<PAGE>
As filed with the Securities and Exchange Commission
on April 28, 2000 Registration No.: 2-42379
811-2240
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
-
Pre-Effective Amendment No. [_]
Post-Effective Amendment No. [21]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
-
Amendment No. [21]
STRATTON MONTHLY DIVIDEND REIT SHARES, INC.
-------------------------------------------
(Exact Name of Registrant as Specified in Charter)
610 W. Germantown Pike, Suite 300, Plymouth Meeting, PA 19462-1050
------------------------------------------------------------------
(Address of Principal Executive Offices)
(610) 941-0255
--------------
(Registrant's Telephone Number, including Area Code)
Patricia L. Sloan, Secretary/Treasurer
Stratton Monthly Dividend REIT Shares, Inc.
610 W. Germantown Pike, Suite 300, Plymouth Meeting, PA 19462-1050
------------------------------------------------------------------
(Name and Address of Agent for Service)
With copies to:
Jeffrey A. Dalke, Esq.
Drinker Biddle & Reath LLP
1100 Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
(215) 988-2700
It is proposed that this filing will become effective (check appropriate box):
[_] immediately upon filing pursuant to paragraph (b)
[X] on May 1, 2000 pursuant to paragraph (b)
-----------
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
[_] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities Being Registered: Shares of Common Stock
Page 2
<PAGE>
[Front Cover]
PROSPECTUS
MAY 1, 2000
Stratton Growth Fund
Stratton Monthly Dividend REIT Shares
Stratton Small-Cap Value Fund
LOGO
STRATTON
Mutual Funds
Stability - Strategy - Success
The Securities and Exchange Commission has not approved or disapproved these
securities nor has it passed upon the accuracy or adequacy of this Prospectus.
Any representation to the contrary is a criminal offense.
<PAGE>
STRATTON MUTUAL FUNDS
Stratton Growth Fund, Inc.
Stratton Monthly Dividend REIT Shares, Inc.
Stratton Small-Cap Value Fund
PROSPECTUS
May 1, 2000
Plymouth Meeting Executive Campus
610 W. Germantown Pike, Suite 300
Plymouth Meeting, PA 19462-1050
(610) 941-0255
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Fund Summaries......................................................... 2
Fee Table.............................................................. 8
Financial Highlights................................................... 8
Investment Policies and Risk Considerations............................ 10
Investment Advisor..................................................... 11
Pricing Fund Shares ................................................... 12
How to Buy Fund Shares ................................................ 13
How to Redeem Fund Shares.............................................. 15
Exchange Privilege .................................................... 16
Retirement Plans....................................................... 17
Tax Treatment: Dividends and Distributions ............................ 17
</TABLE>
<PAGE>
Annual Returns (%)
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
(9.29) 11.46 36.06 14.17 37.68 7.19 6.41 6.71 22.18 (6.72)
During the ten years ended December 31, 1999, the highest return
for a quarter was 15.47% for the quarter ended December 31, 1998,
and the lowest return was (12.95%) for the quarter ended
September 30, 1998.
Performance Table
Average Annual Total Returns as of December 31, 1999
1 Year 5 Years 10 Years
------ ------- --------
SGF (9.29%) 16.68% 11.61%
---
S & P 500* 20.89% 28.24% 17.98%
S & P/BARRA Value** 12.72% 22.83% 15.54%
_____________
*The S&P 500 Index is a widely recognized, unmanaged index of 500
common stocks that is generally considered to be representative
of the U.S. stock market as a whole.
**The S&P/BARRA Value index is an unmanaged, capitalization-
weighted index of all stocks in the S&P 500 that have low price-
to-book ratios.
Suitability The fund may be a suitable investment for you if you:
. Desire an investment that focuses on growth and income.
. Are investing for retirement or other long-term goals.
. Can tolerate performance that varies from year to year.
3
<PAGE>
Stratton
Monthly
Dividend REIT
Shares
Investment A high rate of return from dividend and interest income on
Objective investments in common stock and securities convertible into
common stock.
Principal The fund invests at least 65% of its total assets in common
Strategy stocks and other equity securities of real estate investment
trusts ("REITs"). REITs were created to enable investors to
participate in the benefits of owning income-producing real
estate. REITs own many different types of properties, such as
apartment complexes, office buildings, hotels, health care
facilities, shopping centers, and shopping malls.
The fund is managed to provide a high level of monthly income
to its shareholders and therefore looks for companies that have
strong dividend payouts. The fund needs higher yielding
securities to maintain its own attractive dividend payout.
REITs satisfy this income requirement, while also offering the
potential for dividend growth and capital appreciation.
Investment decisions will be made on the basis of an analysis
of fundamentals of individual companies and on relevant
economic and social conditions.
Principal Risks There are risks involved with any investment, but the risks
associated with an investment in the fund include:
. Stock market risk, or the risk that the price of securities
held by the fund will rise or fall due to various conditions
or circumstances which may be unpredictable.
. The cyclical nature of the real estate industry, which
subjects the real estate and real estate related securities
held by the fund to any market or economic condition that
may affect the value of real estate (up or down).
. The fund is concentrated in REIT securities, which means it
may be subject to a greater risk of loss than a non-
concentrated mutual fund.
. Loss of part or all of your money invested in the fund.
. The portfolio manager's skill in assessing the potential of
the stocks they buy.
Bar Chart and The following bar chart and performance table provide some
Performance indication of the risks of investing in the fund by showing
Table changes in the fund's performance from year to year and showing
how the fund's average annual returns compare with those of a
broad measure of market performance. Both the bar chart and
performance table assume reinvestment of dividends and
distributions. As with all mutual funds, past performance is
not a prediction of future performance.
4
<PAGE>
Annual Returns (%)
------------------
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(6.25) (11.75) 18.09 8.58 23.45 (12.13) 6.60 10.41 35.10 (3.83)
</TABLE>
During the ten years ended December 31, 1999, the highest
return for a quarter was 12.83% for the quarter ended June 30,
1999, and the lowest return for a quarter was (7.26%) for the
quarter ended June 30, 1994.
Performance Table
Average Annual Total Returns as of December 31, 1999
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
SMDS (6.25%) 5.54% 5.81%
----
S & P 500* 20.89% 28.24% 17.98%
NAREIT Equity** (4.62%) 8.09% 9.14%
</TABLE>
---------------------
* The S&P 500 Index is a widely recognized, unmanaged
index of 500 common stocks that is generally considered to
be representative of the U.S. stock market as a whole.
**The NAREIT Equity Index is an unmanaged index comprised
of 178 real estate investment trusts.
Suitability The fund may be a suitable investment for you if you:
. Desire an investment that focuses on income.
. Are investing for retirement or other long-term goals.
. Can tolerate performance that varies from year to
year.
5
<PAGE>
Stratton Small-Cap
Value Fund
Investment Dividend income and capital appreciation.
Objective
Principal Under normal market conditions, the fund invests at least
Strategy 80% of its assets in common stock and securities
convertible into common stock of small capitalization
companies. In selecting stocks for the fund to buy, small
capitalization companies are defined as companies with
market capitalizations, at the time of purchase, that are
below the market capitalization of the largest company in
the Russell 2000 Index. These common stocks, including
dividend-paying common stocks, are of well-established U.S.
companies that the investment advisor believes are
undervalued. Value stocks are stocks that appear to be
under-priced based on traditional measures such as lower
price-to-earnings ratios and price-to-book ratios. The fund
also invests in real estate investment trusts.
Generally, small company stocks are considered more
volatile than large company stocks because they have
limited product lines and financial resources. Stocks of
these companies may experience more abrupt price movements
than larger capitalization stocks.
The fund's investment advisor employs a three-step process
that focuses on a stock's fundamental valuation, earnings
projections and, as a confirming factor, relative price
strength. Fundamental valuation is the largest component of
the process and takes into consideration both a company's
valuation relative to its peers and its valuation relative
to its private market value. The investment advisor
believes that undervalued companies with good earnings
prospects have superior appreciation potential with
reasonable levels of risk.
Securities in the portfolio that the investment advisor may
sell are those stocks with either poor earnings prospects
relative to their peers or stocks that have excessive
valuations relative to their peers.
Principal Risks There are risks involved with any investment, but the risks
associated with an investment in the fund include:
. Stock market risk, or the risk that the price of
securities held by the fund will rise or fall due to
various conditions or circumstances which may be
unpredictable.
. Small-cap stocks tend to have a higher degree of
market risk than large-cap stocks, due to lack of
liquidity and other reasons.
. The cyclical nature of the real estate industry,
which subjects the real estate and real estate
related securities held by the fund to any market or
economic condition that may affect the value of real
estate (up or down).
. Loss of part or all of your investment in the fund.
. The portfolio manager's skill in assessing the
potential of the stocks they buy.
6
<PAGE>
Bar Chart and The following bar chart and performance table provide some
Performance Table indication of the risks of investing in the fund by showing
changes in the fund's performance from year to year and
showing how the fund's average annual returns compare with
those of a broad measure of market performance. Both the bar
chart and performance table assume reinvestment of dividends
and distributions. As with all mutual funds, past
performance is not a prediction of future performance.
Annual Returns (%)
------------------
1999 1998 1997 1996 1995 1994
(1.98) (9.58) 42.37 14.96 27.27 (2.69)
During the six years ended December 31, 1999, the highest
return for a quarter was 17.06% for the quarter ended June
30, 1999, and the lowest return for a quarter was (18.92%)
for the quarter ended September 30, 1998.
Performance Table
Average Annual Total Returns as of December 31, 1999
<TABLE>
<CAPTION>
1 Year 5 Years Since Inception*
------ ------- ----------------
<S> <C> <C> <C>
SSCV (1.98%) 13.05% 10.27%
Russell 2000** 21.36% 15.04% 12.39%
</TABLE>
---------------------
* Performance of the fund is based on the period April
12, 1993 (commencement of operations) through December
31, 1999. Performance of The Frank Russell 2000 Index
(the "Russell 2000") is based on the period March 31,
1993 through December 31, 1999.
** The Russell 2000 is an unmanaged index comprised of
the smallest 2000 companies in the Russell 3000 Index,
representing approximately 11% of the Russell 3000 total
market capitalization. The Russell 3000 Index represents
approximately 98% of the investable U.S. equity market.
Suitability The fund may be a suitable investment for you if you:
. Desire an investment that focuses on both growth and
income.
. Are investing for retirement or other long-term goals.
. Are willing to accept more market risk in return for the
potentially higher returns that may come from investing
in small-cap companies.
. Can tolerate performance that varies from year to
year.
7
<PAGE>
<TABLE>
<CAPTION>
SGF SMDS SSCV
--- ---- ----
FEE TABLE Annual Fund Operating Expenses:
-------------------------------
<S> <C> <C> <C>
(as a percentage of average net assets)
Management Fees 0.75%/1/ 0.63%/1/ 0.75%/2/
Other Expenses 0.41% 0.48% 0.33%
----- ----- -----
Total Fund Operating Expenses 1.16% 1.11% 1.08%
</TABLE>
Example
The following example illustrates the expenses that you
would pay on a $10,000 investment, assuming (1) a 5%
annual rate of return, (2) redemption at the end of each
time period, (3) all distributions are reinvested; and
(4) each fund's operating expenses remain the same:
1 Year 3 Years 5 Years 10 Years
-------------------------------------------
SGF $118 $368 $638 $1409
SMDS $113 $353 $612 $1352
SSCV $110 $343 $595 $1317
-----------
/1/ Total Fund Operating Expenses for SGF and SMDS for
the fiscal year ended December 31, 1999, with fee
waivers, were 1.13% and 1.09%, respectively, of
SGF's and SMDS' average net assets. The investment
advisor voluntarily has agreed to waive annually
$15,000 of its compensation from SGF and SMDS to
offset a portion of the cost of certain
administrative responsibilities delegated to PFPC
Inc. ("PFPC").
/2/ This fee represents the basic management fee of
0.75% payable to SSCV, subject to a performance
adjustment. The performance adjustment is a rolling
24-month comparison to the Russell 2000. See
"Investment Advisor" for a further discussion. For
the fiscal year ended December 31, 1999, the
investment advisor received 0.59% of SSCV's average
net assets. Absent such performance adjustment, the
investment advisor would have received 0.75% of
SSCV's average net assets.
The purpose of the fee table is to help you understand
the various costs and expenses you will bear directly or
indirectly. In addition to the above fees, the funds'
transfer agent charges $9 for each redemption by wire
transfer. A more complete description of the various
costs and expenses of the funds is contained throughout
this Prospectus, in the Statement of Additional
Information and in the financial statements and related
notes which appear in the funds' Annual Report to
Shareholders.
This example should not be considered a representation
of past or future expenses or performance. Actual
expenses may be more or less than those shown.
FINANCIAL The financial highlights are intended to help you
HIGHLIGHTS understand each fund's financial performance during the
periods stated. Certain information reflects financial
results for a single fund share. "Total return" shows
how much your investment in a fund would have increased
(or decreased) during each period, assuming you had
reinvested all dividends and distributions. These
figures have been audited by Tait, Weller & Baker,
certified public accountants, whose report, along with
the funds' financial statements is incorporated by
reference into the Statement of Additional Information
and is included in the funds' Annual Report to
Shareholders dated December 31, 1999, each of which may
be obtained free of charge by calling (800) 634-5726.
8
<PAGE>
Stratton Growth Fund, Inc.
<TABLE>
<CAPTION>
7 Months
Years Ended December 31, Ended
----------------------------
1999 1998 1997 12/31/96
------- ------- ------- ---------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period....................................... $ 34.07 $ 33.39 $ 27.00 $ 27.18
------- ------- ------- ---------
Income From Investment Operations
Net investment income................................................. 0.416 0.570 0.550 0.312
Net gains (losses) on securities (both
realized and unrealized)............................................ (3.516) 3.130 8.900 1.298
------- ------- ------- ---------
Total from investment operations................................. (3.100) 3.700 9.450 1.610
------- ------- ------- ---------
Less Distributions
Dividends (from net investment income)................................ (0.410) (0.590) (0.540) (0.580)
Distributions (from capital gains).................................... (1.330) (2.430) (2.520) (1.210)
------- ------- ------- ---------
Total distributions.............................................. (1.740) (3.020) (3.060) (1.790)
------- ------- ------- ---------
Net Asset Value, End of Period............................................. $ 29.23 $ 34.07 $ 33.39 $ 27.00
======= ======= ======= =========
Total Return............................................................... (9.29%) 11.46% 36.06% 6.40%
Ratios/Supplemental Data
Net assets, end of period (in 000's).................................. $43,865 $63,323 $60,177 $ 44,801
Ratio of expenses to average net assets............................... 1.13% 1.07% 1.11% 1.17%/1/
Ratio of net investment income to average net assets.................. 1.21% 1.60% 1.87% 2.08%/1/
Portfolio turnover rate............................................... 39.81% 38.02% 34.40% 20.32%
<CAPTION>
Years Ended May 31,
---------------------
1996 1995
------- -------
<S> <C> <C>
Net Asset Value, Beginning of Period................................. $ 22.35 $ 20.65
------- -------
Income From Investment Operations
Net investment income........................................... 0.556 0.537
Net gains (losses) on securities (both
realized and unrealized)...................................... 5.759 2.978
------- -------
Total from investment operations........................... 6.315 3.515
------- -------
Less Distributions
Dividends (from net investment income).......................... (0.540) (0.540)
Distributions (from capital gains).............................. (0.945) (1.275)
------- -------
Total distributions........................................ (1.485) (1.815)
------- -------
Net Asset Value, End of Period....................................... $ 27.18 $ 22.35
======= =======
Total Return......................................................... 29.62% 18.61%
Ratios/Supplemental Data
Net assets, end of period (in 000's)............................ $42,880 $31,719
Ratio of expenses to average net assets......................... 1.16% 1.31%
Ratio of net investment income to average net assets............ 2.28% 2.70%
Portfolio turnover rate......................................... 15.41% 42.54%
</TABLE>
____________
/1/ Annualized
9
<PAGE>
Stratton Monthly Dividend REIT Shares, Inc.
