<PAGE>
[GRAPHIC APPEARS HERE]
PROSPECTUS MAY 15, 1997
Stratton Growth Fund
Stratton Monthly Dividend Shares
Stratton Small-Cap Yield Fund
M U T U A L F U N D S
Stability . Strategy . Success
<PAGE>
STRATTON MUTUAL FUNDS
STRATTON MONTHLY DIVIDEND REIT SHARES, INC.
STRATTON GROWTH FUND, INC.
STRATTON SMALL-CAP YIELD FUND
PROSPECTUS
MAY 15, 1997
Plymouth Meeting Executive Campus
610 W. Germantown Pike, Suite 300
Plymouth Meeting, PA 19462-1050
(610) 941-0255
Stratton Mutual Funds is three separate funds (each a "Fund" and collectively
the "Funds"). Each of the Funds has distinct investment objectives and
policies. Information concerning the Funds has been combined into this one
Prospectus to aid investors in understanding the similarities and differences
among the Funds.
STRATTON MONTHLY DIVIDEND REIT SHARES, INC. ("SMDS") is a no-load mutual fund
seeking as its objective a high rate of return from dividend and interest
income on its investments in common stock and securities convertible into
common stock.
STRATTON GROWTH FUND, INC. ("SGF") is a no-load mutual fund seeking as its
primary objective 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 common stock.
STRATTON SMALL-CAP YIELD FUND ("SSCY") is a separate, diversified investment
portfolio offered by The Stratton Funds, Inc., a no-load open-end series
management investment company. The Fund's investment objective is to achieve
both dividend income and capital appreciation. The Fund seeks to achieve its
objective by investing in equity securities, primarily common stock, and
securities convertible into common stock, of companies with total market
capitalizations at the time of investment of less than $1 billion and which
are outside the Standard & Poor's 500 Index (hereinafter referred to as
"small-cap companies").
This Prospectus sets forth concisely the information about the Funds that
prospective investors ought to know before investing. Investors should read
this Prospectus and retain it for future reference.
Additional information about the Funds has been filed with the Securities and
Exchange Commission and is available upon request and without charge by
calling or writing the Funds at the telephone number or address above. The
Statement of Additional Information bears the same date as this Prospectus and
is incorporated by reference into this Prospectus in its entirety. The
Statement of Additional Information, material incorporated by reference into
this Prospectus, and any other information regarding the Funds are maintained
electronically with the U.S. Securities and Exchange Commission at its
Internet Web sight (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Introduction.............................................................. 3
Fee Table................................................................. 4
Financial Highlights...................................................... 5
Investment Objectives, Policies, Restrictions and Risk Considerations..... 7
Management of the Funds................................................... 9
Investment Advisor........................................................ 9
Computation of Net Asset Value............................................ 11
How to Buy Fund Shares.................................................... 11
Investing by Mail........................................................ 12
Investing by Wire........................................................ 12
Automatic Investment Plan................................................ 13
Direct Deposit Program................................................... 13
Reinvestment of Income Dividends and Capital Gains Distributions......... 13
Additional Information................................................... 13
How to Redeem Fund Shares................................................. 14
By Written Request....................................................... 14
By Automated Clearing House ("ACH")...................................... 15
Systematic Cash Withdrawal Plan.......................................... 15
Additional Information................................................... 16
Exchange Privilege........................................................ 17
Retirement Plans.......................................................... 17
Tax Treatment: Dividends and Distributions................................ 18
Performance Calculations.................................................. 19
Description of Common Stock............................................... 20
Service Providers and Underwriter......................................... 20
</TABLE>
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FOR MORE DETAILED INFORMATION ABOUT THE ITEMS DISCUSSED IN THIS PROSPECTUS, A
COPY OF THE STATEMENT OF ADDITIONAL INFORMATION MAY BE OBTAINED WITHOUT CHARGE
BY WRITING TO THE FUNDS' DISTRIBUTOR, FPS BROKER SERVICES, INC., 3200 HORIZON
DRIVE, P.O. BOX 61503, KING OF PRUSSIA, PA 19406-0903, OR BY TELEPHONING 800-
634-5726.
2
<PAGE>
INTRODUCTION The securities offered by this Prospectus consist of shares
of common stock of three separate Funds. Each Fund has
distinct investment objectives and policies. The Funds are
no-load, open-end, diversified mutual funds. The three Funds
are identified herein as follows: Stratton Monthly Dividend
REIT Shares, Inc. ("SMDS"); Stratton Growth Fund, Inc.
("SGF"); and Stratton Small-Cap Yield Fund ("SSCY"). As of
December 31, 1996, the Funds have changed their various
fiscal year ends to December 31.
Investment SMDS seeks as its objective a high rate of return from
Objectives dividend and interest income on its investments in common
stock and securities convertible into common stock. The Fund
will seek to achieve this objective through investment of at
least 25% of assets in securities of real estate investment
trusts ("REITs").
SGF seeks as its primary objective 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
common stock.
SSCY seeks to achieve both dividend income and capital
appreciation by investing in equity securities, primarily
common stock and securities convertible into common stock of
small-cap companies. The Fund will invest at least 80% of
its assets in small-cap companies.
The value of each Fund's shares fluctuate because the value
of the securities in which each Fund invests fluctuates.
Each Fund will earn dividend or interest income to the
extent that it receives dividends or interest from its
investments. An investment in any of the Funds is neither
insured nor guaranteed by the U.S. Government. There can be
no assurance that any Fund's investment objective will be
achieved.
How to Buy Fund The minimum initial investment for SMDS, SGF and SSCY is
Shares $2,000. There is no minimum initial investment requirement
for any retirement plan. Subsequent investments will be
accepted in minimum amounts of $100 or more. The Funds do
not impose any sales load nor bear any fees pursuant to a
Rule 12b-1 Plan. The public offering price for shares of
each Fund is the net asset value per share next determined
after receipt and acceptance of a purchase order at the
transfer agent in proper form with accompanying check or
bank wire arrangement. See "How to Buy Fund Shares."
How to Redeem Shares of the Funds may be redeemed at the net asset value
Fund Shares per share next determined after receipt by the transfer
agent of a redemption request in proper form. Signature
guarantees may be required for certain redemption requests.
See "How to Redeem Fund Shares."
Dividends SMDS intends to pay monthly dividends from its net
investment income and distributions of net capital gains, if
any, will be paid annually.
SGF intends to pay semi-annual dividends from its net
investment income and distributions of net capital gains, if
any, will be paid annually.
3
<PAGE>
SSCY intends to pay quarterly dividends from its net
investment income and distributions of net capital gains, if
any, will be paid annually.
Investment Stratton Management Company (the "Investment Advisor"),
Management, Plymouth Meeting Executive Campus, 610 W. Germantown Pike,
Underwriter and Suite 300, Plymouth Meeting, PA 19462-1050 is the Investment
Servicing Advisor for the Funds.
Agents
FPS Broker Services, Inc. ("FPBS"), 3200 Horizon Drive, P.O.
Box 61503, King of Prussia, PA 19406-0903 serves as the
Funds' Underwriter. FPS Services, Inc. ("FPS"), 3200 Horizon
Drive, P.O. Box 61503, King of Prussia, PA 19406-0903 serves
as the Funds' Administrator, Accounting/Pricing Agent, and
Transfer Agent.
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FEE TABLE Below is a summary of the Operating Expenses that each Fund
incurred during its most recent fiscal period. A
hypothetical example based on the summary is also shown.
<TABLE>
<CAPTION>
SMDS SGF SSCY
---- --- ----
<S> <C> <C> <C>
ANNUAL FUND OPERATING EXPENSES:
------------------------------
(as a percentage of average net assets)
Management Fees................................. 0.63% 0.75% 0.75%/1/
Other Expenses.................................. 0.39% 0.42% 0.84%
----- ----- -----
Total Fund Operating Expenses................... 1.02% 1.17% 1.59%
</TABLE>
Example:
<TABLE>
<S> <C> <C> <C> <C>
You would pay the following expenses 1 year $ 10 $ 12 $ 16
on a $1,000 investment, assuming: (1) 3 years $ 32 $ 37 $ 50
a 5% annual return; and (2) redemption 5 years $ 56 $ 64 $ 87
at the end of each time period: 10 years $124 $141 $189
</TABLE>
WHILE THE FOREGOING EXAMPLE ASSUMES A 5% ANNUAL RETURN, A
FUND'S ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN
ACTUAL RETURN MORE OR LESS THAN 5%. THE EXAMPLE SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES.
ACTUAL EXPENSES MAY BE MORE OR LESS THAN THOSE SHOWN.
