<PAGE>
FIRST QUARTER REPORT - MARCH 31, 1998
[ART APPEARS HERE]
------------------------------
STRATTON
MUTUAL FUNDS
------------------------------
Stability - Startegy - Success
<PAGE>
DEAR FELLOW SHAREHOLDER:
The U.S. economy continues to exhibit strong but stable growth, not overheating
but not showing any trend toward recession. Unemployment has dropped to a new
nine year low. Nominal GDP growth in recent months has been 2.4% in the
manufacturing sector and 3.1% in retail sales. This economy has been trading
lower nominal growth for increased stability of growth. The greatest concern
facing the U.S. economy is the tightness of the labor market. A byproduct of
this tight labor market is that real wages and salaries rose at a 6% level in
the quarter ended February 1998. The Federal Reserve views overheated labor
markets as the number one negative in the inflation picture of the United
States. The U.S. Federal government is running a surplus for the first time in
recent history. Because of the sharp increase in the stock market and the
resulting capital gains taxes, it is expected that the surplus could be as high
as $80 billion for the current fiscal year.
Japan continues to suffer the worst recession in recent history. Industrial
production is declining at a 15% annual rate and bankruptcies are the highest
in thirteen years. Japan's wholesale price index has declined for eleven months
in a row. They not only have a recession, but they have price deflation as
well. Japan still has to deal with the serious banking problems created by the
failure of many mid-size Japanese businesses that were overleveraged and the
resultant bank loans that have gone bad.
U.S. domestic long-term interest rates have ranged from 5.5% to 6.0% and have
shown great signs of stability. Domestic monetary growth has been allowed to
run at a 10% annual rate. The Fed has maintained a neutral policy being
cautious on any moves until the full impact of the Asian situation is known.
The sharp increase in stock prices and excessive price valuations in certain
other asset classes are causing the Fed anxiety. This could precipitate an
early move upward in interest rates. However, we believe that they will resist
that action until a clearer picture emerges about the Asian impact on the U.S.
economy. We expect only a minor move of perhaps 1/4% in interest rates, which
would be symbolic but would not impact the economy to any great extent.
However, it would have serious psychological damage to an over extended stock
market.
Despite the strong economy and the low unemployment levels in the United
States, there are no apparent signs of price inflation either at the wholesale
or the consumer level. The experimental CPI, which measures more modern
spending patterns, is up only 1.5% this year. If the Federal Reserve were
looking only at consumer inflation, there would be no probabilities of any
interest rate hikes.
v v v v
WE ARE PLEASED TO INCLUDE THE FIRST QUARTER REPORT OF THE STRATTON SPECIAL
VALUE FUND WHICH IS BEING MANAGED BY VAN QUEREAU. It should have particular
appeal to investors prepared to take the higher risk level of small-cap stocks
and for accounts that are tax-deferred such as IRAs, defined contribution
plans, and Pension Funds. The current prospectus on all of our Funds, including
information on the Stratton Special Value Fund, is available by calling (800)
634-5726.
Sincerely yours,
James W. Stratton
/s/ James W. Stratton
Chairman
April 30, 1998
<PAGE>
STRATTON GROWTH FUND
- --------------------------------------------------------------------------------
The first quarter 1998 was extraordinarily good for the stock market. Your Fund
had a total return of 11.0%. Over the last three years, the Fund has returned
over 30% annually. These have been extraordinary years for the market and the
wise investor should not expect a continuation of returns at that level. (Note:
We also said this in our 1997 annual report). Our leading industry group once
again, was banking and financial with 23.7% of assets, followed by insurance
services with 13.3% and business services with 8.9%. During the last quarter,
we continued to increase our cash to 10.6% of total assets.
In this quarter, we established three new positions. We bought Baxter
International, a leading distributor of hospital supplies and blood products.
We took advantage of the strength in SmithKline Beecham to eliminate it from
our portfolio and substitute Baxter which sells at a substantially lower price
earnings ratio. We added two companies in insurance, Jefferson-Pilot Corp., a
leading marketer of life and retirement products insurance and Arthur J.
Gallagher, a national broad line insurance brokerage firm. We believe that the
insurance industry is facing consolidation much the same as the banking
industry did over the last five years. We took advantage of price weakness in
Kimberly-Clark to add to our position.
In addition to the sale of SmithKline, we reduced our position in American Home
Products and eliminated the holding of Quaker Oats. This stock had shown very
strong price recovery after the sale of its ill-fated Snapple venture. Our
portfolio turnover level for the quarter was 3.63%, which is at the low end of
the range for growth and income funds. Continued growth in assets to a new all
time high has helped reduce our expense ratio to an annualized 1.06%. This is a
significant improvement over last year's expense ratio.
Total net assets were $66,549,019. Net asset value per share ended the quarter
at $37.06.
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.
LOGO
<TABLE>
<CAPTION>
5/31/96-
9/30/72 73-74 75-76 77-78 79-80 81-82 83-84 85-86 87-88 89-90 91-92 93-94 95-96 12/31/96* 12/31/97 3/31/98
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
10,000 7,630 11,280 14,155 14,597 17,299 24,755 38,310 30,774 31,059 32,464 32,622 42,938 42,654 98,447 109,268
45 43 458 1,217 2,147 3,703 6,347 10,805 11,062 14,859 21,871 26,652 41,919 44,981 58,992 65,476
- - - - - - - 3,857 10,945 22,901 27,527 35,156 60,327 66,844 52,749 58,547
Past performance is not predictive of future performance
*Prior to 12/31/96, SGF had a fiscal year-end of 5/31
</TABLE>
Average Annual Total Return
for the period ending 3/31/98
1 year.....................+47.79%
5 year.....................+21.19
10 year.....................+16.02
15 year.....................+13.96
20 year.....................+15.19
25 year.....................+13.77
2
<PAGE>
FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
Stratton Growth Fund
<TABLE>
<CAPTION>
MARCH 31, 1998 December 31, 1997
- -----------------------------------------------------------
<S> <C> <C>
Total Net Assets $66,549,019 $60,177,483
- -----------------------------------------------------------
Net Asset Value Per Share $37.06 $33.39
- -----------------------------------------------------------
Shares Outstanding 1,795,560 1,802,433
- -----------------------------------------------------------
Number of Shareholders 1,294 1,214
- -----------------------------------------------------------
Average Size Account $51,429 $49,570
- -----------------------------------------------------------
</TABLE>
PORTFOLIO CHANGES FOR THE QUARTER ENDED MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
- ----------------------------------------------------------------
<S> <C>
Baxter International, Inc. (1) American Home Products Corp.
Gallagher (Arthur J.) & Co. (1) SmithKline Beecham PLC ADRs (2)
Jefferson-Pilot Corp. (1) The Quaker Oats Co. (2)
Kimberly-Clark Corp.
(1) New Holdings (2) Eliminations
</TABLE>
TEN LARGEST HOLDINGS MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
- ------------------------------------------------------------
<S> <C> <C>
CoreStates Financial Corp. $ 4,094,844 6.2%
- ------------------------------------------------------------
American General Corp. 3,234,375 4.9
- ------------------------------------------------------------
Thomas & Betts Corp. 3,200,000 4.8
- ------------------------------------------------------------
Pitney Bowes, Inc. 3,011,250 4.5
- ------------------------------------------------------------
PNC Bank Corp. 2,996,875 4.5
- ------------------------------------------------------------
Commerce Bancorp, Inc. (NJ) 2,948,597 4.4
- ------------------------------------------------------------
Du Pont (E.I.) de Nemours & Co. 2,720,000 4.1
- ------------------------------------------------------------
Carpenter Technology Corp. 2,484,000 3.7
- ------------------------------------------------------------
Olin Corp. 2,346,875 3.5
- ------------------------------------------------------------
American Express Co. 2,203,500 3.3
- ------------------------------------------------------------
$29,240,316 43.9%
- ------------------------------------------------------------
</TABLE>
3
<PAGE>
STRATTON MONTHLY DIVIDEND REIT SHARES
- --------------------------------------------------------------------------------
During the first quarter, the Fund provided a total return of 1.7%; this
compares favorably with a total return of -0.54% for all REITs tracked by the
National Association of Real Estate Investment Trusts (NAREIT).
We did make a conscience effort to reduce our exposure in the health care REIT
industry by eliminating National Health Investors and reducing our positions in
four other health care REITs. Our reasoning was that health care appears to
exhibit the slowest growth in funds from operations, only about 5%. There
appear to be more attractive opportunities in other sectors. We added
Associated Estates Realty to the apartment sector. This is a Midwestern
apartment REIT, headquartered in Cincinnati, which suffered from disappointing
earnings comparisons. We were able to buy the stock at what appeared to be a
very attractive yield level and a low price to funds ratio. In addition, we
made additions to nine other holdings which seemed the most advantageous based
on current prices. Our portfolio turnover rate for the quarter was only 3%.
The portfolio changes did not alter significantly the weightings of holdings in
the Fund. We continue to have 21.9% in our largest category, shopping centers.
This is followed by 18.6% in hotels-motels, 17.0% in apartments and 11.7% in
health care facilities, primarily nursing homes. Our cash position was 4.3% at
quarter end.
We continue to seek value within the REIT category. Our average dividend yield
paid on the portfolio securities was 7.65%. The Fund sells at 10.1x price to
Funds From Operations (FFO) for 1998. The FFO is expected to grow at 9.8%
during the year; with payout ratios declining, the dividend growth rate should
be about 6%. Our expense ratio remained at a low 0.98% on an annualized basis.
Total net assets were $98,467,974. Net asset value per share ended the quarter
at $30.27.
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.
