<PAGE>
[LOGO OF STRATTON MUTUAL FUNDS]
Semi-Annual Report
June 30,2000
--------------------------
STRATTON MUTUAL FUNDS
--------------------------
Stability.Strategy.Success
<PAGE>
[LOGO OF FIRST DATA]
DEAR FELLOW SHAREHOLDER:
For the second quarter of 2000, the broad general stock market outperformed the
S&P 500 Index; Technology stocks, as measured by NASDAQ, underperformed the
market. This continues a trend which began on March 10, 2000. We view that date
as the inflection point in which the strong two year growth market in
Technology stocks, ended and the market focused it's attention on the severely
depressed, value-oriented issues. Within the broad general category of value
stocks, various industries with economically defensive characteristics
performed best. These industries include food and beverage (+15%), drugs and
healthcare (+23%) and energy (+5%) stocks. The value groups which
underperformed were those associated with business cycle sensitivity. These
include basic materials (-15%), consumer durables (-13%) and bank stocks (-5%)
that were subject to increasing worries about loan defaults as the economy
softened.
At each of the last three meetings of the Federal Reserve Open Market
Committee, the Federal Reserve Board has raised interest rates for a total of
one hundred basis points. This has been done to take the steam out of the
economy and reduce the GDP growth rate from an unsustainable 5% to a more
reasonable 3%. Because the activities of the Fed have had a significant
influence in slowing down some of the interest rate sensitive areas of the
economy, the Fed in their recent June board meeting chose not to raise rates,
despite their continued concern about inflation. They will review this position
at their August 22nd meeting. The Fed has to take into account the fact that
the federal government budget surplus continues to grow at a rapid rate. While
this is very positive for balanced budget economics, the budget surplus acts as
an additional fiscal drag on the economy. Combining this with monetary policy
rate increases, we should see a significant slowdown in the coming months in
consumer confidence and ultimately in consumer spending.
Virtually all areas of the energy market have shown sharp price increases over
a year ago. OPEC has effectively restricted the supply of crude oil and
witnessed the price of crude oil rise from $15 to $30 per barrel. Natural gas
prices have doubled over the same period of time. This has two impacts on the
economy. The first is the obvious; consumers and industry are spending more
cash for energy consumption, which means less funds are available for other
spending. The second is that energy costs are very visible to the consumer,
especially gasoline and home heating costs; we would expect this to be a
negative to consumer confidence going forward.
The stock market is exhibiting much greater volatility than recent prior
markets, when you consider that overall the direction of the stock market has
been basically trendless for the last six months. What this produces for
investment managers are opportunities to sell stocks after they have
appreciated sharply and met our price targets, even though this occurs in a
short period of time.
With mixed feelings we announce that Frank Reichel will resign as President of
the Stratton Small-Cap Value Fund on August 15th to move to similar
responsibilities with a much larger investment management firm in the South.
Frank has been with us for fifteen years and has contributed significantly to
both our research and investment management activities. The Board of Directors
of the Funds has elected me as President and Gerald Van Horn as Vice President
of the Stratton Small-Cap Value Fund. Jerry has been with us for two years and
has been the active research force for the portfolio companies comprising the
Stratton Small-Cap Value Fund. We know that Frank will be very successful in
his new endeavors and we wish him well.
Sincerely yours,
/s/ James W. Stratton
James W. Stratton
Chairman
July 27, 2000
<PAGE>
STRATTON GROWTH FUND
--------------------------------------------------------------------------------
The second quarter of 2000 was an excellent one for Stratton Growth Fund. Our
relative performance was quite good considering the poor performance of the
NASDAQ Market and the Technology stocks. We continue to believe that the turn
toward value investing on March 10th was the beginning of a long-term trend
that has years to run.
During the quarter our best performing holding was C&D Technologies; we allowed
that position to appreciate without cutting it back. The earnings gains in the
company have been spectacular and it has been discovered by the growth stock
investing funds as a formidable force in the packaged power industry. During
the quarter we made a new substantial investment in Penn Virginia Corp., which
we believe is an undiscovered way of playing the strong pricing trends in the
natural gas industry. We initiated a new holding in Electronic Data Systems
Corp. after that stock's price corrected sharply as a result of some
disappointment in revenue growth. We also added relatively small new positions
in Georgia-Pacific Group, a diversified forest products company, and Tenet
Healthcare Corp., a national hospital delivery system.
The basic structure of our portfolio did witness a shift as Technology became
our number one industry in the portfolio with 17.7% of assets followed closely
by Banking with 16.9%, Insurance 12.2%, Health Care 11.4% and Energy 9.2%. Our
turnover ratio on an annualized basis rose to 57.94%, which is partially a
function of the volatility in today's stock market. Expenses remained at a
relatively low level of 1.25%.
In June of 2000, capital gains distributions of $1.73 per share and income
dividends of $0.15 per share totaling $1.88 per share, were distributed to
shareholders. The graph below illustrates the increase in value of a $10,000
investment in Stratton Growth Fund with all dividend income and capital gains
distributions reinvested.
[GRAPH]
Reinvestment of
Original Share Income Dividends Capital gains
73-74 0 43 7,630
75-76 0 458 11,280
77-78 0 1,217 14,155
79-80 0 2,147 14,597
81-82 0 3,703 17,299
83-84 0 6,347 24,755
85-86 3,857 10,805 38,310
87-88 10,945 11,062 30,774
89-90 22,901 14,859 31,059
91-92 27,527 21,871 32,464
93-94 35,156 26,652 32,622
95-96 60,327 41,919 42,938
5/31/96-12/31/96 66,844 44,981 42,654
12/31/97 52,749 58,992 98,447
12/31/98 53,823 63,997 116,451
12/31/99 46,177 57,713 108,613
6/30/00 45,798 58,310 120,064
Average Annual Total Return
for the period ended 6/30/00
1 year (4.55%)
5 year +14.46
10 year +12.57
15 year +12.06
20 year +13.70
25 year +13.01
Past performance is not predictive of future performance.
* Prior to 12/31/96, SGF had a fiscal year-end of 5/31.
2
<PAGE>
FUND HIGHLIGHTS
--------------------------------------------------------------------------------
Stratton Growth Fund
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000
-------------------------------------------------------
<S> <C> <C>
Total Net Assets $43,704,293 $38,224,463
-------------------------------------------------------
Net Asset Value Per Share $28.99 $28.13
-------------------------------------------------------
Shares Outstanding 1,507,669 1,358,664
-------------------------------------------------------
Number of Shareholders 1,022 1,060
-------------------------------------------------------
Average Size Account $42,763 $36,061
-------------------------------------------------------
</TABLE>
Portfolio Changes For the Quarter Ended June 30, 2000 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
New Holdings Eliminated Holdings
------------------------------------------------------------------------
<S> <C>
Electronic Data Systems Corp. (3.8%*) Briggs & Stratton Corp.
Georgia-Pacific Group (1.2%*) Federated Department Stores, Inc.
Penn Virginia Corp. (4.5%*) Ford Motor Co.
Tenet Healthcare Corp. (1.9%*) SouthTrust Corp.
Washington Mutual, Inc.
Weyerhaeuser Co.
</TABLE>
* Percentage of Total Net Assets.
Ten Largest Holdings June 30, 2000 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
----------------------------------------------------------
<S> <C> <C>
C&D Technologies, Inc. $ 6,090,700 13.9%
----------------------------------------------------------
American General Corp. 2,873,100 6.6
----------------------------------------------------------
Commerce Bancorp, Inc. (NJ) 2,647,467 6.0
----------------------------------------------------------
Baxter International, Inc. 2,109,375 4.8
----------------------------------------------------------
American Home Products Corp. 2,056,250 4.7
----------------------------------------------------------
Penn Virginia Corp. 1,970,000 4.5
----------------------------------------------------------
PNC Financial Services Group 1,875,000 4.3
----------------------------------------------------------
Electronic Data Systems Corp. 1,650,000 3.8
----------------------------------------------------------
Kimberly-Clark Corp. 1,606,500 3.7
----------------------------------------------------------
Pitney Bowes, Inc. 1,600,000 3.7
----------------------------------------------------------
$24,478,392 56.0%
----------------------------------------------------------
</TABLE>
3
<PAGE>
STRATTON MONTHLY DIVIDEND REIT SHARES
--------------------------------------------------------------------------------
For the three months ended June 30, 2000, SMDS again turned in a respectable
performance with a total return of +10.95%. The Fund kept pace with the +10.37%
return of The Morgan Stanley REIT Index ("RMS"). For the first six months of
2000, SMDS is up +11.67%, while the RMS is up +13.31%. The NAREIT Equity Index
for the six-month period ending June 30, 2000 is up +13.18%.