The purpose of this table is to assist investors in
understanding the various costs and expenses that investors
will bear directly or indirectly. The Funds do not impose
any sales load, redemption or exchange fees, nor do they
bear any fees pursuant to a Rule 12b-1 Plan; however, the
Transfer Agent currently charges investors who request
redemptions by wire transfer a fee of $9 for each such
payment. For more complete descriptions of the various costs
and expenses, see "Investment Advisor," "How to Buy Fund
Shares," "How to Redeem Fund Shares," "Retirement Plans" and
"Service Providers and Underwriter " and the
4
<PAGE>
financial statements and related notes which appear in the
Funds' Annual Reports to Shareholders.
/1/ This fee represents the basic management fee of 0.75%
payable to SSCY under the Investment Advisory Agreement.
The basic management fee may be increased or decreased by
a performance adjustment. The performance adjustment is a
rolling 24-month comparison to the Frank Russell 2000
Index ("Russell 2000"), see "Investment Advisor" for a
further discussion. For the period ended December 31, 1996
the Investment Advisor received 0.45% of SSCY's average
net assets. Absent such performance adjustment, the
Investment Advisor would have received 0.75% of SSCY's
average net assets.
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FINANCIAL The following information provides financial highlights for
HIGHLIGHTS a share of each Fund outstanding during the periods stated.
The information for each period ended presented below has
been audited by Tait, Weller & Baker, certified public
accountants, whose report appears in the Funds' Annual
Reports to Shareholders dated December 31, 1996. This
information should be read in conjunction with the financial
statements and accompanying notes appearing in the 1996
Annual Reports to Shareholders, which are incorporated by
reference into the Statement of Additional Information.
Further information about the performance of the Funds is
available in the Annual Reports to Shareholders. Both the
Statement of Additional Information and the Annual Reports
to Shareholders may be obtained from the Funds free of
charge by calling 800-634-5726.
The following tables set forth financial data for a share of
capital stock outstanding throughout the periods presented
for each Fund.
STRATTON MONTHLY DIVIDEND REIT SHARES, INC.
<TABLE>
<CAPTION>
11 MONTHS
ENDED YEARS ENDED JANUARY 31
--------- -------------------------------------------------------------------------------------
12/31/96 1996 1995 1994 1993 1992 1991/1/ 1990/1/ 1989/1/ 1988/1,2/
--------- -------- -------- -------- ------- ------- ------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR...... $ 27.40 $ 24.84 $ 28.69 $ 29.91 $ 27.83 $ 23.02 $ 24.50 $ 24.43 $ 25.11 $ 31.09
-------- -------- -------- -------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
----------------------
OPERATIONS
----------
Net investment income... 1.63 1.88 1.94 1.87 1.94 1.97 2.05 2.09 2.10 2.06
Net gains (loss) on
securities (both
realized and
unrealized)............ 0.16 2.60 (3.87) (1.14) 2.08 4.79 (1.33) 0.03 (0.70) (5.33)
-------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Total from investment
operations............ 1.79 4.48 (1.93) 0.73 4.02 6.76 0.72 2.12 1.40 (3.27)
-------- -------- -------- -------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
------------------
Dividends (from net
investment income)..... (1.63) (1.89) (1.92) (1.94) (1.94) (1.95) (2.20) (2.05) (2.08) (2.06)
Distributions in excess
of net Investment
Income................. (0.13) (0.03) 0.00 (0.01) 0.00 0.00 0.00 0.00 0.00 0.00
Distributions from net
realized gains from
security
transactions........... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.27)
Distributions from
paid-in capital/3/..... 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 (0.38)
-------- -------- -------- -------- ------- ------- ------- ------- ------- -------
Total distributions.... (1.76) (1.92) (1.92) (1.95) (1.94) (1.95) (2.20) (2.05) (2.08) (2.71)
-------- -------- -------- -------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
YEAR................... $ 27.43 $ 27.40 $ 24.84 $ 28.69 $ 29.91 $ 27.83 $ 23.02 $ 24.50 $ 24.43 $ 25.11
======== ======== ======== ======== ======= ======= ======= ======= ======= =======
TOTAL RETURN............ 7.12% 18.98% (6.57%) 2.22% 15.18% 30.55% 3.30% 8.69% 5.93% (10.80%)
RATIOS/SUPPLEMENTAL DATA
------------------------
Net assets, end of year
(in 000's)............. $103,780 $129,267 $134,066 $165,798 $98,227 $45,566 $31,178 $33,200 $33,845 $36,305
Ratio of expenses to
average net assets..... 1.02%/4/ 0.99% 1.08% 0.99% 1.10% 1.23% 1.27% 1.25% 1.21% 1.21%
Ratio of net income to
average net assets..... 6.94%/4/ 7.42% 7.71% 6.12% 6.74% 7.63% 8.79% 8.19% 8.54% 7.52%
Portfolio turnover
rate................... 69.19% 53.30% 39.50% 19.15% 35.94% 43.55% 14.00% 39.10% 15.00% 24.44%
Average commission rate
paid................... $ 0.0498 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
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/1/ NOT COVERED BY INDEPENDENT ACCOUNTANTS' REPORT
/2/ PER SHARE INCOME AND EXPENSES AND NET REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS HAVE BEEN COMPUTED USING THE AVERAGE NUMBER OF SHARES
OUTSTANDING DURING THE PERIOD. THESE COMPUTATIONS HAD NO EFFECT ON NET ASSET
VALUE PER SHARE.
/3/ DISTRIBUTIONS FROM PAID-IN CAPITAL RESULT FROM THE EXCESS OF TAXABLE CAPITAL
GAINS OVER GAINS AVAILABLE FROM BOOK SOURCES.
/4/ ANNUALIZED
5
<PAGE>
STRATTON GROWTH FUND, INC.
<TABLE>
<CAPTION>
7 MONTHS
ENDED YEARS ENDED MAY 31,
-------- ----------------------------------------------------------------------------------------
12/31/96 1996 1995 1994 1993 1992 1991/1/ 1990/1/ 1989/1/ 1988/1/ 1987/1/
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <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 $ 19.66 $ 21.84 $ 19.48 $ 22.24 $ 24.25
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
----------------------
OPERATIONS
----------
Net investment income... 0.312 0.556 0.537 0.510 0.560 0.64 0.72 0.82 0.55 0.58 0.37
Net gains (loss) on
securities (both
realized and
unrealized)............ 1.298 5.759 2.978 0.665 1.160 1.32 0.65 0.20 3.83 (1.11) (0.03)
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total from investment
operations............ 1.610 6.315 3.515 1.175 1.720 1.96 1.37 1.02 4.38 (0.53) 0.34
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
------------------
Dividends (from net
investment income)..... (0.580) (0.540) (0.540) (0.510) (0.565) (0.725) (0.82) (0.71) (0.53) (0.70) (0.28)
Distributions (from
capital gains)......... (1.210) (0.945) (1.275) (0.905) (0.815) (0.435) (0.46) (2.49) (1.49) (1.53) (2.07)
Total Distributions.... (1.790) (1.485) (1.815) (1.415) (1.380) (1.160) (1.28) (3.20) (2.02) (2.23) (2.35)
-------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
YEAR................... $ 27.00 $ 27.18 $ 22.35 $ 20.65 $ 20.89 $ 20.55 $ 19.75 $ 19.66 $ 21.84 $ 19.48 $ 22.24
======== ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL RETURN............ 6.40% 29.62% 18.61% 5.92% 8.91% 10.57% 7.58% 4.94% 24.25% (2.17%) 1.85%
RATIOS/SUPPLEMENTAL DATA
------------------------
Net assets, end of year
(in 000's)............. $ 44,801 $42,880 $31,719 $25,475 $25,315 $25,311 $25,111 $23,407 $20,268 $16,859 $19,326
Ratio of expenses to
average net assets..... 1.17%/2/ 1.16% 1.31% 1.34% 1.39% 1.35% 1.41% 1.38% 1.41% 1.48% 1.50%
Ratio of net investment
income to average net
assets................. 2.08%/2/ 2.28% 2.70% 2.51% 2.76% 3.20% 3.94% 4.09% 2.79% 2.80% 1.74%
Portfolio turnover
rate................... 20.32% 15.41% 42.54% 49.81% 35.34% 59.76% 56.78% 54.80% 49.85% 34.42% 22.69%
Average commission rate
paid................... $ 0.0537 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
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/1/ NOT COVERED BY INDEPENDENT ACCOUNTANTS' REPORT
/2/ ANNUALIZED
STRATTON SMALL-CAP YIELD FUND
<TABLE>
<CAPTION>
9 MONTHS YEAR YEAR FOR THE PERIOD
ENDED ENDED ENDED 4/12/93/1/
12/31/96 03/31/96 03/31/95 TO 03/31/94
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................ $ 31.95 $ 25.88 $ 25.94 $25.00
------- ------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------
Net investment income............. 0.53 0.66 0.57 0.43
Net gains (loss) on securities
(both realized and unrealized)... 3.47 6.07 (0.04) 0.91
------- ------- ------- ------
Total from investment operations.. 4.00 6.73 0.53 1.34
------- ------- ------- ------
LESS DISTRIBUTIONS
- ------------------
Dividends (from net investment
income)........................... (0.54) (0.66) (0.59) (0.40)
Distributions (from capital
gains)............................ (1.83) 0.00 0.00 0.00
------- ------- ------- ------
Total distributions............... (2.37) (0.66) (0.59) (0.40)
------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD..... $ 33.58 $ 31.95 $ 25.88 $25.94
======= ======= ======= ======
TOTAL RETURN....................... 12.84% 26.18% 2.09% 5.51%/2/
RATIOS/SUPPLEMENTAL DATA
- ------------------------
Net assets, end of period (in
000's)........................... $21,691 $19,592 $14,058 $8,257
Ratio of expenses to average net
assets........................... 1.29%/2/ 1.46% 2.12% 2.28%/2/
Ratio of net investment income to
average net assets............... 2.03%/2/ 2.28% 2.36% 1.85%/2/
Portfolio turnover rate........... 35.86% 33.50% 30.20% 28.60%/2/
Average commission rate paid...... $0.0579 N/A N/A N/A
</TABLE>
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/1/ COMMENCEMENT OF OPERATIONS
/2/ ANNUALIZED
6
<PAGE>
INVESTMENT The investment objective of SGF is fundamental and may not
OBJECTIVES, be changed without a vote of a majority of the Fund's
POLICIES, shares. The investment objectives of SMDS and SSCY are not
RESTRICTIONS fundamental and may be changed by the Board of Directors of
AND RISK the applicable Fund. Unless otherwise stated in this
CONSIDERATIONS Prospectus or the Statement of Additional Information, each
Fund's investment policies are not fundamental and may be
changed without shareholder approval. While a non-
fundamental policy or restriction may be changed by the
Board of Directors of the applicable Fund without
shareholder approval, the Funds intend to notify
shareholders before making any change in any such policy or
restriction. Fundamental policies may not be changed
without shareholder approval. A complete list of each
Fund's fundamental investment restrictions appears in the
Statement of Additional Information.