<TABLE>
<CAPTION>
11 Months
Years Ended December 31, Ended Years Ended January 31,
--------------------------------- -----------------------
1999 1998 1997 12/31/96 1996 1995
------- ------- -------- --------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period............... $ 24.78 $ 30.25 $ 27.43 $ 27.40 $ 24.84 $ 28.69
------- ------- -------- --------- -------- --------
Income From Investment Operations
Net investment income............................ 1.550 1.650 1.540 1.630 1.880 1.940
Net gains (losses) on securities (both
realized and unrealized)........................ (3.010) (5.070) 3.200 0.160 2.600 (3.870)
------- ------- -------- --------- -------- --------
Total from investment operations............... (1.460) (3.420) 4.740 1.790 4.480 (1.930)
------- ------- -------- --------- -------- --------
Less Distributions
Dividends (from net investment income)........... (1.550) (1.650) (1.540) (1.630) (1.890) (1.920)
Distributions (in excess of net investment
income)......................................... -- (0.400) -- (0.130) (0.030) --
Return of capital................................ (0.490) -- (0.380) -- -- --
------- ------- -------- --------- -------- --------
Total distributions............................ (2 040) (2.050) (1.920) (1.760) (1.920) (1.920)
------- ------- -------- --------- -------- --------
Net Asset Value, End of Period..................... $ 21.28 $ 24.78 $ 30.25 $ 27.43 $ 27.40 $ 24.84
======= ======= ======== ========= ======== ========
Total Return....................................... (6 25%) (11 75%) 18.09% 7.12% 18.98% (6.57%)
Ratios/Supplemental Data
Net assets, end of period (in 000's)............. $59,413 $79,936 $101,956 $ 103,780 $129,267 $134,066
Ratio of expenses to average net assets.......... 1.09% 1.02% 1.02% 1.02% /1/ 0.99% 1.08%
Ratio of net investment income to average net
assets.......................................... 6.61% 5.95% 5.48% 6.94% /1/ 7.42% 7.71%
Portfolio turnover rate.......................... 13.94% 18.89% 42.47% 69.19% 53.30% 39.50%
</TABLE>
_______________
/1/ Annualized
10
<PAGE>
Stratton Small-Cap Value Fund
<TABLE>
<CAPTION>
Years Ended December 31, 9 Months Years Ended March 31,
------------------------------------ Ended ----------------------
1999 1998 1997/1/ 12/31/96/2/ 1996/2/ 1995/2/
--------------------- ----------- ----------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period.......... $ 20.11 $ 22.47 $ 16.79 $ 15.98 $ 12.94 $ 12.97
--------- --------- ----------- ----------- --------- ---------
Income From Investment Operations
Net investment income.................... 0.278 0.170 0.210 0.260 0.330 0.290
Net gains (losses) on securities
(both realized and unrealized).......... (0.678) (2.310) 6.800 1.740 3.040 (0.020)
--------- --------- ----------- ----------- --------- ---------
Total from investment operations...... (0.400) (2.140) 7.010 2.000 3.370 0.270
--------- --------- ----------- ----------- --------- ---------
Less Distributions
Dividends (from net investment
income)................................. (0.270) (0.180) (0.200) (0.270) (0.330) (0.300)
Distributions (from capital gains)....... -- (0.040) (1.130) (0.920) -- --
--------- --------- ----------- ----------- --------- ---------
Total distributions.................... (0.270) (0.220) (1.330) (1.190) (0.330) (0.300)
--------- --------- ----------- ----------- --------- ---------
Net Asset Value, End of Period................ $ 19.44 $ 20.11 $ 22.47 $ 16.79 $ 15.98 $ 12.94
========= ========= =========== =========== ========= =========
Total Return.................................. (1.98%) (9.58%) 42.37% 12.84% 26.18% 2.09%
Ratios/Supplemental Data
Net assets, end of period (in 000's)..... $36,054 $42,789 $39,377 $ 21,691 $19,592 $ 14,058
Ratio of expenses to average
net assets.............................. 1.08% 1.56% 1.62% 1.29% 1.46% 2.12%
Ratio of net investment
income to average net assets............ 1.29% 0.80% 1.09% 2.03% 2.28% 2.36%
Portfolio turnover rate.................. 43.44% 35.74% 26.27% 35.86% 33.50% 30.20%
</TABLE>
________________________
/1/ Annualized
/2/ Adjusted for a 2-for-1 stock split declared by the Fund to shareholders of
record on December 17, 1997
11
<PAGE>
INVESTMENT The investment objective of SGF is fundamental and may not be
POLICIES changed without the vote of a majority of the fund's shares. The
AND RISK investment objectives of SMDS and SSCV are not fundamental and
CONSIDER- may be changed by each fund's Board of Directors. Unless
ATIONS otherwise stated in this Prospectus or the Statement of
Additional Information, each fund's investment policies are not
fundamental and may be changed without shareholder approval.
However, the funds intend to notify shareholders before making
any change in any 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.
Risk Investments in small-cap companies have certain risks associated
Considerations with them. First and foremost is their greater earnings and price
for SSCV 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 on-going entities for at least three
years. In addition, to be considered a buy candidate, companies
must be characterized as being undervalued relative to their
industry peers. Historically, undervalued small companies have
had a lower risk profile than the overall small capitalization
market.
Risk Each fund may invest in REITs. Equity REITs invest directly
Considerations in real property while mortgage REITs invest in mortgages on real
for each Fund property. REITs may be subject to certain risks associated with
REITs 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
12
<PAGE>
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.
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."
Temporary Although each fund normally seeks to remain fully invested in
Investments equity securities, each 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
temporarily to maintain liquidity to meet shareholder
redemptions, or as a defensive measure to protect capital. 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, the fund may not achieve its investment objective.
For temporary defensive purposes, SGF 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.
INVESTMENT Stratton Management Company, with offices at Plymouth Meeting
ADVISOR Executive Campus, 610 W. Germantown Pike, Suite 300, Plymouth
Meeting, PA 19462-1050, is the funds' investment advisor and
manager and is a registered investment advisor. Stratton
Management provides investment advisory services for a variety of
individuals and institutions, and had approximately $1.65 billion
in assets under management as of December 31, 1999.
James W. Stratton is the Chief Executive officer of Stratton
Management and has been primarily responsible for the day-to-day
investment management of SGF and SMDS since 1972 and 1980,
respectively. Mr. Frank H. Reichel, III has been primarily
responsible for the day-to-day investment management of SSCV
since that fund's commencement of operations in April of 1993.
Pursuant to Investment Advisory Agreements, Stratton Management
Company provides an investment program in accordance with each
respective fund's investment policies, limitations and
restrictions.
13
<PAGE>
Investment For its advisory services, the investment advisor receives an
Advisory Fee annual fee of 0.75% of daily net assets of SGF and an annual fee
of 0.63% of daily net assets of SMDS. The investment advisor
voluntarily has agreed to waive annually $15,000 of its fees from
SGF and SMDS to offset a portion of the fees that those funds
will incur under administration agreements with PFPC. See the
Statement of Additional Information for a detailed description of
those fees. During the fiscal year ended December 31, 1999, SGF
and SMDS paid the investment advisor fees at the effective annual
rates of 0.72% and 0.60%, of each fund's respective average daily
net assets.
For its investment advisory services to SSCV, the investment
advisor receives a fee, payable monthly, at an annual rate of
0.75% of average daily net assets, plus/minus a performance fee
adjustment.
The performance fee adjustment for SSCV is calculated at the end
of each month based upon the fund's performance during the last
rolling 24-month period. The fund's gross performance is then
compared with the performance of the Russell 2000. The Russell
2000 is a widely recognized unmanaged common stock index of small
to medium size companies. When the fund performs better than the
Russell 2000, it pays the investment advisor additional fees. If
the fund lags the Russell 2000, the investment advisor is paid
less than 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 end result is that if the investment advisor manages the
fund in such a way as to outperform the benchmark index, the
investment advisor is paid more for its efforts. Most important,
however, is the fact that if the investment advisor does not
perform as well as the benchmark index, the investment advisor is
paid less, and in this way, penalized for poor performance.
The maximum annualized performance adjustment rate is +/- 0.50%
of average net assets which would be added to or deducted from
the investment advisory fee if the fund outperformed or
underperformed the Russell 2000 by 5.00%. The effect of this
performance fee adjustment is that the investment advisory fee
may never be greater than 1.25% or less than 0.25% of the fund's
average daily net assets for the preceding month. During the
fiscal year ended December 31, 1999, SSCV paid the investment
advisor a fee at the effective annual rate of 0.57% of the fund's
average daily net assets.
PRICING FUND Fund share pricing is based upon net asset value. The net asset
SHARES value per share of each fund is determined once each business day
as of the close of regular trading hours (normally 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
14
<PAGE>
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
Purchase Price You pay no sales charge to invest in any of the funds. Shares of
all funds are sold at the net asset value per share (NAV) next
determined after receipt of the order by PFPC.
Time of All requests received by PFPC before 4:00 p.m. Eastern time will
Requests be executed the same day, at that day's closing share price.
Orders received after 4:00 p.m. Eastern time will be executed the
following day, at that day's closing share price. Shares will not
be priced on days when the NYSE is closed.
Stock exchange Shares of the funds will not be priced and are not available for
closings purchase on the following days on which the NYSE is closed for
trading: New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
General Shares of a fund may be repurchased or redeemed through
Information broker/dealers who may charge a transaction fee. This fee would
not otherwise be charged if the shares were purchased directly
from a fund. The funds may accept wire purchase orders from
broker/dealers and institutions that previously have been
approved by a fund.
The funds reserve the right to reject any purchase order. Share
certificates are issued only upon shareholder request.
The funds do not accept third party checks for the purchase of
shares. The funds reserve the right to delay sending redemption
proceeds up to 15 days if you recently purchased shares by check.
A $20 fee is charged to your account for any purchase check
returned to the custodian.
Shareholder inquiries should be directed to the funds' transfer
agent, PFPC Inc., P.O. Box 61503, King of Prussia, PA 19406-0903,
phone number (800) 472-4266. Certain special shareholder
services, such as a request for a historical transcript of your
account, may involve an additional fee.
Shareholders of each fund can obtain toll-free access to account
information, as well as some transactions, by calling (800) 472-
4266. Integrated Voice Response System provides share price and
price change for the funds; gives account balances and history
(i.e., last transaction, latest dividend distribution,
redemptions by check during the last three months); and allows
exchanges of shares.
15
<PAGE>
<TABLE>
<CAPTION>
How to buy shares
- ----------------------------------------------------- -----------------------------------------------------
To open an account To add to an account
- ----------------------------------------------------- -----------------------------------------------------
<S> <C>
By Mail By Mail
Complete the application. Please make check payable to the name of the fund
you are investing in and write your account number
Mail the application and your check to: on the check.
PFPC INC.
P.O. BOX 61503 Mail your check and the stub from your last account
KING OF PRUSSIA, PA 19406-0903 statement to:
Please make check payable to the name of the fund you PFPC INC.
wish to invest in. P.O. BOX 61767
KING OF PRUSSIA, PA 19406-8767
Minimum initial investment for the funds:
$2,000 for non-retirement accounts Minimum additional investments for the funds:
No minimum for retirement accounts $100 for non-retirement accounts
No minimum for retirement accounts
- ----------------------------------------------------- -----------------------------------------------------
By Wire By Wire
- ----------------------------------------------------- -----------------------------------------------------
For new accounts, call (800) 472-4266. An account Follow instructions under To open an account -- By
number will be assigned to you. Wire.
Call your bank with instructions to transmit federal Minimum additional investment: same as "By Mail"
funds to: above.
- Boston Safe Deposit & Trust
- ABA#: 011001234
- Credit: The fund name
- Acct#: 000701
- FBO: name(s) on account registration
and account number
Your bank may charge a wire fee.
Minimum investment: same as "By Mail" above.
Mail your completed application to PFPC Inc. at the
address above.
- ----------------------------------------------------- -----------------------------------------------------
By Automatic Investment* By Automatic Investment
- ----------------------------------------------------- -----------------------------------------------------
Complete the application and return it with your Call (800) 472-4266 to request an application.
initial investment. The minimum investment for this
plan is $100. Complete and return the application along with any
other required materials.
Subsequent investments will be drawn from your bank
account and invested into the fund(s). Subsequent investments will be drawn from your bank
account and invested into the fund(s).
* Requires $2,000 initial minimum balance.
</TABLE>
16
<PAGE>
HOW TO
REDEEM
FUND
SHARES
Timing of Shares are redeemed at the net asset value next
Requests determined at the close of regular trading hours on the
NYSE after receipt of a request for redemption in the
form described below, and the certificates (if any)
evidencing the shares to be redeemed. There is no
redemption charge. However, the transfer agent will
charge a $9 fee for wiring redemption proceeds. Payment
for shares redeemed is made within five business days,
or such shorter time period as may be required by
applicable SEC rules, after receipt of the certificates
(or of the redemption request where no certificates have
been issued) by mailing a check to your address of
record.
Telephone Neither the funds nor any of their service
Redemptions contractors will be liable for any loss or expense or
cost in acting upon any telephone instructions that are
reasonably believed to be genuine. 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.
Redeeming If you wish to redeem shares that were recently
recently purchased by check, the funds may delay mailing of
purchased your redemption check for up to 15 business days after
shares your redemption request to allow the purchase check to
clear. If you are considering redeeming shares soon
after purchase, you should purchase by bank wire or
certified check to avoid delay.
Signature The funds may require additional documentation, or
Guarantees signature guarantees on any redemptions if proceeds are
to be paid to someone other than the account holder,
when redemption proceeds are to be wired to a bank,
requests to transfer share registration, or when
redemption proceeds are to be sent to an address other
than the account holder's. A signature guarantee helps
protect against fraud. You can obtain one from most
banks or securities dealers, but not from a notary
public. Please call (800) 472-4266 for information on
obtaining a signature guarantee.
Accounts with If your account falls below $500, the fund may ask you
low balances to increase your balance. If it is still below $500
after 60 days, the fund may close your account and send
you the proceeds.
