<PAGE>
STRATTON
SMALL-CAP
YIELD FUND
================================================================================
SSCY
================================================================================
SEMI-ANNUAL REPORT
SEPTEMBER 30, 1995
<PAGE>
FUND HIGHLIGHTS
<TABLE>
<CAPTION>
September 30, June 30,
1995 1995
------------- -----------
<S> <C> <C>
Total Net Assets........... $17,030,179 $15,233,640
Net Asset Value Per Share.. $ 30.04 $ 27.47
Shares Outstanding......... 566,957 554,547
Number of Shareholders..... 951 970
Average Size Account....... $ 17,908 $ 15,705
</TABLE>
================================================================================
Portfolio Changes For the Quarter Ended September 30, 1995 (unaudited)
Major Purchases Major Sales
American Business Products, Inc. Armor All Products Corp./(2)/
Anthony Industries, Inc. Elco Industries, Inc./(2)/
Boston Acoustics, Inc. New England Business Service, Inc.
Harleysville Group, Inc. (PA)/(1)/ Penn Virginia Corp./(2)/
Jackpot Enterprises, Inc. Tseng Labs, Inc./(2)/
Main Street Community Bancorp, Inc./(1)/
Quaker State Corp.
Reliance Bancorp, Inc./(1)/
Selective Insurance Group, Inc.
Technitrol, Inc.
/(1)/ New Holdings /(2)/ Eliminations
Ten Largest Holdings September 30, 1995 (unaudited)
<TABLE>
<CAPTION>
Market Percent
Value of TNA
---------- --------
<S> <C> <C>
American Business Products, Inc... $ 515,625 3.0%
Vigoro Corp. (The)................ 507,000 3.0
True North Communications, Inc.... 500,000 2.9
Anthony Industries, Inc........... 471,875 2.8
Carpenter Technology Corp......... 469,500 2.7
Roanoke Electric Steel Corp....... 465,000 2.7
Selective Insurance Group, Inc.... 456,250 2.7
MacNeal-Schwendler Corp........... 442,000 2.6
Technitrol, Inc................... 418,750 2.5
Cleveland-Cliffs, Inc............. 411,250 2.4
---------- ----
$4,657,250 27.3%
========== ====
</TABLE>
<PAGE>
DEAR SHAREHOLDER:
Your Fund completed its second fiscal quarter ended September 30, 1995 with a
net asset value per share of $30.04. Total net assets have grown to $17,030,179.
Our number of shareholder accounts totaled 951 at quarter-end with an average
account size of $17,908. The combination of asset growth and large average
account size has benefited shareholders through a much lower annualized expense
ratio of 1.52%.
The portfolio continues to be invested in a diversified list of holdings
representing ten different industries. The Fund is comprised of small companies
all of which had market capitalizations under $500 million at the time of
purchase. The median market capitalization of the stocks in the portfolio is
approximately $275 million. The current number of holdings is now 58. Portfolio
turnover for the first six months was 41% on an annualized basis.
At the end of the quarter, the portfolio was 93% invested with the remaining
cash reserves held in commercial paper. New purchases were made in the Financial
Services sector and additions made to existing holdings in other industries.
Your Fund's industry mix has changed slightly over the last six months
influenced primarily by sector performance. Banking is again our largest
industry weighting at 18%, followed by industrial companies at 17%. Consumer
products are the next largest group at 16%.
The economy continued to be strong in the third quarter with GDP growth coming
in at a better than expected 4.2%. Despite this apparent economic strength,
other signs of weakness such as lower auto sales along with reduced inflation
fears, have allowed long-term interest rates to drop significantly with the 30-
year Treasury Bond now yielding under 6.5%. This environment is beneficial for
dividend-paying stocks especially interest sensitive issues such as Banks and
Financial Services. If the economy slows and Congress makes genuine progress on
a deficit reduction package, we could see long-term rates in the 6% range by
early 1996.