SMDS SMDS' 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.
Investment decisions will be made on the basis of an
analysis of fundamentals of individual companies and on
relevant economic and social conditions. The Fund will
invest at least 80% of its assets in common stock and
securities convertible into common stock. The Fund intends
to invest at least 65% of its assets in securities of
REITs. The Fund's concentration policy requires the Fund to
invest at least 25% of its assets in securities of REITs.
This policy of concentration may not be changed without the
approval of the holders of a majority of the Fund's
outstanding shares.
SGF The primary objective of SGF is to seek possible growth of
capital for its shareholders' investments, with current
income from interest and dividends as a secondary
objective. On an overall portfolio basis, the Investment
Advisor will seek appreciation of capital for the Fund by
continuously reviewing both individual securities and
relevant economic and social conditions so that in the view
of the Investment Advisor, the Fund's portfolio has the
greatest possible potential for capital growth consistent
with reasonable risk. The Fund's investments will normally
consist of common stock and securities convertible into
common stock. The Fund may also invest in REITs. In making
its investment decision, the Investment Advisor examines
the securities of domestic companies, generally those with
dividend payment records, with a view to selecting those
securities which it believes will provide a greater
opportunity for growth and return of capital.
Preferred stocks and debt securities which are not
convertible into common stock will normally not be
purchased. However, when the Investment Advisor determines
that a temporary defensive position is warranted, it may
invest in non-convertible preferred stocks, debt securities
and domestic corporate and government fixed income
obligations without limitation and to the extent such
investments are made, the Fund will not be achieving growth
of capital. The Fund's relative equity and cash (or cash
equivalent) positions may also be changed as the Fund
alters its evaluation of trends in general securities price
levels.
The Fund does not intend to obtain short-term trading
profits. It is anticipated that the Fund's annual portfolio
turnover rate will generally fall within a 30% to
7
<PAGE>
70% range; but the rate of portfolio turnover is not a
limiting factor when the Fund's management deems changes
appropriate and could be less than 30% or greater than 70%
in any particular year, depending upon market and other
considerations.
The following investment restrictions are deemed
fundamental policies:
1. The Fund will not invest more than 5% of the value of its
total assets in the securities of any one issuer, except
for securities of the United States Government or
agencies thereof.
2. The Fund will not invest in more than 10% of any class of
securities of any one issuer (except for government
obligations) or in more than 10% of the voting securities
of any one issuer.
SSCY The investment objective of SSCY is to achieve both
dividend income and capital appreciation. The Fund seeks to
achieve its objective by investing in equity securities of
small-cap companies.
On an overall portfolio basis, the Investment Advisor will
seek to achieve the Fund's objective by continuously
reviewing both individual securities and relevant economic
and social conditions so that in the view of the Investment
Advisor, the Fund has the greatest possible potential for
capital appreciation consistent with reasonable risk. The
Investment Advisor generally selects companies which pay
quarterly dividends at an above-average rate.
Under normal market conditions, it is expected that the
Fund will invest at least 80% of its assets in equity
securities, primarily common stock and securities
convertible into common stock of small-cap companies. The
Fund may also invest in other types of securities with
equity characteristics such as REITs, preferred stocks,
warrants, units and rights. The Fund may invest in both
exchange-listed and over-the-counter securities. As a
matter of fundamental policy which cannot be changed
without the vote of a majority of the Fund's outstanding
shares, the Fund will not invest more than 25% of its total
assets in any one industry.
The Fund will not knowingly invest more than 5% of its
total assets in securities that are illiquid. Securities
having legal or contractual restrictions on resale and no
readily available market, and instruments that do not
provide for payment to the Fund within seven days after
notice are subject to this 5% limit. Securities that have
legal or contractual restrictions on resale but have a
readily available market are not deemed to be illiquid for
the purposes of this limitation.
Investments in small-cap companies have certain risks
associated with them. First and foremost is their greater
earnings and price volatility in comparison to large
companies. Earnings risk is partially due to the
undiversified nature of small company business lines. The
Fund attempts to counteract these concerns about investing
in small-cap companies by using strict purchase criteria.
One of these criteria stipulates that these companies must
have been sound and going entities for over three years. In
addition, these companies must be established dividend-
paying entities. The dividend requirement helps to reduce
share price volatility of the issues in the Fund and
ultimately of the Fund itself.
8
<PAGE>
REITs Each Fund may invest in REITs. Equity REITs invest directly
in real property while mortgage REITs invest in mortgages
on real property. 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. Generally, increases in interest rates will
decrease the value of high yielding securities and increase
the costs of obtaining financing, which could decrease the
value of the portfolio's investments. In addition, equity
REITs may be affected by changes in the value of the
underlying property owned by the trusts, while mortgage
REITs may be affected by the quality of credit extended.
Equity and mortgage REITs are dependent upon management
skill, are not diversified and are subject to the risks of
financing projects. 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 Investment Company Act of
1940, as amended (the "1940 Act").
REITs pay dividends to their shareholders based upon
available funds from operations. It is quite common for
these dividends to exceed the REIT's taxable earnings and
profits resulting in the excess portion of such dividends
being designated as a return of capital. A Fund intends to
include the gross dividends from such REITs in its
distributions to shareholders and, accordingly, a portion of
the Funds' distributions may also be designated as a return
of capital. For more information, please see the discussion
under "Tax Treatment: Dividends and Distributions."
Short-Term Although each Fund normally seeks to remain fully invested
Securities in equity securities, a Fund may invest temporarily up to
100% of its assets in certain short-term fixed income
securities. Such securities may be used to invest
uncommitted cash balances, for temporary purposes pending
investments in other securities, to maintain liquidity to
meet shareholder redemptions or for temporary defensive
measures to protect against the erosion of its capital base.
These securities include, but are not limited to,
obligations of the U.S. government, its agencies and
instrumentalities, commercial paper, certificates of
deposit, bankers acceptances and repurchase agreements. When
a Fund invests for defensive purposes, it may affect the
attainment of the Fund's investment objective.
- -------------------------------------------------------------------------------
MANAGEMENT OF The business of each Fund is managed under the direction of
THE FUNDS each Fund's Board of Directors. Information about the
directors and officers of the Funds is included in the
Statement of Additional Information.
