<PAGE>
SCHEDULE 14A
(Rule 14a-101)
Information Required in Proxy Statement
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant X
Filed by a Party other than the Registrant
Check the appropriate box:
Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
X Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
The Stratton Funds, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
X No Fee Required
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
Fee paid previously with preliminary materials.
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date filed:
<PAGE>
STRATTON MUTUAL FUNDS
STRATTON GROWTH FUND, INC.
STRATTON MONTHLY DIVIDEND SHARES, INC.
THE STRATTON FUNDS, INC.--STRATTON SMALL-CAP YIELD FUND
PLYMOUTH MEETING EXECUTIVE CAMPUS
610 W. GERMANTOWN PIKE, SUITE 300
PLYMOUTH MEETING, PENNSYLVANIA 19462
(610) 941-0255
----------------
NOTICE OF SPECIAL MEETINGS OF SHAREHOLDERS
TO BE HELD ON DECEMBER 9, 1997
----------------
October 16, 1997
TO THE SHAREHOLDERS OF STRATON MUTUAL FUNDS:
NOTICE IS HEREBY GIVEN that SPECIAL MEETINGS OF SHAREHOLDERS of Stratton
Growth Fund, Inc., Stratton Monthly Dividend Shares, Inc. and the Stratton
Small-Cap Yield Fund of The Stratton Funds, Inc. (each a "Fund" and
collectively, the "Funds"), will be held on Tuesday, December 9, 1997, at 8:00
a.m., Eastern Time, at the offices of the Funds' investment advisor, Stratton
Management Company, at Plymouth Meeting Executive Campus, 610 W. Germantown
Pike, Suite 300, Plymouth Meeting, Pennsylvania 19462-1050. The following
matters will be acted upon at that time:
EACH FUND:
1. The election of eight Directors; and
2. To ratify or reject the selection of Tait, Weller & Baker as the Funds'
independent public accountants for the fiscal years ending December 31,
1997.
STRATTON MONTHLY DIVIDEND SHARES, INC.:
3. To approve a change to the industry concentration policy of Stratton
Monthly Dividend Shares, Inc. in order that the Fund's concentration
will be only in Real Estate Investment Trusts; and
4. To approve changing the name of Stratton Monthly Dividend Shares, Inc.
to Stratton Monthly Dividend REIT Shares, Inc.
EACH FUND:
5. To transact such other business as may properly come before the
Meetings, or any adjournment or postponement thereof.
The proposals referred to above are discussed in the Proxy Statement
attached to this Notice. Shareholders of record at the close of business on
October 1, 1997, have the right to vote at the meeting. WE URGE YOU TO FILL
IN, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED, WHICH IS ADDRESSED FOR YOUR CONVENIENCE AND NEEDS NO POSTAGE IF
MAILED IN THE UNITED STATES. IF YOU SIGN, DATE AND RETURN YOUR PROXY CARD BUT
GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED "FOR" THE PROPOSALS
NOTICED ABOVE. IN ORDER TO AVOID THE ADDITIONAL EXPENSES TO THE FUNDS OF
FURTHER SOLICITATION, WE ASK YOUR COOPERATION IN COMPLETING AND RETURNING YOUR
PROXY PROMPTLY.
By Order of the Boards of Directors
Patricia L. Sloan
Secretary
<PAGE>
STRATTON MUTUAL FUNDS
STRATTON GROWTH FUND, INC.
STRATTON MONTHLY DIVIDEND SHARES, INC.
THE STRATTON FUNDS, INC.--STRATTON SMALL-CAP YIELD FUND
PLYMOUTH MEETING EXECUTIVE CAMPUS
610 W. GERMANTOWN PIKE, SUITE 300
PLYMOUTH MEETING, PENNSYLVANIA 19462
(610) 941-0255
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of
proxies by or on behalf of the Boards of Directors (each a "Board" and
collectively, the "Boards") of Stratton Growth Fund, Inc. ("SGF"), Stratton
Monthly Dividend Shares, Inc. ("SMDS"), and the Stratton Small-Cap Yield Fund
("SSCY") of The Stratton Funds, Inc. (each a "Fund" and collectively, the
"Funds"), for use at Special Meetings of Shareholders of the Funds (the
"Meetings"). The Meetings are scheduled for Tuesday, December 9, 1997, at 8:00
a.m. Eastern Time, at the offices of the Funds' investment advisor, Stratton
Management Company ("SMC"), at Plymouth Meeting Executive Campus, 610 W.
Germantown Pike, Suite 300, Plymouth Meeting, Pennsylvania 19462-1050 and at
any adjournment thereof. This Proxy Statement and the enclosed proxy are
expected to be distributed to shareholders on or about October 16, 1997.
It is expected that the solicitation of proxies will be primarily by mail.
