<PAGE>
STRATTON
GROWTH
FUND, INC.
=========================================
SGF
=========================================
ANNUAL REPORT
MAY 31, 1996
<PAGE>
FUND HIGHLIGHTS
<TABLE>
<CAPTION>
May 31, February 29,
1996 1996
---------- ----------------
<S> <C> <C>
Total Net Assets............. $ 42,880,040 $ 41,052,574
Net Asset Value Per Share.... $ 27.18 $ 26.21
Shares Outstanding........... 1,577,380 1,566,514
Number of Shareholders....... 1,247 1,189
Average Size Account......... $ 34,387 $ 34,527
</TABLE>
===========================================================================
Portfolio Changes For the Quarter Ended May 31, 1996
Major Purchases Major Sales
Lukens, Inc. CoreStates Financial Corp.
SmithKline Beecham PLC ADRs/(1)/
/(1)/ New Holdings
Ten Largest Holdings May 31, 1996
<TABLE>
<CAPTION>
Market Percent
Value of TNA
------------ --------
<S> <C> <C>
Sturm, Ruger & Co., Inc.......... $ 2,481,250 5.8%
Olin Corp........................ 2,312,500 5.4
CoreStates Financial Corp........ 2,190,234 5.1
EG & G, Inc...................... 1,957,500 4.6
International Paper Co........... 1,817,662 4.2
Phelps Dodge Corp. NY............ 1,712,500 4.0
Carpenter Technology Corp........ 1,661,750 3.9
Du Pont (E.I.) De Nemours & Co... 1,595,000 3.7
Potlatch Corp.................... 1,443,750 3.4
Westvaco Corp.................... 1,440,000 3.3
----------- ----
$18,612,146 43.4%
=========== ====
</TABLE>
2
<PAGE>
DEAR SHAREHOLDER:
For the fiscal year ended May 31, 1996, Stratton Growth Fund's net asset value
per share rose to $27.18. During that twelve month period, the Fund paid
capital gain distributions of $0.945 and income dividends of $0.54 for a total
payout of $1.485 per share. Total net assets of the Fund were $42,880,040 at
the end of the year, a record high. The total return for this fiscal year was
29.62%.
The portfolio is well diversified among ten major industry groups. During the
last twelve months our portfolio turnover has been unusually low, at only 15%.
We continue to have the largest amount of our concentration in cyclical issues;
the chemical, paper and metal industries represent a total of 33% of our
portfolio. We believe that continued productivity of raw material producers
will show in higher cash flows and earnings for these companies. This has been
offset in 1996 by volatile prices for raw materials much of which had been
aggravated by inventory cycles in these industries. Another 18.4% of our
portfolio is in the interest sensitive areas of banks and insurance stocks.
These are traditional areas of value management and have been represented in our
portfolio for many years.
In the first six months of 1996, the yield on the long-term U.S. Treasury Bond
rose from just under 6% to slightly over 7%. Investors have overreacted to
signs of strength in the economy and there has been a "growth scare" produced by
indications of higher employment growth. There are enough checks and balances
in the economic system, especially through the bond market and higher interest
rates, to control excessive growth and inflation. The economy should continue
to produce 2-3% growth in the second half of 1996. This is enough for most
companies to grow earnings but not enough to trigger inflationary excesses. We
expect interest rates to remain around current levels and perhaps decline as the
"growth scare" issue abates.
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, 1996, $141,445 or more than fourteen
times the original investment. For the period ended June 30, 1996, Stratton
Growth Fund performance record has been an average annual total return of 10.41%
for the past ten years, 13.16% for the past fifteen years and 12.95% 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. As a 100% No-Load Fund, we have no sales charges and therefore we
rely strongly upon your referrals in telling other investors about our Fund. We
thank you for this continued support.
Sincerely yours,
James W. Stratton John A. Affleck
Chairman President
July 2, 1996
3
<PAGE>
ILLUSTRATION OF AN ASSUMED $10,000 INVESTMENT
IN STRATTON GROWTH FUND, INC.