Our outlook for the REIT sector is very positive. As the broad markets have
continued to experience heightened volatility, the REITs have quietly
rebounded, driven by renewed interest from investors seeking both stability and
long-term value. We believe that REITs will continue to grow at a reasonable
pace, and that the underlying businesses will continue to flourish even in a
less vigorous economic climate. If the current strength of the economy
continues, it could have a positive effect on businesses (office/industrial
rents) and consumer confidence (retail rents and lodging rates). If rates edge
up, building may slow slightly, which can be positive for existing property
owners. While higher interest rates can have a dampening effect on REIT
earnings because of higher borrowing costs, they also tend to make new
development and new construction less attractive. Overbuilding has always been
negative for REIT performance. So, if higher rates do curtail some new
projects, current rental rates can prevail and REIT earnings can be maintained.
The overall condition of the securities in the portfolio is good, and we are
hopeful that the Fund will continue to perform well through the end of the
year.
We eliminated two holdings during the quarter--Bradley Real Estate and Western
Properties Trust. Bradley Real Estate announced its intention to be acquired by
Heritage Property Investment Trust, a private company. The stock price rose on
the news and we sold our position. At the end of the first quarter, we had
begun moving out of Western Properties Trust, as we saw no near term catalyst
for growth in its portfolio due to continued pressure from several major tenant
bankruptcies. Often a tenant bankruptcy can be good for a strip center or mall
as it allows management to bring in a better quality, higher paying tenant, but
it must be done quickly, so that the income stream to the REIT is not
disrupted. We have made a concerted effort to trim our retail exposure as we
felt it had edged up during the course of the first six months. Currently, our
largest sectors are Office/Industrial at 19.9%; Apartments at 17.1%; and
Lodging at 15.4%.
The graph below illustrates the increase in value of a $10,000 investment in
Stratton Monthly Dividend REIT Shares with all dividend income and capital
gains distributions reinvested.
[GRAPH]
Reinvestment of Reinvestments of
Original Shares Income Dividends Capital Gains
81 9,113 583
82 9,354 1,641
83 10,808 3,107
84 10,667 4,379
85 11,795 6,627
86 14,604 10,328
87 16,320 13,744 503
88 13,181 13,041 1,043
89 12,824 15,044 1,015
90 12,861 17,513 1,018
91 12,084 19,388 956
92 14,609 26,570 1,156
93 15,701 31,818 1,242
94 15,060 33,590 1,192
95 13,039 32,499 1,032
96 14,383 39,890 1,138
1/31/96-12/31/96* 14,399 43,821 1,139
12/31/97 15,879 52,959 1,257
12/31/98 13,008 47,819 1,029
12/31/99 11,170 45,934 884
6/30/00 11,921 51,890 943
Average Annual Total Return
for the period ended 6/30/00
1 year (0.05%)
5 year +5.85
10 year +7.34
15 year +7.45
20 year +9.87
Past performance is not predictive of future performance.
* Prior to 12/31/96, SMDS had a fiscal year-end of 1/31.
4
<PAGE>
FUND HIGHLIGHTS
--------------------------------------------------------------------------------
Stratton Monthly Dividend REIT Shares
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000
-------------------------------------------------------
<S> <C> <C>
Total Net Assets $61,303,920 $57,308,814
-------------------------------------------------------
Net Asset Value Per Share $22.71 $20.93
-------------------------------------------------------
Shares Outstanding 2,699,921 2,738,642
-------------------------------------------------------
Number of Shareholders 3,092 3,219
-------------------------------------------------------
Average Size Account $19,827 $17,803
-------------------------------------------------------
</TABLE>
Portfolio Changes For the Quarter Ended June 30, 2000 (unaudited)
--------------------------------------------------------------------------------
Eliminated Holdings
<TABLE>
------------------------------------------------------
<S> <C>
Bradley Real Estate, Inc. Conv. Preferred Class A
Western Properties Trust
</TABLE>
Ten Largest Holdings June 30, 2000 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
-----------------------------------------------------------------
<S> <C> <C>
Liberty Property Trust $ 3,112,500 5.1%
-----------------------------------------------------------------
Mack-Cali Realty Corp. 2,825,625 4.6
-----------------------------------------------------------------
Gables Residential Trust 2,581,250 4.2
-----------------------------------------------------------------
Colonial Properties Trust 2,463,750 4.0
-----------------------------------------------------------------
Glimcher Realty Trust 2,371,875 3.9
-----------------------------------------------------------------
FelCor Lodging Trust, Inc. 2,321,563 3.8
-----------------------------------------------------------------
Mid-Atlantic Realty Trust 2,300,000 3.7
-----------------------------------------------------------------
Health Care Property Investors, Inc. 2,180,000 3.6
-----------------------------------------------------------------
Health Care REIT, Inc. 2,112,500 3.4
-----------------------------------------------------------------
First Industrial Realty Trust, Inc. 2,065,000 3.4
-----------------------------------------------------------------
$24,334,063 39.7%
-----------------------------------------------------------------
</TABLE>
5
<PAGE>
STRATTON SMALL-CAP VALUE FUND
--------------------------------------------------------------------------------
Stratton Small-Cap Value Fund rebounded in the second quarter outperforming
both the Russell 2000 and the Russell 2000 Value indices. Your Fund was up
+5.10% for the quarter outpacing the Russell 2000 Index which was down -3.78%
for the same period. The Russell 2000 Value Index was up +1.95% for the quarter
and the broader market, as depicted by the S&P 500 Index, was down -0.47%.
Year-to-date your Fund is up +1.85% versus the Russell 2000 Index at +3.04% as
the Technology sector boosted that index earlier in the year.
During the quarter we trimmed some of our oversized positions that had
performed well for us year-to-date. Names that were reduced included Bel Fuse,
Florida Rock Industries, Morrison Management Specialists, Technitrol and True
North Communications. We also eliminated Activision, Lay-Z-Boy, and Oshkosh
Truck Corp. due to changes in their earnings prospects. New purchases included
Basin Exploration (an oil and gas development company), InFocus Corp. (the
leading producer of LCD projectors), SLI, Inc. (a high-tech lighting
manufacturer). Other purchases included additions to our existing holdings.
Financial Services is still our largest industry sector at 22.1%, which is
above the Russell 2000 at 16.4% but below the Russell 2000 Value's Index
weighting of 31.4%. Our next largest industry sector is Materials & Processing
at 17.3%, followed by Technology at 12.0% and Consumer Discretionary & Services
at 10.2%. Energy stocks make up 7.8% of the portfolio at quarter end and have
benefited from strong oil and gas pricing. Our only REIT in the portfolio,
Pacific Gulf Properties, is selling its industrial properties and liquidating
at a 28% premium to its year-end closing price of $20.25.
We continue to be encouraged by the apparent change in market leadership from
growth to value stocks which began on March 10, 2000. While the economy remains
strong and the Federal Reserve has interest rates in a holding pattern until
after the election, this market remains incredibly volatile. It is not uncommon
for individual stocks to move up or down 20% on no news. With our valuation
models in place, we plan to take advantage of pricing anomalies in the market
to seek out the best potential returns for our shareholders. Moreover, small
cap value stocks are as cheap as they have ever been relative to the overall
market. The opportunity exists for a significant rebound to normal valuation
levels.
The graph below illustrates the increase in value of a $10,000 investment in
Stratton Small-Cap Value Fund with all dividend income and capital gains
distributions reinvested.
