<PAGE>
STRATTON
GROWTH
FUND, INC.
- --------------------------------------------------------------------------------
SGF
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT
DATED NOVEMBER 29, 1996
<PAGE>
FUND HIGHLIGHTS
<TABLE>
<CAPTION>
November 29, August 31,
1996 1996
------------- -------------
<S> <C> <C>
Total Net Assets.......................... $ 45,227,726 $ 40,705,456
Net Asset Value Per Share................. $ 27.36 $ 24.56
Shares Outstanding........................ 1,653,266 1,657,654
Number of Shareholders.................... 1,243 1,254
Average Size Account...................... $ 36,386 $ 32,460
</TABLE>
================================================================================
Portfolio Changes For the Quarter Ended November 29, 1996 (unaudited)
Major Purchases Major Sales
Commerce Bancorp, Inc. The Hartford Steam Boiler
Glatfelter (P.H.) Co./(1)/ Inspection & Insurance Co./(2)/
Hormel Foods Corp./(1)/ Lincoln National Corp.
The Quaker Oats Co. Lukens, Inc. /(2)/
USLife Corp./(1)/ Phelps Dodge Corp. NY/(2)/
UST, Inc./(2)/
/(1)/New Holdings /(2)/Eliminations
Ten Largest Holdings November 29, 1996 (unaudited)
<TABLE>
<CAPTION>
Market Percent
Value of TNA
--------- ---------
<S> <C> <C>
CoreStates Financial Corp...................................$ 2,996,797 6.6%
Olin Corp................................................... 1,993,750 4.4
PNC Bank Corp............................................... 1,975,000 4.4
International Paper Co...................................... 1,937,320 4.3
Du Pont (E.I.) De Nemours & Co.............................. 1,885,000 4.2
EG & G, Inc................................................. 1,825,000 4.0
Sturm, Ruger & Co., Inc..................................... 1,787,500 3.9
Pitney Bowes, Inc. ......................................... 1,770,000 3.9
Carpenter Technology Corp................................... 1,633,000 3.6
The Quaker Oats Co.......................................... 1,575,000 3.5
----------- ----
$19,378,367 42.8%
=========== ====
</TABLE>
<PAGE>
DEAR SHAREHOLDER:
The year 1996 was a good one for Stratton Growth Fund. Our total return was
14.17% for the calendar year. Total assets grew to $45,227,726, reflecting the
per share growth. For the first fiscal six months ending November 29, 1996,
Stratton Growth Fund's net asset value per share closed at $27.36. During those
six months, the Fund paid a July capital gains distribution of $1.21 per share
and an income dividend of $0.27 per share. In December, the Fund paid an income
dividend of $0.31.
Portfolio activity during the past six months has returned to a normal level;
our annualized turnover rate was 34%. Our expenses reached another all time low
of 1.09% which is attributable to the continued growth in assets of the Fund.
During the quarter we added three new holdings: P.H. Glatfelter, a producer of
fine papers; Hornel Foods, a diversified meat products company (best known for
SPAM); and U.S. Life Corporation, a life insurance holding company. Our largest
industry position continues to be banks and financials at 16.2% followed by
consumer products at 13.3% and paper at 10.2%.
We maintain our forecast that the economy will grow in a moderate fashion for
the next twelve months. The growth rate in GDP should be between 1.5%-3% fueled
by continuation of moderate growth in consumer spending together with continued
business spending for information processing equipment. This combination of
moderate growth and no external shocks to the economic system should produce
interest rates that range between 6%-7%, reflecting a low inflation level and no
unusual demand for debt funding.
From a stock market performance standpoint, the first year of any new
presidential administration is the least rewarding year, averaging only a 2.7%
gain over the past twelve administrations; 1997 is the first year of the Clinton
second term. The market has experienced two back-to-back years of double digit
gains in the S&P 500. In reviewing market history going back to the 1940s,
there were eight similar periods. The average of the third years results, in
all of those periods was minus 2.0%. We believe that long-term investors should
realize that preserving capital after such significant moves as we have
experienced in the 1995-96 period will be an important measure of mutual funds'
success in 1997.