(With all Dividend Income and Capital Gains Distribution Reinvested)
[LINE GRAPH OF ASSUMED INVESTMENT OF $10,000 IN STRATTON GROWTH FUND FROM
1973-1996 APPEARS HERE]
150
140 5/31/96
130 $145,184 Total Value of Investment
120
110 60,327 Value of Shares Acquired
100 Through Reinvestment of
90 Capital Gains Distributions
80
70 41,919 Value of Shares Acquired
60 Through Reinvestment of
50 Income Dividend
COST INITIAL 40
INVESTMENT 30 42,938 Total Value of
9/30/72 $10,000 20 Original Shares
10
0
<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 95-96
<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 42,938
Reinvested Inc. Divs. $ 43 458 1,217 2,147 3,703 6,347 10,805 11,062 14,859 21,871 26,652 41,919
Reinvested Cap. Gains
Distributions $ - - - - - - 3,857 10,945 22,901 27,527 35,156 60,327
- -------------------------------------------------------------------------------------------------------------------------------
Total Value $7,630 11,738 15,372 16,744 21,002 31,102 52,972 52,781 68,819 81,862 94,430 145,184
- -------------------------------------------------------------------------------------------------------------------------------
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 1,706
$ Amt. Cap. Gains Distrib. $ - - - - - - 2,070 5,687 6,287 1,414 2,718 3,507
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
= 13,158 TOTAL DIV. INC.
= 21,683 TOTAL CAP. GAINS
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
06/30/96 Total Return Total Return
- --------------- ------------------ --------------------
<S> <C> <C>
1 year + 23.95% + 23.95%
3 year + 16.80 + 59.34
5 year + 14.65 + 98.08
10 year + 10.41 + 169.30
15 year + 13.16 + 538.68
20 year + 12.95 +1,041.13
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Past Performance Results
Period Stratton Growth Fund Per Share Date 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>
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 (5/31/86 - 5/31/96)
[GRAPH OF STRATTON GROWTH FUND APPEARS HERE]
Average Annual Total Return
1 Year 5 Year 10 Year
29.62% 14.42% 10.61%
SGF S&P 500
1986 $10,000 $10,000
1987 $10,185 $12,119
1988 $9,964 $11,326
1989 $12,380 $14,343
1990 $12,992 $16,761
1991 $13,976 $18,736
1992 $15,454 $20,594
1993 $16,831 $22,982
1994 $17,827 $23,961
1995 $21,145 $28,785
1996 $27,408 $36,981
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
STRATTON GROWTH FUND AND THE S&P 500*
LIFETIME PERFORMANCE (9/30/72 - 5/31/96)
[GRAPH OF STRATTON GROWTH FUND APPEARS HERE]
Average Annual Total Return
1 Year 5 Year 10 Year 15 Year 20 Year
29.62% 14.42% 10.61% 13.04% 13.40%
SGF S&P 500
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
96 $145,184 $154,851
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 24 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 as follows:
approximately 30 to 40 companies will be 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>
SCHEDULE OF INVESTMENTS MAY 31, 1996
<TABLE>
<CAPTION>
Market
Number of Value
Shares Security (Note 1)
- -------- -------- ------------
<S> <C> <C>
COMMON STOCKS - 91.8%
Banking/Financial - 10.8%
20,000 Comerica, Inc............................. $ 875,000
55,625 CoreStates Financial Corp................. 2,190,234
40,000 PNC Bank Corp............................. 1,215,000
10,000 Summit Bancorp, Inc....................... 363,750
------------
4,643,984
------------
Business Services - 5.5%
30,000 American Express Co....................... 1,372,500
20,000 Pitney Bowes, Inc......................... 992,500
------------
2,365,000
------------
Capital Goods/Technology - 7.6%
90,000 EG & G, Inc............................... 1,957,500
20,000 Harris Corp............................... 1,292,500
------------
3,250,000
------------
Chemical - 9.1%
20,000 Du Pont (E.I.) De Nemours & Co............ 1,595,000
25,000 Olin Corp................................. 2,312,500
------------
3,907,500
------------
Consumer Products - 13.5%
14,000 Kimberly-Clark Corp....................... 1,020,250
20,000 The Quaker Oats Co........................ 702,500
50,000 Sturm, Ruger & Co., Inc................... 2,481,250
20,000 Tambrands, Inc............................ 922,500
20,000 UST, Inc.................................. 660,000
------------
5,786,500
------------
Energy - 7.9%
10,000 Atlantic Richfield Co..................... 1,196,250
10,000 Exxon Corp................................ 847,500
12,000 Mobil Corp................................ 1,354,500
------------
3,398,250
Health Care - 6.2% ------------
20,000 American Home Products Corp............... 1,070,000
10,000 SmithKline Beecham PLC ADRs............... 510,000
20,000 U.S. Healthcare, Inc...................... 1,085,000
------------
2,665,000
------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS MAY 31, 1996
Market
Number of Value
Shares Security (Note 1)
- ----------- -------- -------------
<S> <C> <C>
COMMON STOCKS - 91.8% (continued)
Insurance/Services - 7.6%
30,000 American General Corp.................................... $ 1,065,000
15,000 Aon Corp................................................. 755,625
30,000 Lincoln National Corp.................................... 1,410,000
-------------
3,230,625
-------------
Metals - 11.0%
46,000 Carpenter Technology Corp................................ 1,661,750
50,000 Lukens, Inc.............................................. 1,343,750
25,000 Phelps Dodge Corp. NY.................................... 1,712,500
-------------
4,718,000
-------------
Paper - 12.6%
45,584 International Paper Co................................... 1,817,662
35,000 Potlatch Cor............................................ 1,443,750
45,000 Westvaco Corp............................................ 1,440,000
15,000 Weyerhaeuser Co.......................................... 680,625
-------------
5,382,037
-------------
Total Common Stocks (cost $26,614,255)................... 39,346,896
-------------
Principal
Amount
- ------------
SHORT-TERM NOTES - 7.6%
$ 1,630,000 General Electric Capital Corp. 5.25% due 06/05/96........ 1,630,000
$ 1,630,000 American Express Credit Corp. 5.30% due 06/10/96......... 1,630,000
-------------
Total Short-Term Notes (cost $3,260,000)................. 3,260,000
-------------
Total Investments - 99.4% (cost $29,874,255)*........... 42,606,896
Cash and Other Assets, Less Liabilities - 0.6%........... 273,144