The Funds' officers and service contractors may also solicit proxies by
telephone, telegraph, facsimile or personal interview, and will tabulate
proxies. The Funds will bear all proxy solicitation costs. It is anticipated
that banks, brokerage houses, and other custodians will be requested on behalf
of the Funds to forward solicitation material to their principals to obtain
authorizations for the execution of proxies. Any shareholder giving a proxy
may revoke it at any time before it is exercised by submitting to the Funds a
written notice of revocation or a subsequently executed proxy, or by attending
the Meetings and electing to vote in person.
Only shareholders of record at the close of business on October 1, 1997 will
be entitled to vote at the Meetings. The Funds' shares are referred to herein
as "Shares." Each full Share is entitled to one vote and each fractional Share
to a proportionate fractional vote. On October 1, 1997, the following Shares
were outstanding and entitled to vote at the Meetings:
<TABLE>
<CAPTION>
FUND NUMBER OF SHARES OUTSTANDING
---- ----------------------------
<C> <S>
STRATTON GROWTH FUND, INC. 1,623,958
par value $0.10 per share
STRATTON MONTHLY DIVIDEND SHARES, INC. 3,479,358
par value $1.00 per share
STRATTON SMALL-CAP YIELD FUND 771,574
par value $0.001 per share
</TABLE>
<PAGE>
Each Fund is a separate legal entity and holders vote separately as
shareholders of each Fund. The following table summarizes the proposals to be
voted on at the Meetings and indicates those shareholders who are being
solicited with respect to each proposal:
SUMMARY OF PROPOSALS
<TABLE>
<CAPTION>
PROPOSAL: SHAREHOLDERS ENTITLED TO VOTE ON PROPOSAL:
--------- ------------------------------------------
<C> <S> <C>
1. The election of eight EACH FUND
Directors.
2. Ratify or reject the EACH FUND
selection of Tait, Weller &
Baker as the Funds'
independent public
accountants for the fiscal
years ending December 31,
1997.
3. Change the industry STRATTON MONTHLY DIVIDEND SHARES, INC. ONLY
concentration policy of
Stratton Monthly Dividend
Shares, Inc. in order that
the Fund's concentration
will be only in Real Estate
Investment Trusts.
4. Change the name of Stratton STRATTON MONTHLY DIVIDEND SHARES, INC. ONLY
Monthly Dividend Shares,
Inc. to Stratton Monthly
Dividend REIT Shares, Inc.
5. To transact such other EACH FUND
business as may properly
come before the Meetings, or
any adjournment or
postponement thereof.
</TABLE>
Directors of SMDS and SSCY shall be elected by a plurality of the Shares of
such Funds present in person or by proxy at the Meetings provided a quorum is
present, up to the number to be elected, and Directors of SGF shall be elected
by a majority of the Shares of the Fund present in person or by proxy at the
Meetings provided a quorum is present (Proposal No. 1). The affirmative vote
of the lesser of two-thirds of the Shares represented at a Meeting at which
the holders of more than 50% of such Fund's outstanding Shares are present in
person or by proxy, or more than 50% of the outstanding Shares of each Fund is
present is necessary for ratification of the selection of independent public
accountants (Proposal No. 2) and for approval of the change in the Fund's
industry concentration policy (Proposal No. 3). The affirmative vote of a
majority of Stratton Monthly Dividend Shares, Inc.'s Shares present in person
or by proxy at the Meeting provided a quorum is present is necessary for
approval of the Fund's name change to Stratton Monthly Dividend REIT Shares,
Inc. (Proposal No. 4).
With respect to each Fund, a quorum shall consist of a majority of the stock
issued, outstanding and entitled to vote. If a proxy is properly executed and
returned accompanied by instructions to withhold authority, or is marked with
an abstention, the Shares represented thereby will be considered to be present
at the Meetings for purposes of determining the existence of a quorum for the
transaction of business. Abstentions will have the same effect as casting a
vote against proposals 2 through 4. Broker "non-votes" (i.e., proxies from
brokers or nominees indicating that such persons have not received
instructions from the beneficial owner or other persons entitled to vote
Shares on a particular matter with respect to which the brokers or nominees do
not have discretionary power) will be treated as present for purposes of
quorum, but as not entitled to vote in the matter covered by the broker "non-
vote" limitation.
2
<PAGE>
In the event that a quorum of the outstanding Shares of the Funds is not
represented at the Meetings or at any adjournment thereof, or, even though a
quorum is so represented, in the event that sufficient votes to approve the
proposals are not received, the persons named as proxies may propose and vote
for one or more adjournments of the Meetings to be held within a reasonable
time after the date originally set for the Meetings, and further solicitation
of proxies may be made without the necessity of further notice. The persons
named as proxies will vote in favor of any such adjournment those proxies
which instruct them to vote in favor of a proposal to be considered at the
Meetings, and will vote against any such adjournment those proxies which
instruct them to vote against or to abstain from voting on such proposal. Any
such adjournment must be approved by a majority of the Shares voting on the
matter. A shareholder vote may be taken with respect to one or more of the
Funds with respect to one or more of the proposals in this Proxy Statement
prior to such adjournment if sufficient votes for their approval have been
received.
