cases across multiple industries. One holding was impaired for six consecutive months and four holdings were impaired for eleven consecutive months. The fair value of these holdings at September 30, 2009 was $172,000.

C. Investments in Partnerships

The Company is general partner or co-general partner of various sponsored limited partnerships and the investment manager of various sponsored offshore funds whose underlying assets consist primarily of marketable securities (the “affiliated entities”). We also have investments in unaffiliated partnerships, offshore funds and other entities. Certain of the affiliated entities are consolidated, generally because a majority of the equity is owned by the Company. Other investment partnerships for which we serve as the general partner but have only a minority ownership interest are not consolidated because the limited partners have substantive rights to replace the Company as general partner. Our balance sheet caption “investments in partnerships” includes those investments, in both affiliated and unaffiliated entities, which the Company accounts for under the equity method of accounting and certain investments in consolidated feeder funds that the Company accounts for at fair value, as described below. The Company reflects the equity in earnings of these equity method investees and the change in fair value of the consolidated feeder funds under the caption net gain from investments on the condensed consolidated statements of income.

We also have sponsored a number of investment vehicles where we are the investment manager in which we do not have an equity investment. These vehicles are considered VIEs and we are not the primary beneficiary because we do not absorb a majority of the entities’ expected losses or expected returns. The Company has not provided any financial or other support to these entities. The total assets of these entities at September 30, 2010, December 31, 2009 and September 30, 2009 were $11.8 million, $10.4 million and $9.9 million, respectively. Our maximum exposure to loss as a result of our involvement with the VIEs is limited to the deferred carried interest that we have in one of the VIEs. On September 30, 2010, December 31, 2009 and September 30, 2009, we had a deferred carried interest in one of the VIE offshore funds of approximately $307,000, $285,000 and $273,000, respectively, and was included in investments in partnerships on the condensed consolidated statements of financial condition. Additionally, as the general partner or investment manager to these VIEs the Company earns fees in relation to these roles, which given a decline in AUM for the VIEs would result in lower fee revenues earned by the Company which would be reflected in the condensed consolidated statement of income, condensed consolidated statement of financial condition and condensed consolidated statement of cash flows.

At September 30, 2010, December 31, 2009 and September 30, 2009, and for the nine months ended September 30, 2010, the Company consolidated two limited partnerships and one offshore fund (the “consolidated feeder funds”), and for the nine months ended September 30, 2009, the Company consolidated three limited partnerships and one offshore fund, that owned 100% of their offshore master funds. The Company retained the specialized accounting of the consolidated feeder funds in the Company’s consolidated financial statements. Included in the investment in partnerships on the Company’s consolidated statement of financial condition as of September 30, 2010, December 31, 2009 and September 30, 2009, is $26.8 million $25.1 million, and $24.7 million, respectively, which represents the consolidated feeder fund’s proportionate investment in the master funds carried at fair value.

D. Fair Value

All of the instruments within cash and cash equivalents, investments in securities and securities sold, not yet purchased are measured at fair value. Certain instruments within investments in partnerships are also measured at fair value as described in detail below.

The Company’s assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy in accordance with the FASB’s guidance on fair value measurement. The levels of the fair value hierarchy and their applicability to the Company are described below:

-	Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities at the reporting date. Level 1 assets include cash equivalents, government obligations, listed mutual funds and equities.
-	Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities that are not active and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly-quoted intervals. Assets that generally are included in this category may include certain limited partnership interests in hedge funds in which the valuations for substantially all of the investments within the fund are based upon Level 1 or Level 2 inputs and over the counter derivatives that have inputs to the valuations that can be generally corroborated by observable market data.
-	Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Assets included in this category generally include equities and direct private equity investments held within consolidated partnerships.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Investments are transferred into or out of any level at their beginning period values.

The availability of observable inputs can vary from product to product and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3.

In the absence of a closing price, an average of the bid and ask price is used. Bid prices reflect the highest price that the market is willing to pay for an asset. Ask prices represent the lowest price that the market is willing to accept for an asset.

Cash equivalents – Cash equivalents primarily consist of an affiliated money market mutual fund which is invested solely in U.S. Treasuries. U.S. Treasury Bills and Notes with maturities of three months or less at the time of purchase are also considered cash equivalents. Cash equivalents are valued using quoted market prices.