-------------
NET ASSETS - 100.0%...................................... $ 42,880,040
=============
* Aggregate cost for federal income tax purposes is $29,874,255; and net unrealized appreciation
is as follows:
Gross unrealized appreciation............................ $12,820,248
Gross unrealized depreciation............................ (87,607)
-------------
Net unrealized appreciation............................ $12,732,641
=============
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
May 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investments in securities at market value (identified cost $29,874,255) (Note 1).. $ 42,606,896
Cash.............................................................................. 63,688
Dividends and interest receivable................................................. 190,975
Receivable for capital stock sold................................................. 43,528
------------
Total Assets.................................................................... 42,905,087
------------
LIABILITIES
Accrued expenses.................................................................. 25,047
------------
Total Liabilities............................................................... 25,047
------------
NET ASSETS
Applicable to 1,577,380 shares; $.10 par value; 10,000,000 shares authorized ..... $ 42,880,040
============
Net asset value, offering and redemption price per share
($42,880,040 + 1,577,380 shares)................................................ $ 27.18
============
SOURCE OF NET ASSETS
Paid-in capital................................................................... $ 27,811,970
Undistributed net investment income............................................... 431,001
Accumulated net realized gain on investments...................................... 1,904,428
Net unrealized appreciation of investments........................................ 12,732,641
------------
Net Assets...................................................................... $ 42,880,040
============
- ----------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
Year Ended May 31, 1996
<TABLE>
<CAPTION>
<S> <C>
INCOME
Dividends......................................................................... $ 1,167,077
Interest.......................................................................... 121,275
------------
Total Income.................................................................... 1,288,352
------------
EXPENSES
Advisory fees (Note 2)............................................................ 266,741
Administrative services fees (Note 2)............................................. 30,000
Shareholder services fees (Note 2)................................................ 28,154
Registration fees (Note 2)........................................................ 24,772
Accounting/Pricing services fees (Note 2)......................................... 20,000
Custodian fees (Note 2)........................................................... 19,414
Audit fees........................................................................ 15,704
Printing and postage fees......................................................... 12,216
Directors' fees................................................................... 9,920
Legal fees........................................................................ 5,287
Miscellaneous fees................................................................ 1,811
------------
Total Expenses.................................................................. 434,019
------------
Net Investment Income......................................................... 854,333
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments.................................................. 2,277,319
Net increase in unrealized appreciation of investments............................ 6,391,511
------------
Net gain on investments......................................................... 8,668,830
------------
Net increase in net assets resulting from operations.......................... $ 9,523,163
------------
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the Years Ended May 31,
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
OPERATIONS
Net investment income............................................ $ 854,333 $ 737,061
Net realized gain on investments................................. 2,277,319 1,177,804
Net increase in unrealized appreciation of investments........... 6,391,511 2,819,135
------------ ------------
Net increase in net assets resulting from operations........ 9,523,163 4,734,000
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income
($.540 and $.540 per share, respectively)...................... (788,687) (692,621)
Distributions from net realized gains from security
transactions ($0.945 and $1.275 per share, respectively)....... (1,357,531) (1,590,137)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from the net change
in the number of outstanding shares (a)........................ 3,783,914 3,793,151
------------ ------------
Total increase in net assets................................ 11,160,859 6,244,393
NET ASSETS AT THE BEGINNING OF THE YEAR............................ 31,719,181 25,474,788
------------ ------------
NET ASSETS AT THE END OF THE YEAR
(including undistributed net investment income of
$431,001 and $365,355, respectively).......................... $ 42,880,040 $ 31,719,181
============ ============
</TABLE>
(a) A summary of capital share transactions follows:
<TABLE>
<CAPTION>
Years Ended May 31,
----------------------------------------------------------
1996 1995
----------------------------------------------------------
Shares Value Shares Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Shares issued.................. 234,168 $ 5,879,301 251,048 $ 5,232,197
Shares reinvested from net
investment income and capital
gains distributions.......... 80,419 1,841,377 102,301 1,968,319
------------ ------------ ------------ ------------
314,587 7,720,678 353,349 7,200,516
Shares redeemed................ (156,417) (3,936,764) (167,783) (3,407,365)
------------ ------------ ------------ ------------
Net increase................. 158,170 $ 3,783,914 185,566 $ 3,793,151
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
May 31, 1996
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.
