SCHEDULE 14A
(Rule 14a-101)
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934
Filed by the Registrant X
Filed by a Party other than the Registrant
Check the appropriate box:
X Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Stratton Monthly Dividend Shares, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
X No fee required
Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of
its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date filed:
<PAGE>
STRATTON MUTUAL FUNDS
Stratton Growth Fund, Inc.
Stratton Monthly Dividend Shares, Inc.
The Stratton Funds, Inc. - Stratton Small-Cap Yield Fund
Plymouth Meeting Executive Campus
610 W. Germantown Pike, Suite 300
Plymouth Meeting, Pennsylvania 19462
(610) 941-0255
NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS
To be held on December 9, 1997
October 16, 1997
TO THE SHAREHOLDERS OF STRATTON MUTUAL FUNDS:
NOTICE IS HEREBY GIVEN that SPECIAL MEETINGS OF SHAREHOLDERS of
Stratton Growth Fund, Inc., Stratton Monthly Dividend Shares, Inc. and
the Stratton Small-Cap Yield Fund of The Stratton Funds, Inc. (each a
"Fund" and collectively, the "Funds"), will be held on Tuesday, December
9, 1997, at 8:00 a.m., Eastern Time, at the offices of the Funds'
investment advisor, Stratton Management Company, at Plymouth Meeting
Executive Campus, 610 W. Germantown Pike, Suite 300, Plymouth Meeting,
Pennsylvania 19462-1050. The following matters will be acted upon at
that time:
EACH FUND:
1. The election of eight Directors; and
2. To ratify or reject the selection of Tait, Weller & Baker as
the Funds' independent public accountants for the fiscal
years ending December 31, 1997.
STRATTON MONTHLY DIVIDEND SHARES, INC.:
3. To approve a change to the industry concentration policy of
Stratton Monthly Dividend Shares, Inc. in order that the
Fund's concentration will be only in Real Estate Investment
Trusts; and
4. To approve changing the name of Stratton Monthly Dividend
Shares, Inc. to Stratton Monthly Dividend REIT Shares, Inc.
EACH FUND:
5. To transact such other business as may properly come before
the Meetings, or any adjournment or postponement thereof.
The proposals referred to above are discussed in the Proxy
Statement attached to this Notice. Shareholders of record at the close
of business on October 1, 1997, have the right to vote at the meeting.
WE URGE YOU TO FILL IN, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED
PROXY IN THE ENVELOPE PROVIDED, WHICH IS ADDRESSED FOR YOUR
CONVENIENCE
AND NEEDS NO POSTAGE IF MAILED IN THE UNITED STATES. IF YOU SIGN, DATE
AND RETURN YOUR PROXY CARD BUT GIVE NO VOTING INSTRUCTIONS, YOUR
SHARES WILL BE VOTED "FOR" THE PROPOSALS NOTICED ABOVE. IN ORDER TO
AVOID
THE ADDITIONAL EXPENSES TO THE FUNDS OF FURTHER SOLICITATION, WE ASK
YOUR COOPERATION IN COMPLETING AND RETURNING YOUR PROXY
PROMPTLY.
By Order of the Boards of Directors
Patricia L. Sloan, Secretary
<PAGE>
STRATTON MUTUAL FUNDS
Stratton Growth Fund, Inc.
Stratton Monthly Dividend Shares, Inc.
The Stratton Funds, Inc. - Stratton Small-Cap Yield Fund
Plymouth Meeting Executive Campus
610 W. Germantown Pike, Suite 300
Plymouth Meeting, Pennsylvania 19462
(610) 941-0255
PROXY STATEMENT
This Proxy Statement is furnished in connection with the
solicitation of proxies by or on behalf of the Boards of Directors (each
a "Board" and collectively, the "Boards") of Stratton Growth Fund, Inc.
("SGF"), Stratton Monthly Dividend Shares, Inc. ("SMDS"), and the
Stratton Small-Cap Yield Fund ("SSCY") of The Stratton Funds, Inc. (each
a "Fund" and collectively, the "Funds"), for use at Special Meetings of
Shareholders of the Funds (the "Meetings"). The Meetings are scheduled
for Tuesday, December 9, 1997, at 8:00 a.m. Eastern Time, at the offices
of the Funds' investment advisor, Stratton Management Company ("SMC"),
at Plymouth Meeting Executive Campus, 610 W. Germantown Pike, Suite 300,
Plymouth Meeting, Pennsylvania 19462-1050 and at any adjournment
thereof. This Proxy Statement and the enclosed proxy are expected to be
distributed to shareholders on or about October 16, 1997.