LOGO
<TABLE>
<CAPTION>
81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9,113 9,354 10,808 10,667 11,795 14,604 16,320 13,181 12,824 12,861 12,084 14,609 15,701 15,060 13,039 14,383
583 1,641 3,107 4,379 6,627 10,328 13,744 13,041 15,044 17,513 19,388 26,570 31,818 33,590 32,499 39,890
- - - - - - 503 1,043 1,015 1,018 956 1,156 1,242 1,192 1,032 1,138
1/31/96
12/31/96* 12/31/97 3/31/98
14,399 15,879 15,890
43,821 52,959 54,124
1,139 1,257 1,257
Past performance is not predictive of future performance
*Prior to 12/31/96, SMDS had a fiscal year-end of 1/31
</TABLE>
Average Annual Total Return
for the period ending 3/31/98
1 year...................+19.25%
5 year...................+ 6.69
10 year...................+ 9.97
15 year...................+ 8.98
4
<PAGE>
FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
Stratton Monthly Dividend REIT Shares
<TABLE>
<CAPTION>
MARCH 31, 1998 December 31, 1997
- -----------------------------------------------------------
<S> <C> <C>
Total Net Assets $98,467,974 $101,956,224
- -----------------------------------------------------------
Net Asset Value Per Share $30.27 $30.25
- -----------------------------------------------------------
Shares Outstanding 3,253,148 3,370,941
- -----------------------------------------------------------
Number of Shareholders 4,799 4,957
- -----------------------------------------------------------
Average Size Account $20,518 $20,568
- -----------------------------------------------------------
</TABLE>
PORTFOLIO CHANGES FOR THE QUARTER ENDED MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
- -----------------------------------------------------------------------
<S> <C>
Associated Estates Realty (1) American Health Properties, Inc.
Boykin Lodging Co. Developers Diversified Realty Corp.
Colonial Properties Trust EastGroup Properties, SBI
Home Properties of New York, Inc. Excel Realty Trust, Inc.
Hospitality Properties Trust Health Care REIT, Inc.
Innkeepers USA Trust LTC Properties, Inc.
Liberty Property Trust Mid-Atlantic Realty Trust
RFS Hotel Investors Mills Corp.
Storage Trust Realty National Health Investors, Inc. (2)
Tower Realty Trust, Inc. Universal Health Realty Income Trust
(1) New Holdings (2) Eliminations
</TABLE>
TEN LARGEST HOLDINGS MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
- -----------------------------------------------------------------
<S> <C> <C>
Health Care REIT, Inc. $ 4,400,000 4.5%
- -----------------------------------------------------------------
Glimcher Realty Trust 3,609,375 3.7
- -----------------------------------------------------------------
Mid-America Realty Investments, Inc. 3,517,125 3.6
- -----------------------------------------------------------------
Developers Diversified Realty Corp. 3,270,000 3.3
- -----------------------------------------------------------------
Excel Realty Trust, Inc. 3,206,250 3.2
- -----------------------------------------------------------------
Mid-Atlantic Realty Trust 3,133,750 3.2
- -----------------------------------------------------------------
The Price REIT, Inc. 3,024,844 3.1
- -----------------------------------------------------------------
Equity Inns, Inc. 2,933,125 3.0
- -----------------------------------------------------------------
Innkeepers USA Trust 2,783,750 2.8
- -----------------------------------------------------------------
Gables Residential Trust 2,718,750 2.7
- -----------------------------------------------------------------
$32,596,969 33.1%
- -----------------------------------------------------------------
</TABLE>
5
<PAGE>
STRATTON SMALL-CAP YIELD FUND
- --------------------------------------------------------------------------------
Stratton Small-Cap Yield is invested in dividend paying companies all of which
have market capitalizations under $1 billion at the time of purchase.
Currently, the average market capitalization of the stocks in the portfolio is
approximately $500 million. The current number of holdings is 67, which is
similar to the previous twelve months.
Performance for the quarter was slightly below the Russell 2000 Small-Cap Index
as technology stocks outperformed and financial stocks gave back some of their
strong fourth quarter performance. Your Fund registered an 8.2% gain versus a
10.4% gain for the Russell. For the trailing twelve months the Fund is up 48.1%
versus 42.0% for the Russell 2000.
At the end of the quarter, the portfolio was 94% invested with the remaining
cash reserves held in short-term commercial paper. The Fund's industry mix has
remained primarily the same. Industrial stocks now make up our largest sector
weighting at 25% with banking at 18%. Business services are 10% while 8% of the
portfolio is in dividend-paying technology stocks.
The Fund continues to be aided by the consolidation wave in the financial
sector with Mercantile Bancorp's takeover of Firstbank of Illinois this
quarter. Even with the stock market valuations at an all time high, we are
still finding attractive small-cap stocks which meet the value-based parameters
required by the Fund.
The Fund's Directors declared the regular first fiscal quarter dividend at the
rate of $0.07 per share payable on March 23, 1998 to stockholders of record as
of March 13, 1998.
Total net assets were $56,693,959. Net asset value per share ended the quarter
at $24.23.
The graph below illustrates the increase in value of a $10,000 investment in
Stratton Small-Cap Yield Fund with all dividend income and capital gains
distributions reinvested.
LOGO
3/31/96
4/12/93 4-93 3/31/94 3/31/95 3/31/96 12/31/96* 12/31/97 3/31/98
10,000 10,000 10,376 10,352 12,780 13,432 17,976 19,384
- - 158 402 789 1,067 1,633 1,830
- - - - - 813 2,190 2,362
Past performance is not predictive of future performance
*Prior to 12/31/96, SSCY had a fiscal year-end of 3/31.
Average Annual Total Return
for the period ending 3/31/98
1 year....................+48.08%
3 year....................+29.91
6
<PAGE>
FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
Stratton Small-Cap Yield Fund
<TABLE>
<CAPTION>
MARCH 31, 1998 December 31, 1997
- -----------------------------------------------------------
<S> <C> <C>
Total Net Assets $56,693,959 $39,376,948
- -----------------------------------------------------------
Net Asset Value Per Share $24.23 $22.47
- -----------------------------------------------------------
Shares Outstanding 2,339,372 1,752,053
- -----------------------------------------------------------
Number of Shareholders 1,826 1,190
- -----------------------------------------------------------
Average Size Account $31,048 $33,090
- -----------------------------------------------------------
</TABLE>
PORTFOLIO CHANGES FOR THE QUARTER ENDED MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
- -------------------------------------------------------------------
<S> <C>
Boston Acoustics, Inc. CCB Financial Corp. (2)
Carpenter Technology Corp. Marc, Inc.
CCA Prison Realty Trust Standard Motor Products, Inc.
LeaRonal, Inc. (1) Wireless Telecom Group, Inc.
LSI Industries, Inc. (1)
Mobile America Corp. (FL)
Quaker Chemical Corp.
Republic Banking Corp of Florida (1)
Riviana Foods, Inc. (DE)
Wackenhut Corp. Class B (1)
(1) New Holdings (2) Eliminations
</TABLE>
TEN LARGEST HOLDINGS MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
- --------------------------------------------------------------------
<S> <C> <C>
Commercial Intertech Corp. $ 1,480,250 2.6%
- --------------------------------------------------------------------
Eaton Vance Corp. 1,445,625 2.6
- --------------------------------------------------------------------
Primex Technologies, Inc. 1,380,000 2.4
- --------------------------------------------------------------------
Guilford Mills, Inc. 1,327,500 2.3
- --------------------------------------------------------------------
Carpenter Technology Corp. 1,323,000 2.3
- --------------------------------------------------------------------
Boston Acoustics, Inc. 1,270,000 2.2
- --------------------------------------------------------------------
Hunt Corp. 1,228,125 2.2
- --------------------------------------------------------------------
Kuhlman Corp. 1,217,188 2.2
- --------------------------------------------------------------------
Quanex Corp. 1,202,500 2.1
- --------------------------------------------------------------------
American Heritage Life Investment Corp. 1,175,625 2.1
- --------------------------------------------------------------------
$13,049,813 23.0%
- --------------------------------------------------------------------
</TABLE>
7
<PAGE>
STRATTON SPECIAL VALUE FUND
- --------------------------------------------------------------------------------
The Stratton Special Value Fund completed a successful first quarter of
operations, posting a total return of 12.5%. The Fund focuses on under
researched, less well known companies which are selling at below average
valuations of future earnings and cash flow. The average market capitalization
of the investments is $306 million and many of the companies are micro-cap
issues, which do not receive much Wall Street coverage. As these companies grow
and become more visible, the Fund expects to share the rewards of their success
in the form of more generous stock market valuations.
At the end of March, the portfolio was 96.3% invested in 58 common stocks, with
the remaining cash reserves held in short-term commercial paper. Reviewing the
equity holdings, the largest investments are in the consumer (19.4%),
construction (14.6%), insurance (9.0%), technology (7.5%) and metals (6.8%)
areas. Companies in housing and commercial aerospace related companies are
exhibiting particularly strong growth.
The ten largest investments represented 26.7% of the Fund's assets and the
majority of these holdings are direct beneficiaries of the current low interest
rate environment. The portfolio offers solid value, with the common stocks on
average selling eleven times estimated 1999 earnings versus a price/earnings
ratio of twenty-three for the S&P 500 Index. Moreover, these smaller
enterprises should generate superior profit growth over the next several years.
The Fund did not engage in any short sales or options transactions during the
first quarter.
Total net assets were $5,712,552. Net asset value per share ended the quarter
at $16.87.
A $10,000 hypothetical investment, invested on 12/31/97, would have grown to
$11,247.
