<PAGE>
STRATTON
GROWTH
FUND, INC.
- --------------------------------------------------------------------------------
SGF
- --------------------------------------------------------------------------------
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
FUND HIGHLIGHTS
<TABLE>
<CAPTION>
December 31, November 29,
1996 1996
------------ ------------
<S> <C> <C>
Total Net Assets.............. $ 44,801,256 $ 45,227,726
Net Asset Value Per Share..... $ 27.00 $ 27.36
Shares Outstanding............ 1,659,408 1,653,266
Number of Shareholders........ 1,239 1,243
Average Size Account.......... $ 36,159 $ 36,386
</TABLE>
- --------------------------------------------------------------------
Portfolio Changes For the One Month* Ended December 31, 1996
Major Purchases
El Paso Energy Corp./(1)/
Pharmacia & Upjohn, Inc./(1)/
/(1)/ New Holdings
Ten Largest Holdings December 31, 1996
<TABLE>
<CAPTION>
Market Percent
Value of TNA
----------- --------
<S> <C> <C>
CoreStates Financial Corp........ $ 2,885,547 6.4%
EG & G, Inc...................... 2,012,500 4.5
Sturm, Ruger & Co., Inc.......... 1,937,500 4.3
Du Pont (E.I.) De Nemours & Co... 1,887,500 4.2
Olin Corp........................ 1,881,250 4.2
PNC Bank Corp.................... 1,881,250 4.2
International Paper Co........... 1,840,454 4.1
American Express Co.............. 1,695,000 3.8
Carpenter Technology Corp........ 1,684,750 3.8
Pitney Bowes, Inc................ 1,635,000 3.7
----------- ----
$19,340,751 43.2%
=========== ====
</TABLE>
*Shortened period due to change in fiscal year end.
1
<PAGE>
DEAR SHAREHOLDER:
The Board of Directors of Stratton Funds determined to change the fiscal year of
all Funds to end on December 31. Therefore, you are receiving an annual report
from Stratton Growth Fund, which reflects these seven months ending on December
31, 1996. The primary reason for this change was to permit all of the Funds'
reports to be printed and mailed together in the future. This should save
significant shareholder expense in printing and postage and reduce the expense
ratio of the Funds. In the future, you will receive a combined quarterly report
starting with the March 31, 1997 quarter.
The year 1996 was a good one for Stratton Growth Fund. Our total return was
14.17%. Total assets grew to $44,801,256, reflecting the per share growth.
Stratton Growth Fund's net asset value per share closed at $27.00 as of December
31, 1996. During those seven months, the Fund paid a July capital gains
distribution of $1.21 per share and two income dividends totaling $0.58 per
share.
Portfolio activity during the fiscal seven months has returned to a normal
level; our portfolio turnover rate was 20.3%. During the most recent month we
added two new securities to our portfolio: El Paso Energy Corp., a natural gas
transportation company and Pharmacia & Upjohn, Inc., a diversified global drug
company. Our largest single industry categories remain banking and financial at
15.8%, consumer products at 13.7%, paper at 10.2% and energy at 9.6%. Our
annualized expense ratio for the seven month period remained at a low level of
1.17%. Continued growth in assets should assist in further reducing the expense
ratio.
The Federal Reserve is looking at an economy that seems to be slowing down. It
also recognizes that fiscal policy is disinflationary. Therefore, they should be
reviewing the possibilities toward an easing in interest rates. The problem,
however, is the stock market. The stock market has been fed by a large supply of
excess funds flowing into it and has been fueled by lower interest rates. A cut
by the Fed in short-term rates at this time would add only more fuel to the
liquidity fire igniting Wall Street. That is why Alan Greenspan attempted to
"jaw-bone" the market. The Fed is trapped between the problems of a softening
world economy and low global rates offset by a sharply rising domestic stock
market.