[GRAPH]
Reinvestment of Reinvestments of
Original Shares Income Dividends Capital Gains
Apr-93 10,000
3/31/94 10,376 158
3/31/95 10,352 402
3/31/96 12,780 789
3/31/96-12/31/96* 13,432 1,067 813
12/31/97 17,976 1,633 2,190
12/31/98 16,088 1,626 1,995
12/31/99 15,552 1,840 1,928
6/30/00 15,840 1,874 1,964
Average Annual Total Return
for the period ended 6/30/00
1 year (4.98%)
3 year + 2.42
5 year +11.41
Since Inception
(4/12/93) + 9.85
Past performance is not predictive of future performance.
*Prior to 12/31/96, SMDS had a fiscal year-end of 1/31.
6
<PAGE>
FUND HIGHLIGHTS
--------------------------------------------------------------------------------
Stratton Small-Cap Value Fund
<TABLE>
<CAPTION>
June 30, 2000 March 31, 2000
-------------------------------------------------------
<S> <C> <C>
Total Net Assets $34,005,198 $33,028,461
-------------------------------------------------------
Net Asset Value Per Share $19.80 $18.84
-------------------------------------------------------
Shares Outstanding 1,717,170 1,753,129
-------------------------------------------------------
Number of Shareholders 1,090 1,148
-------------------------------------------------------
Average Size Account $31,197 $28,770
-------------------------------------------------------
</TABLE>
Portfolio Changes For the Quarter Ended June 30, 2000 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
New Holdings Eliminated Holdings
------------------------------------------------------------
<S> <C>
Basin Exploration, Inc. (2.1%*) Activision, Inc.
InFocus Corp. (2.4%*) La-Z-Boy, Inc.
SLI, Inc. (1.1%*) Oshkosh Truck Corp. Class B
</TABLE>
* Percentage of Total Net Assets.
Ten Largest Holdings June 30, 2000 (unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
------------------------------------------------------------------------
<S> <C> <C>
Bel Fuse, Inc. Class B $1,203,750 3.5%
------------------------------------------------------------------------
Primex Technologies, Inc. 1,100,000 3.2
------------------------------------------------------------------------
Penn Virginia Corp. 985,000 2.9
------------------------------------------------------------------------
Mitchell Energy & Development Corp. Class A 963,750 2.8
------------------------------------------------------------------------
Eaton Vance Corp. 925,000 2.7
------------------------------------------------------------------------
Tidewater, Inc. 900,000 2.7
------------------------------------------------------------------------
Quixote Corp. 900,000 2.7
------------------------------------------------------------------------
Florida Rock Industries, Inc. 890,625 2.6
------------------------------------------------------------------------
Technitrol, Inc. 871,875 2.6
------------------------------------------------------------------------
True North Communications, Inc. 851,250 2.5
------------------------------------------------------------------------
$9,591,250 28.2%
------------------------------------------------------------------------
</TABLE>
7
<PAGE>
STRATTON GROWTH FUND
--------------------------------------------------------------------------------
What is the Fund's investment objective?
The primary objective of SGF is to seek possible growth of capital with current
income from interest and dividends as a secondary objective. The Fund's
investments will normally consist of common stock and securities convertible
into common stock.
What is the investment philosophy used in managing the Fund?
The advisor focuses on common stocks of companies with strong cash flow.
Companies often share excess cash flow by paying above-average dividends to
shareholders. The advisor looks at characteristics such as strong dividend
growth rates and healthy dividend coverage when selecting potential buy
candidates. The advisor believes that companies which consistently strive to
increase their dividends tend to offer the potential of above-average returns.
Fundamental analysis is conducted on other important characteristics such as
the earnings outlook, management strengths, and industry competitive position.
Why are value stocks so important to the Fund's portfolio?
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
advisor believes that undervalued companies with good earnings prospects have
superior appreciation potential with reasonable levels of risk.
What are the primary investment characteristics of the portfolio?
. Average gross portfolio yield will normally exceed the S&P 500 by more
than 30%.
. Approximately 35 companies are held.
. By combining below average valuation with low price volatility (beta),
SGF should have the potential to produce good relative performance in up
markets and above average relative performance in down markets.
8
<PAGE>
STRATTON MONTHLY DIVIDEND REIT SHARES
--------------------------------------------------------------------------------
What is the Fund's investment objective?
The primary objective of SMDS is to seek a high rate of return from dividend
and interest income on investments in common stock and securities convertible
into common stock. In order to achieve these goals, the Fund invests
substantially all of its assets in high income-producing U.S. equity
securities. Under normal conditions, the Fund will invest at least 65% of its
assets in the equity securities of real estate investment trusts ("REITs").
What is the investment philosophy used in managing the Fund?
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. Currently, 80% or more of the Fund is invested in high dividend paying
REITs. There are several types of real estate properties that are owned by
REITs, including multifamily apartment complexes, health care facilities,
shopping centers, regional malls, office centers, hotels, and industrial
buildings. The portfolio is diversified across several sectors within the REIT
industry.
Why are dividend paying companies so important to the Fund's portfolio?
Current income is paramount for the SMDS portfolio. 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. REITs must distribute 95% of their net
investment income, so, as the earnings of these companies grow, increases in
dividends should follow.
What are the primary investment characteristics of the portfolio?
. The portfolio is comprised of high dividend paying securities.
. Approximately 40 companies are held.
. SMDS is managed to provide a high level of current monthly income, and
to offer the potential for dividend growth and capital appreciation.
There are risks involved with any investment. This Fund is concentrated in REIT
securities, which means it may be subject to a greater risk of loss than a non-
concentrated mutual fund.
9
<PAGE>
STRATTON SMALL-CAP VALUE FUND
--------------------------------------------------------------------------------
What is the Fund's investment objective?
The primary objective of SSCV is to achieve both dividend income and capital
appreciation. The Fund seeks to achieve this objective by investing 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
advisor believes are undervalued.
What is the investment philosophy used in managing the Fund?
The advisor attempts to purchase companies whose recent and future earnings
power give them the potential for higher valuations and continued dividend
growth. A three-step process is employed that focuses on 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.
Why are value stocks so important to the Fund's portfolio?
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
advisor believes that undervalued companies with good earnings prospects have
superior appreciation potential with reasonable levels of risk.
What are the primary investment characteristics of the portfolio?
. Fundamental valuation parameters such as price-to-earnings and price-to-
cash flow should be at a significant discount to the average small-cap
company. The Fund currently trades at approximate one half of the P/E of
the Russell 2000 Index.
. Approximately 45 companies are held.
. By combining discounted valuations with lower than average betas (low
price volatility), SSCV seeks to produce strong relative performance in
up markets and above average relative performance in down markets.
There are risks involved with any investment. This Fund is invested in small-
cap stocks which tend to have a higher degree of market risk than large-cap
stocks due to lack of liquidity and other reasons.
10
<PAGE>
SCHEDULE OF INVESTMENTS June 30, 2000 (unaudited)
--------------------------------------------------------------------------------
Stratton Growth Fund
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
--------- -----------
<S> <C> <C>
COMMON STOCKS - 92.6%
Banking/Financial - 16.9%
AmSouth Bancorp.......................................... 20,000 $ 315,000
Comerica, Inc. .......................................... 22,500 1,009,688
Commerce Bancorp, Inc. (NJ).............................. 59,327 2,647,467
First Union Corp. ....................................... 31,512 781,891
PNC Financial Services Group............................. 40,000 1,875,000
Summit Bancorp, Inc. .................................... 30,000 738,750
-----------
7,367,796
-----------
Basic Materials - 1.2%
Georgia-Pacific Group.................................... 20,000 525,000
-----------
Business Services - 5.6%
Diebold, Inc. ........................................... 30,000 836,250
Pitney Bowes, Inc. ...................................... 40,000 1,600,000
-----------
2,436,250
-----------
Consumer Durables - 1.1%
Whirlpool Corp. ......................................... 10,000 466,250
-----------
Consumer Non-Durables - 6.2%
Anheuser-Busch Companies, Inc. .......................... 15,000 1,120,313
Kimberly-Clark Corp. .................................... 28,000 1,606,500
-----------
2,726,813
-----------
Consumer Services - 4.6%
American Express Co. .................................... 21,000 1,094,625
H&R Block, Inc. ......................................... 15,000 485,625
The Hertz Corp. Class A.................................. 15,000 420,937
-----------
2,001,187
-----------
Distribution - 3.5%
IKON Office Solutions, Inc. ............................. 400,000 1,550,000
-----------
Energy - 9.2%............................................