- -------------------------------------------------------------------------------
INVESTMENT Stratton Management Company, with offices at Plymouth
ADVISOR Meeting Executive Campus, 610 W. Germantown Pike, Suite 300,
Plymouth Meeting, PA 19462-1050, is the Funds' investment
advisor and manager and is registered as an investment
advisor under the Investment Advisors Act of 1940, as
amended. The Investment Advisor provides investment advisory
services, consisting of portfolio management, for a variety
of individuals and institutions and had approximately $1.4
billion in assets under management as of December 31, 1996.
By reason of
9
<PAGE>
his ownership of all the Investment Advisor's voting stock,
James W. Stratton may be said to be a "controlling person"
of that firm.
Pursuant to Investment Advisory Agreements, Stratton
Management Company provides an investment program in
accordance with each respective Fund's investment policies,
limitations and restrictions.
For providing investment advisory services, the Investment
Advisor receives: for SMDS, a fee at the annual rate of
0.63% of daily net assets; and for SGF, a fee at the annual
rate of 0.75% of daily net assets. The Investment Advisor
has voluntarily agreed to waive $15,000 annually of the
advisory fees due it under the Investment Advisory
Agreements with SMDS and SGF to offset a significant portion
of the fees that the Funds will incur under the
Administration Agreements. See "Service Providers and
Underwriter." During the fiscal periods ended December 31,
1996, SMDS and SGF paid the Investment Advisor advisory fees
at the effective annual rates of .56% and .42%, of such
Fund's respective average daily net assets.
For providing investment advisory services, for SSCY, the
Investment Advisor receives an investment advisory fee
payable monthly at an annual rate of 0.75% of average daily
net assets, subject to a performance adjustment. The
performance adjustment for SSCY is calculated at the end of
each month based upon a rolling 24 month performance period.
The performance adjustment is added to or subtracted from
the basic investment advisory fee. The Fund's gross
performance is compared with the performance of the Frank
Russell 2000, a widely recognized unmanaged index of common
stock prices, over a rolling 24-month performance period.
The Russell 2000 is composed of the smallest 2000 stocks in
the Frank Russell annual ranking of 3000 common stocks by
market capitalization. The Russell 2000 is a widely
recognized common stock index of small to medium size
companies. Total return performance on the Russell 2000
includes dividends and is reported monthly on a market
capitalization-weighted basis. When the Fund performs better
than the Russell 2000, it pays the Investment Advisor an
incentive fee; less favorable performance than the Russell
2000 reduces the basic fee. Each 1.00% of the difference in
performance between the Fund and the Russell 2000 during the
performance period is equal to a 0.10% adjustment to the
basic fee. The maximum annualized performance adjustment
rate is +/- 0.50% of average net assets which would be added
to or deducted from the advisory fee if the Fund
outperformed or underperformed the Russell 2000 by 5.00%.
The effect of this performance fee adjustment is that the
basic advisory fee may be increased as high as an annual
rate of 1.25% or decreased to as low as an annual rate of
0.25% of the Fund's average daily net asset value. Due to
the complexities of researching and investing in small-cap
equity securities, the advisory and incentive fees (if
realized) paid by the Fund are higher than those paid by
most other investment companies. Additionally, the Fund's
incentive fee of plus or minus 0.50% is greater than that of
other mutual funds with similar objectives which pay
incentive fees. Based on the foregoing, during the fiscal
period ended December 31, 1996, SSCY paid the Investment
Advisor a fee at the effective annual rate of .45% of the
Fund's average daily net assets.
10
<PAGE>
Mr. Stratton is the Chief Executive officer of the
Investment Advisor and has been primarily responsible for
the day-to-day investment management of SMDS and SGF since
1980 and 1972, respectively. Mr. Reichel has been primarily
responsible for the day-to-day investment management of SSCY
since the Fund's commencement of operations in April of
1993.
- -------------------------------------------------------------------------------
COMPUTATION OF The net asset value per share of each Fund is determined
NET ASSET VALUE once each business day as of the close of regular trading
hours (currently 4:00 p.m. Eastern time) on the New York
Stock Exchange ("NYSE"). Such determination will be made by
dividing the value of all securities and other assets
(including dividends accrued but not collected) less any
liabilities (including accrued expenses), by the total
number of shares outstanding.
Portfolio securities are valued as follows:
1. Securities listed or admitted to trading on any national
securities exchange are valued at their last sale price
on the exchange where the securities are principally
traded or, if there has been no sale on that date, at
the mean between the last reported bid and asked prices.
2. Securities traded in the over-the-counter market are
valued at the last sale price, if carried in the
National Market Issues section by NASDAQ; other over-
the-counter securities are valued at the mean between
the closing bid and asked prices obtained from a
principal market maker.
3. All other securities and assets are valued at their fair
value as determined in good faith by the Board of
Directors of the Funds, which may include the amortized
cost method for securities maturing in sixty days or
less and other cash equivalent investments.
Determination of the net asset value may be suspended when
the right of redemption is suspended as provided under "How
to Redeem Fund Shares."
- -------------------------------------------------------------------------------
HOW TO BUY FUND Shares of each Fund are offered on a continuous basis at the
SHARES net asset value. The net asset value per share of each Fund,
and hence the purchase price of the shares, will vary with
the value of securities held in each Fund's portfolio.
Purchasers of Fund shares pay no "sales load"; the full
amount of the purchase price goes toward the purchase of
shares of a Fund. Purchases are made at the net asset value
next determined following receipt of a purchase order by the
Transfer Agent, at the address set forth below, accompanied
by payment for the purchase. The Funds may also from time to
time accept wire purchase orders from broker/dealers and
institutions who have been approved previously by a Fund.
Orders for shares of a Fund received prior to the close of
regular trading hours on the NYSE are confirmed at the net
asset value determined at the close of regular trading hours
on the NYSE on that day.
Orders received at the address set forth below subsequent to
the close of regular trading hours on the NYSE will be
confirmed at the net asset value determined at the close of
regular trading hours on the next day the NYSE is open.
11
<PAGE>
Investing by An account may be opened and shares of a Fund purchased by
Mail completing the Investment Application (the "Application"),
enclosed within this Prospectus and sending the Application,
together with a check for the desired amount, payable to "
Name of Fund " c/o FPS Services, Inc., 3200 Horizon Drive,
P.O. Box 61503, King of Prussia, PA 19406-0903. The minimum
amount for the initial purchase of shares for SMDS, SGF and
SSCY is $2,000.
Subsequent purchases may be made in amounts of $100 or more.
(Note: There are no minimum investment amounts applied to
retirement plans.) After each purchase you will receive an
account statement for the shares purchased. Once a
shareholder's account has been established, additional
purchases may be made by sending a check made payable to "
Name of Fund " c/o FPS Services, Inc., P.O. Box 412797,
Kansas City, MO 64141-2797. Please enclose the stub of your
account statement and include your Fund account number on
your check (as well as the attributable year for retirement
plan investments, if applicable).
PLEASE NOTE: The Funds will not accept third party checks
for the purchase of shares. Third party checks are those
that are made out to someone other than the fund and are
endorsed over to the fund. In order to ensure receipt of
good funds, the Funds reserve the right to delay sending
your redemption proceeds up to 15 days if you recently
purchased shares by check. A $20 fee will be charged to your
account for any payment check returned to the custodian.
Investing by You may also pay for shares by instructing your bank to wire
Wire Federal funds to the Transfer Agent. Federal funds are
monies of member banks within the Federal Reserve System.
Your bank must include the full name(s) in which your
account is registered and your Fund account number, and
should address its wire as follows:
UNITED MISSOURI BANK KC NA
ABA # 10-10-00695
For: FPS Services, Inc.
Account # 98-7037-071-9
FBO: "NAME OF FUND"
Account of (exact name(s) of account registration)
Shareholder Account #______________
If you are opening a new account by wire transfer, you must
first telephone the Transfer Agent at 800-441-6580 to
request an account number and furnish the applicable Fund
with your social security or other tax identification
number. A completed Application with signature(s) of
registrant(s) must be filed with the applicable Fund
immediately subsequent to the initial wire. Your bank will
generally charge a fee for this wire. The Funds will not be
responsible for the consequences of delays, including delays
in the banking or Federal Reserve wire systems.
PLEASE NOTE: Your initial Fund account must satisfy the
$2,000 minimum balance requirement in order to participate
in the following programs or plans.
12
<PAGE>
Automatic Shares of a Fund may be purchased through our "Automatic
Investment Plan Investment Plan" (the "Plan"), (a tear-out application is
attached to the back of this Prospectus). The Plan provides
a convenient method by which investors may have monies
deducted directly from their checking, savings or bank money
market accounts for investment in a Fund. The minimum
investment pursuant to this Plan is $100 per month. The
account designated will be debited in the specified amount,
on the date indicated, and Fund shares will be purchased.