Our average annual total return for fifteen years has been 14.02% as shown on
page 5. More recently our three year average annual total return has averaged
19.0%. The table on page 4 shows that a $10,000 investment in the Fund at its
inception would have grown to $154,479 by December 31, 1996 if you reinvested
all dividends and capital gains distributions. Such results should reward
investors with long term objectives such as retirement and educational needs. 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
February 10, 1997
2
<PAGE>
[ILLUSTRATION OF AN ASSUMED $10,000 INVESTMENT
IN STRATTON GROWTH FUND, INC.]
(With all Dividend Income and Capital Gains Distribution Reinvested)
[GRAPH APPEARS HERE]
<TABLE>
<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. $ 48 309 537 782 932 663 537 1,548 1,959 2,440 1,699
$ Amt. Cap. Gains Distrib. $ - - - - - - 2,070 5,687 6,287 1,414 2,718
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
----------------
Initial Investment 42,938 42,654
Reinvested Inc. Divs. 41,919 44,981
Reinvested Cap. Gains
Distributions 60,327 66,644
----------------
Total Value 145,164 154,479
================
If Divs. and Distribs.
Were Taken in Cash:
$ Amt. Div. Inc. 1,706 916 = 14.074 TOTAL DIV. INC.
$ Amt. Cap. Gains Distrib. 3,507 1,911 = 23,504 TOTAL CAP. GAINS
----------------
</TABLE>
3
<PAGE>
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
12/31/96 Total Return Total Return
- ------------------ -------------- ------------
<S> <C> <C>
1 year +14.17% + 14.17%
3 year +19.00 + 68.49
5 year +13.85 + 91.31
10 year +12.27 + 218.07
15 year +14.02 + 615.30
20 year +12.92 +1,036.97
</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 0.2 - 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
1996 27.00 0.58 1.21 154,479 + 14.2
- --------------------------------------------------------------------------------------------------------------------
Totals: $8.909 $14.935 Aggregate: + 1,444.8 %
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
STRATTON GROWTH FUND AND THE S&P 500*
TEN YEAR PERFORMANCE (12/31/86 - 12/31/96)
[GRAPH OF STRATTON GROWTH FUND APPEARS HERE]
Average Annual Total Return
1 Year 5 Year 10 Year
14.17% 13.85% 12.27%
<TABLE>
<CAPTION>
SGF S&P 500
<S> <C> <C>
1986 $10,000 $10,000
1987 $9,612 $10,524
1988 $11,784 $12,268
1989 $14,588 $16,150
1990 $13,607 $15,679
1991 $16,626 $20,463
1992 $17,742 $22,018
1993 $18,878 $24,240
1994 $20,235 $24,549
1995 $27,859 $33,762
1996 $31,807 $41,525
</TABLE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
STRATTON GROWTH FUND AND THE S&P 500*
LIFETIME PERFORMANCE (9/30/72 - 12/31/96)
[GRAPH OF STRATTON GROWTH FUND APPEARS HERE]
Average Annual Total Return
1 Year 5 Year 10 Year 15 Year 20 Year
14.17% 13.85% 12.27% 14.02% 12.92%
<TABLE>
<CAPTION>
SGF S&P 500
<S> <C> <C>
72 $10,000 $10,000
73 $8,007 $9,672
74 $7,673 $8,330
75 $10,061 $9,125
76 $11,738 $10,437
77 $13,570 $10,437
78 $15,372 $11,103
79 $16,038 $11,913
80 $16,744 $14,117
81 $23,101 $17,656
82 $21,002 $15,747
83 $35,320 $24,078
84 $31,102 $23,376
85 $39,441 $30,826
86 $52,972 $41,874
87 $53,953 $50,748
88 $52,781 $47,426
89 $65,579 $60,060
90 $68,819 $70,186
91 $74,034 $78,456
92 $81,862 $86,236
93 $89,155 $96,234
94 $94,430 $100,333
95 $112,007 $120,530
96 $154,479 $173,741
</TABLE>
Returns shown include the reinvestment of all dividends and other
distributions. Investment return and principal value will fluctuate, so that
your shares, when redeemed, may be worth more or less than their original cost.