Our average annual total return for fifteen years has been 14.02% as shown on
Page 5. More recently our three year total return has averaged 19.0%. The chart
on page 4 shows that a $10,000 investment in the Fund at its beginning would
have grown to $154,719 by November 29, 1996 if you reinvested all dividends and
capital gains distributions. We welcome new investors to the Fund and hope that
you will continue to recommend this Fund to your friends and associates. As a
100% No Load Fund, with no sales charges, it is through your active support that
our Fund becomes known to a broader circle of investors.
Sincerely yours,
James W. Stratton John A. Affleck
Chairman President
January 14, 1997
<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>
<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
----------------------------------------------------------------------------------
<S> <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
Reinvested Inc. Divs. $ 43 458 1,217 2,147 3,703 6,347 10,805 11,062 14,859 21,871
Reinvested Cap. Gains
Distributions $ - - - - - - 3,857 10,945 22,901 27,527
----------------------------------------------------------------------------------
Total Value $7,630 11,738 15,372 16,744 21,002 31,102 52,972 52,781 68,819 81,862
==================================================================================
If Divs. and Distribs.
Were Taken in Cash.
$ Amt. Div. Inc. $ 46 309 537 782 932 663 537 1,548 1,959 2,440
$ Amt. Cap. Gains Distrib. $ - - - - - - 2,070 5,687 6,287 1,414
----------------------------------------------------------------------------------
<CAPTION>
------------------------
Fiscal Year Ended 5/31 93-94 95-96 1997
------------------------
<S> <C> <C> <C>
------------------------
Initial Investment 32,622 42,938 43,223
Reinvested Inc. Divs. 26,652 41,919 43,761
Reinvested Cap. Gains
Distributions 35,156 60,327 67,735
------------------------
Total Value 94,430 145,184 154,719
========================
If Divs. and Distribs.
Were Taken in Cash.
$ Amt. Div. Inc. 1,699 1,706 427 = 13,585 TOTAL DIV. INC.
$ Amt. Cap. Gains Distrib. 2,718 3,507 1,911 = 23,504 TOTAL CAP. GAINS
-----------------------
</TABLE>
<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.
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Past Performance Results
Period Stratton Growth Fund Per Share Data Dividends & Capital Gains Reinvested
- ---------------------------------------------------------------------------------------------------------------------
Year Ended Net Asset Income Capital Gains Year-End Total Investment
December 31 Value Dividends Distributions Value Return
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
9/30/72 (inception) $ 6.33 - - $10,000 -
- ---------------------------------------------------------------------------------------------------------------------
1972 7.20 - - 11,374 + 13.7%
- ---------------------------------------------------------------------------------------------------------------------
1973 5.48 $0.029 - 8,706 - 23.5
- ---------------------------------------------------------------------------------------------------------------------
1974 4.48 0.07 - 7,223 - 17.0
- ---------------------------------------------------------------------------------------------------------------------
1975 5.91 0.125 - 9,716 + 34.5
- ---------------------------------------------------------------------------------------------------------------------
1976 8.11 0.14 - 13,587 + 39.8
- ---------------------------------------------------------------------------------------------------------------------
1977 8.04 0.20 - 13,794 + 1.5
- ---------------------------------------------------------------------------------------------------------------------
1978 8.39 0.235 - 14,786 + 7.2
- ---------------------------------------------------------------------------------------------------------------------
1979 9.65 0.26 - 17,487 + 18.3
- ---------------------------------------------------------------------------------------------------------------------
1980 12.36 0.31 - 23,139 + 32.3
- ---------------------------------------------------------------------------------------------------------------------
1981 11.26 0.28 - 21,596 - 6.7
- ---------------------------------------------------------------------------------------------------------------------
1982 14.52 0.29 - 28,619 + 32.5
- ---------------------------------------------------------------------------------------------------------------------
1983 18.21 0.13 - 36,143 + 26.3
- ---------------------------------------------------------------------------------------------------------------------
