<PAGE>
STRATTON
GROWTH
FUND, INC.
- --------------------------------------------------------------------------------
SGF
- --------------------------------------------------------------------------------
FIRST QUARTER REPORT
AUGUST 31, 1996
<PAGE>
<TABLE>
<CAPTION>
FUND HIGHLIGHTS
August 31, May 31,
1996 1996
------------- -------------
<S> <C> <C>
Total Net Assets........... $ 40,705,456 $ 42,880,040
Net Asset Value Per Share.. $ 24.56 $ 27.18
Shares Outstanding......... 1,657,654 1,577,380
Number of Shareholders..... 1,254 1,247
Average Size Account....... $ 32,460 $ 34,387
============================================================================
</TABLE>
Portfolio Changes For the Quarter Ended August 31, 1996 (unaudited)
Major Purchases Major Sales
Commerce Bancorp, Inc./(1)/ Comerica, Inc.
EG & G, Inc. Potlatch Corp./(2)/
The Hartford Steam Boiler Tambrands, Inc./(2)/
Inspection & Insurance Co./(1)/ U.S. Healthcare, Inc./(2)/
Lukens, Inc.
Pitney Bowes, Inc.
PNC Bank Corp.
Summit Bancorp, Inc.
/(1)/ New Holdings /(2)/ Eliminations
Ten Largest Holdings August 31, 1996 (unaudited)
<TABLE>
<CAPTION>
Market Percent
Value of TNA
------------- --------
<S> <C> <C>
CoreStates Financial Corp.......... $ 2,301,484 5.7%
Olin Corp.......................... 1,981,250 4.9
EG & G, Inc........................ 1,875,000 4.6
International Paper Co............. 1,823,360 4.5
Sturm, Ruger & Co., Inc............ 1,793,750 4.4
Du Pont (E.I.) De Nemours & Co..... 1,642,500 4.0
PNC Bank Corp...................... 1,562,500 3.8
Carpenter Technology Corp.......... 1,552,500 3.8
Phelps Dodge Corp. NY.............. 1,512,500 3.7
Pitney Bowes, Inc.................. 1,447,500 3.6
----------- ----
$17,492,344 43.0%
=========== ====
</TABLE>
2
<PAGE>
DEAR SHAREHOLDER:
For the first fiscal quarter ended August 31, 1996, Stratton Growth Fund's net
asset value per share was $24.56. During the quarter, the Fund paid a July
capital gains distribution of $1.21 per share and an income dividend of $0.27
per share. Total net assets of the Fund were $40,705,456. The average size of a
shareholder account was $32,460.
The pace of the U.S. economic expansion has decelerated in recent months,
reflecting sluggish consumer spending especially for big ticket items. Inflation
remains benign with the trailing twelve month core rate (excluding food and
energy) at the lowest level in over twenty years. However, investors are
concerned about the implications of strong employment trends for future labor
cost inflation levels. In fact, total employment in the manufacturing sector,
where price and wage pressures would be most evident, has declined by 1% since
1990. Considering ongoing productivity gains and the prospect of slower growth,
we expect inflation to remain under control. The instantaneous reactions in the
bond market (interest rates) to economic data have prevented any sustained
excesses from developing. This self-correcting process within the marketplace
has preserved the durability of the economic expansion.
The equity markets recovered from a sharp early summer sell-off to post a 3.0%
return for the third quarter. Technology and dependable growth issues were the
best performers, while many cyclical stocks lagged the broader averages. The
emphasis on growth stocks has resulted in a wide valuation disparity within the
equity market. In terms of price earnings multiples, the premium being paid for
growth issues relative to value stocks is at the highest level in two decades.
We continue to focus on companies offering the combination of above average
dividend yields and estimated positive earnings momentum. Our portfolio turnover
was at a 25% annual rate. We added two financially related stocks; Commerce
Bancorp and Hartford Steam Boiler Insurance. We eliminated three holdings;
Potlatch Corp., Tambrands, and U.S. Healthcare (which was being acquired by
Aetna). Our expense ratio is at a new all time low of 1.14%.
Shown on page 5 are the Fund performance records. For the five years, total
return compounded at a growth rate of 14.36%, for the ten and fifteen years a
compound rate of 11.67% and 14.03%. Long-term investing in equities always
carries some risk but it has produced superior results in the past. We encourage
our clients to view their investment goals over many years and to invest with a
long-term plan for the future.