17
<PAGE>
<TABLE>
<CAPTION>
How to redeem shares
- ------------------------------------------------------- -----------------------------------------------------
To redeem or close an account To redeem or close an account
- ------------------------------------------------------- -----------------------------------------------------
By Mail By Telephone
- ------------------------------------------------------- -----------------------------------------------------
<S> <C>
Write a letter of instruction that includes: To make redemptions by telephone, call (800)
472-4266 before the close of business on any
- The fund name, your account number, the business day. The funds may require additional
name(s) in which the account is registered and documentation, or signature guarantees on any
the dollar value or number of shares you wish redemptions in amounts over $50,000.
to sell. Proceeds will normally be sent the next business
- Include all signatures and any additional day by first class mail to the address in which the
documents that may be required. account is registered.
- Mail your request and any applicable stock Redemption requests to send proceeds to an address
certificates you hold to: other than the address of record must be in writing
PFPC INC. with the appropriate signature guarantees.
P.O. BOX 61503 Telephone redemption requests to send proceeds to
KING OF PRUSSIA, PA 19406-0903 banks may be accepted if the appropriate wiring
- A check will be mailed to the name(s) and instructions are on file prior to the request.
address in which the account is registered.
- ------------------------------------------------------- -----------------------------------------------------
By Exchange By Automated Clearing House
- ------------------------------------------------------- -----------------------------------------------------
Call (800) 472-4266 to request an exchange of shares Redemption proceeds may be transferred to banks
into another Stratton Mutual Fund. that are on-line members of ACH. There are no
service fees. Written ACH redemption requests should
be sent to PFPC at the address under "By Mail." ACH
redemptions are sent the day following receipt
of your request, and funds are available two days
later.
- -------------------------------------------------------
By Systematic Cash Withdrawal Plan
- -------------------------------------------------------
Complete the appropriate part of the application and
specify the amount and frequency of withdrawals you
would like (monthly minimum is $50). Be sure to maintain
an account balance of $10,000 or more.
</TABLE>
EXCHANGE You can exchange fund shares for shares of the other Stratton
PRIVILEGE funds, provided such other shares may legally be sold in your
state. Each fund has a distinct investment objective, which
should be reviewed before executing any exchange of shares. You
also should read the additional information about a fund,
including its expenses, before seeking any such exchange.
Shares may be exchanged by written request or telephone.
18
<PAGE>
PLEASE NOTE: Shareholders who have certificated
shares must surrender these certificates to the
transfer agent to be held on account in unissued
form before 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: (1) a Profit Sharing and a Money
Purchase Plan, for use by both self-employed
individuals and corporations; (2) an Individual
Retirement Account, both Traditional and Roth, for
use by certain eligible individuals with
compensation (including earned income from self-
employment); (3) a Simple Individual Retirement
Account Plan for use by certain small employers; and
(4) 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, disclosure statement and
custodial agreement.
TAX Each fund contemplates declaring as dividends each
TREATMENT: year all or substantially all of its taxable income,
DIVIDENDS AND including its net capital gain (the excess of long-
DISTRIBUTIONS term capital gain over short-term capital loss).
Distributions attributable to the net capital gain
Tax Treatment of a fund will be taxable to you as long-term
capital gain, regardless of how long you have held
your shares. Other fund distributions will generally
be taxable as ordinary income. (However, if a fund's
distributions exceed its net income and gain -- as
may be the case particularly for SMDS, because REIT
distributions often include a nontaxable return of
capital -- that excess will generally result in a
nontaxable return of capital to you.)
The tax treatment to you of fund distributions will
be the same whether they are paid in cash or
reinvested in additional shares. Any dividends
declared in October, November or December and paid
in January will be deemed for tax purposes to have
been paid to you on December 31. You will be
notified annually of the amount and tax status of
all distributions to you.
REITs often do not provide complete tax information
to the funds until after the calendar year-end.
Consequently, because of the delay, it may be
necessary for the funds to request permission to
extend the deadline for issuance of Forms 1099-DIV
beyond January 31.
You should note that if you purchase shares shortly
before a taxable distribution, the purchase price
will reflect the amount of the upcoming
distribution, but you will be taxed on the entire
amount of the distribution received, even though, as
an economic matter, the distribution simply
constitutes a return of capital. This is known as
"buying into a dividend."
19
<PAGE>
You will recognize a taxable gain or loss on a sale,
exchange or redemption of your shares, including an
exchange for shares of another fund, based on the
difference between your tax basis in the shares and
the amount you receive for them. (To aid in
computing your tax basis, you generally should
retain your account statements for the periods
during which you held shares.) Generally, your gain
or loss will be long-term or short-term depending on
whether your holding period for the shares exceeds
12 months, except that any loss realized on shares
held for six months or less will be treated as long-
term capital loss to the extent of any capital gain
dividends that were received on the shares.
The one major exception to these tax principles is
that distributions on, and sales, exchanges and
redemptions of, shares held in an IRA (or other
tax-qualified plan) will not be currently taxable.
Also, dividends paid to shareholders that are
corporations may be eligible for the 70%
dividends-received deduction to the extent the
dividends are attributable to qualifying dividends
received by the fund from domestic corporations.
Generally, dividends received from REITs are not
considered to be qualifying dividends for purposes
of the 70% dividends-received deduction.
You will also generally be subject to any applicable
state and local income taxes on fund distributions
and redemptions. State income taxes generally will
not apply, however, to fund distributions
attributable to interest on federal securities, if
any.
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 by 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.
The foregoing is only a summary of certain tax
considerations under current law, which may be
subject to change in the future. You should consult
your tax adviser
Dividends and The shareholders of each fund are entitled to
Distributions dividends and 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. SGF declares and pays dividends from net
investment income on a semi-annual basis. SMDS
declares and pays dividends from net investment
income on a monthly basis. SSCV declares and pays
dividends from net investment income annually. Each
fund will make distributions from net realized
gains, if any, once a year, but may make
distributions on a more frequent basis so as to
avoid incurring any fund level income or excise
taxes, or for other reasons. 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.
20
<PAGE>
The Statement of Additional Information contains additional information about
the funds. The Statement of Additional Information is incorporated by reference
into this Prospectus in its entirety. Additional information about the fund's
investments is available in the fund's annual and semi-annual reports to
shareholders. In the annual report, you will find a discussion of the market
conditions and investment strategies that significantly affected each fund's
performance during the last fiscal year.
To obtain a Statement of Additional Information, annual report or semi-annual
report for the funds, without charge, call (800) 472-4266. This number may also
be used to make shareholder inquiries.
Information about the funds (including the Statement of Additional Information)
can be reviewed and copied at the SEC Public Reference Room in Washington, D.C.
Information on the operation of the Public Reference Room may be obtained by
calling the SEC at (202) 942-8090. Reports and other information about the funds
are available on the EDGAR Database on the SEC's Internet site at
http://www.sec.gov. You may request documents from the SEC, upon payment of a
- ------------------
duplicating fee, by electronic request at [email protected], or by writing to
------------------
the SEC, Public Reference Section, Washington, DC 20549-0102.
SEC file nos.: SGF 811-2297
SMDS 811-2240
The Stratton Funds, Inc. 811-7434
21
<PAGE>
[Back Cover]
DIRECTORS
Lynne M. Cannon
John J. Lombard, Jr.
Douglas J. MacMaster, Jr.
Henry A. Rentschler
Merritt N. Rhoad, Jr.
Richard W. Stevens
James W. Stratton
OFFICERS
James W. Stratton
Chairman
John A. Affleck
President,
Stratton Growth Fund
Frank H. Reichel, III
President,
Stratton Small-Cap Value Fund
James A. Beers
President,
Stratton Monthly Dividend REIT Shares
Joanne E. Kuzma
Vice President
Patricia L. Sloan
Secretary & Treasurer
Brigid E. Hummel
Assistant Secretary &
Treasurer
INVESTMENT ADVISOR
Stratton Management Company
Plymouth Meeting Executive Campus, 610 W. Germantown Pike, Suite 300
Plymouth Meeting, PA 19462-1050, Telephone: 610-941-0255
TRANSFER AGENT & DIVIDEND PAYING AGENT
PFPC Inc.
3200 Horizon Drive, P.O. Box 61503, King of Prussia, PA 19406-0903
Telephone: 610-239-4600, 800-472-4266
CUSTODIAN
The Bank of New York
48 Wall Street, New York, NY 10286
Visit the Stratton Mutual Funds web site at
http://www.strattonmgt.com
STRATTON
Mutual Funds
Stability - Strategy - Success
<PAGE>
STRATTON
MUTUAL FUNDS
Stratton Growth Fund, Inc.
Stratton Monthly Dividend REIT Shares, Inc.
Stratton Small-Cap Value Fund
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
This Statement of Additional Information provides supplementary information
pertaining to shares of common stock in three separate mutual funds: Stratton
Growth Fund, Inc. ("SGF"); Stratton Monthly Dividend REIT Shares, Inc. ("SMDS");
and Stratton Small-Cap Value Fund ("SSCV") of The Stratton Funds, Inc.
This Statement of Additional Information is not a Prospectus but should be read
in conjunction with the current Prospectus dated May 1, 2000, as amended or
supplemented from time to time, and is incorporated by reference in its entirety
into the Prospectus. The funds' audited financial statements and financial
highlights included in their annual report to shareholders are incorporated by
reference into this Statement of Additional Information. A copy of the funds'
Prospectus and annual report are available, without charge, upon request, by
contacting the funds' Distributor, Provident Distributors, Inc., 3200 Horizon
Drive, King of Prussia, PA 19406-0903, or by telephoning (800) 634-5726.
Plymouth Meeting Executive Campus
610 W. Germantown Pike, Suite 300
Plymouth Meeting, PA 19462-1050
(610) 941-0255
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
HISTORY OF THE FUNDS.................................................. 3
INVESTMENT STRATEGIES AND RISKS....................................... 5
INVESTMENT RESTRICTIONS
SGF.............................................................. 5
SMDS............................................................. 6
SSCV............................................................. 8
MANAGEMENT OF THE FUNDS
Directors and Officers........................................... 9
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES................... 12
INVESTMENT ADVISOR AND OTHER SERVICE PROVIDERS
Investment Advisor............................................... 13
Service Providers and Underwriter................................ 14
Year 2000 Compliance............................................. 14
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS...................... 15
PURCHASE AND REDEMPTION INFORMATION................................... 16
RETIREMENT PLANS
Defined Contribution Plans....................................... 17
Individual Retirement Accounts................................... 17
Savings Incentive Match Plans for Employees of Small Employers... 18
403(b)(7) Retirement Plan........................................ 18
General Information.............................................. 19
INFORMATION CONCERNING TAXES.......................................... 20
DESCRIPTION OF COMMON STOCK........................................... 20
PERFORMANCE CALCULATIONS.............................................. 21
FINANCIAL STATEMENTS.................................................. 23
</TABLE>
2
<PAGE>
HISTORY OF THE FUNDS
This Statement of Additional Information pertains to the following separate
funds incorporated under the laws of the State of Maryland:
Name of Fund Date of Incorporation
- ------------ ---------------------
Stratton Growth Fund, Inc. (SGF) June 21, 1985*
Stratton Monthly Dividend REIT Shares, Inc. (SMDS) March 4, 1985 **
The Stratton Funds, Inc. January 5, 1993***
Stratton Small-Cap Value Fund (SSCV)
* As successor to a Delaware corporation organized on June 5, 1972.
** As successor to a Delaware corporation organized on November 10, 1971. On
December 9, 1997, the fund changed its name from Stratton Monthly Dividend
Shares, Inc.
*** SSCV commenced operations on April 12, 1993 as the Stratton Small-Cap Yield
Fund. On January 18, 2000, the Stratton Small-Cap Yield Fund changed its
name to Stratton Small-Cap Value Fund. References throughout this Statement
of Additional Information are to the fund's new name (i.e., SSCV).
Prior to December 31, 1996, the fiscal year ends for SGF, SMDS and SSCV were May
31, January 31 and March 31, respectively. As of December 31, 1996 the funds
changed to a December 31 fiscal year end. For the fiscal year ended December 31,
1996, financial information covered shortened periods of 7, 11 and 9 months,
respectively.
Classification:
The funds are classified as open-end management investment companies. The funds
are diversified, which means that, with respect to 75% of each fund's total
assets, the funds will not invest more than 5% of their respective assets in the
securities of any single issuer (other than securities issued by the U.S.
Government or its agencies or instrumentalities).
INVESTMENT STRATEGIES AND RISKS
-------------------------------
Types of Obligations, Investment Risks and Other Investment Information:
- ------------------------------------------------------------------------
The following investment strategies supplement those set forth in the funds'
Prospectus. The following investment strategies are not fundamental and a
particular fund's Board may change such strategies without shareholder approval.
Temporary Investments
- ---------------------
As stated in the Prospectus, each fund may make temporary investments in certain
short-term fixed income securities. Such securities may be used to invest
uncommitted cash balances temporarily to maintain liquidity, to meet shareholder
redemptions, or as a defensive measure to protect capital. 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. The following discussion
supplements the description of such investments in the Prospectus.
U.S. Government Obligations. Each fund may, in accordance with its investment
- ----------------------------
policies, invest from time to time in obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities.
Examples of the types of obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities (hereinafter, "U.S. Government
obligations") that may be held by the Funds include, without limitation, direct
obligations of the U.S. Treasury, and securities issued or guaranteed by the
Federal Home Loan Banks, Federal Farm
3
<PAGE>
Credit Banks, Federal Land Banks, Federal Housing Administration, Farmers Home
Administration, Export-Import Bank of the United States, Small Business
Administration, Government National Mortgage Association, Federal National
Mortgage Association, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Mortgage Corporation, Federal Intermediate
Credit Banks, Resolution Trust Corporation and Maritime Administration.
U.S. Treasury securities differ only in their interest rates, maturities and
time of issuance: Treasury Bills have initial maturities of one year or less;
Treasury Notes have initial maturities of one to ten years; and Treasury Bonds
generally have initial maturities of more than ten years. Obligations of certain
agencies and instrumentalities of the U.S. Government, such as those of the
Government National Mortgage Association, are supported by the full faith and
credit of the U.S. Treasury; others, such as those of the Federal Home Loan
Banks, are supported by the right of the issuer to borrow from the Treasury;
others, such as those of the Federal National Mortgage Association, are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Federal Home Loan
Mortgage Corporation, are supported only by the credit of the instrumentality.
No assurance can be given that the U.S. Government would provide financial
support to U.S. Government-sponsored instrumentalities if it is not obligated to
do so by law. Some of these instruments may be variable or floating rate
instruments.
Commercial Paper. Commercial paper consists of unsecured promissory notes
- -----------------
issued by corporations. Except as noted below with respect to variable and
floating rate instruments, issues of commercial paper will normally have
maturities of less than nine months and fixed rates of return, although such
instruments may have maturities of up to one year.
Commercial paper may include variable and floating rate instruments which are
unsecured instruments that permit the indebtedness thereunder to vary. Variable
rate instruments provide for periodic adjustments in the interest rate. Floating
rate instruments provide for automatic adjustment of the interest rate whenever
some other specified interest rate changes. Some variable and floating rate
obligations are direct lending arrangements between the purchaser and the issuer
and there may be no active secondary market. However, in the case of variable
and floating rate obligations with a demand feature, a fund may demand payment
of principal and accrued interest at a time specified in the instrument or may
resell the instrument to a third party. In the event that an issuer of a
variable or floating rate obligation defaulted on its payment obligation, a fund
might be unable to dispose of the note because of the absence of a secondary
market and could, for this or other reasons, suffer a loss to the extent of the
default.