THE FUNDS WILL FURNISH TO SHAREHOLDERS UPON REQUEST, WITHOUT CHARGE, COPIES
OF ITS MOST RECENT ANNUAL REPORT TO SHAREHOLDERS AND ITS MOST RECENT SEMI-
ANNUAL REPORT SUCCEEDING THE ANNUAL REPORT. REQUESTS FOR SUCH REPORTS SHOULD
BE DIRECTED TO THE FUNDS, C/O FPS SERVICES, INC., 3200 HORIZON DRIVE, P.O. BOX
61503, KING OF PRUSSIA, PA 19406-0903, OR BY CALLING 1-800-634-5726. SUCH
REPORTS ARE NOT TO BE REGARDED AS PROXY SOLICITING MATERIAL.
PROPOSAL NO. 1
ELECTION OF DIRECTORS FOR ALL FUNDS
Shareholders will vote at the Meetings to elect eight Directors. Proxies
which do not contain specific instructions to the contrary will be voted in
favor of the election of the nominees shown below to serve terms until each
Fund's next meeting of shareholders and until their successors are elected and
qualified. Each of the current nominees except for Douglas J. MacMaster
currently serves as a Director of the Funds and, if elected, will serve as
provided in the preceding sentence or until his or her earlier death,
resignation, retirement or removal.
Each of the eight persons listed below for election to the Boards of
Directors has consented to be nominated and to serve, if elected, as Director.
If any of the nominees are unavailable to serve as Director, the proxies will
be voted for such other persons as the Boards of Directors may choose or the
size of the Boards may be reduced accordingly. The Funds currently know of no
reason why any of the nominees listed below will be unable to serve if
elected. All of the nominees, except Lynne M. Cannon and Douglas J. MacMaster,
were most recently elected as Directors of SGF and SMDS at the Annual Meetings
of Shareholders held on June 22, 1989; and by the Initial Shareholders of SSCY
on April 1, 1993. Ms. Cannon was appointed by the Boards of Directors on May
2, 1995, and Mr. MacMaster was appointed by the Boards of Directors on October
1, 1997.
The following table sets forth certain information about the nominees for
election as Directors, including their principal occupations or employment
during the past five years, the periods during which each of them has served
as a Director of the Funds, their age and the approximate number of shares of
the Funds beneficially owned, directly or indirectly, by each of them as of
October 1, 1997. As of that date, beneficial ownership in the
3
<PAGE>
Funds by the Directors and officers, as a group, was SGF 233,020 (14.35%);
SMDS 115,159 (3.31%); and SSCY 112,004 (14.52%).
<TABLE>
<CAPTION>
SHARES (%) OWNED
NOMINEE AGE PRINCIPAL OCCUPATION BENEFICIALLY
------- --- -------------------- -------------------------
<C> <C> <S> <C> <C> <C>
James W. Stratton(/1/)(/3/) 60 Mr. Stratton is the SGF 117,418(/4/) (7.23%)
Chairman of the Board SMDS 68,984(/4/) (1.98%)
and Chief Executive SSCY 66,462(/4/) (8.61%)
Officer of the
investment advisor,
Stratton Management
Company. He is a
Director of Unisource
Worldwide, Inc. (paper
distribution), Amerigas
Propane Ltd. (energy),
FinDaTex, Inc.
(financial services),
Teleflex, Inc.
(aerospace controls and
medical products) and
UGI Corp., Inc.
(utility-natural gas).
Chairman and Director of
SGF since June 1972,
SMDS since March 1982
and SSCY since February
1993.
Lynne M. Cannon(/2/) 41 Ms. Cannon is a Senior SGF 2,274 *
Vice President of SMDS 546 *
Relationship Management SSCY 1,778 *
of FPS Services, Inc.
and a Director of FPS
Broker Services, Inc.
She was formerly
employed as Vice
President of Mutual
Funds of Independence
Capital Management, Inc.
(investment advisor).
Prior to Independence
Capital, she was Vice
President of AMA
Investment Advisors,
Inc. (investment advisor
& broker/dealer).
Director of SGF, SMDS
and SSCY since May 1995.
John J. Lombard, Jr. 62 Mr. Lombard is a partner SGF 15,431 *
in the law firm of SMDS 326 *
Morgan, Lewis & Bockius SSCY 1,138 *
LLP. Director of SGF
since September 1984,
SMDS since June 1988 and
SSCY since February
1993.
Douglas J. MacMaster, Jr. 67 Mr. MacMaster is a SGF 11,834 *
private investor. He was SMDS 0 *
formerly Senior Vice SSCY 19,549 (2.53%)
President of Merck, Inc.
