<PAGE>
STRATTON
GROWTH
FUND, INC.
================================================================================
SGF
================================================================================
SEMI-ANNUAL REPORT
NOVEMBER 30, 1995
<PAGE>
FUND HIGHLIGHTS
<TABLE>
<CAPTION>
November 30, August 31,
------------ ----------
1995 1995
------------ ----------
<S> <C> <C>
Total Net Assets.................. $ 37,716,013 $ 34,224,548
Net Asset Value Per Share......... $ 25.17 $ 23.13
Shares Outstanding................ 1,498,281 1,479,853
Number of Shareholders............ 1,171 1,178
Average Size Account.............. $ 32,208 $ 29,053
</TABLE>
- --------------------------------------------------------------------------------
Portfolio Changes For the Quarter Ended November 30, 1995 (unaudited)
Major Purchases Major Sales
American General Corp. Comerica, Inc.
Lukens, Inc./(1)/ Warner-Lambert Co.
Phelps Dodge Corp. NY
UJB Financial Corp./(1)/
/(1)/ New Holdings
Ten Largest Holdings November 30, 1995 (unaudited)
<TABLE>
<CAPTION>
Market Percent
Value of TNA
------------ --------
<S> <C> <C>
Federal Paper Board Co., Inc..... $ 2,340,000 6.2%
Carpenter Technology Corp........ 1,989,500 5.3
Olin Corp........................ 1,900,000 5.0
EG & G, Inc...................... 1,732,500 4.6
Phelps Dodge Corp. NY............ 1,696,875 4.5
CoreStates Financial Corp........ 1,550,000 4.1
Sturm, Ruger & Co., Inc.......... 1,462,500 3.9
Potlatch Corp.................... 1,413,125 3.8
Lincoln National Corp............ 1,402,500 3.7
Du Pont (E.I.) De Nemours & Co... 1,330,000 3.5
----------- ----
$16,817,000 44.6%
=========== ====
</TABLE>
2
<PAGE>
DEAR SHAREHOLDER:
The year 1995 was the second best in the history of Stratton Growth Fund. Our
total return was 37.7% for the calendar year. This was topped only by the 39.8%
that was earned in 1976. Total assets grew to $37,716,013, reflecting both the
per share growth plus a small addition to shares outstanding. For the six months
ending November 30, 1995, Stratton Growth Fund's net asset value per share
closed at $25.17. During those six months, the Fund paid a July capital gains
distribution of $0.695 per share and an income dividend of $0.26 per share. In
December, the Fund paid an income dividend of $0.28 and a capital gains
distribution of $0.25.
Portfolio activity during the past quarter was light; our annualized turnover
rate was only 12%, which is unusually low. Our ratio of expenses is at an all
time low of 1.19%, which is attributable to the growth in assets of the Fund.
During the quarter we added two new holdings: Lukens, Inc, a producer of
specialty steel products and UJB Financial, a bank holding company operating
primarily in New Jersey. During the quarter, our portfolio benefitted by two
announced takeovers: Federal Paper Board by International Paper and Meridian
Bancshares by CoreStates Financial. Our largest industry positions are 15% in
paper, 13.1% in banks and finance, 11.8% in metals, and 11.2% in consumer
products.
The much hoped for "soft landing" became a reality last year as overall economic
growth slowed without developing into a recession. The capital equipment and
industrial export sectors have remained strong, but the demand for consumer
goods has been disappointing. As inflation expectations subsided, long-term
Treasury Bond rates declined by over two percentage points to under 6% at year
end. We are facing an inverted yield curve, where short-term money rates exceed
the yield on five and ten year bonds. With the Federal Reserve lagging behind
the markets, short-term interest rates should decline in 1996 once a credible
budget resolution is achieved. Hopefully, one element of the final budget
package will be a significant reduction in the capital gains tax rate. While the
pace of productivity gains may lessen in 1996, we believe that a restructured
corporate America will continue to demonstrate historically high levels of
profitability. We expect further industry consolidation, especially in the
Banking and Insurance areas, as well as among selective basic industries where
it is more economical to buy rather than build new capacity. High levels of
excess cash generation will afford continued stock repurchases, which more than
offset all newly issued shares last year.
Our average annual total return for twenty years has been 14.08% as shown on
Page 5. More recently our five year total return has averaged 15.41%. The table
on page 4 shows that a $10,000 investment in the Fund at its beginning would
have grown to $131,645 by November 30, 1995, if you had reinvested all dividends
and capital gains distributions. We welcome new investors to the Fund and hope
that you will continue to recommend this Fund to your friends and associates. As
a 100% No Load Fund with no sales charges, it is through your active support
that our Fund becomes known to a broader circle of investors.