Commercial paper will consist of issues rated at the time of purchase A-2 or
higher by Standard & Poor's Ratings Group, a Division of McGraw Hill, Prime-2 or
higher by Moody's Investors, Service, Inc., or similarly rated by another
nationally recognized statistical ratings organization, or if unrated, will be
determined to be of comparable quality by the fund's investment adviser.
Certificates of Deposit. Certificates of deposit are negotiable certificates
- -----------------------
issued against funds deposited in a commercial bank for a definite period of
time and earning a specified return.
Bankers' Acceptances. Bankers' acceptances are negotiable drafts or bills of
- ---------------------
exchange, normally drawn by an importer or exporter to pay for specified
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Repurchase Agreements. Each fund may purchase portfolio securities subject to
- ---------------------
the seller's agreement to repurchase them at a mutually specified date and price
("repurchase agreements"). Repurchase agreements will be entered into only with
financial institutions such as banks and broker/dealers which are deemed to be
creditworthy by the investment adviser. Unless a repurchase agreement has a
remaining maturity of seven days or less or may be terminated on demand upon
notice of seven days or less, the repurchase agreement will be considered an
illiquid security and will be subject to each funds' 15% limit with respect to
investments in illiquid securities.
The seller under a repurchase agreement will be required to maintain the value
of the securities which are subject to the agreement and held by a fund at not
less than the agreed upon repurchase price. If the seller defaulted on its
repurchase obligation, the fund holding such obligation would suffer a loss to
the extent that the proceeds from a sale of the underlying securities (including
accrued interest) were less than the repurchase price (including accrued
interest) under
4
<PAGE>
the agreement. In the event that such a defaulting seller filed for bankruptcy
or became insolvent, disposition of such securities by the fund might be delayed
pending court action.
The repurchase price under a repurchase agreement generally equals the price
paid by a fund plus interest negotiated on the basis of current short-term rates
(which may be more or less than the rate on the securities underlying the
repurchase agreement). Securities subject to a repurchase agreement will be held
by a fund's custodian or sub-custodian in a segregated account or in the Federal
Reserve/Treasury book-entry system. Repurchase agreements are considered to be
loans by a fund under the Investment Company Act of 1940, as amended.
Convertible Securities
- ----------------------
The funds may from time to time, in accordance with their respective investment
policies, invest in convertible securities. Convertible securities are fixed
income securities which may be exchanged or converted into a predetermined
number of shares of the issuer's underlying common stock at the option of the
holder during a specified time period. Convertible securities may take the form
of convertible preferred stock, convertible bonds or debentures, units
consisting of "usable" bonds and warrants or a combination of the features of
several of these securities.
Convertible bonds and convertible preferred stocks generally retain the
investment characteristics of fixed income securities until they have been
converted but also react to movements in the underlying equity securities. The
holder is entitled to receive the fixed income of a bond or the dividend
preference of a preferred stock until the holder elects to exercise the
conversion privilege. Usable bonds are corporate bonds that can be used in whole
or in part, customarily at full face value, in lieu of cash to purchase the
issuer's common stock. When owned as part of a unit along with warrants, which
are options to buy the common stock, they function as convertible bonds, except
that the warrants generally will expire before the bond's maturity. Convertible
securities are senior to equity securities and therefore have a claim to the
assets of the issuer prior to the holders of common stock in the case of
liquidation. However, convertible securities are generally subordinated to
similar non-convertible securities of the same issuer. The interest income and
dividends from convertible bonds and preferred stocks provide a stable stream of
income with generally higher yields than common stocks, but lower than non-
convertible securities of similar quality. A fund may exchange or convert the
convertible securities held in its portfolio into shares of the underlying
common stock in instances in which, in the investment adviser's opinion, the
investment characteristics of the underlying common shares will assist the fund
in achieving its investment objective. Otherwise, a fund may hold or trade the
convertible securities.
INVESTMENT RESTRICTIONS
The following investment restrictions are deemed fundamental policies and may be
changed, with respect to a fund, only by the approval of the holders of a
"majority" of such fund's outstanding shares. The term "majority" of a fund's
outstanding shares means the holders of the lesser of: (1) 67% of such fund's
shares present at a meeting if the holders of more than 50% of the outstanding
shares are present in person or by proxy; or (2) more than 50% of such fund's
outstanding shares.
SGF WILL NOT:
1. 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. 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.
3. Invest more than 5% of the value of its total assets in securities of
companies which (including operations of their predecessors and of
subsidiaries if the company is a holding company) have not had a record of
at least three years of continuous operations and in equity securities
which are not readily marketable (that is, with a limited trading market).
5
<PAGE>
4. Borrow money, except from banks for temporary or emergency purposes (but
not for investment purposes), provided that such borrowings shall not
exceed 5% of its total assets (at the lower of cost or market value).
5. Underwrite the securities of other issuers or invest in securities under
circumstances where, if sold, the fund might be deemed to be an underwriter
under the Securities Act of 1933.
6. Pledge, mortgage or hypothecate its assets.
7. Invest for purposes of exercising management or control.
8. Invest in securities of other investment companies or in options, puts,
calls, straddles, spreads or similar devices, or engage in arbitrage
transactions or short sales.
9. Purchase securities on margin, but the fund may obtain such short-term
credits as may be necessary for the clearance of purchases and sales of
securities.
10. Make loans to other persons except that this restriction shall not apply to
government obligations, commercial paper or notes or other evidences of
indebtedness which are publicly distributed.
11. Purchase or sell real estate or interests in real estate. This will not
prevent the fund from investing in publicly-held real estate investment
trusts or marketable securities which may represent indirect interests in
real estate.
12. Purchase or sell commodities or commodity contracts or invest in interests
in oil, gas or other mineral exploration or development programs.
13. Purchase or hold securities of any issuer, if, at the time of purchase or
thereafter, any officer or director of the fund or its investment advisor
owns beneficially more than 1/2 of 1%, and such officers and directors
holding more than 1/2 of 1% together own beneficially more than 5% of the
issuer's securities.
14. Purchase the securities of issuers conducting their principal business
activities in the same industry other than obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities if, immediately
after such purchase, the value of the fund's investments in such industry
would exceed 25% of the value of the total assets of the fund.
The fund will not invest more than 2% of the value of its total assets in
warrants. This restriction does not apply to warrants initially attached to
securities purchased by the fund. This restriction may be changed or eliminated
at any time by the Board of Directors of the fund without action by the fund's
shareholders.
SMDS WILL NOT:
1. Borrow money, except from banks for temporary or emergency purposes in an
amount not exceeding 5% of the value of its total assets; or mortgage,
pledge or hypothecate its assets to secure any borrowing except to secure
temporary or emergency borrowing and then only in an amount not exceeding
15% of the value of its total assets.
2. Invest more than 5% of the value of its total assets in securities of
issuers which, with their predecessors, have not had at least three years
of continuous operation.
3. Issue any senior securities (as defined in the 1940 Act), except in so far
as investment restriction 1 may be deemed to be an issuance of a senior
security.
6
<PAGE>
4. Act as an underwriter or purchase securities which the fund may not be free
to sell to the public without registration of the securities under the
Securities Act of 1933.
5. Purchase or sell real estate, commodities, or commodity contracts.
6. As to 75% of the total assets of the fund, purchase the securities of any
one issuer, other than securities issued by the U.S. government, its
agencies or its instrumentalities, if immediately thereafter such purchase
more than 5% of the total assets of the fund would be invested in
securities of such issuer.
7. Purchase or own 5% or more of the outstanding voting securities of any
electric or gas utility company (as defined in the Public Utility Holding
Company Act of 1935), or purchase or own 10% or more of the outstanding
voting securities of any other issuer.
8. Purchase the securities of an issuer, if, to the fund's knowledge, one or
more officers or Directors of the fund or of its investment advisor
individually own beneficially more than 1/2 of 1%, and those owning more
than 1/2 of 1% together own beneficially more than 5%, of the outstanding
securities of such issuer.
9. Make loans to other persons, except that the purchase of a portion of an
issue of publicly distributed debt securities (whether or not upon original
issuance) shall not be considered the making of a loan.
10. Purchase securities on margin, except that it may obtain such short-term
credits as may be necessary for the clearance of purchases or sales of
securities.
11. Participate on a joint or a joint-and-several basis in any securities
trading account.
12. Invest in puts, calls or combinations thereof or make short sales.
13. Purchase the securities of other investment companies.
14. Purchase securities which do not have readily available market quotations.
15. The fund will invest at least 25% of its assets in securities of real
estate investment trusts.
The fund will invest at least 25% of its assets in real estate investment trusts
("REITs"), and thus will be concentrated. REITs are not considered investment
companies, and therefore are not subject to the restriction in limitation 13
above. The restriction in limitation 5 on the purchase or sale of real estate
does not include investments by the fund in securities secured by real estate or
interests therein or issued by companies or investment trusts which invest in
real estate or interests therein.
The following investment restrictions can be changed only by the Board of
Directors of SMDS:
1. The fund will not invest for the purpose of exercising control or
management.
2. The fund will not invest in warrants, except when acquired as a unit with
other securities.
SSCV WILL NOT:
1. Issue any senior securities (as defined in the Investment Company Act of
1940); or borrow money, except from banks for temporary or emergency
purposes in an amount not exceeding 5% of the value of its total assets; or
mortgage, pledge or hypothecate its assets.
2. Act as an underwriter of securities, except that, in connection with the
disposition of a security, the fund may be deemed to be an "Underwriter" as
that term is defined in the Securities Act of 1933.
7
<PAGE>
3. Purchase or sell real estate, commodities, or commodity contracts.
4. As to 75% of the total assets of the fund, purchase the securities of any
one issuer, other than securities issued by the U.S. government, its
agencies or its instrumentalities, if immediately after such purchase more
than 5% of the total assets of the fund would be invested in securities of
such issuer.
5. Purchase or own 10% or more of the outstanding voting securities of any one
issuer.
6. Purchase the securities of an issuer, if, to the fund's knowledge, one or
more Officers or Directors of the fund or of its investment advisor
individually own beneficially more than 1/2 of 1%, and those owning more
than 1/2 of 1% together own beneficially more than 5%, of the outstanding
securities of such issuer.
7. Make loans to other persons, except that the purchase of a portion of an
issue of publicly distributed debt securities (whether or not upon original
issuance) shall not be considered the making of a loan, nor shall the fund
be prohibited from entering into repurchase agreements with banks or
broker/dealers.
8. Purchase securities on margin, except that it may obtain such short-term
credits as may be necessary for the clearance of purchases or sales of
securities.
9. Purchase the securities of issuers conducting their principal business
activities in the same industry other than obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities if, immediately
after such purchase, the value of the fund's investments in such industry
would exceed 25% of the value of the total assets of the fund.
10. Invest in puts, calls, straddles or combinations thereof or make short
sales.
11. Purchase the securities of other investment companies, except if they are
acquired pursuant to a merger, consolidation, acquisition, plan of
reorganization or a Securities and Exchange Commission approved offer of
exchange.
12. Invest for the purpose of exercising control over, or management of, the
issuer.
REITs are not considered investment companies, and therefore are not subject to
the restriction in limitation 11 above. The restriction in limitation 3 on the
purchase or sale of real estate does not include investments by the fund in
securities secured by real estate or interests therein or issued by companies or
investment trusts which invest in real estate or interests therein.
The percentage limitations on investments are applied at the time an investment
is made. An actual percentage in excess of a stated percentage limitation does
not violate the limitation unless such excess exists immediately after an
investment is made and results from the investment. In other words,
appreciation or depreciation of a fund's investments will not cause a violation
of the limitations. In addition, the limitations will not be violated if a fund
receives securities by reason of a merger or other form of reorganization.
MANAGEMENT OF THE FUNDS
Directors and Officers
The business of each fund is managed under the direction of the Board of
Directors of SGF, SMDS and The Stratton Funds, Inc. (collectively, the
"Companies"). The Directors and executive officers of the Companies, their
positions with the Companies, their addresses, affiliations, if any, with the
investment advisor, and principal occupations during
8
<PAGE>
the past five years are set forth below. Each of the Directors named below is a
Director for each of the Companies and each of the officers named below holds
the same position, unless otherwise noted, with each of the Companies.
<TABLE>
<CAPTION>
Position with
Name and Address Age Registrants Principal Occupation during last 5 years
<S> <C> <C> <C>
James W. Stratton/1/ 63 Director/ Mr. Stratton is the Chairman of the Board
610 W. Germantown Pike Chairman and Chief Executive Officer of the
Suite 300 investment advisor, Stratton Management
Plymouth Meeting, PA 19462 Company. He is a Director of Amerigas
Propane Ltd. (energy), EFI Corp. (financial
services), Teleflex, Inc. (diversified
conglomerate) and UGI Corp., Inc.
(utility-natural gas).
Lynne M. Cannon/2/ 44 Director Ms. Cannon is a Vice President of Client
3200 Horizon Drive Services of PFPC Inc. She was formerly Vice
King of Prussia, PA 19406 President of Client Services of First Data
Investor Services Group, Inc. She was
formerly a Director of FPS Broker Services,
Inc. She was formerly employed as Vice
President of Mutual Funds of Independence
Capital Management, Inc. (investment
advisor).
John J. Lombard, Jr. 65 Director Mr. Lombard is a partner in the law firm of
1701 Market St. Morgan, Lewis & Bockius LLP.
Philadelphia, PA 19103
Douglas J. MacMaster, Jr. 69 Director Mr. MacMaster is a private investor. He was
5 Morris Road formerly Senior Vice President of Merck,
Ambler, PA 19002 Inc. He is a Director of American Precision
Industries, Inc., Marteck Biosciences Corp.,
and Neose Pharmaceuticals Inc.
Henry A. Rentschler 71 Director Mr. Rentschler is a private investor.
P.O. Box 962
Paoli, PA 19301
Merritt N. Rhoad, Jr. 70 Director Mr. Rhoad is a private investor.
640 Bridle Road
Custis Woods
Glenside, PA 19038
Richard W. Stevens 66 Director Mr. Stevens is an attorney in private
One Jenkintown Station practice.
115 W. Avenue, Suite 108
Jenkintown, PA 19046
John A. Affleck 53 Officer Mr. Affleck is President and Director of the
610 W. Germantown Pike investment advisor, Stratton Management
Suite 300 Company. He is President of Stratton
Plymouth Meeting, PA 19462 Growth Fund, Inc., Vice President of
Stratton Monthly Dividend REIT Shares, Inc.
and The Stratton Funds, Inc.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Position with
Name and Address Age Registrants Principal Occupation during last 5 years
<S> <C> <C> <C>
Frank H. Reichel, III
610 W. Germantown Pike 35 Officer Mr. Reichel is a Vice President, a Director
Suite 300 and the Director of Quantitative Research of
Plymouth Meeting, PA 19462 the investment advisor, Stratton Management
Company. He is President of The Stratton
Funds, Inc., Vice President of Stratton
Growth Fund, Inc. and Stratton Monthly
Dividend REIT Shares, Inc. and Portfolio
Manager of Stratton Small-Cap Value Fund.