He is a Trustee of
Gwynedd Mercy College, a
Director of American
Precision Industries,
Inc., Marteck
Biosciences Corp., Neose
Pharmaceuticals Inc.,
Oravax, Inc. and U.S.
Bioscience, Inc.
Director of SGF, SMDS
and SSCY since October
1, 1997.
Henry A. Rentschler 68 Mr. Rentschler is a SGF 24,171 (1.49%)
private investor. He was SMDS 866 *
formerly the President SSCY 11,861 (1.54%)
of Baldwin-Hamilton
Company, a division of
Joy Environmental
Equipment Co.
(manufacturer of renewal
parts for Baldwin
locomotives and diesel
engines) and was also
formerly a Director of
the Society for
Industrial Archeology
(which promotes the
study and preservation
of the physical
survivals of our
technological and
industrial past).
Director of SGF since
March 1986, SMDS since
June 1989 and SSCY since
February 1993.
Merritt N. Rhoad, Jr.(/3/) 67 Mr. Rhoad is a private SGF 7,717 *
investor. He was SMDS 9,116 *
formerly a senior SSCY 629 *
systems engineer with
International Business
Machines Corporation.
Director of SGF since
June 1972, SMDS since
June 1989 and SSCY since
February 1993.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SHARES (%) OWNED
NOMINEE AGE PRINCIPAL OCCUPATION BENEFICIALLY
------- --- -------------------- -------------------
<C> <C> <S> <C> <C> <C>
Alexander F. Smith 68 Mr. Smith is a private investor. SGF 4,119 *
He was formerly the Chairman and SMDS 2,573 *
Director of Gilbert Associates, SSCY 1,866 *
Inc. (engineering/ consulting
services). Director of SGF since
June 1989, SMDS since May 1986
and SSCY since February 1993.
Richard W. Stevens 63 Mr. Stevens is an attorney in SGF 34,844 (2.15%)
private practice. He was formerly SMDS 31,874 *
a partner in the law firm of SSCY 6,883 *
Clark, Ladner, Fortenbaugh and
Young. Director of SGF since June
1972, SMDS since June 1989 and
SSCY since February 1993.
</TABLE>
- --------
/(1)/ As defined in the Investment Company Act of 1940, as amended, (the "1940
Act") Mr. Stratton is an "interested person" of the Funds by reason of his
positions with SMC and his indirect ownership, through FinDaTex, Inc., of
FPS Services, Inc. ("FPS") and it's subsidiary FPS Broker Services, Inc.
("FPSB"). FinDaTex, Inc. is the 100% owner of FPS, the Funds' servicing
agent, and FPSB, the Funds' underwriter.
/(2)/ Ms. Cannon is an "interested person" of the Funds by reason of her
employment with FPS and FPSB.
/(3)/ Messrs. Stratton and Rhoad, Jr. are shareholders of FinDaTex, Inc.
/(4)/ Includes 49,133 shares of SGF, 47,174 shares of SMDS and 46,808 shares
SSCY held by SMC P/S/P 401K Plan of which Mr. Stratton and two officers of
the Fund are trustees.
* Less than 1%.
The officers and Directors of the Funds who are also officers or employees
of SMC or FPS receive no direct compensation from the Funds for services to
them. The Directors of the Funds serve in the same capacity for each Fund and
meet concurrently four times a year. In the aggregate, each Director currently
receives $750 for
5
<PAGE>
each meeting attended, and an annual retainer of $4,000. These fees are
divided on a percentage basis among each Fund based on their relative net
assets as of the meeting dates. The Boards of Directors held five meetings
during the fiscal year ended December 31, 1996. Each Director standing for re-
election attended 100% of the total number of meetings held of the Boards of
Directors. There are no separate audit, compensation or nominating committees
of the Boards of Directors.
Set forth are the total fees which were paid to each of the Directors who
are not "interested persons" from the start of each Funds' fiscal period until
December 31, 1996:
<TABLE>
<CAPTION>
TOTAL COMPENSATION FROM FUNDS
AGGREGATE COMPENSATION AND FUND
NAME OF DIRECTOR FROM FUND COMPLEX/(1)/ PAID TO DIRECTORS
- ---------------- ---------------------- ------------------------------
<S> <C> <C>
John J. Lombard, Jr.
SMDS..................... $4,885.68 $6,848.23
SGF...................... $1,203.86
SSCY..................... $ 758.69
Rose J. Randall/(2)/
SMDS..................... $2,995.49 $3,748.23
SGF...................... $ 387.00
SSCY..................... $ 365.74
Henry A. Rentschler
SMDS..................... $4,885.68 $6,848.23
SGF...................... $1,203.86
SSCY..................... $ 758.69
Merritt N. Rhoad, Jr.