1984 16.45 0.14 $ 0.70 34,438 - 4.7
- ---------------------------------------------------------------------------------------------------------------------
1985 20.09 0.20 0.61 43,885 + 27.4
- ---------------------------------------------------------------------------------------------------------------------
1986 20.02 0.28 2.07 48,567 + 10.7
- ---------------------------------------------------------------------------------------------------------------------
1987 17.23 0.70 1.53 46,685 - 3.9
- ---------------------------------------------------------------------------------------------------------------------
1988 19.06 0.53 1.49 57,231 + 22.6
- ---------------------------------------------------------------------------------------------------------------------
1989 20.24 0.71 2.49 70,849 + 23.8
- ---------------------------------------------------------------------------------------------------------------------
1990 17.63 0.82 0.46 66,087 - 6.7
- ---------------------------------------------------------------------------------------------------------------------
1991 20.27 0.725 0.435 80,747 + 22.2
- ---------------------------------------------------------------------------------------------------------------------
1992 20.19 0.565 0.815 86,167 + 6.7
- ---------------------------------------------------------------------------------------------------------------------
1993 20.05 0.51 0.905 91,687 + 6.4
- ---------------------------------------------------------------------------------------------------------------------
1994 19.61 0.54 1.275 98,276 + 7.2
- ---------------------------------------------------------------------------------------------------------------------
1995 25.33 0.54 0.945 135,302 + 37.7
- ---------------------------------------------------------------------------------------------------------------------
1996 27.00 0.58 1.210 154,479 + 14.2
- ---------------------------------------------------------------------------------------------------------------------
Totals: $8.909 $14.935 Aggregate: + 1,444.8%
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
STRATTON GROWTH FUND'S INVESTMENT PROCESS
What is the philosophy used in managing Stratton Growth Fund?
Studies of historical data show that investing in high yielding common stocks
have produced above-average returns while lowering risk and preserving capital.
For Stratton Management, the common stock yield is the primary screen in sorting
out the equity universe and in making purchase decisions for Stratton Growth
Fund.
How do you select companies within the high yield universe?
Both our proprietary studies and our actual portfolio performance have shown
that superior returns may be achieved by investing in companies which not only
have relatively high dividend yields but also possess superior financial
characteristics, such as strong annual dividend growth and a reasonable dividend
payout. This is the second set of screens we apply to review stocks.
What quantitative disciplines do you use in purchasing common stocks?
From the overall equity universe, we screen down to about 350 companies by
focusing on stocks with a market capitalization over $200 million and those
which possess a dividend yield at least 33% greater than that on the S & P 500
average. Our second step reduces the universe to approximately 60 stocks by
screening for additional yield characteristics such as dividend growth rates and
dividend coverage. Our third review involves fundamental analysis of such
important characteristics as the outlook for earnings and cash flow, management
strengths and industry competitive position; we reduce the Stratton Growth
Fund's buy candidate list to approximately 30 stocks. These stocks are
available for addition to the Fund's portfolio.
What are the investment disciplines you use in selling stock?
We emphasize two clearly quantifiable sell disciplines which our policy regards
as mandatory. As stocks rise in price, their yield will drop. When the yield
of any stock in the portfolio drops to that of the S & P 500, half of the
position will be sold. If the yield on the stock continues to decline to 25%
below that on the S & P 500, the balance of the position is sold. Our
individual holdings are reviewed daily to ensure that the dividend criteria are
sound and that the value fundamentals are secure. When a better "buy" candidate
emerges within our yield universe, we may trade from an existing holding. Our
portfolio turnover normally averages between 40% and 70% depending upon market
conditions.