Performance for the quarter was an exceptionally strong 9.79%, right in line
with the Russell 2000's 9.88% advance. This impressive rise was aided by
Illinois Tool Work's offer to acquire Elco Industries at a significant premium
to the company's current market value. Fiscal year-to-date your Fund is up 17.0%
compared with a 20.2% rise for the Russell 2000 Index. During the quarter we
passed the $30.00 NAV mark and had an intra-period high of $30.45. We remain
committed to our dividend-based style of value investing and look forward to
continued strong performance in the future.
The Fund's Directors declared the regular fiscal second quarter dividend at the
rate of $0.12 per share payable on September 22 to stockholders of record as of
September 14, 1995. We welcome all of our new shareholders to the Fund, and look
forward to your continued support. As a 100% no-load fund, referrals by our
existing shareholders are an important source of new business to us. Should you
have any questions regarding your Fund, you may contact us at 1-800-578-8261.
Sincerely yours,
James W. Stratton Frank H. Reichel, III
Chairman President
November 6, 1995
<PAGE>
STRATTON SMALL-CAP YIELD FUND'S INVESTMENT PROCESS
What is the Fund's objective?
Stratton Small-Cap Yield Fund's objective is to achieve both dividend income and
capital appreciation by investing in dividend paying small capitalization
companies. We attempt to purchase companies whose recent and future earnings
power give them the potential for higher valuations and continued dividend
growth.
What is the philosophy used in managing Stratton Small-Cap Yield Fund?
This is an all equity mutual fund which invests in the common stocks of small
but established dividend paying companies. The primary criterion for stock
selection centers around the dividend paying ability of the companies. We feel
that companies who regularly increase their dividend have superior appreciation
potential at reasonable levels of risk. Furthermore, given the higher
volatility of small capitalization stocks a diversified portfolio is warranted.
How diversified is the portfolio of the Fund?
The Fund will normally be invested in ten to fifteen industry groups with no
more than 25% in any one industry. We diversify into a variety of industries
that offer sufficiently high yielding investment opportunities as well as growth
potential. Right now our three largest industries are Banking 18%, Industrial
17% and Consumer Products 16%. In order to achieve the necessary
diversification within those industries, we envision holding between 50 and 75
securities in total.
What kind of volatility does this portfolio have?
The portfolio of Stratton Small-Cap Yield Fund should have one of the lowest
"beta's" (a measure of volatility) of any of its small-cap fund peers. The high
dividend component and the established earnings stream of the securities we own
typically helps to reduce share price fluctuations within the small-cap
universe.
What is the turnover ratio of the portfolio?
We expect turnover to remain relatively low as we continually add to positions
in the portfolio. Because small company stocks are often less frequently traded
than their larger counterparts, we act only when the fundamental earnings
picture has changed dramatically. This avoids incurring the relatively high
transactions costs associated with replacing a position in the portfolio. A
good target for the turnover ratio would be 40% annually.
<PAGE>
Does Stratton Small-Cap Yield Fund pay much attention to market timing?
Because our objective is to produce above-average rates of current income, we
generally remain fully invested at all times in dividend paying securities.
Except during times of large cash inflows to the Fund, our cash position will
vary between 0-10% depending upon available investment opportunities.
Where do you obtain the research data on the companies that you own or are
considering for purchase?
The quantitative research is performed in-house by our own staff. Once we have
identified industries and companies of interest, we seek the best regional
analysts in the investment brokerage community to provide us with additional
input. We like to have multiple sources of research. Our professional staff are
portfolio generalists rather than industry specialists.
What quantitative disciplines do you use in purchasing common stocks?
From the overall equity universe of 5,000 companies, we screen down to about 400
companies by focusing on stocks with a market capitalization under $500 million
and those which possess a dividend yield equal to or greater than that on the
S&P 500 average. Our second step reduces the universe to approximately 80
stocks by screening for additional yield characteristics such as dividend growth
rates and dividend coverage.
How do you select companies within the high yield universe?
Our third review involves fundamental analysis of such important characteristics
as the outlook for earnings and cash flow, management strengths and industry
competitive position. This reduces the Stratton Small-Cap Yield Fund's buy
candidate list to approximately 20 stocks. These stocks are available for
addition to the Fund's portfolio.
What are the primary investment characteristics of the portfolio?