SMDS..................... $4,885.68 $6,848.23
SGF...................... $1,203.86
SSCY..................... $ 758.69
Alexander F. Smith
SMDS..................... $4,885.68 $6,848.23
SGF...................... $1,203.86
SSCY..................... $ 758.69
Richard W. Stevens
SMDS..................... $4,885.68 $6,848.23
SGF...................... $1,203.86
SSCY..................... $ 758.69
</TABLE>
- --------
/(1)/ The "Fund Complex" consists of SMDS, SGF and The Stratton Funds, Inc.
/(2)/ Ms. Randall resigned from the Boards of Directors on June 25, 1996.
6
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth information with respect to the current
executive officers of the Funds, other than James W. Stratton, Chairman of the
Funds, including their business experience for the past five years and their
age.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL OCCUPATION
---- --- --------------------
<C> <C> <S>
Gerard E. Heffernan 59 Senior Vice President and Director of the investment
advisor, Stratton Management Company. President
(June 1997 to present), Vice President (June 1980 to
June 1997) of SGF; Vice President (June 1997 to
present), President (May 1984 to June 1997) of SMDS;
Vice President (February 1993 to present) of SSCY.
Shareholder and Secretary of FinDaTex, Inc.
John A. Affleck 50 President and Director of the investment advisor,
Stratton Management Company. President (June 1997 to
present), Vice President (May 1980 to June 1997) of
SMDS; Vice President (June 1997 to present),
President (December 1983 to June 1997) of SGF; Vice
President (February 1993 to present) of SSCY.
Shareholder of FinDaTex, Inc.
Joanne E. Kuzma 42 Director of Trading and a Managing Partner of the
investment advisor, Stratton Management Company.
Vice President of Compliance for SGF, SMDS and SSCY
(June 1995 to present).
Frank H. Reichel, III 32 Vice President, a Director and the Director of
Research of the investment advisor, Stratton
Management Company. President (February 1993 to
present) of SSCY; Vice President (June 1993 to
present) of SGF; Vice President (June 1993 to
present) of SMDS.
Patricia L. Sloan 43 Employee of the investment advisor, Stratton
Management Company. Secretary (June 1980 to
present), Treasurer (February 1990 to present) of
SGF; Secretary (February 1990 to present), Treasurer
(May 1984 to present) of SMDS; Secretary and
Treasurer (February 1993 to present) of SSCY.
James A. Beers 33 Vice President (December 1996 to present), Employee
(August 1994 to December 1996) of the investment
advisor, Stratton Management Company. Account
Manager of Client Services (June 1993 to August
1994), Shareholder Services Representative
(September 1992 to June 1993) at FPS Services, Inc.
Vice-President (June 1997 to present), Assistant
Secretary and Assistant Treasurer (June 1995 to June
1997) of SGF, SMDS and SSCY. Mr. Beers is related to
Mr. Stratton by marriage.
Carol L. Royce 39 Employee of the investment advisor, Stratton
Management Company. Assistant Secretary and
Assistant Treasurer (June 1994 to present) of SGF,
SMDS and SSCY.
</TABLE>
7
<PAGE>
PROPOSAL NO. 2
RATIFICATION OF THE SELECTION OF TAIT, WELLER & BAKER AS THE FUNDS'
INDEPENDENT PUBLIC ACCOUNTANTS
At meetings of the Funds' Boards of Directors held on March 10, 1997, a
majority of the Boards of Directors who are not "interested persons" of each
Fund (as defined in the 1940 Act) selected Tait, Weller & Baker as independent
certified public accountants for the Funds for the fiscal years ending
December 31, 1997. The ratification or rejection of that selection of Tait,
Weller & Baker is to be voted upon at the Meetings and it is intended that the
persons named in the accompanying proxy will vote for Tait, Weller & Baker,
unless contrary instructions are given. Representatives of Tait, Weller &
Baker are not expected to be present at the Meetings but will be available
telephonically to respond to appropriate questions.
The Funds' financial statements for the fiscal year ended December 31, 1996,
were examined by Tait, Weller & Baker and, in connection with its audit, that
firm reviewed for the fiscal year ended December 31, 1996, the accounting
controls and procedures used for handling the custody of the Funds'
securities.
RECOMMENDATION:
THE BOARDS OF DIRECTORS UNANIMOUSLY RECOMMEND THAT SHAREHOLDERS VOTE FOR
RATIFICATION OF THE SELECTION OF TAIT, WELLER & BAKER AS INDEPENDENT
ACCOUNTANTS TO THE FUNDS.
PROPOSAL NO. 3
CHANGE IN STRATTON MONTHLY DIVIDEND SHARES, INC.'S
INDUSTRY CONCENTRATION POLICY
Stratton Monthly Dividend Shares, Inc.'s ("SMDS") investment objective is to
seek a high rate of return from dividend and interest income on its
investments in common stock and securities convertible into common stock. In
pursuing this objective, the Fund is required to invest at least 25% of its
assets in securities of Real Estate Investment Trusts ("REITs") and of public
utility companies engaged in the production, transmission or distribution of
electric, energy, gas, water or telephone services. This industry
concentration policy is a "fundamental" policy which may not be changed
without the affirmative vote of the lesser of two-thirds of the outstanding
Shares or more than 50% of the outstanding Shares.