Only an account maintained at a domestic financial
institution which is an Automated Clearing House ("ACH")
member may be so designated. A Fund may alter, modify or
terminate this Plan at any time.
Direct Deposit This program enables a shareholder to purchase additional
Program shares by having certain payments from the Federal
Government ONLY (i.e. federal salary, social security and
certain veterans, military or other payments) automatically
deposited into the shareholder's account in a Fund. The
minimum investment is $100.
To elect this privilege, a shareholder must complete a
Direct Deposit Enrollment Form for each type of payment
desired. The form may be obtained by contacting the Transfer
Agent, at the address or telephone number shown below. Death
or legal incapacity will terminate a shareholder's
participation in this program. A shareholder may terminate
their participation by notifying, in writing, the
appropriate Federal agency. In addition, the Funds may
terminate participation upon 30 days' notice to the
shareholder.
Reinvestment of Any shareholder may at any time request and receive
Income automatic reinvestment of any Funds' income dividends and
Dividends and capital gains distributions, or income dividends only, or
Capital Gains capital gains distributions only, in additional shares of a
Distributions Fund unless the Funds' Board of Directors determines
otherwise. Each Fund will send the shareholder an account
statement reflecting all such reinvestments. The $100
minimum requirement for subsequent investments does not
apply to the reinvestment of income dividends and/or capital
gain distributions.
The election to reinvest may be made on the enclosed
Application or by writing to " Name of Fund ", c/o FPS
------------
Services, Inc., 3200 Horizon Drive, P.O. Box 61503, King of
Prussia, PA 19406-0903. Any such election will automatically
continue for subsequent dividends, and/or distributions
until written revocation is received by the applicable Fund.
If no election is chosen each Fund will automatically
reinvest your dividends and capital gains.
Additional Shares of a Fund may be purchased or redeemed through
Information certain broker/dealers who may charge a transaction fee,
which would not otherwise be charged if the shares were
purchased directly from a Fund.
Each Fund reserves the right to reject purchases under
circumstances or in amounts considered disadvantageous to
the Fund. CERTIFICATES WILL NOT BE ISSUED UNLESS REQUESTED
IN WRITING BY THE REGISTERED SHAREHOLDER(S).
13
<PAGE>
Each Fund is required by Federal tax law to withhold 31% of
reportable payments (which may include dividends, capital
gains distributions, and redemptions) paid to shareholders
who have not complied with Internal Revenue Service
regulations regarding Tax Identification Certification. In
order to avoid this withholding requirement, you must
certify via signature on your Application, or on a separate
W-9 Form supplied by the Transfer Agent, that your Social
Security or Taxpayer Identification Number is correct (or
you are waiting for a number to be issued to you), and that
you are currently not subject to backup withholding, or you
are exempt from backup withholding.
While the Funds provide most shareholder services, certain
special services, such as a request for a historical
transcript of an account, may involve an ADDITIONAL FEE. To
avoid having to pay such a fee for these special services,
it is important that you SAVE your last Year-to-Date
Confirmation Statement received each year.
PLEASE REFER ALL QUESTIONS AND CORRESPONDENCE ON NEW AND
EXISTING ACCOUNTS (SUCH AS PURCHASES OR REDEMPTIONS, OR
STATEMENTS NOT RECEIVED), DIRECTLY TO THE TRANSFER AGENT, BY
WRITING TO FPS SERVICES, INC., 3200 HORIZON DRIVE, P.O. BOX
61503, KING OF PRUSSIA, PA 19406-0903, OR BY CALLING FPS'
CUSTOMER SERVICE DEPARTMENT AT 800-441-6580. PLEASE
REFERENCE YOUR FUND NAME AND ACCOUNT NUMBER.
- -------------------------------------------------------------------------------
Shareholders may redeem shares of a Fund by mail, by writing
HOW TO REDEEM directly to the Transfer Agent, and requesting liquidation
FUND SHARES of all or any part of their shares. The redemption request
must be signed exactly as the shareholder's name appears in
the registration and must include the Fund name and account
number. If shares are owned by more than one person, the
redemption request must be signed by all owners exactly as
their names appear in the registration. Shareholders holding
stock certificates must deliver them along with their signed
redemption requests. To protect your account, the Transfer
Agent and the Funds from fraud, signature guarantees are
required for certain redemptions. SIGNATURE GUARANTEES ARE
REQUIRED FOR: (1) all redemptions of $10,000 or more; (2)
any redemptions if the proceeds are to be paid to someone
other than the person(s) or organization in whose name the
account is registered; (3) any redemptions which request
that the proceeds be wired to a bank; (4) requests to
transfer the registration of shares to another owner; and
(5) any redemption if the proceeds are to be sent to an
address other than the address of record. The Transfer Agent
requires that signatures be guaranteed by an "eligible
guarantor institution" as defined in Rule 17Ad-15 under the
Securities Exchange Act of 1934. Eligible guarantor
institutions include banks, brokers, dealers, credit unions,
national securities exchanges, registered securities
associations, clearing agencies and savings associations.
Broker-dealers guaranteeing signatures must be a member of a
clearing corporation or maintain net capital of at least
$100,000. Credit unions must be authorized to issue
signature guarantees. Signature guarantees will be accepted
from any eligible guarantor institution which participates
in a signature guarantee program. The Transfer Agent cannot
accept guarantees from notaries public. In certain
instances,
By Written
Request
14
<PAGE>
the Funds may require additional documents, such as
certified death certificates or proof of fiduciary or
corporate authority. (NOTE: PLEASE CALL OUR TRANSFER AGENT
TO VERIFY REQUIRED LANGUAGE FOR ALL RETIREMENT PLAN
REDEMPTION REQUESTS.) No redemption shall be made unless a
shareholder's Application is first on file. In addition, a
Fund will not accept redemption requests until checks
(including certified checks or cashier's checks) received
for the shares purchased have cleared, which can be as long
as 15 days.
Redemption requests mailed to the Investment Advisor must be
forwarded to the Transfer Agent and will not be effected
until they are received in good order by the Transfer Agent.
The Transfer Agent cannot accept redemption requests which
specify a particular forward date for redemption.
By Automated A shareholder may elect to have redemption proceeds, cash
Clearing House distributions or systematic cash withdrawal payments
transferred to his or her bank, savings and loan association
or credit union that is an on-line member of the ACH system.
There are no fees associated with the use of the ACH
service.
Written ACH redemption requests must be received by the
Transfer Agent before 4 p.m. Eastern time to receive that
day's closing net asset value. ACH redemptions will be sent
on the day following the shareholder's request and funds
will be available two days later.
Redemption proceeds (including systematic cash withdrawals),
as well as dividend and capital gains distributions, may be
sent to a shareholder via Federal Funds wire. However, the
Transfer Agent will charge a $9 fee for each Federal Funds
wire transmittal, which will be deducted from the amount of
the payment.
Systematic Cash Each Fund offers a Systematic Cash Withdrawal Plan as
Withdrawal Plan another option which may be utilized by an investor who
wishes to withdraw funds from his or her account on a
regular basis. To participate in this option, an investor
must either own or purchase shares having a value of $10,000
or more. Automatic payments by check will be mailed to the
investor on either a monthly, quarterly, semi-annual or
annual basis in amounts of $50 or more. All withdrawals are
processed on the 25th of the month or, if such day is not a
business day, on the next business day and paid promptly
thereafter. Please complete the appropriate section on the
Application, indicating the amount of the distribution and
the desired frequency.
An investor should realize that if withdrawals exceed income
dividends and capital gains distributions, the invested
principal will be depleted. Thus, depending on the size of
the withdrawal payments and fluctuations in the value of the
shares, the original investment could be exhausted entirely.
An investor may change or stop the Plan at any time by
written notice to the Funds. DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS MUST BE AUTOMATICALLY REINVESTED TO
PARTICIPATE IN THIS PLAN. Stock certificates cannot be
issued under the Systematic Cash Withdrawal Plan.
15
<PAGE>
Additional Due to the relatively high cost of maintaining smaller
Information accounts, the Funds reserve the right to involuntarily
redeem shares in any account for its then current net asset
value (which will be paid to the shareholder within five
business days, or such shorter time period as may be
required applicable Securities and Exchange Commission
("S.E.C.") rules) if at any time the total investment does
not have a value of at least $500. The shareholder will be
notified that the value of his or her account is less than
the required minimum and will be allowed at least 45 days to
bring the value of the account up to at least $500 before
the redemption is processed.