. Average gross portfolio yield target should exceed the S&P 500, exceed
savings account yields and be approximately twice the yield of the average
small-cap company.
. Approximately 60 companies are held.
. By combining high dividend yields and underlying low price volatility
(Beta), Stratton Small-Cap Yield seeks to produce good relative performance
in up markets and superior relative performance in down markets.
<PAGE>
SCHEDULE OF INVESTMENTS (unaudited) SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Market
Number of Value
Shares Security (Note 1)
- ----------- -------- ------------
<S> <C> <C>
COMMON STOCKS - 93.1%
Banking - 18.3%
7,500 American Bank of Connecticut ...................... $ 179,062
11,300 California State Bank (Covina, CA) ................ 159,612
4,000 CCB Financial Corp. ............................... 204,500
8,000 Centura Banks, Inc. (NC) .......................... 266,000
7,000 Colonial BancGroup, Inc. .......................... 201,250
8,900 Commerce Bancorp, Inc. (NJ) ....................... 212,488
5,000 Community Bank System, Inc. ....................... 168,750
9,900 Eagle Financial Corp. ............................. 227,700
20,000 First Essex Bancorp, Inc. ......................... 212,500
9,000 First Financial Holdings, Inc. .................... 182,250
4,500 Firstbank of Illinois Co. ......................... 129,375
12,000 Interchange Financial Services Corp. .............. 246,000
10,000 Main Street Community Bancorp, Inc. ............... 167,500
10,000 Medford Savings Bank .............................. 210,000
10,000 Reliance Bancorp, Inc. ............................ 146,250
6,000 United Carolina Bancshares Corp. .................. 208,500
----------
3,121,737
----------
Business Services - 8.3%
25,000 American Business Products, Inc. .................. 515,625
11,000 New England Business Service, Inc. ................ 226,875
15,000 PMC Capital, Inc. ................................. 178,125
25,000 True North Communications, Inc. ................... 500,000
----------
1,420,625
----------
Consumer Products - 16.2%
25,000 Anthony Industries, Inc. .......................... 471,875
8,000 Blair Corp. ....................................... 272,000
10,000 International Multifoods Corp. .................... 215,000
30,000 Jackpot Enterprises, Inc. ......................... 322,500
15,000 Knape & Vogt Manufacturing Co. .................... 247,500
13,000 Sturm, Ruger & Co., Inc. .......................... 406,250
6,000 Velcro Industries, N.V. ........................... 384,750
6,000 WD-40 Co. ......................................... 253,500
23,000 Winnebago Industries, Inc. ........................ 184,000
----------
2,757,375
----------
Energy - 2.2%
25,000 Quaker State Corp. ................................ 365,625
----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SCHEDULE OF INVESTMENTS (unaudited) SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Market
Number of Value
Shares Security (Note 1)
- ----------- -------- ------------
<S> <C> <C>
COMMON STOCKS - 93.1% (continued)
Industrial - 17.3%
12,000 Carpenter Technology Corp. ......................... $ 469,500
10,000 Cleveland-Cliffs, Inc. ............................. 411,250
20,000 Commercial Intertech Corp. ......................... 382,500
25,000 Kuhlman Corp. ...................................... 303,125
10,000 Lukens, Inc. ....................................... 291,250
10,000 Owosso Corp. ....................................... 110,000
30,000 Roanoke Electric Steel Corp. ....................... 465,000
12,000 Vigoro Corp. (The) ................................. 507,000
----------
2,939,625
----------
Insurance/Services - 10.6%
20,000 Donegal Group, Inc. ................................ 355,000
9,000 Harleysville Group, Inc. (PA) ...................... 267,750
25,000 Hilb, Rogal & Hamilton Co. ......................... 334,375
12,500 Selective Insurance Group, Inc. .................... 456,250
16,000 Washington National Corp. .......................... 398,000
----------
1,811,375
----------
Real Estate - 7.7%
7,000 Colonial Properties Trust .......................... 174,125
6,000 Developers Diversified Realty Corp. ................ 180,750
10,000 Manufactured Home Communities, Inc. ................ 172,500
8,000 Merry Land & Investment Co., Inc. .................. 169,000
5,000 National Health Investors, Inc. .................... 151,250
8,000 ROC Communities, Inc. .............................. 185,000
5,000 Sovran Self Storage, Inc. .......................... 124,375
6,000 Sun Communities, Inc. .............................. 156,000
----------
1,313,000
----------
Technology - 10.3%
10,000 Acme-Cleveland Corp. ............................... 267,500
12,500 Boston Acoustics, Inc. ............................. 254,688
26,000 MacNeal-Schwendler Corp. ........................... 442,000
9,000 Shared Medical Systems Corp. ....................... 373,500
25,000 Technitrol, Inc. ................................... 418,750
----------
1,756,438
----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SCHEDULE OF INVESTMENTS (unaudited) SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Market
Number of Value
Shares Security (Note 1)
- ---------- -------- --------
<S> <C> <C>
COMMON STOCKS - 93.1% (continued)
Telecommunications - 1.1%
10,000 Lincoln Telecommunications Co. ............................ $ 187,500
