Gabelli SRI Fund, Inc.

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1 Gabelli SRI Fund, Inc. Shareholder Commentary December 31, 2015 (Y)our Portfolio Management Team To Our Shareholders, For the quarter ended December 31, 2015, the net asset value ( NAV ) per Class AAA Share of the Gabelli SRI Fund, Inc. increased 2.9% compared with an increase of 5.0% for the Morgan Stanley Capital International ( MSCI ) All Country ( AC ) World Index. See page 2 for additional performance information. Finding Value in a Low Growth World Among those who passed away in 2015 was legendary New York Yankee catcher Yogi Berra, known for his durability across eighteen All-Star seasons and his pithy turns-of-phrase. It s like déjà vu all over again was one Yogism that applied to 2015 as commodity prices continued their fall and unrest returned in the Middle East, the Ukraine, and the South China Sea, punctuated by acts of terrorism by ISIS. Where 2015 differed substantially from 2014 was the flatness in returns across most major bond and equity indices. We attribute this to a tepid forecast for global growth and inflation. To borrow another Yogism, in the unenthusiastic outlook of most investors, the future ain t what it used to be. The Economy Christopher C. Desmarais Christopher J. Marangi Kevin V. Dreyer The world exited 2015 with China decelerating to sub-7% official growth, Japan sinking into its second recession in as many years, and commodity-driven countries, such as Russia and Brazil, experiencing depression conditions; the U.S. and Europe muddled along at 1%-2%. This follows years of sub-par growth. The base case for future economic activity is likely to include more of the same. At the moment, downside risks, including acts of war and terrorism, social unrest, further competitive currency devaluations, and increased trade barriers and greater than expected wage acceleration, outweigh risks to the upside. There may be some bright spots for the economy, however, as the year-on-year impact of a strong dollar moderates, and lower oil and commodity prices are reflected as a net benefit to consumers. The process of normalizing interest rates could also pull forward investment demand and clarify much of the uncertainty decision makers have been operating under since the start of monetary easing.

2 Comparative Results Average Annual Returns through December 31, 2015 (a)(b) Since Inception Quarter 1 Year 3 Year 5 Year (6/1/07) Class AAA (SRIGX) % (3.28)% 8.72% 5.16% 5.32% MSCI AC World Index (2.36) S&P 500 Index Class A (SRIAX) (3.28) With sales charge (c) (3.04) (8.84) Class C (SRICX) (4.09) With contingent deferred sales charge (d) (5.05) Class I (SRIDX) (3.04) In the current prospectuses dated July 29, 2015, the expense ratios for Class AAA, A, C, and I Shares are 1.64%, 1.64%, 2.39%, and 1.39%, respectively. Class AAA and I Shares do not have a sales charge. The maximum sales charge for Class A Shares and Class C Shares is 5.75% and 1.00%, respectively. (a) Returns represent past performance and do not guarantee future results. Total returns and average annual returns reflect changes in share price, reinvestment of distributions, and are net of expenses. Investment returns and the principal value of an investment will fluctuate. When shares are redeemed, they may be worth more or less than their original cost. Current performance may be lower or higher than the performance data presented. Visit for performance information as of the most recent month end. Returns would have been lower had Gabelli Funds, LLC, the Adviser not reimbursed certain expenses of the Fund for periods prior to March 31, The Fund imposes a 2% redemption fee on shares sold or exchanged within seven days after the date of purchase. Performance returns for periods of less than one year are not annualized. Investors should carefully consider the investment objectives, risks, charges, and expenses of the Fund before investing. The prospectuses contain information about these and other matters and should be read carefully before investing. To obtain a prospectus, please visit our website at The MSCI AC World Index is an unmanaged market capitalization weighted index representing both developed and emerging markets. The S&P 500 Index is a market capitalization weighted index of 500 large capitalization stocks commonly used to represent the U.S. equity market. Dividends are considered reinvested. You cannot invest directly in an index. (b) The Fund s fiscal year ends March 31. (c) Performance results include the effect of the maximum 5.75% sales charge at the beginning of the period. (d) Assuming payment of the 1% maximum contingent deferred sales charge imposed on redemptions made within one year of purchase. We have separated the portfolio managers commentary from the financial statements and investment portfolio due to corporate governance regulations stipulated by the Sarbanes-Oxley Act of We have done this to ensure that the content of the portfolio managers commentary is unrestricted. Both the commentary and the financial statements, including the portfolio of investments, are available on our website at 2