* THE S&P 500 INDEX IS AN UNMANAGED INDEX.
7
<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 25 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 40% and 70% 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 2.
8
<PAGE>
SCHEDULE OF INVESTMENTS DECEMBER 31, 1996
<TABLE>
<CAPTION>
Market
Number of Value
Shares Security (Note 1)
- --------- -------- --------------
<S> <C> <C>
COMMON STOCKS - 92.2%
Banking/Financial - 15.8%
15,000 Comerica, Inc. ........................................ $ 785,625
20,000 Commerce Bancorp, Inc. ................................ 660,000
55,625 CoreStates Financial Corp. ............................ 2,885,547
50,000 PNC Bank Corp. ........................................ 1,881,250
20,000 Summit Bancorp, Inc. .................................. 875,000
--------------
7,087,422
--------------
Business Services - 7.4%
30,000 American Express Co. .................................. 1,695,000
30,000 Pitney Bowes, Inc. .................................... 1,635,000
--------------
3,330,000
--------------
Capital Goods/Technology - 7.6%
100,000 EG & G, Inc. .......................................... 2,012,500
20,000 Harris Corp. .......................................... 1,372,500
--------------
3,385,000
--------------
Chemical - 8.4%
20,000 Du Pont (E.I.) De Nemours & Co. ....................... 1,887,500
50,000 Olin Corp. ............................................ 1,881,250
--------------
3,768,750
--------------
Consumer Products - 13.7%
50,000 Hormel Foods Corp. .................................... 1,350,000
14,000 Kimberly-Clark Corp. .................................. 1,333,500
40,000 The Quaker Oats Co. ................................... 1,525,000
100,000 Sturm, Ruger & Co., Inc. .............................. 1,937,500
--------------
6,146,000
--------------
Energy - 9.6%
10,000 Atlantic Richfield Co. ................................ 1,325,000
10,000 El Paso Energy Corp. .................................. 505,000
10,000 Exxon Corp. ........................................... 980,000
12,000 Mobil Corp. ........................................... 1,467,000
--------------
4,277,000
--------------
Health Care - 6.3%
20,000 American Home Products Corp. .......................... 1,172,500
25,000 Pharmacia & Upjohn, Inc. .............................. 990,625
10,000 SmithKline Beecham PLC ADRs ........................... 680,000
--------------
2,843,125
--------------
</TABLE>
See accompanying notes to financial statements.
9
<PAGE>
SCHEDULE OF INVESTMENTS DECEMBER 31, 1996
<TABLE>
<CAPTION>
Market
Number of Value
Shares Security (Note 1)
- --------- -------- --------------
<S> <C> <C>
COMMON STOCKS - 92.2% (continued)
Insurance/Services - 9.4%
30,000 American General Corp. ................................ $ 1,226,250
15,000 Aon Corp. ............................................. 931,875
20,000 Lincoln National Corp. ................................ 1,050,000
30,000 USLife Corp. .......................................... 997,500
--------------
4,205,625
--------------
Metals - 3.8%
46,000 Carpenter Technology Corp. ............................ 1,684,750
--------------
Paper - 10.2%
40,000 Glatfelter (P.H.) Co. ................................. 720,000
45,584 International Paper Co. ............................... 1,840,454
45,000 Westvaco Corp. ........................................ 1,293,750
15,000 Weyerhaeuser Co. ...................................... 710,625
--------------
4,564,829
--------------
Total Common Stocks (cost $27,145,076)................. 41,292,501
--------------
<CAPTION>
Principal
Amount
- ---------
<S> <C> <C>
SHORT-TERM NOTES - 7.6%
$1,715,000 Ford Motor Credit Corp. 5.80% due 01/06/97............. 1,715,000
$1,715,000 General Electric Capital Corp. 5.50% due 01/09/97...... 1,715,000
--------------
Total Short-Term Notes (cost $3,430,000)............... 3,430,000
--------------
Total Investments - 99.8% (cost $30,575,076)*......... 44,722,501
Cash and Other Assets, Less Liabilities - 0.2%......... 78,755
--------------
NET ASSETS - 100.0%.................................... $ 44,801,256
==============
</TABLE>
* Aggregate cost for federal income tax purposes is $30,575,076; and net
unrealized appreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation.......................... $ 14,160,538
Gross unrealized depreciation.......................... (13,113)
--------------
Net unrealized appreciation........................ $ 14,147,425
==============
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments in securities at market value (identified cost $30,575,076) (Note 1)..... $ 44,722,501