-----------
Utilities - 1.1%
6,000 WICOR, Inc. ............................................... 181,500
-----------
Total Common Stocks (Cost $13,390,733)..................... 15,854,800
-----------
<CAPTION>
Principal
Amount
- ---------
<S> <C> <C>
SHORT-TERM NOTES - 6.5%
$ 550,000 Associates Corp., of North America 5.72% due 10/02/95..... 550,000
$ 550,000 Ford Motor Credit Co. 5.75% due 10/04/95.................. 550,000
-----------
Total Short-Term Notes (cost $1,100,000).................. 1,100,000
-----------
Total Investments - 99.6% (Cost $14,490,7330*............. 16,954,800
Cash and Other Assets, Less Liabilities - 0.4%............ 75,379
-----------
NET ASSETS - 100.0%....................................... $ 17,030,179
===========
</TABLE>
* Aggregate cost for federal income tax purposes is $14,490,733; and net
unrealized appreciation is as follows:
<TABLE>
<S> <C>
Gross unrealized appreciation............................. $ 2,648,562
Gross unrealized depreciation............................. (184,495)
-----------
Net unrealized appreciation............................. $ 2,464,067
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
September 30, 1995 (unaudited)
<TABLE>
<S> <C>
ASSETS
Investments in securities at market value (identified cost $14,490,733) (Note 1)................ $ 16,954,800
Cash............................................................................................ 104,300
Dividends and interest receivable............................................................... 52,729
------------
Total Assets................................................................................ 17,111,829
------------
LIABILITIES
Payable for securities purchased................................................................ 81,650
------------
Total Liabilities........................................................................... 81,650
------------
NET ASSETS
Applicable to 566,957 shares; $0.001 par value; 1,000,000,000 shares authorized................. $ 17,030,179
============
Net asset value, offering and redemption price per share
($17,030,179 divided by 566,957 shares)...................................................... $ 30.04
============
SOURCE OF NET ASSETS
Paid-in capital................................................................................. $ 14,390,932
Undistributed net investment income............................................................. 47,848
Accumulated net realized gain on investments.................................................... 127,332
Net unrealized appreciation of investments...................................................... 2,464,067
------------
Net Assets.................................................................................. $ 17,030,179
============
===================================================================================================================
</TABLE>
STATEMENT OF OPERATIONS
6 Months Ended September 30, 1995 (unaudited)
<TABLE>
<S> <C>
INCOME
Dividends........................................................................................ $ 273,345
Interest......................................................................................... 22,052
------------
Total Income.................................................................................. 295,397
------------
EXPENSES
Advisory fees (Note 2)........................................................................... 58,086
Registration fees (Note 2)....................................................................... 18,555
Shareholder services fees (Note 2)............................................................... 11,916
Accounting/Pricing services fees (Note 2)........................................................ 10,000
Custodian fees (Note 2).......................................................................... 5,331
Administrative services fees (Note 2)............................................................ 5,000
Printing fees.................................................................................... 4,849
Directors' fees.................................................................................. 1,501
Miscellaneous fees............................................................................... 1,205
Taxes other than income taxes.................................................................... 888
Legal fees....................................................................................... 641
------------
Total Expenses................................................................................ 117,972
------------
Net Investment Income...................................................................... 177,425
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments................................................................. 598,772
Net increase in unrealized appreciation of investments........................................... 1,666,367
------------
Net gain on investments....................................................................... 2,265,139
------------
Net increase in net assets resulting from operations....................................... $ 2,442,564
============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
6 Months
Ended
September 30, Year Ended
1995 March 31,
(unaudited) 1995
------------- ------------
<S> <C> <C>
OPERATIONS