James A. Beers 37 Officer Mr. Beers is a Vice President of the
610 W. Germantown Pike investment advisor, Stratton Management
Suite 300 Company. He is President of Stratton
Plymouth Meeting PA 19462 Monthly Dividend REIT Shares, Inc., Vice
President of Stratton Growth Fund, Inc. and
The Stratton Funds, Inc.; prior thereto,
Account Manager of Client Services at FPS
Services, Inc. Mr. Beers is related to Mr.
Stratton by marriage.
Joanne E. Kuzma 45 Officer Ms. Kuzma is the Director of Trading of the
610 W. Germantown Pike investment advisor, Stratton Management
Suite 300 Company. She is Vice President of
Plymouth Meeting, PA 19462 Compliance for the Funds.
Patricia L. Sloan 46 Officer Ms. Sloan is an employee of the investment
610 W. Germantown Pike advisor, Stratton Management Company. She
Suite 300 is Secretary and Treasurer of the Funds.
Plymouth Meeting, PA 19462
Brigid E. Hummel 30 Officer Ms. Hummel is an employee of the investment
610 W. Germantown Pike advisor, Stratton Management Company. She
Suite 300 is Assistant Secretary and Assistant
Plymouth Meeting PA 19462 Treasurer of the Funds.
</TABLE>
/1/ As defined in the 1940 Act, Mr. Stratton is an "interested person" of the
funds by reason of his positions with the investment advisor.
/2/ Ms. Cannon is considered to be an "interested person" of the funds by
reason of her affiliation with the funds' administrator and as an
affiliated person of a broker-dealer registered under the Securities
Exchange Act of 1934.
The officers and Directors of the Companies who are also officers or employees
of the investment advisor or administrator receive no direct compensation from
the funds for services to them. The Directors of the Companies serve in the same
capacity for each Company and meet concurrently four times a year. In the
aggregate, each director currently receives $1,250 for each meeting attended,
and an annual retainer of $5,000. These fees are divided on a percentage basis
between each fund based on their relative net assets as of the meeting date.
There are no separate audit, compensation or nominating committees of the Board
of Directors.
10
<PAGE>
Set forth are the total fees which were paid to each of the directors who are
not "interested persons" for fiscal year ended December 31, 1999:
<TABLE>
<CAPTION>
Total Compensation From
Aggregate Compensation Fund and Fund Complex /(1)/
Name of Director from Fund Paid to Directors
- ---------------- ---------------------- ---------------------------
<S> <C> <C>
James W. Stratton
SGF $ 0 $ 0
SMDS $ 0
SSCV $ 0
SSVF $ 0
Lynne M. Cannon $ 0
SGF $ 0
SMDS $ 0
SSCV $ 0
SSVF $ 0
John J. Lombard, Jr.
SGF $3,105.94 $9,500.00
SMDS $4,031.00
SSCV $2,287.84
SSVF $ 75.22
Douglas J. MacMaster, Jr.
SGF
SMDS $2,711.71 $8,250.00
SSCV $3,507.64
SSVF $1,955.43
$ 75.22
Henry A. Rentschler
SGF $3,105.94 $9,500.00
SMDS $4,031.00
SSCV $2,287.84
SSVF $ 75.22
Merritt N. Rhoad, Jr.
SGF $3,105.94
SMDS $4,031.00 $9,500.00
SSCV $2,287.84
SSVF $ 75.22
Richard W. Stevens $3,105.94 $9,500.00
SGF $4,031.00
SMDS $2,287.84
SSCV $ 75.22
SSVF
</TABLE>
/(1)/ The "Fund Complex" consists of SGF, SMDS and The Stratton Funds, Inc.
Until April 15, 1999, The Stratton Funds, Inc. consisted of SSCV and
Stratton Special Value Fund ("SSVF").
11
<PAGE>
The Companies, the investment advisor and the principal underwriter have each
adopted codes of ethics under Rule 17j-1 of the 1940 Act that (i) establish
procedures for personnel with respect to personal investing, (ii) prohibit or
restrict certain transactions that may be deemed to create a conflict of
interest between personnel and the funds and (iii) permit personnel to invest in
securities, including securities that may be purchased or held by the funds.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of March 27, 2000, ownership in the funds by the directors and officers as a
group was as follows:
<TABLE>
<CAPTION>
Percentage of
Fund outstanding shares
---- ------------------
<S> <C>
1. SGF 6.57%
2. SMDS 0.90%
3. SSCV> 6.46%
</TABLE>
As of March 27, 2000, the following shareholders owned of record more than 5% of
the outstanding shares of the respective fund.
<TABLE>
<CAPTION>
Shares Percent
Name and Address Owned Owned
---------------- ----- -----
<S> <C> <C> <C>
1. SGF Charles Schwab & Co., Inc. 77,366 5.59%
Reinvest Account
101 Montgomery Street
San Francisco, CA
2. SMDS Charles Schwab & Co., Inc. 308,014 11.09%
Reinvest Account
101 Montgomery Street
San Francisco, CA
Boston & Co. 245,735 8.84%
Mutual Funds Operation
P.O. Box 3198
Pittsburgh, PA
3. SSCV Boston & Co. 489,699 27.92%
CUST TJU Employee Pension Plan
Mutual Funds Operation
P.O. Box 3198
Pittsburgh, PA
Boston & Co. 240,000 13.68%
CUST TJU
Mutual Funds Operation
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C>
P.O. Box 3198
Pittsburgh, PA
Charles Schwab & Co., Inc. 88,273 5.03%
SPL CSTY A/C FBO Customers Reinvest
101 Montgomery Street
San Francisco, CA
</TABLE>
INVESTMENT ADVISOR AND OTHER SERVICE PROVIDERS
Investment Advisor
Stratton Management Company is the fund's investment advisor. By reason of his
ownership of all of the investment advisor's voting stock, James W. Stratton may
be considered a "controlling person" of Stratton Management Company. Other
persons who are affiliated with both the funds and with Stratton Management are
listed under the Directors and officers table under "Management of the Funds."
The amount of investment advisory fees paid by each fund for the last three
fiscal years is as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
SGF SMDS SSCV
------------------------------------------------------------------------------------
<S> <C> <C> <C>
December 31, 1999 $402,982 $431,511 $229,118
------------------------------------------------------------------------------------
December 31, 1998 $453,119 $548,380 $526,297
------------------------------------------------------------------------------------
December 31, 1997 $366,356 $600,138 $312,050
------------------------------------------------------------------------------------
</TABLE>
The performance adjustment for SSCV 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. Pursuant to the
performance adjustment, a fund's gross performance is compared with the
performance of the Frank Russell 2000 Index (the "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 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 investment
advisory fee if the fund outperformed or under performed the Russell 2000 by
5.00%. The effect of this performance fee adjustment is that the investment
advisory fee may never be greater than 1.25% or less than 0.25% of the fund's
average daily net assets for the preceding month.
Performance Fee Schedule For SSCV
+: 1.25%
1.15%
1.05%
0.95%
0.85%
Basic Fee: 0.75%
13
<PAGE>
0.65%
0.55%
0.45%
0.35%
-: 0.25%
Service Providers and Underwriter
PFPC Inc. ("PFPC") (formerly known as First Data Investor Services Group), 3200
Horizon Drive, King of Prussia, PA 19406, provides most of the back office
services on the funds' behalf. Pursuant to certain agreements, PFPC provides
the services commonly and separately referred to as: Fund Administration, Fund
Accounting, Transfer Agency and Custody Administration.
As the funds' accounting services agent, PFPC is responsible for certain
accounting services such as computation of the net asset value of the funds'
shares and maintenance of the funds' books and financial records.
The amount of accounting services fees paid by each fund to PFPC for the last
three fiscal years is as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
SGF SMDS SSCV
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
December 31, 1999 $32,643 $35,415 $31,507
----------------------------------------------------------------------------------------
December 31, 1998 $20,000 $26,500 $27,364
----------------------------------------------------------------------------------------
December 31, 1997 $20,000 $26,000 $21,666
----------------------------------------------------------------------------------------
</TABLE>
As the funds' administrative services agent, PFPC is responsible for certain
administrative services such as: (1) coordinate and monitor the activities of
any other third party service provider providing services to the funds (e.g. the
funds' independent auditors, printers, etc.); (2) provide the funds with
necessary office space, telephones and other communications facilities and
personnel competent to perform the responsibilities under the administrative
services agreements; (3) maintain such books and records of the funds as may be
required by applicable Federal or state law; (4) prepares and, after approval by
the funds, files and arranges for the distribution of proxy materials and
periodic reports to shareholders of the funds as required by applicable law; (5)
prepares and, after approval by the funds, arranges for the filing of such
registration statements and other documents with the U.S. Securities and
Exchange Commission and any other Federal or state regulatory authorities as may
be required by applicable law; (6) reviews and submits to the officers of the
funds for their approval, invoices or other requests for payment of the funds'
expenses and instructs the funds' custodian to issue checks in payment thereof,
and (7) takes such other action with respect to the funds as may be deemed by
PFPC to appropriately perform its duties under the administrative services
agreements.
In consideration for providing administrative and accounting services, the funds
have agreed to pay PFPC a fee, based on each portfolio's average net assets,
computed daily and paid monthly as follows : 0.10% of the first $250 million of
average net assets; 0.075% of the next $250 million of average net assets; 0.05%
of the next $250 million of average net assets; and 0.03% of average net assets
in excess of $750 million.
The amount of administrative services fees paid by each fund to PFPC for the
last three fiscal years is as follows:
14
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
SGF* SMDS* SSCV
----------------------------------------------------------------------------------------
<S> <C> <C> <C>
December 31, 1999 $32,224 $40,578 $23,881
----------------------------------------------------------------------------------------
December 31, 1998 $30,000 $30,500 $30,000
----------------------------------------------------------------------------------------
December 31, 1997 $30,000 $30,000 $10,833
----------------------------------------------------------------------------------------
</TABLE>
* The investment advisor has waived $15,000 annually of the compensation due
it under the investment advisory agreement, to offset a portion of the fee
that the fund will incur under the administration agreement. This fee
waiver can be terminated or reduced by the investment advisor upon 60 days
prior written notice to the fund.
PFPC also serves as the funds' transfer agent and dividend-paying agent. PFPC
annually receives $17.00 per account for SGF and SSCV and $19.00 per account for
SMDS for providing transfer agent and dividend disbursing agent services.
The funds' independent auditor is Tait, Weller & Baker, 8 Penn Center Plaza,
Suite 800, Philadelphia PA 19103. The auditor's responsibilities are (1) to
ensure that all relevant accounting principles are being followed by the funds;
and (2) to report to the Boards of Directors concerning the funds' operations.
The Bank of New York, 48 Wall Street, New York, New York 10286 serves as the
custodian of each fund's assets pursuant to custodian agreements. Under such
agreements, The Bank of New York (1) maintains a separate account or accounts in
the name of the funds; (2) holds and transfers portfolio securities on account
of the funds; (3) accepts receipts and makes disbursements on money on behalf of
the funds; (4) collects and receives all income and other payments and
distributions on account of the funds' securities; and (5) makes periodic
reports to the Boards of Directors concerning the funds' operations.
Provident Distributors, Inc. ("PDI"), serves as the funds' principal underwriter
pursuant to Underwriting Agreements for the limited purpose of acting as
statutory underwriter to facilitate the registration of shares of each fund.
PDI's business address is 3200 Horizon Drive, King of Prussia, PA 19406-0903.
For the services to be provided in facilitating the qualification of each fund's
shares under state securities laws, PDI receives an annual fee of $5,000 from
each fund for providing these services. Prior to December 1, 1999, First Data
Distributors, Inc., a wholly-owned subsidiary of PFPC, served as the funds'
principal underwriter and was paid $3,000 per year per fund.
Year 2000 Compliance
The funds did not experience any significant malfunctions or errors in the
computer systems used by its service providers when the date changed from 1999
to 2000. Based on operations since January 1, 2000, the funds do not expect any
significant impact to its on-going business as a result of the Year 2000 issue.
However, it is possible that the full impact of the date change, which was of
concern due to computer programs that use two digits instead of four digits to
define years, has not been fully recognized. For example, it is possible that
Year 2000 or similar issues, such as leap year-related problems, may affect the
computer systems used by the funds' service providers at month, quarter or year
end. The funds believe that any such problems are likely to be minor and
correctable.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The funds seek to obtain the best price and execution in all purchases and sales
of securities, except when the authorization to pay higher commissions for
research and services, as provided for in the investment advisory agreements, is
exercised. Purchases and sales of over-the-counter securities are ordinarily
placed with primary market
15
<PAGE>
makers acting as principals. Consistent with its obligation to seek the best
price and execution, each fund may place some purchases and sales of portfolio
securities with dealers or brokers who provide statistical and research
information to the investment advisor. Statistical and research services
furnished by brokers through whom the funds effects securities transactions in
accordance with these procedures are ordinarily of general application and may
be used by the investment advisor in servicing other accounts as well as that of
the funds. In addition, not all such services may be used in connection with the
investment advisor's activities on behalf of the funds. Portfolio transactions
are assigned to brokers, and commission rates negotiated, based on an assessment
of the reliability and quality of a broker's services, which may include
research and statistical information such as reports on specific companies or
groups of companies, pricing information, or broad overviews of the stock market
and the economy.
Although investment decisions for the funds will be made independently from
investment decisions made with respect to other clients advised by the
investment advisor, simultaneous transactions may occur on occasion when the
same security is suitable for the investment objectives of more than one client.
When two or more such clients are simultaneously engaged in the purchase or sale
of the same security, to the extent possible the transactions will be averaged
as to price and allocated among the clients in accordance with an equitable
formula. In some cases, this system could have a detrimental effect on the price
or quantity of a security available to the funds. In other cases, however, the
ability of the funds to participate with other clients of the investment advisor
in volume transactions may produce better executions for the funds.
The investment advisory agreements contain provisions which authorize the
investment advisor to pay on behalf of the funds brokerage commissions in excess
of commissions which might be charged by other brokers, where a determination is
made that the amount of commission paid is reasonable in relation to the
brokerage and research services provided by the broker to the funds, viewed in
terms of the particular transaction or the overall responsibilities of the
investment advisor with respect to the funds. In addition, the investment
advisory agreements recognize that the investment advisor may, at its expense,
acquire statistical and factual information, advice about economic factors and
trends and other appropriate information from others in carrying out its
obligations.
The amount of total brokerage commissions attributable to each fund for the last
three fiscal years are as follows*:
-----------------------------------------------------------------
SGF SMDS SSCV
-----------------------------------------------------------------
December 31, 1999 $62,950 $ 79,706 $60,361
-----------------------------------------------------------------
December 31, 1998 $47,812 $ 64,746 $74,069
-----------------------------------------------------------------
December 31, 1997 $46,704 $184,272 $41,488
-----------------------------------------------------------------
* Substantially all of which were paid to brokers which had provided
research, statistical data or pricing information to the investment
advisor.