It is expected that the solicitation of proxies will be primarily
by mail. The Funds' officers and service contractors may also solicit
proxies by telephone, telegraph, facsimile or personal interview, and
will tabulate proxies. The Funds will bear all proxy solicitation
costs. It is anticipated that banks, brokerage houses, and other
custodians will be requested on behalf of the Funds to forward
solicitation material to their principals to obtain authorizations for
the execution of proxies. Any shareholder giving a proxy may revoke it
at any time before it is exercised by submitting to the Funds a written
notice of revocation or a subsequently executed proxy, or by attending
the Meetings and electing to vote in person.
Only shareholders of record at the close of business on October 1,
1997 will be entitled to vote at the Meetings. The Funds' shares are
referred to herein as "Shares." Each full Share is entitled to one vote
and each fractional Share to a proportionate fractional vote. On
October 1, 1997, the following Shares were outstanding and entitled to
vote at the Meetings:
Fund Number of Shares Outstanding
Stratton Growth Fund, Inc.
par value $0.10 per share
Stratton Monthly Dividend Shares, Inc.
par value $1.00 per share
Stratton Small-Cap Yield Fund
par value $0.001 per share
Each Fund is a separate legal entity and holders vote separately
as shareholders of each Fund. The following table summarizes the
proposals to be voted on at the Meetings and indicates those
shareholders who are being solicited with respect to each proposal:
SUMMARY OF PROPOSALS
SHAREHOLDERS ENTITLED
PROPOSAL: TO VOTE ON PROPOSAL:
1. The election of eight Directors. EACH FUND
2. Ratify or reject the selection of Tait, EACH FUND
Weller & Baker as the Funds' independent
public accountants for the fiscal years
ending December 31, 1997.
3. Change the industry concentration policy of STRATTON MONTHLY
Stratton Monthly Dividend Shares, Inc. DIVIDEND SHARES,
in order that the Fund's concentration INC. ONLY
will be only in Real Estate Investment Trusts.
4. Change the name of Stratton Monthly Dividend STRATTON MONTHLY
Shares, Inc. to Stratton Monthly Dividend DIVIDEND SHARES,
REIT Shares, Inc. INC. ONLY
5. To transact such other business as may EACH FUND
properly come before the Meetings, or
any adjournment or postponement thereof.
Directors of SMDS and SSCY shall be elected by a plurality of the
Shares of such Funds present in person or by proxy at the Meetings
provided a quorum is present, up to the number to be elected, and
Directors of SGF shall be elected by a majority of the Shares of the
Fund present in person or by proxy at the Meetings provided a quorum is
present (Proposal No. 1). The affirmative vote of the lesser of two-thirds
of the Shares represented at a Meeting at which the holders of
more than 50% of such Fund's outstanding Shares are present in person or
by proxy, or more than 50% of the outstanding Shares of each Fund is
present is necessary for ratification of the selection of independent
public accountants (Proposal No. 2) and for approval of the change in
the Fund's industry concentration policy (Proposal No. 3). The
affirmative vote of a majority of Stratton Monthly Dividend Shares,
Inc.'s Shares present in person or by proxy at the Meeting provided a
quorum is present is necessary for approval of the Fund's name change to
Stratton Monthly Dividend REIT Shares, Inc. (Proposal No. 4).
With respect to each Fund, a quorum shall consist of a majority of
the stock issued, outstanding and entitled to vote. If a proxy is
properly executed and returned accompanied by instructions to withhold
authority, or is marked with an abstention, the Shares represented
thereby will be considered to be present at the Meetings for purposes of
determining the existence of a quorum for the transaction of business.
Abstentions will have the same effect as casting a vote against
proposals 2 through 4. Broker "non-votes" (i.e., proxies from brokers
or nominees indicating that such persons have not received instructions
from the beneficial owner or other persons entitled to vote Shares on a
particular matter with respect to which the brokers or nominees do not
have discretionary power) will be treated as present for purposes of
quorum, but as not entitled to vote in the matter covered by the broker
"non-vote") limitation.