Sincerely yours,
James W. Stratton John A. Affleck
Chairman President
October 14, 1996
<PAGE>
ILLUSTRATION OF AN ASSUMED $10,000 INVESTMENT
IN STRATTON GROWTH FUND, INC.
(With all Dividend Income and Capital Gains Distribution Reinvested)
[LINE GRAPH APPEARS HERE]
<TABLE>
<S> <C> <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 38,799
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 39,283
Reinvested
Cap. Gains
Distributions $ - - - - - - 3,857 10,945 22,901 27,527 35,156 60,327 60,803
----------------------------------------------------------------------------------------------------------
Total Value $7,630 11,738 15,372 16,744 21,002 31,102 52,972 52,781 68,819 81,862 94,430 145,184 138,885
==========================================================================================================
If Divs. and
Distribs.
Were Taken In
Cash:
$ Amt. Div.
Inc. $ 46 309 637 782 932 663 537 1,548 1,959 2,440 1,689 1,706 427= 13,585
TOTAL DIV.
INC.
$ Amt. Cap.
Gains Distrib. $ - - - - - - 2,070 5,687 6,287 1,414 2,718 3,507 1,911= 23,594
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.
<PAGE>
PERFORMANCE COMPARISONS
(Price Appreciation Plus Dividends & Capital Gains Distributions Reinvested)
Period Ended Average Annual Aggregate
09/30/96 Total Return Total Return
------------- -------------- --------------
1 year + 16.40% + 16.40%
3 year + 15.80 + 55.30
5 year + 14.36 + 95.57
10 year + 11.67 + 201.57
15 year + 14.03 + 616.52
20 year + 13.06 + 1,064.11
<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>
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.
<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 Banking/Financial 13.4%, Metals 11.0% and
Consumer Products 10.2%.
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) August 31, 1996
<TABLE>
<CAPTION>
Market
Number of Value
Shares Security (Note 1)
- ---------------- -------- -------------
<S> <C> <C>
COMMON STOCKS - 88.6%
Banking/Financial - 13.4%
15,000 Comerica,Inc........................ $ 731,250
2,500 Commerce Bancorp, Inc............... 61,250
55,625 CoreStates Financial Corp............ 2,301,484
50,000 PNC Bank Corp....................... 1,562,500
20,000 Summit Bancorp, Inc................. 775,000
----------
5,431,484
----------
Business Services - 6.8%
30,000 American Express Co................. 1,312,500
30,000 Pitney Bowes, Inc................... 1,447,500
----------
2,760,000
----------
Capital Goods/Technology - 7.6%
100,000 EG & G, Inc......................... 1,875,000
20,000 Harris Corp......................... 1,230,000
----------
3,105,000
----------
Chemical - 8.9%
20,000 Du Pont (E.I.) De Nemours & Co...... 1,642,500
25,000 Olin Corp........................... 1,981,250
----------
3,623,750
----------
Consumer Products - 10.2%
14,000 Kimberly-Clark Corp................. 1,097,250
20,000 The Quaker Oats Co.................. 657,500
50,000 Sturm, Ruger & Co, Inc.............. 1,793,750
20,000 UST, Inc............................ 600,000
----------
4,148,500
----------
Energy - 8.2%
10,000 Atlantic Richfield Co............... 1,167,500
10,000 Exxon Corp.......................... 813,750
12,000 Mobil Corp.......................... 1,353,000
----------
3,334,250
----------
Health Care - 4.3%
20,000 American Home Products Corp......... 1,185,000
10,000 SmithKline Beecham PLC ADRs......... 582,500
----------
1,767,500
----------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
SCHEDULE OF INVESTMENTS (unaudited) August 31, 1996
<TABLE>
<CAPTION>
Market
Number of Value
Shares Security (Note 1)
- ---------------- -------- ---------------
<S> <C> <C>
COMMON STOCKS - 88.6% (continued)
Insurance/Services - 8.9%
30,000 American General Corp. ............................ $ 1,095,000
15,000 Aon Corp. ......................................... 757,500
10,000 The Hartford Steam Boiler Inspection & Insurance Co 446,250
30,000 Lincoln National Corp. ............................ 1,327,500
-----------
3,626,250
-----------
Metals - 11.0%
46,000 Carpenter Technology Corp. ........................ 1,552,500
70,000 Lukens, Inc. ...................................... 1,408,750
25,000 Phelps Dodge Corp. NY ............................. 1,512,500
-----------
4,473,750
-----------
Paper - 9.3%
45,584 International Paper Co. ........................... 1,823,360
45,000 Westvaco Corp. .................................... 1,288,125
15,000 Weyerhaeuser Co. .................................. 669,375
-----------
3,780,860
-----------
Total Common Stocks (cost $26,014,728) ............ 36,051,344
-----------
<CAPTION>
Principal
Amount
- ----------------
<S> <C> <C>
SHORT-TERM NOTES - 10.9%
$ 1,060,000 American Express Credit Corp. 5.19% due 09/05/96... 1,060,000
$ 1,650,000 General Motors Acceptance Corp. 5.26% due 09/10/96. 1,650,000
$ 1,725,000 General Electric Capital Corp. 5.29% due 09/13/96.. 1,725,000
-----------
Total Short-Term Notes (cost $4,435,000)........... 4,435,000
-----------
Total Investments - 99.5% (cost $30,449,728)*..... 40,486,344
Cash and Other Assets, Less Liabilities - 0.5%..... 219,112
-----------
NET ASSETS - 100.0%................................ $40,705,456
===========
</TABLE>
* Aggregate cost for federal income tax purposes is $30,449,728; and net
unrealized appreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation...................... $10,574,331
Gross unrealized depreciation...................... (537,715)
-----------
Net unrealized appreciation.................... $10,036,616
===========
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
August 31, 1996 (unaudited)
<TABLE>
<S>
ASSETS <C>
Investments in securities at market value (identified cost $30,449,728) (Note 1).. $ 40,486,344