PURCHASE AND REDEMPTION INFORMATION
Please call PFPC at (800) 472-4266 to verify required language for all
retirement plan redemption requests or to obtain the Retirement Plan Withdrawal
Form. No redemption shall be made unless your 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.
16
<PAGE>
All withdrawals under the Systematic Cash Withdrawal Plan 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.
If withdrawals under the Systematic Cash Withdrawal Plan exceed income dividends
and capital gains distributions, your invested principal will be depleted.
Thus, depending on the size of withdrawal payments and fluctuations in the value
of your shares, your original investment could be exhausted entirely. You may
change or stop the plan at any time by written notice to the funds. Dividends
and capital gains distributions must be reinvested automatically to participate
in this plan. Stock certificates cannot be issued under the Systematic Cash
Withdrawal Plan.
The right of redemption may not be suspended or payment upon redemption deferred
for more than five business days, or such shorter time period as may be required
by applicable SEC rules, except: (1) when trading on the NYSE is restricted as
determined by the SEC or the NYSE is closed for other than weekends and
holidays; (2) when the SEC has by order permitted such suspension; or (3) when
an emergency, as defined by the rules of the SEC, exists, 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 you withdraw your
request for redemption, you will receive payment at the net asset value next
determined after termination of the suspension.
As provided in each fund's 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 fund. Any portfolio
securities paid or distributed in-kind will be in readily marketable securities,
and will be valued as described under "Pricing Fund Shares" in the Prospectus.
Subsequent sale of such securities would require payment of brokerage
commissions or spreads by the investor.
The value of your shares on redemption may be more or less than the cost of such
shares to you depending upon the net asset value of the fund's shares at the
time of redemption.
RETIREMENT PLANS (the "PLANS")
Defined Contribution Plans
The funds offer a profit sharing and a money purchase plan (the "Defined
Contribution Plans") for use by both self-employed individuals (sole
proprietorships and partnerships) and corporations who wish to use shares of the
funds as a funding medium for a retirement plan qualified under the Internal
Revenue Code (the "Code").
The Code provides certain tax benefits for participants in a Defined
Contribution Plan. For example, amounts contributed to a Defined Contribution
Plan and earnings on such amounts are not taxed until distributed. However,
distributions to a participant from a Defined Contribution Plan before the
participant attains age 59 1/2 will (with certain exceptions) result in an
additional 10% tax on the amount included in the participant's gross income.
Individual Retirement Accounts
The funds offer an individual retirement account (the "Traditional IRA") for use
by individuals with compensation for services rendered (including earned income
from self-employment) who wish to use shares of the funds as a funding medium
for individual retirement saving. However, except for rollover contributions,
an individual who has attained, or will attain, age 70 1/2 before the end of the
taxable year may only contribute to a Traditional IRA for his or her nonworking
spouse under age 70 1/2. Distributions of an individual's Traditional IRA
assets (and earnings thereon) before the individual attains age 59 1/2 will
(with certain exceptions) result in an additional 10% tax on the amount
17
<PAGE>
included in the individual's gross income. Earnings on amounts contributed to
the Traditional IRA are not subject to federal income tax until distributed.
The funds also have available a Roth Individual Retirement Account (the "Roth
IRA") for retirement saving for use by individuals with compensation for
services rendered. A single individual with modified adjusted gross income of
up to $110,000 may contribute to a Roth IRA (for married couples filing jointly,
the modified adjusted gross income limit is $160,000), and contributions may be
made even after the Roth IRA owner has attained age 70 1/2, as long as the owner
has earned income. Contributions to a Roth IRA are not deductible. Earnings on
amounts contributed to a Roth IRA, however, are not subject to federal income
tax when distributed if the distribution is a "qualified distribution" (i.e.,
the Roth IRA has been held for at least five years beginning with the first tax
year for which a contribution was made to the Roth IRA and the distribution is
due to the account owner's attainment of age 59 1/2, disability or death, or for
qualified first-time homebuyer expenses). A non-qualified distribution of an
individual's Roth IRA assets (and the earnings thereon) will (with certain
exceptions) result in an additional 10% tax on the amount included in the
individual's gross income.
Except for amounts converted to a Roth IRA and rollovers, the total annual
contributions to all of an individual's Traditional and Roth IRAs may not exceed
the lesser of $2,000 or 100% of the individual's compensation.
Unless the individual's modified adjusted gross income (or the modified adjusted
gross income of a married couple, filing jointly) is more than $100,000, or the
individual is married and filing a separate tax return, the individual is
eligible to roll over, transfer or convert all or any portion of existing
Traditional IRA(s) into Roth IRA(s). A separate Roth Conversion IRA should
generally be established to hold conversion amounts. If the Roth IRA is
designated as a Roth Conversion IRA, the only permissible contributions are
amounts converted from a Traditional IRA during the same tax year. The amount
of the conversion from the Traditional IRA to the Roth IRA will be treated as a
distribution for income tax purposes and is includible in the individual's gross
income (except for any nondeductible contributions). Although the conversion
amount is generally included in income, the 10% early distribution penalty will
not apply to rollovers or conversions from a Traditional IRA to a Roth IRA,
regardless of whether the individual qualifies for any exceptions to the 10%
penalty.
Savings Incentive Match Plan for Employees of Small Employers
The funds also have available a simplified tax-favored retirement plan for
employees of small employers (a "SIMPLE IRA Plan"). If an employer establishes
a SIMPLE IRA Plan, contributions under the Plan are made to eligible employees'
SIMPLE individual retirement accounts ("SIMPLE IRAs"). Each eligible employee
may choose to defer a percentage of his or her pre-tax compensation to the
employee's SIMPLE IRA. The employer must generally make an annual matching
contribution to the SIMPLE IRA of each eligible employee equal to the employee's
salary reduction contributions, up to a limit of 3% of the employee's
compensation. Alternatively, the employer may make an annual non-discretionary
contribution to the SIMPLE IRA of each eligible employee equal to 2% of each
employee's compensation. The Code provides tax benefits for contributions by an
employer to an employee's SIMPLE IRA. For example, contributions to an
employee's SIMPLE IRA are deductible (subject to certain limits) and the
contributions and earnings thereon are not taxed until distributed.
403(b)(7) Retirement Plan
The funds offer a plan (the "403(b)(7) Plan") for use by schools, hospitals, and
certain other tax-exempt organizations or associations who wish to use shares of
the funds as a funding medium for a retirement plan for their employees.
Contributions are made to the 403(b)(7) Plan based on a reduction of the
employee's regular compensation. Such contributions, to the extent they do not
exceed applicable limitations (including a generally applicable limitation of
$10,500 for 2000), are excludable from the gross income of the employee for
Federal income tax purposes. Assets withdrawn from the 403(b)(7) Plan are
subject to Federal income tax and to the additional 10% tax on early withdrawals
discussed above under "Defined Contribution Plans."
18
<PAGE>
General Information
Distributions of net investment income and capital gains on retirement plan
shares will be reinvested automatically in the funds.
The custodian of the Plans is Semper Trust Company ("Semper"), Plymouth Meeting,
Pennsylvania. Semper is controlled by certain Directors and officers of the
funds and certain directors and officers of Stratton Management Company. PFPC
serves as the fiduciary agent for Semper and in such capacity is responsible for
all record keeping, applicable tax reporting and fee collection in connection
with the plan accounts. Semper is entitled to deduct its fees and administrative
expenses by liquidating shares annually in September, unless the annual
maintenance fee is paid separately to PFPC. The annual maintenance fee is
currently $12.00 per plan account. This fee may be amended upon 30 days notice
by Stratton Management Company, Semper or PFPC in the future.
The foregoing brief descriptions are not complete or definitive explanations of
the Defined Contribution, Traditional IRA, Roth IRA, Simple IRA or 403(b)(7)
Plans available for investment in the funds. Any person who wishes to establish
a retirement plan account may do so by contacting the funds directly. The
complete Plan documents and applications will be provided to existing or
prospective shareholders upon request, without obligation. Since all these
Plans involve setting aside assets for future years, it is important that
investors consider their needs and whether the investment objective of the funds
as described in this Statement of Additional Information and in the Prospectus
is most likely to fulfill them. The funds recommend that investors consult
their attorneys or tax advisors to determine if the retirement programs
described herein are appropriate for their needs.
INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations generally
affecting the funds and their shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the funds or their shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning. Potential
investors should consult their tax advisors with specific reference to their own
tax situation.
Each fund intends to qualify as a regulated investment company (a "RIC") under
Subchapter M of the Internal Revenue Code, as amended ("the Code") for each
taxable year. As a RIC, each fund is exempt from Federal income and excise tax
on its income and gains that it distributes to shareholders.
To maintain its RIC status, each fund must satisfy certain distribution
requirements and certain requirements with respect to the source of its income
for a taxable year and the diversification of its investments. Complying with
these tests may limit somewhat the fund's freedom in pursuing its investment
objectives.
SMDS has a capital loss carryover available to offset future capital gains, if
any, of approximately $15,684,000 of which $7,681,000 expires in 2000,
$4,331,000 expires in 2003, $1,167,000 expires in 2005 and $2,505,000 expires in
2007. SSCV has a capital loss carryover available to offset future capital
gains, if any, of approximately $124,000, which expires in 2006.
A 4% nondeductible excise tax is imposed on RICs that fail to currently
distribute an amount equal to specified percentages of their ordinary taxable
income and capital gain net income (excess of capital gains over capital
losses). The funds intend to make sufficient distributions or deemed
distributions prior to the end of each calendar year to avoid liability for this
excise tax. If a fund were to fail to make sufficient distributions in a year,
the fund could be subject to excise tax and/or corporate income tax in respect
of the shortfall or, if the shortfall were substantial enough, the fund could be
disqualified as a RIC.
19
<PAGE>
If for any fiscal year a fund does not qualify for the special tax treatment
afforded RICs, all of its taxable income will be subject to Federal income tax
at regular corporate rates (without any deduction for distributions to its
shareholders). In such event, dividend distributions would be taxable as
ordinary income to shareholders to the extent of the fund's current and
accumulated earnings and profits, and would be eligible for the dividends
received deduction for corporations.
The foregoing discussion is based on Federal tax laws and regulations that are
in effect on the date of this Statement of Additional Information. These laws
and regulations may be changed by legislative or administrative action.
DESCRIPTION OF COMMON STOCK
SGF's authorized capital is 10,000,000 shares of common stock, par value $0.10
per share. SMDS' authorized capital is 10,000,000 shares of common stock, par
value $1.00 per share. 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 SSCV.
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 its 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. SGF, SMDS and The
Stratton Funds, Inc. are each a separate legal entity and the shareholders of
each will vote separately. Under certain circumstances, shareholders have the
right to call a shareholders meeting to consider the removal of one or more
directors.
Rule 18f-2 under the Investment Company Act of 1940 provides that any matter
required to be submitted to the holders of the outstanding voting securities of
an investment company such as The Stratton Funds, Inc. shall not be deemed to
have been effectively acted upon unless approved by a majority of the
outstanding shares of the fund affected by the matter. A fund affected by a
matter unless it is clear that the interests of the fund in the matter are
substantially identical or that the matter does not affect any interest of the
fund. Under Rule 18f-2, the approval of an investment advisory agreement or any
change in fundamental investment policy would be effectively acted upon with
respect to a fund only if approved by a majority of the outstanding shares of
such fund. However, the Rule also provides that the ratification of independent
public accountants and the election of directors may be effectively acted upon
by shareholders of The Stratton Funds, Inc. voting without regard to a fund.
Investors should be aware that by combining the Prospectus of each fund into 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.
PERFORMANCE CALCULATIONS
From time to time, the funds' total return may be quoted in advertisements,
shareholder reports or other 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.
20
<PAGE>
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
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.
Total Return Calculations
The funds compute their average annual total return by determining the average
annual compounded rate of return during specified periods that equate the
initial amount invested to the ending redeemable value of such investment. This
is done by dividing the ending redeemable value of a hypothetical $1,000 initial
investment by $1,000 and raising the quotient to a power equal to one divided by
the number of years (or fractional portion thereof) covered by the computation
and subtracting one from the result.
This calculation can be expressed as follows:
T = [ (ERV)/1/n/ - 1 ]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical
$1,000 investment made at the beginning of the
period.
P = hypothetical initial investment of $1,000.
n = period covered by the computation, expressed in
terms of years.
The funds compute their aggregate total return by determining the aggregate
compounded rate of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment.
The formula for calculating aggregate total return is as follows:
A = [( ERV ) - 1 ]
P
Where: A = aggregate total return.
ERV = ending redeemable value at end of the period
covered by the computation of a hypothetical
$1,000 investment made at the beginning of the
period.
P hypothetical initial investment of $1,000.
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV"
21
<PAGE>
in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations.
Since performance will fluctuate, performance data for the funds cannot
necessarily be used to compare an investment in the funds' shares with bank
deposits, savings accounts and similar investment alternatives which often
provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that performance is generally a function of the
kind and quality of the instruments held in a portfolio, portfolio maturity,
operating expenses and market conditions.
Based on the foregoing calculations, the average annual total returns for the
funds for the one year, five year and ten year periods ended December 31, 1999
were as follows:
---------------------------------------------------
Fund 1 Year 5 Year 10 Year
---------------------------------------------------
SGF (9.29%) 16.68% 11.61%
---------------------------------------------------
SMDS (6.25%) 5.54% 5.81%
---------------------------------------------------
SSCV (1.98%) 13.05% 10.27%*
---------------------------------------------------
Based on the foregoing calculations, the aggregate total returns for the funds
for the five year and ten year periods ended December 31, 1999 were as follows:
---------------------------------------
Fund 5 Year 10 Year
---------------------------------------
SGF 116.23% 199.94%
---------------------------------------
SMDS 30.95% 75.96%
---------------------------------------
SSCV 84.63% 93.20%*
---------------------------------------
* Performance information for this fund is based on the life of the fund from
April 12, 1993 (commencement of operations) through December 31, 1999.
FINANCIAL STATEMENTS
The audited financial statements and notes thereto for SGF, SMDS, and SSCV
contained in such funds' Annual Report dated December 31, 1999 are incorporated
by reference into this Statement of Additional Information and have been audited
by Tait, Weller & Baker, whose reports also appear in the 1999 Annual Report and
are also incorporated by reference herein. No other parts of the Annual Report
are incorporated by reference herein. Such financial statements and notes
thereto have been incorporated herein in reliance on the reports of Tait, Weller
& Baker, independent accountants, given on the authority of said firm as experts
in auditing and accounting, incorporating by reference from such funds' 1999
Annual Report to Shareholders.
22
<PAGE>
POST-EFFECTIVE AMENDMENT NO. 21
Stratton Monthly Dividend REIT Shares, Inc.
TO REGISTRATION STATEMENT NO 2-42379
on
FORM N-1A
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) Articles of Incorporation
(i) Articles of Incorporation of Registrant, dated March 1,
1985, are incorporated herein by reference to Exhibit No.
99.1 of Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A (File Nos. 2-42379/811-
2240), filed on May 30, 1996 ("Post-Effective Amendment No.
16").