The redemption price will be the net asset value of the
shares to be redeemed as determined at the close of regular
trading hours on the NYSE after receipt at the address set
forth above of a request for redemption in the form
described above and the certificates (if any) evidencing the
shares to be redeemed. No redemption charge will be made.
Payment for shares redeemed is made within five business
days, or such shorter time period as may be required by
applicable S.E.C. rules, after receipt of the certificates
(or of the redemption request where no certificates have
been issued) by mailing a check to the shareholder's address
of record.
PLEASE NOTE: A $9 fee will be charged to your account at the
time of redemption if instructions to wire proceeds are
given; there is no fee to mail proceeds. Also, your
redemption proceeds may be delayed up to 15 days if you
recently purchased shares by check in order to confirm
clearance of check.
THE FUNDS MAY ALSO FROM TIME TO TIME ACCEPT TELEPHONE
REDEMPTION REQUESTS, FROM BROKER/DEALERS AND INSTITUTIONS
WHO HAVE BEEN APPROVED PREVIOUSLY BY THE FUNDS. Neither the
Funds nor any of their service contractors will be liable
for any loss or expense or cost in acting upon any telephone
instructions that are reasonably believed to be genuine. In
attempting to confirm that telephone instructions are
genuine, the Funds will use such procedures as are
considered reasonable, including requesting a shareholder to
correctly state his or her Fund account number, the name in
which his or her account is registered, his or her banking
institution, bank account number and the name in which his
or her bank account is registered. To the extent that a Fund
fails to use reasonable procedures to verify the genuineness
of telephone instructions, it and/or its service contractors
may be liable for any such instructions that prove to be
fraudulent or unauthorized. During times of unusual market
conditions it may be difficult to reach the Funds by
telephone. If the Funds cannot be reached by telephone,
shareholders should follow the procedures for redeeming by
mail as set forth above.
The right of redemption may not be suspended or payment upon
redemption deferred for more than five business days, or
such time shorter time period as may be required by
applicable S.E.C. rules, except: (1) when trading on the
NYSE is restricted as determined by the S.E.C. or such NYSE
is closed for other than weekends and holidays; (2) when the
S.E.C. has by order permitted such suspension; or (3) when
an emergency, as defined by the rules of the S.E.C., exists,
16
<PAGE>
making disposal of portfolio securities or valuation of net
assets of a Fund not reasonably practicable. In case of a
suspension of the determination of the net asset value, the
right of redemption is also suspended and unless a
shareholder withdraws his request for redemption, he or she
will receive payment at the net asset value next determined
after termination of the suspension.
As provided in the Funds' Articles of Incorporation, payment
for shares redeemed may be made either in cash or in-kind,
or partly in cash and partly in-kind. However, the Funds
have elected, pursuant to Rule 18f-1 under the 1940 Act to
redeem shares solely in cash up to the lesser of $250,000 or
one percent of the net asset value of the Fund, during any
90 day period for any one shareholder. Payments in excess of
this limit will also be made wholly in cash unless the Board
of Directors of such Fund believes that economic conditions
exist which would make such a practice detrimental to the
best interests of the Fund. Any portfolio securities paid or
distributed in-kind will be in readily marketable
securities, and will be valued as described under
"Computation of Net Asset Value." Subsequent sale of such
securities would require payment of brokerage commissions by
the investor.
The value of a shareholder's shares on redemption may be
more or less than the cost of such shares to the
shareholder, depending upon the net asset value of the
Fund's shares at the time of redemption.
- -------------------------------------------------------------------------------
EXCHANGE Shares of each Fund may be exchanged for shares of the other
PRIVILEGE Funds, provided such other shares may legally be sold in the
state of the investor's residence. Each Fund has a distinct
investment objective which should be reviewed before
executing any exchange of shares.
The sections regarding each Fund, including those on charges
and expenses, should be read prior to seeking any such
exchange. Shares may be exchanged by: (1) written request;
or (2) telephone if a special authorization form has been
completed and is on file with the Transfer Agent in advance.
See "How to Redeem Fund Shares--Additional Information" for
a description of the Funds' policy regarding telephone
instructions.
PLEASE NOTE: Shareholders who have certificated shares in
their possession MUST surrender these shares to the Transfer
Agent to be held on account in unissued form PRIOR to taking
advantage of the exchange privilege. When returning
certificates for this purpose only, signature(s) need NOT be
guaranteed. There are no sales charges involved.
Shareholders who engage in frequent exchange transactions
may be prohibited from further exchanges or otherwise
restricted in placing future orders. The Funds reserve the
right to suspend the telephone exchange privilege at any
time. An exchange for tax purposes constitutes the sale of
one fund and the purchase of another. Consequently, the sale
may involve either a capital gain or loss to the shareholder
for federal income tax purposes.
- -------------------------------------------------------------------------------
RETIREMENT Each Fund has available four types of tax-deferred
PLANS retirement plans for its shareholders: Defined Contribution
Plans, for use by both self-employed individuals and
corporations; an Individual Retirement Account, for use by
certain
17
<PAGE>
eligible individuals with compensation (including earned
income from self-employment), a Simple Individual Retirement
Account, for use by certain small companies, and a 403(b)(7)
Retirement Plan, for use by employees of schools, hospitals,
and certain other tax-exempt organizations or associations.
More detailed information about how to participate in these
plans, the FEES charged by the custodian, and the limits on
contributions can be found in the Statement of Additional
Information. TO INVEST IN ANY OF THE TAX-DEFERRED RETIREMENT
PLANS, PLEASE CALL THE FUNDS FOR INFORMATION AND THE
REQUIRED SEPARATE APPLICATION.
- -------------------------------------------------------------------------------
TAX TREATMENT: During their most recent taxable years, each Fund qualified
DIVIDENDS AND separately as a regulated investment company under
DISTRIBUTIONS Subchapter M of the Internal Revenue Code and each Fund
intends to do so qualify in future years, as long as such
qualification is in the best interest of its shareholders.
Tax Treatment Under Subchapter M of the Internal Revenue Code, a Fund is
not subject to Federal income tax on such part of its
ordinary taxable income or net realized long-term capital
gains that it distributes to shareholders. Distributions
paid by a Fund from net investment income and short-term
capital gains (but not distributions paid from long-term
capital gains) will be taxable as ordinary income to
shareholders, whether received in cash or reinvested in
additional shares of such Fund. Such ordinary income
distributions will qualify for the dividends received
deduction for corporations to the extent of the total
qualifying dividends from domestic corporations received by
a Fund for the year. Shareholders who are citizens or
residents of the United States will be subject to Federal
taxes with respect to long-term realized capital gains which
are distributed to them, whether or not reinvested in the
Funds and regardless of the period of time such shares have
been owned by the shareholders. These distributions do not
qualify for the dividends received deduction. Due to the
nature of REIT dividends, a Fund may or may not realize a
return of capital. Consequently, a portion of a Fund's total
distributions might also include return of capital.
Shareholders will be advised after the end of each calendar
year as to the Federal income tax consequences of dividends
and distributions of the Funds made each year.
Dividends declared in October, November or December of any
year payable to shareholders of record on a specified date
in such months, will be deemed for Federal tax purposes to
have been received by the shareholders and paid by such Fund
on December 31 of such year in the event such dividends are
paid during January of the following year.
Prior to purchasing shares of a Fund, the impact of
dividends or capital gains distributions which are expected
to be announced or have been announced, but not paid, should
be carefully considered. Any such dividends or capital gains
distributions paid shortly after a purchase of shares by an
investor prior to the record date will have the effect of
reducing the per share net asset value of his or her shares
by the per share amount of the dividends or distributions.
All or a portion of such dividends or distributions,
although in effect a return of capital to the shareholder,
is subject to taxes, which may be at ordinary income tax
rates.
18
<PAGE>
A taxable gain or loss may be realized by an investor upon
his or her redemption, transfer or exchange of shares of a
Fund, depending upon the cost of such shares when purchased
and their price at the time of redemption, transfer or
exchange. If a shareholder has held Fund shares for six
months or less and received a distribution taxable as
capital gains attributable to those shares, any loss he
realizes on a disposition of those shares will be treated as
a capital loss to the extent of the earlier capital gain
distribution.
The information above is only a short summary of some of the
important Federal tax considerations generally affecting the
Funds and their shareholders. Income and capital gains
distributions may also be subject to state and local taxes.
Investors should consult their tax advisor with respect to
their own tax situation.
Dividends and The shareholders of a Fund are entitled to dividends and
Distributions distributions arising from the net investment income and net
realized gains, if any, earned on investments held by the
Fund involved, when declared by the Board of Directors of
such Fund. SMDS declares and pays dividends from net
investment income on a monthly basis. SGF declares and pays
dividends from net investment income on a semi-annual basis.
