Mario Gabelli’s Equity Income Fund commentary for the third quarter 2014.

To Our Shareholders,

For the quarter ended September 30, 2014, the net asset value (“NAV”) per Class AAA Share of The Gabelli Equity Income Fund decreased 2.5% compared with an increase of 1.1% for the Standard & Poor’s (“S&P”) 500 Index. See page 2 for additional performance information.

Mario Gabelli Equity Income Fund

Mario Gabelli Equity Income Fund: Economy and Markets

First the good news: the real gross domestic product – the output of goods and services produced in the United States – that was measured in the second quarter was revised up to an annual rate of 4.6%, bouncing back from the decrease of 2.1% in the first quarter, which had been impacted by the weather and new healthcare launch.

The monthly jobs reports have continued to be supportive of lower unemployment. The three month average pace of jobs gain was 224,000 in the third quarter, the highest since the first three months of 2004. The unemployment rate fell in September to 5.9%, the lowest level since July of 2008.

However, as has been the pattern with our very low paced recovery that began in 2009, this step forward was accompanied by disappointing news that moderated the strength of the headline number. The improvement in the jobless number was helped by a negative factor, which is that the labor force participation rate ticked down to 67.2%, the lowest level since 1978. The other disappointment was the lack of wage increase, which Federal Reserve Chair Janet Yellen continues to reference as a requirement for an improving economy.

Investors braved a lot of bad news in the third quarter. Conflicts around the world included the Israel-Gaza war, the Russian invasion of the Ukraine, and China and Japan confronting each other over disputed islands. The scariest war erupted when we suddenly became aware of the substantial threat posed by the terrorist group calling itself the Islamic State, which broadcast executions of American and British captives. The question of how officials failed to anticipate this rise, and what the response should be, suddenly became the biggest issue facing our president. This contributed to his fall in the public approval polls, and possibly knock on effects for the November mid-term elections.

Economic activity in Europe continued to weaken in the third quarter. German manufacturing, which had been strong, slumped unexpectedly in August. This is the latest sign that growth in Europe’s industrial powerhouse is slowing, and suggests that the impact of the Ukraine conflict extends beyond the sanctions, that is, beyond merely reduced exports. Russia makes up about 3% of Germany’s total exports, but the conflict could be reducing confidence and business activity and investment more broadly.

While a rise in interest rates has been endlessly anticipated, we have seen rates fall this year, confounding the consensus. The rate on the ten year U.S. Treasury note has fallen from just over 3% at the beginning of the year to under 2.5% at the end of the third quarter.

Mario Gabelli Equity Income Fund: Deals, Deals, and More Deals

Dealmaking continued in the third quarter, with worldwide M&A up 59% to $2.7 trillion for the first nine months of 2014, although year over year deal value declined in the third quarter. Tyson Foods (0.1% of net assets as of September 30, 2014) completed its acquisition of Fund holding Hillshire Brands, a leading branded meat company, in August.

In addition to M&A activity, financial engineering continued in the third quarter. Fund holding eBay (less than 0.1% of net assets) announced plans to spin off its PayPal secure payments business from its core online marketplace operations. We had long anticipated this move and think it could eventually result in the acquisition of one or both units.

Mario Gabelli Equity Income Fund

Mario Gabelli Equity Income Fund: Let’s Talk Stocks

The following are stock specifics on selected holdings of the Fund. Favorable earnings prospects do not necessarily translate into higher stock prices, but they do express a positive trend that we believe will develop over time. Individual securities mentioned are not necessarily representative of the entire portfolio. For the following holdings, the percentage of net assets and their share prices are presented as of September 30, 2014.

American International Group Inc (NYSE:AIG) (1.0% of net assets as of September 30, 2014) ($54.02) is a leading international insurance organization serving customers in more than 130 countries and jurisdictions. AIG companies serve commercial, institutional, and individual customers through one of the most extensive worldwide property-casualty networks of any insurer. In addition, AIG companies are leading providers of life insurance and retirement services in the U.S.

The Bank of New York Mellon Corporation (NYSE:BK) (1.4%) ($38.73) is a global leader in providing financial services to institutions and individuals. The company operates in more than one hundred markets worldwide and strives to be the global provider of choice for investment management and investment services. As of June 30, 2014, the firm had $28.5 trillion in assets under custody and $1.6 trillion in assets under management. Going forward, we expect BNY Mellon to benefit from rising global incomes and the cross border movement of financial transactions.

CVS Health Corp (NYSE:CVS) (1.6%) ($79.59) operates one of the largest retail pharmacy chains in the country, and the company is poised to benefit from the expansion of insurance coverage under healthcare reform with no new taxes or regulation. CVS is expanding into the fast growing market for specialty and biotech medicines, particularly through the recently announced $2 billion acquisition of home infusion provider Coram. CVS Health recently stopped selling tobacco in its stores, but the company is performing so strongly this year that it can easily absorb the $2 billion in lost sales. The company can sustain double digit earnings growth, and management continues to return a substantial amount of cash to shareholders via a higher dividend and share repurchases.

Genuine Parts Company (NYSE:GPC) (1.6%) ($87.71) is an Atlanta based distributor of automotive and industrial replacement parts, office products, and electrical and electronic components. We expect GPC’s well known NAPA Auto Parts group to benefit as an aged vehicle population, which includes the highest percentage of off warranty vehicles in history, helps drive sales of automotive aftermarket products over the next several years. Additionally, economic indicators remain supportive of the company’s industrial and electrical parts distribution businesses amid steady economic expansion. Finally, GPC’s management has shown consistent dedication to shareholder value via share repurchases and dividend increases.

Mondelez International Inc (NASDAQ:MDLZ) (1.2%) ($34.27), headquartered in Deerfield, Illinois, is the new name of Kraft Foods Inc., following the tax-free spin-off to shareholders of the North American grocery company, Kraft Foods Group Inc (NASDAQ:KRFT) (0.6%). On October 1, 2012, shareholders received one share of Mondel?z and one-third share in KRFT for every share of Kraft Foods Inc. owned. Post spin off, approximately 75% of Mondel?z’s revenue is generated from the snacking business, which includes leading brands such as Oreo, LU and Ritz biscuits, Trident gum, and Cadbury and Milka chocolates, while the remaining 25% consists of the international packaged food business, primarily coffee and powdered beverages. In May 2014, Mondel?z announced that it is contributing its coffee business to D.E Master Blenders 1753 to form

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