Sincerely yours,
James W. Stratton John A. Affleck
Chairman President
January 12, 1996
3
<PAGE>
[PERFORMANCE GRAPH APPEARS HERE]
<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
---------------------------------------------------------------------------------------------------
<S> <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
Reinvested Inc. Divs. $ 43 458 1,217 2,147 3,703 6,347 10,805 11,062 14,859 21,871 26,652
Reinvested Cap. Gains
Distributions $ - - - - - - 3,857 10,945 22,901 27,527 35,156
---------------------------------------------------------------------------------------------------
Total Value $7,630 11,738 15,372 16,744 21,002 31,102 52,972 52,781 68,819 81,862 94,430
===================================================================================================
If Divs. and Distribs.
Were Taken in Cash:
$ Amt. Div. Inc. $ 46 309 537 782 932 663 537 1,548 1,959 2,440 1,699
$ Amt. Cap. Gains Distrib. $ - - - - - - 2,070 5,687 6,287 1,414 2,718
---------------------------------------------------------------------------------------------------
<CAPTION>
----------
95-96
----------
<S> <C>
----------
Initial Investment 39,763
Reinvested Inc. Divs. 37,338
Reinvested Cap. Gains
Distributions 54,543
----------
Total Value 131,645
==========
If Divs. and Distribs.
Were Taken in Cash:
$ Amt. Div. Inc. 1,264 = 12,716 TOTAL DIV. INC.
$ Amt. Cap. Gains Distrib. 3,112 = 21,288 TOTAL CAP GAINS
----------
</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>
PERFORMANCE COMPARISONS
(Price Appreciation Plus Dividends & Capital Gains Distributions Reinvested)
<TABLE>
<CAPTION>
Period Ended Average Annual Aggregate
12/31/95 Total Return Total Return
------------ -------------- ------------
<S> <C> <C>
1 year + 37.68% + 37.68%
3 year + 16.23 + 57.80
5 year + 15.41 + 104.73
10 year + 11.92 + 208.31
15 year + 12.49 + 484.74
20 year + 14.08 + 1,292.57
</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>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Past Performance Results
Period Stratton Growth Fund Per Share Data Dividends & Capital Gains Reinvested
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended Net Asset Income Capital Gains Year-End Total Investment
December 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
- -----------------------------------------------------------------------------------------------------------------------------------
1995 25.33 0.54 0.945 135,302 + 37.7
- -----------------------------------------------------------------------------------------------------------------------------------
Totals: $8.329 $13.725 Aggregate: + 1,253.0 %
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
STRATTON GROWTH FUND'S INVESTMENT PROCESS
What is the philosophy used in managing Stratton Growth Fund?
Studies of historical data show that investing in high yielding common stocks
have produced above-average returns while lowering risk and preserving capital.
For Stratton Management, the common stock yield is the primary screen in sorting
out the equity universe and in making purchase decisions for Stratton Growth
Fund.
How do you select companies within the high yield universe?
Both our proprietary studies and our actual portfolio performance have shown
that superior returns may be achieved by investing in companies which not only
have relatively high dividend yields but also possess superior financial
characteristics, such as strong annual dividend growth and a reasonable dividend
payout. This is the second set of screens we apply to review stocks.
What quantitative disciplines do you use in purchasing common stocks?
From the overall equity universe, we screen down to about 350 companies by
focusing on stocks with a market capitalization over $200 million and those
which possess a dividend yield at least 33% greater than that on the S & P 500
average. Our second step reduces the universe to approximately 60 stocks by
screening for additional yield characteristics such as dividend growth rates and
dividend coverage. Our third review involves fundamental analysis of such
important characteristics as the outlook for earnings and cash flow, management
strengths and industry competitive position; we reduce the Stratton Growth
Fund's buy candidate list to approximately 30 stocks. These stocks are
available for addition to the Fund's portfolio.
What are the investment disciplines you use in selling stock?
We emphasize two clearly quantifiable sell disciplines which our policy regards
as mandatory. As stocks rise in price, their yield will drop. When the yield
of any stock in the portfolio drops to that of the S & P 500, half of the
position will be sold. If the yield on the stock continues to decline to 25%
below that on the S & P 500, the balance of the position is sold. Our
individual holdings are reviewed daily to ensure that the dividend criteria are
sound and that the value fundamentals are secure. When a better "buy" candidate
emerges within our yield universe, we may trade from an existing holding. Our
portfolio turnover normally averages between 40% and 70% depending upon market
conditions.