A. 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.
B. 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.
C. Use of Estimates in Financial Statements: In preparing financial
statements in conformity with generally accepted accounting principles,
management makes estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements, as well as the reported amounts of income and expenses during
the reporting period. Actual results may differ from these estimates.
Note 2. - During the year ended May 31, 1996, the Fund paid advisory fees
aggregating $266,741 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 $28,154 for
providing shareholder services, $30,000 for certain administrative services and
$20,000 for accounting/pricing services during the year ended May 31, 1996.
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 $6,592,031 and $5,423,090, respectively, for the year ended May 31,
1996.
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,
------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year..................... $22.35 $20.65 $20.89 $20.55 $19.75
-------- -------- -------- -------- --------
Income From Investment Operations
---------------------------------
Net investment income................................ 0.556 0.537 0.510 0.560 0.640
Net gains on securities (both realized
and unrealized)..................................... 5.759 2.978 0.665 1.160 1.320
-------- -------- -------- -------- --------
Total from investment operations................... 6.315 3.515 1.175 1.720 1.960
-------- -------- -------- -------- --------
Less Distributions
------------------
Dividends (from net investment
income)............................................. (0.540) (0.540) (0.510) (0.565) (0.725)
Distributions (from capital gains)................... (0.945) (1.275) (0.905) (0.815) (0.435)
-------- -------- -------- -------- --------
Total distributions................................ (1.485) (1.815) (1.415) (1.380) (1.160)
-------- -------- -------- -------- --------
Net Asset Value, End of Year........................... $27.18 $22.35 $20.65 $20.89 $20.55
======== ======== ======== ======== ========
Total Return........................................... 29.62% 18.61% 5.92% 8.91% 10.57%
Ratios/Supplemental Data
------------------------
Net assets, end of year (in 000's).................... $42,880 $31,719 $25,475 $25,315 $25,311
Ratio of expenses to average
net assets........................................... 1.16% 1.31% 1.34% 1.39% 1.35%
Ratio of net investment
income to average net assets......................... 2.28% 2.70% 2.51% 2.76% 3.20%
Portfolio turnover rate............................... 15.41% 42.54% 49.81% 35.34% 59.76%
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
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,
1996, 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, 1996, 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, 1996, 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 13, 1996 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>
[LOGO OF SGF STRATTON
GROWTH FUND, INC. APPEARS HERE]
Directors Investment Advisor
LYNNE M. CANNON STRATTON MANAGEMENT COMPANY
JOHN J. LOMBARD, JR Plymouth Meeting Executive Campus
HENRY A. RENTSCHLER 610 W. Germantown Pike, Suite 300
MERRETT N. RHOAD, JR. Plymouth Meeting, PA 19462-1050
ALEXANDER F. SMITH Telephone: 610-941-0255
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
Conshohocken, PA 19428-0874
JOHN A. AFFLECK Telephones: 610-834-3500 l 800-441-6580
President
GERARD E. HEFFERNAN
JOANNE E. KUZMA
FRANK H. REICHEL, III
Vice President
PATRICIA L. SLOAN
Secretary and Treasurer
JAMES A. BEERS Independent Accountants
CAROL L. ROYCE
Assistant Secretary TAIT, WELLER & BAKER
Assistant Treasurer 2 Penn Center Plaza, Suite 700
Philadelphia, PA 19102-1707