Cash................................................................................. 61,583
Dividends and interest receivable.................................................... 67,288
Prepaid expenses..................................................................... 8,719
Receivable for capital stock sold.................................................... 232
------------
Total Assets..................................................................... 44,860,323
------------
LIABILITIES
Accrued expenses..................................................................... 32,028
Payable for capital stock redeemed................................................... 27,039
------------
Total Liabilities................................................................ 59,067
------------
NET ASSETS
Applicable to 1,659,408 shares; $.10 par value; 10,000,000 shares authorized ........ $ 44,801,256
============
Net asset value, offering and redemption price per share
($44,801,256 / 1,659,408 shares).................................................. $ 27.00
============
SOURCE OF NET ASSETS
Paid-in capital...................................................................... $ 29,900,986
Undistributed net investment income.................................................. 9,083
Accumulated net realized gain on investments......................................... 743,762
Net unrealized appreciation of investments........................................... 14,147,425
------------
Net Assets....................................................................... $ 44,801,256
------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF OPERATIONS
7 Months Ended December 31, 1996
<TABLE>
<S> <C>
INCOME
Dividends............................................................................. $ 683,977
Interest.............................................................................. 120,200
------------
Total Income....................................................................... 804,177
------------
EXPENSES
Advisory fees (Note 2)................................................................ 177,939
Registration fees (Note 2)............................................................ 18,720
Administrative services fees (Note 2)................................................. 17,500
Audit fees............................................................................ 17,278
Shareholder services fees (Note 2).................................................... 16,592
Custodian fees (Note 2)............................................................... 12,552
Accounting/Pricing services fees (Note 2)............................................. 11,667
Printing and postage fees............................................................. 9,157
Directors' fees....................................................................... 6,406
Legal fees............................................................................ 4,407
Miscellaneous fees.................................................................... 3,970
------------
Total Expenses..................................................................... 296,188
------------
Tax credit............................................................................ 6,369
------------
Net Expenses....................................................................... 289,819
------------
Net Investment Income........................................................... 514,358
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments...................................................... 749,571
Net increase in unrealized appreciation of investments................................ 1,414,784
------------
Net gain on investments............................................................ 2,164,355
------------
Net increase in net assets resulting from operations............................ $ 2,678,713
============
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
7 Months
Ended Year Ended Year Ended
December 31, May 31, May 31,
1996 1996 1995
------------- ------------- ------------
<S> <C> <C> <C>
OPERATIONS
Net investment income...................... $ 514,358 $ 854,333 $ 737,061
Net realized gain on investments........... 749,571 2,277,319 1,177,804
Net increase in unrealized appreciation
of investments........................... 1,414,784 6,391,511 2,819,135
------------- ------------- ------------
Net increase in net assets resulting
from operations..................... 2,678,713 9,523,163 4,734,000
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income
($0.580, $0.540 and $0.540 per
share, respectively)..................... (936,276) (788,687) (692,621)