Penn Virginia Corp. ..................................... 80,000 1,970,000
The Coastal Corp. ....................................... 25,000 1,521,875
USX-Marathon Group....................................... 22,000 551,375
-----------
4,043,250
-----------
Health Care - 11.4%
American Home Products Corp. ............................ 35,000 2,056,250
Baxter International, Inc. .............................. 30,000 2,109,375
Tenet Healthcare Corp.+.................................. 30,000 810,000
-----------
4,975,625
-----------
</TABLE>
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
---------- -----------
<S> <C> <C>
Insurance/Services - 12.2%
American General Corp. ............................... 47,100 $ 2,873,100
Aon Corp. ............................................ 33,750 1,048,359
Jefferson-Pilot Corp. ................................ 12,500 705,469
Lincoln National Corp. ............................... 20,000 722,500
-----------
5,349,428
-----------
Retailing - 3.0%
The Limited, Inc. .................................... 60,000 1,297,500
-----------
Technology - 17.7%....................................
C&D Technologies, Inc. ............................... 107,800 6,090,700
Electronic Data Systems Corp. ........................ 40,000 1,650,000
-----------
7,740,700
-----------
Total Common Stocks
(cost $23,986,780)................................... 40,479,799
-----------
<CAPTION>
Principal
Amount
----------
<S> <C> <C>
SHORT-TERM NOTES - 8.5%
Chevron USA, Inc.
6.62%, due 07/05/00.................................. $2,094,000 2,092,460
General Electric Capital Corp.
6.40%, due 07/03/00.................................. 1,622,000 1,621,423
-----------
Total Short-Term Notes
(cost $3,713,883).................................... 3,713,883
-----------
Total Investments - 101.1%
(cost $27,700,663*).................................. 44,193,682
Liabilities in Excess of Cash and Other Assets -
(1.1%).............................................. (489,389)
-----------
NET ASSETS - 100.00%.................................. $43,704,293
===========
</TABLE>
--------
+ Non-income producing security
* Aggregate cost for federal income tax purposes is $27,700,663; and net
unrealized appreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation...................................... $17,613,270
Gross unrealized depreciation...................................... (1,120,251)
-----------
Net unrealized appreciation....................................... $16,493,019
===========
</TABLE>
See accompanying notes to financial statements.
11
<PAGE>
SCHEDULE OF INVESTMENTS June 30, 2000 (unaudited)
--------------------------------------------------------------------------------
Stratton Monthly Dividend REIT Shares
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
--------- -----------
<S> <C> <C>
COMMON STOCKS - 91.9%
Apartments - 17.1%
Cornerstone Realty Income Trust, Inc. ................... 130,000 $ 1,300,000
Gables Residential Trust................................. 100,000 2,581,250
Home Properties of New York, Inc. ....................... 50,000 1,500,000
Post Properties, Inc. ................................... 30,000 1,320,000
Smith (Charles E.) Residential Realty, Inc. ............. 35,000 1,330,000
Summit Properties, Inc. ................................. 59,000 1,239,000
United Dominion Realty Trust, Inc. ...................... 110,000 1,210,000
-----------
10,480,250
-----------
Diversified - 10.6%
Colonial Properties Trust................................ 90,000 2,463,750
EastGroup Properties, SBI................................ 90,000 1,895,625
Meditrust Corp. ......................................... 300,000 1,125,000
Pacific Gulf Properties, Inc. ........................... 40,000 1,002,500
-----------
6,486,875
-----------
Health Care - 7.0%
Health Care Property Investors, Inc. .................... 80,000 2,180,000
Health Care REIT, Inc. .................................. 130,000 2,112,500
-----------
4,292,500
-----------
Lodging - 15.4%
FelCor Lodging Trust, Inc. .............................. 115,000 2,321,563
Hospitality Properties Trust............................. 60,000 1,353,750
Innkeepers USA Trust .................................... 200,000 1,825,000
Jameson Inns, Inc. ...................................... 160,000 1,180,000
RFS Hotel Investors, Inc. ............................... 125,000 1,468,750
Winston Hotels, Inc. .................................... 175,000 1,312,500
-----------
9,461,563
-----------
Net Lease - 4.0%
Franchise Finance Corp. of America....................... 65,000 1,495,000
iStar Financial, Inc. ................................... 46,000 963,125
-----------
2,458,125
-----------
Office/Industrial - 19.9%
First Industrial Realty Trust, Inc. ..................... 70,000 2,065,000
HRPT Properties Trust.................................... 90,000 624,375
Liberty Property Trust................................... 120,000 3,112,500
Mack-Cali Realty Corp. .................................. 110,000 2,825,625
ProLogis Trust........................................... 75,000 1,598,437
SL Green Realty Corp. ................................... 75,000 2,006,250
-----------
12,232,187
-----------
</TABLE>
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
---------- -----------
<S> <C> <C>
Regional Malls - 7.2%
Glimcher Realty Trust.................................. 165,000 $ 2,371,875
Mills Corp. ........................................... 108,700 2,044,919
-----------
4,416,794
-----------
Shopping Centers - 10.7%
Developers Diversified Realty Corp. ................... 95,000 1,419,062
IRT Property Co. ...................................... 166,000 1,411,000
Mid-Atlantic Reatly Trust.............................. 230,000 2,300,000
New Plan Excel Realty Trust, Inc. ..................... 108,000 1,404,000
-----------
6,534,062
-----------
Total Common Stocks
(cost $63,386,442).................................... 56,362,356
-----------
PREFERRED STOCKS - 1.7%
Kimco Realty Corp. - Depositary Shares Class D (cost
$1,047,537)........................................... 40,000 1,047,500
-----------
<CAPTION>
Principal
Amount
----------
<S> <C> <C>
SHORT-TERM NOTES - 2.5%
Associates Corp. 6.58%, due 07/03/00 (cost
$1,530,440)........................................... $1,531,000 1,530,440
-----------
Total Investments - 96.1%
(cost $65,964,419*)................................... 58,940,296
Cash and Other Assets
Less Liabilities - 3.9%............................... 2,363,624
-----------
NET ASSETS - 100.00%................................... $61,303,920
===========
</TABLE>
--------
* Aggregate cost for federal income tax purposes is $65,964,419; and net
unrealized depreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation..................................... $ 2,955,928
Gross unrealized depreciation..................................... (9,980,051)
-----------
Net unrealized depreciation...................................... $(7,024,123)
===========
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
SCHEDULE OF INVESTMENTS June 30, 2000 (unaudited)
--------------------------------------------------------------------------------
Stratton Small-Cap Value Fund
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
--------- -----------
<S> <C> <C>
COMMON STOCKS - 94.0%
Autos & Transportation - 8.1%
AAR Corp. ............................................... 45,000 $ 540,000
A.O. Smith Corp. ........................................ 25,000 523,438
Polaris Industries, Inc. ................................ 25,000 800,000
Tidewater, Inc. ......................................... 25,000 900,000
-----------
2,763,438
-----------
Consumer Discretionary
& Services - 10.2%
Brightpoint, Inc.+....................................... 55,000 476,094