6
<PAGE>
Does Stratton Growth Fund pay much attention to market timing?
Since yield and value together should have the potential to produce superior
returns while reducing risk in declining markets, Stratton Growth Fund will
generally remain fully invested in individual stocks at all times. This gives
us the opportunity to capture the significant gains that often occur very
rapidly at the beginning of the market's recovery.
What are the primary investment characteristics of the portfolio?
. Average gross portfolio yield target should exceed the S & P 500 by
more than 50%.
. Approximately 30 companies are held.
. Volatility will be decidedly below average.
. By combining high dividend yields and underlying low price volatility
(Beta) Stratton Growth should have the potential to produce good relative
performance in up markets and superior relative performance in down markets.
Wouldn't a high yield philosophy tend to concentrate the portfolio in a few
industries?
Diversification is important to us within the higher yielding sectors of the
market. Theoretically no single industry can exceed 25% of our assets. Right
now our three largest industries are Paper 15.0%, Banking/Financial 13.1% and
Metals 11.8%.
Where do you obtain the research data on the companies that you own or are
considering for purchase?
The quantitative research is performed in-house by our own staff. Once we have
identified industries and companies of interest, we seek the best analysts in
the investment brokerage community to provide us with company input. We like to
have multiple sources of research. Our professional staff are portfolio
generalists rather than company specialists.
7
<PAGE>
SCHEDULE OF INVESTMENTS (unaudited) NOVEMBER 30, 1995
<TABLE>
<CAPTION>
Market
Number of Value
Shares Security (Note 1)
- ----------- -------- -------------
<C> <S> <C>
COMMON STOCKS - 96.3%
Banking/Financial - 13.1%
20,000 Comerica, Inc. .................................. $ 747,500
40,000 CoreStates Financial Corp. ...................... 1,550,000
25,000 Meridian Bancorp, Inc. .......................... 1,153,125
40,000 PNC Bank Corp. .................................. 1,170,000
10,000 UJB Financial Corp. ............................. 335,000
--------------
4,955,625
--------------
Business Services - 5.8%
30,000 American Express Co. ............................ 1,275,000
20,000 Pitney Bowes, Inc. .............................. 895,000
--------------
2,170,000
--------------
Capital Goods/Technology - 7.6%
90,000 EG & G, Inc. .................................... 1,732,500
20,000 Harris Corp. .................................... 1,152,500
--------------
2,885,000
--------------
Chemical - 8.6%
20,000 Du Pont (E.I.) De Nemours & Co. ................. 1,330,000
25,000 Olin Corp. ...................................... 1,900,000
--------------
3,230,000
--------------
Consumer Products - 11.2%
14,000 Kimberly-Clark Corp. ............................ 1,076,250
50,000 Sturm, Ruger & Co., Inc. ........................ 1,462,500
20,000 Tambrands, Inc. ................................. 1,042,500
20,000 UST, Inc. ............................................. 652,500
--------------
4,233,750
--------------
Energy - 5.4%
10,000 Exxon Corp. ..................................... 773,750
12,000 Mobil Corp. ..................................... 1,252,500
--------------
2,026,250
--------------
Health Care - 9.5%
10,000 American Home Products Corp. .................... 912,500
20,000 Shared Medical Systems Corp. .................... 867,500
20,000 U.S. Healthcare, Inc. ........................... 910,000
10,000 Warner-Lambert Co. .............................. 892,500
--------------
3,582,500
--------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
SCHEDULE OF INVESTMENTS (unaudited) NOVEMBER 30, 1995
<TABLE>
<CAPTION>
Market
Number of Value
Shares Security (Note 1)
--------- -------- ------------
<C> <S> <C>
COMMON STOCKS - 96.3% (continued)
Insurance/Services - 8.3%
30,000 American General Corp. ........................................ $ 1,016,250
15,000 Aon Corp. ..................................................... 706,875
30,000 Lincoln National Corp. ........................................ 1,402,500
--------------
3,125,625
--------------
Metals - 11.8%
46,000 Carpenter Technology Corp. .................................... 1,989,500
25,000 Lukens, Inc. .................................................. 765,625
25,000 Phelps Dodge Corp. NY ......................................... 1,696,875
--------------
4,452,000
--------------
Paper - 15.0%
45,000 Federal Paper Board Co., Inc. ................................. 2,340,000
35,000 Potlatch Corp. ................................................ 1,413,125
45,000 Westvaco Corp. ................................................ 1,231,875
15,000 Weyerhaeuser Co. .............................................. 678,750
--------------
5,663,750
--------------
Total Common Stocks (cost $25,287,865)....................... 36,324,500
--------------
<CAPTION>
Principal
Amount
---------
<C> <S> <C>
SHORT-TERM NOTES - 3.0%
$ 1,125,000 American Express Credit Corp. 5.76% due 12/05/95............. 1,125,000
--------------
Total Short-Term Notes (cost $1,125,000)..................... 1,125,000
--------------