8
<PAGE>
FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
Stratton Special Value Fund
<TABLE>
<CAPTION>
MARCH 31, 1998 December 31, 1997
- -----------------------------------------------------------
<S> <C> <C>
Total Net Assets $5,712,552 $105,000
- -----------------------------------------------------------
Net Asset Value Per Share $16.87 $15.00
- -----------------------------------------------------------
Shares Outstanding 338,539 7,000
- -----------------------------------------------------------
Number of Shareholders 36 15
- -----------------------------------------------------------
Average Size Account $158,682 $7,000
- -----------------------------------------------------------
</TABLE>
PORTFOLIO CHANGES FOR THE QUARTER ENDED MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAJOR PURCHASES MAJOR SALES
- -----------------------------------------------------------------
<S> <C>
Crossmann Communities, Inc. (1) Barnes Group, Inc. (2)
Donegal Group, Inc. (1) Carpenter Technology Corp. (2)
Duckwall-Alco Stores, Inc. (1) Cavalier Homes, Inc. (2)
Jackpot Enterprises, Inc. (1) Chromcraft Revington, Inc. (2)
Lufkin Industries, Inc. (1) Lincoln Electric Co. Class A (2)
NCI Building Systems, Inc. (1) Monaco Coach Corp. (2)
Raven Industries, Inc. (1) Reltec Corp. (2)
Stanley Furniture, Inc. (1) Software Spectrum, Inc. (2)
Trimble Navigation Ltd. (1) Verisign, Inc. (2)
Velcro Industries NV (1) Woodward Governor Co. (2)
(1) New Holdings (2) Eliminations
</TABLE>
TEN LARGEST HOLDINGS MARCH 31, 1998 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Market Value Percent of TNA
- --------------------------------------------------------------
<S> <C> <C>
NCI Building Systems, Inc. $ 194,000 3.4%
- --------------------------------------------------------------
Landamerica Financial Group, Inc. 176,475 3.1
- --------------------------------------------------------------
Stanley Furniture, Inc. 171,463 3.0
- --------------------------------------------------------------
Donegal Group, Inc. 163,625 2.8
- --------------------------------------------------------------
Churchill Downs, Inc. 153,900 2.7
- --------------------------------------------------------------
Crossmann Communities, Inc. 142,500 2.5
- --------------------------------------------------------------
Duckwall-Alco Stores, Inc. 137,250 2.4
- --------------------------------------------------------------
Velcro Industries NV 136,200 2.4
- --------------------------------------------------------------
American Woodmark Corp. 130,000 2.3
- --------------------------------------------------------------
Lufkin Industries, Inc. 120,250 2.1
- --------------------------------------------------------------
$1,525,663 26.7%
- --------------------------------------------------------------
</TABLE>
9
<PAGE>
STRATTON GROWTH FUND
- --------------------------------------------------------------------------------
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The primary objective of SGF is to seek possible growth of capital for its
shareholders' investments with current income from interest and dividends as a
secondary objective. 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?
Our in-house research of historical data shows that investing in high yielding
common stocks has produced above-average returns while lowering risk and
preserving capital. For Stratton Management Co., the common stock yield is the
primary screen in sorting out the equity stocks that are available. We then
look at additional yield characteristics such as dividend growth rates and
dividend coverage. Finally, we conduct fundamental analysis of important
characteristics such as the earnings and cash flow outlook, management
strengths, and industry competitive position.
WHY ARE DIVIDEND PAYING COMPANIES SO IMPORTANT TO THE FUND'S PORTFOLIO?
Stocks of companies that pay above average dividends tend to be less volatile
than companies that do not distribute dividends to shareholders. Though stock
prices do vary over time, dividend payouts tend to be very consistent. We find
that companies which consistently strive to increase their dividends tend to
offer the potential of above average returns. Steady, stable growth of
principal and dividend income is what SGF hopes to achieve.
WHAT ARE THE PRIMARY INVESTMENT CHARACTERISTICS OF THE PORTFOLIO?
. Average gross portfolio yield target should exceed the S&P 500 by more than
50%.
. Approximately 35 companies are held.
. By combining high dividend yield and underlying low price volatility (Beta),
SGF should have the potential to produce good relative performance in up
markets and superior relative performance in down markets.
10
<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 its 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.
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
REIT's. There are several types of real estate properties that are owned by
REIT's, 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 long-term capital appreciation.
11
<PAGE>
STRATTON SMALL-CAP YIELD FUND
- --------------------------------------------------------------------------------
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The primary objective of SSCY is to achieve both dividend income and capital
appreciation for its shareholders' investments 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 INVESTMENT PHILOSOPHY USED IN MANAGING THE FUND?
This all equity mutual fund invests in the common stocks of small but
established dividend paying companies. The initial screen for stock selection
requires that a stock yields greater than the Small Cap average as measured by
the Russell 2000 Index. We then employ a three step process which focuses on a
stock's fundamental valuation, earnings prospects, and, as a confirming factor,
relative price strength. We feel that companies that exhibit consistent
earnings and that regularly increase their dividends have superior appreciation
potential with reasonable levels of risk.
WHY ARE DIVIDEND PAYING COMPANIES SO IMPORTANT TO THE FUND'S PORTFOLIO?
Our research has shown that dividends tend to dampen stock price volatility.
Small-cap companies that pay dividends tend to have strong financial
characteristics since the quarterly dividend payout requires managements to
exhibit a high degree of financial discipline. The combination of strong
earnings growth and superior earnings stability are crucial elements in meeting
SSCY'S investment objectives.
WHAT ARE THE PRIMARY INVESTMENT CHARACTERISTICS OF THE PORTFOLIO?
. Average gross portfolio yield target should exceed the S&P 500 and be
approximately twice the yield of the average small-cap company.
. Approximately 65 companies are held.
. By combining high dividend yields and underlying low price volatility (Beta),
SSCY seeks to produce good relative performance in up markets and superior
relative performance in down markets.
12
<PAGE>
STRATTON SPECIAL VALUE FUND
- --------------------------------------------------------------------------------
WHAT IS THE FUND'S INVESTMENT OBJECTIVE?
The primary objective of SSVF is capital appreciation. The Fund invests in
securities of companies which represent a value or potential worth which is not
fully recognized by prevailing market prices. These stocks are considered by
the Investment Advisor to be under-researched as measured by the professional,
financial research analysts covering them.
WHAT IS THE INVESTMENT PHILOSOPHY USED IN MANAGING THE FUND?
The investment advisor employs a "value" approach to the Fund's investments,
seeking to identify companies that have experienced fundamental change, are
intrinsically undervalued or are misunderstood by the investment community. We
examine various factors in determining the value characteristics of securities
including, but not limited to, ratios of price to cash flow, price to sales,
price to book, price to revenue and price to earnings. We will also seek out
companies in which there is a large disparity between its market value and our
estimate of its earnings power, assets, or private market value.
WHAT TYPES OF COMPANIES WILL BE CONSIDERED FOR PURCHASE?
The Fund seeks to achieve superior total returns by employing multiple
strategies which include: investing in micro-cap companies, which tend to be
undiscovered and under-researched by Wall Street analysts; investing in under-
valued large cap companies; and participating in initial public offerings.
WHAT ARE THE PRIMARY INVESTMENT CHARACTERISTICS OF THE PORTFOLIO?
. The Fund strives to exploit developing investment opportunities across both
the large and small cap sectors of the market.
. Portfolio turnover may be above-average as the fund manager will attempt to
respond rapidly to changing market conditions.
. SSVF has an aggressive investment policy and as a result, is designed as one
part of a complete investment program.
13
<PAGE>
SCHEDULE OF INVESTMENTS March 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
Stratton Growth Fund
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
COMMON STOCKS - 89.4%
BANKING/FINANCIAL - 23.7%
Comerica, Inc. .......................................... 15,000 $ 1,587,187
Commerce Bancorp, Inc. (NJ).............................. 53,550 2,948,597
CoreStates Financial Corp. .............................. 45,625 4,094,844
First Commerce Corp. .................................... 20,000 1,715,000
PNC Bank Corp. .......................................... 50,000 2,996,875
Summit Bancorp, Inc. .................................... 30,000 1,501,875
Union Planters Corp. .................................... 15,000 932,812
-----------
15,777,190
-----------
BUSINESS SERVICES - 8.9%
American Express Co. .................................... 24,000 2,203,500
Gallagher (Arthur J.) & Co. ............................. 16,000 693,000
Pitney Bowes, Inc. ...................................... 60,000 3,011,250
-----------
5,907,750
-----------
CAPITAL GOODS/TECHNOLOGY - 7.9%
Harris Corp. ............................................ 40,000 2,085,000
Thomas & Betts Corp. .................................... 50,000 3,200,000
-----------
5,285,000
-----------
CHEMICAL - 7.6%
Du Pont (E.I.) de Nemours & Co. ......................... 40,000 2,720,000
Olin Corp. .............................................. 50,000 2,346,875
-----------
5,066,875
-----------
CONSUMER PRODUCTS - 7.8%
Chrysler Corp. .......................................... 52,000 2,161,250
Kimberly-Clark Corp. .................................... 38,000 1,904,750
Springs Industries, Inc., Class A........................ 20,000 1,098,750
-----------
5,164,750
-----------
ENERGY - 3.8%
El Paso Energy Corp. .................................... 10,000 705,625
Mobil Corp. ............................................. 24,000 1,839,000
-----------
2,544,625
-----------
HEALTH CARE - 3.9%
American Home Products Corp. ............................ 13,000 1,239,875
Baxter International, Inc. .............................. 10,000 551,250
Shared Medical Systems Corp. ............................ 10,000 783,750
-----------
2,574,875
-----------
INDUSTRIAL - 4.1%
Cooper Industries, Inc. ................................. 15,000 891,563
Fleetwood Enterprises, Inc. ............................. 40,000 1,862,500
-----------
2,754,063
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
---------- -----------
<S> <C> <C>
INSURANCE/SERVICES - 13.3%
American General Corp. ................................. 50,000 $ 3,234,375
Aon Corp. .............................................. 22,500 1,456,875
HSB Group, Inc. ........................................ 15,000 1,008,750
Jefferson-Pilot Corp. .................................. 5,000 444,688
Lincoln National Corp. ................................. 20,000 1,697,500
Unitrin, Inc. .......................................... 15,000 1,010,625
-----------
8,852,813
-----------
METALS - 5.7%
Carpenter Technology Corp. ............................. 46,000 2,484,000
Phelps Dodge Corp. NY................................... 20,000 1,291,250
-----------
3,775,250
-----------
PAPER - 1.6%
Glatfelter (P.H.) Co. .................................. 60,000 1,083,750
-----------
RETAILING - 1.1%
Penney (J.C.) Co., Inc. ................................ 10,000 756,875
-----------
Total Common Stocks
(cost $30,229,112)..................................... 59,543,816
-----------
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
SHORT-TERM NOTES - 10.4%
Ford Motor Credit Co.
5.65% due 04/03/98..................................... $3,000,000 3,000,000
Chevron USA, Inc.
5.60% due 04/08/98..................................... 3,000,000 3,000,000
General Motors Acceptance Corp.