(ii) Amendment to Articles of Incorporation, dated January 19,
1998, are incorporated herein by reference to Exhibit 99.1
of Post-Effective Amendment No. 19 to Registrant's
Registration Statement on Form N-1A, (File Nos. 2-42379/811-
2240), filed on April 15, 1998 ("Post-Effective Amendment
No. 19").
(b) By-laws of Registrant, as amended, dated February 28, 1989, are
incorporated herein by reference to Exhibit No. 99.2 of Post-
Effective Amendment No. 16.
(c) Instruments Defining Rights of Security Holders.
(i) Specimen certificate for shares of common stock of
Registrant is incorporated herein by reference to Exhibit
No. 99.4 of Post-Effective Amendment No. 17 to Registrant's
Registration Statement on Form N-1A (File Nos. 2-42379/811-
2240), filed on March 12, 1997 ("Post-Effective Amendment
No. 17").
(ii) Section 4. of the By-Laws, Exhibit (b) above, define the
rights of security holders.
(d) Investment Advisory Agreement, dated July 1, 1989, between
Registrant and Stratton Management Company is incorporated herein
by reference to Exhibit No. 99.5 of Post-Effective Amendment No.
16.
(e) Underwriting Agreement, dated December 2, 2000, between
Registrant and Provident Distributors, Inc. is filed
herewith.
(f) None.
(g) Custodian Agreements
(i) Custodian Agreement, dated November 1, 1994, between
Registrant and The Bank of New York is incorporated herein
by reference to Exhibit No. 99.8(a) of Post-Effective
Amendment No. 15 to Registrant's Registration Statement on
Form N-1A (File Nos 2-42379/811-2240), filed on May 30, 1995
("Post-Effective Amendment No. 15").
(ii) Custody Administration and Agency Agreement, dated November
1, 1994, between Registrant and FPS Services, Inc. (formerly
known as Fund/Plan
1
<PAGE>
Services, Inc.) is incorporated herein by reference to
Exhibit No. 99.8(b) of Post-Effective Amendment No. 15.
(h) (i) Administration Agreement, dated March 1, 1990, between
Registrant and FPS Services, Inc. (formerly known as
Fund/Plan Services, Inc.) is incorporated herein by
reference to Exhibit No. 99.9(a) of Post-Effective
Amendment No.17.
(ii) Shareholder Services Agreement (formerly known as
Administration Agreement), dated May 31, 1985, between
Registrant and FPS Services, Inc. (formerly known as
Fund/Plan Services, Inc.) is incorporated herein by
reference to Exhibit No. 99.9(b) of Post-Effective
Amendment No. 17.
(iii) Amendment to Shareholder Services Agreement (formerly known
as Administration Agreement), dated December 11, 1985,
between Registrant and FPS Services, Inc. (formerly known
as Fund/Plan Services, Inc.) is incorporated herein by
reference to Exhibit No. 99.9(c) of Post-Effective
Amendment No. 17.
(iv) Amendment No. 1 to Shareholder Services Agreement (formerly
known as Administration Agreement), dated May 29, 1987,
between Registrant and FPS Services, Inc. (formerly known
as Fund/Plan Services, Inc.) is incorporated herein by
reference to Exhibit No. 99.9(d) of Post-Effective
Amendment No. 17.
(v) Amendment No. 2 to Shareholder Services Agreement (formerly
known as Administration Agreement), dated May 29, 1987,
between Registrant and FPS Services, Inc. (formerly known
as Fund/Plan Services, Inc.) is incorporated herein by
reference to Exhibit No. 99.9(e) of Post-Effective
Amendment No. 17.
(vi) Amendment to Shareholder Services Agreement (formerly known
as Administration Agreement), dated February 27, 1990,
between Registrant and FPS Services, Inc. (formerly known
as Fund/Plan Services, Inc.) is incorporated herein by
reference to Exhibit No. 99.9(f) of Post-Effective
Amendment No. 17.
(vii) Accounting Services Agreement, dated May 1, 1988, between
Registrant and FPS Services, Inc. (formerly known as
Fund/Plan Services, Inc.) is incorporated herein by
reference to Exhibit No. 99.9(g) of Post-Effective
Amendment No. 17.
(i) Opinion and Consent of Counsel on the legality of the securities
being issued is incorporated herein by reference to Exhibit No.
99.10 of Post-Effective Amendment No. 18 to Registrant's
Registration Statement on Form N-1A (File Nos. 2-42379/811-2240),
filed on February 27, 1998 ("Post-Effective Amendment No. 18").
(j) Consent of Independent Auditors is filed herewith.
(k) None.
2
<PAGE>
(l) None.
(m) None.
(n) Not applicable.
(p) To be filed by Amendment.
Item 24. Persons Controlled by or under Common Control with Registrant
Registrant is controlled by its Board of Directors.
Item 25. Indemnification
Section 2-418 of the Corporation and Associations Article of the
Annotated Code of Maryland gives Registrant the power to
indemnify its directors and officers under certain situations.
Article VII, Section 3 of Registrant's Articles of Incorporation,
incorporated by reference as Exhibit (a) hereto, and Section 2.12
of Registrant's By-Laws, incorporated by reference as Exhibit (b)
hereto, provide for the indemnification of Registrant's directors
and officers. Each indemnification must be authorized by the
Board of Directors of Registrant by a majority of a quorum
consisting of directors who were not parties to the action, suit
or proceeding, or by independent legal counsel in a written
opinion, or by the shareholders. Notwithstanding the foregoing,
Section 2.12(e) of Registrant's By-Laws provides that no director
or officer of Registrant shall be indemnified against any
liability to Registrant or its shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such person's duties to the
corporation.
In addition, the aforesaid section of the Corporations and
Associations Article of the Annotated Code of Maryland gives
Registrant the power (a) to purchase and maintain insurance for
its directors and officers against any liability asserted against
them and incurred by them in that capacity or arising out of
their status as such, whether or not Registrant would have the
power to indemnify such directors and officers under such
statute, and (b) under certain circumstances to pay the
reasonable expenses incurred by a director or officer in
defending an action, suit or proceeding in advance of the final
disposition of the action, suit or proceeding.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers,
and controlling persons of the Registrant, pursuant to the
foregoing provisions or otherwise, the Registrant has been
advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
3
<PAGE>
Indemnification of the Registrant's Custodian, Transfer Agent,
Accounting/Pricing Agent and Administrator against certain stated
liabilities is provided for by the following documents:
(a) Article XVII (14) of the Custodian Agreement between the
Registrant and The Bank of New York is incorporated herein by
reference to Exhibit No. 8(a) of Post-Effective Amendment No. 15.
(b) Section 26 of the Shareholder Services Agreement is incorporated
herein by reference to Exhibit No. 99.9(b) through 99.9(f) of
Post-Effective Amendment No. 17;
(c) Section 10 of the Accounting Services Agreement is incorporated
herein by reference to Exhibit No. 99.9(g) of Post-Effective
Amendment No. 17; and
(d) Section 8 of the Administration Agreement is incorporated herein
by reference to Exhibit No. 99.9(a) of Post-Effective Amendment
No. 17.
Item 26. Business and Other Connections of Investment Advisor
Stratton Management Company provides investment advisory services
consisting of portfolio management for a variety of individuals and
institutions, and as of December 31, 1999 had approximately $1.65
----
billion in assets under management. It presently also acts as
investment advisor to two other registered investment companies,
Stratton Growth Fund, Inc. and The Stratton Funds, Inc.
For information as to any other business, vocation or employment of a
substantial nature in which each director or officer of the
Registrant's investment advisor has been engaged for his own account
or in the capacity of director, officer, employee, partner or trustee,
reference is made to Form ADV (File #801-8681) filed by it under the
Investment Advisers Act of 1940, as amended.
Item 27. Principal Underwriter
(a) Provident Distributors, Inc., the principal underwriter for the
Registrant's securities, currently acts as principal underwriter for
the following entities:
International Dollar Reserve Fund I, Ltd.
Provident Institutional Funds Trust
Pacific Innovations Trust
Columbia Common Stock Fund, Inc.
Columbia Growth Fund, Inc.
Columbia International Stock Fund, Inc.
Columbia Special Fund, Inc.
Columbia Small Cap Fund, Inc.
Columbia Real Estate Equity Fund, Inc.
Columbia Balanced Fund, Inc.
Columbia Daily Income Company
Columbia U.S. Government Securities Fund, Inc.
Columbia Fixed Income Securities Fund, Inc.
Columbia Municipal Bond Fund, Inc.
Columbia High Yield Fund, Inc.
Columbia National Municipal Bond Fund, Inc.
GAMNA Series Funds, Inc.
WT Investment Trust
4
<PAGE>
Kalmar Pooled Investment Trust
The RBB Fund, Inc.
Robertson Stephens Investment Trust
HT Insight Funds, Inc.
Harris Insight Funds Trust
Hilliard-Lyons Government Fund, Inc
Hilliard-Lyons Growth Fund, Inc.
Hilliard-Lyons Research Trust
Senbanc Fund
ABN AMRO Funds
Alleghany Funds
BT Insurance Funds Trust
First Choice Funds Trust
Forward Funds, Inc.
IAA Trust Asset Allocation Fund, Inc.
IAA Trust Growth Fund, Inc.
IAA Trust Tax Exempt Bond Fund, Inc.
IAA Trust Taxable Fixed Income Series Fund, Inc.
IBJ Funds Trust
Light Index Funds, Inc.
LKCM Funds
Matthews International Funds
McM Funds
Metropolitan West Funds
New Covenant Funds, Inc.
Panorama Trust
Smith Breeden Series Funds
Smith Breeden Trust
Stratton Growth Fund, Inc.
Stratton Monthly Dividend REIT Shares, Inc.
The Stratton Funds, Inc.
The Galaxy Fund
The Galaxy VIP Fund
Galaxy Fund II
The Govett Funds, Inc.
Trainer, Wortham First Mutual Funds
Undiscovered Managers Funds
Wilshire Target Funds, Inc.
Weiss, Peck & Greer Funds Trust
Weiss, Peck & Greer International Fund
WPG Growth and Income Fund
WPG Growth Fund
WPG Tudor Fund
RWB/WPG U.S. Large Stock Fund
Tomorrow Funds Retirement Trust
The BlackRock Funds, Inc. (Distributed by BlackRock Distributors,
Inc. a wholly owned subsidiary of Provident Distributors, Inc.)
Northern Funds Trust (Distributed by Northern Funds Distributors, LLC.
a wholly owned subsidiary of Provident Distributors, Inc.)
The Offit Investment Fund, Inc. (Distributed by Offit Funds
Distributor, Inc. a wholly owned subsidiary of Provident Distributors,
Inc.)
5
<PAGE>
The Offit Variable Insurance Fund, Inc. (Distributed by Offit Funds
Distributor, Inc. a wholly owned subsidiary of Provident Distributors,
Inc.)
Provident Distributors, Inc. is registered with the Securities and
Exchange Commission as a broker-dealer and is a member of the National
Association of Securities Dealers. Provident Distributors, Inc. is
located at 3200 Horizon Drive, King of Prussia, PA 19406-0903.
---------------------------------------------------
(b) The following table provides the information required by Item 27(b)
with respect to each director, officer, or partner of Provident
Distributors, Inc.:
Name Ownership Director Title
---- --------- -------- -----
Philip H. Rinnander President & Treasurer
Jane Haegele 100% Owner Director Secretary
Jason A. Greim Vice President
Barbara A. Rice Vice President
Jennifer K. Rinnander Vice President
Lisa M. Buono Vice President &
Compliance Officer
(c) Not applicable.
Item 28. Location of Accounts and Records
All records described in Section 31(a) of the 1940 Act and Rules 17
CAR 270.31a-1 to 31a-3 promulgated thereunder, are maintained by
Stratton Management Company, the Fund's Investment Advisor, Plymouth
Meeting Executive Campus, 610 W. Germantown Pike, Suite 300, Plymouth
Meeting, Pennsylvania 19462-1050, except for those maintained by the
Fund's Custodian, The Bank of New York, 48 Wall Street, New York, New
York 10286, and PFPC Inc., the Fund's Administrator, Transfer,
Redemption and Dividend Disbursing Agent, Administrator of its
Retirement Plans and Accounting Services Agent, 3200 Horizon Drive,
King of Prussia, Pennsylvania, 19406.
Item 29. Management Services
Not applicable.
Item 30. Undertakings
Registrant undertakes to provide its Annual Report upon request
without charge to any recipient of the Fund's Prospectus.
6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant has duly caused this Post-
Effective Amendment No. 21 to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Plymouth
Meeting, and the State of Pennsylvania on the 28th day of April, 2000.
STRATTON MONTHLY DIVIDEND REIT SHARES, INC.
Registrant
/s/ James A. Beers
------------------
James A. Beers, President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 21 to the Registration Statement of Stratton Monthly Dividend REIT
Shares, Inc. has been signed below by the following persons in the capacities
and on the date indicated.
Signature Capacity Date
- --------------------------------------------------------------------------
/s/ James W. Stratton Director April 28, 2000
- ---------------------
James W. Stratton
/s/ Lynne M. Cannon Director April 28, 2000
- -------------------
Lynne M. Cannon
/s/ John J. Lombard, Jr. Director April 28, 2000
- ------------------------
John J. Lombard, Jr.
/s/ Douglas J. MacMaster, Jr. Director April 28, 2000
- -----------------------------
Douglas J. MacMaster, Jr.
/s/ Henry A. Rentschler Director April 28, 2000
- -----------------------
Henry A. Rentschler
/s/ Merritt N. Rhoad, Jr. Director April 28, 2000
- -------------------------
Merritt N. Rhoad, Jr.
/s/ Richard W. Stevens Director April 28, 2000
- ----------------------
Richard W. Stevens
/s/ Patricia L. Sloan Treasurer April 28, 2000
- ---------------------
Patricia L. Sloan
/s/ James A. Beers President April 28, 2000
- ------------------
James A. Beers
7
<PAGE>
SCHEDULE OF EXHIBITS TO FORM N-1A
Exhibit
Number Exhibit
- ------ -------
23(e) Underwriting Agreement
23(j) Consent of Independent Auditors
8
<PAGE>
UNDERWRITING AGREEMENT
This Agreement, dated as of December 1, 1999, is made by and between
Stratton Monthly Dividend REIT Shares, Inc. a Maryland corporation (the "Fund")
operating as an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "Act"), and Provident
Distributors, Inc. ("PDI"), a corporation duly organized and existing under the
laws of the State of Delaware (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, PDI is a broker-dealer registered with the U.S. Securities and
Exchange Commission (the "SEC") and a member in good standing of the National
Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, the Parties are desirous of entering into an agreement providing
for the distribution by PDI of the shares of the Fund (the "Shares").