In the event that a quorum of the outstanding Shares of the Funds
is not represented at the Meetings or at any adjournment thereof, or,
even though a quorum is so represented, in the event that sufficient
votes to approve the proposals are not received, the persons named as
proxies may propose and vote for one or more adjournments of the
Meetings to be held within a reasonable time after the date originally
set for the Meetings, and further solicitation of proxies may be made
without the necessity of further notice. The persons named as proxies
will vote in favor of any such adjournment those proxies which instruct
them to vote in favor of a proposal to be considered at the Meetings,
and will vote against any such adjournment those proxies which instruct
them to vote against or to abstain from voting on such proposal. Any
such adjournment must be approved by a majority of the Shares voting on
the matter. A shareholder vote may be taken with respect to one or more
of the Funds with respect to one or more of the proposals in this Proxy
Statement prior to such adjournment if sufficient votes for their
approval have been received.
The Funds will furnish to shareholders upon request, without
charge, copies of its most recent Annual Report to Shareholders and its
most recent Semi-Annual Report succeeding the Annual Report. Requests
for such reports should be directed to the Funds, c/o FPS Services,
Inc., 3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA 19406-0903,
or by calling 1-800-634-5726. Such reports are not to be regarded
as proxy soliciting material.
PROPOSAL NO. 1
ELECTION OF DIRECTORS FOR ALL FUNDS
Shareholders will vote at the Meetings to elect eight Directors.
Proxies which do not contain specific instructions to the contrary will
be voted in favor of the election of the nominees shown below to serve
terms until each Fund's next meeting of shareholders and until their
successors are elected and qualified. Each of the current nominees
except for Douglas J. MacMaster currently serves as a Director of the
Funds and, if elected, will serve as provided in the preceding sentence
or until his or her earlier death, resignation, retirement or removal.
Each of the eight persons listed below for election to the Boards
of Directors has consented to be nominated and to serve, if elected, as
Director. If any of the nominees are unavailable to serve as Director,
the proxies will be voted for such other persons as the Boards of
Directors may choose or the size of the Boards may be reduced
accordingly. The Funds currently know of no reason why any of the
nominees listed below will be unable to serve if elected. All of the
nominees, except Lynne M. Cannon and Douglas J. MacMaster, were most
recently elected as Directors of SGF and SMDS at the Annual Meetings of
Shareholders held on June 22, 1989; and by the Initial Shareholders of
SSCY on April 1, 1993. Ms. Cannon was appointed by the Boards of
Directors on May 2, 1995, and Mr. MacMaster was appointed by the Boards
of Directors on October 1, 1997.
The following table sets forth certain information about the
nominees for election as Directors, including their principal
occupations or employment during the past five years, the periods during
which each of them has served as a Director of the Funds, their age and
the approximate number of shares of the Funds beneficially owned,
directly or indirectly, by each of them as of October 1, 1997. As of
that date, beneficial ownership in the Funds by the Directors and
officers as a group was SGF ( %); SMDS
( %); SSCY ( %).
<TABLE>
<CAPTION>
Nominee Age Principal Occupation Shares Owned Beneficially
<S> <C> <C> <C>
James W.Stratton 60 Mr. Stratton is the Chairman of the Board
/1/,/3/ and Chief Executive Officer of the SGF
investment advisor, Stratton Management
Company. He is a Director of Unisource
Worldwide, Inc. (paper distribution), SMDS
Amerigas Propane Ltd. (energy),
FinDaTex, Inc. (financial services),
Teleflex, Inc. (aerospace controls and SSCY
medical products) and UGI Corp., Inc.
(utility-natural gas). Chairman and
Director of SGF since June 1972, SMDS
since March 1982 and SSCY since
February 1993.
Lynne M. Cannon 41 Ms. Cannon is a Senior Vice President
/2/ of Relationship Management of FPS SGF
Services, Inc. and a Director of FPS
Broker Services, Inc. She was formerly
employed as Vice President of Mutual Funds SMDS
of Independence Capital Management, Inc.
(investment advisor). Prior to Independence
Capital, she was Vice President of AMA SSCY
Investment Advisors, Inc. (investment
advisor & broker/dealer). Director of SGF,
SMDS and SSCY since May 1995.
John J. Lombard, Jr.62 Mr. Lombard is a partner in the law firm SGF
of Morgan, Lewis & Bockius LLP. Director SMDS
of SGF since September 1984, SMDS since June SSCY
1988 and SSCY since Februrary 1993.
Douglas J. MacMaster,67 Mr. MacMaster is a private investor.
Jr. He was formerly Senior Vice President of SGF
Merck, Inc. He is a Trustee of Gwynedd
Mercy College, a Director of American SMDS
Precision Industries, Inc., Marteck
Biosciences Corp., Neose Pharmaceuticals SSCY
Inc., Oravax, Inc. and U.S. Bioscience, Inc.