5.57% due 04/13/98..................................... 900,000 900,000
-----------
Total Short-Term Notes
(cost $6,900,000)...................................... 6,900,000
-----------
TOTAL INVESTMENTS - 99.8%
(cost $37,129,112*).................................... 66,443,816
CASH AND OTHER ASSETS,
LESS LIABILITIES - 0.2%................................ 105,203
-----------
NET ASSETS - 100.00%.................................... $66,549,019
===========
- --------
* Aggregate cost for federal income tax purposes is $37,129,112; and net
unrealized appreciation is as follows:
Gross unrealized appreciation...................................... $29,325,200
Gross unrealized depreciation...................................... (10,496)
-----------
Net unrealized appreciation....................................... $29,314,704
===========
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
SCHEDULE OF INVESTMENTS March 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
Stratton Monthly Dividend REIT Shares
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
COMMON STOCKS - 94.0%
APARTMENTS - 17.0%
Associated Estates Realty................................. 20,000 $ 417,500
Berkshire Realty Co., Inc................................. 150,000 1,800,000
Cornerstone Realty Income
Trust, Inc............................................... 130,000 1,616,875
Gables Residential Trust.................................. 100,000 2,718,750
Home Properties Of New York, Inc.......................... 85,000 2,358,750
Mid-America Apartment Communities, Inc.................... 60,000 1,691,250
Oasis Residential, Inc.................................... 70,000 1,553,125
Town & Country Trust...................................... 153,300 2,615,681
Walden Residential Properties, Inc........................ 80,000 2,020,000
-----------
16,791,931
-----------
DIVERSIFIED - 6.9%
Colonial Properties Trust................................. 80,000 2,545,000
EastGroup Properties, SBI................................. 125,000 2,578,125
Pacific Gulf Properties, Inc.............................. 75,000 1,720,313
-----------
6,843,438
-----------
HEALTH CARE - 11.7%
American Health Properties, Inc........................... 95,000 2,517,500
Health & Retirement Properties Trust...................... 90,000 1,811,250
Health Care REIT, Inc..................................... 160,000 4,400,000
LTC Properties, Inc....................................... 70,000 1,351,875
Universal Health Realty Income Trust...................... 65,000 1,405,625
-----------
11,486,250
-----------
HOTELS/MOTELS - 18.6%
Boykin Lodging Co......................................... 75,000 1,846,875
Equity Inns, Inc.......................................... 190,000 2,933,125
Hospitality Properties Trust.............................. 60,000 2,126,250
Innkeepers USA Trust...................................... 170,000 2,783,750
Jameson Inns, Inc......................................... 160,000 1,910,000
RFS Hotel Investors, Inc.................................. 125,000 2,281,250
Sunstone Hotel Investors, Inc............................. 130,000 2,080,000
Winston Hotels, Inc....................................... 175,000 2,318,750
-----------
18,280,000
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
OFFICE/INDUSTRIAL - 9.1%
Commercial Net Lease Realty, Inc......................... 90,000 $ 1,586,250
First Industrial Realty Trust, Inc....................... 50,000 1,800,000
Liberty Property Trust................................... 85,000 2,284,375
Tower Realty Trust, Inc.................................. 70,000 1,723,750
TriNet Corporate Realty Trust, Inc....................... 40,000 1,532,500
-----------
8,926,875
-----------
OUTLET CENTERS - 4.0%
Mills Corp............................................... 48,700 1,275,331
Tanger Factory Outlet Centers, Inc....................... 90,000 2,621,250
-----------
3,896,581
-----------
REGIONAL MALLS - 3.6%
Mid-America Realty
Investments, Inc........................................ 339,000 3,517,125
-----------
SHOPPING CENTERS - 21.9%
Bradley Real Estate, Inc................................. 85,000 1,774,375
Developers Diversified Realty Corp....................... 80,000 3,270,000
Excel Realty Trust, Inc.................................. 90,000 3,206,250
Glimcher Realty Trust.................................... 165,000 3,609,375
IRT Property Co.......................................... 166,000 1,929,750
Mid-Atlantic Realty Trust................................ 230,000 3,133,750
The Price REIT, Inc...................................... 67,500 3,024,844
Western Investment Real Estate Trust..................... 110,000 1,643,125
-----------
21,591,469
-----------
STORAGE - 1.2%
Storage Trust Realty..................................... 50,000 1,234,375
-----------
Total Common Stocks
(cost $80,002,424)...................................... 92,568,044
-----------
PREFERRED STOCKS - 1.7%
(cost $1,690,334)
Psychiatric Group Preferred Depositary Shares (each
depositary share represents 1/10th of a share of
American Health Properties Psychiatric Group Pfd.
Stock).................................................. 100,000 1,700,000
-----------
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
SCHEDULE OF INVESTMENTS March 31, 1998 (unaudited) (continued)
- --------------------------------------------------------------------------------
Stratton Monthly Dividend REIT Shares
<TABLE>
<CAPTION>
MARKET
PRINCIPAL VALUE
AMOUNT (NOTE 1)
---------- -----------
<S> <C> <C>
SHORT-TERM NOTES - 3.7%
American Express Credit Corp.
5.58% due 04/01/98..................................... $1,098,000 $ 1,098,000
American Express Credit Corp.
5.69% due 04/02/98..................................... 1,400,000 1,400,000
Ford Motor Credit Co.
5.65% due 04/03/98..................................... 1,140,000 1,140,000
-----------
Total Short-Term Notes
(cost $3,638,000)...................................... 3,638,000
-----------
TOTAL INVESTMENTS - 99.4%
(cost $85,330,758*).................................... 97,906,044
CASH AND OTHER ASSETS,
LESS LIABILITIES - 0.6%................................ 561,930
-----------
NET ASSETS - 100.00%.................................... $98,467,974
===========
- --------
* Aggregate cost for federal income tax purposes is $85,330,758; and net
unrealized appreciation is as follows:
Gross unrealized appreciation...................................... $12,990,559
Gross unrealized depreciation...................................... (415,273)
-----------
Net unrealized appreciation....................................... $12,575,286
===========
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
SCHEDULE OF INVESTMENTS March 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
Stratton Small Cap-Yield Fund
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
COMMON STOCKS - 93.9%
BANKING/FINANCIAL - 18.1%
American Bank of Connecticut.............................. 9,300 $ 544,050
Centura Banks, Inc. (NC).................................. 8,000 570,000
CFX Corp. ................................................ 19,000 605,625
Colonial BancGroup, Inc. ................................. 15,000 541,875
Commerce Bancorp, Inc. (NJ)............................... 15,750 867,234
Community Bank Systems, Inc. ............................. 17,000 578,000
Eagle Financial Corp. .................................... 9,900 572,344
First Essex Bancorp, Inc. ................................ 25,000 603,125
First Financial Holdings, Inc. ........................... 18,000 470,250
Firstbank of Illinois Co. ................................ 6,750 302,063
JeffBanks, Inc. .......................................... 15,000 810,000
Medford Bancorp, Inc. .................................... 13,000 574,437
Reliance Bancorp, Inc. ................................... 16,000 620,000
Republic Banking Corp. of Florida......................... 30,000 536,250
SIS Bancorp, Inc. ........................................ 15,000 603,750
Sovereign Bancorp, Inc. .................................. 19,440 353,565
Trans Financial, Inc. .................................... 15,000 648,750
Vermont Financial Services Corp. ......................... 16,000 442,000
-----------
10,243,318
-----------
BUSINESS SERVICES - 9.9%
Dain Rauscher Corp. ...................................... 18,100 1,041,881
Eaton Vance Corp. ........................................ 30,000 1,445,625
Primesource Corp. ........................................ 80,000 890,000
Schawk, Inc. ............................................. 6,300 80,325
True North Communications, Inc. .......................... 30,000 990,000
Wackenhut Corp. Class B................................... 55,000 1,165,312
-----------
5,613,143
-----------
CHEMICAL - 6.5%
LeaRonal, Inc. ........................................... 40,000 1,165,000
Primex Technologies, Inc. ................................ 30,000 1,380,000
Quaker Chemical Corp. .................................... 60,000 1,140,000
-----------
3,685,000
-----------
CONSUMER DURABLES - 5.1%
Hunt Corp. ............................................... 50,000 1,228,125
K2, Inc. ................................................. 23,000 513,188
TB Wood's Corp. .......................................... 50,000 1,146,875
-----------
2,888,188
-----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
--------- -----------
<S> <C> <C>
CONSUMER NON-DURABLES - 6.8%
International Multifoods Corp. ........................... 35,000 $ 1,047,813
Riviana Foods, Inc. (DE).................................. 50,500 1,148,875
Tasty Baking Co. ......................................... 45,000 1,001,250
Velcro Industries, N.V. .................................. 6,000 681,000
-----------
3,878,938
-----------
HEALTH CARE - 3.3%
Morrison Health Care, Inc. ............................... 20,200 416,625
Shared Medical Systems Corp. ............................. 9,000 705,375
West Co., Inc. ........................................... 25,000 753,125
-----------
1,875,125
-----------
INDUSTRIAL - 24.9%
A.O. Smith Corp. ......................................... 25,000 1,118,750
Carpenter Technology Corp. ............................... 24,500 1,323,000
Commercial Intertech Corp. ............................... 62,000 1,480,250
Defiance, Inc. ........................................... 60,000 495,000
Excel Industries, Inc. ................................... 57,000 1,175,625
Florida Rock Industries, Inc. ............................ 40,000 1,142,500
Greenbrier Companies, Inc. ............................... 65,100 1,122,975
Guilford Mills, Inc. ..................................... 45,000 1,327,500
Kuhlman Corp. ............................................ 25,000 1,217,188
LSI Industries, Inc. ..................................... 26,000 591,500
Quanex Corp. ............................................. 40,000 1,202,500
Republic Group, Inc. ..................................... 40,000 815,000
Roanoke Electric Steel Corp. ............................. 48,000 990,000
Standard Motor Products, Inc. ............................ 5,500 105,531
-----------
14,107,319
-----------
INSURANCE/SERVICES - 6.3%
American Heritage Life
Investment Corp. ........................................ 57,000 1,175,625
Donegal Group, Inc. ...................................... 33,333 779,159
Mobile America Corp. (FL)................................. 70,000 831,250
Selective Insurance Group, Inc. .......................... 30,000 806,250
-----------
3,592,284
-----------
REAL ESTATE - 5.2%
Brandywine Realty Trust................................... 16,000 381,000
CCA Prison Realty Trust................................... 25,000 1,035,937
Chateau Communities, Inc. ................................ 9,378 278,996
Colonial Properties Trust................................. 8,000 254,500
EastGroup Properties, SBI................................. 10,000 206,250
Innkeepers USA Trust...................................... 20,000 327,500
Parkway Properties, Inc. ................................. 15,000 489,375
-----------
2,973,558
-----------
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
SCHEDULE OF INVESTMENTS March 31, 1998 (unaudited) (continued)
- --------------------------------------------------------------------------------
Stratton Small-Cap Yield Fund
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
---------- -----------
<S> <C> <C>
TECHNOLOGY - 7.8%
Boston Acoustics, Inc. ................................ 40,000 $ 1,270,000
Helix Technology Corp. ................................ 50,000 1,000,000
Marc, Inc. ............................................ 37,500 560,156
Technitrol, Inc. ...................................... 30,000 1,175,625
Wireless Telecom Group, Inc. .......................... 54,400 394,400
-----------
4,400,181
-----------
Total Common Stocks
(cost $36,872,836).................................... 53,257,054
-----------
<CAPTION>
PRINCIPAL
AMOUNT
----------
<S> <C> <C>
SHORT-TERM NOTES - 5.9%
Ford Motor Credit Co.
