<PAGE>
STRATTON
GROWTH
FUND, INC.
================================================================================
SGF
================================================================================
ANNUAL REPORT
MAY 31, 1995
<PAGE>
FUND HIGHLIGHTS
<TABLE>
<CAPTION>
MAY 31, FEBRUARY 28,
1995 1995
---------- ------------
<S> <C> <C>
Total Net Assets.............. $ 31,719,181 $ 27,830,589
Net Asset Value Per Share..... $ 22.35 $ 20.54
Shares Outstanding............ 1,419,210 1,355,046
Number of Shareholders........ 1,176 1,160
Average Size Account.......... $ 26,972 $ 23,992
</TABLE>
===========================================================================
PORTFOLIO CHANGES FOR THE QUARTER ENDED MAY 31, 1995
MAJOR PURCHASES MAJOR SALES
CoreStates Financial Corp. Ford Motor Co./(2)/
Du Pont (E.I.) De Nemours & Co./(1)/ Kimberly-Clark Corp.
Federal Paper Board Co., Inc. Stanley Works /(2)/
PNC Bank Corp. U.S.Treasury Notes 4.25%
Potlatch Corp./(1)/ Due 05/15/96/(2)/
Sturm, Ruger & Co., Inc.
U.S. Healthcare, Inc./(1)/
Westvaco Corp.
Weyerhaeuser Co./(1)/
/(1)/ New Holdings /(2)/ Eliminations
TEN LARGEST HOLDINGS MAY 31, 1995
<TABLE>
<CAPTION>
MARKET PERCENT
VALUE OF TNA
--------- ---------
<S> <C> <C>
EG & G, Inc..................................$ 1,631,250 5.1%
Carpenter Technology Corp.................... 1,477,750 4.7
Federal Paper Board Co., Inc................. 1,462,500 4.6
Sturm, Ruger & Co., Inc...................... 1,456,250 4.6
Olin Corp.................................... 1,350,000 4.3
CoreStates Financial Corp.................... 1,330,000 4.2
Westvaco Corp................................ 1,282,500 4.0
Warner-Lambert Co............................ 1,243,125 3.9
Mobil Corp................................... 1,204,500 3.8
Beneficial Corp.............................. 1,112,500 3.5
---------- ----
$ 13,550,375 42.7%
=========== ====
</TABLE>
2
<PAGE>
DEAR SHAREHOLDER:
For the fiscal year ended May 31, 1995, Stratton Growth Fund's net asset value
per share rose to $22.35. During that twelve month period, the Fund paid capital
gain distributions of $1.275 and income dividends of $0.54 for a total payout of
$1.815 per share. Total net assets of the Fund were $31,719,181 at the end of
the year. The total return for this fiscal year was 18.61%.
There have been major changes in our portfolio that have evolved over the last
twelve months. Most notable has been the build up of primary material companies
to 19.2% of assets. This year we invested 12.8% in the paper and forest products
industry and have invested 6.4% in the chemical industry. This increase in basic
raw material producers, especially in the paper industry comes about because of
unusually strong demand for their products resulting in unusually strong pricing
as well. Both the paper and the chemical industries are showing very strong
earnings growth. More important is the low risk of new capacity entering the
market which would cause price reductions. Managements are being very prudent
about spending their hard fought cash flows on new plants. They are concerned
about the future of the economy and are still in a cost cutting mentality. The
portfolio sources of the funds for this major investment in material companies
have been reductions in our holdings of banks, energy and health care and cash.
We believe the economy is slowing at this time and that the Federal Reserve will
successfully produce a soft landing. We are looking for a 1% real growth in
domestic product in the next six months. We think this will trigger lower
interest rates in the second half of 1995 following a sharp run up in interest
rates through all of 1994. The combination of lower interest rates and continued
positive earnings surprises is likely to provide support for the stock market in
the second half of this year. Managements continue to focus on profit
enhancement through keeping costs down, cutting employee levels and exiting
unprofitable business. While there is always a possibility that a recession
could occur, it seems unlikely that we will have more than a lowering of the
growth rate of the economy.
The long-term results of the Stratton Growth Fund are shown on the chart on page
4. This chart illustrates that an investment of $10,000 at the inception of the
Fund would have produced, as of May 31, 1995, $112,007 or more than eleven times
the original investment. For the period ended June 30, 1995, Stratton Growth
Fund performance record has been an average annual total return of 10.9% for the
past ten years, 13.5% for the past fifteen years and 12.7% for the past twenty
years. The future is never guaranteed, but we do think this performance record
is strong evidence of the past values of long-term equity investing. Equities
have been particularly appropriate when considering funds available for
retirement and for such long-term projects as college education. As a 100% No-
Load Fund, we have no sales commissions and therefore we rely strongly upon your
referrals in telling other persons about our Fund. We thank you for this
continued support.