Director of SGF, SMDS and SSCY since
October 1, 1997.
Henry A. Rentschler 68 Mr. Rentschler is a private investor.
He was formerly the President of SGF
Baldwin-Hamilton Company, a division of Joy
Environmental Equipment Co. (manufacturer SMDS
of renewal parts for Baldwin locomotives and
diesel engines) and was also formerly a SSCY
Director of the Society for Industrial
Archeology (which promotes the study and
preservation of the physical survivals of
our technological and industrial past).
Director of SGF since March 1986, SMDS since
June 1989 and SSCY since February 1993.
Merritt N. Rhoad, Jr. 67 Mr. Rhoad is a private investor. He was SGF
/3/ formerly a senior systems engineer with
International Business Machines Corporation. SMDS
Director of SGF since June 1972, SMDS since
June 1989 and SSCY since February 1993. SSCY
Alexander F. Smith 68 Mr. Smith is a private investor. He was SGF
formerly the Chairman and Director of Gilbert
Associates, Inc. (engineering/consulting SMDS
services). Director of SGF since June 1989,
SMDS since May 1986 and SSCY since February SSCY
1993.
Richard W. Stevens 63 Mr. Stevens is an attorney in private SGF
practice. He was formerly a partner in the
law firm of Clark, Ladner, Fortenbaugh and SMDS
Young. Director of SGF since June 1972, SMDS
since June 1989 and SSCY since February 1993. SSCY
</TABLE>
/1/ As defined in the Investment Company Act of 1940, as amended,
(the "1940 Act") Mr. Stratton is an "interested person" of the Funds
by reason of his positions with SMC and his indirect ownership of FPS
Services, Inc. ("FPS") and it's subsidiary FPS Broker Services, Inc. ("FPSB").
/2/ Ms. Cannon is an "interested person" of the Funds by reason of her
employment with FPS and FPSB.
/3/ Messrs. Stratton and Rhoad, Jr. are shareholders of FinDaTex, Inc.
The officers and Directors of the Funds who are also officers
or employees of SMC or FPS receive no direct compensation from the Funds
for services to them. The Directors of the Funds serve in the same
capacity for each Fund and meet concurrently four times a year. In the
aggregate, each Director currently receives $750 for each meeting
attended, and an annual retainer of $4,000. These fees are divided on a
percentage basis among each Fund based on their relative net assets as
of the meeting dates. The Boards of Directors held five meetings during
the fiscal year ended December 31, 1996. Each Director standing for
re-election attended 100% of the total number of meetings held of the
Boards of Directors. There are no separate audit, compensation or
nominating committees of the Boards of Directors.
Set forth are the total fees which were paid to each of the
Directors who are not "interested persons" from the start of each Funds'
fiscal period until December 31, 1996:
Total Compensation
Name of Aggregate Compensation From Funds and Fund
Director from Fund Complex /1/ Paid to Directors
John J. Lombard, Jr.
SMDS $4,885.68 $6,848.23
SGF $1,203.86
SSCY $ 758.69
Rose J. Randall /2/
SMDS $2,995.49 $3,748.23
SGF $ 387.00
SSCY $ 365.74
Henry A. Rentschler
SMDS $4,885.68 $6,848.23
SGF $1,203.86
SSCY $ 758.69
Merritt N. Rhoad, Jr.
SMDS $4,885.68 $6,848.23
SGF $1,203.86
SSCY $ 758.69
Alexander F. Smith
SMDS $4,885.68 $6,848.23
SGF $1,203.86
SSCY $ 758.69
Richard W. Stevens
SMDS $4,885.68 $6,848.23
SGF $1,203.86
SSCY $ 758.69
/1/ The "Fund Complex" consists of SMDS, SGF and The Stratton Funds,
Inc.
/2/ Ms. Randall resigned from the Boards of Directors on June 25,
1996.
Executive Officers
The following table sets forth information with respect to
the current executive officers of the Funds, other than James W.
Stratton, Chairman of the Funds, including their business experience for
the past five years and their age.
Name Age Principal Occupation
Gerard E. Heffernan 59 Senior Vice President and Director of the
investment advisor, Stratton Management
Company. President (June 1997 to present),
Vice President (June 1980 to June 1997) of SGF;
Vice President (June 1997 to present), President
(May 1984 to June 1997) of SMDS; Vice President
(February 1993 to present) of SSCY. Shareholder
and Secretary of FinDaTex, Inc.