At the September 9, 1997 meeting of the Fund's Board of Directors, SMC
recommended that the Fund's industry concentration policy be changed to
include only REITs. SMC believes that this change in the Fund's industry
concentration policy will enhance the Fund's ability to achieve a high rate of
return from dividend and interest income earned on its investments as well as
create a greater opportunity to realize long-term capital appreciation. The
Fund's Board of Directors unanimously approved the proposed change to the
Fund's industry concentration policy at the September 9, 1997 Board meeting,
and recommended that the shareholders of the Fund be asked to approve the
change.
8
<PAGE>
If approved by shareholders, the Fund's policy on concentration of its
investments would read as follows:
"The Fund will invest at least 25% of its assets in securities of real
estate investment trusts."
The impetus for SMC's recommendation to change the Fund's industry
concentration policy was that dividend growth for the electric utility
industry has been slowing noticeably, and that dividend growth in the REIT
Industry has been strong. Over the last five years, the mean earnings per
share growth rate has been 4.9% annually and the mean dividend per share
growth rate has been less than 1% annually (including dividend cuts) for
electric utility companies. These growth rates are in sharp contrast to the
growth rates of the REIT Industry. Over the last five years, REITs have
demonstrated a mean earnings per share growth rate of 12.2% and a mean
dividend per share growth rate of 18.3%. SMC believes that the documented
trend in earnings per share growth and dividend per share growth rates of the
electric utility companies will continue.
There are two major reasons for the decline in earnings growth for electric
utility companies. The first is the advent of competition in the previously
regulated and monopolistic electric utility industry. Both federal and state
governments have encouraged open access to transmission lines and distribution
networks to increase competition to serve utility customers. The monopoly
status that the industry had enjoyed in the past is being eroded. This is good
for consumers as it should produce price competition and lower rates. In this
case, however, what is good for consumers is not necessarily good for
investors, as this will likely produce lower rates of return on equity.
The second major factor affecting earnings growth in the electric utility
industry has been the growing hostility of regulators to the industry and the
growing strength of consumer advocates. Utility rates of return on equity have
been declining steadily and there is no indication that a rebalancing of power
between consumers and shareholders is likely to occur in the near future. In
addition, capital spending plans for electric utility companies have been
sharply reduced, which implies that they will not need to raise new equity
capital in the near future. As a result, public utility regulatory commissions
have little concern with the low rates of return on equity because the utility
companies do not need to attract new investors to the market as they did in
the 1970's and early 1980's when construction spending was high.
The Fund has invested in REITs since 1987, and adopted its current
concentration policy at a Meeting of Shareholders in November, 1996. SMC has
substantial experience in this market segment and is currently overseeing
investments totaling $173 million in REITs as part of its total investments
under management of $1.7 billion. REITs were authorized by the Real Estate
Investment Act of 1960, to enable investors to participate in the benefits of
owning income producing, commercial real estate. REITs are required to derive
at least 75% of their gross income from real estate or real estate related
assets. The most important characteristic of a REIT is that it must distribute
to its shareholders 95% of the REIT's net taxable income in the form of
dividends. The direct result of this characteristic is that REITs provide high
current returns. Equity REITs invest in income producing properties and
receive rent, and mortgage REITs invest in mortgages and receive loan
payments. Although the proposed industry concentration policy would cover both
equity and mortgage REITs, SMC expects that the Fund will focus primarily on
equity REITs.
9
<PAGE>
Equity REITs own many different types of properties, such as apartment
complexes, office buildings, hotels, health care facilities, community
shopping centers, super-regional malls, self-storage facilities, and even
correctional facilities. The typical REIT specializes in one or two property
types, allowing the management to focus on operating these properties to the
best of its abilities and within its own framework of experience. There are,
however, several companies that have successfully evolved into operating
companies that have been able to "diversify" across multiple property types,
thereby insulating themselves from possible sector downturns. REITs offer
investors exposure to the real estate sector with stocks that have a low beta,
low volatility, low risk, high current returns, and, most importantly,
performance that is in line with the broader, much more volatile general
markets.
REITs may be subject to certain risks associated with the direct ownership
of real estate including declines in the value of real estate, risks related
to general and local economic conditions, overbuilding and increased
competition, increases in property taxes and operating expenses, and
variations in rental income. In addition, equity REITs may be affected by
changes in the value of the underlying properties they own, while mortgage
REITs may be affected by the quality of credit extended. REITs are also
subject to heavy cash flow dependency, defaults by borrowers, self liquidation
and the possibility of failing to qualify for tax-free pass-through of income
under the Internal Revenue Code and to maintain exemption from the 1940 Act.