5.54% due 04/01/98.................................... $2,000,000 2,000,000
American Express Credit Corp.
5.68% due 04/06/98.................................... 1,350,000 1,350,000
-----------
Total Short-Term Notes
(cost $3,350,000)..................................... 3,350,000
-----------
TOTAL INVESTMENTS - 99.8%
(cost $40,222,836*)................................... 56,607,054
CASH AND OTHER ASSETS,
LESS LIABILITIES - 0.2%............................... 86,905
-----------
NET ASSETS - 100.00%................................... $56,693,959
===========
- --------
* Aggregate cost for federal income tax purposes is $40,222,836; and net
unrealized appreciation is as follows:
Gross unrealized appreciation..................................... $16,682,092
Gross unrealized depreciation..................................... (297,874)
-----------
Net unrealized appreciation....................................... $16,384,218
===========
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
SCHEDULE OF INVESTMENTS March 31, 1998 (unaudited)
- --------------------------------------------------------------------------------
Stratton Special Value Fund
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ----------
<S> <C> <C>
COMMON STOCKS - 96.3%
AUTOMOTIVE - 4.6%
Motorcar Parts & Accessories, Inc. ........................ 6,000 $ 106,875
R&B, Inc. ................................................. 6,000 62,250
Safety Components
International, Inc. ...................................... 6,000 94,500
----------
263,625
----------
BANKING/FINANCIAL - 1.0%
Hanmi Bank................................................. 2,725 55,863
----------
BUSINESS SERVICES - 0.9%
Gallagher (Arthur J.) & Co. ............................... 1,200 51,975
----------
CAPITAL GOODS - 2.0%
Chicago Rivet & Machine Co. ............................... 2,500 116,250
----------
CAPITAL GOODS/TECHNOLOGY - 5.2%
Bell Fuse, Inc. ........................................... 5,000 114,375
Percon, Inc ............................................... 8,000 88,750
SIFCO Industries, Inc. .................................... 1,000 22,875
Specialty Equipment Companies.............................. 3,500 71,312
----------
297,312
----------
CONSUMER PRODUCTS - 19.4%
American Woodmark Corp. ................................... 5,000 130,000
Boston Acoustics, Inc. .................................... 3,000 95,250
Callaway Golf Co. ......................................... 2,000 58,000
Cannondale Corp. .......................................... 4,500 74,531
Koss Corp. ................................................ 7,000 75,250
LaCrosse Footware, Inc. ................................... 5,000 58,750
Stanley Furniture, Inc. ................................... 4,300 171,463
Sturm, Ruger & Co., Inc. .................................. 5,200 107,250
Velcro Industries NV....................................... 1,200 136,200
WD-40 Co. ................................................. 3,000 91,312
Winsloew Furniture, Inc. .................................. 5,000 110,000
----------
1,108,006
----------
CONSTRUCTION - 14.6%
Ameron International Corp. ................................ 1,400 81,813
Crossmann Communities, Inc. ............................... 4,800 142,500
Drew Industries, Inc. ..................................... 7,000 88,375
Engle Homes, Inc. ......................................... 4,200 70,350
M/I Schottenstein Homes, Inc. ............................. 4,400 96,250
Medusa Corp. .............................................. 1,700 103,913
NCI Building Systems, Inc. ................................ 4,000 194,000
Texas Industries, Inc. .................................... 1,000 57,812
----------
835,013
----------
</TABLE>
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ----------
<S> <C> <C>
DISTRIBUTION - 2.8%
Bell Industries, Inc. ..................................... 5,500 $ 77,687
Richey Electronics, Inc. .................................. 8,500 83,938
----------
161,625
----------
ENERGY - 4.3%
Dawson Geophysical Co. .................................... 6,000 95,250
HVIDE Marine, Inc. Cl A.................................... 3,800 66,975
Ultramar Diamond Shamrock Corp. ........................... 2,300 81,075
----------
243,300
----------
ENTERTAINMENT - 6.3%
Anchor Gaming.............................................. 1,200 89,100
Churchill Downs, Inc. ..................................... 2,700 153,900
Jackpot Enterprises, Inc. ................................. 9,000 117,000
----------
360,000
----------
INDUSTRIAL - 5.6%
Cascade Corp. ............................................. 5,700 92,269
Lufkin Industries, Inc. ................................... 3,700 120,250
Raven Industries, Inc. .................................... 5,000 106,250
----------
318,769
----------
INSURANCE/SERVICES - 9.0%
Donegal Group, Inc. ....................................... 7,000 163,625
Landamerica Financial Group, Inc. ......................... 3,900 176,475
Mobile America Corp. ...................................... 7,500 89,062
Motor Club of America ..................................... 5,000 85,625
----------
514,787
----------
METALS - 6.8%
Lindberg Corp. ............................................ 6,000 105,750
Penn Engineering &
Manufacturing Corp. ...................................... 4,200 106,969
RMI Titanium Co. .......................................... 3,500 75,687
Special Metals Corp. ...................................... 6,000 97,500
----------
385,906
----------
REAL ESTATE - 2.5%
RFS Hotel Investors, Inc. ................................. 3,500 63,875
Sunstone Hotel Investors, Inc. ............................ 5,000 80,000
----------
143,875
----------
RETAILING - 2.4%
Duckwall-Alco Stores, Inc. ................................ 9,000 137,250
----------
SPECIALTY CHEMICAL - 0.3%
Quaker Chemical Corp. ..................................... 1,000 19,000
----------
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
SCHEDULE OF INVESTMENTS March 31, 1998 (unaudited) (continued)
- --------------------------------------------------------------------------------
Stratton Special Value Fund
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES (NOTE 1)
--------- ----------
<S> <C> <C>
TECHNOLOGY - 7.5%
Esterline Technologies Corp. ............................. 2,400 $ 101,250
Hummingbird Communications Ltd. .......................... 2,600 89,213
Software Spectrum, Inc. .................................. 2,000 43,500
Trimble Navigation Ltd. .................................. 6,000 106,875
Vari-L Company, Inc. ..................................... 9,700 87,906
----------
428,744
----------
TELECOMMUNICATIONS - 1.1%
Hickory Tech Corp. ....................................... 1,700 62,900
----------
Total Common Stocks
(cost $5,083,473 )....................................... 5,504,200
----------
<CAPTION>
PRINCIPAL
AMOUNT
---------
<S> <C> <C>
SHORT-TERM NOTES - 3.2%
(cost $180,000 )
Ford Motor Credit Co.
5.65% due 04/03/98 ...................................... $180,000 180,000
----------
TOTAL INVESTMENTS - 99.5%
(cost $5,263,473*)....................................... 5,684,200
CASH AND OTHER ASSETS,
LESS LIABILITIES - 0.5%.................................. 28,352
----------
NET ASSETS - 100.00%...................................... $5,712,552
==========
- --------
* Aggregate cost for federal income tax purposes is $5,263,473; and net
unrealized appreciation is as follows:
Gross unrealized appreciation....................................... $ 534,696
Gross unrealized depreciation....................................... (113,969)
----------
Net unrealized appreciation........................................ $ 420,727
==========
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
SGF SMDS SSCY SSVF*
----------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
ASSETS:
Investments in securities
at value
(cost $37,129,112,
$85,330,758, $40,222,836
and $5,263,473, respec-
tively) (Note 1).......... $66,443,816 $ 97,906,044 $56,607,054 $5,684,200
Cash....................... 28,357 3,752 29,968 238,097
Dividends and interest re-
ceivable.................. 83,163 578,422 80,598 2,405
Prepaid expenses........... 5,053 -- -- --
----------- ------------ ----------- ----------
Total Assets............. 66,560,389 98,488,218 56,717,620 5,924,702
----------- ------------ ----------- ----------
LIABILITIES:
Accrued expenses and other
liabilities............... 11,370 20,233 23,661 --
Distributions payable...... -- 11 -- --
Payable for investment se-
curities purchased........ -- -- -- 212,150
----------- ------------ ----------- ----------
Total Liabilities........ 11,370 20,244 23,661 212,150
----------- ------------ ----------- ----------
NET ASSETS:
Applicable to 1,795,560,
3,253,148, 2,339,372 and
338,539 shares outstand-
ing, respectively/1/...... $66,549,019 $ 98,467,974 $56,693,959 $5,712,552
=========== ============ =========== ==========
Net asset value, offering
and redemption price
per share................. $ 37.06 $ 30.27 $ 24.23 $ 16.87
=========== ============ =========== ==========
SOURCE OF NET ASSETS:
Paid-in capital............ $34,461,896 $100,875,068 $40,020,100 $5,164,767
Undistributed net invest-
ment income (loss)........ 278,317 (24,613) (16,057) 1,389
Accumulated net realized
gain (loss) on
investments............... 2,494,102 (14,957,767) 305,698 125,669
Net unrealized appreciation
of investments............ 29,314,704 12,575,286 16,384,218 420,727
----------- ------------ ----------- ----------
Net Assets............... $66,549,019 $ 98,467,974 $56,693,959 $5,712,552
=========== ============ =========== ==========
</TABLE>
- --------
/1/SGF: $.10 par value, 10,000,000 shares authorized; SMDS: $1.00 par value,
10,000,000 shares authorized; SSCY: $.001 par value, 1,000,000,000 shares
authorized; SSVF: $.001 par value, 2,000,000 shares authorized.
* Fund commenced operations on December 31, 1997.
See accompanying notes to financial statements.