Sincerely yours,
James W. Stratton John A. Affleck
Chairman President
June 29, 1995
3
<PAGE>
[CHART OF STRATTON GROWTH FUND, INC. APPEARS HERE]
ILLUSTRATION OF AN ASSUMED $10,000 INVESTMENT
IN STRATTON GROWTH FUND, INC.
(With all Dividend Income and Capital Gains Distribution Reinvested)
<TABLE>
<CAPTION>
Fiscal Year Ended 5/31
----------------------------------------------------------------------------------------------------------
73-74 75-76 77-78 79-80 81-82 83-84 85-86 87-88 89-90 91-92 93-94 95
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Investment $7,630 11,280 14,155 14,597 17,299 24,755 38,310 30,774 31,059 32,464 32,622 35,308
Reinvested Inc. Divs. $ 43 458 1,217 2,147 3,703 6,347 10,850 11,062 14,859 21,871 26,652 31,824
Reinvested Cap. Gains
Distributions $ - - - - - - 3,857 10,945 22,901 27,527 35,156 44,875
----------------------------------------------------------------------------------------------------------
Total Value $7,630 11,738 15,372 16,744 21,002 31,102 52,972 52,781 68,819 81,862 94,430 112,007
==========================================================================================================
If Divs. abd Distribs.
Were Taken in Cash:
$ Amt. Div. Inc. $ 46 309 537 782 932 663 537 1,548 1,959 2,440 1,699 853
$ Amt. Cap. Gains Distrib. $ - - - - - - 2,070 5,687 6,287 1,414 2,718 2,014
----------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: If dividend income and capital gains distributions were taken in
cash, the results would be as shown above under "value of original
shares."
Performance quotations represent past performance, and should not be
considered as representative of future results. The investment return
and principal value of an investment in the Fund will fluctuate so
that an investor's shares, when redeemed, may be worth more or less
than their original cost.
4
<PAGE>
<TABLE>
<CAPTION>
Past Performance Results
Period Stratton Growth Fund Per Share Dividends & Capital Gains Reinvested
- ---------------------------------------------------------------------------------------------------------------------
Year Ended Net Asset Income Capital Gains Year End Total investment
Dec-31 Value Dividends Distributions Value Return
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9/30/72 (inception) 6.33 _ _ $10,000 -
1972 7.20 _ _ 11,374 + 13.7 %
1973 5.48 $0.029 _ 8,706 - 23.5
1974 4.48 0.07 _ 7,223 - 17.0
1975 5.91 0.125 _ 9,716 + 34.5
1976 8.11 0.14 _ 13,587 + 39.8
1977 8.04 0.20 _ 13,794 + 1.5
1978 8.39 0.235 _ 14,786 + 7.2
1979 9.65 0.26 _ 17,487 + 18.3
1980 12.36 0.31 _ 23,139 + 32.3
1981 11.26 0.28 _ 21,596 - 6.7
1982 14.52 0.29 _ 28,619 - 32.5
1983 18.21 0.13 _ 36,143 + 26.3
1984 16.45 0.14 0.70 34,438 - 4.7
1985 20.09 0.20 0.61 43,885 + 27.4
1986 20.02 0.28 2.07 48,567 + 10.7
1987 17.23 0.70 1.53 46,685 - 3.9
1988 19.06 0.53 1.49 57,231 + 22.6
1989 20.24 0.71 2.49 70,849 + 23.8
1990 17.63 0.82 0.46 66,087 - 6.7
1991 20.27 0.725 0.435 80,747 + 22.2
1992 20.19 0.565 0.815 86,167 + 6.7
1993 20.05 0.51 0.905 91,687 + 6.4
1994 19.61 0.54 1.275 98,276 + 7.2
- ---------------------------------------------------------------------------------------------------------------------
Totals: $7.789 $12.78 Aggregate: + 882.8 %
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
PERFORMANCE COMPARISONS
(Price Appreciation Plus Dividends & Capital Gains Distributions Reinvested)
<TABLE>
<CAPTION>
PERIOD ENDED AVERAGE ANNUAL AGGREGATE
06/30/95 TOTAL RETURN TOTAL RETURN
- -------------- -------------- ------------
<S> <C> <C>
1 year + 21.31% + 21.31%
3 year + 12.29 + 41.60
5 year + 10.71 + 66.32
10 year + 10.88 + 180.83
15 year + 13.46 + 564.26
20 year + 12.65 + 983.84
</TABLE>
The average annual total return is computed by determining the average annual
compounded rate of return during specified periods that equates the initial
amount invested to the ending redeemable value of such investment. This is done
by dividing the ending redeemable value of a hypothetical $1,000 initial
investment by $1,000 and taking the root of the quotient equal to the number of
years (or fractional portion thereof) covered by the computation and subtracting
one from the result.