John A. Affleck 50 President and Director of the investment advisor,
Stratton Management Company. President (June 1997
to present), Vice President (May 1980 to June 1997)
of SMDS; Vice President (June 1997 to present),
President (December 1983 to June 1997) of SGF;
Vice President (February 1993 to present) of SSCY.
Shareholder of FinDaTex, Inc.
Joanne E. Kuzma 42 Director of Trading and a Managing Partner of
the investment advisor, Stratton Management Company.
Vice President of Compliance for SGF, SMDS and
SSCY (June 1995 to present).
Frank H. Reichel, III 32 Vice President, a Director and the Director of
Research of the investment advisor, Stratton
Management Company. President (February 1993 to
present) of SSCY; Vice President (June 1993 to
present) of SGF; Vice President (June 1993 to
present) of SMDS.
Patricia L. Sloan 43 Employee of the investment advisor, Stratton
Management Company. Secretary(June 1980 to
present), Treasurer (February 1990 to present) of
SGF; Secretary (February 1990 to present),
Treasurer (May 1984 to present) of SMDS;
Secretary and Treasurer (February 1993 to present)
of SSCY.
James A. Beers 33 Vice President (December 1996 to present), Employee
(August 1994 to December 1996) of the investment
advisor, Stratton Management Company. Account
Manager of Client Services (June 1993 to August
1994), Shareholder Services Representative (September
1992 to June 1993) at FPS Services, Inc.
Vice-President (June 1997 to present), Assistant
Secretary and Assistant Treasurer (June 1995 to June
1997) of SGF, SMDS and SSCY. Mr. Beers is related
to Mr. Stratton by marriage.
Carol L. Royce 39 Employee of the investment advisor, Stratton
Management Company. Assistant Secretary and
Assistant Treasurer (June 1994 to present) of
SGF, SMDS and SSCY.
PROPOSAL NO. 2
RATIFICATION OF THE SELECTION OF TAIT, WELLER & BAKER AS THE FUNDS'
INDEPENDENT PUBLIC ACCOUNTANTS
At meetings of the Funds' Boards of Directors held on March
10, 1997, a majority of the Boards of Directors who are not "interested
persons" of each Fund (as defined in the 1940 Act) selected Tait, Weller
& Baker as independent certified public accountants for the Funds for
the fiscal years ending December 31, 1997. The ratification or
rejection of that selection of Tait, Weller & Baker is to be voted upon
at the Meetings and it is intended that the persons named in the
accompanying proxy will vote for Tait, Weller & Baker, unless contrary
instructions are given. Representatives of Tait, Weller & Baker are not
expected to be present at the Meetings but will be available
telephonically to respond to appropriate questions.
The Funds' financial statements for the fiscal year ended
December 31, 1996, were examined by Tait, Weller & Baker and, in
connection with its audit, that firm reviewed for the fiscal year ended
December 31, 1996, the accounting controls and procedures used for
handling the custody of the Funds' securities.
Recommendation:
The Boards of Directors unanimously recommend that shareholders vote FOR
ratification of the selection of Tait, Weller & Baker as independent
accountants to the Funds.
PROPOSAL NO. 3
CHANGE IN STRATTON MONTHLY DIVIDEND SHARES, INC.'S
INDUSTRY CONCENTRATION POLICY
Stratton Monthly Dividend Shares, Inc.'s ("SMDS") investment
objective is to seek a high rate of return from dividend and interest
income on its investments in common stock and securities convertible
into common stock. In pursuing this objective, the Fund is required to
invest at least 25% of its assets in securities of Real Estate
Investment Trusts ("REITs") and of public utility companies engaged in
the production, transmission or distribution of electric, energy, gas,
water or telephone services. This industry concentration policy is a
"fundamental" policy which may not be changed without the affirmative
vote of the lesser of two-thirds of the outstanding Shares or more than
50% of the outstanding Shares.
At the September 9, 1997 meeting of the Fund's Board of
Directors, SMC recommended that the Fund's industry concentration policy
be changed to include only REITs. SMC believes that this change in the
Fund's industry concentration policy will enhance the Fund's ability to
achieve a high rate of return from dividend and interest income earned
on its investments as well as create a greater opportunity to realize
long-term capital appreciation. The Fund's Board of Directors
unanimously approved the proposed change to the Fund's industry
concentration policy at the September 9, 1997 Board meeting, and
recommended that the shareholders of the Fund be asked to approve the
change.
If approved by shareholders, the Fund's policy on
concentration of its investments would read as follows:
"The Fund will invest at least 25% of its assets in
securities of real estate investment trusts."