Net investment income....................... $ 177,425 $ 239,809
Net realized gain (loss) on investments..... 598,772 (401,356)
Net increase in unrealized appreciation
of investments............................. 1,666,367 637,467
------------- ------------
Net increase in net assets resulting from
operations............................... 2,442,564 475,920
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income
($0.24 and $0.59 per share, respectively).. (134,215) (243,457)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from the
net change in the number of outstanding
shares (a)................................. 663,664 5,569,039
------------- ------------
Total Increase in Net Assets............. 2,972,013 5,801,502
NET ASSETS AT THE BEGINNING OF THE PERIOD..... 14,058,166 8,256,664
------------- ------------
NET ASSETS AT THE END OF THE PERIOD
(including undistributed net investment
income $47,848 and $4,638, respectively).... $ 17,030,179 $ 14,058,166
============ ===========
</TABLE>
(a) A summary of capital share transactions follows:
<TABLE>
<CAPTION>
6 Months Ended
September 30, 1995 Year Ended
(unaudited) March 31, 1995
---------------------------- ---------------------------
Shares Value Shares Value
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Shares issued........................... 35,388 $977,492 250,270 $6,220,670
Shares reinvested from
net investment income............... 3,441 98,956 6,320 161,497
------------ ----------- ------------ -----------
38,829 1,076,448 256,590 6,382,167
Shares redeemed......................... (15,081) (412,784) (31,707) (813,128)
------------ ----------- ------------ -----------
Net increase........................ 23,748 $663,664 224,883 $5,569,039
============ =========== ============ ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 1995 (unaudited)
Note 1. - Significant Accounting Policies - The Stratton Funds, Inc. (the
"Company") was organized on January 5, 1993 as a Maryland Corporation and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. As of the date of this
report, the Company offered one investment portfolio, Stratton Small-Cap Yield
Fund (the "Fund"). The Fund's investment objective is to achieve both dividend
income and capital appreciation. The Fund will seek to achieve this objective
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. The following
is a summary of significant accounting policies consistently followed by the
Company in the preparation of its 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 Board of Directors of the Fund, 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 Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Therefore, no federal income tax provision is required. The
Fund has a capital loss carryover available to offset future capital gains,
if any, of approximately $223,364, of which $21,018 expires in 2002 and
$202,346 expires in 2003.
D. 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. Dividends and
distributions to shareholders are recorded on the ex-dividend date.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
September 30, 1995 (unaudited)
Note 2. - During the six months ended September 30, 1995, the Fund paid advisory
fees aggregating $58,086 to Stratton Management Company, (the"Advisor").
Management services are provided by the Advisor under an agreement whereby the
Advisor furnishes all investment advice, office space and facilities to the Fund
and pays the salaries of the Fund's officers and employees, except to the extent
that those employees are engaged in administrative and accounting services
activities. In return for these services, the Fund pays a monthly fee to the
Advisor at an annual rate of 0.75% of the daily net asset value of the Fund for
such month, subject to a performance adjustment. The performance adjustment
will commence at the end of the month in which the Fund has completed 24 months
of operation, if it has net assets of $20 million or more, at such date, or at
the end of any succeeding month at which it has net assets of $20 million, but
in any event, irrespective of its net assets, at the end of the month in which
the Fund has completed 36 months of operation and will be calculated at the end
of the commencement month and each succeeding 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"). When the Fund performs better than the
Russell 2000, it pays the Investment Advisor an incentive fee; less favorable
performance than the Russell 2000 reduces the basic fee. Each 1.00% of the
difference in performance between the Fund and the Russell 2000 during the
performance period is equal to a 0.10% adjustment to the basic fee. The maximum
annualized performance adjustment rate is +/- 0.50% of average net assets which
would be added to or deducted from the advisory fee if the Fund outperformed or
underperformed the Russell 2000 by 5.00%. Because of certain undertakings to
comply with various state securities laws, if in any fiscal year the expenses of
the Fund (excluding taxes, brokerage commissions and interest) exceed 2 1/2% of
the first $30 million of the Fund's average net assets, 2% of the next $70
million and 1 1/2% of the remaining, the Advisor shall reimburse the Fund for
such excess. Certain officers and directors of the Fund are also officers and
directors of the Advisor. None of the Fund's officers receive compensation from
the Fund.