Investments in securities and securities sold, not yet purchased – Investments in securities and securities sold, not yet purchased are generally valued based on quoted prices from an exchange. To the extent these securities are actively traded, valuation adjustments are not applied, and they are categorized in Level 1 of the fair value hierarchy. Securities categorized in Level 2 investments are valued using other observable inputs. Nonpublic and infrequently traded investments are included in Level 3 of the fair value hierarchy because significant inputs to measure fair value are unobservable.

Investments in Partnerships – The Company’s investments include limited partner investments in consolidated feeder funds. The Company considers the net asset value of the fund to be the best estimate of fair value. Investments in hedge funds that are redeemable at the measurement date or within one month, are categorized in Level 2 of the fair value hierarchy. These funds primarily invest in long and short investments in debt and equity securities that are traded in public and over-the-counter exchanges in the United States and are classified as level 1 assets or liabilities in the funds’ financial statements. We may redeem our investments in these funds monthly with 30 days’ notice.

The following table presents information about the Company’s assets and liabilities by major categories measured at fair value on a recurring basis as of September 30, 2010, December 31, 2009 and September 30, 2009 and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of September 30, 2010 (in thousands)

	Quoted Prices in Active		Significant Other		Significant		Balance as of
	Markets for Identical		Observable		Unobservable		September 30,
Assets	Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		2010
Cash equivalents	$	293,661	$	-	$	-	$	293,661
Investments in partnerships		-		26,795		-		26,795
Investments in securities:
AFS - Common stocks		31,594		-		-		31,594
AFS - Mutual funds		62,148		-		-		62,148
Trading - Gov't obligations		1,363		-		-		1,363
Trading - Common stocks		128,113		90		183		128,386
Trading - Mutual funds		1,365		-		-		1,365
Trading - Convertible bonds		938		-		-		938
Trading - Preferred stocks		1,821		-		13		1,834
Trading - Other		204		285		93		582
Total investments in securities		227,546		375		289		228,210
Total investments		227,546		27,170		289		255,005
Total assets at fair value	$	521,207	$	27,170	$	289	$	548,666
Liabilities
Trading - Common stocks	$	18,387	$	-	$	-	$	18,387
Trading - Other		59		-		-		59
Securities sold, not yet purchased	$	18,446	$	-	$	-	$	18,446

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2009 (in thousands)

	Quoted Prices in Active		Significant Other		Significant		Balance as of
	Markets for Identical		Observable		Unobservable		December 31,
Assets	Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		2009
Cash equivalents	$	400,111	$	-	$	-	$	400,111
Investments in partnerships		-		25,092		-		25,092
Investments in securities:
AFS - Common stocks		34,294		-		-		34,294
AFS - Mutual funds		62,380		-		-		62,380
Trading - Common stocks		58,521		108		205		58,834
Trading - Mutual funds		1,295		-		-		1,295
Trading - Preferred stocks		-		-		15		15
Trading - Other		249		246		90		585
Total investments in securities		156,739		354		310		157,403
Total investments		156,739		25,446		310		182,495
Total assets at fair value	$	556,850	$	25,446	$	310	$	582,606
Liabilities
Trading - Common stocks	$	9,569	$	-	$	-	$	9,569
Securities sold, not yet purchased	$	9,569	$	-	$	-	$	9,569

Assets and Liabilities Measured at Fair Value on a Recurring Basis as of September 30, 2009 (in thousands)

	Quoted Prices in Active		Significant Other		Significant		Balance as of
	Markets for Identical		Observable		Unobservable		September 30,
Assets	Assets (Level 1)		Inputs (Level 2)		Inputs (Level 3)		2009
Cash equivalents	$	462,913	$	-	$	-	$	462,913
Investments in partnerships		-		24,685		-		24,685
Investments in securities:
AFS - Common stocks		32,746		-		-		32,746
AFS - Mutual funds		58,722		-		-		58,722
Trading - U.S. Gov't obligations		-		-		-		-
Trading - Common stocks		79,346		102		232		79,680
Trading - Mutual funds		1,254