Distributions from net realized gains
from security transactions ($1.210, $0.945
and $1.275 per share, respectively)...... (1,910,237) (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)................... 2,089,016 3,783,914 3,793,151
------------- ------------- ------------
Total increase in net assets........... 1,921,216 11,160,859 6,244,393
NET ASSETS AT THE BEGINNING
OF THE PERIOD........................ 42,880,040 31,719,181 25,474,788
------------- ------------- ------------
NET ASSETS AT THE END OF THE PERIOD
(including undistributed net investment
income of $9,083, $431,001 and
$365,355, respectively).................. $ 44,801,256 $ 42,880,040 $ 31,719,181
============= ============= ============
</TABLE>
12
<PAGE>
(a) A summary of capital share transactions follows:
<TABLE>
<CAPTION>
7 Months Ended Year Ended Year Ended
December 31, 1996 May 31, 1996 May 31, 1995
-------------------------- -------------------------- ----------------------------
Shares Value Shares Value Shares Value
--------- -------------- --------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Shares issued................. 84,152 $ 2,143,395 234,168 $ 5,879,301 251,048 $ 5,232,197
Shares reinvested from net
investment income and capital
gains distributions....... 96,302 2,447,768 80,419 1,841,377 102,301 1,968,319
--------- -------------- --------- ------------- --------- --------------
180,454 4,591,163 314,587 7,720,678 353,349 7,200,516
Shares redeemed............... (98,426) (2,502,147) (156,417) (3,936,764) (167,783) (3,407,365)
--------- -------------- --------- ------------- --------- --------------
Net increase.............. 82,028 $ 2,089,016 158,170 $ 3,783,914 185,566 $ 3,793,151
========= ============== ========= ============= ========= ==============
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 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 Fund
has changed its fiscal and tax year end from May 31 to December 31, commencing
with December 31, 1996. 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 seven months ended December 31, 1996, the Fund paid
advisory fees aggregating $177,939 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 FPS
Services, Inc. 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 Administrator, Accounting Agent and Transfer Agent, FPS Services,
Inc. ("FPS"), is a wholly-owned subsidiary of FinDaTex, Inc. Certain directors
and officers of the Fund are shareholders of FinDaTex, Inc. FPS received fees
of $16,592 for providing shareholder services, $17,500 for certain
administrative services and $11,667 for accounting/pricing services during the
seven months ended December 31, 1996. Pursuant to an agreement between The Bank
of New York, (the "Custodian"), and FPS, the Custodian reallows a portion of its
custody fee to FPS for certain services delegated to FPS. The amount is not
readily determinable. FPS Broker Services, Inc., a wholly-owned subsidiary of
FPS, 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 $7,849,565 and $8,068,315, respectively, for the seven months ended
December 31, 1996.
14
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a share of capital stock
outstanding throughout each year presented.
<TABLE>
<CAPTION>
7 Months
Ended Years Ended May 31,
12/31/96 --------------------------------------------
12/31/96 1996 1995 1994 1993 1992
-------- ------- ------- ------- ------- -------
<C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year.............................. $27.18 $22.35 $20.65 $20.89 $20.55 $19.75
-------- ------- ------- ------- ------- -------
Income From Investment Operations
---------------------------------
Net investment income.......................................... 0.312 0.556 0.537 0.510 0.560 0.640
Net gains on securities (both
realized and unrealized)..................................... 1.298 5.759 2.978 0.665 1.160 1.320
-------- ------- ------- ------- ------- -------
Total from investment operations...... 1.610 6.315 3.515 1.175 1.720 1.960
-------- ------- ------- ------- ------- -------
Less Distributions
------------------
Dividends (from net investment
income)...................................................... (0.580) (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......................................... (1.790) (1.485) (1.815) (1.415) (1.380) (1.160)
-------- ------- ------- ------- ------- -------
Net Asset Value, End of Year.................................. $27.00 $27.18 $22.35 $20.65 $20.89 $20.55
======== ======= ======= ======= ======= =======
Total Return.................................................. 6.40% 29.62% 18.61% 5.92% 8.91% 10.57%
Ratios/Supplemental Data
- ------------------------