The aggregate total return is computed by determining the aggregate compounded
rate of return during specified periods that likewise equates the initial amount
invested to the ending redeemable value of such investment.
All dividends and capital gains distributions have been reinvested on the
reinvestment dates during the period. There are no sales charges, 12b-1, or
redemption fees of any kind in Stratton Growth Fund, Inc. Performance
quotations represent past performance, and should not be considered as
representative of future results. The investment return and principal value of
an investment in the Fund will fluctuate so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
5
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
STRATTON GROWTH FUND AND THE S&P 500*
TEN YEAR PERFORMANCE (5/31/85 - 5/31/95)
[GRAPH OF STRATTON GROWTH FUND APPEARS HERE]
<TABLE>
<CAPTION>
Average Annual Total Return
<S> <C> <C> <C>
1 Year 5 Year 10 Year
18.61% 10.23% 11.00%
</TABLE>
<TABLE>
SGF S&P 500
<S> <C> <C>
1985 $10,000 $10,000
1986 $13,431 $13,584
1987 $13,679 $16,463
1988 $13,382 $15,385
1989 $16,627 $19,484
1990 $17,448 $22,769
1991 $18,771 $25,451
1992 $20,756 $27,975
1993 $22,605 $31,218
1994 $23,942 $32,548
1995 $28,399 $39,101
</TABLE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
STRATTON GROWTH FUND AND THE S&P 500*
LIFETIME PERFORMANCE (9/30/72 - 5/31/95)
[GRAPH OF STRATTON GROWTH FUND APPEARS HERE]
<TABLE>
<CAPTION>
Average Annual Total Return
<S> <C> <C> <C> <C> <C>
1 Year 5 Year 10 Year 15 Year 20 Year
18.61% 10.23% 11.00% 13.51% 12.81%
</TABLE>
<TABLE>
SGF S&P 500
<S> <C> <C>
72 $10,000 $10,000
73 $8,007 $9,672
74 $7,673 $8,330
75 $10,061 $9,125
76 $11,738 $10,437
77 $13,570 $10,437
78 $15,372 $11,103
79 $16,038 $11,913
80 $16,744 $14,117
81 $23,101 $17,656
82 $21,002 $15,747
83 $35,320 $24,078
84 $31,102 $23,376
85 $39,441 $30,826
86 $52,972 $41,874
87 $53,953 $50,748
88 $52,781 $47,426
89 $65,579 $60,060
90 $68,819 $70,186
91 $74,034 $78,456
92 $81,862 $86,236
93 $89,155 $96,234
94 $94,430 $100,333
95 $112,007 $120,530
</TABLE>
Returns shown include the reinvestment of all dividends and other
distributions. Investment return and principal value will fluctuate, so that
your shares, when redeemed, may be worth more or less than their original cost.
* THE S&P 500 INDEX IS AN UNMANAGED INDEX.
<PAGE>
DISCUSSION OF INVESTMENT PROCESS AND PERFORMANCE
The Stratton Growth Fund seeks, as its primary objective, possible growth of
capital with current income as a secondary objective. Studies of historical
data show that investing in high yielding common stocks can produce above-
average returns while lowering risk and preserving capital. For Stratton
Management, the common stock yield is the primary screen in sorting through the
equity universe.
From an overall equity universe of more than 2500 companies, we screen down to
about 350 companies by selecting stocks with a market capitalization over $200
million which also possess a dividend yield at least one-third greater than the
yield on the S&P 500. Our second screen then reduces the universe to
approximately 60 stocks by measuring additional yield characteristics such as
dividend growth rates and dividend coverage. These tend to be done more on a
specific industry basis. Our third step in the review involves fundamental
analysis of important characteristics such as earnings, cash flow, management
strengths and relative industry competitive position. In this manner we reduce
the Stratton Growth Fund's buy candidate list to less than 40 stocks. These
stocks are then available for addition to the Fund.