Cash ............................................................................. 63,246
Dividends and interest receivable ................................................ 173,284
-----------
Total Assets ................................................................... 40,722,874
-----------
LIABILITIES
Accrued expenses ................................................................. 17,418
-----------
Total Liabilities .............................................................. 17,418
-----------
NET ASSETS
Applicable to 1,657,654 shares; $.10 par value; 10,000,000 shares authorized ..... $ 40,705,456
===========
Net asset value, offering and redemption price per share
($40,705,456/1,657,654 shares) ................................................. $ 24.56
===========
SOURCE OF NET ASSETS
Paid-in capital .................................................................. $ 29,859,926
Undistributed net investment income .............................................. 247,323
Accumulated net realized gain on investments ..................................... 561,591
Net unrealized appreciation of investments ....................................... 10,036,616
-----------
Net Assets ..................................................................... $ 40,705,456
===========
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
3 Months Ended August 31, 1996 (unaudited)
<S> <C>
INCOME
Dividends ........................................................................ $ 311,543
Interest ......................................................................... 49,915
-----------
Total Income ................................................................... 361,458
-----------
EXPENSES
Advisory fees (Note 2) ........................................................... 73,650
Registration fees (Note 2) ....................................................... 17,810
Shareholder services fees (Note 2) ............................................... 6,143
Custodian fees (Note 2) .......................................................... 5,398
Administrative services fees (Note 2) ............................................ 5,000
Accounting/Pricing services fees (Note 2) ........................................ 3,333
Directors' fees .................................................................. 2,322
Legal fees ....................................................................... 1,358
Miscellaneous fees ............................................................... 1,332
Taxes other than income taxes .................................................... 1,275
Printing and postage fees ........................................................ 1,264
-----------
Total Expenses ................................................................. 118,885
-----------
Net Investment Income ....................................................... 242,573
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments ................................................. 567,400
Net decrease in unrealized appreciation of investments ........................... (2,696,025)
-----------
Net loss on investments ........................................................ (2,128,625)
-----------
Net decrease in net assets resulting from operations ........................ $ (1,886,052)
===========
</TABLE>
See accompanying notes to financial statements
10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
3 Months
Ended
August 31, Year Ended
1996 May 31,
(unaudited) 1996
----------- ----------
<S> <C> <C>
OPERATIONS
Net investment income ............................................ $ 242,573 $ 854,333
Net realized gain on investments ................................. 567,400 2,277,319
Net increase (decrease) in unrealized appreciation
of investments................................................... (2,696,025) 6,391,511
----------- ----------
Net increase (decrease) in net assets resulting from operations (1,886,052) 9,523,163
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income
($0.270 and $0.540 per share, respectively)...................... (426,251) (788,687)
Distributions from net realized gains from security
transactions ($1.210 and $0.945 per share, respectively)......... (1,910,237) (1,357,531)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from the net change
in the number of outstanding shares (a)............................ 2,047,956 3,783,914
----------- -----------
Total increase (decrease) in net assets........................... (2,174,584) 11,160,859
NET ASSETS AT THE BEGINNING OF THE PERIOD........................... 42,880,040 31,719,181
----------- -----------
NET ASSETS AT THE END OF THE PERIOD
(including undistributed net investment income of
$247,323 and $431,001, respectively)............................. $ 40,705,456 $ 42,880,040
=========== ===========
a) A summary of capital share transactions follows:
<CAPTION>
3 Months Ended
August 31, 1996 Year Ended
(unaudited) May 31, 1996
--------------------------- --------------------------
Shares Value Shares Value
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares issued ................... 56,257 $ 1,418,031 234,168 $ 5,879,301
Shares reinvested from net
investment income and capital
gains distributions............ 80,169 2,022,661 80,419 1,841,377
------------ ----------- ----------- -----------
136,426 3,440,692 314,587 7,720,678
Shares redeemed.................. (56,152) (1,392,736) (156,417) (3,936,764)
------------ ----------- ----------- -----------
Net increase................... 80,274 $ 2,047,956 158,170 $ 3,783,914
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
August 31, 1996 (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.