Net assets, end of year (in 000's)............................. $44,801 $42,880 $31,719 $25,475 $25,315 $25,311
Ratio of expenses to average
net assets................................................... 1.17%* 1.16% 1.31% 1.34% 1.39% 1.35%
Ratio of net investment
income to average net assets................................. 2.08%* 2.28% 2.70% 2.51% 2.76% 3.20%
Portfolio turnover rate........................................ 20.32% 15.41% 42.54% 49.81% 35.34% 59.76%
Average commission rate paid............. $0.0537 N/A N/A N/A N/A N/A
<CAPTION>
1991 1990 1989
------- ------- -------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year.............................. $19.66 $21.84 $19.48
------- ------- -------
Income From Investment Operations
---------------------------------
Net investment income.......................................... 0.720 0.820 0.55
Net gains on securities (both
realized and unrealized)..................................... 0.650 0.200 3.83
------- ------- -------
Total from investment operations............................ 1.370 1.020 4.38
------- ------- -------
Less Distributions
------------------
Dividends (from net investment
income)...................................................... (0.820) (0.710) (0.53)
Distributions (from capital gains)............................. (0.460) (2.490) (1.49)
------- ------- -------
Total distributions......................................... (1.280) (3.200) (2.02)
------- ------- -------
Net Asset Value, End of Year.................................. $19.75 $19.66 $21.84
======= ======= =======
Total Return.................................................. 7.58% 4.94% 24.25%
Ratios/Supplemental Data
- ------------------------
Net assets, end of year (in 000's)............................. $25,111 $23,407 $20,268
Ratio of expenses to average
net assets................................................... 1.41% 1.38% 1.41%
Ratio of net investment
income to average net assets................................. 3.94% 4.09% 2.79%
Portfolio turnover rate........................................ 56.78% 54.80% 49.85%
Average commission rate paid................................... N/A N/A N/A
</TABLE>
- ---------------
* Annualized
See accompanying notes to financial statements.
15
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Stratton Growth Fund, Inc.
We have audited the accompanying statement of assets and liabilities
of Stratton Growth Fund, Inc., including the schedule of investments, as of
December 31, 1996, and the related statement of operations for the seven months
then ended, the statement of changes in net assets for the seven months then
ended and for the two years ended May 31, 1996, and the financial highlights for
the seven months then ended and for each of the five years ended May 31, 1996.
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
December 31, 1996, by correspondence with the custodian. 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 December 31, 1996, the results of
its operations for the seven months then ended, the changes in its net assets
for the seven months then ended and for the two years ended May 31, 1996, and
the financial highlights for the seven months then ended and for each of the
five years ended May 31, 1996, in conformity with generally accepted accounting
principles.
Philadelphia, PA
January 13, 1997 TAIT, WELLER & BAKER
16
<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. of 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 Distribution
- ----------------------------------------------
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.
17
<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":
FPS BROKER SERVICES, INC.
3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA 19406-0903
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":
FPS BROKER SERVICES, INC.
3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA 19406-0903
Telephone: 610-239-4600 . 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 FPS 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.
18
<PAGE>
SGF STRATTON
GROWTH FUND, INC.
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
MERRITT 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 FPS SERVICES, INC.
Chairman 3200 Horizon Drive, P.O. Box 61503
King of Prussia, PA 19406-0903
JOHN A. AFFLECK Telephones: 610-239-4600 . 800-441-6580
President
GERARD E. HEFFERNAN
JOANNE E. KUZMA
FRANK H. REICHEL, III
Vice President
PATRICIA L. SLOAN
Secretary and Treasurer
Independent Accountants
JAMES A. BEERS
CAROL L. ROYCE TAIT, WELLER & BAKER
Assistant Secretary 2 Penn Center Plaza, Suite 700
Assistant Treasurer Philadelphia, PA 19102-1707
19