This is the same process that is applied at Stratton Management for the
investment of most institutional tax-exempt funds, such as endowments and
retirement plans, with a total return objective. The process is carried out by
the investment strategy committee which has seven members. The final selection
of stocks for the portfolio of Stratton Growth Fund is made by James W.
Stratton, who has served as portfolio manager for 23 years. In his absence, a
back-up manager, John A. Affleck, serves.
We emphasize a clearly quantifiable sell discipline. As stocks rise in price,
their yield will drop. When the yield in a portfolio stock drops to only match
the yield of the S&P 500, half of our position is normally sold. If the yield
on the stock continues to decline to 75% of the S&P 500 yield, the remaining
position is normally sold. Individual holdings are reviewed on a daily basis to
insure that the dividend criteria remain sound and that the fundamental values
are secured. When better purchase candidates emerge within our yield universe,
we may trade from existing holdings. Our portfolio turnover normally averages
between 25% and 50% depending upon market conditions.
The primary investment characteristics of the portfolio are approximately 30 to
40 companies held. Volatility, as measured by the Beta, of the stocks should be
below average. The average portfolio yield should exceed the S&P 500 yield by
50%. By combining high dividend yields and lower than average price volatility,
the Fund should produce good relative performance in up markets and superior
relative performance in down markets. This is our long-term objective.
Conditions relating to the Fund's performance over the past twelve months and
our outlook for the next twelve months are presented in the President's letter
on page 3.
7
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS MAY 31, 1995
MARKET
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
- ----------- -------- -------------
<S> <C> <C>
COMMON STOCKS - 93.0%
BANKING/FINANCIAL - 16.6%
25,000 Beneficial Corp. ............................................. $ 1,112,500
30,000 Comerica, Inc. ............................................... 948,750
40,000 CoreStates Financial Corp. ................................... 1,330,000
25,000 Meridian Bancorp, Inc. ....................................... 800,000
40,000 PNC Bank Corp. ............................................... 1,080,000
------------
5,271,250
------------
BUSINESS SERVICES - 5.7%
30,000 American Express Co. ......................................... 1,068,750
20,000 Pitney Bowes, Inc. ........................................... 740,000
------------
1,808,750
------------
CAPITAL GOODS/TECHNOLOGY - 8.5%
90,000 EG & G, Inc. ................................................. 1,631,250
20,000 Harris Corp. ................................................. 1,062,500
------------
2,693,750
------------
CHEMICAL - 6.4%
10,000 Du Pont (E.I.) De Nemours & Co. .............................. 678,750
25,000 Olin Corp. ................................................... 1,350,000
------------
2,028,750
------------
CONSUMER PRODUCTS - 11.8%
14,000 Kimberly-Clark Corp. ......................................... 840,000
50,000 Sturm, Ruger & Co., Inc. ..................................... 1,456,250
20,000 Tambrands, Inc. .............................................. 857,500
20,000 UST, Inc. .................................................... 597,500
------------
3,751,250
------------
ENERGY - 6.0%
10,000 Exxon Corp. .................................................. 713,750
12,000 Mobil Corp. .................................................. 1,204,500
------------
1,918,250
------------
HEALTH CARE - 10.3%
10,000 American Home Products Corp. ................................. 736,250
20,000 Shared Medical Systems Corp. ................................. 667,500
20,000 U.S. Healthcare, Inc. ........................................ 621,250
15,000 Warner-Lambert Co. ........................................... 1,243,125
------------
3,268,125
------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS MAY 31, 1995
MARKET
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
- ----------- -------- --------------
<S> <C> <C>
COMMON STOCKS - 93.0% (continued)
INSURANCE/SERVICES - 6.8%
20,000 American General Corp. ....................................... $ 690,000
15,000 Aon Corp. .................................................... 547,500
20,000 Lincoln National Corp. ....................................... 905,000
-------------
2,142,500
-------------
METALS - 8.1%
23,000 Carpenter Technology Corp. ................................... 1,477,750
20,000 Phelps Dodge Corp. NY ........................................ 1,102,500
-------------
2,580,250
-------------
PAPER - 12.8%
45,000 Federal Paper Board Co., Inc. ................................ 1,462,500
15,000 Potlatch Corp. ............................................... 643,125
30,000 Westvaco Corp. ............................................... 1,282,500
15,000 Weyerhaeuser Co. ............................................. 658,125
-------------
4,046,250
-------------
TOTAL COMMON STOCKS (COST $23,167,995)........................ 29,509,125
-------------
<CAPTION>
Principal
Amount
- ------------
<S> <C> <C>
SHORT-TERM NOTES - 9.7%
$ 400,000 Associates Corp. of North America Note 6.15% due 06/01/95..... 400,000
$ 600,000 Ford Motor Credit Corp. Note 5.97% due 06/02/95............... 600,000
$1,040,000 General Electric Capital Corp. Note 5.98% due 06/07/95........ 1,040,000
$1,040,000 American Express Credit Corp. Note 5.96% due 06/14/95......... 1,040,000
-------------