The impetus for SMC's recommendation to change the Fund's
industry concentration policy was that dividend growth for the electric
utility industry has been slowing noticeably, and that dividend growth
in the REIT Industry has been strong. Over the last five years, the
mean earnings per share growth rate has been 4.9% annually and the mean
dividend per share growth rate has been less than 1% annually (including
dividend cuts) for electric utility companies. These growth rates are
in sharp contrast to the growth rates of the REIT Industry. Over the
last five years, REITs have demonstrated a mean earnings per share
growth rate of 12.2% and a mean dividend per share growth rate of 18.3%.
SMC believes that the documented trend in earnings per share growth and
dividend per share growth rates of the electric utility companies will
continue.
There are two major reasons for the decline in earnings
growth for electric utility companies. The first is the advent of
competition in the previously regulated and monopolistic electric
utility industry. Both federal and state governments have encouraged
open access to transmission lines and distribution networks to increase
competition to serve utility customers. The monopoly status that the
industry had enjoyed in the past is being eroded. This is good for
consumers as it should produce price competition and lower rates. In
this case, however, what is good for consumers is not necessarily good
for investors, as this will likely produce lower rates of return on
equity.
The second major factor affecting earnings growth in the
electric utility industry has been the growing hostility of regulators
to the industry and the growing strength of consumer advocates. Utility
rates of return on equity have been declining steadily and there is no
indication that a rebalancing of power between consumers and
shareholders is likely to occur in the near future. In addition,
capital spending plans for electric utility companies have been sharply
reduced, which implies that they will not need to raise new equity
capital in the near future. As a result, public utility regulatory
commissions have little concern with the low rates of return on equity
because the utility companies do not need to attract new investors to
the market as they did in the 1970's and early 1980's when construction
spending was high.
The Fund has invested in REITs since 1987, and adopted its
current concentration policy at a Meeting of Shareholders in November,
1996. SMC has substantial experience in this market segment and is
currently overseeing investments totaling $173 million in REITs as part
of its total investments under management of $1.7 billion. REITs were
authorized by the Real Estate Investment Act of 1960, to enable
investors to participate in the benefits of owning income producing,
commercial real estate. REITs are required to derive at least 75% of
their gross income from real estate or real estate related assets. The
most important characteristic of a REIT is that it must distribute to
its shareholders 95% of the REIT's net taxable income in the form of
dividends. The direct result of this characteristic is that REITs
provide high current returns. Equity REITs invest in income producing
properties and receive rent, and mortgage REITs invest in mortgages and
receive loan payments. Although the proposed industry concentration
policy would cover both equity and mortgage REITs, SMC expects that the
Fund will focus primarily on equity REITs.
Equity REITs own many different types of properties, such as
apartment complexes, office buildings, hotels, health care facilities,
community shopping centers, super-regional malls, self-storage
facilities, and even correctional facilities. The typical REIT
specializes in one or two property types, allowing the management to
focus on operating these properties to the best of its abilities and
within its own framework of experience. There are, however, several
companies that have successfully evolved into operating companies that
have been able to "diversify" across multiple property types, thereby
insulating themselves from possible sector downturns. REITs offer
investors exposure to the real estate sector with stocks that have a low
beta, low volatility, low risk, high current returns, and, most
importantly, performance that is in line with the broader, much more
volatile general markets.
REITs may be subject to certain risks associated with the
direct ownership of real estate including declines in the value of real
estate, risks related to general and local economic conditions,
overbuilding and increased competition, increases in property taxes and
operating expenses, and variations in rental income. In addition,
equity REITs may be affected by changes in the value of the underlying
properties they own, while mortgage REITs may be affected by the quality
of credit extended. REITs are also subject to heavy cash flow
dependency, defaults by borrowers, self liquidation and the possibility
of failing to qualify for tax-free pass-through of income under the
Internal Revenue Code and to maintain exemption from the 1940 Act.
REITs pay dividends to their shareholders based upon
available funds from operations and these dividends may exceed a REIT's
taxable earnings and profits resulting in the excess portion of such
dividends being designated as a return of capital. The Fund intends to
include the gross dividends from REITs in its monthly distribution to
its shareholders and, accordingly, a portion of the Fund's distributions
may also be designated as a return of capital.