21
<PAGE>
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Three Months Ended March 31, 1998 (unaudited)
<TABLE>
<CAPTION>
SGF SMDS SSCY SSVF*
---------- ----------- ---------- --------
<S> <C> <C> <C> <C>
INCOME:
Dividends........................ $ 324,888 $ 1,768,072 $ 233,319 $ 12,397
Interest......................... 77,793 50,954 40,202 2,863
---------- ----------- ---------- --------
Total Income................... 402,681 1,819,026 273,521 15,260
---------- ----------- ---------- --------
EXPENSES:
Accounting/Pricing services fees
(Note 2)........................ 5,000 6,500 3,333 3,030
Administration services fees
(Note 2)........................ 7,500 7,500 5,000 833
Advisory fees (Note 2)........... 109,758 150,040 118,210 7,413
Custodian fees (Note 2).......... 6,298 9,320 5,043 250
Directors' fees.................. 3,965 6,082 -- 311
Legal fees....................... -- -- -- 49
Miscellaneous fees............... 1,355 2,051 875 14
Printing and postage fees........ 1,803 4,804 1,507 837
Registration fees (Note 2)....... 14,492 18,720 18,277 741
Shareholder services fees (Note
2).............................. 8,739 33,800 3,293 293
Taxes other than income taxes.... 1,181 2,151 -- 100
---------- ----------- ---------- --------
Total Expenses................. 160,091 240,968 155,538 13,871
---------- ----------- ---------- --------
Net Investment Income........ 242,590 1,578,058 117,983 1,389
---------- ----------- ---------- --------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS:
Net realized gain on invest-
ments........................... 1,449,828 1,817,791 225,731 125,669
Net increase (decrease) in
unrealized appreciation on
investments..................... 4,853,216 (1,767,638) 3,839,843 420,727
---------- ----------- ---------- --------
Net gain on investments.......... 6,303,044 50,153 4,065,574 546,396
---------- ----------- ---------- --------
Net increase in net assets
resulting from operations..... $6,545,634 $ 1,628,211 $4,183,557 $547,785
========== =========== ========== ========
</TABLE>
- --------
* Fund commenced operations on December 31, 1997.
See accompanying notes to financial statements.
22
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SGF SMDS
-------------------------- ---------------------------
3 MONTHS ENDED YEAR ENDED 3 MONTHS ENDED YEAR ENDED
03/31/98* 12/31/97 03/31/98* 12/31/97
-------------- ----------- -------------- ------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income.. $ 242,590 $ 951,531 $ 1,578,058 $ 5,390,680
Net realized gain
(loss) on invest-
ments................. 1,449,828 4,397,086 1,817,791 (775,344)
Net increase (decrease)
in unrealized appreci-
ation of investments.. 4,853,216 10,314,063 (1,767,638) 11,680,867
----------- ----------- ----------- ------------
Net increase in net as-
sets resulting from
operations............ 6,545,634 15,662,680 1,628,211 16,296,203
----------- ----------- ----------- ------------
DISTRIBUTIONS TO SHARE-
HOLDERS:
From net investment in-
come ($0 and $0.54 per
share, respectively,
for SGF, $0.48 and
$1.54, respectively,
for SMDS)............. -- (924,887) (1,602,671) (5,390,680)
From realized gains on
investments ($0 and
$2.52, per share,
respectively, for
SGF).................. -- (4,096,574) -- --
Return of capital ($0
and $0.38 per share,
respectively, for
SMDS)................. -- -- -- (1,315,783)
CAPITAL SHARE TRANSAC-
TIONS:/2/ (174,098) 4,735,008 (3,513,790) (11,413,251)
----------- ----------- ----------- ------------
Total increase (de-
crease) in net as-
sets.................. 6,371,536 15,376,227 (3,488,250) (1,823,511)
NET ASSETS:
Beginning of period.... 60,177,483 44,801,256 101,956,224 103,779,735
----------- ----------- ----------- ------------
End of period (includ-
ing undistributed net
investment income of
$278,317 and $35,727,
respectively, for SGF,
overdistributed net
investment income of
$24,613 and $0, re-
spectively, for
SMDS)................. $66,549,019 $60,177,483 $98,467,974 $101,956,224
=========== =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
SSCY SSVF
-------------------------- -------------------------
3 MONTHS ENDED YEAR ENDED 3 MONTHS ENDED YEAR ENDED
03/31/98* 12/31/97 03/31/98* 12/31/97**
-------------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income... $ 117,983 $ 311,167 $ 1,389 $ --
Net realized gain on in-
vestments.............. 225,731 1,579,761 125,669 --
Net increase in
unrealized appreciation
of investments......... 3,839,843 8,011,586 420,727 --
----------- ----------- ---------- --------
Net increase in net as-
sets resulting from op-
erations............... 4,183,557 9,902,514 547,785 0
----------- ----------- ---------- --------
DISTRIBUTIONS TO SHARE-
HOLDERS:
From net investment in-
come ($0.07 and
$0.20/3/ per share, re-
spectively, for SSCY).. (158,067) (287,402) -- --
From realized gains on
investments ($0 and
$1.13/3/ per share,
respectively, for
SSCY).................. -- (1,798,916) -- --
CAPITAL SHARE TRANSAC-
TIONS:/2/ 13,291,521 9,869,676 5,059,767 105,000
----------- ----------- ---------- --------
Total increase in net
assets................. 17,317,011 17,685,872 5,607,552 105,000
NET ASSETS:
Beginning of period..... 39,376,948 21,691,076 105,000 --
----------- ----------- ---------- --------
End of period (including
overdistributed net
investment income of
$16,057 and
undistributed of
$23,765, respectively,
for SSCY, undistributed
net investment income
of $1,389 and $0,
respectively, for
SSVF).................. $56,693,959 $39,376,948 $5,712,552 $105,000
=========== =========== ========== ========
</TABLE>
- --------
* Unaudited
** Fund commenced operations on December 31, 1997.
/3/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.
23
<PAGE>
CAPITAL SHARE TRANSACTIONS
- --------------------------------------------------------------------------------
/2/ A summary of capital share transactions follows:
<TABLE>
<CAPTION>
SGF
--------------------------------------------------
3 MONTHS ENDED 03/31/98* YEAR ENDED 12/31/97
------------------------- -----------------------
SHARES VALUE SHARES VALUE
------------------------- --------- ------------
<S> <C> <C> <C> <C>
Shares issued.............. 136,390 $ 4,707,966 237,474 $ 7,625,883
Shares reinvested from net
investment income and
capital gains
distributions............. -- -- 140,717 4,398,631
---------- ------------- --------- ------------
136,390 4,707,966 378,191 12,024,514
Shares redeemed............ (143,263) (4,882,064) (235,166) (7,289,506)
---------- ------------- --------- ------------
Net increase (decrease).. (6,873) $ (174,098) 143,025 $ 4,735,008
========== ============= ========= ============
<CAPTION>
SMDS
--------------------------------------------------
3 MONTHS ENDED 03/31/98* YEAR ENDED 12/31/97
------------------------- -----------------------
SHARES VALUE SHARES VALUE
------------------------- --------- ------------
<S> <C> <C> <C> <C>
Shares issued.............. 40,021 $ 1,203,494 346,467 $ 9,958,751
Shares reinvested from net
investment income......... 29,848 894,287 134,590 3,765,100
---------- ------------- --------- ------------
69,869 2,097,781 481,057 13,723,851
Shares redeemed............ (187,662) (5,611,571) (893,776) (25,137,102)
---------- ------------- --------- ------------
Net decrease............. (117,793) $ (3,513,790) (412,719) $(11,413,251)
========== ============= ========= ============
<CAPTION>
SSCY
--------------------------------------------------
3 MONTHS ENDED 03/31/98* YEAR ENDED 12/31/97
------------------------- -----------------------
SHARES VALUE SHARES VALUE
------------------------- --------- ------------
<S> <C> <C> <C> <C>
Shares issued.............. 672,429 $ 15,204,788 333,827 $ 12,981,282
Shares issued from stock
split..................... -- -- 864,479 --
Shares reinvested from net
investment income and
capital gains
distributions............. 5,133 121,165 39,255 1,672,816
---------- ------------- --------- ------------
677,562 15,325,953 1,237,561 14,654,098
Shares redeemed............ (90,243) (2,034,432) (131,386) (4,784,422)
---------- ------------- --------- ------------
Net increase............. 587,319 $ 13,291,521 1,106,175 $ 9,869,676
========== ============= ========= ============
<CAPTION>
SSVF
--------------------------------------------------
3 MONTHS ENDED 03/31/98* YEAR ENDED 12/31/97**
------------------------- -----------------------
SHARES VALUE SHARES VALUE
------------------------- --------- ------------
<S> <C> <C> <C> <C>
Shares issued.............. 331,539 $ 5,059,767 7,000 $ 105,000
Shares reinvested from net
investment income and
capital gains
distributions............. -- -- -- --
---------- ------------- --------- ------------
331,539 5,059,767 7,000 105,000
Shares redeemed............ -- -- -- --
---------- ------------- --------- ------------
Net increase............. 331,539 $ 5,059,767 7,000 $ 105,000
========== ============= ========= ============
</TABLE>
- --------
* Unaudited
** Fund commenced operations on December 31, 1997.
See accompanying notes to financial statements.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
March 31, 1998 (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 Stratton Funds, Inc. (the "Company") operates as a series,
consisting of Stratton Small-Cap Yield Fund ("SSCY") and Stratton Special
Value Fund ("SSVF"), which began operations on December 31, 1997. The Funds
and Company 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 securities of real estate investment trusts.
The objective of SSCY 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.
The objective of SSVF is to achieve capital appreciation through investment in
securities which represent a value or potential worth which is not fully
recognized by prevailing market prices.
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
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
- -------------------------------------------------------------------------------
March 31, 1998 (unaudited)
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 $16,775,000 of which
$11,277,000 expires in 2003, $4,331,000 expires in 2004 and
$1,167,000 expires in 2005.
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 will also be
designated as a return of capital.
NOTE 2. - During the three months ended March 31, 1998, the Funds paid
advisory fees to Stratton Management Company, (the "Advisor") as follows:
SGF - $109,758; SMDS - $150,040; SSCY - $118,210; SSVF - $7,413. 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 each of these Funds to offset a portion of the cost of
certain administrative responsibilities delegated to First Data Investor
Services Group, Inc. ("Investor Services Group"), a wholly-owned subsidiary of
First Data Corporation.