Total Short-Term Notes (cost $3,080,000)...................... 3,080,000
-------------
TOTAL INVESTMENTS - 102.7% (COST $26,247,995)*............... 32,589,125
LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS - (2.7%)....... (869,944)
-------------
NET ASSETS - 100.0%........................................... $ 31,719,181
=============
* Aggregate cost for federal income tax purposes is $26,247,995; and net unrealized appreciation
is as follows:
Gross unrealized appreciation................................. $ 6,341,130
Gross unrealized depreciation................................. 0
Net unrealized appreciation............................... -------------
$ 6,341,130
=============
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments in securities at market value (identified cost $26,247,995) (Note 1)..... $ 32,589,125
Cash................................................................................. 102,528
Dividends and interest receivable.................................................... 184,813
Receivable for capital stock sold.................................................... 250
Receivable for securities sold....................................................... 299,795
------------
Total Assets..................................................................... 33,176,511
------------
LIABILITIES
Payable for securities purchased..................................................... 1,403,078
Payable for capital stock redeemed................................................... 31,746
Accrued expenses..................................................................... 22,506
------------
Total Liabilities................................................................ 1,457,330
------------
NET ASSETS
Applicable to 1,419,210 shares; $.10 par value; 10,000,000 shares authorized ........ $ 31,719,181
============
Net asset value, offering and redemption price per share
($31,719,181 + 1,419,210 shares).................................................. $ 22.35
============
SOURCE OF NET ASSETS
Paid-in capital...................................................................... $ 24,028,056
Undistributed net investment income.................................................. 365,355
Accumulated net realized gain on investments......................................... 984,640
Net unrealized appreciation of investments........................................... 6,341,130
------------
Net Assets....................................................................... $ 31,719,181
============
=========================================================================================================
<CAPTION>
STATEMENT OF OPERATIONS
Year Ended May 31, 1995
<S> <C>
INCOME
Dividends............................................................................. $ 966,697
Interest.............................................................................. 128,251
------------
Total Income....................................................................... 1,094,948
------------
EXPENSES
Advisory fees (Note 2)................................................................ 189,594
Administrative services fees (Note 2)................................................. 30,000
Shareholder services fees (Note 2).................................................... 28,724
Registration fees (Note 2)............................................................ 24,735
Accounting/Pricing services fees (Note 2)............................................. 20,000
Custodian fees (Note 2)............................................................... 16,476
Audit fees............................................................................ 14,584
Printing and postage fees............................................................. 11,269
Directors' fees....................................................................... 7,326
Taxes other than income taxes......................................................... 5,896
Legal fees............................................................................ 4,709
Miscellaneous fees.................................................................... 4,574
------------
Total Expenses..................................................................... 357,887
------------
Net Investment Income........................................................... 737,061
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments...................................................... 1,177,804
Net increase in unrealized appreciation of investments................................ 2,819,135
------------
Net gain on investments............................................................ 3,996,939
------------
Net increase in net assets resulting from operations............................ $ 4,734,000
============
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended May 31,
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
OPERATIONS
Net investment income.................................................... $ 737,061 $ 620,174
Net realized gain on investments......................................... 1,177,804 2,109,557
Net increase (decrease) in unrealized appreciation of investments........ 2,819,135 (1,295,859)
----------- -----------
Net increase in net assets resulting from operations.............. 4,734,000 1,433,872
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income
($.540 and $.510 per share, respectively).............................. (692,621) (611,090)
Distributions from net realized gains from security
transactions ($1.275 and $.905 per share, respectively)................ (1,590,137) (1,081,416)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from the net change