SSCY declares and pays dividends from net investment income
quarterly. Each Fund will make distributions from net
realized gains, if any, once a year, but may make
distributions on a more frequent basis to comply with the
distribution requirements of Subchapter M of the Internal
Revenue Code. Any distribution paid necessarily reduces a
Fund's net asset value per share by the amount of the
distribution. Distributions may be reinvested in additional
shares of such Fund, see "Reinvestment of Income Dividends
and Capital Gains Distributions."
- -------------------------------------------------------------------------------
PERFORMANCE From time to time, performance information such as total
CALCULATIONS return for the Funds may be quoted in advertisements or in
communications to shareholders. Each Fund's total return may
be calculated on an average annual total return basis, and
may also be calculated on an aggregate total return basis,
for various periods. Average annual total return reflects
the average annual percentage change in value of an
investment in a Fund over the measuring period. Aggregate
total return reflects the total percentage change in value
over the measuring period. Both methods of calculating total
return assume that dividends and capital gains distributions
made by a Fund during the period are reinvested in such
Fund's shares.
The total return of each Fund may be compared to that of
other mutual funds with similar investment objectives and to
bond and other relevant indices or to rankings prepared by
independent services or other financial or industry
publications that monitor the performance of mutual funds.
For example, the total return of a Fund's shares may be
compared to data prepared by Lipper Analytical Services,
Inc., National Association of Real Estate Investment Trusts
and to indices prepared by Dow Jones & Co., Inc. and
Standard & Poor's Ratings Group.
Performance quotations of each Fund represent such Fund's
past performance, and should not be considered as
representative of future results. The investment
19
<PAGE>
return and principal value of an investment in a Fund will
fluctuate so that an investor's shares, when redeemed, may
be worth more or less than their original cost. Any fees
charged by broker-dealers, banks or other financial
institutions directly to their customer accounts in
connection with investments in shares of a Fund will not be
included in the Fund's calculations of total return. Further
information about the performance of each Fund is included
in the Fund's most recent Annual Report which may be
obtained without charge by contacting the Fund at (800) 634-
5726.
- -------------------------------------------------------------------------------
DESCRIPTION OF The Funds are each organized as separate Maryland
COMMON STOCK corporations. SMDS was organized on March 4, 1985, as
successor to a Delaware corporation organized on November
10, 1971; SGF was organized on June 21, 1985, as successor
to a Delaware corporation organized on June 5, 1972; and
SSCY was organized on January 5, 1993. SMDS' authorized
capital is 10,000,000 shares of common stock, par value
$1.00 per share. SGF's authorized capital is 10,000,000
shares of common stock, par value $0.10 per share. SSCY is a
series of The Stratton Funds, Inc. The Stratton Funds, Inc.
is authorized to issue 1,000,000,000 shares of common stock,
par value $0.001 per share, and to classify and reclassify
any authorized and unissued shares into one or more series
or classes. At present, the Board of Directors of The
Stratton Funds, Inc. has authorized the issuance of
200,000,000 shares of Class A common stock representing
interests in SSCY.
There are no conversion or preemptive rights in connection
with any shares of the Funds, nor are there cumulative
voting rights. Shares of each Fund are freely transferable.
Each share of a particular Fund has equal voting, dividend
and distribution, and liquidation rights with other shares
of such Fund. When issued for payment as described in this
Prospectus, a Fund's shares will be fully paid and
nonassessable. Fractional shares of a Fund have
proportionately the same rights as provided for full shares
of the particular Fund.
Each Fund does not presently intend to hold annual meetings
of shareholders except as required by the 1940 Act or other
applicable law. Each Fund is a separate legal entity and
holders vote separately as shareholders of each Fund. Under
certain circumstances, shareholders of a Fund have the right
to call a shareholders meeting of that Fund to consider the
removal of one or more directors.
Investors should be aware that by combining the Prospectus
of each Fund into this one document, there is the
possibility that one Fund may become liable for any
misstatements in the Prospectus about another Fund. To the
extent that a Fund incurs such liability, a shareholders
investment in such Fund could be adversely affected.
- -------------------------------------------------------------------------------
SERVICE Pursuant to arrangements between the Funds, The Bank of New
PROVIDERS AND York and FPS, The Bank of New York serves as custodian of
UNDERWRITER all securities and cash owned by each Fund. The Bank of New
York performs no managerial or policy-making functions for
the Funds. Pursuant to agreements between The Bank of New
York and FPS, FPS performs certain administrative and record
keeping services. The Bank of New York reallows a portion of
its custody fee to FPS for providing such services.
20
<PAGE>
FPS also serves as the Transfer Agent, Administrator and
Fund Accounting/Pricing Agent. FPS is a wholly-owned
subsidiary of FinDaTex, Inc. Certain directors and officers
of Stratton Management Company, the Investment Advisor to
the Funds, and certain directors and officers of each Fund
are controlling shareholders of FinDaTex, Inc.
Administration services include all administrative services
except those relating to the investment portfolios of the
Funds, the distribution of the Funds and the maintenance of
the Funds' financial records. For these administrative
services, the Funds pay a flat fee of $10,000 for SSCY and
$30,000 each for SMDS and SGF.
FPBS acts as underwriter to each Fund pursuant to separate
underwriting agreements. FPBS was paid $3,000 from each Fund
for underwriting services in connection with the
registration of the Fund's shares under state securities
laws. FPBS is a wholly-owned subsidiary of FPS. FPS and FPBS
are affiliates of the Investment Advisor inasmuch as FPBS,
FPS and the Investment Advisor are under common control.
21
<PAGE>
STRATTON MUTUAL FUNDS
NEW ACCOUNT APPLICATION
1.REGISTRATION
Complete A, B or C below. (PLEASE PRINT) No certificates will be issued
unless requested in writing.
A. INDIVIDUAL OR JOINT ACCOUNT*
------------------------------------------------------ -----------------
First NameMiddle InitialLast Name Social Security
Number
------------------------------------------------------ -----------------
First NameMiddle InitialLast Name Social Security
Number
*Registration will be Joint Tenancy with Rights of Survivorship, unless
otherwise specified.
B. GIFT TO MINORS
---------------------------------------------- Under the ____ UGMA/UTMA
Name of Custodian State
---------------------------------------------- ------------------------
As Custodian For (name of minor) Minor's Social Security
Number
C. CORPORATIONS, PARTNERSHIPS, TRUSTS AND OTHERS**
---------------------------------------------- ------------------------
Name of Legal Entity Taxpayer Identification
Number
------------------------------------------------------------------------
Name of Fiduciary Name of Fiduciary
----------------------------------------------
Date of Trust (month, day, year)
**Complete Corporate Resolution attached, if applicable
2. MAILING ADDRESS
----------------------------------------------------------------------------
Street City State Zip Code
----------------------------
Daytime Telephone
If you have an account in another Stratton Fund that is registered under
the same name as above, please list the account number here:
---------------
3. INVESTMENT INFORMATION ($2,000 minimum each)
[ ] STRATTON MONTHLY DIVIDEND
REIT SHARES, INC. % or $
[ ] STRATTON GROWTH FUND, INC. % or $
[ ] STRATTON SMALL-CAP YIELD
FUND % or $
TOTAL 100 % $
[ ] BY CHECK: Please make payable to appropriate Fund Name
[ ] BY WIRE: An initial purchase of $__________ was wired on ___________ by
date
_________________________________________ to account #______________________
Name of your Bank or Broker Number assigned by FPS
4. DISTRIBUTION OPTIONS
Check one box only for each; if none are checked, all dividend and capital
gains, if any, will be reinvested.
<TABLE>
<S> <C> <C> <C>
Income
Dividends (check one box only) [ ] reinvested [ ] paid in cash
Capital Gains
Distributions (check one box only) [ ] reinvested [ ] paid in cash
</TABLE>
Please refer to box 7 for instructions if cash option via Automated
Clearing House ("ACH") is desired.
<PAGE>
5. SYSTEMATIC WITHDRAWAL PLAN
[ ] Check box if you want this service.
To establish a Systematic Withdrawal Plan (SWP), an account must have a
current market value of $10,000 or more. Additionally, an account must
have dividends reinvested.
[ ] Check box if you want withdrawal sent to address of record.
[ ] Check box if you want withdrawal sent via ACH as instructions
indicate in section 7.
Amount and Frequency of Payments:
--------------------------------
Beginning in __________ , 19 __, please make payments in the amount
month
of $__________________
$50 minimum
Payments will be processed on the 25th day of the month in the
frequency indicated below:
[ ] Monthly [ ] Quarterly [ ] Semi-annually [ ] Annually
6. TELEPHONE EXCHANGE PRIVILEGE
[ ] Check box if you want this service.