Total Investments - 99.3% (cost $26,412,865)*............... 37,449,500
Cash and Other Assets, Less Liabilities - 0.7%............... 266,513
--------------
NET ASSETS - 100.0%.......................................... $ 37,716,013
==============
</TABLE>
* Aggregate cost for federal income tax purposes is $26,412,865; and net
unrealized appreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation.................................. $ 11,121,581
Gross unrealized depreciation.................................. (84,946)
--------------
Net unrealized appreciation................................ $ 11,036,635
==============
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES
November 30, 1995 (unaudited)
<S> <C>
ASSETS
Investments in securities at market value (identified cost $26,412,865) (Note 1)............... $ 37,449,500
Cash........................................................................................... 69,785
Dividends and interest receivable.............................................................. 157,385
Receivable for securities sold................................................................. 374,388
------------
Total Assets............................................................................... 38,051,058
------------
LIABILITIES
Payable for securities purchased............................................................... 323,100
Accrued expenses............................................................................... 8,032
Other liabilities.............................................................................. 3,913
------------
Total Liabilities.......................................................................... 335,045
------------
NET ASSETS
Applicable to 1,498,281 shares; $.10 par value; 10,000,000 shares authorized .................. $ 37,716,013
============
Net asset value, offering and redemption price per share
($37,716,013 / 1,498,281 shares)............................................................ $ 25.17
============
SOURCE OF NET ASSETS
Paid-in capital................................................................................ $ 25,816,590
Undistributed net investment income............................................................ 375,174
Accumulated net realized gain on investments................................................... 487,614
Net unrealized appreciation of investments..................................................... 11,036,635
------------
Net Assets................................................................................. $ 37,716,013
============
</TABLE>
================================================================================
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
6 Months Ended November 30, 1995 (unaudited)
<S> <C>
INCOME
Dividends....................................................................................... $ 538,135
Interest........................................................................................ 41,321
------------
Total Income................................................................................. 579,456
------------
EXPENSES
Advisory fees (Note 2).......................................................................... 120,905
Registration fees (Note 2)...................................................................... 15,649
Administrative services fees (Note 2)........................................................... 15,000
Shareholder services fees (Note 2).............................................................. 14,403
Accounting/Pricing services fees (Note 2)....................................................... 10,000
Printing and postage fees....................................................................... 9,118
Custodian fees (Note 2)......................................................................... 9,027
Directors' fees................................................................................. 3,549
Legal fees...................................................................................... 2,590
Miscellaneous fees.............................................................................. 2,453
------------
Total Expenses............................................................................... 202,694
------------
Net Investment Income..................................................................... 376,762
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments................................................................ 483,841
Net increase in unrealized appreciation of investments.......................................... 4,695,505
------------
Net gain on investments...................................................................... 5,179,346
------------
Net increase in net assets resulting from operations...................................... $ 5,556,108
============
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
6 Months
Ended
November 30, Year Ended
1995 May 31,
(unaudited) 1995
-------------- -------------
<S> <C> <C>
OPERATIONS
Net investment income...................................................... $ 376,762 $ 737,061
Net realized gain on investments........................................... 483,841 1,177,804
Net increase in unrealized appreciation of investments..................... 4,695,505 2,819,135