The Fund's Transfer Agent, Fund/Plan Services, Inc. ("Fund/Plan"), is a wholly-
owned subsidiary of FinDaTex, Inc. Certain directors and officers of the Fund
are shareholders of FinDaTex, Inc. Fund/Plan received fees of $11,916 for
providing shareholder services, $5,000 for certain administrative services and
$10,000 for accounting/pricing services during the six months ended September
30, 1995. Pursuant to an agreement between The Bank of New York, (the
"Custodian"), and Fund/Plan, the Custodian reallows a portion of its custody fee
to Fund/Plan for certain services delegated to Fund/Plan. The amount is not
readily determinable. Fund/Plan Broker Services, Inc. serves as the Fund's
principal underwriter and receives no fees for services in assisting in sales of
the Fund's shares but does receive an annual fee of $3,000 for its services in
connection with the registration of the Fund's shares under state securities
laws.
Note 3. - Purchases and sales of securities, excluding short-term notes,
aggregated $3,179,950 and $3,007,126, respectively, for the six months ended
September 30, 1995.
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
6 Months
Ended Year For the period
09/30/95 Ended 04/12/93*
(unaudited) 03/31/95 to 03/31/94
----------- ---------- --------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period........... $25.88 $25.94 $25.00
----------- ---------- --------------
Income From Investment Operations
---------------------------------
Net investment income........................ 0.32 0.57 0.43
Net gains (loss) on securities
(both realized and unrealized)............. 4.08 (0.04) 0.91
----------- ---------- --------------
Total from investment operations........ 4.40 0.53 1.34
----------- ---------- --------------
Less Distributions
------------------
Dividends (from net investment
income).................................... (0.24) (0.59) (0.40)
Distributions (from capital gains)........... 0.00 0.00 0.00
----------- ---------- --------------
Total distributions...................... (0.24) (0.59) (0.40)
----------- ---------- --------------
Net Asset Value, End of Period................. $30.04 $25.88 $25.94
=========== ========== ==============
Total Return................................... 17.05% ** 2.09% 5.51% ***
Ratios/Supplemental Data
- ------------------------
Net assets, end of period (in 000's)......... $17,030 $14,058 $8,257
Ratio of expenses to average
net assets................................. 1.52% *** 2.12% 2.28% ***
Ratio of net investment
income to average net assets............... 2.28% *** 2.36% 1.85% ***
Portfolio turnover rate...................... 40.97% *** 30.20% 28.60% ***
</TABLE>
* Commencement of operations
** Six months only
*** Annualized
See accompanying notes to financial statements.
<PAGE>
SHAREHOLDER INFORMATION
Minimum Investment
- ------------------
The minimum amount for the initial purchase of shares of Stratton Small-Cap
Yield Fund is $500. This minimum amount will remain in effect until the Fund
reaches 2,000 shareholders, after which time the minimum amount for initial
purchases will be $5,000. Subsequent purchases may be made in amounts of $100 or
more.
Telephone Exchange
- ------------------
Shares of Stratton Small-Cap Yield Fund may be exchanged by telephone for shares
of the other funds managed by Stratton Management Company, Stratton Growth Fund,
Inc. or Stratton Monthly Dividend Shares, Inc., if a special authorization form
has been completed and is on file with the Transfer Agent in advance. Exchanges
will only be permitted when the securities of both funds involved are registered
in the state of the investor's residence. Stratton Small-Cap Yield Fund
reserves the right to suspend the exchange privilege at any time. A Prospectus
of Stratton Growth Fund or Stratton Monthly Dividend Shares should be obtained
and read prior to making any such exchange.