REITs pay dividends to their shareholders based upon available funds from
operations and these dividends may exceed a REIT's taxable earnings and
profits resulting in the excess portion of such dividends being designated as
a return of capital. The Fund intends to include the gross dividends from
REITs in its monthly distribution to its shareholders and, accordingly, a
portion of the Fund's distributions may also be designated as a return of
capital.
The market for REITs has grown substantially in recent years reaching a
total of $88.8 billion in assets at the end of 1996, up from $15.7 billion at
the end of 1992. The chart set forth below shows the total market
capitalization of the REIT industry for the last twenty-three years. In 1990,
the largest market capitalization of an individual REIT was $633 million. As
of December 31, 1996, there were twenty-seven REITs that had market
capitalizations in excess of $1 billion and several that were in excess of
$3.5 billion.
10
<PAGE>
MARKET CAPITALIZATION OF REIT INDUSTRY
1971-96
[Bar graph illustrating the growth in the market
capitalization of the REIT industry from 1972 through 1996]
Source: National Association of Real Estate Investment Trusts
Year # of REITS All Mkt. Cap ($mil)
1971 34 $1,484.3
1972 48 $1,880.9
1973 53 $1,393.5
1974 57 $712.4
1975 57 $885.9
1976 62 $1,308.0
1977 69 $1,628.1
1978 71 $1,412.4
1979 73 $1,754.0
1980 75 $2,298.6
1981 76 $2,438.9
1982 66 $3,298.6
1983 59 $4,328.1
1984 59 $5,152.3
1985 62 $7,771.8
1986 95 $10,078.4
1987 110 $9,702.4
1988 117 $11,435.2
1989 120 $11,662.2
1990 119 $9,737.1
1991 138 $12,877.2
1992 142 $15,680.2
1993 189 $32,187.7
1994 226 $44,308.0
1995 219 $57,514.0
1996 198 $88,776.3
There are presently sixty-five REIT dedicated mutual funds, up from ten in
1993. These sixty-five funds had total assets of $10.5 billion as of the end
of July 1997.
Pension funds have traditionally invested directly in real estate and not
used REITs as investment vehicles because of the small size of the REIT
market, but this is changing. As the asset base of a REIT grows, it allows the
company to further diversify its portfolios. In fact, the trend in the REIT
industry that is most prevalent is that of a REIT owning properties, similar
or dissimilar, in various geographical locations, so as to limit
concentrations of holdings in any one area in the event of a regional economic
slowdown. With an increase in size and in the number of shares outstanding
comes an increase in liquidity which has begun to attract greater interest
from institutional investors who desire to allocate their managed assets to
include real estate exposure.
It is the belief of SMC, supported by the Fund's Board of Directors, that
the Fund's primary mission of maintaining and distributing a high level of
dividend income would be significantly enhanced by allowing the Fund to
concentrate its assets in REITs and not to any extent in utilities. In
addition, SMC believes the possibilities of capital growth appear to be better
in the REIT industry than in the electric utility industry. Accordingly, it is
expected that under normal conditions at least 65% of SMDS' assets will be
invested in REITs.
11
<PAGE>
RECOMMENDATION:
THE BOARD OF DIRECTORS OF STRATTON MONTHLY DIVIDEND SHARES, INC. UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE CHANGE IN THE FUND'S INDUSTRY
CONCENTRATION POLICY.
PROPOSAL NO. 4
CHANGE NAME OF STRATTON MONTHLY DIVIDEND SHARES, INC.
TO
STRATTON MONTHLY DIVIDEND REIT SHARES, INC.
It is the recommendation of SMC, that the name Stratton Monthly Dividend
Shares, Inc., be changed to Stratton Monthly Dividend REIT Shares, Inc. to
reflect more accurately SMDS' intention to concentrate its assets in the real
estate sector. Though SMDS has been investing in REITs for several years, and,
more recently, has been concentrated in REITs through most of 1997, various
mutual fund reporting agencies have not been accurately classifying SMDS as a
fund dedicated to investing in REITs. In addition, potential investors may not
be aware of SMDS' real estate exposure if the present name remains. SMDS might
experience a loss of sales if potential investors, seeking a REIT mutual fund,
did not recognize SMDS as a "REIT fund." SMC stresses that the change in name
in no way reflects any change in the manner in which SMDS is being managed, in
its dividend policies, or in its day-to-day operations. Accordingly, it is
expected that under normal conditions at least 65% of SMDS' assets will be
invested in REITs.
RECOMMENDATION:
THE BOARD OF DIRECTORS OF STRATTON MONTHLY DIVIDEND SHARES, INC. RECOMMENDS
THAT SHAREHOLDERS VOTE FOR THE CHANGE OF THE FUND NAME TO STRATTON MONTHLY
DIVIDEND REIT SHARES, INC.