3 Whether this period of slow growth is cyclical or secular has important implications for future investment. As with many things, the answer is likely a little bit of both. The current expansion is clearly aging, having started in June 2009, and has been characterized by too much debt globally and too much regulation in the U.S. Secular issues are also at play. Like the seventy-seven month expansion, populations in the developed world are also getting older, and many baby boomers are retiring earlier than their parents, leaving a smaller workforce to service debt and retirement obligations while driving output. Some countries, such as Japan, are relying on technology to fill this labor shortfall. At the same time, technological disruption brought on by innovative companies like Amazon, Uber, Airbnb, Netflix, and Venmo have reduced friction costs (in many cases meaning people), boosting consumer utility but possibly weighing on wages and labor participation. Ultimately, we view this process of creative destruction, identified by Joseph Schumpeter in the 1940 s, as normal and healthy for the economy, if not for those directly (and hopefully temporarily) impacted by dislocation. Mr. Market Increased volatility featured again in Markets began the year strongly, fueled by monetary easing by the European Union and Japan and a speculative bubble in China. The summer months brought out a sweat in most investors, as the S&P 500 declined 12%, its first correction in three years. Declining commodity prices, a collapse in China, and trepidation at the onset of a rate hiking cycle by the Federal Reserve, all with a familiar ring, were to blame. The market retraced its losses in October and took the December rate hike in stride, but the aforementioned concerns returned at year end, leaving December in the red. Against a sluggish economic backdrop, the market disproportionately rewarded companies that could demonstrate robust topline growth, including the so-called FANG of (F)acebook, (A)mazon, (N)etflix and (G)oogle (now called Alphabet) which rose an average of 80%. Those companies alone contributed 196 basis points to the S&P 500, meaning that without them, the S&P 500, before dividends, would have declined 2.7%. Historically, we have avoided high growth companies because so much of their value is tied to a future which may encompass a high degree of variability, because they do not have a clear path to positive cash flow, and/or because they are characterized by short product cycles. This is not to say that we do not invest in technology or growing companies many of our investments in aerospace, oil extraction, and telecommunications feature significant amounts of technology. Growth is merely a component of value. We weigh our degree of confidence in future growth against the price for which that opportunity is on sale in the market. Deals, Deals & More Deals Worldwide merger and acquisition (M&A) activity totaled $4.7 trillion, an increase of 42% over the $3.3 trillion in 2014, making it the most active year for M&A on record. The fourth quarter of 2015 was the third consecutive quarter with more than $1 trillion in deals announced, and it was also the busiest quarter for M&A on record at $1.6 trillion. 3

4 Financial engineering continues to impact the Fund. Energizer was re-christened Edgewell Personal Care (EPC) (4.2% of net assets as of December 31, 2015), and its battery business was spun-off into the new Energizer (1.4%) on July 1. Graham Holdings (0.1%) spun-off its cable business, Cable One (0.3%), into a new public company also on July 1. The primary drivers behind what we have previously termed the Fifth Wave of M&A the low cost of capital and limited organic growth opportunities remain in place. In addition, the frequency of activist shareholders playing the role of catalyst in corporate restructurings has accelerated. As a consequence, we expect 2016 to be another fruitful year for deals. Investment Scorecard Consumer staples companies Mondelez (3.9% of net assets as of December 3, 2015) (+25%), ConAgra Foods (4.9%) (+19%), Coty (1.5%) (+25%) and Post Holdings (1.1%) (+47%) performed well and added stability to the Fund. During the fourth quarter, ConAgra announced it would sell its private label food business to TreeHouse Foods and separate its Lamb Weston potato operation later in Auto parts retailer O Reilly Automotive (1.8%) (+32%), reported strong results in part as a beneficiary of lower gasoline prices. Finally, after decades of control by the Dolan family, Cablevision Systems Corp. (0.9%) (+36%) in September agreed to be acquired by European telecommunications operator Altice for $34.90 per share in cash. The largest detractor from performance was Edgewell Personal Care (-20%) which was separated from Energizer on June 30. Like several holdings including Tyco (1.8%) (-26%) and Genuine Parts (1.9%) (-17%), Edgewell faced significant currency headwinds. We believe the business remains attractive and a likely takeover candidate. Media companies such as Twenty-First Century Fox (1.7%) (-25%) also reported results dampened by the strong dollar, but were further pressured by concerns over changing viewership habits such as cord-cutting. Speculation that a consolidation wave will sweep the content companies has risen early in Finally, in response to pressure from the IRS, Yahoo! (1.0%) retracted its plan to spin-off its stake in Alibaba, instead setting the course to spin or sell the declining, but still valuable, core internet business. Conclusion & Outlook Although the current year began with a thud, moderating headwinds from currency and energy, coupled with continued improvement in consumer spending and relatively low interest rates, should lead to better earnings growth in As usual, we will take advantage of market volatility to improve the overall price/value characteristics of the portfolio. Notwithstanding the market leadership of a handful of large capitalization, often tech-oriented companies, we have not and will not alter our investment philosophy and process. We start with bottom-up fundamental research, and employ our Private Market Value (PMV) with a Catalyst stock selection process to identify stocks ripe for change, including potential acquisition targets and likely candidates for financial engineering. We believe we can deliver superior risk-adjusted returns in any growth environment. January 15,