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 three months ended August 31, 1996, the Fund paid advisory
fees aggregating $73,650 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 $6,143 for
providing shareholder services, $5,000 for certain administrative services and
$3,333 for accounting/pricing services during the three months ended August 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 $2,406,851 and $3,573,778, respectively, for the three months ended
August 31, 1996.
12
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
3 Months
Ended Years Ended May 31,
08/31/96 ---------------------------------------------------------
(unaudited) 1996 1995 1994 1993 1992
----------- -------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period .... $27.18 $22.35 $20.65 $20.89 $20.55 $19.75
----------- -------- --------- ---------- --------- --------
Income From Investment Operations
---------------------------------
Net investment income ................ 0.146 0.556 0.537 0.510 0.560 0.640
Net gains (losses) on securities (both
realized and unrealized) ........... (1.286) 5.759 2.978 0.665 1.160 1.320
----------- -------- --------- ---------- --------- --------
Total from investment operations.. (1.140) 6.315 3.515 1.175 1.720 1.960
----------- -------- --------- ---------- --------- --------
Less Distributions
------------------
Dividends (from net investment income) (0.270) (0.540) (0.540) (0.510) (0.565) (0.725)
Distributions (from capital gains) ... (1.210) (0.945) (1.275) (0.905) (0.815) (0.435)
----------- -------- --------- ---------- --------- --------
Total distributions .............. (1.480) (1.485) (1.815) (1.415) (1.380) (1.160)
----------- -------- --------- ---------- --------- --------
Net Asset Value, End of Period .......... $24.56 $27.18 $22.35 $20.65 $20.89 $20.55
=========== ======== ========= ========== ========= ========
Total Return ............................ -4.34% ** 29.62% 18.61% 5.92% 8.91% 10.57%
Ratios/Supplemental Data
- ------------------------
Net assets, end of period (in 000's).. $40,705 $42,880 $31,719 $25,475 $25,315 $25,311
Ratio of expenses to average
net assets ......................... 1.14%* 1.16% 1.31% 1.34% 1.39% 1.35%
Ratio of net investment
income to average net assets ....... 2.32%* 2.28% 2.70% 2.51% 2.76% 3.20%
Portfolio turnover rate .............. 25.44%* 15.41% 42.54% 49.81% 35.34% 59.76%
Average commission rate paid ......... $0.0569 N/A N/A N/A N/A N/A
</TABLE>
- -----------------
* Annualized
** Three 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 Officers
LYNNE M. CANNON JAMES W. STRATTON
Chairman
JOHN J. LOMBARD, JR.
JOHN A. AFFLECK
HENRY A. RENTSCHLER President
MERRITT N. RHOAD, JR. GERARD E. HEFFERNAN
JOANNE E. KUZMA
FRANK H. REICHEL, III
Vice President
ALEXANDER F. SMITH PATRICIA L. SLOAN
Secretary and Treasurer
RICHARD W. STEVENS JAMES A. BEERS
CAROL L. ROYCE
JAMES W. STRATTON Assistant Secretary
Assistant Treasurer
Investment Advisor Transfer Agent and Dividend Paying Agent
STRATTON MANAGEMENT COMPANY FUND/PLAN SERVICES, INC.
Plymouth Meeting Executive Campus 2 W. Elm Street, P.O. Box 874
610 W. Germantown Pike, Suite 300 Conshohocken, PA 19428-0874
Plymouth Meeting, PA 19462-1050 Telephones: 610-834-3500 . 800-441-6580
Telephone: 610-941-0255
<TABLE> <S> <C>
<PAGE>
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