in the number of outstanding shares (a)................................ 3,793,151 418,409
----------- -----------
Total increase in net assets...................................... 6,244,393 159,775
NET ASSETS AT THE BEGINNING OF THE YEAR..................................... 25,474,788 25,315,013
----------- -----------
NET ASSETS AT THE END OF THE YEAR
(including undistributed net investment income of
$365,355 and $320,915, respectively)................................... $ 31,719,181 $ 25,474,788
=========== ===========
</TABLE>
(a) A summary of capital share transactions follows:
<TABLE>
<CAPTION>
Years Ended May 31,
------------------------------------------------------
1995 1994
--------------------- -------------------------
Shares Value Shares Value
---------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Shares issued.................................... 251,048 $ 5,232,197 139,168 $ 2,845,500
Shares reinvested from net
investment income and capital
gains distributions.......................... 102,301 1,968,319 72,130 1,451,800
--------- ---------- ----------- -----------
353,349 7,200,516 211,298 4,297,300
Shares redeemed.................................. (167,783) (3,407,365) (189,761) (3,878,891)
--------- ---------- ----------- -----------
Net increase................................. 185,566 $ 3,793,151 21,537 $ 418,409
========= ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1995
NOTE 1. - Significant Accounting Policies - Stratton Growth Fund, Inc. (the
"Fund") is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund's primary
investment objective is to seek possible growth of capital with current income
from interest and dividends as a secondary objective. The Fund's investments
will normally consist of common stock and securities convertible into or
exchangeable for common stock. Due to the inherent risks of investments there
can be no assurance that the objective of the Fund will be achieved. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
Investments and Related Income: The investments in securities are carried at
market value in the accompanying financial statements. Securities traded on a
national exchange or securities quoted on the NASD National Market System are
valued at the last sale price. Other over-the-counter securities and securities
traded on exchanges for which there is no sale are valued at the mean between
the closing bid and asked prices. Security transactions are accounted for on
the trade date and dividend income is recorded on the ex-dividend date; interest
income is recorded on the accrual basis. Realized gains and losses from
security transactions are based on the specific identification method for both
financial reporting and federal income tax purposes.
Federal Income Taxes: No provision is made for federal income taxes as the Fund
intends to qualify as a regulated investment company and to make the requisite
distribution of taxable income to its shareholders, which will be sufficient to
relieve it from all or substantially all federal income taxes.
NOTE 2. - During the year ended May 31, 1995, the Fund paid advisory fees
aggregating $189,594 to Stratton Management Company, (the "Advisor"). Management
services are provided by the Advisor under an agreement whereby the Advisor
furnishes all investment advice, office space and facilities to the Fund and
pays the salaries of the Fund's officers and employees, except to the extent
that those employees are engaged in administrative and accounting services
activities. In return for these services, the Fund pays to the Advisor a monthly
fee of 3/48 of 1% (annually 3/4 of 1%) of the daily net asset value of the Fund
for such month. The Advisor has voluntarily agreed to waive $15,000 annually of
the compensation due it under the agreement to offset a significant portion of
the cost of certain administrative responsibilities delegated to Fund/Plan
Services, Inc. Because of certain undertakings to comply with various state
securities laws, if in any fiscal year the expenses of the Fund (excluding
taxes, brokerage commissions and interest) exceed 2 1/2% of the first $30
million of the Fund's average net assets, 2% of the next $70 million and 1 1/2%
of the remaining, the Advisor shall reimburse the Fund for such excess. Certain
officers and directors of the Fund are also officers and directors of the
Advisor. None of the Fund's officers receives compensation from the Fund.
The Fund's Transfer Agent, Fund/Plan Services, Inc. ("Fund/Plan"), is a wholly-
owned subsidiary of FinDaTex, Inc. Certain directors and officers of the Fund
are shareholders of FinDaTex, Inc. Fund/Plan received fees of $28,724 for
providing shareholder services, $30,000 for certain administrative services and
$20,000 for accounting/pricing services during the year ended May 31, 1995.
Pursuant to an agreement between The Bank of New York, (the "Custodian"), and
Fund/Plan, the Custodian reallows a portion of its custody fee to Fund/Plan for
certain services delegated to Fund/Plan. The amount is not readily
determinable. Fund/Plan Broker Services, Inc. serves as the Fund's principal
underwriter and receives no fees for services in assisting in sales of the
Fund's shares but does receive an annual fee of $3,000 for its services in
connection with the registration of the Fund's shares under state securities
laws.
NOTE 3. - Purchases and sales of securities, excluding short-term notes,
aggregated $14,246,762 and $10,729,779, respectively, for the year ended May 31,
1995.
12
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a share of capital stock
outstanding throughout each year presented.