Deb Shops, Inc. ......................................... 40,000 500,000
IKON Office Solutions, Inc. ............................. 130,000 503,750
LSI Industries, Inc. .................................... 45,000 683,437
Primesource Corp. ....................................... 90,000 455,625
True North Communications, Inc........................... 20,000 851,250
-----------
3,470,156
-----------
Financial Servies - 22.1%
American Bank of Connecticut............................. 25,000 493,750
Avis Group Holdings, Inc.+............................... 21,500 403,125
Blanch (E.W.) Holdings, Inc. ............................ 13,000 264,063
Colonial BancGroup, Inc. ................................ 50,000 481,250
Commerce Bancorp, Inc. (NJ).............................. 14,704 656,166
Community Bank Systems, Inc. ............................ 20,000 443,750
Dain Rauscher Corp. ..................................... 10,000 660,000
Donegal Group, Inc. ..................................... 61,299 352,469
Eaton Vance Corp. ....................................... 20,000 925,000
First Essex Bancorp, Inc. ............................... 25,000 398,437
First Financial Holdings, Inc. .......................... 18,000 247,500
National Data Corp. ..................................... 20,000 460,000
Pacific Gulf Properties, Inc. ........................... 13,000 325,812
Southwest Securities Group, Inc. ........................ 15,620 581,845
United Bankshares, Inc. ................................. 20,000 363,750
Webster Financial Corp. ................................. 20,000 443,750
-----------
7,500,667
-----------
Health Care - 6.6%
CONMED Corp.+............................................ 15,000 388,125
Morrison Management
Specialists, Inc. ...................................... 30,000 845,625
Respironics, Inc.+....................................... 25,000 450,000
Henry Schein, Inc.+...................................... 32,000 552,000
-----------
2,235,750
-----------
</TABLE>
<TABLE>
<CAPTION>
Market
Number of Value
Shares (Note 1)
--------- -----------
<S> <C> <C>
Materials & Processing - 17.3%
Florida Rock Industries, Inc. ........................... 25,000 $ 890,625
Glatfelter (P.H.) Co. ................................... 20,000 203,750
Hughes Supply, Inc. ..................................... 30,000 592,500
Owens Corning............................................ 30,000 277,500
Primex Technologies, Inc. ............................... 50,000 1,100,000
Quixote Corp. ........................................... 60,000 900,000
Republic Group, Inc. .................................... 45,000 405,000
Schawk, Inc. ............................................ 34,300 321,563
SLI, Inc. ............................................... 30,000 363,750
Velcro Industries, N.V. ................................. 76,000 836,000
-----------
5,890,688
-----------
Other - 1.0%
Foster Wheeler Corp. .................................... 40,000 345,000
-----------
Other Energy - 7.8%
Basin Exploration, Inc.+................................. 40,000 715,000
Mitchell Energy & Development Corp. Class A.............. 30,000 963,750
Penn Virginia Corp. ..................................... 40,000 985,000
-----------
2,663,750
-----------
Producer Durables - 4.1%
Belden, Inc. ............................................ 20,000 512,500
Technitrol, Inc. ........................................ 9,000 871,875
-----------
1,384,375
-----------
Technology - 12.0%
Anixter International Inc.+.............................. 20,000 530,000
Bel Fuse, Inc. Class B................................... 45,000 1,203,750
The BISYS Group, Inc.+................................... 10,000 615,000
InFocus Corp.+........................................... 25,000 804,687
Park Electrochemical Corp. .............................. 15,000 540,938
Pioneer-Standard Electronics, Inc. ...................... 27,000 398,250
-----------
4,092,625
-----------
Utilities - 4.8%
Energen Corp. ........................................... 30,000 654,375
Minnesota Power, Inc. ................................... 20,000 386,250
Price Communications Corp.+.............................. 25,000 589,062
-----------
1,629,687
-----------
Total Common Stocks
(cost $27,524,580)...................................... 31,976,136
-----------
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
SCHEDULE OF INVESTMENTS June 30, 2000 (unaudited) (continued)
--------------------------------------------------------------------------------
Stratton Small-Cap Value Fund
<TABLE>
<CAPTION>
Market
Principal Value
Amount (Note 1)
---------- -----------
<S> <C> <C>
SHORT-TERM NOTES - 6.0%
American Express Credit
Corp.
6.60%, due 07/05/00.... $1,192,000 1,191,126
General Electric Capital
Corp.
6.51%, due 07/10/00.... 850,000 848,617
-----------
Total Short-Term Notes
(cost $2,039,743)...... 2,039,743
-----------
Total Investments -
100.0%
(cost $29,564,323*).... 34,015,879
Liabilities in Excess of
Cash and Other Assets -
0.0%.................. (10,681)
-----------
NET ASSETS - 100.00%.... $34,005,198
===========
</TABLE>
--------
+ Non-income producing security
* Aggregate cost for federal income tax purposes is $29,564,323; and net
unrealized appreciation is as follows:
<TABLE>
<S> <C> <C>
Gross unrealized appreciation................................. $ 7,937,513
Gross unrealized depreciation................................. (3,485,957)
-----------
Net unrealized appreciation.................................. $ 4,451,556
===========
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
--------------------------------------------------------------------------------
June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
SGF SMDS SSCV
----------- ----------- -----------
<S> <C> <C> <C>
ASSETS:
Investments in securities at value (cost
$27,700,663, $65,964,419, and
$29,564,323, respectively) (Note 1).... $44,193,682 $58,940,296 $34,015,879
Cash.................................... 1,968 1,520 215,188
Dividends and interest receivable....... 33,748 550,294 52,220
Receivable for shares sold.............. -- 1,902,067 --
Receivable for securities sold.......... -- 1,112,363 --
----------- ----------- -----------
Total Assets.......................... 44,229,398 62,506,540 34,283,287
----------- ----------- -----------
LIABILITIES:
Accrued expenses and other liabilities.. 54,206 84,231 35,067
Payable for shares redeemed............. 6,399 -- 4,522
Payable for investment securities
purchased.............................. 464,500 1,118,389 238,500
----------- ----------- -----------
Total Liabilities....................... 525,105 1,202,620 278,089
----------- ----------- -----------
NET ASSETS:
Applicable to 1,507,669, 2,699,921, and
1,717,170 shares outstanding,
respectively/1....................../.. $43,704,293 $61,303,920 $34,005,198
=========== =========== ===========
Net asset value, offering and redemption
price per share........................ $ 28.99 $ 22.71 $ 19.80
=========== =========== ===========
SOURCE OF NET ASSETS:
Paid-in capital......................... $26,584,623 $84,853,741 $28,198,272
Undistributed net investment income
(loss)................................. 8,778 (119,933) 235,136
Accumulated net realized gain (loss) on
investments............................ 617,873 (16,405,765) 1,120,234
Net unrealized appreciation
(depreciation) of investments.......... 16,493,019 (7,024,123) 4,451,556
=========== =========== ===========
Net Assets............................ $43,704,293 $61,303,920 $34,005,198
=========== =========== ===========
</TABLE>
--------
/1/SGF: $.10 par value, 10,000,000 shares authorized; SMDS: $1.00 par value,
10,000,000 shares authorized; SSCV: $.001 par value, 200,000,000 shares
authorized.
See accompanying notes to financial statements.