The market for REITs has grown substantially in recent years
reaching a total of $88.8 billion in assets at the end of 1996, up from
$15.7 billion at the end of 1992. The chart set forth below shows the
total market capitalization of the REIT industry for the last twenty-three
years. In 1990, the largest market capitalization of an individual REIT was
$633 million. As of December 31, 1996, there were twenty-seven REITs that
had market capitalizations in excess of $1 billion and several that were in
excess of $3.5 billion.
MARKET CAPITALIZATION OF THE REIT INDUSTRY
1972-96
[Bar graph illustrating the growth in the market
capitalization of the REIT industry from 1972 through 1996]
Source: National Association of Real Estate Investment Trusts
Year # of REITS All Mkt. Cap ($mil)
1971 34 $1,484.3
1972 48 $1,880.9
1973 53 $1,393.5
1974 57 $ 712.4
1975 57 $ 885.9
1976 62 $1,308.0
1977 69 $1,628.1
1978 71 $1,412.4
1979 73 $1,754.0
1980 75 $2,298.6
1981 76 $2,438.9
1982 66 $3,298.6
1983 59 $4,328.1
1984 59 $5,152.3
1985 62 $7,771.8
1986 95 $10,078.4
1987 110 $ 9,702.4
1988 117 $11,435.2
1989 120 $11,662.2
1990 119 $ 9,737.1
1991 138 $12,877.2
1992 142 $15,680.2
1993 189 $32,187.7
1994 226 $44,308.0
1995 219 $57,514.0
1996 198 $88,776.3
There are presently sixty-five REIT dedicated mutual funds,
up from ten in 1993. These sixty-five funds had total assets of
$10.5 billion as of the end of July 1997.
Pension funds have traditionally invested directly in real
estate and not used REITs as investment vehicles because of the small
size of the REIT market, but this is changing. As the asset base of a
REIT grows, it allows the company to further diversify its portfolios.
In fact, the trend in the REIT industry that is most prevalent is that
of a REIT owning properties, similar or dissimilar, in various
geographical locations, so as to limit concentrations of holdings in any
one area in the event of a regional economic slowdown. With an increase
in size and in the number of shares outstanding comes an increase in
liquidity which has begun to attract greater interest from institutional
investors who desire to allocate their managed assets to include real
estate exposure.
It is the belief of SMC, supported by the Fund's Board of
Directors, that the Fund's primary mission of maintaining and
distributing a high level of dividend income would be significantly
enhanced by allowing the Fund to concentrate its assets in REITs and not
to any extent in utilities. In addition, SMC believes the possibilities
of capital growth appear to be better in the REIT industry than in the
electric utility industry. Accordingly, it is expected that under
normal conditions at least 65% of SMDS' assets will be invested in
REITs.
Recommendation:
The Board of Directors of Stratton Monthly Dividend Shares, Inc.
unanimously recommends that shareholders vote FOR the change in the
Fund's industry concentration policy.
PROPOSAL NO. 4
CHANGE NAME OF STRATTON MONTHLY DIVIDEND SHARES, INC.
TO
STRATTON MONTHLY DIVIDEND REIT SHARES, INC.
It is the recommendation of SMC, that the name Stratton
Monthly Dividend Shares, Inc., be changed to Stratton Monthly Dividend
REIT Shares, Inc. to reflect more accurately SMDS' intention to
concentrate its assets in the real estate sector. Though SMDS has been
investing in REITs for several years, and, more recently, has been
concentrated in REITs through most of 1997, various mutual fund
reporting agencies have not been accurately classifying SMDS as a fund
dedicated to investing in REITs. In addition, potential investors may
not be aware of SMDS' real estate exposure if the present name remains.
SMDS might experience a loss of sales if potential investors, seeking a
REIT mutual fund, did not recognize SMDS as a "REIT fund." SMC stresses
that the change in name in no way reflects any change in the manner in
which SMDS is being managed, in its dividend policies, or in its day-to-day
operations. Accordingly, it is expected that under normal
conditions at least 65% of SMDS' assets will be invested in REITs.
Recommendation:
The Board of Directors of Stratton Monthly Dividend Shares, Inc.
recommends that shareholders vote FOR the change of the Fund name to
Stratton Monthly Dividend REIT Shares, Inc.
PRINCIPAL SHAREHOLDERS
On the record date, October 1, 1997, the following
shareholders owned of record more than 5% of the outstanding shares of
the respective Fund.