I (We) authorize FPS Services, Inc. to act upon instructions for
exchanges between Funds received by telephone believed by it to be
genuine. I (We) understand this privilege permits switching at any time
between STRATTON MONTHLY DIVIDEND REIT SHARES, INC., STRATTON GROWTH
FUND, INC. and STRATTON SMALL-CAP YIELD FUND, provided such other shares
may legally be sold in the state of the investor's residence.
7. SPECIAL PROGRAMS
All Direct Deposit Programs and ACH transactions will be sent as indicated
below. There will be no charge for ACH transactions. Any changes in ACH
transactions must be made in writing to FPS Services, Inc., 3200 Horizon
Drive, King of Prussia, PA 19406-0903. Please allow one month for ACH
transactions to be effective.
Notify your bank of your intent to establish this option on your bank
account.
----------------------------------------------------------------------------
Bank Name Branch Office (if applicable)
----------------------------------------------------------------------------
Bank Address (Do not use P.O. Box) City State Zip Code
----------------------------------------------------------------------------
Bank Wire Routing Number Name(s) on Bank Account Bank Account Number
8. SIGNATURE AND CERTIFICATION
TAXPAYER IDENTIFICATION NUMBER CERTIFICATION. UNDER THE PENALTIES OF
PERJURY, I (WE) CERTIFY THE FOLLOWING:
[ ] I (WE) CERTIFY THAT THE NUMBER SHOWN ON THIS FORM IS MY (OUR) CORRECT
TAX IDENTIFICATION NUMBER.
[ ] I (WE) AM NOT (ARE NOT) SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A
FAILURE TO REPORT ALL INTEREST AND DIVIDENDS, OR THE INTERNAL REVENUE
SERVICE HAS NOTIFIED ME (US) THAT I (WE) AM (ARE) NO LONGER SUBJECT TO
BACKUP WITHHOLDING.
CITIZEN OF: [ ] UNITED STATES [ ] OTHER (PLEASE INDICATE) ______________
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO
AVOID BACKUP WITHHOLDING.
-------------------------------------------------------- -----------------
Signature [ ] Owner [ ] Custodian [ ] Trustee Date
-------------------------------------------------------- -----------------
Signature of Joint Owner (if applicable) Date
<PAGE>
AUTOMATIC INVESTMENT PLAN APPLICATION
===============================================================================
INSTRUCTIONS
- -------------------------------------------------------------------------------
HOW DOES IT WORK?
1. FPS Services, Inc., through our bank, UMB Bank N.A., draws an Automatic
Clearing House (ACH) debit electronically against your personal checking
account or savings account each month.
2. Choose an amount ($100 minimum) that you would like to invest regularly
and your debit will be processed by FPS Services, Inc.
3. Shares will be purchased and a confirmation sent to you.
HOW DO I SET IT UP?
1. Complete this application and a New Account Application Form if you are
establishing a new account.
2. If you are using a Credit Union, please have your financial institution
complete the application.
3. Attach a VOIDED check to the application.
4. Mail applications to FPS Services, Inc., 3200 Horizon Drive, P.O. Box
61503, King of Prussia, PA 19406-0903.
5. As soon as your bank accepts your authorization, debits will be generated
and your Automatic Investment Plan started. In order for you to have ACH
debits from your account, your bank must be able to accept ACH
transactions and/or be a member of an ACH association. We cannot guarantee
acceptance by your bank.
6. Please allow one month for processing before the first debit occurs.
===============================================================================
ACCOUNT INFORMATION
- -------------------------------------------------------------------------------
Check One: [ ] I am in the process of establishing a new account
[ ] My account number is #
Deposit my automatic investments in (check one):
[ ] STRATTON MONTHLY DIVIDEND REIT SHARES, INC.
[ ] STRATTON GROWTH FUND, INC.
[ ] STRATTON SMALL-CAP YIELD FUND
Shareholder Name:
- -------------------------------------------------------------------------------
Joint Owner:
- -------------------------------------------------------------------------------
Street Address:
- -------------------------------------------------------------------------------
City: State: ZIP Code:
- -------------------------------------------------------------------------------
Phone Number: [daytime] ( ) [evening] ( )
- -------------------------------------------------------------------------------
===============================================================================
AUTHORIZATION
- -------------------------------------------------------------------------------
I authorize the FUND to establish an Automatic Investment Plan for me and
invest $ ______________ on the [ ] 10th, [ ] 15th, or [ ] 20th of each month in
($100 minimum)
the FUND.
I understand that my ACH debit will be dated on the day of each month as
indicated above. I agree that if such debit is not honored upon presentation,
FPS Services, Inc. may discontinue this service and any share purchase made
upon deposit of such debit may be canceled. I further agree that if the net
asset value of the shares purchased with such debit is less when said purchase
is canceled than when the purchase was made, FPS Services, Inc. shall be
authorized to liquidate other shares or fractions thereof held in my account
to make up the deficiency. Returned items will result in a $20 fee being
deducted from your account. This Automatic Investment Plan may be discontinued
by FPS Services,
<PAGE>
Inc. upon 30 days written notice or at any time by the investor by written
notice to FPS Services, Inc. which is received not later than five (5)
business days prior to the above designed investment date.
Signature of Account Owner Date:
- -------------------------------------------------------------------------------
Signature of Joint Account Owner Date:
- -------------------------------------------------------------------------------
===============================================================================
BANK INFORMATION AND AUTHORIZATION
- -------------------------------------------------------------------------------
Bank Account Owner
- -------------------------------------------------------------------------------
Bank Account Joint Owner
- -------------------------------------------------------------------------------
Bank Name
- -------------------------------------------------------------------------------
Bank Branch Street Address
- -------------------------------------------------------------------------------
City State ZIP Code
- -------------------------------------------------------------------------------
ABA Number (9 digits) Account Number
- -------------------------------------------------------------------------------
CHECK ONE: [ ] Checking [ ] Savings
As a convenience to me, please honor ACH debits on my account drawn by FPS
Services, Inc., UMB Bank, NA and payable to the FUND.
I agree that your rights with respect to such debit shall be the same as if it
were a check drawn upon you and signed personally by me. This authority shall
remain in effect until you receive written notice to the contrary. I agree
that you shall be fully protected in honoring any such debit.
I further agree that if any debit is dishonored, whether with or without cause
or whether intentionally or inadvertently, you shall be under no liability
whatsoever.
Signature of Bank Account Owner Date:
- -------------------------------------------------------------------------------
Signature of Joint Account Owner Date:
- -------------------------------------------------------------------------------
===============================================================================
INDEMNIFICATION AGREEMENT
- -------------------------------------------------------------------------------
TO: The Bank Named Above:
So that you may comply with your Depositor's request and authorization, the
FUND agrees as follows:
1. To indemnify and hold you harmless from any loss you may suffer arising
from or in connection with the payment of a debit drawn by FPS Services,
Inc. to the order of the FUND, designated on the account of your
depositor's executing the authorization including any costs or expenses
reasonably incurred in connection with such loss. The FUND will not,
however, indemnify you against any loss due to your payment of any debit
generated against insufficient funds.
2. To refund to you any amount erroneously paid by you to FPS Services, Inc.
on any such debit if claim for the amount of such debit on which erroneous
payment was made.
===============================================================================
MAIL COMPLETED AUTOMATIC INVESTMENT PLAN APPLICATION TO:
FPS SERVICES, INC., 3200 HORIZON DRIVE, KING OF PRUSSIA, PA 19406-0903
<PAGE>
----------------------
STRATTON
M U T U A L F U N D S
----------------------
Stability - Strategy - Success
DIRECTORS
Lynne M. Cannon
John J. Lombard, Jr.
Henry A. Rentschler
Merritt N. Rhoad, Jr.
Alexander F. Smith
Richard W. Stevens
James W. Stratton
OFFICERS
James W. Stratton
Chairman
John A. Affleck
President, Stratton Growth Fund
Gerard E. Heffeman
President, Stratton Monthly Dividend Shares
Frank H. Reichel, III
President, Stratton Small-Cap Yield Fund
Joanne E. Kuzma
Vice President
Patricia L. Sloan
Secretary & Treasurer
James A. Beers
Assistant Secretary & Treasurer
Carol L. Royce
Assistant Secretary & Treasurer
- --------------------------------------------------------------------------------
INVESTMENT ADVISOR
TRANSFER AGENT
& DIVIDEND [GRAPHIC APPEARS HERE]
PAYING AGENT
CUSTODIAN
BANK
[ILLEGIBLE TEXT APPEARS HERE]
- --------------------------------------------------------------------------------
