FORM 10-K/A GAMCO Investors, Inc. - Gabelli

Revenues from Investment Partnerships also generally include an incentive allocation or a fee of 20% of the economic profit. The incentive allocation or fee is generally based on the
absolute gain in a portfolio and is recognized at the end of the measurement period and amounts receivable are included in other receivables from affiliates in the consolidated
statements of financial condition. Fulcrum fees from certain institutional separate accounts, which are based upon meeting or exceeding specific benchmark index or indices, are
recognized at the end of the stipulated contract period for the respective account, and receivables due from fulcrum fees are included in investment advisory fees receivable on the
consolidated statements of financial condition. There was $4.4 million in fulcrum fees receivable as of December 31, 2006. Management fees on closed-end preferred shares are
received at year-end if the total return to common shareholders of the closed-end fund for the calendar year exceeds the dividend rate of the preferred shares. These fees are
recognized at the end of the measurement period. Receivables due on management fees on closed-end preferred shares are included in investment advisory fees receivable on the
consolidated statements of financial condition.
Distribution fees from the open-end mutual funds are computed daily based on average net assets and are accrued monthly. The amounts receivable for distribution fees are
included in other receivables from affiliates on the consolidated statements of financial condition.
Distribution Costs
We incur certain promotion and distribution costs, which are expensed as incurred, principally related to the sale of shares of open-end mutual funds, shares sold in the initial public
offerings of our closed-end funds, and after-market support services related to our closed-end funds. Distribution costs relating to closed-end funds were approximately
$4,365,000, $5,576,000 and $8,217,000 for 2004, 2005 and 2006, respectively. In fourth quarter 2006, we made a prepayment of $4.2 million in distribution expenses to a
broker in connection with the termination of certain after-market support services related to the common share assets of The Gabelli Dividend and Income Trust which is included in
distribution costs on the consolidated statement of income.
Dividends and Interest Income and Interest Expense
Dividends are recorded on the ex-dividend date. Interest income and interest expense are accrued as earned or incurred.
Depreciation and Amortization
Fixed assets, with net book value of $3.2 million are included in other assets, are recorded at cost and depreciated using the straight-line method over their estimated useful lives.
Leasehold improvements, which are included in other assets, are recorded at cost and amortized using the straight-line method over their estimated useful lives or lease terms,
whichever is shorter. Amortization of the capital lease obligation is computed on the interest rate method while the leased property is depreciated utilizing the straight-line method
over the term of the lease, which expires on April 30, 2013.
Derivative Financial Instruments
The Company accounts for derivative financial instruments in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 133 (“Statement No. 133”), Accounting
for Derivative Instruments and Hedging Activities, as amended. Statement No. 133 requires that an entity recognize all derivatives, as defined, as either assets or liabilities measured
at fair value. The Company uses swaps and treasury futures to manage its exposure to market and credit risks from changes in certain equity prices, interest rates, and volatility and
does not hold or issue swaps and treasury futures for speculative or trading purposes. These swaps and treasury futures are not designated as hedges, and changes in fair values of
these derivatives are recognized in earnings as gains (losses) on derivative contracts. The fair value of swaps and treasury shares are included in the investments in securities in the
statements of financial condition, and gains and losses from the swaps and treasury shares are included in net gain from investments in the statement of income.
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