5 Top Ten Holdings (Percent of Net Assets) December 31, 2015 ConAgra Foods Inc. 4.9% Edgewell Personal Care Co. 4.2% Mondelēz International Inc. 3.9% Xylem Inc. 3.4% Republic Services Inc. 3.2% Comcast Corp. 3.0% CVS Health Corp. 2.8% Danone SA 2.7% Liberty Global plc 2.6% Unilever plc 2.2% Note: The views expressed in this Shareholder Commentary reflect those of the Portfolio Managers only through the end of the period stated in this Shareholder Commentary. The Portfolio Managers views are subject to change at any time based on market and other conditions. The information in this Shareholder Commentary represents the opinions of the Portfolio Managers and is not intended to be a forecast of future events, a guarantee of future results, or investment advice. Views expressed are those of the Portfolio Managers and may differ from those of other portfolio managers or of the Firm as a whole. This Shareholder Commentary does not constitute an offer of any transaction in any securities. Any recommendation contained herein may not be suitable for all investors. Information contained in this Shareholder Commentary has been obtained from sources we believe to be reliable, but cannot be guaranteed. Minimum Initial Investment $1,000 The Fund s minimum initial investment for regular accounts is $1,000. There are no subsequent investment minimums. No initial minimum is required for those establishing an Automatic Investment Plan. Additionally, the Fund and other Gabelli/GAMCO Funds are available through the no-transaction fee programs at many major brokerage firms. The Fund imposes a 2% redemption fee on shares sold or exchanged within seven days after the date of purchase. See the prospectuses for more details. Please visit us on the Internet. Our homepage at contains information about GAMCO Investors, Inc., the Gabelli/GAMCO Mutual Funds, IRAs, 401(k)s, current and historical quarterly reports, closing prices, and other current news. We welcome your comments and questions via at [email protected]. The Fund s daily NAVs are available in the financial press and each evening after 7:00 PM (Eastern Time) by calling 800-GABELLI ( ). Please call us during the business day, between 8:00 AM 7:00 PM (Eastern Time), for further information. You may sign up for our alerts at and receive early notice of quarterly report availability, news events, media sightings, and mutual fund prices and performance. 5

6 e-delivery We are pleased to offer electronic delivery of Gabelli fund documents. Direct shareholders of our mutual funds can elect to receive their Annual and Semiannual Reports, Manager Commentaries, and Prospectuses via e-delivery. For more information or to sign up for e-delivery, please visit our website at Multi-Class Shares Class AAA Shares are no-load shares offered directly through selected broker/dealers. Class A and Class C Shares are targeted to the needs of investors who seek advice through financial consultants. Class I Shares are available directly through the Fund s distributor or brokers that have entered into selling agreements specifically with respect to Class I Shares. The Board of Directors determined that expanding the types of Fund shares available through various distribution options would enhance the ability of the Fund to attract additional investors. 6

7 GABELLI SRI FUND, INC. One Corporate Center Rye, NY Portfolio Management Team Biographies Christopher C. Desmarais joined GAMCO Investors, Inc. in Currently he is a Managing Director of GAMCO Asset Management Company, a portfolio manager of Gabelli Funds, LLC, as well as the Director of Socially Responsive Investments. He is a portfolio manager of the Fund. His responsibilities also include marketing and client service of GAMCO s Value, Growth, and International capabilities for institutional, endowment, and family office clients as well as direct oversight of all of the Firm s SRI equity products. He is a graduate of Fairfield University with a B.A. in Economics. Christopher J. Marangi joined Gabelli in 2003 as a research analyst. He currently serves as a portfolio manager of Gabelli Funds, LLC and manages several funds within the Gabelli/GAMCO Funds Complex. Mr. Marangi graduated magna cum laude and Phi Beta Kappa with a B.A. in Political Economy from Williams College and holds an MBA with honors from Columbia Business School. Kevin V. Dreyer joined Gabelli in 2005 as a research analyst covering companies within the consumer sector. He currently serves as a portfolio manager of Gabelli Funds, LLC and manages several funds within the Gabelli/GAMCO Funds Complex. Mr. Dreyer received a B.S.E. from the University of Pennsylvania and an MBA from Columbia Business School.

8 GABELLI SRI FUND, INC. One Corporate Center Rye, NY t 800-GABELLI ( ) f e [email protected] GABELLI.COM Net Asset Value per share available daily by calling 800-GABELLI after 7:00 P.M. BOARD OF DIRECTORS OFFICERS G A B E L L I S R I F U N D, I N C. Mario J. Gabelli, CFA Chairman and Chief Executive Officer, GAMCO Investors, Inc. Chairman and Chief Executive Officer, Associated Capital Group Inc. Clarence A. Davis Former Chief Executive Officer, Nestor, Inc. Vincent D. Enright Former Senior Vice President and Chief Financial Officer, KeySpan Corp. William F. Heitmann Former Senior Vice President of Finance, Verizon Communications, Inc. Anthonie C. van Ekris Chairman, BALMAC International, Inc. Bruce N. Alpert President Andrea R. Mango Secretary Agnes Mullady Treasurer Richard J. Walz Chief Compliance Officer DISTRIBUTOR G.distributors, LLC CUSTODIAN The Bank of New York Mellon LEGAL COUNSEL Paul Hastings LLP Shareholder Commentary December 31, 2015 This report is submitted for the general information of the shareholders of the Gabelli SRI Fund, Inc. It is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus. GAB1794Q415SC