Name and Address Percent Owned
1. SMDS Charles Schwab & Co., Inc.
San Francisco, CA
2. SGF James W. Stratton
Plymouth Meeting, PA
Greenco
Harrisburg, PA
Sandmeyer Steel Company
Philadelphia, PA
3. SSCY Boston & Co.
Pittsburgh, PA
Stratton Mgmt. Co. Profit Sharing Plan
Plymouth Meeting, PA
SHAREHOLDER MEETINGS
Each Fund's Articles of Incorporation does not require that an
annual meeting of shareholders be held each year and the Funds do not
intend to hold annual meetings of shareholders except as required by the
1940 Act or other applicable law.
SERVICE PROVIDERS
The Funds' investment advisor is Stratton Management Company,
which maintains its principal office at Plymouth Meeting Executive
Campus, 610 W. Germantown Pike, Suite 300, Plymouth Meeting,
Pennsylvania 19462. The Funds' administrator is FPS Services, Inc. and
its principal underwriter is FPS Broker Services, Inc., both of which
maintain their principal office at 3200 Horizon Drive, P.O. Box 61503,
King of Prussia, Pennsylvania 19406-0903.
OTHER MATTERS
No business other than the matter described above is expected
to come before the Meetings, but should any other matter requiring a
vote of shareholders arise, including any questions as to an adjournment
of the Meetings, the persons named in the enclosed proxy will vote
thereon according to their best judgment in the interests of the Funds.
SHAREHOLDERS WHO WISH TO HAVE THEIR SHARES VOTED ARE REQUESTED TO
SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED
ENVELOPE.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
Dated: October 16, 1997
<PAGE>
PROXY CARD
Stratton Monthly Dividend Shares, Inc.
Special Meeting of Shareholders
December 9, 1997
The undersigned hereby appoints Patricia L. Sloan and James A. Beers
(the "Proxies"), and each of them, attorneys and proxies of the
undersigned, each with power of substitution and resubstitution, to
attend, vote and act for the undersigned at the Special Meeting of
Shareholders (the "Meeting") of Stratton Monthly Dividend Shares, Inc.
(the "Fund") to be held on Tuesday, December 9, 1997, at 8:00 a.m.,
Eastern Time, at the offices of the Fund's investment advisor, Stratton
Management Company, at Plymouth Meeting Executive Campus, 610 W.
Germantown Pike, Suite 300, Plymouth Meeting, Pennsylvania 19462-1050.
The Proxies shall cast votes according to the number of shares of the
Fund which the undersigned may be entitled to vote with respect to the
proposal set forth below, in accordance with the specification
indicated, if any, and shall have all the powers which the undersigned
would possess if personally present. The undersigned hereby revokes any
prior proxy to vote at the Meeting, and hereby ratifies and confirms all
that said Proxies, or any of them, may lawfully do by virtue hereof or
thereof.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF
SPECIAL MEETING OF SHAREHOLDERS OF THE FUND AND THE PROXY
STATEMENT DATED
OCTOBER 16, 1997.
THIS PROXY IS SOLICITED AND PROPOSED BY THE BOARD OF DIRECTORS OF THE
FUND, WHICH UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE
PROPOSALS. PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD
PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE
ACTIONS TO BE TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF
ANY
SPECIFICATION, THIS PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
1. ELECTION OF A BOARD OF DIRECTORS.
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees
listed below
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
James W. Stratton Lynne M. Cannon John J. Lombard, Jr.
Douglas J. MacMaster, Jr. Henry A. Rentschler Merritt N. Rhoad,Jr.
Alexander F. Smith Richard W. Stevens
2. RATIFICATION OF THE SELECTION OF TAIT, WELLER & BAKER AS THE
FUND'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING
DECEMBER 31, 1997.
FOR AGAINST ABSTAIN
3. APPROVAL OF A CHANGE TO THE INDUSTRY CONCENTRATION POLICY IN
ORDER THAT THE FUND'S CONCENTRATION WILL BE ONLY IN REAL ESTATE
INVESTMENT TRUSTS.
FOR AGAINST ABSTAIN
4. APPROVAL OF THE NAME CHANGE OF THE FUND FROM STRATTON MONTHLY
DIVIDEND SHARES, INC. TO STRATTON MONTHLY DIVIDEND REIT SHARES,
INC.
FOR AGAINST ABSTAIN
5. TRANSACTION OF SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE
THE
MEETING.
FOR AGAINST ABSTAIN
_______________________________
_______________________________
Please sign above exactly as your name(s) appear(s) hereon. If a
corporation, please sign in full corporate name by an authorized
officer. If a partnership, please sign in partnership name by an
authorized person. Each joint owner should sign personally.
Fiduciaries should give full titles as such.
_______________________, 1997
(Please Date)