15
<PAGE>
STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
Six Months Ended June 30, 2000 (unaudited)
<TABLE>
<CAPTION>
SGF SMDS SSCV
---------- ---------- ----------
<S> <C> <C> <C>
INCOME:
Dividends................................. $ 418,685 $2,799,739 $ 322,367
Interest.................................. 54,538 78,755 47,146
---------- ---------- ----------
Total Income............................ 473,223 2,878,494 369,513
---------- ---------- ----------
EXPENSES:
Accounting/Pricing services fees.......... 16,364 16,317 16,177
Administration services fees.............. 14,264 16,415 13,610
Advisory fees (Note 2).................... 138,842 178,024 48,340
Audit fees................................ 8,529 12,084 3,908
Custodian fees............................ 5,313 7,195 5,658
Directors' fees........................... 6,851 10,007 5,642
Legal fees................................ 1,658 2,465 1,431
Miscellaneous fees........................ 2,082 2,964 1,872
Printing and postage fees................. 4,251 7,214 3,656
Registration fees......................... 15,702 16,918 15,702
Shareholder services fees................. 28,504 77,433 33,109
Taxes other than income taxes............. 1,675 2,350 1,375
---------- ---------- ----------
Total Expenses.......................... 244,035 349,386 150,480
---------- ---------- ----------
Net Investment Income................. 229,188 2,529,108 219,033
---------- ---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain (loss) on investments... 620,176 (721,089) 1,244,624
Net increase (decrease) in unrealized
appreciation on investments.............. 729,542 4,934,563 (903,647)
---------- ---------- ----------
Net gain on investments................... 1,349,718 4,213,474 340,977
---------- ---------- ----------
Net increase in net assets resulting
from operations........................ $1,578,906 $6,742,582 $ 560,010
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SGF SMDS
-------------------------- --------------------------
6 Months Ended Year Ended 6 Months Ended Year Ended
06/30/00* 12/31/99 06/30/00* 12/31/99
-------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income.. $ 229,188 $ 674,239 $ 2,529,108 $ 4,717,684
Net realized gain
(loss) on
investments........... 620,176 3,251,257 (721,089) (2,505,510)
Net increase (decrease)
in unrealized
appreciation of
investments........... 729,542 (9,385,310) 4,934,563 (6,710,730)
----------- ----------- ----------- -----------
Net increase (decrease)
in net assets
resulting from
operations............ 1,578,906 (5,459,814) 6,742,582 (4,498,556)
----------- ----------- ----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income ($0.15 and
$0.41 per share,
respectively, for SGF,
$0.96 and $1.55,
respectively, for
SMDS)................. (228,837) (665,812) (2,649,041) (4,717,684)
From realized gains on
investments ($1.73 and
$1.33 per share,
respectively, for
SGF).................. (2,638,847) (2,250,632) -- --
Return of capital (0.00
and $0.49 per share
for SMDS)............. -- -- -- (1,514,708)
CAPITAL SHARE
TRANSACTIONS:/2/ 1,128,010 (11,081,854) (2,202,699) (9,792,276)
----------- ----------- ----------- -----------
Total increase
(decrease) in net
assets................ (160,768) (19,458,112) 1,890,842 (20,523,224)
NET ASSETS:
Beginning of period.... 43,865,061 63,323,173 59,413,078 79,936,302
----------- ----------- ----------- -----------
End of period
(including
undistributed net
investment income
(loss) of $8,778 and
$8,427, respectively,
for SGF, and
($119,933) and $0,
respectively, for
SMDS)................. $43,704,293 $43,865,061 $61,303,920 $59,413,078
=========== =========== =========== ===========
<CAPTION>
SSCV
--------------------------
6 Months Ended Year Ended
06/30/00* 12/31/99
-------------- -----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income.. $ 219,033 $ 516,517
Net realized gain on
investments........... 1,244,624 1,034,763
Net (decrease) in
unrealized
appreciation of
investments........... (903,647) (2,192,714)
----------- -----------
Net increase (decrease)
in net assets
resulting from
operations............ 560,010 (641,434)
----------- -----------
DISTRIBUTIONS TO
SHAREHOLDERS:
From net investment
income ($0.00 and
$0.27 per share,
respectively, for
SSCV)................. -- (501,810)
From realized gains on
investments ($0.00 and
$0.00 per share,
respectively, for
SSCV)................. -- --
----------- -----------
CAPITAL SHARE
TRANSACTIONS:/2/ (2,608,830) (5,592,043)
----------- -----------
Total (decrease) in net
assets................ (2,048,820) (6,735,287)
NET ASSETS:
Beginning of period.... 36,054,018 42,789,305
----------- -----------
End of period
(including
undistributed net
investment income of
$235,136 and $16,103,
respectively, for
SSCV)................. $34,005,198 $36,054,018
=========== ===========
</TABLE>
--------
* Unaudited
See accompanying notes to financial statements.
17
<PAGE>
CAPITAL SHARE TRANSACTIONS
--------------------------------------------------------------------------------
/2/ A summary of capital share transactions follows:
<TABLE>
<CAPTION>
SGF
----------------------------------------------
6 Months Ended
06/30/00* Year Ended 12/31/99
---------------------- ----------------------
Shares Value Shares Value
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Shares issued.................. 321,164 $ 9,916,006 119,531 $ 3,966,635
Shares reinvested from net in-
vestment income and capital
gains distributions........... 86,980 2,569,377 82,967 2,568,964
-------- ------------ -------- ------------
408,144 12,485,383 202,498 6,535,599
Shares redeemed................ (401,067) (11,357,373) (560,493) (17,617,453)
-------- ------------ -------- ------------
Net increase (decrease)...... 7,077 $ 1,128,010 (357,995) $(11,081,854)
======== ============ ======== ============
<CAPTION>
SMDS
----------------------------------------------
6 Months Ended
06/30/00* Year Ended 12/31/99
---------------------- ----------------------
Shares Value Shares Value
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Shares issued.................. 500,943 $ 10,969,743 201,707 $ 4,798,470
Shares reinvested from net in-
vestment income............... 78,290 1,655,103 164,663 3,826,361
-------- ------------ -------- ------------
579,233 12,624,846 366,370 8,624,831
Shares redeemed................ (671,741) (14,827,545) (799,368) (18,417,107)
-------- ------------ -------- ------------
Net (decrease)............... (92,508) $ (2,202,699) (432,998) $ (9,792,276)
======== ============ ======== ============
<CAPTION>
SSCV
----------------------------------------------
6 Months Ended
06/30/00* Year Ended 12/31/99
---------------------- ----------------------
Shares Value Shares Value
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
Shares issued.................. 19,039 $ 359,718 279,605 $ 5,275,738
Shares reinvested from net in-
vestment income and capital
gains distributions........... -- -- 19,978 383,537
-------- ------------ -------- ------------
19,039 359,718 299,583 5,659,275
Shares redeemed................ (156,920) (2,968,548) (572,731) (11,251,318)
-------- ------------ -------- ------------
Net (decrease)............... (137,881) $ (2,608,830) (273,148) $ (5,592,043)
======== ============ ======== ============
</TABLE>
--------
* Unaudited
See accompanying notes to financial statements.
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
June 30, 2000 (unaudited)
Note 1. - Significant Accounting Policies
Stratton Mutual Funds (the "Funds") consist of Stratton Growth Fund, Inc.
("SGF"), Stratton Monthly Dividend REIT Shares, Inc. ("SMDS") and The Stratton
Funds, Inc. (the "Company") which operates as a series, consisting of Stratton
Small-Cap Value Fund ("SSCV"). The Funds are registered under the Investment
Company Act of 1940, as amended, as open-end management investment companies.
The Funds offer diversified portfolios.
Investments in the Funds normally consist of common stock and securities
convertible into or exchangeable into common stock. Each Fund has specific
investment objectives:
The objective of SGF is to seek possible growth of capital with current income
from interest and dividends as a secondary objective.
The objective of SMDS is to seek a high rate of return from dividend and
interest income. Under normal conditions, at least 65% of the Fund's total
assets will be in common stocks and other equity securities of real estate
investment trusts.
The objective of SSCV is to achieve both dividend income and capital
appreciation through investment in the securities of small-cap companies which
have certain risks associated with them. First and foremost is their greater
earnings and price volatility in comparison to large companies. Earnings risk
is partially due to the undiversified nature of small company business lines.
Due to the inherent risk of investments there can be no assurance that the
objectives of the Funds will be met.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of their financial statements. The
policies are in conformity with generally accepted accounting principles.
A. Security Valuation - 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. Securities traded in the over-the-
counter market are valued at the last sale price, if carried in the
National Market Issues section by NASDAQ; other over-the-counter
securities are valued at the mean between the closing bid and asked
prices obtained from a principal market maker. All other securities
and assets are valued at their fair value as determined in good
faith by the Boards 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.
B. Determination of Gains or Losses on Sales of Securities - Gains
or losses on the sale of securities are calculated for accounting
and tax purposes on the identified cost basis.