Income Dividend and Capital Gains Distributions
- -----------------------------------------------
Stratton Small-Cap Yield Fund expects to distribute substantially all of its net
investment income quarterly, in March, June, September and December. The Fund
intends to distribute all of its net realized capital gains semi-annually.
Systematic Withdrawal Plan
- --------------------------
Investors who either own or purchase Stratton Small-Cap Yield Fund shares having
a value of $10,000 or more may elect as another option to withdraw funds on a
regular basis from their account on a monthly, quarterly, semi-annual or annual
basis in amounts of $50 or more.
Share Price Information
- -----------------------
The daily share price of Stratton Small-Cap Yield Fund can be found in the
mutual fund section of most major daily newspapers as well as The Wall Street
Journal and Investor's Daily, where the Fund is listed under Stratton Funds as
SmCap or Small Cap Yield. The Fund's stock ticker symbol is STSCX.
Retirement Plans
- ----------------
Stratton Small-Cap Yield Fund's IRA, Defined Contribution Plans and 403(b)(7)
Retirement Plans are available at no minimum investment.
<PAGE>
General Information on SSCY
- ---------------------------
Requests for a prospectus and financial information, past performance figures
and an application, should be directed to the Fund's "Distributor":
FUND/PLAN BROKER SERVICES, INC.
2 W. Elm Street, P.O. Box 874, Conshohocken, PA 19428-0874
Telephone: 800-634-5726
Existing Shareholder Account Services
- -------------------------------------
Shareholders seeking information regarding their accounts and other Fund
services, and shareholders executing redemption requests, should continue to
call or write our "Transfer Agent and Dividend Paying Agent":
FUND/PLAN SERVICES, INC.
2 W. Elm Street, P.O. Box 874, Conshohocken, PA 19428-0874
Telephones: 610-834-3500 . 800-441-6580
Investment Portfolio Activities
- -------------------------------
Questions regarding Stratton Small-Cap Yield Fund's investment portfolio should
be directed to the Fund's "Investment Advisor":
STRATTON MANAGEMENT COMPANY
Plymouth Meeting Executive Campus
610 W. Germantown Pike, Suite 300, Plymouth Meeting, PA 19462-1050
Telephone: 610-941-0255
Additional Purchases Only to existing accounts should be mailed to a separate
- -------------------------
lock box unit:
C/O FUND/PLAN SERVICES, INC.
P.O. Box 412797, Kansas City, MO 64141-2797
This report is authorized for distribution to shareholders and to others who
have received a copy of the Prospectus of Stratton Small-Cap Yield Fund.
<PAGE>
SSCY STRATTON SMALL-CAP
YIELD FUND
Directors Officers
LYNNE M. CANNON JAMES W. STRATTON
Chairman
JOHN J. LOMBARD, JR.
FRANK H. REICHEL, III
ROSE J. RANDALL President
HENRY A. RENTSCHLER JOHN A. AFFLECK
GERARD E. HEFFERNAN
MERRITT N. RHOAD, JR. JOANNE E. KUZMA
Vice President
ALEXANDER F. SMITH
PATRICIA L. SLOAN
RICHARD W. STEVENS Secretary and Treasurer
JAMES W. STRATTON JAMES A. BEERS
CAROL L. ROYCE
Assistant Secretary
Assistant Treasurer
Investment Advisor Transfer Agent and Dividend Paying Agent
STRATTON MANAGEMENT COMPANY FUND/PLAN SERVICES, INC.
Plymouth Meeting Executive Campus 2 W. Elm Street, P.O. Box 874
610 W. Germantown Pike, Suite 300 Conshohocken, PA 19428-0874
Plymouth Meeting, PA 19462-1050 Telephones: 610-834-3500 . 800-441-6580
Telephone: 610-941-0255