<TABLE>
<CAPTION>
Years ended May 31,
---------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year........................... $20.65 $20.89 $20.55 $19.75 $19.66
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
---------------------------------
Net investment income....................................... 0.537 0.510 0.560 0.640 0.720
Net gains on securities (both realized
and unrealized)............................................ 2.978 0.665 1.160 1.320 0.650
-------- -------- -------- -------- --------
Total from investment operations.......................... 3.515 1.175 1.720 1.960 1.370
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
------------------
Dividends (from net investment
income).................................................... (0.540) (0.510) (0.565) (0.725) (0.820)
Distributions (from capital gains).......................... (1.275) (0.905) (0.815) (0.435) (0.460)
-------- -------- -------- -------- --------
Total distributions....................................... (1.815) (1.415) (1.380) (1.160) (1.280)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAr................................. $22.35 $20.65 $20.89 $20.55 $19.75
======== ======== ======== ======== ========
Total Return................................................. 18.61% 5.92% 8.91% 10.57% 7.58%
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets, end of year (in 000's).......................... $31,719 $25,475 $25,315 $25,311 $25,111
Ratio of expenses to average
net assets................................................. 1.31% 1.34% 1.39% 1.35% 1.41%
Ratio of net investment
income to average net assets............................... 2.70% 2.51% 2.76% 3.20% 3.94%
Portfolio turnover rate..................................... 42.54% 49.81% 35.34% 59.76% 56.78%
</TABLE>
See accompanying notes to financial statements
<PAGE>
________________________________________________________________________________
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Stratton Growth Fund, Inc.
We have audited the accompanying statement of assets and liabilities of
Stratton Growth Fund, Inc., including the schedule of investments, as of May 31,
1995, and the related statement of operations for the year then ended, the
statement of changes in net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the period
then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of May
31, 1995, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Stratton Growth Fund, Inc. as of May 31, 1995, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, in conformity with generally accepted accounting
principles.
Philadelphia, PA
June 9, 1995 TAIT, WELLER & BAKER
13
<PAGE>
SHAREHOLDER INFORMATION
MINIMUM INVESTMENT
- ------------------
The minimum amount for the initial purchase of shares of Stratton Growth Fund is
$2,000. Subsequent purchases may be made in amounts of $100 or more.
TELEPHONE EXCHANGE
- ------------------
Shares of Stratton Growth Fund may be exchanged by telephone for shares of the
other funds managed by Stratton Management Company, Stratton Monthly Dividend
Shares, Inc. or Stratton Small-Cap Yield Fund, if a special authorization form
has been completed and is on file with the Transfer Agent in advance. Exchanges
will only be permitted when the securities of both funds involved are registered
in the state of the investor's residence. Stratton Growth Fund reserves the
right to suspend the exchange privilege at any time. A Prospectus of Stratton
Monthly Dividend Shares or Stratton Small-Cap Yield Fund should be obtained and
read prior to making any such exchange.
INCOME DIVIDEND AND CAPITAL GAINS DISTRIBUTIONS
- -----------------------------------------------
Stratton Growth Fund expects to distribute all of each year's net investment
income and net realized capital gains in JULY and DECEMBER.
SYSTEMATIC WITHDRAWAL PLAN
- --------------------------
Investors who either own or purchase Stratton Growth Fund shares having a value
of $10,000 or more may elect as another option to withdraw funds on a regular
basis from their account on a monthly, quarterly, semi-annual or annual basis in
amounts of $50 or more.
SHARE PRICE INFORMATION
- -----------------------
The daily share price of Stratton Growth Fund can be found in the mutual fund
section of most major daily newspapers as well as The Wall Street Journal and
Investor's Daily, where the Fund is listed under Stratton Funds as Growth. The
Fund's stock ticker symbol is STRGX.
RETIREMENT PLANS
- ----------------
Stratton Growth Fund's IRA, Defined Contribution Plans and 403(b)(7) Retirement
Plans are available at no minimum investment.
14
<PAGE>
GENERAL INFORMATION ON SGF
- --------------------------
Requests for a prospectus and financial information, past performance figures
and an application, should be directed to the Fund's "Distributor":
FUND/PLAN BROKER SERVICES, INC.
2 W. Elm Street, P.O. Box 874, Conshohocken, PA 19428-0874
Telephone: 800-634-5726
EXISTING SHAREHOLDER ACCOUNT SERVICES
- -------------------------------------
Shareholders seeking information regarding their accounts and other Fund
services, and shareholders executing redemption requests, should continue to
call or write our "Transfer Agent and Dividend Paying Agent":
FUND/PLAN SERVICES, INC.