-------------- -------------
Net increase in net assets resulting from operations................ 5,556,108 4,734,000
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income
($.260 and $.540 per share, respectively)............................... (366,943) (692,621)
Distributions from net realized gains from security
transactions ($0.695 and $1.275 per share, respectively)................ (980,867) (1,590,137)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from the net change
in the number of outstanding shares (a)................................. 1,788,534 3,793,151
-------------- -------------
Total increase in net assets........................................ 5,996,832 6,244,393
NET ASSETS AT THE BEGINNING OF THE PERIOD .................................... 31,719,181 25,474,788
-------------- -------------
NET ASSETS AT THE END OF THE PERIOD
(including undistributed net investment income of
$375,174 and $365,355, respectively).................................... $ 37,716,013 $ 31,719,181
============== =============
</TABLE>
<PAGE>
(a) A summary of capital share transactions follows:
<TABLE>
<CAPTION>
6 Months Ended
November 30, 1995 Year Ended
(unaudited) May 31, 1995
-------------------------- --------------------------
Shares Value Shares Value
--------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Shares issued.............................. 77,586 $ 1,820,961 251,048 $ 5,232,197
Shares reinvested from net
investment income and capital
gains distributions.................... 53,311 1,166,440 102,301 1,968,319
--------- ------------ ---------- ------------
130,897 2,987,401 353,349 7,200,516
Shares redeemed............................ (51,826) (1,198,867) (167,783) (3,407,365)
--------- ------------ ---------- ------------
Net increase........................... 79,071 $ 1,788,534 185,566 $ 3,793,151
========= ============ ========== ============
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
November 30, 1995 (unaudited)
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 six months ended November 30, 1995, the Fund paid advisory
fees aggregating $120,905 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 $14,403 for
providing shareholder services, $15,000 for certain administrative services and
$10,000 for accounting/pricing services during the six months ended November 30,
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 $3,639,825 and $2,003,796, respectively, for the six months ended
November 30, 1995.
12
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
6 Months
Ended Years ended May 31,
11/30/95 ---------------------------------------------------------------
(unaudited) 1995 1994 1993 1992 1991
---------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period................. $22.35 $20.65 $20.89 $20.55 $19.75 $19.66
---------- -------- -------- -------- -------- --------
Income From Investment Operations
---------------------------------
Net investment income........................ 0.253 0.537 0.510 0.560 0.640 0.720
Net gains on securities (both realized
and unrealized)............................ 3.522 2.978 0.665 1.160 1.320 0.650
---------- -------- -------- -------- -------- --------
Total from investment operations......... 3.775 3.515 1.175 1.720 1.960 1.370
---------- -------- -------- -------- -------- --------
Less Distributions
------------------
Dividends (from net investment
income).................................... (0.260) (0.540) (0.510) (0.565) (0.725) (0.820)
Distributions (from capital gains)........... (0.695) (1.276) (0.905) (0.815) (0.435) (0.460)
---------- -------- -------- -------- -------- --------
Total distributions...................... (0.955) (1.815) (1.415) (1.380) (1.160) (1.280)
---------- -------- -------- -------- -------- --------
Net Asset Value, End of Period.................. $25.17 $22.35 $20.65 $20.89 $20.55 $19.75
========== ======== ======== ======== ======== ========
Total Return.................................... 17.53% ** 18.61% 5.92% 8.91% 10.57% 7.58%
Ratios/Supplemental Data
- ------------------------
Net assets, end of period (in 000's)......... $37,716 $31,719 $25,475 $25,315 $25,311 $25,111
Ratio of expenses to average
net assets................................. 1.19% * 1.31% 1.34% 1.39% 1.35% 1.41%
Ratio of net investment
income to average net assets............... 2.21% * 2.70% 2.51% 2.76% 3.20% 3.94%
Portfolio turnover rate...................... 12.29% * 42.54% 49.81% 35.34% 59.76% 56.78%
</TABLE>
- --------------------
* Annualized
** Six months only
See accompanying notes to financial statements.
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
LYNNE M. CANNON
JOHN J. LOMBARD, JR.
ROSE J. RANDALL
HENRY A. RENTSCHLER
MERRITT N. RHOAD, JR.
ALEXANDER F. SMITH
RICHARD W. STEVENS
JAMES W. STRATTON
Investment Advisor
STRATTON MANAGEMENT COMPANY
Plymouth Meeting Executive Campus
610 W. Germantown Pike, Suite 300
Plymouth Meeting, PA 19462-1050
Telephone: 610-941-0255
Officers
JAMES W. STRATTON
Chairman
JOHN A. AFFLECK
President
GERARD E. HEFFERNAN
JOANNE E. KUZMA
FRANK H. REICHEL, III
Vice President
PATRICIA L. SLOAN
Secretary and Treasurer
JAMES A. BEERS
CAROL L. ROYCE
Assistant Secretary
Assistant Treasurer
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