PRINCIPAL SHAREHOLDERS
On the record date, October 1, 1997, the following shareholders owned of
record more than 5% of the outstanding shares of the respective Fund.
<TABLE>
<CAPTION>
NAME AND ADDRESS PERCENT OWNED
---------------- -------------
<S> <C> <C>
1. SMDS Charles Schwab & Co., Inc. 8.43%
San Francisco, CA
2. SGF Sandmeyer Steel Company 6.54%
Philadelphia, PA
3. SSCY Boston & Co. 29.69%
Pittsburgh, PA
Boston & Co. 15.55%
Pittsburgh, PA
Charles Schwab & Co., Inc. 5.65%
San Francisco, CA
</TABLE>
12
<PAGE>
SHAREHOLDER MEETINGS
Each Fund's Articles of Incorporation does not require that an annual
meeting of shareholders be held each year and the Funds do not intend to hold
annual meetings of shareholders except as required by the 1940 Act or other
applicable law.
SERVICE PROVIDERS
The Funds' investment advisor is Stratton Management Company, which
maintains its principal office at Plymouth Meeting Executive Campus, 610 W.
Germantown Pike, Suite 300, Plymouth Meeting, Pennsylvania 19462. The Funds'
administrator is FPS Services, Inc. and its principal underwriter is FPS
Broker Services, Inc., both of which maintain their principal office at 3200
Horizon Drive, P.O. Box 61503, King of Prussia, Pennsylvania 19406-0903.
OTHER MATTERS
No business other than the matter described above is expected to come before
the Meetings, but should any other matter requiring a vote of shareholders
arise, including any questions as to an adjournment of the Meetings, the
persons named in the enclosed proxy will vote thereon according to their best
judgment in the interests of the Funds.
SHAREHOLDERS WHO WISH TO HAVE THEIR SHARES VOTED ARE REQUESTED TO SIGN AND
DATE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
DATED: OCTOBER 16, 1997
13
<PAGE>
PROXY CARD
The Stratton Funds, Inc. - Stratton Small-cap Yield Fund
Special Meeting of Shareholders
December 9, 1997
The undersigned hereby appoints Patricia L. Sloan and James A. Beers (the
"Proxies"), and each of them, attorneys and proxies of the undersigned, each
with power of substitution and resubstitution, to attend, vote and act for the
undersigned at the Special Meeting of Shareholders (the "Meeting") of Stratton
Small-Cap Yield Fund of The Stratton Funds, Inc. (the "Fund") to be held on
Tuesday, December 9, 1997, at 8:00 a.m., Eastern Time, at the offices of the
Fund's investment advisor, Stratton Management Company, at Plymouth Meeting
Executive Campus, 610 W. Germantown Pike, Suite 300, Plymouth Meeting,
Pennsylvania 19462-1050. The Proxies shall cast votes according to the number
of shares of the Fund which the undersigned may be entitled to vote with respect
to the proposal set forth below, in accordance with the specification indicated,
if any, and shall have all the powers which the undersigned would possess if
personally present. The undersigned hereby revokes any prior proxy to vote at
the Meeting, and hereby ratifies and confirms all that said Proxies, or any of
them, may lawfully do by virtue hereof or thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED BELOW WITH RESPECT TO THE ACTIONS TO BE
TAKEN ON THE FOLLOWING PROPOSALS. IN THE ABSENCE OF ANY SPECIFICATION, THIS
PROXY WILL BE VOTED IN FAVOR OF THE PROPOSALS.
1. ELECTION OF A BOARD OF DIRECTORS.
[_] FOR all nominees listed below [_] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all
nominees listed below
(INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below.)
James W. Stratton Lynne M. Cannon John J. Lombard, Jr.
Henry A. Rentschler Merritt N. Rhoad, Jr. Alexander F. Smith
Douglas J. MacMaster, Jr. Richard W. Stevens
2. RATIFICATION OF THE SELECTION OF TAIT, WELLER & BAKER AS THE FUND'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31,
1997.
[_] FOR [_] AGAINST [_] ABSTAIN
3. TRANSACTION OF SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING,
OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
[_] FOR [_] AGAINST [_] ABSTAIN
(Continued and to be signed on reverse)
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS OF THE FUND AND THE PROXY STATEMENT DATED OCTOBER 16, 1997.
THIS PROXY IS SOLICITED AND PROPOSED BY THE BOARD OF DIRECTORS OF THE FUND,
WHICH UNANIMOUSLY RECOMMENDS THAT YOU VOTE IN FAVOR OF THE PROPOSALS. PLEASE
MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE-
PAID ENVELOPE.
-------------------------------
-------------------------------
Please sign above exactly as your name(s) appear(s) hereon. If a corporation,
please sign in full corporate name by an authorized officer. If a partnership,
please sign in partnership name by an authorized person. Each joint owner
should sign personally. Fiduciaries should give full titles as such.
, 1997
- -----------------------
(Please Date)