<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 16.2%, Consumer Products
13.3% and Paper 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.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS NOVEMBER 29, 1996
Market
Number of Value
Shares Security (Note 1)
---------- -------- --------------
<C> <S> <C>
COMMON STOCKS - 88.3% (continued)
Insurance/Services - 9.2%
30,000 American General Corp. ........................................................ $ 1,233,750
15,000 Aon Corp. ..................................................................... 913,125
20,000 Lincoln National Corp. ........................................................ 1,077,500
30,000 USLife Corp. .................................................................. 926,250
------------
4,150,625
------------
Metals - 3.6%
46,000 Carpenter Technology Corp. .................................................... 1,633,000
------------
Paper - 10.2%
40,000 Glatfelter (P.H.) Co. ......................................................... 730,000
45,584 International Paper Co. ....................................................... 1,937,320
45,000 Westvaco Corp. ................................................................ 1,271,250
15,000 Weyerhaeuser Co. .............................................................. 690,000
------------
4,628,570
------------
Total Common Stocks (cost $25,700,626)....................................... 39,944,492
------------
Principal
Amount
-----------
SHORT-TERM NOTES - 7.2%
$ 1,800,000 General Motors Acceptance Corp. 5.32% due 12/04/96............................ 1,800,000
$ 1,440,000 General Electric Capital Corp. 5.46% due 12/09/96............................. 1,440,000
------------
Total Short-Term Notes (cost $3,240,000)...................................... 3,240,000
------------
Total Investments - 95.5% (cost $28,940,626)*................................ 43,184,492
Cash and Other Assets, Less Liabilities - 4.5%................................ 2,043,234
------------
NET ASSETS - 100.0%........................................................... $ 45,227,726
============
* Aggregate cost for federal income tax purposes is $28,940,626; and net unrealized appreciation is as follows:
Gross unrealized appreciation................................................. $14,246,979
Gross unrealized depreciation................................................. (3,113)
------------
Net unrealized appreciation............................................... $ 14,243,866
============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SCHEDULE OF INVESTMENTS NOVEMBER 29, 1996
<TABLE>
<CAPTION>
Market
Number of Value
Shares Security (Note 1)
- ------------------ -------- ------------------
<S> <C> <C>
COMMON STOCKS - 88.3%
Banking/Financial - 16.2%
15,000 Comerica, Inc. ................................................... $ 877,500
20,000 Commerce Bancorp, Inc. ........................................... 580,000
55,625 CoreStates Financial Corp. ....................................... 2,996,797
50,000 PNC Bank Corp. ................................................... 1,975,000
20,000 Summit Bancorp, Inc. ............................................. 897,500
------------------
7,326,797
------------------
Business Services - 7.4%
30,000 American Express Co. ............................................. 1,567,500
30,000 Pitney Bowes, Inc. ............................................... 1,770,000
------------------
3,337,500
------------------
Capital Goods/Technology - 7.1%
100,000 EG & G, Inc. ..................................................... 1,825,000
20,000 Harris Corp. ..................................................... 1,370,000
------------------
3,195,000
------------------
Chemical - 8.6%
20,000 Du Pont (E.I.) De Nemours & Co. .................................. 1,885,000
50,000 Olin Corp. ....................................................... 1,993,750
------------------
3,878,750
------------------
Consumer Products - 13.3%
50,000 Hormel Foods Corp. ............................................... 1,300,000
14,000 Kimberly-Clark Corp. ............................................. 1,368,500
40,000 The Quaker Oats Co. .............................................. 1,575,000
100,000 Sturm, Ruger & Co., Inc. ......................................... 1,787,500
------------------
6,031,000
------------------
Energy - 8.4%
10,000 Atlantic Richfield Co. ........................................... 1,391,250
10,000 Exxon Corp. ...................................................... 946,250
12,000 Mobil Corp. ...................................................... 1,452,000
------------------
3,789,500
------------------
Health Care - 4.3%
20,000 American Home Products Corp. ..................................... 1,285,000
10,000 SmithKline Beecham PLC ADRs ...................................... 688,750
------------------
1,973,750
------------------
</TABLE>
See accompanying notes to financial statements.