2 W. Elm Street, P.O. Box 874, Conshohocken, PA 19428-0874
Telephones: 610-834-3500 . 800-441-6580
INVESTMENT PORTFOLIO ACTIVITIES
- -------------------------------
Questions regarding Stratton Growth Fund's investment portfolio should be
directed to the Fund's "Investment Advisor":
STRATTON MANAGEMENT COMPANY
Plymouth Meeting Executive Campus
610 W. Germantown Pike, Suite 300, Plymouth Meeting, PA 19462-1050
Telephone: 610-941-0255
ADDITIONAL PURCHASES ONLY to existing accounts should be mailed to a separate
- -------------------------
lock box unit:
C/O FUND/PLAN SERVICES, INC.
P.O. Box 412797, Kansas City, MO 64141-2797
This report is authorized for distribution to shareholders and to others who
have received a copy of the Prospectus of Stratton Growth Fund, Inc.
15
<PAGE>
SGF STRATTON
GROWTH FUND, INC.
DIRECTORS
INVESTMENT ADVISOR
LYNNE M. CANNON STRATTON MANAGEMENT COMPANY
JOHN J. LOMBARD, JR. Plymouth Meeting Executive Campus
ROSE J. RANDALL 610 W. Germantown Pike, Suite 300
HENRY A. RENTSCHLER Plymouth Meeting, PA 19462-1050
MERRITT N. RHOAD, JR. Telephone: 610-941-0255
ALEXANDER F. SMITH
RICHARD W. STEVENS
JAMES W. STRATTON
OFFICERS
TRANSFER AGENT AND DIVIDEND PAYING AGENT
JAMES W. STRATTON FUND/PLAN SERVICES, INC.
Chairman 2 W. Elm Street, P.O. Box 874
JOHN A. AFFLECK Conshohocken, PA 19428-0874
President Telephones: 610-834-3500 . 800-441-6580
GERARD E. HEFFERNAN
JOANNE E. KUZMA
FRANK H. REICHEL, III
Vice President
PATRICIA L. SLOAN
Secretary and Treasurer
INDEPENDENT ACCOUNTANTS
JAMES A. BEERS TAIT, WELLER & BAKER
CAROL L. ROYCE 2 Penn Center Plaza, Suite 700
Assistant Secretary Philadelphia, PA 19102-1707
Assistant Treasurer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000094825
<NAME> STRATTON GROWTH FUND, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1995
<PERIOD-START> JUN-01-1994
<PERIOD-END> MAY-31-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 26,247,995
<INVESTMENTS-AT-VALUE> 32,589,125
<RECEIVABLES> 484,858
<ASSETS-OTHER> 102,528
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 33,176,511
<PAYABLE-FOR-SECURITIES> 1,403,078
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54,252
<TOTAL-LIABILITIES> 1,457,330
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 24,028,056
<SHARES-COMMON-STOCK> 1,419,210
<SHARES-COMMON-PRIOR> 1,233,644
<ACCUMULATED-NII-CURRENT> 365,355
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 984,640
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,341,130
<NET-ASSETS> 31,719,181
<DIVIDEND-INCOME> 966,697
<INTEREST-INCOME> 128,251
<OTHER-INCOME> 0
<EXPENSES-NET> 357,887
<NET-INVESTMENT-INCOME> 737,061
<REALIZED-GAINS-CURRENT> 1,177,804
<APPREC-INCREASE-CURRENT> 2,819,135
<NET-CHANGE-FROM-OPS> 4,734,000
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 692,621
<DISTRIBUTIONS-OF-GAINS> 1,590,137
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 251,048
<NUMBER-OF-SHARES-REDEEMED> 167,783
<SHARES-REINVESTED> 102,301
<NET-CHANGE-IN-ASSETS> 6,244,393
<ACCUMULATED-NII-PRIOR> 320,915
<ACCUMULATED-GAINS-PRIOR> 1,396,973
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 189,594
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 357,887
<AVERAGE-NET-ASSETS> 27,278,950
<PER-SHARE-NAV-BEGIN> 20.65
<PER-SHARE-NII> .537
<PER-SHARE-GAIN-APPREC> 2.978
<PER-SHARE-DIVIDEND> .540
<PER-SHARE-DISTRIBUTIONS> 1.275
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 22.35
<EXPENSE-RATIO> 1.31
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