SSCY pays a monthly fee 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 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"), a widely recognized unmanaged index of common stock prices,
over a rolling 24-month performance period. The Russell 2000 is composed of
the smallest 2000 stocks in the Frank Russell annual ranking of 3000 common
stocks by market capitalization. The Russell 2000 is a widely recognized
common stock index of small to medium size companies. Total return performance
on the Russell 2000 includes
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
- -------------------------------------------------------------------------------
March 31, 1998 (unaudited)
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
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 three months ended March 31,
1998 caused the advisory fee to increase by $32,963.
SSVF pays a monthly fee 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 for SSVF 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. Pursuant to the performance adjustment, the Fund's gross
performance is compared with the performance of the 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 a 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 a Fund outperformed or underperformed the Russell 2000 by 5.00%. The
effect of this performance fee adjustment is that the advisory fee may never
be greater than 1.25% or less than 0.25% of the Fund's average daily net
assets for the preceding month. Due to the complexities of researching and
investing in special value securities, the advisory and incentive fees (if
realized) paid by the Fund are higher than those paid by most other investment
companies. Additionally, the Fund's incentive fee of plus or minus 0.50% is
greater than that of other mutual funds with similar objectives which pay
incentive fees.
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.
Effective February 23, 1998, FPS Services, Inc. ("FPS"), a wholly-owned
subsidiary of FinDaTex, Inc., was acquired by Investor Services Group. Prior
to that, FPS received fees for providing shareholder services, for certain
administrative services and for accounting/pricing services as follows:
<TABLE>
<CAPTION>
SGF SMDS SSCY SSVF
------ ------- ------ ------
<S> <C> <C> <C> <C>
Shareholder Services............................... $7,135 $27,170 $3,293 $ 293
Administration..................................... 5,000 5,000 5,000 833
Accounting/Pricing................................. 3,333 4,333 3,333 3,030
</TABLE>
Pursuant to an agreement between The Bank of New York, (the "Custodian"), and
Investor Services Group, the Custodian reallows a portion of its custody fees
to Investor Services Group for certain services delegated to Investor Services
Group. The amount is not readily determinable. FPS Broker Services, Inc., a
wholly-owned
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS (Continued)
- -------------------------------------------------------------------------------
March 31, 1998 (unaudited)
subsidiary of FinDaTex, 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 $3,000 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 three months ended March 31, 1998 were as follows:
<TABLE>
<CAPTION>
SGF SMDS SSCY SSVF
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Cost of purchases................. $2,034,312 $2,966,621 $13,540,873 $5,580,612
Proceeds of sales................. 2,875,329 6,161,744 1,312,538 622,808
</TABLE>
NOTE 4. - Stock Split
A two-for-one stock split effected in the form of a dividend was issued to
shareholders of record of SSCY as of the close of business on December 17,
1997, payable December 18, 1997.
28
<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>
3 MONTHS
ENDED YEAR 7 MONTHS YEARS ENDED MAY 31,
03/31/98 ENDED ENDED ----------------------------------
(UNAUDITED) 12/31/97 12/31/96 1996 1995 1994 1993
----------- -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 33.39 $ 27.00 $ 27.18 $ 22.35 $ 20.65 $ 20.89 $ 20.55
------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income............... 0.140 0.550 0.312 0.556 0.537 0.510 0.560
Net gains on
securities (both
realized and
unrealized).......... 3.530 8.900 1.298 5.759 2.978 0.665 1.160
------- ------- ------- ------- ------- ------- -------
Total from
investment
operations......... 3.670 9.450 1.610 6.315 3.515 1.175 1.720
------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends (from net
investment income)... 0.000 (0.540) (0.580) (0.540) (0.540) (0.510) (0.565)
Distributions (from
capital gains)....... 0.000 (2.520) (1.210) (0.945) (1.275) (0.905) (0.815)
------- ------- ------- ------- ------- ------- -------
Total
distributions...... 0.000 (3.060) (1.790) (1.485) (1.815) (1.415) (1.380)
------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD................. $ 37.06 $ 33.39 $ 27.00 $ 27.18 $ 22.35 $ 20.65 $ 20.89
======= ======= ======= ======= ======= ======= =======
TOTAL RETURN............ 10.99% 36.06% 6.40% 29.62% 18.61% 5.92% 8.91%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in 000's).... $66,549 $60,177 $44,801 $42,880 $31,719 $25,475 $25,315
Ratio of expenses to
average net assets... 1.06%/1/ 1.11% 1.17%/1/ 1.16% 1.31% 1.34% 1.39%
Ratio of net
investment income to
average net assets... 1.60%/1/ 1.87% 2.08%/1/ 2.28% 2.70% 2.51% 2.76%
Portfolio turnover
rate................. 3.63% 34.40% 20.32% 15.41% 42.54% 49.81% 35.34%
Average commission
rate paid............ $0.0528 $0.0509 $0.0537 N/A N/A N/A N/A
</TABLE>
- --------
/1/Annualized
See accompanying notes to financial statements.
29
<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>
3 MONTHS
ENDED YEAR 11 MONTHS YEARS ENDED JANUARY 31,
03/31/98 ENDED ENDED --------------------------------------
(UNAUDITED) 12/31/97 12/31/96 1996 1995 1994 1993
----------- -------- --------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD.... $ 30.25 $ 27.43 $ 27.40 $ 24.84 $ 28.69 $ 29.91 $ 27.83
------- -------- -------- -------- -------- -------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment
income............... 0.470 1.540 1.630 1.880 1.940 1.870 1.940
Net gains (losses) on
securities (both
realized and
unrealized).......... 0.030 3.200 0.160 2.600 (3.870) (1.140) 2.080
------- -------- -------- -------- -------- -------- -------
Total from
investment
operations......... 0.500 4.740 1.790 4.480 (1.930) 0.730 4.020
------- -------- -------- -------- -------- -------- -------
LESS DISTRIBUTIONS
Dividends (from net
investment income)... (0.480) (1.540) (1.630) (1.890) (1.920) (1.940) (1.940)
Distributions (in
excess of net
investment income)... 0.000 0.000 (0.130) (0.030) 0.000 (0.010) 0.000
Return of capital..... 0.000 (0.380) 0.000 0.000 0.000 0.000 0.000
------- -------- -------- -------- -------- -------- -------
Total
distributions...... (0.480) (1.920) (1.760) (1.920) (1.920) (1.950) (1.940)
------- -------- -------- -------- -------- -------- -------
NET ASSET VALUE, END OF
PERIOD................. $ 30.27 $ 30.25 $ 27.43 $ 27.40 $ 24.84 $ 28.69 $ 29.91
======= ======== ======== ======== ======== ======== =======
TOTAL RETURN............ 1.68% 18.09% 7.12% 18.98% (6.57)% 2.22% 15.18%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of
period (in 000's).... $98,468 $101,956 $103,780 $129,267 $134,066 $165,798 $98,227
Ratio of expenses to
average net assets... 0.98%/1/ 1.02% 1.02%/1/ 0.99% 1.08% 0.99% 1.10%
Ratio of net
investment income to
average net assets... 6.41%/1/ 5.48% 6.94%/1/ 7.42% 7.71% 6.12% 6.74%
Portfolio turnover
rate................. 3.09% 42.47% 69.19% 53.30% 39.50% 19.15% 35.94%
Average commission
rate paid............ $0.0568 $ 0.0505 $ 0.0498 N/A N/A N/A N/A
</TABLE>
- --------
/1/Annualized
See accompanying notes to financial statements.
30
<PAGE>
FINANCIAL HIGHLIGHTS
- -------------------------------------------------------------------------------
Stratton Small-Cap Yield Fund
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
3 MONTHS
ENDED YEAR 9 MONTHS YEAR YEAR FOR THE PERIOD
03/31/98 ENDED ENDED ENDED ENDED 04/12/93/1/
(UNAUDITED) 12/31/97/3/ 12/31/96/3/ 03/31/96/3/ 03/31/95/3/ TO 03/31/94/3/
----------- ----------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGIN-
NING OF PERIOD......... $ 22.47 $ 16.79 $ 15.98 $ 12.94 $ 12.97 $ 12.50
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT
OPERATIONS
Net investment in-
come................. 0.050 0.210 0.260 0.330 0.290 0.220
Net gains (loss) on
securities (both re-
alized and
unrealized).......... 1.780 6.800 1.740 3.040 (0.020) 0.450
------- ------- ------- ------- ------- -------
Total from invest-
ment operations.... 1.830 7.010 2.000 3.370 0.270 0.670
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends (from net
investment income)... (0.070) (0.200) (0.270) (0.330) (0.300) (0.200)
Distributions (from
capital gains)....... 0.000 (1.130) (0.920) 0.000 0.000 0.000
------- ------- ------- ------- ------- -------
Total distribu-
tions.............. (0.070) (1.330) (1.190) (0.330) (0.300) (0.200)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD................. $ 24.23 $ 22.47 $ 16.79 $ 15.98 $ 12.94 $ 12.97
======= ======= ======= ======= ======= =======
TOTAL RETURN............ 8.15% 42.37% 12.84% 26.18% 2.09% 5.51%/2/
RATIOS/SUPPLEMENTAL DATA
Net assets, end of pe-
riod (in 000's)...... $56,694 $39,377 $21,691 $19,592 $14,058 $ 8,257
Ratio of expenses to
average net assets... 1.37%/2/ 1.62% 1.29%/2/ 1.46% 2.12% 2.28%/2/
Ratio of net invest-
ment income to aver-
age net assets....... 1.04%/2/ 1.09% 2.03%/2/ 2.28% 2.36% 1.85%/2/
Portfolio turnover
rate................. 2.97% 26.27% 35.86% 33.50% 30.20% 28.60%/2/
Average commission
rate paid............ $0.0510 $0.0548 $0.0579 N/A N/A N/A
</TABLE>
- --------
/1/Commencement of operations
/2/Annualized
/3/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.
31
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Stratton Special Value Fund
The table below sets forth financial data for a share of capital stock
outstanding throughout the period.