C. Federal Income Taxes - It is the Funds' policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all taxable income to their
shareholders. Therefore, no federal income tax provision is
required. SMDS has a capital loss carryover available to offset
future capital gains, if any, of approximately $15,684,000 of which
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
-------------------------------------------------------------------------------
June 30, 2000 (unaudited)
$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.
D. Use of Estimates in Financial Statements - In preparing financial
statements in conformity with generally accepted accounting
principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the
financial statements, as well as the reported amounts of income and
expenses during the reporting period. Actual results may differ from
these estimates.
E. Other - Security transactions are accounted for on the date the
securities are purchased or sold. Interest income is recorded on the
accrual basis and dividend income on the ex-dividend date.
Distributions to Shareholders - Distributions to shareholders are recorded on
the ex-dividend date. The character of distributions paid to shareholders is
determined by reference to income as determined for income tax purposes, after
giving effect to temporary differences between the financial reporting and tax
basis of assets and liabilities, rather than income as determined for
financial reporting purposes.
SMDS has made certain investments in real estate investment trusts ("REITs")
which 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. The Fund intends to include the gross
dividends from such REITs in its monthly distributions to its shareholders
and, accordingly, a portion of the Fund's distributions may also be designated
as a return of capital.
Note 2. - During the six months ended June 30, 2000, the Funds paid advisory
fees to Stratton Management Company, (the "Advisor") as follows: SGF--
$138,842; SMDS--$178,024; SSCV--$48,340. Management services are provided by
the Advisor under agreements whereby the Advisor furnishes all investment
advice, office space and facilities to the Funds and pays the salaries of the
Funds' officers and employees, except to the extent that those employees are
engaged in administrative and accounting services activities. In return for
these services, SGF pays to the Advisor a monthly fee of 3/48 of 1% (annually
3/4 of 1%) of the daily net asset value of the Fund for such month. SMDS pays
a monthly fee at an annual rate of 5/8 of 1% of the daily net asset value of
the Fund for such month. The Advisor has voluntarily agreed to waive $15,000
annually of the compensation due it under the agreement with SGF and SMDS to
offset a portion of the cost of certain administrative responsibilities
delegated to PFPC Inc.
SSCV pays a monthly fee at an annual rate of 0.75% of the average daily net
asset value of the Fund for such month, subject to a performance adjustment.
The performance adjustment will be calculated at the end of each month based
upon a rolling 24 month performance period. The performance adjustment is
added to or subtracted from the basic investment advisory fee. The Fund's
gross performance is compared with the performance of the Frank Russell 2000
Index ("Russell 2000") over a rolling 24-month performance period. The Russell
2000 is composed of the smallest 2000 stocks in the Frank Russell annual
ranking of 3000 common stocks by market capitalization. The Russell 2000 is a
widely recognized common stock index of small to medium size companies. Total
return performance on the Russell 2000 includes dividends and is reported
monthly on a market capitalization-weighted basis. When the Fund performs
better than the Russell 2000, it pays the Advisor an
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
-------------------------------------------------------------------------------
June 30, 2000 (unaudited)
incentive fee; less favorable performance than the Russell 2000 reduces the
basic fee. Each 1.00% of the difference in performance between the Fund and
the Russell 2000 during the performance period is equal to a 0.10% adjustment
to the basic fee. The maximum annualized performance adjustment rate is +/-
0.50% of average net assets which would be added to or deducted from the
advisory fee if the Fund outperformed or under performed the Russell 2000 by
5.00%. The performance fee adjustment for the six months ended June 30, 2000
caused the advisory fee to decrease by $79,974.
Certain officers and Directors of the Funds are also officers and directors of
the Advisor. None of the Funds' officers receive compensation from the Funds.
Pursuant to an agreement between The Bank of New York (the "Custodian") and
PFPC Inc., the Custodian reallows a portion of its custody fees to PFPC Inc.
for certain services delegated to PFPC Inc. The amount is not readily
determinable. Effective December 1, 1999, Provident Distributors, Inc. serves
as the Funds' principal underwriter and receives no fees for services in
assisting in sales of the Funds' shares but does receive an annual fee of
$5,000 for each Fund for its services in connection with the registration of
the Funds' shares under state securities laws.
Note 3. - Purchases and sales of investment securities, excluding short-term
notes, for the six months ended June 30, 2000 were as follows:
<TABLE>
<CAPTION>
SGF SMDS SSCV
----------- ----------- -----------
<S> <C> <C> <C>
Cost of purchases........................... $10,894,871 $ 6,196,372 $ 8,294,497
Proceeds of sales........................... 13,180,196 10,340,881 11,666,987
</TABLE>
Note 4. - Subsequent Event - On December 14, 1999 the Board of Directors
approved a change to the name of Stratton Small-Cap Yield Fund to Stratton
Small-Cap Value Fund.
21
<PAGE>
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
Stratton Growth Fund
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
Years Ended December Years Ended May
6 Months 31, 7 Months 31,
Ended -------------------------- Ended ----------------
06/30/00* 1999 1998 1997 12/31/96 1996 1995
--------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period.... $ 29.23 $ 34.07 $ 33.39 $ 27.00 $ 27.18 $ 22.35 $ 20.65
------- ------- ------- ------- ------- ------- -------
Income From Investment
Operations
Net investment
income............... 0.150 0.416 0.570 0.550 0.312 0.556 0.537
Net gains (losses) on
securities
(both realized and
unrealized).......... 1.490 (3.516) 3.130 8.900 1.298 5.759 2.978
------- ------- ------- ------- ------- ------- -------
Total from
investment
operations......... 1.640 (3.100) 3.700 9.450 1.610 6.315 3.515
------- ------- ------- ------- ------- ------- -------
Less Distributions
Dividends (from net
investment income)... (0.150) (0.410) (0.590) (0.540) (0.580) (0.540) (0.540)
Distributions (from
capital gains)....... (1.730) (1.330) (2.430) (2.520) (1.210) (0.945) (1.275)
------- ------- ------- ------- ------- ------- -------
Total
distributions...... (1.880) (1.740) (3.020) (3.060) (1.790) (1.485) (1.815)
------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of
Period................. $ 28.99 $ 29.23 $ 34.07 $ 33.39 $ 27.00 $ 27.18 $ 22.35
======= ======= ======= ======= ======= ======= =======
Total Return............ 5.49% (9.29%) 11.46% 36.06% 6.40% 29.62% 18.61%
Ratios/Supplemental Data
Net assets, end of
period (in 000's).... $43,704 $43,865 $63,323 $60,177 $44,801 $42,880 $31,719
Ratio of expenses to
average net assets... 1.25%/1/ 1.13% 1.07% 1.11% 1.17%/1/ 1.16% 1.31%
Ratio of net
investment income to
average net assets... 1.17%/1/ 1.21% 1.60% 1.87% 2.08%/1/ 2.28% 2.70%
Portfolio turnover
rate................. 28.89% 39.81% 38.02% 34.40% 20.32% 15.41% 42.54%
</TABLE>
--------
* Unaudited
/1/Annualized
See accompanying notes to financial statements.
22
<PAGE>
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
Stratton Monthly Dividend REIT Shares
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
6 Months Years Ended December 31, 11 Months Years Ended January 31,
Ended ---------------------------- Ended ------------------------
06/30/00* 1999 1998 1997 12/31/96 1996 1995
--------- ------- ------- -------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 21.28 $ 24.78 $ 30.25 $ 27.43 $ 27.40 $ 24.84 $ 28.69
------- ------- ------- -------- -------- ----------- -----------
Income From Investment
Operations
Net investment income..... 0.916 1.550 1.650 1.540 1.630 1.880 1.940
Net gains (losses) on
securities (both realized
and unrealized).......... 1.474 (3.010) (5.070) 3.200 0.160 2.600 (3.870)
------- ------- ------- -------- -------- ----------- -----------
Total from investment
operations............. 2.390 (1.460) (3.420) 4.740 1.790 4.480 (1.930)
------- ------- ------- -------- -------- ----------- -----------
Less Distributions
Dividends (from net
investment income)....... (0.960) (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..... (0.960) (2.040) (2.050) (1.920) (1.760) (1.920) (1.920)
------- ------- ------- -------- -------- ----------- -----------
Net Asset Value, End of
Period..................... $ 22.71 $ 21.28 $ 24.78 $ 30.25 $ 27.43 $ 27.40 $ 24.84
======= ======= ======= ======== ======== =========== ===========
Total Return................ 11.67% (6.25%) (11.75%) 18.09% 7.12% 18.98% (6.57%)
Ratios/Supplemental Data
Net assets, end of period
(in 000's)............... $61,304 $59,413 $79,936 $101,956 $103,780 $ 129,267 $ 134,066
Ratio of expenses to
average net assets....... 1.18%/1/ 1.09% 1.02% 1.02% 1.02%/1/ 0.99% 1.08%
Ratio of net investment
income to average net
assets................... 8.52%/1/ 6.61% 5.95% 5.48% 6.94%/1/ 7.42% 7.71%
Portfolio turnover rate... 10.96% 13.94% 18.89% 42.47% 69.19% 53.30% 39.50%
</TABLE>
--------
* Unaudited
/1/Annualized
See accompanying notes to financial statements.