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and in exchange of good and valuable consideration, the
sufficiency and receipt of which is hereby acknowledged, the Parties hereto,
intending to be legally bound, do hereby agree as follows:
1. Appointment
-----------
The Fund hereby appoints PDI as its principal agent for the distribution of
the Shares, and PDI hereby accepts such appointment under the terms of this
Agreement. The Fund agrees that it will not sell any Shares to any person
except to fill orders for the Shares received through PDI, provided,
however, that the foregoing exclusive right shall not apply to: (a) Shares
issued or sold in connection with the merger or consolidation of any other
investment company with the Fund or the acquisition by purchase of
otherwise of all or substantially all of the assets of any investment
company or substantially all of the outstanding shares of any such company
by the Fund; (b) Shares which may be offered by the Fund to its
stockholders for reinvestment of cash distributed from capital gains or net
investment income of the Fund; or (c) Shares which may be issued to
shareholders of other funds who exercise any exchange privilege set forth
in the Fund's Prospectus. Notwithstanding any other provision hereof, the
Fund may terminate, suspend, or withdraw the offering of the Shares
whenever, in their sole discretion, they deem such action to be desirable.
2. Sale and Repurchase of Shares
-----------------------------
-1-
<PAGE>
(a) PDI is hereby granted the right, as agent for the Fund, to sell Shares to
the public against orders received at the public offering price as defined
in the Fund's Prospectus and Statement of Additional Information.
(b) PDI will also have the right to take, as agent for the Fund, all actions
which, in PDI's judgment, and subject to the Fund's reasonable approval,
are necessary to carry into effect the distribution of the Shares.
(c) PDI will act as agent for the Fund in connection with the repurchase of
Shares by the Fund upon the terms set forth in the Fund's Prospectus and
Statement of Additional Information.
(d) The net asset value of the Shares shall be determined in the manner
provided in the then current Prospectus and Statement of Additional
Information relating to the Shares, and when determined shall be applicable
to all transactions as provided in the Prospectus. The net asset value of
the Shares shall be calculated by the Fund or by another entity on behalf
of the Fund. PDI shall have no duty to inquire into, or liability for, the
accuracy of the net asset value per Share as calculated.
(e) On every sale, PDI shall promptly pay to the Fund the applicable net
asset value of the Shares.
(f) Upon receipt of purchase instructions, PDI will transmit such instructions
to the Fund or its transfer agent for registration of the Shares purchased.
(g) Nothing in this Agreement shall prevent PDI or any affiliated person (as
defined in the Act) of PDI from acting as underwriter for any other person,
firm or corporation (including other investment companies), or in any way
limit or restrict PDI or such affiliated person from buying, selling or
trading any securities for its or their own account or for the account of
others for whom it or they may be acting, provided, however, that PDI
expressly agrees that it will not for its own account purchase any Shares
of the Fund except for investment purposes, and that it will not for its
own account dispose of any such Shares except by redemption of such Shares
with the Fund, and that it will not undertake in any activities which will
adversely affect the performance of its obligations to the Fund under this
Agreement.
-2-
<PAGE>
3. Rules of Sale of Shares
-----------------------
PDI does not agree to sell any specific number of Shares and serves only in
the capacity of Statutory Underwriter. The Fund reserves the right to
terminate, suspend or withdraw the sale of its Shares for any reason deemed
adequate by it, and the Fund reserves the right to refuse at any time or
times to sell any of its Shares to any person for any reason deemed
adequate by it.
4. Rules of NASD, etc.
-------------------
(a) PDI will conform to the Conduct Rules of the NASD and the securities
laws of any jurisdiction in which it directly or indirectly sells any
Shares.
(b) PDI will require each dealer with whom PDI has a selling agreement to
conform to the applicable provisions of the Prospectus, with respect
to the public offering price of the Shares, and PDI shall not withhold
the placing of purchase orders so as to make a profit thereby.
(c) The Fund agrees to furnish PDI sufficient copies of any and all:
agreements, plans, communications with the public or other materials
which the Fund intends to use in connection with any sales of Shares,
in adequate time for PDI to file and clear such materials with the
proper authorities before they are put in use. PDI and the Fund may
agree that any such material does not need to be filed subsequent to
distribution. In addition, the Fund agrees not to use any such
materials until so filed and cleared for use, if required, by
appropriate authorities as well as by PDI.
(d) PDI, at its own expense, will qualify as a dealer or broker, or
otherwise, Qunder all applicable state or federal laws required in
order that the Shares may be sold in such states as may be mutually
agreed upon by the Parties.
(e) PDI shall remain registered with the SEC and a member of the NASD for
the term of this Agreement.
(f) PDI shall not, in connection with any sale or solicitation of a sale
of the Shares, make or authorize any representative, service
organization, broker or dealer to make any representations concerning
the Shares, except those contained in the Prospectus offering the
Shares and in communications with the public or sales materials
approved by PDI as information supplemental to such Prospectus. Copies
of the Prospectus will be supplied by the Fund to PDI in reasonable
quantities upon request.
(g) PDI shall only be authorized to make representations in respect of the
Fund consistent with the then current Prospectus, Statement of
Additional
-3-
<PAGE>
Information, and other written information provided by the Fund or its
agents to be used explicitly with respect to the sale of Shares.
5. Records to be Supplied by the Fund
----------------------------------
The Fund shall furnish to PDI copies of all information, financial
statements and other papers which PDI may reasonably request for use in
connection with the underwriting of the Shares including, but not limited
to, one certified copy of all financial statements prepared for the Fund by
its independent public accountants.
6. Expenses
--------
(a) The Fund will bear the following expenses:
(i) preparation, setting in type, and printing of sufficient copies
of the Prospectus and Statement of Additional Information for
distribution to existing shareholders, and the cost of
distribution of same to the existing shareholders;
(ii) preparation, printing and distribution of reports and other
communications to existing shareholders;
(iii) registration of the Shares under the federal securities laws;
(iv) qualification of the Shares for sale in the jurisdictions as
directed by the Fund;
(v) maintaining facilities for the issue and transfer of the
Shares;
(vi) supplying information, prices and other data to be furnished by
the Fund under this Agreement; and
(vii) any original issue taxes or transfer taxes applicable to the
sale or delivery of the Shares or certificates therefor.
(b) PDI agrees to pay all of its own expenses in performing its
obligations hereunder.
7. Term
-----
(a) The term of this Agreement shall commence immediately upon the
consummation of the acquisition of First Data Investor Services Group,
Inc. by a subsidiary of PNC Bank Corp., which the parties anticipate
to occur on or about December 1, 1999 (the "Effective Date").
-4-
<PAGE>
(b) This Agreement shall remain in effect for one (1) year from the
Effective Date. This Agreement shall continue thereafter for periods
not exceeding one (1) year, if approved at least annually (i) by a
vote of a majority of the outstanding voting securities of the Fund,
or (ii) by a vote of a majority of the Board Members of the Fund who
are not parties to this Agreement (other than as Board Members of the
Fund) or interested persons of any such party, cast in person at a
meeting called for the purpose of voting on such approval.
(c) This Agreement (i) may be terminated at any time without the payment
of any penalty, either by a vote of the Directors of the Fund or by a
vote of a majority of the outstanding voting securities of the Fund
with respect to the Fund, on sixty (60) days' written notice to PDI;
and (ii) may be terminated by PDI on sixty (60) days' written notice
to the Fund with respect to the Fund.
(d) This Agreement shall automatically terminate in the event of its
assignment, as defined in the Act.
8. Liability of PDI
----------------
(a) PDI, its directors, officers, employees, shareholders and agents shall
not be liable for any error of judgment or mistake of law or for any
loss suffered by the Fund in connection with the performance of this
Agreement, except a loss resulting from a breach of PDI's obligations
pursuant to Section 4 of this Agreement (including breach of the Rules
of NASD), a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of PDI in the
performance of its obligations and duties or by reason of its reckless
disregard of its obligations and duties under this Agreement. PDI
agrees to indemnify and hold harmless the Fund and each person who has
been, is, or may hereafter be a Director, officer, or employee of the
Fund against expenses, including reasonable counsel fees, reasonably
incurred by any of them in connection with any claim or in connection
with any action, suit, or proceeding to which any of them may be a
party, which arises out of or is alleged to arise out of any
misrepresentation or omission to state a material fact, on the part of
PDI or any agent of employee of PDI or any of the persons for whose
acts PDI is responsible or is alleged to be responsible unless such
misrepresentation or omission was made in reliance upon written
information furnished to PDI by the Fund. PDI also agrees to indemnify
and hold harmless the Fund and each such person in connection with any
claim or in connection with any action, suit, or proceeding which
arises out of or is alleged to arise out of PDI's failure to exercise
reasonable care and diligence with respect to its services rendered in
connection with the purchase and sale of Shares.
-5-
<PAGE>
With respect to the foregoing, the Fund shall have the right to
participate in the defense of any action, suit or proceeding and to
retain its own counsel, and the reasonable fees and expenses of such
counsel shall be borne by PDI, which shall pay such fees, costs and
expenses at least quarterly. The foregoing rights of indemnification
shall be in addition to any other rights to which the Fund or any such
person shall be entitled to as a matter of law.
(b) The Fund agrees to indemnify and hold harmless PDI against any and all
liability, loss, damages, costs of expenses (including reasonable
counsel fees) which PDI may incur or be required to pay hereafter, in
connection with any action, suit or other proceeding, whether civil or
criminal, before any court or administrative or legislative body, in
which PDI may be involved as a party or otherwise or with which PDI
may be threatened, by reason of the offer or sale of the Fund's Shares
by persons other than PDI or its representatives, prior to the
execution of this Agreement. If a claim is made against PDI as to
which PDI may seek indemnity under the Section, PDI shall notify the
Fund promptly after any written assertion of such claim threatening to
institute an action or proceeding with respect thereto and shall
notify the Fund promptly of any action commenced against PDI within 10
days time after PDI shall have been served with a summons or other
legal process, giving information as to the nature and basis of the
claim. Failure to notify the Fund shall not, however, relieve the Fund
from any liability which it may have on account of the indemnity under
this Section 8(b) if the Fund has not been prejudiced in any material
respect by such failure. The Fund shall have the sole right to control
the settlement of any such action, suit or proceeding subject to PDI
approval, which shall not be unreasonably withheld. PDI shall have the
right to participate in the defense of an action or proceeding and to
retain its own counsel, and the reasonable fees and expenses of such
counsel shall be borne by the Fund (which shall pay such fees, costs
and expenses at least quarterly) if:
(i) PDI has received an opinion of counsel stating that the
use of counsel chosen by the Fund to represent PDI would
present such counsel with a conflict of interest;
(ii) the defendants in, or targets of, any such action or
proceeding include both PDI and the Fund, and legal
counsel to PDI shall have reasonably concluded that there
are legal defenses available to it which are different
from or additional to those available to the Fund or which
may be adverse to or inconsistent with defenses available
to the Fund (in which case the Fund shall not have the
right to direct the defense of such action on behalf of
PDI); or
-6-
<PAGE>
(iii) the Fund shall authorize PDI to employ separate counsel at
the expense of the Fund.
(c) Any person, even though also a director, officer, employee,
shareholder or agent of PDI who may be or become an officer, director,
trustee, employee or agent of the Fund, shall be deemed, when
rendering services to the Fund or acting on any business of the Fund
(other than services or business in connection with PDI's duties
hereunder), to be rendering such services to or acting solely for the
Fund and not as a director, officer, employee, shareholder or agent,
or one under the control or direction of PDI even though receiving a
salary from PDI.
(d) The Fund agrees to indemnify and hold harmless PDI, and each person
who controls PDI within the meaning of Section 15 of the Securities
Act of 1933, as amended (the "Securities Act"), or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
against any and all losses, claims, damages and liabilities, joint or
several (including any reasonable investigative, legal and other
expenses incurred in connection therewith) to which they, or any of
them, may become subject under the Act, the Securities Act, the
Exchange Act or other federal or state law or regulations, at common
law or otherwise insofar as such losses, claims, damages or
liabilities (or actions, suits or proceedings in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in a Prospectus, Statement of
Additional Information, supplement thereto, sales literature (or other
written information) prepared by the Fund and furnished by the Fund to
PDI for PDI's use hereunder, disseminated by the Fund or which arise
out of or are based upon any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading.
Such indemnity, and any indemnity provided by Section 8(b) above,
shall not, however, inure to the benefit of PDI (or any person
controlling PDI) on account of any losses, claims, damages or
liabilities (or actions, suits or proceedings in respect thereof)
arising from the sale of the Shares of the Fund to any person by PDI
(i) if such untrue statement or omission or alleged untrue statement
or omission was made in the Prospectus, Statement of Additional
Information, or supplement, sales or other literature, in reliance
upon and in conformity with information furnished in writing to the
Fund by PDI specifically for use therein or (ii) if such losses,
claims, damages or liabilities arise out of or are based upon an
untrue statement or omission or alleged untrue statement or omission
found in any Prospectus, Statement of Additional Information,
supplement, sales or other literature, subsequently corrected, but
-7-
<PAGE>
negligently distributed by PDI and a copy of the corrected Prospectus
was not delivered to such person at or before the confirmation of the
sale to such person.
(e) PDI shall not be responsible for any damages, consequential or
otherwise, which the Fund may experience, due to the disruption of the
distribution of Shares caused by any action or inaction of any
registered representative or affiliate of PDI or of PDI itself.
(f) Notwithstanding anything in this Agreement to the contrary, in no
event shall any party to this Agreement, its affiliates or any of its
or their directors, trustees, officers, employees, agents or
subcontractors be liable for lost profits, exemplary, punitive,
special, incidental, indirect or consequential damages.
9. Amendments
----------
No provision of this Agreement may be amended or modified in any manner
whatsoever, except by a written agreement properly authorized and executed
by the Parties.
10. Section Headings
----------------
Section and paragraph headings are for convenience only and shall not be
construed as part of this Agreement.
11. Reports
-------
PDI shall prepare reports for the Board of the Fund, on a quarterly basis,
showing such information as, from time to time, shall be reasonably
requested by the Board.
12. Severability
------------
If any part, term or provision of this Agreement is held by any court to be
illegal, in conflict with any law or otherwise invalid, the remaining
portion or portions shall be considered severable and not affected, and the
rights and obligations of the Parties shall be construed and enforced as if
the Agreement did not contain the particular part, term or provision held
to be illegal or invalid provided that the basic agreement is not thereby
substantially impaired.
13. Governing Law
-------------
-8-
<PAGE>
This Agreement shall be governed by the laws of the State of Delaware and
the exclusive venue of any action arising under this Agreement shall be the
City of Wilmington, State of Delaware.
14. Authority to Execute
--------------------
The Parties represent and warrant to each other that the execution and
delivery of this Agreement by the undersigned officer of each Party has
been duly and validly authorized; and, when duly executed, this Agreement
will constitute a valid and legally binding and enforceable obligation of
each Party.
-9-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be signed
by their duly authorized officer, of the day and year first above written.
PROVIDENT DISTRIBUTORS, INC.
_____________________________
By:
Title:
STRATTONMONTHLY DIVIDEND REIT SHARES, INC.
_____________________________
By:
Title:
-10-
<PAGE>
EXHIBIT 99.23(j)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm in the Registration Statement, (Form
N-1A), and related Statement of Additional Information of Stratton Mutual Funds,
Inc, consisting of Stratton Growth Fund, Inc., Stratton Monthly Dividend REIT
Shares, Inc. and Stratton Small-Cap Value Fund and to the inclusion of our
report dated January 21, 2000 to the Shareholders and Board of Directors of the
Stratton Mutual Funds.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 25, 2000