<TABLE>
<CAPTION>
3 MONTHS
ENDED
03/31/98
(UNAUDITED)
-----------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............................. $ 15.00/1/
-------
INCOME FROM INVESTMENT OPERATIONS
Net investment income........................................... 0.004
Net gains on securities (both realized and unrealized).......... 1.866
-------
Total from investment operations.............................. 1.870
-------
NET ASSET VALUE, END OF PERIOD.................................... $ 16.87
=======
TOTAL RETURN...................................................... 12.47%
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)............................ $ 5,713
Ratio of expenses to average net assets......................... 1.40%/2/
Ratio of net investment income to average net assets............ 0.14%/2/
Portfolio turnover rate......................................... 13.93%
Average commission rate paid.................................... $0.0499
</TABLE>
- --------
/1/Commencement of operations 12/31/97
/2/Annualized
See accompanying notes to financial statements.
32
<PAGE>
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------
MINIMUM INVESTMENT
The minimum amount for the initial purchase of shares of the Funds is $2,000
each. 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. Shares may be exchanged by:
(1) written request; or (2) telephone, if a special authorization form has
been completed and is on file with the Transfer Agent in advance. See "How to
Redeem Fund Shares--Additional Information" in the Prospectus for a
description of the Funds' policy regarding telephone instructions.
DIVIDENDS AND DISTRIBUTIONS
SMDS declares and pays monthly dividends from net investment income. SGF first
declares and pays semi-annual dividends from net investment income. SSCY
declares and pays quarterly dividends from net investment income. SSVF
declares and pays annual dividends from net investment income. Each Fund will
make distributions of net realized gains, if any, once a year. Distributions
may be reinvested in additional shares of such fund, see "How to Buy Fund
Shares--Reinvestment of Income Dividends and Capital Gains Distribution" in
the Prospectus.
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 our 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 SSCY are STRGX, STMDX and STSCX,
respectively. A symbol has not yet been assigned to SSVF.
RETIREMENT PLANS
Stratton Mutual Funds has Defined Contribution Plans, Individual Retirement
Accounts and 403(b)(7) Retirement Plans available at no minimum investment.
33
<PAGE>
SHAREHOLDER INFORMATION (continued)
- -------------------------------------------------------------------------------
GENERAL INFORMATION ON THE FUNDS
Requests for a Prospectus and financial information, past performance figures
and an application should be directed to the Funds' Distributor:
FPS BROKER SERVICES, INC.
3200 Horizon Drive, P. O. Box 61503, King of Prussia, PA 19406-0903
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:
FIRST DATA INVESTOR SERVICES GROUP, INC.
3200 Horizon Drive, P. O. Box 61503, King of Prussia, PA 19406-0903
Telephone: 610-239-4600 . 800-472-4266
INVESTMENT PORTFOLIO ACTIVITIES
Questions regarding any of our 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 FIRST DATA INVESTOR SERVICES GROUP, 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 COMBINED PROSPECTUS OF STRATTON MUTUAL FUNDS.
34
<PAGE>
- -----------------------------
STRATTON
MUTUAL FUNDS
- -----------------------------
Stability - Strategy - Success
DIRECTORS
Lynne M. Cannon
John J. Lombard, Jr.
Henry A. Rentschler
Merritt N. Rhoad, Jr.
Alexander F. Smith
Richard W. Stevens
James W. Stratton
OFFICERS
James W. Stratton
Chairman
John A. Affleck
President, Stratton Monthly Dividend REIT Shares
Gerard E. Heffernan
President, Stratton Growth Fund
Frank H. Reichel, III
President, The Stratton Funds, Inc.
Portfolio Manager, Stratton Small-Cap Yield Fund
James Van Dyke Quereau
Vice President
Portfolio Manager, Stratton Special Value Fund
James A. Beers
Vice President
Joanne E. Kuzma
Vice President
Patricia L. Sloan
Secretary & Treasurer
Carol L. Royce
Assistant Secretary & Treasurer
INVESTMENT ADVISOR
Stratton Management Company
Plymouth Meeting Executive Campus
610 W. Germantown Pike, Suite 300
Plymouth Meeting, PA 19462-1050
Telephone: 610-941-0255
TRANSFER AGENTS
& DIVIDEND
PAYING AGENT
First Data Inventor Services Group, Inc.
3200 Horizon Drive, P.O. Box 61503
King of Prussia, PA 19406-0903
Telephone: 610-239-4600
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
- ----------------
NO-LOAD
100% MUTUAL FUND
COUNCIL
- ----------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> STRATTON GROWTH FUND
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 37,129,112
<INVESTMENTS-AT-VALUE> 66,443,816
<RECEIVABLES> 83,163
<ASSETS-OTHER> 33,410
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 66,560,389
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 11,370
<TOTAL-LIABILITIES> 11,370
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34,461,896
<SHARES-COMMON-STOCK> 1,795,560
<SHARES-COMMON-PRIOR> 1,802,433
<ACCUMULATED-NII-CURRENT> 278,317
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,494,102
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 29,314,704
<NET-ASSETS> 66,549,019
<DIVIDEND-INCOME> 324,888
<INTEREST-INCOME> 77,793
<OTHER-INCOME> 0
<EXPENSES-NET> 160,091
<NET-INVESTMENT-INCOME> 242,590
<REALIZED-GAINS-CURRENT> 1,449,828
<APPREC-INCREASE-CURRENT> 4,853,216
<NET-CHANGE-FROM-OPS> 6,545,634
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 136,390
<NUMBER-OF-SHARES-REDEEMED> 143,263
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 6,371,536
<ACCUMULATED-NII-PRIOR> 35,727
<ACCUMULATED-GAINS-PRIOR> 1,044,274
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 109,758
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 160,091
<AVERAGE-NET-ASSETS> 61,370,911
<PER-SHARE-NAV-BEGIN> 33.39
<PER-SHARE-NII> 0.14
<PER-SHARE-GAIN-APPREC> 3.53
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 37.06
<EXPENSE-RATIO> 1.06
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> STRATTON MONTHLY DIVIDEND SHARES
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 85,330,758
<INVESTMENTS-AT-VALUE> 97,906,044
<RECEIVABLES> 578,422
<ASSETS-OTHER> 3,752
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 98,488,218
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 20,244
<TOTAL-LIABILITIES> 20,244
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100,875,068
<SHARES-COMMON-STOCK> 3,253,148
<SHARES-COMMON-PRIOR> 3,370,941
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 24,613
<ACCUMULATED-NET-GAINS> (14,957,767)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 12,575,286
<NET-ASSETS> 98,467,974
<DIVIDEND-INCOME> 1,768,072
<INTEREST-INCOME> 50,954
<OTHER-INCOME> 0
<EXPENSES-NET> 240,968
<NET-INVESTMENT-INCOME> 1,578,058
<REALIZED-GAINS-CURRENT> 1,817,791
<APPREC-INCREASE-CURRENT> (1,767,638)
<NET-CHANGE-FROM-OPS> 1,628,211
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,602,671
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 40,021
<NUMBER-OF-SHARES-REDEEMED> 187,662
<SHARES-REINVESTED> 29,848
<NET-CHANGE-IN-ASSETS> (3,488,250)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (16,775,558)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 150,040
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 240,968
<AVERAGE-NET-ASSETS> 99,784,935
<PER-SHARE-NAV-BEGIN> 30.25
<PER-SHARE-NII> 0.47
<PER-SHARE-GAIN-APPREC> 0.03
<PER-SHARE-DIVIDEND> 0.48
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 30.27
<EXPENSE-RATIO> 0.98
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> STRATTON SMALL-CAP YIELD FUND
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 40,222,836
<INVESTMENTS-AT-VALUE> 56,607,054
<RECEIVABLES> 80,598
<ASSETS-OTHER> 29,968
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 56,717,620
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,661
<TOTAL-LIABILITIES> 23,661
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 40,020,100
<SHARES-COMMON-STOCK> 2,339,372
<SHARES-COMMON-PRIOR> 1,752,053
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 16,057
<ACCUMULATED-NET-GAINS> 305,698
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 16,384,218
<NET-ASSETS> 56,693,959
<DIVIDEND-INCOME> 233,319
<INTEREST-INCOME> 40,202
<OTHER-INCOME> 0
<EXPENSES-NET> 155,538
<NET-INVESTMENT-INCOME> 117,983
<REALIZED-GAINS-CURRENT> 225,731
<APPREC-INCREASE-CURRENT> 3,839,843
<NET-CHANGE-FROM-OPS> 4,183,557
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 158,067
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 672,429
<NUMBER-OF-SHARES-REDEEMED> 90,243
<SHARES-REINVESTED> 5,133
<NET-CHANGE-IN-ASSETS> 17,317,011
<ACCUMULATED-NII-PRIOR> 23,765
<ACCUMULATED-GAINS-PRIOR> 80,229
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 118,210
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 155,538
<AVERAGE-NET-ASSETS> 46,138,778
<PER-SHARE-NAV-BEGIN> 22.47
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 1.78
<PER-SHARE-DIVIDEND> 0.07
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 24.23
<EXPENSE-RATIO> 1.37
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> STRATTON SPECIAL VALUE FUND
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<INVESTMENTS-AT-COST> 5,263,473
<INVESTMENTS-AT-VALUE> 5,684,200
<RECEIVABLES> 2,405
<ASSETS-OTHER> 238,097
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,924,702
<PAYABLE-FOR-SECURITIES> 212,150
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 212,150
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,164,767
<SHARES-COMMON-STOCK> 338,539
<SHARES-COMMON-PRIOR> 7,000
<ACCUMULATED-NII-CURRENT> 1,389
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 125,669
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 420,727
<NET-ASSETS> 5,712,552
<DIVIDEND-INCOME> 12,397
<INTEREST-INCOME> 2,863
<OTHER-INCOME> 0
<EXPENSES-NET> 13,871
<NET-INVESTMENT-INCOME> 1,389
<REALIZED-GAINS-CURRENT> 125,669
<APPREC-INCREASE-CURRENT> 420,727
<NET-CHANGE-FROM-OPS> 547,785
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 331,539
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 5,607,552
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 7,413
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 13,871
<AVERAGE-NET-ASSETS> 4,018,868
<PER-SHARE-NAV-BEGIN> 15.00
<PER-SHARE-NII> 0.004
<PER-SHARE-GAIN-APPREC> 1.866
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.87
<EXPENSE-RATIO> 1.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