8
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
November 29, 1996 (unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in securities at market value (identified cost $28,940,626) (Note 1)..................... $ 43,184,492
Cash................................................................................................. 51,217
Dividends and interest receivable.................................................................... 169,014
Prepaid expenses..................................................................................... 8,794
Receivable for securities sold....................................................................... 1,823,439
----------------
Total Assets..................................................................................... 45,236,956
----------------
LIABILITIES
Accrued expenses..................................................................................... 9,230
----------------
Total Liabilities................................................................................ 9,230
----------------
NET ASSETS
Applicable to 1,653,266 shares; $.10 par value; 10,000,000 shares authorized ........................ $ 45,227,726
================
Net asset value, offering and redemption price per share
($45,227,726 + 1,653,266 shares).................................................................. $ 27.36
================
SOURCE OF NET ASSETS
Paid-in capital...................................................................................... $ 29,745,749
Undistributed net investment income.................................................................. 494,348
Accumulated net realized gain on investments......................................................... 743,763
Net unrealized appreciation of investments........................................................... 14,243,866
----------------
Net Assets....................................................................................... $ 45,227,726
================
<CAPTION>
===========================================================================================================================
STATEMENT OF OPERATIONS
6 Months Ended November 29, 1996 (unaudited)
INCOME
<S> <C>
Dividends............................................................................................. $ 617,228
Interest.............................................................................................. 100,613
----------------
Total Income....................................................................................... 717,841
----------------
EXPENSES
Advisory fees (Note 2)................................................................................ 149,795
Registration fees (Note 2)............................................................................ 18,720
Administrative services fees (Note 2)................................................................. 15,000
Shareholder services fees (Note 2).................................................................... 14,046
Custodian fees (Note 2)............................................................................... 10,693
Accounting/Pricing services fees (Note 2)............................................................. 10,000
Miscellaneous fees.................................................................................... 4,715
Directors' fees....................................................................................... 4,332
Legal fees............................................................................................ 2,892
Printing and postage fees............................................................................. 2,479
Audit fees............................................................................................ 2,015
----------------
Total Expenses..................................................................................... 234,687
----------------
Tax credit............................................................................................. 6,444
----------------
Net Expenses....................................................................................... 228,243
----------------
Net Investment Income........................................................................... 489,598
----------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments...................................................................... 749,572
Net increase in unrealized appreciation of investments................................................ 1,511,225
----------------
Net gain on investments............................................................................ 2,260,797
----------------
Net increase in net assets resulting from operations............................................ $ 2,750,395
================
</TABLE>
See accompanying notes to financial statements.
10
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
6 Months
Ended
November 29, Year Ended
1996 May 31,
(unaudited) 1996
---------------- -----------------
<S> <C> <C>
OPERATIONS
Net investment income.......................................................... $ 489,598 $ 854,333
Net realized gain on investments............................................... 749,572 2,277,319
Net increase in unrealized appreciation
of investments............................................................... 1,511,225 6,391,511
-------------- --------------
Net increase in net assets resulting from operations........................ 2,750,395 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)...................................... 1,933,779 3,783,914
-------------- --------------
Total increase in net assets................................................ 2,347,686 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
$494,348 and $431,001, respectively)......................................... $ 45,227,726 $ 42,880,040
============== ==============
</TABLE>
(a) A summary of capital share transactions follows:
<TABLE>
<CAPTION>
6 Months Ended
NOVEMBER 29, 1996 Year Ended
(unaudited) May 31, 1996
--------------------------------- ----------------------------------
Shares Value Shares Value
-------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Shares issued............................ 77,561 $ 1,964,775 234,168 $ 5,879,301
Shares reinvested from net
investment income and capital
gains distributions.................. 80,169 2,022,660 80,419 1,841,377
-------------- ---------------- --------------- ----------------
157,730 3,987,435 314,587 7,720,678
Shares redeemed.......................... (81,844) (2,053,656) (156,417) (3,936,764)
-------------- ---------------- --------------- ----------------
Net increase......................... 75,886 $ 1,933,779 158,170 $ 3,783,914
============== ================ =============== ================
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
November 29, 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 six months ended November 29, 1996, the Fund paid advisory
fees aggregating $149,795 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. 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, 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 $14,046 for providing
shareholder services, $15,000 for certain administrative services and $10,000
for accounting/pricing services during the six months ended November 29, 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. 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 $6,405,114 and $8,068,315, respectively, for the six months ended
November 29, 1996.