23
<PAGE>
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
Stratton Small-Cap Value Fund
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
Years Ended December
6 Months 31, 9 Months Years Ended March 31,
Ended --------------------------- Ended ----------------------
06/30/00* 1999 1998 1997/2/ 12/31/96/2/ 1996/2/ 1995/2/
--------- ------- ------- ------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period.................. $ 19.44 $ 20.11 $ 22.47 $ 16.79 $ 15.98 $ 12.94 $ 12.97
------- ------- ------- ------- ------- ---------- ----------
Income from Investment
Operations
Net investment income..... 0.128 0.278 0.170 0.210 0.260 0.330 0.290
Net gains (losses) on
securities (both realized
and unrealized).......... 0.232 (0.678) (2.310) 6.800 1.740 3.040 (0.020)
------- ------- ------- ------- ------- ---------- ----------
Total from investment
operations............. 0.360 (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..................... $ 19.80 $ 19.44 $ 20.11 $ 22.47 $ 16.79 $ 15.98 $ 12.94
======= ======= ======= ======= ======= ========== ==========
Total Return................ 1.85% (1.98%) (9.58%) 42.37% 12.84% 26.18% 2.09%
Ratios/Supplemental Data
Net assets, end of period
(in 000's)............... $34,005 $36,054 $42,789 $39,377 $21,691 $ 19,592 $ 14,058
Ratio of expenses to
average net assets....... 0.90%/1/ 1.08% 1.56% 1.62% 1.29%/1/ 1.46% 2.12%
Ratio of net investment
income to average net
assets................... 1.31%/1/ 1.29% 0.80% 1.09% 2.03%/1/ 2.28% 2.36%
Portfolio turnover rate... 25.99% 43.44% 35.74% 26.27% 35.86% 33.50% 30.20%
</TABLE>
--------
* Unaudited
/1/Annualized
/2/Adjusted for a 2-for-1 stock split declared by the Fund to shareholders of
record on December 17, 1997
See accompanying notes to financial statements.
24
<PAGE>
SHAREHOLDER INFORMATION
-------------------------------------------------------------------------------
Minimum Investment
The minimum amount for the initial purchase of shares of the Funds is $2,000
each for non-retirement accounts. There is no minimum for retirement accounts.
Subsequent purchases may be made in amounts of $100 or more.
Telephone Exchange
Shares of each Fund may be exchanged for shares of the other Funds, provided
such other shares may legally be sold in the state of the investor's
residence. Each Fund has a distinct investment objective which should be
reviewed before executing any exchange of shares.
Dividends and Distributions
SGF pays semi-annual dividends from net investment income. SMDS pays monthly
dividends from net investment income. SMDS has made certain investments in
REITs which pay dividends to their shareholders based on available funds from
operations. It is quite common for these dividends to exceed a REIT's taxable
earnings and profits resulting in the excess portion of such dividends being
designated as a return of capital. SMDS intends to include the gross dividends
from such REITs in its monthly distributions to its shareholders and,
accordingly, a portion of the Fund's distributions may be reclassified as a
return of capital at the end of the fiscal year. Such information will be
mailed to shareholders on I.R.S. Form 1099DIV. SSCV pays annual dividends from
net investment income. Each Fund makes distributions of capital gains, if any,
at least annually. Dividends and distributions may be reinvested in additional
shares of the Funds.
Automatic Investment Plan
Shares of a Fund may be purchased through our "Automatic Investment Plan" (the
"Plan"), (See item 6 of the New Account Application attached to the back of
the Prospectus). The Plan provides a convenient method by which investors may
have monies debited directly from their checking, savings or bank money market
accounts for investment in a Fund. The minimum investment pursuant to this
Plan is $100 per month. The account designated will be debited in the
specified amount, on the date indicated, and Fund shares will be purchased.
Only an account maintained at a domestic financial institution which is an
Automated Clearing House member may be so designated. A Fund may alter, modify
or terminate this Plan at any time.
Share Price Information
The daily share price of the Funds can be found in the mutual fund section of
most major daily newspapers as well as The Wall Street Journal and Investor's
Daily, where the Funds are listed under Stratton Funds. The Funds' stock
ticker symbols for SGF, SMDS and SSCV are STRGX, STMDX and STSCX,
respectively.
Retirement Plans
Stratton Mutual Funds has Defined Contribution Plans, Individual Retirement
Accounts and 403(b)(7) Retirement Plans available at no minimum investment.
25
<PAGE>
SHAREHOLDER INFORMATION (continued)
-------------------------------------------------------------------------------
General Information on the Funds
Requests for a Prospectus, financial information, past performance figures and
an application, should be directed to the Funds' toll free number 1-800-634-
5726.
Existing Shareholder Account Services
Shareholders seeking information regarding their accounts and other fund
services, and shareholders executing redemption requests, should call or write
the transfer agent and dividend paying agent:
PFPC Inc.
211 South Gulph Road, P. O. Box 61503, King of Prussia, PA 19406-0903
Telephone: 610-239-4600 . 1-800-472-4266
Investment Portfolio Activities
Questions regarding any of the Funds' investment portfolios should be directed
to the Funds' Investment Advisor:
STRATTON MANAGEMENT COMPANY
Plymouth Meeting Executive Campus
610 W. Germantown Pike, Suite 300, Plymouth Meeting, PA 19462-1050
Telephone: 610-941-0255
Additional Purchases ONLY to existing accounts should be mailed to a separate
lock box unit:
c/o PFPC Inc.
P. O. Box 61767, King of Prussia, PA 19406-8767
Distributed by Provident Distributors, Inc., 3200 Horizon Drive, King of
Prussia, PA 19406-0903--Date of first use August 2000. This
report is to be preceded or accompanied by a Prospectus.
All indices are unmanaged groupings of stock that
are not available for investment.
26
<PAGE>
DIRECTORS
Lynne M. Cannon Merritt N. Rhoad, Jr.
John J. Lombard, Jr. Richard W. Stevens
Douglas J. MacMaster, Jr. James W. Stratton
Henry A. Rentschler
OFFICERS
James W. Stratton Gerald M. Van Horn
Chairman Vice President
Stratton Mutual Funds Stratton Small-Cap Value Fund
President Joanne E. Kuzma
Stratton Small-Cap Value Fund Vice President
John A. Affleck Patricia L. Sloan
President Secretary & Treasurer
Stratton Growth Fund Brigid E. Hummel
James A. Beers Assistant Secretary &
President, Stratton Monthly Treasurer
Dividend REIT Shares
INVESTMENT ADVISOR
Stratton Management Company
Plymouth Meeting Executive Campus
610 W. Germantown Pike, Suite 300
Plymouth Meeting, PA. 19406-1050. Telephone 610-941-0255
TRANSFER AGENT & DIVIDEND PAYING AGENT
PFPC Inc.
P.O. Box 61503, King of Prussia, PA. 19406-0903
Telephone: 610-239-4600. 1-800-472-4266
CUSTODIAN BANK
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
--------------------------
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