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
6 Months
Ended
11/29/96 Years Ended May 31,
--------------------------------------------------------------
(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.................... 0.296 0.556 0.537 0.510 0.560 0.640
Net gains on securities (both
realized and unrealized)............... 1.364 5.759 2.978 0.665 1.160 1.320
------------ ----------- ---------- ------------ ----------- ----------
Total from investment operations..... 1.660 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............... $27.36 $27.18 $22.35 $20.65 $20.89 $20.55
============ =========== ========== ============ =========== ==========
Total Return................................. 6.57% ** 29.62% 18.61% 5.92% 8.91% 10.57%
Ratios/Supplemental Data
Net assets, end of period (in 000's).... $45,228 $42,880 $31,719 $25,475 $25,315 $25,311
Ratio of expenses to average
net assets............................ 1.09% * 1.16% 1.31% 1.34% 1.39% 1.35%
Ratio of net investment
income to average net assets.......... 2.33% * 2.28% 2.70% 2.51% 2.76% 3.20%
Portfolio turnover rate................. 33.58% * 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
</TABLE>
- ----------------
* Annualized
** Six months only
See accompanying notes to financial statements.
13
<PAGE>
SHAREHOLDER INFORMATION
Minimum Investment
- ------------------
The minimum amount for the initial purchase of shares of Stratton Growth Fund is
$2,000. Subsequent purchases may be made in amounts of $100 or more.
Telephone Exchange
- ------------------
Shares of Stratton Growth Fund may be exchanged by telephone for shares of the
other funds managed by Stratton Management Company, Stratton Monthly Dividend
Shares, Inc. or Stratton Small-Cap Yield Fund, if a special authorization form
has been completed and is on file with the Transfer Agent in advance. Exchanges
will only be permitted when the securities of both funds involved are registered
in the state of the investor's residence. Stratton Growth Fund reserves the
right to suspend the exchange privilege at any time. A Prospectus of Stratton
Monthly Dividend Shares or Stratton Small-Cap Yield Fund should be obtained and
read prior to making any such exchange.
Income Dividend and Capital Gains Distributions
- -----------------------------------------------
Stratton Growth Fund expects to distribute all of each year's net investment
income and net realized capital gains in July and December.
Systematic Withdrawal Plan
- --------------------------
Investors who either own or purchase Stratton Growth Fund shares having a value
of $10,000 or more may elect as another option to withdraw funds on a regular
basis from their account on a monthly, quarterly, semi-annual or annual basis in
amounts of $50 or more.
Share Price Information
- -----------------------
The daily share price of Stratton Growth Fund can be found in the mutual fund
section of most major daily newspapers as well as The Wall Street Journal and
Investor's Daily, where the Fund is listed under Stratton Funds as Growth. The
Fund's stock ticker symbol is STRGX.
Retirement Plans
- ----------------
Stratton Growth Fund's IRA, Defined Contribution Plans and 403(b)(7) Retirement
Plans are available at no minimum investment.
<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 SERVICES, INC.
3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA 19406-0903
Telephones: 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.
<PAGE>
SGF STRATTON
GROWTH FUND, INC.
Directors Officers
LYNNE M. CANNON JAMES W. STRATTON
Chairman
JOHN J. LOMBARD, JR. JOHN A. AFFLECK
President
HENRY A. RENTSCHLER GERARD E. HEFFERNAN
JOANNE E. KUZMA
FRANK REICHEL, III
MERITT N. RHOAD, JR. 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 FPS SERVICES, INC.
Plymouth Meeting Executive Campus 3200 Horizon Drive, P.O. Box 61503
610 W. Germantown Pike, Suite 300 King of Prussia PA 19406-0903
Plymouth Meeting, PA 19462-1050 Telephones: 610-239-4600 * 800-441-6580
Telephone: 610-941-0255
